The Ins and Outs of Running a Laundry Business
Many entrepreneurs, who open a laundrette, have little or no prior formal training in the laundry business. Most simply run the numbers and decide that starting a laundry equals a good business opportunity. However, as is the case with any business venture, it is recommended that entrepreneurs conduct thorough research into the industry by talking to laundry owners and reading trade literature.
While formal experience may not be necessary, a background in machine repair or a knack for fixing machines helps. Owners who have experience with laundry equipment are able to cut down on the cost of repairs. But others have found that they can learn about the machines and make some repairs themselves, or hire a maintenance person and avoid the headache altogether.
Related: Free Business Plan Template Download
In addition and fundamental to successfully running any business is a solid understanding of financial, sales, marketing and management principles.
“You must have some kind of business background in order to run a business. You need to know how to keep records of transactions, salaries, expenses as well as the cash coming in”, says Tracey Lehmbeck, who has worked in the laundry industry for the last ten years.
The Laundromat Personality
You many think that the laundry business is about clothes, but what it’s really about is people. It’s a service business, and like any service business, you need to treat your customers well if you want them to return to your shop.
If you are friendly, your customers will want to use your store. By taking the time to talk to them, you will also be able to learn about their laundry needs and preferences for services. Ultimately, this kind of information will help you improve the quality of your business so that you can attract even more customers.
Even if you decide to hire employees and leave the customer relations to them, you still need good people skills to hire and supervise employees. The more closely you work with them the better they know and like you, the better job they’ll do.
If you have an unattended laundry that you visit twice a day to clean and collect coins from the machines, you still need to greet customers with a smile on your face and an attitude that’s ready to help. So if small talk with strangers leaves you cold, you can’t stand the thought of answering customers’ questions (often the same ones over and over), the laundry business may not be the one for you.
However, if you think you’ll like meeting new people, helping them work the machines, and listening to them talk while they wait for dryers to finish, you’ll find this business rewarding. Lehmbeck believes customer interaction is very important.
“If you get to know your customers, it’s offers huge spin-offs. My staff is on a first name basis with many of our customers, and I put this down to good customer service! Word-of-mouth is the best advertising you can get, if the message is positive…and the most destructive if service is poor. In reality this business is not just about laundry as much as it is about offering brilliant customer service.”
What are the day-to-day operations involved in running a laundry business
So what’s it really like to own a laundry business? Whether you do all the work yourself or hire someone to run it for you, there are tasks you will need to take care of on a daily basis.
You will need to open and close your shop promptly each day, clean it, collect money and fill vending and change machines. You will need to keep track of which machines are being used and how often. Those laundry owners who have employees will have other duties, too. They will be hiring and supervising those employees and overseeing additional services such as wash-and-fold or ironing.
Laundries are generally open between 7am and 6pm seven days per week. Because weekends are usually the business days for laundries, you should definitely keep your doors open on a Saturday and perhaps even on Sundays. In some instances, you many want to adopt alternate hours, especially if the market you serve or the location of the laundry lends itself to having its doors open at other times of the day.
If you own an unattended coin operated laundry in an area that is close to a university, college, gym or business district you could operate on extended hours because students and some executives are notorious for keeping odd hours.
Your first duty of the day is open your laundry, and you must be on time because customers may plan their day around getting their laundry done at a certain time.
In South Africa most drop-off laundromats close at 6pm. “They are more popular than coin operated self-service laundromats”, says laundry business owner, Tracey Lehmbeck. The coin operated Laundromats can close later than drop-off laundries, sometimes as late as 10pm, but you should consider locking the door at 8.30pm, leaving enough time for the last loads of laundry to be finished.
You can either let the customers out yourself or install a lock system that allows them to leave, but prevents others from coming inside.
Running the Store
The first order of business is for you or staff to clean your store thoroughly, at least once a day. This will take about two to three hours a day. You or your employee will need to do the following:
- Mop the floors
- Wide down the machines
- Clean the soap dispensers in your front-load washers
- Wash off the folding tables
- Clean the restroom
- Empty rubbish bins
- Wash the windows
The best time to clean is after customers have gone – that way you or your staff can clean more efficiently. You’ll also avoid the risk of customers slipping on wet floors or tripping over cleaning equipment. If you have a large or busy laundry, you may find that it requires cleaning twice a day.
You can wipe down the machines and folding tables easily while customers are in the store, but save the floor for after they’ve left or for a quiet period of the day.
One chore you’re not likely to delegate to an employee to collecting money from coin operated machines. You’ll need to empty each machine, preferably daily. You’ll want to pull (take out the coins) from one type of machine at a time so you can determine how often your customers are using each type of machine, starting with the top-loaders.
Count these coins and record how much money you made on this type of machine, follow the same procedure with the front-loaders and the dryers. For recording purposes, you should draw up a chart with seven rows, one for each day of the week, and columns for each type and size of equipment: top-loaders, front-loaders, dryers and vending machines. Then record on the chart how much money you withdrew every day.
Stocking vending machines
The last bit of daily business in the shop is restocking the vending machines. If you rent a cold drink and snack vending machine, make sure it is full every day. In South Africa, the location of the laundry plays a vital part in whether or not you would have vending machines in the shop.
“It all depends on the retail set up of the businesses that operate in the centre or close vicinity of your laundry. You don’t want to encroach on other businesses, especially if you operate a coin operated laundry. If there is a supermarket near the shop, you don’t need to sell washing powder or softener. Coffee shops and video stores in the centre eliminate the need for a vending machines of this nature in the shop’, says Lehmbeck who speaks from personal experience as she also owns Laundry XACTIX in Randburg.
Bookkeeping & Management
When you’re done with daily in-shop duties, you’ll need to take care of some additional office work. Many laundry owners do this at home, though some may find it easier to work at the laundromat if there is enough space for a small office or work area.
You’ll need to take care of accounting and track equipment usage by customers who frequent the laundry. It is important to record how often each type of machine is used so that you can determine if you’ve got the right mix of equipment.
For example, if you find that front-loaders are getting six turns a day (the number of times a machine is used each day) and your top-loaders only two, you may need to add front-loaders and remove some top-loaders. Your customers are likely waiting for front-loaders and possibly going elsewhere, so you could be losing money.
How much does it cost to set up a Laundromat?
The cost of setting up a laundry business depends on many factors and you will have to conduct your own research to determine how much money you will need to raise. There are various suppliers around the country that will be able to give you quotes on buying new or reconditioned machines.
You could also consider leasing the equipment. The needs will be based on the size of the laundry as well as the kind of services you intend to offer.
Speed Queen has supplied the commercial laundry industry for many years throughout South Africa. Contact Speed Queen and these suppliers for price details:
- Laundry Equipment Service
- Cater Zone
- Laundry Online
Contact Laundromat owners and ask them what the going salary rate is for staff. There are also franchises available in South Africa, such as Fresh Laundry, a new domestic laundry franchise. It will also be able to give you the information you require. Click on the Entrepreneur franchise directory for details.
How much money can be made owning a laundry?
The amount of money you can make from a laundry varies tremendously. If you’re planning on operating just one or two laundries, you’ll be in good company. Three quarters of laundry owners own only one shop, and very few have more than two.“There are a few local chains starting to grow in various parts of the country, but 99% are privately owned”.
A little more than half of laundry owners operate their business full-time. Others take the moonlighting approach – they manage other businesses or work a day job. But more laundry owners are starting to own larger shops and more than one.
These people are able to survive on the income larger stores or multiple stores generate.“It is a good, steady cash income”, explains Lehmbeck. The steady income that a laundry generates is a plus for many people. If you’re looking for a business that will keep cash flowing no matter what the rest of the economy is doing, you’ve found it in laundries. Clean clothes are a necessity, not a luxury, so people are going to Laundromats no matter how the stock market is performing.
The business is fairly steady, month in and month out.
Using your Space
How much space is needed to operate a retail laundry and dry cleaner?
First determine the services you wish to offer, then work out how much space you will require to cater for those.
There is no ‘prescribed’ minimum space for a laundry and dry cleaning business. You will need to first determine the services you wish to offer, then work out how much space you will require to cater for those.
- If you wish to offer ironing as a service, you must calculate how many employees you are likely to have at any one time, and how much space they will require. Where will the clothing bundles be stored?
- Will you offer coin-operated machines and if so how many? What are the sizes of these machines?
- Will you offer a seating area for customers who wish to wait for their washing?
- Do you intend you having vending machines in store? These take additional floor space
- Where will you conduct the management of the business – the space you will manage the books and overall management? How big will this office be?
- Also, consider potential for future growth
What to look out for when buying an existing laundry business?
Six issues to consider before buying a laundry going concern.
If you are considering buying an existing business there are various issues you must look into:
- The books must be right, remember a laundry is a cash business
- Check warranties and the service history of the machines carefully
- How well known is the laundry and how good was the previous reputation of the Laundromat
- How strong is the existing customer base?
- Is there scope to attract more customers?
- Screen the staff who work at the laundry and make sure you are happy with them because good staff makes a business successful and bad staff will destroy it. After all a Laundromat is a service industry and if service and good work are not offered, customers will quickly move to a laundry that does offer excellent service
How to start a laundry business from a retail centre
Like things neat and clean? Then starting a coin-operated laundry might be your ticket to entrepreneurial success.
Internationally, the coin operated laundry industry has undergone a revolution. No longer are dingy, unsafe, boring places that customers must endure on a weekly basis, laundromats becoming fun and attractive multiservice centres that customers enjoy visiting.
“You don’t need experience, but you need training in order to operate machines and keep them running at their best”, explains Tracey Lehmbeck, who has worked in the laundry industry for the last ten years. She is a sales consultant for Lead Laundry & Catering a large suppler of commercial and industrial laundry equipment and has her own laundry in Northwold, Johannesburg.
Newer laundries are located close to coffee shops or supermarkets. Some offer a service where customers can leave laundry which is washed and ironed and pick up dry cleaning. Many laundry owners also employ full time staff to keep an eye on the shop, help customers use the equipment and do ironing.
The coin operated laundry industry is changing in response to several trends currently impacting the business. The first is that, for most of us, meeting the demands of work and our personal lives leads to a time crunch – there just aren’t enough hours in the day to accomplish everything we would like to.
Laundry owners are capitalising on this reality by offering their customers time-saving convenience in the form of wash-and fold (drop off service) and a dry-cleaning service. Many laundromats take on contract work from guesthouses, restaurants, coffee shops and factories where uniforms need to be laundered.
In addition, owners have realised that they can maximise their profits by providing customers with access to multiple services. Since they’re paying a set amount of rent on their commercial space, they might as well use that space to its fullest potential.
Many owners around the country offer a variety of other related services. Because many new laundries are bigger now than they were in the past – overheads are higher, and owners are looking for ways to cover the cost.
These additional services demand little increase in overhead because the rent is already paid for. Customers benefit by being able to use several services all in one convenient locations.
South African Laundromats offer a variety of other services which generate more business for them:
- Shoe repairs
- Dying service
- Heavy load laundry such as curtains and duvets
- Some offer ‘Spotting Stations’ which offer a professional stain removal service
Another trend laundry owners have recognised is that customers prefer to visit laundries with a more pleasant atmosphere. Many laundry owners offer coffee, keep a supply of detergents and hire staff that is friendly and helpful.
Being the Best
Other social phenomena, like the prevalence of two-income families, suggest that convenient services such as wash, dry and iron will continue to grow in popularity as working parents have less time to attend to household chores like laundry.
In addition, office dress codes are growing increasingly less formal. And as more people wear casual clothing, (which don’t require dry cleaning) to work and leave the nicer outfits for special occasions, you may find that consumers will be making more trips to the Laundromat.
Although economic growth and property development has slowed in recent months, room for growth in this industry in South Africa remains – particularly in suburbs that are experiencing population growth. “There is room for growth in this industry, especially in developing areas, explains Lehmbeck.
“I should know, besides selling equipment, I help to install and teach owners how to get the best out of their equipment. So, I am in touch with what is going on in the laundry industry.”
Competing for the ‘Mature Market’
When it comes to established areas, new laundry business incumbents enter the industry by purchasing an existing laundry business and renovating it. Some also find that they can build a new laundry in an area with competing laundries and thrive by offering a bigger shop and more services such as an in-house tailor and better customer relations.
So, as you consider getting into the laundry business, keep the words, ‘mature market’ in mind. Don’t buy a store just because it’s for sale or build a new laundry just because you have a great idea for a new gimmick. You’ll need to be very careful to make sure there’s enough of a customer base to make your business thrive.
You may be able to draw a little extra business from people who like using your store better because of its cleanliness and because they use your wash-and-fold or ironing service, but the core of your business will be clients who just want to get their laundry done quickly and conveniently.
If there are already enough Laundromats in the neighbourhood to serve their needs, they’re not as likely to patronise your laundry.
How to run a laundry from home
Offering a service where customers can leave laundry so that it can be washed and ironed, can be a good source of income. This is because the prevalence of two-income families, suggest that convenient services such as wash, dry and iron will grow in popularity as working parents have less time to attend to household chores like laundry.
Do careful research before you start
You will have to decide how you will market your home laundry business. Research is vital. Canvas the area in which you will be operating the home business in order to determine if there is a need. Check if there are laundries near you and if there are, be sure you can offer better value and service.
Target the market
Decide how you are going to target the market that you believe will make use of the service you intend to offer. Prepare a business plan. This will ensure that you cover everything and have a plan to follow. For the business plan, work out what equipment you will need. This might include washing, dryers, folding tables, irons and ironing boards and in time, even dry cleaning equipment.
As you are operating from home, make sure that you have enough space. Equipment, unwashed clothes and washed clothes will take up space. The location of your laundry business should have adequate space to house all the necessary materials and collaterals.
Another major consideration is are you simply going to wash and fold laundry or are you offering to include ironing as part of your services? This is an important point because ironing takes so much more time and needs to be factored into your rate schedule and your business plan.
A major key to success in this type of home based business is scheduling. Taking on ironing as part of the project will definitely be a drag on the quantity of work you can do and prices should be gauged accordingly.
Using the electronic media
Consider setting up online appointments – customers can make appointments to have their laundry picked up and dropped off. If you don’t want to run a collection service you can still use SMS’s to provide automatic alerts when the laundry is ready for collection.
Some clients may want to use a credit or debt card to pay for the services that they have purchased from you. It is important that you are able to transact this way. Contact your bank for details and the costs involved in operating debt and credit cards.
Making sure that the assets of your business are properly insured is something that every emerging or already established company needs to do in order to ensure success in the long run. Not having the assets of your business such as vehicles, equipment and insurance cover for the clothing left in your care can leave your business vulnerable to loss due to crime or unforeseen disasters.
Plan for breakdowns
As you are running a service business, so you need a back-up plan if you washing machine, dryers or irons breakdown. You’ll also need to factor in time to take care of accounting and track equipment, water and power usage so that you can be sure that you are charging the correct amount and not running at a loss.
14. Legal issues
If you are going to employ staff then you must register them with UIF and SARS. You should also notify your local council that you are running a small business from home as there maybe zoning regulations that you would have to take care of.
If you plan on running a home-based business that will have no employees and no walk-in trade, the zoning question may never arise. If employees or customers are coming and going, making noise, or taking up parking spaces that would normally be used by residents, you can expect neighbours to complain and report you to the municipality.
How to attract more customers to the laundry
Consider giving your laundry a theme or gimmick. For example, in the United States one Laundromat plays classic black-and-white movies on their TV, and other walls are covered with photographs of movie stars from the 1920’s and 1930’s.
Another store displays the owner’s collection of antique laundry equipment. A theme gives your laundry more personality; customers will remember it, and they’ll find your laundry a more interesting place to come to. A clever gimmick may also get you some free publicity from the local press.
If you want to create a gimmick for your Laundromat, think about who your customers are and what sort of theme they will appreciate.
For the kids
When selecting a venue for your business, look at what is offered close to your shop. If there is a children’s play area in the centre, it will make a visit to the Laundromat so much more attractive to moms and caregivers. A supermarket will be a draw card and so would coffee shops, a video store, game arcade and even a hairdresser. Other options include pinball and video games; you could approach a video game supplier about having a video game console fitted in the shop and share the profits with the supplier.
If you want to start a self-service coin operated Laundromat, and you’re thinking of putting in an area especially for children, check with your insurance company that you are properly covered with regard to liability.
Professional advice is needed to help you design the area to maximise safety and make sure that you won’t be responsible in case a child gets hurt. In fact, you may need to place signs saying you’re not responsible for children’s’ safety.
Even the big kids get bored
Even adults will get bored at a Laundromat. After all, mostly what they are doing is waiting around for clothes to wash and dry. Many laundries these days have one or more TV’s mounted on the wall or has music playing and offer a selection of magazines to read.
Some laundries keep the TVs tuned to one channel, some play videos, and others let customers change channels themselves. If your laundry is unattended and you want to let customers change the channel, mount the TV low enough on the wall so they can reach the channel and volume buttons. Customers are likely to walk off with the remote control, even if it’s tacked to the table.
It’s likely that customers who are at a coin operated self-service laundry will get hungry or thirsty while waiting for the laundry to finish. Even if your shop is in a shopping area or near one, customers wisely don’t want to leave their clothes. So having a vending machine that has cool drinks, chips and sweets or even a hot drink vending machine can create extra profit.
Where to find contacts for equipment and electrical contractors
Lead Laundry & Catering
SA Cleaning Equipment
For a complete list of registered electrical contractors throughout South Africa contact the Electrical Contractors Association (ECA).
How Do I Start A Transport Or Logistics Business?
An all in one guide to starting a transport and logistics business.
Thinking about starting a transport business?
Forecasts indicate that the demand for freight transport will grow in South Africa by between 200% and 250% over the 15 to 20 years.
Some corridors, (high volume transport routes that connect major centres), such as the corridors between Gauteng and Cape Town (which amount to 50% of all corridor transport) will increase even faster.
Your Free Cheat Sheet: Transport and Logistics Business Cheat Sheet
The scope in the transport and logistics industry is varied – from a one-man show using a small truck to transport goods and offer services, to a fleet of transport vehicles which travel the length and breadth of South Africa’s roads.
Road transportation includes commuter transport from taxis to bus transportation.
It can be a tough industry and there are many threats facing transport businesses but if you get it right, you can build a successful business.
What is covered in this guide:
- How to start your transport and logistics business
- How to get funding for your transport business
- What are the costs involved
- Finding customers and getting transport contracts
- Getting onto suppliers lists
- Buying trucks and employing drivers
- What are the regulations and risks
- Where to find guidance to start your business.
Ready to get going? Click the arrow button to learn how to start your own transport business.
Starting a transport business
Director Mike Johnston of Transport Concepts, a transport and distribution consultancy, says that starting a transport business can be tough. It is a hard industry for start-ups not just because it is capital intensive, but because you need to be reliable.
“Credibility is critical for a start-up transport company as any businesses requiring transport services has to know you are not going to let them down”, explains Johnston.
Threats facing the transport business are not just crumbing and congested roads and highways, traffic fatalities and injuries, but financial issues as well. “Don’t over indebt yourself. Take it slowly and make sure that you have the necessary skills. By this I mean, you might have the driving skills and licences, but you also need financial and business skills.”
“It’s best to have mentorship before you embark into this industry. Some of the areas you need to understand include the Traffic Act, operating cost estimates, licence fees, toll fees, maintenance and the escalation of fuel and other costs as well as vehicle performance formulae and terminology”.
“Remember there are vehicle schedules, staff duty rosters, maintenance programmes to worry about. Avoid running a business that is demand-responsive (ad-hoc jobs) because this results in operations being random rather than planned. Think about each job offered and ask yourself if it’s what you are looking for, will it be profitable? If not, rather walk away,” Johnston advises.
How easy is it to start a transport and logistics business?
The transport and logistics industry is an easy business to enter, but the trick comes in sustaining the business. The transport business has a ‘low barrier to entry’ at the bottom of the market, meaning that anyone with a ‘bakkie’ or a minibus can start offering transport services. This results in a flood of competition at the bottom end of the market.
In many instances the entrepreneur starts these businesses with little to no capital, relying instead on revenue derived from the business to cover all overheads from day one. This lack of capital curtails marketing activities that may result in increased income.
With fierce competition, operators cut prices to survive barely making enough to cover their expenses. This naturally leads to a distressed business that is unable to survive.
Before starting a transport and logistics company, do your homework. Work out how you will build a sustainable business. Seek out customers and contracts BEFORE you start the business because transport contracts don’t magically appear later on.
Next up > How to find funding
How To Get Funding
The transport business has a ‘low barrier to entry’ at the bottom of the market, meaning that anyone with a ‘bakkie’ or a minibus can start offering transport services. This results in a flood of competition at the bottom end of the market.
In many instances, the entrepreneur starts a business with little to no capital, relying instead on revenue derived from the business to cover all overheads from day one. This lack of capital curtails marketing activities that may result in increased income.
Related: Business Funds: Where to Look
Where to go for finance when starting a transport and logistics business
- Commercial Banks. Commercial banks will finance vehicles used in the transport industry. Before you approach the bank for funding you must be able to show the bank that you have the necessary expertise to run a business by producing a well constructed business plan. You will need security (personal surety and or assets) to cover the loan amount that you need.
- Khula Start-up Fund. Khula Start-up Fund has been created to empower South Africa’s historically disadvantaged entrepreneurs to establish new enterprises. Individual solutions are structured after having assessed the potential return of the venture and level of risk. Loans are repaid over a 5-8 year period SME’s can apply for finance between R150 000 to R3 million.
- IDC Metal, Transport and Machinery Fund. The Industrial Development Corporation assists entrepreneurs to finance vehicles, components and accessories as well as diverse transport products such as boats, planes and trains. Repayment is usually made over 5-10 years depending on the risk profile.
Get Funded: More on Government Funding and Grants
It’s all in the approach
Getting funding is one of the most difficult things for any start-up to achieve. If a business owner walks into a bank and asks to loan two million to start a transport business, the chances are very good that the response will be a negative one.
Protect your credit record
If you do not have a good credit record, no one will want to loan money to start a business, especially commercial banks. It is very important to communicate regularly with your bank, and service your accounts responsibly. By having a good credit profile, you are over the first hurdle.
Find out what documents the bank needs
Contact the bank and find out what information the bank will require before applying for a loan. It always makes a good impression when you are organised.
Show the bank you have the expertise
Before approaching a bank, you must be able to show them that you have the necessary expertise to run a business by producing a well-constructed business plan.
Related: How to Write a Funding Proposal
Security is required
You will need security (personal surety and or assets) to cover the loan amount that you need. It is important to show the bank realistic cash flow projections and balance sheets for two to three years.
Understand how banks operate
Create a careful breakdown of what finance you need, vehicles, start-up capital etc. Banks are usually departmentalised. For example, Standard Bank Vehicle and Asset finance division has a team of transport specialists who can advise you on the most suitable finance options with regard to buying vehicles, but they won’t be able to help you with regard to start-up capital.
You should have collateral
In order to borrow, privately or through commercial banks you must have collateral. South Africa’s big four banks offer the standard range of credit – overdrafts, revolving credit, term loans, business mortgages, vehicle and asset finance, property finance, and debtor finance. So if you want a loan of R100 000, you have a R10 000 deposit the bank many grant you a R100 000 loan if it considers you a good risk. Collateral can be in the form of a property, an insurance policy, someone standing surety, or a combination of these.
Rather seek finance in isolation
Once you have the vehicle finance, approved approach the banks Small Business Division for Start-Up capital. By seeking finance in isolation (department by department), it’s much easier to get approval. If you have, though the help of your mentor, secured a contract to transport goods, this too, will make it much easier to get finance, especially if vehicle finance has already been approved.
Consider government funding
There are a variety of Government Funds that have been created to empower South Africa’s historically disadvantaged entrepreneurs to establish new enterprises. Individual solutions are structured after having assessed the potential return of the venture and level of risk.
A partner could be the solution
If you do not have a deposit and cannot get approval for financing, consider taking a partner who may be able provide the necessary deposit.
If you are unable to get funding, consider renting instead of purchasing a vehicle and begin your business on a modest scale.
Next up > The costs involved with a transport business
What Are The Costs Involved
What are the ongoing overheads in a transport business?
One of the most important things to do in order to run a successful transport company is to understand your costs. Don’t take short cuts and remember quality controls and stringent maintenance to vehicles is crucial,” says Mike Johnston, director of Transport Concepts, a transport and distribution consultancy.
Besides capital outlay for equipment and vehicles, other expenses have to be considered:
- Garage or other facilities for vehicles stored at business premises
- Additional security features – e.g. immobilisers and tracking equipment
- Routine servicing and maintenance of vehicles
- Repairs for scratches, wear and tear (tyres) or accident damage
- Fuel costs
- Parking costs incurred for business use
- Toll charges incurred for business use
- Traffic fines
- Marketing and advertising programmes
- Salaries and benefits for staff.
By law, any vehicle using South African public roads has to be “roadworthy”. The responsibility of scheduling and taking a vehicle in for roadworthy testing rests solely on each individual vehicle owner.
Should trucks be leased or purchased?
Regardless of how vehicles are paid for, the cost of financing a transport business is the biggest expense which has to be dealt with. Make sure you do your homework and have an understanding of the different options available when it comes to paying for vehicles. You can consider the following options:
1. Financial Lease
- No upfront cash is needed
- A lease is flexible and can be “tailored” to suit specific cash flow
- Use of vehicles is funded from revenue
- Ownership remains with the lessor
- Rentals must be paid when due, regardless of cash flow start-up
2. Extended Rental Agreement
- Fixed rentals are a hedge against inflation
- Instalments can be paid from the revenue generated by use of the vehicle
- Be clear about exclusions
- Understand what portion of the rental is allocated to the maintenance component of the lease if there is one, and how this is set to escalate over the period of the agreement.
3. Installment Sale (often includes a Maintenance Lease)
- A small amount relative to the total purchase price is paid as a deposit
- Instalments can be paid from the revenue generated by use of the vehicle
- Fixed instalments assist budgeting
4. Outright Purchase – pay cash for the vehicles
- You can negotiate discounts
- Can be financed by employing overdraft fund
- Shows on the balance sheet as an employed asset
- Disadvantage include depreciation and maintenance
Whichever finance option you choose, it will have an affect on the cost of operating your transport company, the taxes you pay and the profits you can make.
What type of insurance is needed for a transport and logistics company?
- Drivers’ liability: You must have insurance for drivers’ liability for injury to others, including passengers, and for damage to other people’s property resulting from the use of a vehicle on a road or other public place.
- Comprehensive insurance: Which covers damage to vehicles as well as third-party liability, fire and theft, as well as sufficient cover for the goods transported in terms of damage and theft.
Next up > How to find customers and contracts
Finding Customers and Signing Your First Contract
Where to find a contract or customers for my transport business?
There are almost 4 000 road freight businesses registered with the TETA; many of these are small businesses, and they will be your most direct competition. To determine your target market the first step is to do in-depth research that will help you define who your customers are.
This is known as market research and it is this collection and analysis of information about consumers and your competitors that we help you plan your marketing strategy.
Areas to look into are:
- Manufacturers: They need their raw materials delivered to their workshops or factories
- Agriculture: Farmers use road freight haulers to move their animal feed, chemicals such as fertiliser and pesticide, livestock and agricultural products are transported by road
- Wholesalers: They need to have their stock delivered to their warehouses or wholesale outlets.
- Smaller services: Refuse removal, garden clean-ups, furniture and office movers.
Advertising your services
- Get your name out there. Try advertising in the local newspaper, or listing in the classified section of community newspapers in your area. Another successful avenue is the buying an ad in the Yellow Pages.
- Apply your business name, logo and contact details on to vehicles, to raise awareness when vehicles are out on the road.
- Join associations such as the Road Freight Association or the local chambers of commerce so that you can network with companies operating in your area.
In order to be successful in obtaining business contracts you have to demonstrate that you have experience in the industry and that you can sell your business based on a high standard of business principals and ethics. Ensure that you can offer a better service that no one else can.
If you have a history in the industry, it makes it much easier to win contracts.
- Speak to owners of similar businesses and make yourself known. The best source of information you can find about an area of business, is other business owners. One way for smaller operators to secure contracts is through sub-contracting. Subcontracting occurs when a transporter contracts to a third party and not to the principal. The subcontractor subcontracts to an established transport company which has the contract with the principal but perhaps does not have the capacity to carry out the contract.
- Make contact with businesses such as manufacturers, wholesalers and retailers to see if you can tender for work to deliver their goods.
As a small transport business, you can approach transport brokers and secure contracts through them.
Before accepting a contract though a broker, discuss the terms of the contract with your mentor, so that you have the proper checks and balances in place.
As a small transport business you can approach transport brokers and secure contracts through them.
A broker can take up to 20% of the contract value. “Be wary of who you choose to work with in the brokering industry as it is not well regulated and its wise to ensure that they are reliable and upstanding brokers”, recommends Johnston.
Boost Your Profits: Create a Winning Sales Strategy
How do you get onto a suppliers list?
There are almost 4 000-road freight businesses registered with Transport Education & Training Authority (TETA) of which many are small businesses, and they will be your most direct competition.
Winning contracts takes hard work and it takes of lot of networking to develop strong relationships in the industry that you are approaching. Trustworthiness is another very important aspect.
Next up > Getting onto a suppliers list
Getting onto a suppliers list
1. Offer a unique service
Remember, there are so many companies offering a similar service you have to find a way to provide an incentive for a company to make use of your services.
The way around this is to take a long hard look at your competition and offer something they don’t, such as faster turn around times, brilliant service or very competitive rates.
Often an established transport company may not be able to meet their contractual commitments because of unforeseen circumstances. Offer to pick-up any overflow and sub-contract the delivery. It’s often last minute business but creates a good opportunity to prove yourself as a reliable supplier.
3. Getting contracts from mining groups
If you fit into the historically disadvantaged South African profile, large mining houses support smaller vendors in outsourcing various contracts. For example, Anglo Platinum is committed to support and develop black economic empowerment (BEE) suppliers in South Africa.
It does so by supporting HDSA vendors in line with mining charter requirements. In other words, if you run a transport company and meet their qualifying criteria; Anglo Platinum may award a contract to your transport business.
Most large mining houses are committed to awarding tenders to vendors that are ethically, socially, and environmentally responsible as long as the vendors comply with their business principles and code of ethics.
To find out more contact the procurement departments who implement vendor social procurement programmes:
- Anglo Platinum
- Anglo Gold Ashanti
- Sasol Small-Business Development Division
These just a few of the many corporates that you can contact.
4. Sub contracting
One way for smaller operators to secure contracts is through sub-contracting. Sub-contracting occurs when a transporter contracts to a third party because they do not have the capacity to carry out the contract. The contractor subcontracts to a transport company who does not have the capacity to carry out the contract.
5. Bidding for tenders
A tender is an offer to do a particular job or supply particular goods or services at a particular price. To bid for the tender a business has an opportunity to put forward their services at their price to the organisation that has put out the tender. Many companies secure a good deal of work this way.
To be eligible to tender for a contract
- The business must have a good banking and credit record
- Be a registered business
- A record of delivering on time
- Be registered with the South African Revenue Services
- Make sure your tax is up to date
You can subscribe to Tenders South Africa who, on a daily basis, our extensive research network across South Africa tracks tenders and business leads from newspapers, gazettes, websites, tender bulletins, private companies, and public sector organisations.
- The Bulletin is available online edition on the Dti’s site, or the SA Government Online site.
- You can also subscribe by post to the Government Tender Bulletin for R34.20 per year, by contacting the Government Printer.
- Seda have a dedicated page that features tenders that are available countrywide.
Related: How to Create a Winning Tender
Next up > Finding drivers and purchasing the right trucks
Drivers and Your Trucks
Management and or owners should have qualifications such as the National Certificate in Professional Driving would be a benefit, as this qualification offers a broad range of skills including:
- Customer relations
- Freight loading
- Crane operation
- Occupational health and safety
- Abnormal loads
- Financial planning
- Operating a vehicle combination.
The Transport Education and Training Authority (TETA) accredit training providers countrywide.
A heavy duty driver’s license (code 10 to code 14) is essential. Hire legally qualified truck drivers. Do extensive background checks on your drivers before hiring them.
There is nothing more detrimental to a new transport business than a bad accident or any kind of incident with an unprofessional driver or illegally licensed driver. Training should be provided for Driver training.
Drivers should be trained in:
- Road safety awareness
- How to deal with fatigue
- The importance of carrying out routine vehicle safety checks
- What to do if there is an accident
- How to loading and unloading safely
- Drivers rights with regard to hours and rest breaks
Unlike the old public driving permit (PDP), which was only required by drivers of public carrier vehicles, the professional driving permit (PrDP) is also required by drivers employed by companies carrying their own goods. Drivers of the following vehicles must hold a license card, endorsed with an appropriate PrDP:
- Heavy goods vehicle, loaded or empty – (codes C1, C, EC1 and EC)
- Bus above 3 500 kg GVM – (codes C1, C, EC1 and EC)
- Bus or minibus with seating for more than 12 including the driver
- Taxi or other vehicle carrying paying passengers (e.g. an ambulance)
- Vehicle carrying more than 12, including the driver, whether or not it has enough seats and irrespective of its weight.
Related: Is Your Start-up Ready to Hire?
Next up > What are the regulations and risks
Regulations and Risks
The driver must be at least 25 years old and permits must be issued to carry:
- Class 1: Explosives
- Class 2: Gases
- Class 3: Flammable liquids
- Class 4: Other flammables
- Class 5: Oxidisers and Organic peroxides
- Class 6: Toxic and infectious substances
- Class 7: Radioactive
- Class 8: Corrosives
- Class 9: Miscellaneous, Difficulties in classification (includes generic or not otherwise specified substances, mixtures, waste and precedence of hazards.
What are the risks of transporting fuel across the borders of South Africa?
You should know about the two main organisations before you begin transporting.
There are two organisations to contact to establish the risks of transporting fuel across the borders of South Africa.
The first stop: RFA
The Road Freight Association (RFA) was established in 1975. This is a facilitating body that influences the state of the industry. The RFA provides specialist information regarding cross-border transport, development funding for emerging operators, education, health, the fuel price, law enforcement, labour relations and many other issues related to road freight transport. Contact them on +27 11 974 4399.
The second stop: CBRTA
The other organisation is the Cross-Border Road Transport Agency (CBRTA), a governing body that issues all cross-border permits for goods and passengers to and from neighbouring countries with whom South Africa has cross-border agreements.
How to get a licence to carry Abnormal Loads?
To transport a vehicle that does not comply with the requirements of the National Road Traffic Act of 1966 must apply for an exemption permit or an abnormal permit.
Is it permitted to convey goods for reward on a commercial vehicle, which only has a temporary vehicle license, or trade plate?
“A trade plate can only be used to move a vehicle between depots. You many not transport goods using a temporary vehicle licence,” explains Gavin Kelley of the Road Freight Association of South Africa.
The Road Freight Association of South Africa ( RFA) offers an SMME Starter Kit specially designed for Start-up Business which includes hints and tips on how to get into transport industry, how to source contracts, how to calculate financial projections and other important information.
Related: Trucking Business Plan
Next up > Find guidance to get you going
Need More Guidance?
Where to find a mentor to assist in launching a Transport and Logistics business
The Transport and Logistic industry in South Africa is very competitive and because this over-supplied market, mentorship will be very useful when starting a new business.
Many mentors have specific knowledge of specific types of businesses such as a transport or logistic business, a restaurant, hotel, bakery, butchery, supermarket, garage, or businesses in security, manufacturing, trading, or services.
Business Partners is the largest mentorship consultancy in South Africa and is a specialist risk finance company, and one of the few that provide debt and equity investment and property management services for small and medium enterprises (SMEs).
Business Partners invests in formal small and medium enterprises in all sectors of the economy. Business Partners Mentors assign the right mentor with the proven experience and skills, to assist start-ups such as yours.
The type of mentor you need
“Depending on the need, we would assign a suitable specialist to help. In this case, the need seems to be finance and marketing. We have specialist mentors who can help – even our typical generalist mentor could assist in this situation”, explains Pierre Mey, General Manager, Support Services for Business Partners.
”Our mentors provide a comprehensive service, covering everything you need to know about business management from basic, practical business functions, as well as to provide coaching, problem diagnosis, customised solutions, implementation assistance, and even investigations,” says Mey.
Mentors generally charge (a reasonable fee) on an hourly basis. You can also approach The Small Enterprise Development Agency (seda) who is the Department of Trade and Industry’s agency for supporting small business in South Africa. They offer help and guidance and usually do not charge for their services.
RFA SMME Starter Kit
The Road Freight Association of South Africa (RFA) offers an SMME Starter Kit specially designed for Start-up Business which includes hints and tips on how to get into transport industry, how to source contracts, how to calculate financial projections and other important information.
Where to find training to help you start a transport or logistics business
The Road Traffic Management Corporation provides regulated, professional training courses such as a National Certificate in Freight Handling. Contact TETA for a list of accredited training institutions.
Related: Getting DTI Funding
- South African National Roads Agency Limited (Sanral)
- Cross-Border Road Transport Agency (CBRTA)
- Transport Appeal Tribunal
- Road Traffic Management Corporation (RTMC)
- Road Accident Fund (RAF)
- The South African Bureau of Standards has developed a set of standards (Stansa TCI181B) called the Road Transport Management System (RTMS)
- To enquire about the operating license to transport scholars, tourists and general public The Registration and Licensing Chief Directorate of the Department of Public Transport, Roads and Works is responsible for the issuing of operating licenses.
- Call +27 11 355 9251 for information.
- Where to register a motor vehicle? The provincial motor vehicle licensing and registration (E-Natis office) can be reached +27 11 891 0107 during office hours.
Want To Start A Property Business That Buys Property And Rents It Out?
Information on starting a property renting business.
Start your property rental business using this guide
I would like to start a property business where I purchase the properties and I rent it out, I already have a paid up property that I am renting out but my taxes are too high on the rental income so I am considering starting up a business. Could you advise me on where I can get more information on the requirements to start this and provide some guidance on whether it would be wise to pursue this business?
Before starting any business, it’s important that you’re absolutely clear about why you’re doing it – and that it’s going to be something that excites you, drives you and challenges you in the long-term.
If you’re only considering starting a property investment and management company to try and reduce your taxable income, then I don’t believe this is an appropriate – or a sustainable – solution. You should rather consult a reputable financial adviser about other investment options that would better suit your personal needs.
If owning and managing properties is, however, an opportunity you would like to pursue, I would then recommend that you start off by equipping yourself with a proper understanding of what it actually means to be a landlord. This will help you to make an informed decision about whether or not you want to start this (ad)venture as an entrepreneur.
At a very basic level, here are some of the things you might want to consider to determine if this is the right business for you:
You need to consider the initial cost that you will be incurring when setting up the business, especially since you have a property in your personal capacity.
You will need to transfer the property from your personal capacity into your business and pay transfer fees and transfer costs.
These costs will be calculated based on the current value of the property.
The work and planning
No matter whether you’re a residential or commercial landlord, property management requires a great deal of work and planning. Remember you will be responsible for all aspects of the property: From purchasing it to maintaining it on a day-to-day basis.
This involves everything from transfer to managing the monthly utility bills, all the way through to replacing the geyser when it bursts and ensuring your tenants behave appropriately in the building. You would also need to source your tenants and ensure that they pay you on time.
All by yourself
From a start-up perspective, you would probably need to do all of this yourself in the beginning. As such, you would need to work to build up your own database of reputable suppliers: Plumbers, electricians and handymen. It’s important that you find experienced, qualified suppliers that you can trust, and who will be able to deliver on time and cost-effectively.
This can be a very time consuming process. Also consider that you would need to be on hand to facilitate all of this work: Arranging the call-out with the supplier and the tenant; overseeing the work delivered; paying the supplier etc.
Business owner development
Above and beyond that, you’re then going to need to develop yourself as a business owner. You will need to equip yourself with the skills and knowledge required to lead and manage this business in order to make it both sustainable and profitable. This will require a significant investment from you: Time, effort and money. The more you commit to this journey of personal and professional development, the better your chances of success.
If you can picture yourself doing – and enjoying – all of the above, it’s then equally important to consider if this is a viable opportunity.
The greatest barrier to entry in this sector for you as an entrepreneur is probably going to be finance. You need to be conscious of this from the outset.
- Do you already have access to the funds you need to purchase the properties you are going to rent out?
- If not, what are your plans to secure this funding? And what are the returns you are expecting?
- Also consider the funding of the business itself. How will you finance this, especially during the first year?
My recommendation here is to take the time to do your homework – and the maths. While this could be a business opportunity, it might not be something that will be possible for you to do on your own.
If you have a feasible plan regarding the above, you then need to start working on developing a model for this business – as well as a strategy and plan. All of these will require research on your behalf: From reading Entrepreneur to accessing websites, possibly visiting walk-in centres etc.
This will include unpacking the actual opportunity itself – and determining if there really is a demand for your service offering.
Please note that the above are thinking or “trigger-points” – listed simply to give you an idea of some of the things you need to consider, as well as the mindset you will potentially need to adopt as an entrepreneur. Your response to them should give you a good sense of if this is the path you wish to walk.
Remember that entrepreneurship is a journey – and every day on this road is a learning opportunity. If it is for you, embrace it whole-heartedly, don’t be afraid of failure and be sure to seek out the assistance available to you.
How Do I Start A Child Services Business?
The ultimate guide to starting a child care or child services business.
Is It for You?
Does children’s laughter sound like music to your ears? Do you enjoy the idea of six kids chaotically crawling at your feet at any given moment? Then read on for your perfect business.
The number of working parents – including single-parent families and families with both parents employed is climbing, creating an ever-growing need for quality child care. That need is creating a tremendous entrepreneurial opportunity for people who love children and want to build a business caring for them.
Related: Free sample business plans here
Child-care services range from small home-based operations to large commercial centers and can be started with a small investment.
You can stay very small, essentially just creating a job for yourself, or you can grow into a substantial enterprise with potentially millions of Rands a year in revenue.
You also have a tremendous amount of flexibility when it comes to the exact services you choose to offer. You may limit your clientele to children in certain age groups or tailor your operating hours to meet the needs of a particular market segment. You may or may not want to provide transportation between your center and the children’s homes and/or schools. You may want to take the children on field trips.
As an alternative to child care, you may want to consider a business that focuses solely on providing transportation for children. Of course, the basic work you’ll be doing − caring for someone else’s children − bears a tremendous amount of responsibility and requires a serious commitment. When the children are in your custody, you are responsible for their safety and well-being.
You will also play a key role in their overall development and may well be someone they’ll remember their entire lives.
Filling an important need
One of the biggest challenges facing South African families today is caring for their children while the parents work. According to Stats SA 39% of women head households in South Africa. A higher percent than ever of married-couple families, both husband and wife work outside the home. The labor-force participation of women in their childbearing years continues to expand. As the number of working parents rises, so will the demand for child care.
Another issue that has an impact on child-care issues is the new, 24-hour global market. Occupations with a high number of employees working nights and weekends − such as janitorial, hospitality, customer service and technical support − are experiencing substantial growth, and workers in these fields find obtaining quality child care an even greater challenge than their 9-to-5 counterparts. For many working parents, there is no single solution to their child-care needs.
More than a third use more than one option, such as day-care centres part of the time or full time or use domestic staff to provide care for children who don’t attend a daycare centre.
Do you have what it takes?
What are the characteristics of a person who would do well operating a child-care. The person needs to be energetic, business-minded, a competent leader, have a pleasant personality, be professional, be willing to take calculated risks, be a good role model, have strong financial resources, be consistent in expectations of the staff, and be consistent in the delivery of service.
A child-care business can easily be started in your home with just a few weeks of planning and a modest amount of start-up cash. A commercially located centre takes a greater investment of time, energy and money. The size and type of business you choose will depend on your start-up resources and goals for the future.
Many child-care providers are satisfied with a one-person operation in their home that generates a comfortable income while allowing them to do work they enjoy (and possibly even care for their own children). Others may start at home and eventually move to a commercial site as the business grows. Still others begin in commercial locations and are either content with one site or have plans to expand.
The Beginning Stages
As you complete your startup efforts, use this checklist (and tailor it to your own needs) to make sure you’ve covered all your bases before you open your doors.
- Type of centre: Will you operate from your home or a commercial location?
- Licensing: What licenses are you required to have and from which agencies? What are the requirements, costs and lead times?
- Training and certification: What types of training and/or certification do you need?
- Market: What are the child-care needs of your community?
- Location: Choose a site that is appropriate and affordable.
- Legal requirements: Check on zoning and any other legal issues. (See regulations later on in the story)
- Financial issues: Estimate your start-up costs and identify the source(s) of your start-up funds.
- Health and safety issues: Plan for accident and illness prevention, and develop emergency procedures. See regulations later on in the story)
- Programs: Develop an appropriate schedule of activities for the children.
- Equipment: What do you need to adequately equip your centre, where will you get it, and how much will it cost?
- Insurance: What coverage do you need to adequately protect yourself and the children in your care?
- Staffing: If you plan to hire people, know the required staff-to-child ratios and develop your human resources policies.
- Links: What community and professional resources are available to you?
Conducting Market Research
Prime candidates who need full-time child care are parents with infants to 5-year-olds. Parents with children over 5 are good prospects for after-school care programs. The market segments most likely to use child-care services are dual-income families and single-parent households in most income brackets.
A number of government programs help low-income families pay for child care so the adults can stay in the work force.
Within this very broad market is the narrower group of clients you’ll serve. Use market research to figure out who these people are and how you can best attract them to your center. Lois M. says the primary market at four of her six locations is parents who are upper-income working professionals; the other two centers serve a number of middle-income families as well as those being subsidised by public funds.
Janet H. says about half her clientele consists of dual-income families, and the other half is single mothers who receive government assistance as they work through programs designed to get them off welfare. The goal of market research is to identify your market, find out where it is, and develop a strategy to communicate with prospective customers in a way that will convince them to bring their children to you.
When Lois M. opened her first centre, her demographic research revealed that there were 9,000 children from infant to 5 years old within a 5-mile radius of the site; half the pre-school children in the area were in day care of some sort because their mothers (or both parents) worked; and the number of households in the area was expected to double within a decade. Contained in that 5-km radius were six child-care centres serving approximately 800 children.
Brenda B.’s research wasn’t as sophisticated. Living in a small town, she knows just about everyone and is well aware of the lack of child-care services.
“There’s such a need for day care,” she says. “I go through periods where I’ll get as many as five calls a week from parents needing care, and I don’t have room for them. I’ve had families on my waiting list for up to two years.”
What licenses do you need to start a pre-school?
Early Childhood Development Centre have to be registered with the Department of Social Development (DSD). This registration can be done through your local branch of the DSD.
The DSD suggest that you follow the following steps:
- Complete an application form for registration as a place of care. You can get the application form on the web.
In order to apply you must submit a weekly menu and daily programme and then submit the following information:
- A building plan/hand drawn sketches of building
- A copy of constitution, signed and dated (only if you also require funding)
- Service/Business Plan (for application for funding
- Financial report of the past year (for funding purposes)
- Contract with the owner of the building (lease – for funding purposes)
Once the documentation is approved, you will have to undergo an assessment from the Local Authority on structural and health requirements
What types of child-care services can be offered
Before you open your doors to the first child, you should decide on the services you’ll provide and the policies that will guide your operation. To simply say you’re going to “take care of children” is woefully inadequate.
- How many children?
- What ages?
- What hours?
- Will you provide food or ask their parents to?
- What activities will you offer?
- What sort of price and payment policies will you have?
- And the list goes on.
Your first step is to check with the appropriate regulatory agencies, which in South Africa is your local municipality and the local division of the Health Department. They will explain to you what’s involved in providing particular services.
For example, each province has its own guidelines for the maximum number of children and maximum number in each age group in a family child-care facility. Municipalities in various regions also have guidelines regarding caregivers. There will likely be other requirements and restrictions, depending on the type of facility you run.
Decide what services to offer based on your own preferences and what your market research says your community needs. Your choices include:
- Full-time care during traditional weekday hours
- After-school care
- Non-traditional hours (very early mornings, evenings, overnight care, weekdays and/or weekends)
- Drop-in or on-demand care, either during traditional or non-traditional hours
- Part-time care
- Parents’ night out (weekend evening care)
- Age-based care
How to find the right location for a child-care business?
If you’re going to open a center on a commercial site, it makes sense to locate your facility close to your target market. Some parents may prefer a center close to home; others may choose a center close to their workplace. In the latter case, parents get to enjoy more time with their children during their morning and evening commutes, as well as the opportunity to spend time with them during the course of the day, perhaps for lunch or special programs.
Some site suggestions to consider include:
- A facility within or adjacent to a residential neighbourhood or near a school
- A facility in a shopping centre where parents with children are likely to pass by
- Sharing a facility with other community organisations
- Office and planned light-industrial parks with a sizable work force.
Opening a child-care centre at home
If you’re going to open a child-care centre at home, discuss your plans with family members and neighbours before you open. Younger children may resent other children coming into your home and changing their lifestyle.
Older children − especially teenagers who will need to be told what’s expected of them and what they can expect as your business gets off the ground. Spouses may not completely understand the time commitment involved in this business, so talk about things in detail well in advance of bringing the first client in.
You may find that your extended family and friends don’t really understand what’s involved in a professional child-care business and may think that, since you’re at home during the day, you’re “not really working” or you’re “just baby-sitting.”
Talk to your neighbours about the impact your business will have on them in terms of traffic (as parents drop off and pick up their children) and noise (think about the decibel levels five or six children can generate when playing). Let them know what steps you’ll take to keep any irritation or inconvenience to a minimum, and reassure them that they should feel free to contact you with any concerns or questions.
Some family child-care centre operators have certain rooms of their homes designated for their business; others use their entire homes. Your decision will be based on your state guidelines and personal preferences.
Brenda B. has a playroom for the children, but they are not restricted to that area; she says she pretty much uses her entire house and her large, fenced backyard for her business. Sherri Ax’s house in Durban has a living room that serves as the primary child-care area.
How much cash is needed to start a child care business
So what do you need in the way of cash and available credit to open your doors? Depending on what you already own, the services you want to offer and whether you’ll be home-based or in a commercial location, that number could range from a few hundred to tens of thousands of Rands.
As you consider your own situation, don’t pull a startup number out of the air; use your business plan to calculate how much you need to start your ideal operation, and then figure out how much you have. If you have all the cash you need, you’re very fortunate. If you don’t, you need to start playing with the numbers and deciding what you can do without.
Start-up costs can be low
Many of the child-care entrepreneurs we talked with used their own personal savings and equipment they already owned to start their businesses. Because the startup costs for a family child-care business are relatively low, you’ll find traditional financing difficult to obtain − banks and other lenders would much rather lend amounts much larger than you’ll need and are likely to be able to qualify for. A commercially located centre will take a more substantial investment and would likely qualify for a bank loan.
Brenda B. estimates that she initially spent R3000 to R4000 on equipment for her family child-care centre. She shopped at second hand shops and accepted donations of used toys and other items from friends and acquaintances.
Janet H. spent considerably more – about R40 000 – to set up her family child-care centre because she remodeled her garage to serve as the primary room for her business as well as added a bathroom for the children. When she opened her first commercial location, she used a combination of personal savings and credit cards to pay the expenses. By the time she opened her second location, she was able to qualify for a commercial loan.
Lois M. took out a second bond on her home to get the R105 000 she needed to adequately equip her commercial centre when she opened. Yvette B. in Miami, put R250 000 of personal savings into her children’s transportation service. Deborah B.’s start-up costs Johannesburg, were in the range of R40 000 to R50 000, which she funded primarily with personal credit cards.
As you’re putting together your financial plan, consider these sources of startup funds:
- Your own resources. Do a thorough inventory of your assets. People generally have more assets than they immediately realise. This could include savings accounts, equity in property, insurance policies, unit trusts, and other investments. You may opt to sell assets for cash or use them as collateral for a loan. Take a
- Look, too, at your personal line of credit. most of the equipment you’ll need is available through retail stores that accept credit cards.
- Friends and family. The next step after gathering your own resources is to approach friends and relatives who believe in you and want to help you succeed. Be cautious with these arrangements; no matter how close you are, present yourself professionally, put everything in writing, and be sure the individuals you approach can afford to take the risk of investing in your business.
- Partners. Though most family child-care centres are owned by just one person, you may want to consider using the “strength in numbers” principle and look around for someone to team up with you in your venture. You may choose someone who has financial resources and wants to work side by side with you in the business. Or you may find someone who has money to invest but no interest in doing the actual work. Be sure to create a written partnership agreement that clearly defines your respective responsibilities and obligations.
Take advantage of provincial and national government grants and funding programs designed to support small businesses. Women, minorities should check out niche financing possibilities designed to help these groups get into business.
Regulations, legal and licences
You have to register with the local municipality and apply for a health permit. Contact the Department of Health who will refer you to the correct area that you are zoned for and provide. Once you have selected a venue you have to register with the local municipality who in turn follows the regulations laid down by the Department of Social Development in accordance with the Childcare Act, 1983 ( Act No 74 of 1983).
When approving an application for registration, the Council can impose further conditions and restrictions as it sees fit. Once the application for registration has been approved, the Council will issue a Certificate which will:
- State the name of the person to whom it is issued
- Describe the premises in respect of which the application was approved
- Will specify any conditions or restrictions which it may have imposed
- Will state the period for which the premises will be registered.
The crèche or crèche-cum-nursery school has to comply with health by-laws to the to the satisfaction of the Medical Officer of Health who issues an Environmental Health Permit which every day centre or crèche should have. Setting up a crèche or day care centre regulations state that there should be:
Office, staff room and sick-bay
If there are more than 30 children are cared for on the premises, provision should be made for a separate office large enough to be divided into a sick bay to accommodate at least two children, as well as a staff room. These can be combined
Indoor Play Area
- There must be an indoor play area covering a minimum floor space of 1,8m² per child to be used for play, meals and rest.
- Cots and mattresses utilised for sleeping purposes by children must be arranged so that there shall be a minimum of 50cm space between the cots or mattresses.
- The kitchen must have suitable cooking and washing facilities. Kitchen has to be separate from the play area and not be accessible to the play area or the children
- There must be adequate natural lighting and ventilation
- Wall surfaces should have a smooth finish and should be painted with a washable paint
There must be one toilet and one hand washing facility for every 20 or less children under 5 years of age, irrespective of sex.
- Or one toilet and hand washing facility for every 20 or less children above the age of 5 years, separate for each sex.
- Separate toilet facilities must be provided for the staff as set out in the National Building Regulations.
- There must be a supply of hot and cold running potable water at the wash-hand basins, or if no running water is available, a minimum of 25 litres of potable water, stored in a hygienically clean container.
- If potties are used they must be emptied, cleaned and disinfected with a disinfectant immediately after being used and stored in a suitable place
Outdoor play area
If you have an outdoor play area it must provide at least 2 m² per child. The play area must have shady areas or other safe surfaces, be fenced / walled and have approved lockable or child-proof gates and should be free of excavations and dangerous steps and levels.
The crèche must keep a health register.
What licences are required and what legal, health and safety steps that must be taken?
A safe playground is crucial
Operating a safe playground for children to enjoy means that you have to follow the regulations as stipulated by the local council. You must also take advice from your insurer and your lawyer.
It is important to buy liability insurance, including accident and equipment liability. Be sure to get a detailed list of insurer’s requirements and follow those to the letter. When purchasing play structures, make sure that they include warranties.
Comply with local council
Once the playground is built, you will have to comply with health by-laws to the satisfaction of the Medical Officer of Health who issues an Environmental Health Permit for the playground. You will have to undergo an assessment from the Local Authority on structural requirements before you can open the business.
Health and safety bylaws apply
In terms of the playground, the business has to comply with health by-laws to the satisfaction of the Medical Officer of Health who issues an Environmental Health Permit for the play area. You will have to undergo an assessment from the Local Authority on structural requirements before you can open the business. Contact the DoH and request the details of the local authority in your area
Getting your own licences is difficult
If the business is an independent operation, it’s harder. Your first step is to check with the appropriate regulatory agencies, which in South Africa is your local municipality and the Department of Health. Each municipal area has different by-laws, which is why it is so difficult to be specific in terms of licence requirements. The local council will explain to you which licences are required in providing particular services.
Food and liquor compliance
To serve food, a Certificate of Compliance for Food Preparation is required. If you sell any form of alcoholic beverage, you have to apply for a liquor licence.
Get legal advice
Consider consulting an attorney to ensure that you have all the correct licences. Browse through the Entrepreneur legal directory for options.
How to set prices and receive payments for a child care business?
The fees you charge will provide the financial base for your company and your income. They need to be competitive in your market, reasonable and affordable for the parents, and also fair to you. You need to consider a variety of issues, including your costs, the profit you want to make, the going rates in your area and what the families you’re targeting can afford. Setting your rates, explaining–and often justifying–them to parents and then collecting the money are all part of being in the child-care business.
Since you’ll be offering a carefully planned curriculum that is far more than a mere baby-sitting service, you are justified in establishing a fee structure similar in design to a private school. A one-time enrolment charge of half a week’s tuition will hardly raise an eyebrow, but it will compensate you for the cost in time, paperwork and special attention each entrant needs.
Calculating how much to charge for space in your centre will be based primarily on three variables:
- Labour and materials (or supplies)
A fourth factor uncommon to most businesses but significant for a child-care centre the limit to the number of children you can accommodate. In most fields, if your business grows, you just keep hiring employees to serve the increasing number of customers. But in child care, municipal by-laws and practicality limit the number of children you can accept, putting a lid on the income potential of your business. To overcome this, successful child-care centre operators often open more locations in nearby areas to increase their client base and income.
Forms of Payment
You’ll receive payments by check and cash, and you may also want to set up a merchant account so you can accept credit cards or electronic transfers. Check with your bank or the different credit card companies for information on accepting credit cards. Many child-care and transportation service providers find that automatically debiting parents’ credit cards is the easiest way to obtain payment. “A debt order every month is the easiest way to get your money,” says Yvette B. “There are discount fees involved, but its well worth it.”
In most parts of South Africa, the demand for quality child care is so high that marketing your business will be relatively easy. In fact, many of the providers we talked to for this story − especially the home-based centres − do little or no marketing because they’re established, with strong reputations and waiting lists.
But every business needs a marketing plan, and yours is no exception. All your marketing materials should be professional and letter-perfect. Consider hiring a graphic designer and/or professional writer to help you with your marketing package. If they have children, you may be able to negotiate their fees in barter.
Keep these questions in mind as you form your marketing plan:
- Who are your potential customers?
- How many of them are there?
- Where are they located?
- What are they currently doing for child care?
- Can you offer them anything they’re not getting now?
- How can you persuade them to bring their children to you?
- Exactly what services do you offer?
- How do you compare with your competitors?
- What kind of image do you want to project?
The goal of your marketing plan should be to convey your existence and the quality of your service to prospective customers, ideally using a multifaceted approach. The child-care center operators we talked with used a variety of marketing methods, from simple word-of-mouth to more sophisticated techniques.
Ask new clients how they found out about you. Make a note of their answers and what kinds of businesses they represent (how many children they could potentially refer to your business). This will let you know how well your various marketing efforts are working. You can then decide to increase certain programs and eliminate those that aren’t working.
How many children can a day-care centre accommodate before registering the business?
If there are five children or less you do not need to register the business. However, once there are six or more children you have to register.
When should a day-care centre be registered?
“You only need to register a day-care centre if there are six or more children,” says community development officer, Tinyiko Shibambu at the Department of Social Development in Johannesburg. “First you have to register the business as an NPO (Non Profit Organisation). Once you have a NPO certificate, then you can register the day-care centre with the Department of Social Development,” advises Shibambu. Contact the Department of Social Development for details.
Procedure to register an NPO
There is a specific registration process to follow in order to register an NPO
In a crèche scenario, how many caregivers should there be for the number of children in a class?
According to the Department of Social Welfare, to operate a basic crèche you must have a minimum of three staff members per class. In South African childcare centres, the staff to child ratio for 0-2-year-olds in an ideal situation is one caregiver to every five children, 1:5. For 2-3-year-olds, the ratio is 1:10. However, according to the Department of Social Welfare, to operate a basic crèche you must have a minimum of three staff members per class and you can employ more if the business can afford it. However, it is best to contact the municipal office in your area and check the regulations as each municipality has different regulations
What goes into effectively managing a child-care business
The high rate of attrition in the child-care business is driven in large part by the fact that many caregivers focus almost exclusively on nurturing and caring for the children in their charge, and neglect the financial and management sides of their operations. But whether your goal is a small, family child-care centre or to build a chain of commercial locations, you must deal with administration and management issues if your business is going to survive. If you plan ahead, that won’t be hard.
Set up your financial record-keeping system
From the outset in a way that will provide you with the information you need to monitor your profitability and handle your tax payments to SARS. You may want to hire a consultant or an accountant who specializes in small businesses to help you at first; this small investment could save you a substantial amount of time and money in the long run.
Spend time marketing and doing admin
Expect to spend a significant amount of time on management, marketing and administration. If you have employees, they need to be trained and supervised. Although the demand for child care is high, parents won’t be able to find you if you don’t market your service.
And keeping up with administrative details–paying accounts, buying supplies, doing budgets and forecasts, meeting ongoing licensing requirements, facility maintenance, etc.− is a never-ending process.
Choose staff very carefully
The staff that you employ must be children-friendly. Conduct thorough background checks on all potential staff.
Ready to Take the Next Step?
You will need to create a business plan to get you going.
Here is a Free Sample Business Plan.
Capital is essential to starting up your business. You can self fund, or alternatively seek outside funding to assist you in starting up your business.
Here are New Ways SMEs Can Find Funding.
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