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What Tradesmen Should Consider Before Starting their Own SME

SME success for tradesmen requires additional financial skills.

Standard Bank

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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:

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 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 community.standardbank.co.za

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Business Landscape

How Investors Can Take Advantage Of The Rand’s Currency Trading Rates

Negative sentiment is likely to be pervasive with the SA economy, and it will take more than a new figurehead in government to right the wrongs of a mismanaged economy.

Harald Merckel

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The USD/ZAR currency pair is trading in the 13.65 range heading into mid-December 2017. Over the past year, the 52-week low was 12.3126, and the 52-week high was 14.5742. As one of the more volatile currencies in the trading spectrum, the ZAR is closely associated with the political shenanigans taking place in South Africa.

The year to date return for the currency pair is -0.50%, after having started 2017 at 13.7351. Much of the activity taking place with the ZAR is speculative. Futures contracts are largely responsible for the whipsaw movements in prices.

Wilkins Finance strategists stress the importance of credit ratings agencies on currencies:

‘Whenever credit ratings agencies such as Moody’s and Fitch downgrade their assessments of the South African economy, this has a negative impact on the ZAR. The impact is not always predictable however – towards the end of November 2017, the USD/ZAR had appreciated after the recent ratings downgrade of the economy.’

Moody’s Investors Service downgraded South Africa’s economy to a rating of Baa3. This is the lowest rating level for Moody’s. Further ratings will be announced in February next year. Fitch has already downgraded the foreign currency and local currency to BB +, but has offered a stable Outlook for the ZAR.

Related: The Business Of Anxiety In Business: Giving Heroes Permission To Feel Vulnerable

That S&P also downgraded the South African economy to sub-investment grade is an important decision, and one that will have negative ramifications for the South African bonds market. Now, the Barclays Global Bond Index will no longer feature South African bonds. That South Africa’s bond market will be excluded from the World Government Bond Index will also be a bugbear to any hopes of the ZAR appreciating.

Interest Rates in the South African Economy

The South African interest rate is highly attractive to foreign investors, given that the UK, US, Canada, Japan, and European bank rates are at historic lows. There is little to be gained by investing cash in fixed-interest-bearing securities in these economies. The current interest rate in South Africa is 6.75% (as at November 23, 2017). The interest rate has dropped to expand economic activity in the country.

Overall, South Africa’s inflation rate for the year is expected to remain at 5.3% dropping to 5.2% in 2018 and rising to 5.5% by 2019. Global investors remain concerned about the risk/reward environment in South Africa. The country has experienced significant capital outflows in recent years, driven in large part by uncertainty regarding future prospects. The USD/ZAR was trading at 14.60 in late November, and current ZAR strength is being attributed to USD weakness.

Related: Offshore Business Opportunities Abound For South African ‘Oldpreneurs’

Factors on Both Sides of the Atlantic

One of the major economic events affecting exchange rates will be the reconciliation of the House and Senate bills on US tax legislation. Any major overhaul of the US tax code will invariably result in a dramatically boosted USD, and a weakened ZAR. For traders, it appears to be short-term call options on the local currency and long-term call options on the USD.

It is evident that currency traders are hedging against the ZAR over the long-term. The fundamentals of the economy are structurally unstable. The power grid infrastructure, water supply problems, and political instability at the highest echelons are but a few of the many problems plaguing South African growth prospects.

However, the ZAR will draw strength from the election of a credible leader, and this will be particularly noteworthy with Cyril Ramaphosa’s appointment. Overall, negative sentiment is likely to be pervasive with the SA economy, and it will take more than a new figurehead in government to right the wrongs of a mismanaged economy.

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Business Landscape

Get Cracking

For many people, the holiday season represents a time of change.

Rhyse Crompton

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For many people, the holiday season represents a time of change. Some folks have made the decision throughout the year to start a new business in 2018, and the festive season’s message is one of hope for a bright new entrepreneurial future. Unfortunately, for most, this dream can become a nightmare without considerable amounts of planning on part of the entrepreneur and start-up founder.

So, without sounding too depressing, Christmas and New Year’s should be a time for stringent planning rather than celebration for the season and the year ahead. Call me Ebenezer Scrooge, but hitting the laptop and doing research is the best thing an entrepreneur can do while family and friends are unwrapping gifts or holiday-making.

As a business owner who has used the month of January as a starting block for my foray into a new industry, I can say that one of the problems I encountered was not accurately defining my customer personas, both in real-time and online. It got me thinking; if I can make the mistake when it comes to accurately segmenting customers in real-time, how many people make the mistake of inaccurately creating customer personas for their online brands?

It’s All About the Customer

Creating a customer persona is easy. Most business founders have an idea of who their customer is before marketing their product. And once you know who the customer is, its just as easy to find out their likes and dislikes, as well as their habits.

Related: Want To Leave Customers Grinning And Vowing To Return? Do The Following

The best way to create customer personas is to base your personas on research and data. Many established businesses find this a simple task, as they have a wealth of clients from which to draw this data. Unfortunately, this is not the case for business founders, so they must carefully test the waters using surveys, third-party research, and an ear-to-the-ground within the industry.

Once a business understands its various buyer personas, it’s time to start considering the typical online buyer persona…

Characteristics Mapping

Just because you can accurately determine your optimal customer due to your created customer personas, you may have to create alternative personas for online consumers. This is because a slightly different person will be looking for your product online.

As an example, Bob owns a pool business, building as well as maintaining pools for residential clients across Johannesburg. Bob’s nominal customer persona is that of Adam, the 40-something business owner who owns a home in a middle-class neighbourhood. Adam is likely to come across Bob’s out-of-home marketing material, or comes to Bob for business through referrals. However, Adam differs from Lerato. Lerato is a different age, race and gender. Even more importantly, Lerato looks for products and services exclusively online. To appeal to Lerato over Adam, Bob’s customer persona must be changed for the online customer, and the online customer must be exposed to tailored content to be appealed to.

Lerato also lives in a middle-class neighbourhood, but Lerato has young children, while Adam’s children have now moved out of home. This means that Bob can take advantage of Lerato’s need for pool safety nets and a custom-built pool fences, and Bob will make sure that Lerato is exposed to content about these services while making her online journey.

Content Mapping

When creating online material, ensure that it is developed to take advantage of the online customer. One mistake that business owners make is that, in their attempts to be recognised as industry leaders, they try very hard to use industry specific language. They make attempts toward showing their prowess in the trade and showcase their own certification and business journey.

The online customer persona representing the business’s primary online buyer does not care about the business’s goals and objectives, and they have no clue as to what is being said when the website uses online lingo. They want content created for them; they want to know why they need the product or service, they want to know that they are using the best business for the job, and they want social proof regarding the service offered.

Make sure that you do proper content mapping research, and identify the online journey taken by the consumer through online channels before they make a purchasing decision.

Related: Direct Marketing: Go Where Your Customers Are

Take this a step further and make sure that you define several online customer personas. Determine the value of each persona and structure content and the consumer journey for the most profitable of the personas. Additionally, determine the lifecycle of the journey, how much attention a segment of online content generates, and capitalise accordingly. For example, if most of the purchasing decision is made on the product or service landing page, make sure that the landing page is optimised as often as possible to increase your business’s revenue.

Starting Blocks

Hit January 2018 running, and make sure you understand your online client before receiving your first online lead. And if you make a few mistakes initially, don’t worry. 2017 was – and 2018 will be – known for being the year of big data, where business owners make operations and marketing decisions based on the behaviour of customers online. Always analyse the data available to your business when made available, and make changes accordingly. The best of luck for the year ahead!

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Business Landscape

How South African Small Business Owners Can Overcome Economic Uncertainty

Here are three things you can do to overcome these economic challenges.

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South Africa’s entrepreneurs haven’t had it easy. The current political landscape coupled with global uncertainty has brought with it significant business instability.

This is evidenced in Xero’s 2017 State of SA Small Business Report which found that 68% of small businesses view economic instability as their number one challenge, while 38% are concerned about their cash flow.

Within the small business community, the report also highlights a growing frustration with the government’s lack of support to help keep them afloat. Despite being set up to do just that, 89% of small businesses don’t feel that The Department of Small Business provides the right support.

This lack of support extends across government: 48% of entrepreneurs would like to see more funding, 44% want less red tape, 43% call for more tax breaks, and 36% want better access to finance. While these requests are perfectly reasonable, they’ll only take effect if the government gives them the go-ahead.

Implementing more measures to support small businesses will take time. This means 2018 is going to be just as challenging as 2017 – if not more so.

Related: How Women Entrepreneurs Can Change the SA Business Landscape

Here are three things you can do to overcome these economic challenges.

1Be agile

Smaller businesses are typically more agile than their larger competitors. This is a huge advantage when navigating an unpredictable market. Macro-economic challenges are, for the most part, beyond your control. Rather than try and ‘fix’ the situation, move with the market and adapt to its changing nature.

The best way to maintain customer relevancy is to review your offer regularly and look for ways to improve it. You could consider lowering your prices – as long as it doesn’t upset the books. Or think about investing money back into the business to yield greater returns.

There’s no one-size-fits all approach, so just make sure you do what is right for your business. Part of this is ensuring you stay fresh in the eyes of your customers by continuing to respond to their evolving needs.

2Invest in new technologies

Investing in the most up-to-date technology will pay off in the long run. For South Africa’s small businesses, technology is only growing in importance: where 19% said it was essential last year, that number has increased to 49% in 2017.

Cloud accounting software, for example, can help you understand your company finances and track budgetary health in real-time. Knowing exactly where your funds are and how they’re being allocated, enables a much faster response time – this is critical during unstable economic times.

Technology can also help you build a more competitive business by reducing wasteful expenses, automating time-consuming data entry tasks and streamlining processes for greater efficiency.

The more knowledge you have, the easier it is to put measures in place that will enhance your company’s operations.

Related: 7 Signs You Have A Positioning Problem [And Why Familiarity Kills Businesses]

3Deliver superior customer service

Purse strings might get tightened during tough economic times, but there will always be demand for certain products. Ensure you give your customers a superior user experience when they engage with you, and they’ll return.

It’s not always possible to compete on price. Bigger, more established companies generally have the capital reserves to undercut their rivals. But, small businesses can always compete on value. If you can offer a superior customer service, then you’ll receive customer loyalty in return – this is priceless in a volatile economy.

The past year has been incredibly challenging – and it’s unlikely to get easier as we move into 2018. But, the most successful entrepreneurs don’t let the economy thwart their ambitions – they equip their business to weather any storm. The sooner you innovate and adapt your business, the better your chances of success.

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