The small business, aka a sole proprietorship business, in my opinion, is the easiest form of business to set up because it does not require a lot of formalities. It is also the most affordable form of business to set up when you are starting out. Usually, it does not require a lot of money and is relatively easy to manage, especially when you have no experience of managing a business.
As rental may be one your biggest expense items in the budget of a business when you start out, it probably makes sense to conduct your business from home until it has grown sufficiently to generate enough revenue to support rentals.
If you do decide to conduct your business from home, make sure you are able to do so and are not breaking any laws such as by-laws and water usage laws being the most common that come easily to mind. Waste disposal may also be something to consider if you start up a business from home. I would suggest you pay your local municipal offices a visit to find out.
If your house is not zoned for conducting a business, you may be able to apply to have it rezoned at your local municipal offices. Also, be mindful of the impact of your business on your neighbours. It is a good idea to contact them to let them know of your intentions. You would do well to get their buy-in and cooperation for the sake of good manners and neighbourliness.
One very important thing, make sure right from the onset that you set up systems that ensure proper record keeping, good governance and legal compliance, even if your business is small and you are just starting up. My advice to anyone thinking of starting a business, do the best you can with the little you have. It does not need to cost you a lot of money to set up the systems. The benefits are great.
Open a separate bank account for your business from your personal bank account. You will save yourself a lot of trouble, time and ultimately a lot of money when accountants have to come in. I learnt this the hard way when I first opened my own business. It was a headache to account for my personal transactions from the business transactions as I had to try to remember every single transaction going back 12 months!! Not to mention the embarrassment of having people know how I spend my money and on what.
If you enquire, several banks now offer facilities that allow you basic accounting programmes for financial record keeping at relatively low fees. These can be helpful when you start, and financial management should be your biggest concern for many reasons. Be diligent with it.
There are also financial accountants who are very good, and their fees are reasonable. Shop around, ask friends who run businesses and have established their own businesses. They can give you some useful pointers and are usually very willing to assist and give pointers. I would recommend having an accountant. When there are problems, they are at hand and are happy to assist, especially with tax matters, which can be tricky and are possibly the biggest threat to your business if not managed properly. Get it right with SARS (South African Revenue Services) from the onset otherwise you may find yourself tied up with tax matters that can cause your business to shut down to say nothing of the time it takes to try and sort it out. It can take you away from the operational side of your business to your cost. Again, I’m talking from experience!
Your accountant can also assist you to register with the various authorities you need to be legally compliant. Retain all invoices for the business, they are required for the record keeping of your finances.
If you employ people, make sure you register them with the labour department, for UIF (Unemployment Insurance Fund), and pay the subscriptions or taxes required regularly as required otherwise you are breaking the law. Your accountant can assist you with this as well or the bank if you register for their accounting packages.
As far as the legal side of it is concerned, make sure that you acquaint yourself with all legal requirements applicable, especially those that apply to your business. If you are not sure, consult a lawyer. ALL5 Holding can assist you.
What are advantages of running a small business?
Financial ease of setting up
I have already alluded to the fact that it does not cost a lot of money to set up a small business compared to the other forms of businesses. You can run it successfully and profitably with very little money when you start.
Sustainability of a small business
Even if you consider it to be a small business or hobby and therefore a side thing to earn extra money or some such, my advice is that you never know what the future holds. There may come a day when you want to sell it. Always be ready for such an opportunity. Someone may make you an offer you can’t refuse, or you may want to put it on the market for any number of reasons, perhaps you have become too old to continue to run it or your health is failing. Keep proper records of everything and be diligent about it. Some business owners find it tempting to withhold financial records to minimise their tax liabilities. Consider that a day may come when you want to sell your business. If your records are incomplete, you put your business at risk of not being sellable because you cannot produce vital information needed for the sale to be completed. You could therefore lose a lot of money with devastating consequences for you. We had such an experience where we wanted to buy a small business but because the owner was unable to provide us with the necessary financial information and records, we could not agree. The owner was of the view that the business was worth much more than the price we were offering based on the information that the owner could give us, and because he could not prove it, the sale fell through.
Other advantages
You have the luxury of controlling your life and lifestyle and are free to pursue other interests should you so wish.
You have money available to you any time if your business is doing well. You are never without access to money at any time of the month. You can live your dream life.
Disadvantages of running a small business
Securing a loan for your business
The most obvious disadvantage that quickly comes to mind is that it can be difficult to raise money for your business from financial institutions to expand it or some such, let alone run an overdraft facility as an assurance of meeting your expenses if called upon. The risk is entirely your own. Financial institutions are usually very shy or loath to lend money to a small business because the risks of losing it are rather high so lenders tend to shy away, with the result that it can be very difficult to grow your business as you may have to self-fund it or borrow money from you friends and relatives. They too may have limited resources. To ameliorate this problem or barrier, it is advisable, right from the onset, to carefully manage your businesses’ finances so that you gain the confidence of you bank manager. If you can demonstrate that you have managed your finances prudently, and have kept proper financial records etc., it will be it easier to gain your bank manager’s confidence when you want to borrow. Keep a tight reign of your financial affairs. If you anticipate financial problems, be pro-active, notify your bank manager as soon as possible with suggestions on how you will resolve it. By taking the initiative you gain the trust and confidence of your bank manager.
Personal responsibility for the liabilities of your business
If you do not insure yourself against unforeseen events of your business, then you may find that you are personally responsible/liable to sort out the problem that has arisen and this may involve an outlay of large sums of money to put it right or compensate the person who has suffered the loss. It is therefore advisable to insure your business for unforeseen events otherwise you may find yourself out of pocket and in extreme cases, losing your property if you are called upon to make right the loss. I suggest that you consult a reputable insurance broker to assist you to protect yourself against such an event and a lawyer if necessary to advise you.
Solely responsible for the success of the business
Another disadvantage of a small business is that its success is almost solely and wholly dependent on you. You are invested in it, no one else. Very few of us are fortunate enough to have someone willing to put in the work and the sacrifices it requires to make a business succeed for the benefit of another. You are the only person that can do it. Your employees wont. If you choose to run your own business, be prepared to work very hard with very little to show for it in the short term. It is hard back breaking work to successfully run your own business and it can be very lonely and scary. It can take an emotional toll on you sometimes. Do not be discouraged. Failure is when you give up. You will make mistakes, you will be discouraged, you will be disappointed, you will have doubts about yourself and your abilities, do not be, stay focused, you will be tempted to give up, don’t until you are certain that there is no other option. We’ve all been there. Very few of us succeed in building a business without these experiences. They help in building you and the business. Keep at it. Learn from your mistakes.
Last person to be paid.
When you own your own business, as I have alluded, you are personally liable for its debts or are the surety for the business. It’s wonderful if your business is making money but for a lot of us, the business usually generates just enough money to keep itself above board. By the time creditors have been paid, salaries met and all other expenses that go with running a business have been paid, there is very little, or no money left to pay yourself. It is tempting to take whatever is coming in and pay yourself ahead of everyone else. Don’t do that. One of the first things about owning a business is that you have to take the risks that come with it and unfortunately that comes with being prepared to do without a regular income should the need arise. Always pay your creditors first even if it means you won’t be able to pay yourself. They have not invested in your business; they have no reason to carry its risk on your behalf and do not make them do so by withholding their money. This applies to your employees. That is really your problem and no one else’s. Don’t expect them to carry you. After all, you will not share your profits with them if your business makes money, so why expect them to share theirs with you?
24/7 responsibility
A small business demands all your time and attention. This can be very strenuous and exhausting, especially if you are alone with no-one to share the responsibility. You can feel dispirited and want to give up.
Conclusion
Not everyone has the stamina to own their business, contrary to we are made to believe. It takes a special kind of person to successfully do it and unfortunately not many of us have that ability. Therefore, to start up your own business should not be a decision taken lightly. It requires an honest and brutal assessment of oneself and capabilities. Think very carefully when you consider going into it. The benefits can be great but so can the disadvantages. If you do go ahead, I wish you all the best. ALL5 Holding is ready and happy to assist you.