Are you one of the people who needs more information on how to start a business? Starting a business needs a business research, understanding and dealing with many issues. This involves business planning, legal, financing, sales and marketing, intellectual property protection, human resources, etc.
Know how to start a business.
In this article, I give you business fundamentals on how to start a business. It could be a brick and mortar, online business or both. The process for starting a business is the same in South Africa or in any other country. And it only needs understanding the commitment and challenges involved in starting a business.
If you already know the basics, you may always visit our website for the advanced business tips and guidelines to be posted in the near future.
After reading this article, you will have a clear understanding of how to start a business, what is the business, what types of businesses, the advantages and disadvantages.
First thing, first…..
- What is a business?
- What types of businesses
These are some of the questions you may ask yourself before even starting your business.
What is a business? Know how to start a business.
A business is any activity of producing/ buying and selling products (goods and services) in exchange for cash. It is an organised business activity to achieve the same goal. A business starts with the concept (business idea) to solve the problem and give the solution to the customers for a profit.
The business idea is what you intend to do, the problem that you want to solve, e.g. the products or services that you want to sell to your customers. You must do a research about your products and services that you want to offer. The things that you will improve from the current products and services in order to attract more customers.
What types of businesses? Know how to start a business.
As stated on the Entrepreneur’s website ( HYPERLINK ““ https://www.entrepreneur.com/article/335080), that there are about 5 different ways you can structure your business in South Africa, which will play a big part in how you run it. You should know the advantages and disadvantages of each structure type.
5 Different Types Of South African Business Structures
a) Sole Proprietorship
A Sole Proprietorship is a business that is owned by a single founder. This is the simplest form of business entity because the business is not separate from the owner. But unfortunately the CIPC which is the government entity that governs and registers businesses in South Africa has stopped registering these kings of businesses in 2011.
Advantages of a sole proprietorship
There are few advantages of sole proprietorship
It is easier to set up than any of the other business entities.
The owner maintains 100% control and ownership of the business.
The owner is entitled to all of the profits.
Disadvantages of a sole proprietorship
The owner takes all the risk for the business.
You cannot appoint another owner as your partner, unless you dissolve the sole proprietorship and register a different new entity such as a private company.
A partnership is when 2 or more co-owners run a business together.
Partners contribute money towards a common goal, share specialised skills and resources and share in the ups and downs of business success.
Advantages of having a partner
Just like with a sole proprietor there are benefits to having a partner or partners helping you run your business, such as:
With more people comes more knowledge and expertise
You’ll have more capital and cash to work with.
You can share the financial burden and expenses of running a business with your fellow partners.
Having partners mean there is an even distribution of labour.
You’ll have a better work-life balance as there are others to assist you with the workload? And ensuring your business is becoming a success.
Disadvantages of having a partner
Having more people isn’t always a benefit, here are the disadvantages of having partners:
Everyone is liable for debts whether they were caused by other partners or not.
You have to share control of the business with your partner(s)
Dealing with others is not always seamless; there could be a falling out or an argument, which can strain the relationship between you and your partner.
If you ever want to sell your business, this could prove difficult if others don’t want to sell.
c) Pty Ltd – Proprietary limited company
A private company, Pty Ltd or proprietary limited company is treated as a seperate legal entity. So even if you launch your business single-handedly, this type of business is registered as a separate legal entity.
The owners of a Pty Ltd are also known as the shareholders.
You don’t have to explain your finances and decisions to anyone.
The business is a separate entity, so it continues to run smoothly even if you sell your shares or take on partners.
Shareholders are typically not liable for company debts, although there are some tax liabilities.
Anyone acting recklessly or fraudulently can be personally liable for all or any debts of the Pty Ltd.
Disadvantages of being a Pty Ltd
Private companies are required to comply with a large number of legal requirements.
As this is a private company, you can’t offer shares to the public or list the business on a stock exchange.
Two shareholders must be at a meeting, except when the company only has one shareholder
d) Public Company
A public company is a business that issues securities through an initial public offering (IPO) and trades its stock on at least one stock exchange.
The daily trading of the public company’s stock determines the value of the whole business.
Publicly traded companies are defined as public because, unlike Pty Ltd businesses, shareholders can be anyone who purchases stock. Anyone can then become equity owners of the business.
Advantage of publicly traded companies
Just like any other type of business structure, a public company has benefits, such as:
Since you can sell your shares to the public, this offers you more capital to work with.
Being listed on a stock exchange means that fund managers and traders are keeping an eye on your business. The more interest you have, the more business opportunities will come your way.
The risk is spread out amongst the various shareholders. The more shareholders, the less risk everyone holds.
Disadvantages of publicly traded companies
Setting up a public company is more challenging compared to the other types of business structures.
Since there are now more shareholders, directors and managers, making decisions can take significantly longer.
You’ll need to reveal some of your documents and annual accounts are published for inspection to the public. This improves transparency but doesn’t enable you to guard your secrets effectively.
A franchise is when the business owner sells the trading licenses of a business to the third party. This usually includes business name, and corporate identity. There are rules and regulations that must be respected in this king of business structure such as keeping the standard and the name of the business.
Advantage of operating a franchise
A franchise has a successful track record and a positive reputation that you can capitalise on.
Franchises offer training programmes designed to optimise how you run the business and bring you up to speed quickly.
If you join a franchise, they also offer ongoing operational support. This ensures you’re not alone when building and growing your business.
Disadvantages of operating as a franchise
If you’ve bought into a franchise, you’ll have to follow the rules, regulations, system operations and directives of the franchise.
The cost of becoming a franchisee can be high, sometimes even higher than starting your own business.
You’ll have to pay royalties to the franchise for the use of their name and systems.
Conclusion on how to start a business
Every business starts with the business concept (business idea). The business idea is what you intend to do. Is to identify the problem that you want to solve, e.g. the products or services that you want to sell to your customers. Is it needed or not (feasibility).
There are crucial things that you need to consider, like to do a research about the services that you will offer. What business structure that your business idea falls under. Find out what you will improve (Unique Selling proposition). The players already selling the same products or/and services (competitors), and the marketing.
I hope that you will implement the business guidelines outlined on this article. Is there something else that you would have loved to hear about it on this article? Please, feel free to voice it out.