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Free basic entrepreneurship advice in South Africa
Five qualities of entrepreneurs
In this hub, we are going to address this through a practical step by step approach. Entrepreneurship is not for everyone. So, as a point of departure, we are going to set out the qualities that characterise successful entrepreneurs.
Five qualities of entrepreneurs
1. An unwavering passion.
Everyone says, "Find your passion." But that's easier said than done. Being an entrepreneur demands commitment and dedication -- more than most jobs do. If you're ambivalent or mildly enthused about your product or service, that's not going to sustain you through the highs and lows that will inevitably occur. If you find something you love enough to want to share it with others, that love will fuel and give you purpose.
Successful entrepreneurs are always looking for solutions and new ways to overcome societal challenges and fulfil needs. They always keep an open mind and never forget how much they can learn from others. They acquire new skills and competencies and recruit competent people to advance their visions. They ask for advice. They're flexible. They soak up the best practices around them.
Entrepreneurs thrive on challenges. They know that diamonds are formed under pressure and do not lose focus on their stated vision. They do not shy away from exploring unfamiliar fields and even pioneering new ones. But with a clear understanding of the parameters and methods historically employed. Knowing what's been done before can help identify how it can and should be done more easily and effectively. In the process, creating a network of support and mentorship relationships that can be beneficial in future endeavors. Such relationships may prove invaluable when times are tough.
4. Goal oriented.
Successful entrepreneurs are always focussed on the ultimate goal of the undertaking. They are not distracted by the complexities and evolving phases of the project. The goals may be constantly evolving, but if you don't know where you want to go, chances are, you won't get anywhere. So they keep the goals paramount in their awareness, even though they may be flexible in the methods of achieving them.
5. Constant stimulus.
Successful entrepreneurs are constantly looking for new challenges. Innovating is ano addiction with them. Finding a solution to a problem never means the end of their passion. But ano impetus and motivation to come up with newer and better solutions. It is what defines them, restless need for constant improvement and innovation.
These are the basic qualities. We will now look at the five steps to starting your business.
Five steps to start your business
Five steps to start your business
1. Choose a business idea.
You first have to brainstorm as many ideas as you can and write them down. They should be as diverse as you can think, be creative. You can then review each by asking the following questions:-
• Is this business something I like doing?
• Is this business something I am passionate about?
• Do I have the necessary skills, qualifications and experience to run this business?
• Can I get training and assistance and where?
• Can I recruit and retain the necessary skilled, qualified and experienced personnel?
• What are my strengths and weaknesses related to each idea?
These questions and others should help you to eliminate those ideas that are not suited to you. Your list should be down to two or three viable ideas.
2. Find out if there is a market for your business.
A business sells goods or services to a market to generate a profit. Thus if you have no market for your product or service, you have no business. It is therefore vital that you understand the potential customers for your business. You do this by conducting market research. This means asking a sample of your potential customers questions that will help you find out if you have a market.
But to focus your sample and research, you need to ask yourself some questions. For each of your remaining ideas answer;-
• Who needs your products or services?
• Are they prepared to pay for them?
• Who else provides similar goods or services?
• Where are the potential customers situated?
• Are they accessible to you?
• When do they need the goods or services?
• What form do they need them in?
Armed with the answers to the above questions, you can now select a sample of your potential market. You then need to go out and interview them to get a feel for your potential market. Develop a set of direct and focussed questions that you can ask to elicit useful information for your business ideas. These are some of the questions you might ask:-
• Do they need this service or product?
• What do they like about it?
• What problems do they have with it?
• What could make it better or more appealing?
• How often would they buy the improved product or service?
• How much would they pay for the improved product or service?
• How would they be prepared to pay? Credit, cash or terms?
• Where would it be most convenient for them to buy the product or service?
The answers to these questions should not only help you assess the viability of your idea, it should also guide you in the planning of your business. Discard any idea that has no market potential, its a dead end.
3. Resources necessary.
Now that you have assured yourself that there is a market, you need to find out the resources needed to start your business. There are basic necessities like time, transport, telephone and computers. And then there are more specific needs like tools, equipment, employees and location of your business. You need to determine how much time and commitment you will give to the business. Questions that can assist you in this are:-
• Will I do this business part time or full time?
• Will you be able to commit to the demands of your business?
• Do you need transport to deliver stock, customers or goods?
• Do you need premises for selling, storage or marketing? Will you build, lease, rent or buy existing?
• Do you need equipment to produce or deliver your service? Will you buy, lease or rent it?
• Do you have access to the skilled personnel who will assist in production or delivery of service?
• Will you need training and how will you access it?
This will give you a picture of how practical it is to start and run your business. And it would clarify the viability of your business. Discard any idea that seems to need impractical resources.
4. Other relevant factors.
You now need to look at all factors that might impact on the success of your venture. These could be challenges from family, the environment, compliance issues with laws. They may also include competitive strategies, quality, customer service and access to finance among others. Ask yourself some of these questions:-
• What are the legal requirements for starting this business?
• What are the ongoing legal compliance issues of running this business?
• Do I have the funds required to start this business? If not, how will I access them?
• What are the barriers to entry in this industry? How will I overcome them?
• What is the state of competition in this industry? What will be my business' competitive edge?
• Will my family cope with a drop in living standard, until the business starts making a profit?
• How will they cope with the business taking your time away from family?
These are some of the questions that can help you refine your idea. They are by no means exhaustive.
5. Costing and projections.
Money is the lifeblood of any business. People start businesses to make money in the form of profits. But it costs money to start a business and maintain it. The trick is to make sure that the input costs are less than the income made from the sale of products or services. This difference is your profit, without which your business is doomed to failure. So before investing any more time or money on a business idea, you need to check if it will successfully make profits. You need to conduct realistic forecasts of the following headings:-
• Start up costs.
These are usually the once off capital and equipment costs. But you also need to include costs for the inputs of the first month, before you start making an income. You need to list all likely costs to start your business, no matter how small. This will give you a clear picture of the cost of starting your business. Look at the following:
> What is the cost of registration of the business?
> What is the deposit on premises if renting or leasing, or cost of building or buying?
> What is the cost of equipment or machinery? How much deposit is needed, if renting, leasing or buying on hire purchase?
> What is the cost of initial stock or inputs for the first month of business?
> What is the cost of wages and salaries, including yours, for the first month?
> What are the transport, stationery, water, electricity connections, etc. costs for the first month?
> What are other costs and how much are they?
> What are the costs of financing, interest on loans, my business?
Answering these questions and more will give you a clear picture of the cost of starting out in your line of business. Make sure you don't guess them, but go out and get proper quotations from suppliers.
• Monthly running costs.
These are the recurring monthly costs for inputs necessary for the production of your income. You should be careful not to leave anything out as it could mess up your budgets and eat into your profits. You need to ask:-
> How much will I pay for rent or bond repayment each month?
> How much will I pay in instalments and interest on my loans?
> How much will I pay in maintenance for my equipment and machinery?
> How much will I pay in utilities,- water, electricity, telephone,- bills?
> How much will I pay in wages and salaries?
> How much will I pay for transport, stationery and other costs?
Answers to these questions should shed light on the costs associated with the day to day running of your business.
• Monthly Income.
This is the money that comes into the business from selling products or providing services. This is the indicator of the viability of the business. It is tempting to inflate this number when making projections. Do not succumb to that temptation as it would be disastrous for your business. You need to use the information sourced from your market research. You also need to look at the size of the market and realistically estimate your share of it. It would make your estimation easier to first calculate the cost of producing one unit of your product, or time unit of service provided. Do this by dividing your monthly costs by the days of the month, to get your daily costs. Then divide your daily cost by the number of units produced per day. This will give you your unit cost. You can use this to set the range of the unit price, by adding your markup to the unit cost. This should be viewed in light of information from your market research answer, on how much customers are prepared to pay. Another factor is if you are going to compete on price. Ask yourself:-
> How much will I charge for a unit of product or service?
> How many units will I sell per month?
> What is my unit price multiplied by my monthly sales?
This should give you an estimate of your monthly income. Bear in mind that sales will be slow in the initial stages of your business, as you will need to establish a customer base. So it might take a few months for you to break even, reach a point where costs are equal to sales. So you have to estimate the time for your market share to grow.
This is the reason why people start and operate businesses. The generation of as much profit as possible is the engine that drives business. If a business does not make a profit, it will fail. So it is of paramount importance that a business be profitable, in order to be viable. For this reason you must check the profitability estimate for your business idea.
By subtracting your estimated or projected monthly costs from your projected income, you will find out if it is a profitable business idea. If the difference is positive, your idea is viable. If it is negative, then it is not viable. You should bear in mind though, that a business might initially not make a profit. This is at the stage when it is still establishing a customer base, in the first few months. But as the number of customers grows, it will break even. Break even, is the point where costs are equal to income. It would then start making profits and grow.
If any of your business ideas show no profits, discard them. The one that shows profits is the one business you should start. As a starting point for your business, you need to draw up a sound business plan. The saying goes, "if you fail to plan, then you plan to fail". Some of the answers we have generated will be crucial to your business planning. We will look at drawing up a business plan next.
List your strengths and how you are going to capitalise on them.
List your weaknesses and how you are going to overcome them
List the opportunities and how you are going to maximise them.
List the threats and how you are going to deal with them.
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Forms of business
There are various forms of business ownership in South África. You should choose the one that suits you:-
1. Sole proprietorship.
• This is where a single person owns the business in his own name or under a trade name.
• It is the cheapest and easiest business to set up.
• The business and the owner are one, there is no distinction between personal and business assets.
• There is no distinction between business and personal debts/liabilities, therefore if business fails to pay, the owner's assets may be attached.
• The owner does not share profits with anyone.
• But if the owner dies, it is the end of the business.
• This is where 2-20 people who share the same interests go into business together.
• They usually draw up a legally binding partnership agreement.
• It is easy and cheap to set up, like a sole proprietorship.
• The business and the partners are one, no distinction with personal assets.
• The partners are personally liable for the debts of the business.
• Profits are shared between the partners according to the partnership agreement.
• The death of one partner dissolves the partnership.
3. Close corporation.
You can no longer register new close corporations. Those that are already existing will continue existing. Thus we will not discuss them in any length. Only that they were made up of 1-10 people, had legal personality and limited liability.
4. Private company.
• It is formed by 1-50 people.
• It is registered with the Registrar of Companies, by submitting a Memorandum and Articles of association.
• The private company is a legal person, separate from its shareholders.
• It is managed by a minimum of 1 director.
• The shareholders are not personally liable for the debts of the company.
• Profits are shared on a dividend per share basis.
• The shares can be sold or transferred, therefore the death of a shareholder does not affect the status of the company. Shares can be willed to spouse or children.
5. Public company.
• It is formed by a minimum of 7 people and there is no limit on the number of shareholders.
• It is also registered with the Registrar of Companies, by submitting a Memorandum and Articles of association, as well as a Prospectus.
• The public company is a legal/juristic person, separate from its shareholders.
• It is managed by a minimum of 2 directors, appointed by shareholders at an AGM.
• Shareholders are not personally liable for the debts of the company.
• Shares are publicly traded, thus the death of a shareholder has no effect on the status of the company.
• Profits are distributed on a dividend per share basis.
• It is an autonomous association of, not less than 5, people united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.
• It is registered with the Registrar of Co-operatives by submitting a Constitution and other Relevant documents proving the founding and membership.
• It is a legal person separate from the members of the co-operative.
• It is managed by a Board of Directors elected by the members.
• Membership is by application and the death of a member has no effect on the status of the co-operative.
• The co-operative does not make a profit, it makes a surplus.
• The surplus is allocated to developing the co-operative by setting up reserves, part of which is indivisible, benefitting members in proportion to their transactions and supporting other activities approved by the membership.