Starting a Business in South Africa
Do you wish to start a business in South Africa? It might be easier than you think it is! South Africa is considered a strategic business location for many reasons: strategic geographical location, rising middle-class and suitable demographics, favourable regulatory and financial system, and well-developed transportations. The government of South Africa also supports Small and Medium Enterprises (SME) through various means. To start your business, factors like proper planning, funding, and awareness of the legal procedure are extremely crucial. Without either of these, your plan may suffer setbacks or may even fail before it starts.
Let us dive in and get to know each step in detail.
Disclaimer: This article is solely written with an informative purpose. It is not a substitute for professional advice. Any actions you take upon the information presented here will strictly and solely be at your own risk and responsibility!
Market Research – get to Know the Opportunities!
The first and most crucial factor is to have an in-depth knowledge of the market you are about to indulge in. Proper market research consists of knowing the target customer base and the ongoing economic trends. This will help you understand the opportunities in the business market that will give a clear idea of planning an effective strategy for your business. Consider knowing your target demographic before you start a business in South Africa.
Market research involves the process of data collection through various means. You can interview the target audience or conduct a survey, refer to third-party sources such as government census data, research reports published by other companies in the same trade etc., or hire a third-party entity that specialises in this. The research should involve brainstorming on the various factors such as: having a market for your idea, demographic and size of your target audience, what more can you offer than your competition in the market etc. Get in-depth knowledge about Market Research here. (Source: Investopedia)
Write a Business Plan – the Foundation of your Business!
There is no right or wrong when you write a business plan. Rather, it is important that your plan should meet your needs to start a business in South Africa. A proper business plan is like a roadmap that guides you through setting up, running, and growing your business. In this step, consider factors like your vision and objective, pricing and marketing strategies etc. Putting a business plan on paper also helps in getting feedback from others. Furthermore, it can also be used as a means to get funding or new business partners.
The U.S. Small Business Administration provides a good read on this topic here. Although this is an official US Government article, it should give you some fair ideas about how you would start a business in South Africa as well.
If you need a template for writing a business plan, Bplans has over 500+ business plan templates/samples available here.
Funding – The Bloodline of your Business!
The most important, and probably the most tedious step in setting up a business is funding. Improper planning or poor management of the funding can hurt your business in the long term. Make sure you have weighted this factor enough in your business plan. There are various ways to get funding for your business in South Africa. The funding options would include self-funding, crowdfunding, angel investors, government funding programs, or bank loans. You should consider the following before you actually plan on funding your business.
- Startup costs:
- License and permits
- Business insurance
- Equipment required
- Branding and initial marketing
- Website development
- Inventory
- Trademarking
- Rental lease (if you consider a physical location)
- Upkeep costs:
- Monthly rents and other bills
- Salaries (if you plan to employ)
- Production and supplies (depends on your business)
- Transportation costs
- Marketing and advertising
Choose a Business Structure – Consider how you want to run it!
There are various business structures practised worldwide. The choice you make will directly affect your business registration requirements, the taxes you will have to pay, and your personal liability. The South African business environment primarily features five major types of business structures.
- Sole Proprietorship – Single founder who establishes and runs the business and is considered as the simplest form of the business entity. The owner is held completely liable for all the losses and debts of the business.
- Partnership – 2 or more co-owners will run the business. They also pool the finances, share the skillset to grow their business.
- Pty Ltd (Proprietory limited company) – A private company that is treated as a separate legal entity. It has a small number of shareholders and one director.
- Public company – A business that issues securities through Initial Public Offering (IPO) and has its name on at least one Stock Exchange list. Know more about Stock Exchange with an article by Investopedia here.
- Franchise – Licensing your business to a third-party entity. In this case, the third-party entity runs the business under the company owner’s banner.
Related: Business Structures in South Africa | Digital Lime Green
Name your Business – It’s time to be Creative!
Naming your business is a creative, yet tricky part! You would want to consider a number of factors while choosing a name for your business. First, consider the kind of name that would suit your business. It can vary based on what you are selling, the products you are offering, the demographic of the customer base you are targeting and so on. Brainstorm your thoughts around whether the name captures the brand spirit. You would want to come up with multiple names so that you can have a choice. Do not hesitate to ask for feedback from your acquaintances or relatives. Note their reactions and consider their feedback to finalize the list. You may want to check out this guide by the South African Registration website to help you brainstorm more!
Once you are done finalizing, you may want to check whether these names are taken. You can do so by following this guide by Entrepreneur here. Remember that you also should consider checking whether the same domain name is available or not, as you would want to take your business online. Once you come up with your favourite name, let it settle for a few days before you finalize it. Who knows? You may come up with an even better name meanwhile!
Lastly, remember not to stress too much over this process. It may discourage your spirit!
Register your Business – Go Legal!
Registering and legalising your business helps you to protect your brand. The registration process differs by the type of your business structure and the location (unless it is purely an online business). The South African Services (government) website provides information on the required procedure to register your business.
Please remember that a small business is not a legal entity. In that case, registration with the Companies and Intellectual Properties Commissions (CIPC) is not mandatory. Although you will have to register with South African Revenue Services (SARS) for legal and tax purposes. SARS states that “If you are a close corporation, co-operative or a private company, you may qualify for certain tax incentives and preferential rates in terms of the Small Business Corporation (SBC) incentive. Alternatively, if you are a natural person or a company and you meet specific requirements, you may qualify for the turnover tax system.”
This Small Enterprise Development Agency (SEDA) article will help you understand the best approach to get your business registered. Furthermore, This article by SME South Africa has simplified the information. Take a look at it if you do not understand what approach would be the best for your business.
Know the procedure in detail with this simple and detailed article by Briefly!
Choose an Appropriate Location for your Business – It Matters!
A prime location matters for your business office unless you are starting a completely online and/or home-based business. When you are choosing a location, you should keep in mind the following things:
- Location of your office in the city/town.
- Accessibility to the office by your customers
- Accessibility to public transportation services like bus stops, railway stations from your office.
- Safety of the chosen location.
- Competition in the area. Prefer setting your business near other complementing businesses.
- Cost of running the business from the chosen location.
Businesses can be very successful based on where they are located. For the sake of an example, if you are a business that sells Whey Protein, the most ideal location for your business would be: easily accessible by the main street and preferably situated beside or near a well-established gym.
Online Presence and Growth – Find your ZARs in the Sea of 0s and 1s.
The modern world calls for digitisation. During the COVID-19 pandemic, many businesses have taken their business on various digital platforms. It has been proven extremely effective for them as the website upkeep cost is minimal, the procedure is relatively easy to understand, and the fact that digital customer base has been increasing exponentially. A digital/online presence would help you attract more attention to your business which would improve the potential of generating your revenue greatly. WebsiteSetup has a simplified explanation of how one would make a website and you can find the article here.
Marketing is a very common, yet effective tactic to grow your business. You need to plan and execute your marketing strategies according to your brand, products, target audience, and region. Hire a marketing specialist if needed but make sure you are not spending less on marketing campaigns than you are supposed to. These marketing strategies explained by SME South Africa would be a good read for beginners.
Conclusion
By now, you must be clear about the basics of starting up your own business in South Africa. Running a business takes determination, patience, strategic vision, and willingness to work hard.
If you require any help with marketing your business, Digital Lime Green is available for you. We are a web design and digital marketing agency in Cape Town, South Africa. We will help you in marketing your business on multiple digital channels. Take a look at our Digital Marketing package for more information. If you need further assistance, feel free to contact us anytime.
We wish you good luck in your endeavours!