For many entrepreneurs, starting a business is not the start of the journey – often, the formal launch of a company comes after years (and years) of planning, dreaming, brainstorming, researching, fundraising, and saving. Sadly, according to the University of the Western Cape, South Africa has a higher start-up failure rate – 70 – 80% of small businesses fail in the first five years – than elsewhere in the world.
Such a statistic can make the very idea of trying to start a business in South Africa seem like an impossibility, because the challenges go beyond navigating the legal and regulatory landscape, securing funding, building a customer base in a competitive market, and ensuring ongoing operations and productivity in the face of persistent load shedding.
While it can seem incredibly overwhelming, it’s important that those with the vision, knowledge, resources, and commitment, do start their businesses, because the growth and success of SMEs in particular is fundamental to the future of the nation. This is, in large, because SMEs currently represent more than 98% of business, employing between 50% – 60% of the country’s workforce across all sectors.
Sandra Beswick, Senior Business Rescue Practitioner and Director of Fluence Capital, says: “All things considered, 2022 can be said to have been something of a year of recovery, with more than 60% of South African businesses reporting growth in spite of the many challenges that arose. When it comes to looking ahead for aspiring entrepreneurs, it’s wise to do so with an awareness of requirements and trends, challenges and opportunities, if a new company is ever to succeed.”
According to Beswick, there are five key considerations for starting a business during challenging times as follows:
- Have a business plan – and review it regularly. “Crafting a detailed business plan is a must for any business and the perfect starting point because it requires you to do research into your target market, possible competitors, financial projections, operational details, and marketing strategies,” says Beswick. “Given the many challenges faced by South African businesses, however, it’s important that your business plan is regularly reviewed to ensure you and your business remain adaptable in an ever-changing – and increasingly challenged – context.”
- Tick the legal boxes. Dreams and goals aside, there is a fair amount of red tape involved in starting a business in South Africa. While specific legal requirements differ depending on business structure, size, and industry, there are a few key requirements, such as establishing what business structure you will use (i.e., sole proprietorship, partnership, proprietary limited company, public company, personal liability company, or non-profit company); setting up your tax reference number and registering for appropriate taxes; getting the right licenses and permits to operate; complying with labour laws and taking note of environmental regulations; and maintaining clear financial records from day one. “If you aren’t certain what you need to do for some of these, it’s best to consult an experienced professional to advise you,” says Beswick.
- Managing your cash flow is as important as finding funding. The number one reason most start-ups in South Africa fail is that they run out of cash, which means managing your cash flow correctly is one of the most important things you can do. While there also are a variety of different funding options for South African entrepreneurs to explore, such as government grants, loans, and equity financing, it’s important to take heed before signing any documents. You need to ensure you properly understand the costs involved, the payment terms, if there are any, and how best to manage your cash flow on an ongoing basis.
- Know your market. “South Africa is a highly competitive economy for businesses to take part in, which means it’s important for prospective business owners to conduct thorough research to identify the target market, and understand their needs,” says Beswick. Not only will this enable you, as the business owner, to tailor your products and services to meet these needs, but it can also give you a competitive advantage if you can identify an area of service that’s currently not met, or not met efficiently at present, by your competitors.
- Know when you need help. Starting and growing a successful business in South Africa won’t take a day or two – it may not even take a year or two. Realistically, it will involve a lot of time and a lot of hard work. Often, throughout this process, you may require the assistance and guidance of experts, such as legal advisors, funding experts, and business turnaround practitioners. “The key to ensuring you get the help you need in the hour you need it, is to stay informed about where your business is at. By keeping your finger on the pulse, and continually analysing your progress, you will be able to reach out for assistance timeously to ensure any intervention that is required is more likely to be a success,” says Beswick.
“Often, entrepreneurs and business owners will talk about how lonely a journey it can be to build their business from idea to reality. By taking these five factors into consideration, and consulting with the right people to offer advice and guidance, you place yourself in the best position to eliminate possible risks and obstacles that you may face on your journey towards entrepreneurial success,” says Beswick.
Also see: Steps to take before leaving your 9-5 to pursue your passion
