Setting up a business
Congratulations! You’ve been inspired to set up your own small business and be mistress of your own destiny. It’s an exciting time – and it can be fun, too, if you know what to do, how and when to do it, and what pitfalls to watch out for.
The red tape and the work required to get started can occasionally make your head spin, but be inspired by the success of other businesswomen, many of whom are mothers just like you. And like you, they had to start somewhere. To inspire you, see this article on South Africa's 30 wonder women.
Now that you are inspired – read the information below to find out how you can start your own business.
Basic steps to starting a small business
Today, many women run their own businesses and many serve as directors of big companies. There is no reason why you cannot join their ranks.
- Market research: Do your homework. Conducting market research will allow you to determine if there is a demand for your product. Read our Market Research article for more information on how to do this.
- Business plan: One of the most important steps when starting a business is writing a Business Plan.
- Accountant: It’s always a good idea to get advice from an accountant before starting a business. Look in the Yellow Pages or ask other businesspeople to recommend a good one that specialises in your industry and/ or the type of business you wish you start.
- Finance: Make sure you have enough money to finance your small business during start-up. If you don’t already have the money to get started you may decide to borrow money from friends, family or a commercial lender, such as your bank. Alternatively, you may find someone who is willing to invest money for a share of eventual profits.
- Paperwork: Contact the Department of Trade and Industry and SARS to find out which documents you need to submit for registration of your business.
- Business Registration: The South African Government has made a wide range of support services available to entrepreneurs in South Africa through various state departments and support agencies such as:
Various other donor programmes
Services offered may range from registering a business, registering and paying tax, seeking finance, searching for resources, signing up for training, mentoring or coaching courses etc.
- Name your business: Put some thought into what your business, products and services should be called. For some great tips, read our article on Naming a Business.
- Register your business name: If you’re not planning to trade under your own or your partner’s name, you must register a Business Name.
- Open a bank account: Check out who offers the best rates and benefits for cheque and savings accounts. It’s best to go to your local branch so you can talk to someone in person and build on a working relationship. But shop around until you get the best deal – remember, it is your business.
- Protect your idea: Ensure that you’re the legal owner of your idea. Read our article, Protecting your Idea, for more information.
- Marketing and Networking: Once you have the basics sorted, you can move on to the more exciting things such as Creating a Website, Blogging and Social Media, and Networking and Marketing.
Which business structure is right for you?
When it comes to choosing the right business structure, it’s best to talk it over with your accountant and do a little research before making a decision. In South Africa these are the different type of business entities to choose from:
- Sole Proprietor
- Private Company – (Pty) Ltd
- Personal Liability Company – Inc
- Public Companies – Ltd
- Closed Corporations – however, since 2011 with the new Companies Act, no new Closed Corporations have been registered
- External company (branch of a foreign company)
Let’s take a quick look at what each one entails:
This is the simplest of business entities and, since you are thinking about starting a business from home, this is a good option for you.
- A sole proprietor trades under their own name,e.g. Jane Smith Accountants
- There is no separation of assets and liabilities. If you choose this route, you must remember that there is no separation between what is your business’ assets/ liabilities and what is yours.
- Because there is no separation between your personal assets and liabilities and those of your business – you will not enjoy limited liability.
- You will benefit from all the profits and assets accumulated through your business, but will also be held personally liable for any debts that the business incurs.
The other types of business entities, unlike sole proprietorships, are all distinct juristic persons. In other words, there is a separation between the assets and liabilities of the owners/ shareholders, and those of the company. In other words, they enjoy limited liability.
- Based on the same principles as a sole proprietorship, this structure allows you to have up to 20 partners who share responsibility, skills and liability.
- A partnership requires a contract to formalise each person’s contribution to the business, their responsibilities, proﬁt share, means of resolving disputes, disability/ death insurance and what procedure will be followed if the partnership changes or is dissolved.
- Finding funds for a sole proprietorship or partnership depends on the security that the individual owner/ partners are able to provide.
Private Company, or (Pty) Ltd, e.g. Smith Accounting Services (Pty) Ltd.
- It may be founded and managed by just one director (known as a One-Man Company),
- There must be at least one shareholder with a maximum of 50. However, the new Companies Act 71 of 2008 does not set a limit on shareholders for this type of business.
Personal Liability Companies (Inc.)
- Both the current and previous directors may be held jointly and severally (separately) liable for any debts and liabilities, which occurred during their time in office.
- This form of business enterprise is most often used for firms of professionals, such as doctors, lawyers and accountants, e.g. Smith, Pienaar and Sithole Accountants Inc.
Public Companies (Ltd.)
- These companies issue shares, and are often listed on the stock exchange.
- Public companies are liable to their shareholders.
- A Board of Directors run the show.
- E.g. Jane Smith makes her private company a public one. She sells shares on the Johannesburg Stock Exchange and renames her business enterprise Smith Enterprises Ltd.
Some other things that will influence your choice of business format
Financing: Certain rules need to be followed when it comes to financing and these vary with each type of business. A sole proprietorship, for instance, may only raise finance from a loan, while a private company can sell shares in the company to a financier.
Administration costs: Sometimes the costs of running a certain types of business can cost you more money in admin fees than it's worth. On the one hand, a sole proprietorship will cost you nothing extra, while a Private Company comes with a heavy administration burden.
Tax considerations: The tax implications for the various business entities differ greatly. Visit the SARS website for more.
Business Continuity: What will happen to your business at your death; will it keep running, go to your family or have to be sold? The various legal entities have differing processes. For example, a partnership dissolves on the death of one of the partners.
What happens if you decide to sell? The format of your business will also impact on the condition under which you can sell your business. For example, in a partnership, you will only be able to sell the business assets and not the entity as such.
Insolvency: This is obviously not a situation you plan for your business, but stuff happens and it's important to consider all the implications. If you do have to declare bankruptcy, what will happen to your personal assets? Can they be seized to cover the debts of the business? You don't want to be in a position where you not only lose your business, but everything you own as well!
As you can see, there's a lot to think about before you get your business off the ground. Do your research and be sure to speak to some experts in this area. For more information related to starting your own business, view our articles on How to Write a Business Plan and Naming a Business.
Below are many useful links to help motivate and inform you on how to start your own business – Good Luck!
- Department of Trade and Industry (dti)
- dti - Development Incentives
- Businesswomen's Association of South Africa
- Basics of starting up your own business
- Small Enterprise Development Agency
- Small Enterprise Finance Agency
- Companies and Intellectual Property Commission
- South African Revenue Services (SARS)