Money makeover | How to start a business
A good idea doesn’t make a business. Running a successful business requires good planning and hard work, written Maya Fisher-French.
A business plan is arguably the most important job you can do before starting your business.
“The biggest challenge was to develop the business plan. I told my advisor, Theunis, when he gave me the model that he didn’t look so user-friendly; it was 20 pages long! laughs Lwandile, who, along with his wife, plans to start a cleaning business that will help employ family members. It’s a great initiative and a way to help family members help themselves.
Although Lwandile found it relatively easy to complete the marketing sections, once it came to the financial aspects things got more difficult.
“We had to estimate the price we could charge and then determine when the business would be profitable. It was a challenge, even with a math background, ”says Lwandile, who once owned a business.
In 2012, he quit his corporate job to start his first business.
READ: Developing a Plan to Protect Your Legacy
“After winning a short course at Wits Business School, I thought I was ready to start a business. The parts that I enjoyed were the ideation, creation and marketing. This is what I covered in the business plan. I left out the appendix that covered the financial section. Come to think of it now, that’s why the business didn’t do well. Although it was a good plan – without the finances it didn’t work.
Lunga Madonela, Area Manager for Relationship Banking at Absa, explains that this is a common theme for many entrepreneurs – they have great ideas, but often don’t like working with numbers.
“A good idea doesn’t make a business. You need to know your own business both operationally and financially. We see business owners asking for financing, but when we ask them basic financial questions, they say, “Talk to my accountant. “I wouldn’t trust someone who doesn’t know their business plan,” says Madonela, who adds that as a business owner you need to understand basic accounting terms such as profit margins and ebitda (earnings before interest, taxes, depreciation and amortization).
He advises :
Spend time on Google or YouTube to make sure you know at least the questions a bank will ask you about your finances. Have a credible accountant who can explain everything about the business plan and the company’s financial statements, and make sure you understand them before going to present them to a potential financier.
Madonela says that a basic understanding of corporate finance is an essential skill for all business owners, especially in the small to medium business space, where they wear many hats.
Lwandile worked with Absa’s advisor Theunis Prinsloo to develop his business plan, and these are the key areas to focus on:
Understanding the competition and demand
Prinsloo’s first tip in Lwandile was: “Before you buy mops and uniforms, test the water first. How big is the need and what is the need in the area for cleaning services? “
Lwandile wants to concentrate his activities in Vanderbijlpark in the south of Gauteng, because that is where his in-laws live. However, he is unsure of the market demand. He did his research and found that there are no established cleaning companies in the area. It can be a positive or a negative factor. There may be insufficient demand or it may be a golden opportunity to be first.
Podcast | Create passive income with stocks
“I looked for competitors and spoke to one of them but when I asked if they would serve Vanderbijlpark they said they don’t cover the area so there is a gap the low. It also helped me see what they were charging so that I could use it in my business plan analysis, ”he says.
Another possibility is that Lwandile could make a deal with an established cleaning service in neighboring areas and operate on a franchise basis. It would benefit from existing brand recognition as well as lead generation from an established business.
Getting your fair price is an important part of a business plan. Your competitor’s prices can give you an idea of what people are willing to pay, but be careful not to try and get into a price war. As Prinsloo explains, you want to get in at the right level so you don’t end up revising prices and losing your customer’s trust.
Understand your costs
For Lwandile, the main costs are labor, transportation, equipment and cleaning supplies. There are also business specific issues that he must consider, such as insurance.
“You spill the client’s Ming vase, you’re going to have to pay for it.” It might seem like a grudging purchase, but if you’re cleaning someone’s house, you have to account for breakages, ”says Prinsloo.
Get a good idea of when the business will be profitable. Most entrepreneurs underestimate the time it takes to reach a point where the business can pay its bills. There is a difference between paying the bills and making a profit.
To protect the business, make sure you have the correct legal documents. In addition to contract documents with clients, Prinsloo says that when working with family it is even more important to have a contract in place. This sets expectations on both sides and removes subsequent conflicts or disagreements.
Prinsloo says banks are less likely to provide 100% funding due to the uncertainty surrounding Covid-19 and you should instead focus on building your own capital. Lwandile has been saving money since the start of the challenge and has already saved R10,000 on a notice deposit account.
I invested it in a separate bank account and am very happy to see it grow.
To know itself
Lwandile admits that a cleaning service feels very pedestrianized and doesn’t have the “wow” factor. “Normally I think you have to be innovative and extraordinary, but my wife taught me to be practical. Cleaning is an essential bread and butter service. To stay energized, I have to find ways to bring in different things that will keep me interested.
Lwandile is good at ideas, but admits having trouble committing to them and being consistent. “I have learned this on myself and know I have to be disciplined. The best thing is to partner with a practical person.
PLAN BEFORE YOU GO OUT
The newlywed Stephan invested a lot of money in his vaping store, but without a proper business plan he made the same mistakes that many potential entrepreneurs have made.
READ: The evolution of trust in banking
Traps galore: Stephan Photo: Liesl Englebrecht
“A business plan was crucial and neither Stephan nor his wife had the knowledge to develop a plan,” says Absa advisor Zettie Everson.
Test the market: Stephan hasn’t tested the market to see if vaping is popular with people in his area, nor has he been following vaping trends.
“The vendors were not being honest with them and were selling stocks that were not popular. His market knowledge and vaping preferences were lacking, ”says Everson, who adds that Stephan could have negotiated deals involving consignment stock (where the supplier is only paid when the item is sold), which could have reduced his down payment.
Photo of Stéphan: Liesl Englebrecht
Location, location, location: The premises chosen by Stephan did not have enough foot traffic to make the business profitable. Poor physical location can also be compensated for by an online store, and that’s something he needs to investigate. However, again, he must research and understand the existing online environment for vaping.
MARKETING: Every business needs to be marketed, but that’s even more important if it’s a niche product. The couple had no plans for marketing other than foot traffic and had no social media presence.
Management of time: Stephan has a full time job and is unable to pay enough attention to the store. His wife runs the store, but they haven’t spent enough time developing the business.
Follow the money makeover journey: media24.shorthandstories.com/moneymakeover/
@CPMoneyMakeover on Facebook and Twitter