What Tradesmen Should Consider Before Starting their Own SME

What Tradesmen Should Consider Before Starting their Own SME


With infrastructure spending having been identified as one of the key focus areas of the National Development Plan (NDP), tradesmen will continue to play a critical role in growing the South African economy through their skills.

For many, this demand for tradesmen has led to them considering starting their own businesses.

Ethel Nyembe, Head of Small Enterprise at Standard Bank, says “Skilled tradesmen are in demand and there is no doubt that there will always be opportunities for those with the proper business skills to build a real future and legacy for their families.”

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“However, tradesmen starting their own businesses should be aware of the fact that hundreds of small businesses collapse within their first year of operation. The major cause is poor forward planning and attention to the financial details that are vital if you are to build a successful enterprise.”

Nyembe says tradesmen should consider the following factors when planning to start their own businesses:

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Writing a business plan

A business plan gets a business off to a good start. Examining every aspect of your business will help you identify problems, work your way around them and realistically plan your future.

A good business plan should also include:

  • Reviewing the area or region where you intend to operate. Knowing in advance how many people with similar skills are working in the community will help you be competitive.
  • Pricing your services. To succeed your prices must be competitive.
  • Marketing your business. These days, it is best to consider everything from leaflets and business cards to community notice boards and the Internet. A good website can increase customer interaction and bring people to the business.
  • Just how much money you need to get started.
  • Tools of the trade you will need to launch your business. This will include the costs of buying a suitable trade vehicle and the tools, fittings and materials you will need to buy in order to supply a service.
  • A financial cost analysis that examines how many people you need to employ, the cost of their salaries, cost of transport, fuel, cell phones, equipment and rent for premises.
  • Identifying the quiet periods for your business and how you will plan your finances around holiday periods.

“A good business plan not only prepares you, but is also required by a bank if you intend on getting a business loan. Banks will examine the plan, your credit record and financial health before granting a loan. The more comprehensive your plan is, the better your chances are of getting the start-up finance you need. As a blueprint, it is also a document that can be constantly referred to and consulted to help keep the business on track,” says Nyembe.

Capital to establish the business

Many people fund a business from their own resources, look to investors, business partners or even friends and family for loans in addition to approaching the bank.

Informal borrowing agreements between friends and family however come with their own challenges such as unclear payback periods and misunderstood conditions. The capital you raise must be large enough to cover establishment costs and also operational costs for several months.

Few businesses operate profitably from ‘day-one’, so you need to have money available for the business until a positive cash flow enables the business to stand on its own.

Putting up one’s own capital in partial fulfilment of the business’s short term capital needs demonstrates to the bank that you are a serious business owner that is willing to back your vision.

Registering the business correctly

Many customers and suppliers will only deal with a business that is properly registered and has the appropriate tax and VAT numbers. It is also important that you get a specialist to explain what the requirements for different businesses are, so that you understand the financial implications.

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Getting your finances organised

For many people starting small businesses, getting the right financial documentation in order is a major challenge. The harsh truth is that having a skill and passion for your work just isn’t enough to guarantee success. Unless you know exactly what your financial position is every day, you will have problems keeping the business on track. Things you must consider include:

  • Keeping track of your cash flow. At its simplest, this involves knowing how much money is coming in and how much is flowing out to suppliers and on costs.
  • Drawing up a working budget. This should be done on a yearly basis and referred to constantly during the year. It should include provisions for ongoing items such as rent, vehicle instalments, insurance and other costs.
  • Planning for possible bad debts and quiet periods by arranging for access to revolving credit, an overdraft or other facility that will assist to keep business going when things are tough.
  • Tracking your actual sales against planned sales.
  • Effectively managing your debtors and creditors. Your financials should show what your debtors (customers) owe you and what you owe your creditors (suppliers etc.).
  • Decide whether you are going to have a credit policy. It is not advisable for a new business to build a customer base by extending credit too easily. You can end up carrying too many costs, while customers take too long to pay. This results in a negative cash flow and can impact on the health of your business.
  • Having a business ‘dashboard’ that tells you at a glance where your business is doing well and where attention is required.

“Successful small business owners understand that their business account is separate from their personal finances. Your financial plan should include a salary for yourself. This can help you to properly manage your personal and business spending, ensuring that your accounts are always accurate.”

“Taking the time to plan your business and combining it with financial discipline ensures success,” concludes Nyembe.

Speak to your business banker to see what the bank can offer your business; for more information on Standard Bank’s tradesmen offering, visit the website by clicking here: Standard Bank Tradesmen.

Standard Bank
Standard Bank SA is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank SA provides the full spectrum of financial services, with more than 720 branches and over 7 100 ATMs. Independent surveys of customer satisfaction consistently place Standard Bank at or near the top of their rankings. The personal and business banking unit offers banking and other financial services to individuals and small-to-medium enterprises. For further information, go to http://www.standardbank.co.za

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