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Setting Up a Business Offshore

There are many compelling reasons for creating an offshore company, no matter what industry you are in. Entrepreneurs seeking to set up a business offshore will find that the process is simple, but that expert advice is critical.

Monique Verduyn

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Why do business owners set up offshore companies?

The point of an offshore company is simply this: in high tax countries such as South Africa, establishing a company in an offshore jurisdiction, like Mauritius, for example, is beneficial because these locations offer low or no tax. Furthermore, as long as the company does not do any business in the country in which it is located, most forms of local tax can also be avoided.

Formation of an offshore company is popular for entrepreneurs who want to set up an import-export company, an international trading company, or an asset holding company. They also use this vehicle to hold property investments or intellectual property.

Foreign governments, in turn, allow offshore companies to be registered inside their borders because company registration and other forms of offshore investment provide a substantial income for these countries. The capital that is invested by these companies in local banks and investment houses creates significant inflow of foreign investment into these economies.

What is an offshore company?

An offshore company seldom conducts business in its country of incorporation. It is usually incorporated in a country where taxation is lower and reporting restrictions are more flexible than the country in which its owners reside. An offshore company can usually be set up within two working days by offshore specialists like OCRA Worldwide, an international and offshore corporate and trust services provider. Advisors like OCRA maintain a list of shelf companies, which are ready-made, never-used corporations established to meet a client’s immediate needs and available to trade instantly.

What are the benefits of going offshore?

Establishing an offshore company has several advantages:

1. Reduced tax
Tax reduction is the number one reason for establishing a company offshore. An offshore company can be used and structured to reduce taxation, especially if you do not derive a profit from the country in which the company is incorporated. You may even be able to avoid paying tax altogether.

The amount of tax an offshore business will pay depends on the way the offshore company is structured and how well you can legally benefit from your tax situation. It’s advisable to consult an offshore incorporation service provider who will look at your circumstances and advise you on how and where to structure an offshore company for maximum gain.

2. Simplified, cost-effective operations
If your business is not subject to international regulations (such as financial institutions are) there are certain jurisdictions that make it easy and attractive for all types of companies to operate. Although it depends on the jurisdiction you choose for incorporation, the burdens of accounting, auditing and record keeping are likely to be significantly reduced. This in turn results in reduced overheads and it also decreases the amount of time and energy that has to be invested in these often onerous tasks.

3. Reduced reporting requirements
In addition to simplifying your overall operations structure through the use of an offshore company, there are also generally far fewer requirements to file information in most offshore jurisdictions.

4. Low incorporation fees
Some jurisdictions charge low fees to incorporate, and they also charge far lower maintenance fees. However, this varies from jurisdiction to jurisdiction and you are advised to investigate the options.

5. Fast incorporation
Incorporating offshore can mean faster incorporation time. Some countries are not perceived as being business ‘friendly’, while others are. This means that legislation either facilitates or complicates business set-up procedures. In some countries it can take months to set up a company, whereas in Singapore this could be done in days. For entrepreneurs in a competitive market, this can be a very important and decisive factor. If you have a product you want to take to market as soon as possible, and before the competition gets there, incorporating overseas can enable you to introduce your product quickly, efficiently and effectively.

6. Asset protection
It’s possible to manage assets and business transactions in such a way that assets are shielded from any form of liability. You can use an offshore company with an offshore trust, for example, to protect your assets while retaining control over the way your affairs are managed. By placing certain assets within an offshore company structure and then placing the shares of the company within a trust, you can be actively involved in the offshore company and direct the management of its assets whilst remaining independent from it and ensuring that your assets enjoy maximum protection.

7. Greater confidentiality & anonymity
Because offshore companies can use nominee directors, they can carry out all transactions in the name of the private company and keep the names and details of the underlying principal of the company out of public documentation.

A word on tax

“It is important to consult reputable advisers because the tax rules that apply are complex and subject to change,” says Betsie Strydom, director and tax specialist at Bowman Gilfillan. “Proper tax planning requires you to consult advisers in every jurisdiction, and ensure that the structures and management arrangements are real and that they have commercial substance. Do not rely on ‘window dressing’ particularly when it comes to the management of the offshore entities.”

Entrepreneurs who want to set up a business offshore need to take a variety of tax rules into account. “Those that apply to setting up business offshore are complex,” says Strydom. “Not only do you need to take South African tax rules regarding controlled foreign companies and effective management into account, but you also need to consider the tax rules of the country in which you intend to operate, as well as the provisions of any double taxation agreement (DTA) between South Africa and the country in which you want to do business.”

The purpose of DTAs is to prevent double taxation. The DTA between two countries generally means that you will be taxed in both countries, but one country will usually give you a tax credit for the tax paid in the other country. “The type of income, the locations of the offshore businesses and the terms of the DTA or treaty that are applicable will determine whether the offshore structure offers any benefits and in which country you will be taxed,” Strydom explains.

Exchange controls

Exchange control considerations are extremely important when setting up a business offshore, according to Strydom. “Sole proprietors and close corporations (CCs) are not permitted to make foreign direct investments outside the common monetary area (CMA), which links South Africa, Lesotho and Swaziland into a monetary union.

They can only invest outside the CMA by using their offshore investment allowance, which is R4 million,” she says. South African corporates may make new outward foreign direct investments into companies, branches and offices outside the CMA provided the total cost of this investment does not exceed R500 million per company per calendar year without prior South African Reserve Bank (SARB) approval. The SARB has issued Exchange Control Rulings which, among other things, summarise current exchange control policy on foreign direct investments by South African companies.

In terms of this section of the rulings, “Authorised dealers are allowed to formally approve foreign direct investments, but they will require detailed information before the approval can be given,” Strydom says. Conditions will be attached to these investments. For example, SARB does not allow foreign direct investments to be made where the foreign entities domiciled outside the CMA make any investment/loans into the CMA for any purpose whatsoever, via a loop structure. Also, SARB requires that the ‘place of effective management’ of the FDI Company remains in South Africa and typically also imposes a condition that the FDI Company cannot re-domicile without the specific prior approval of the Exchange Control Department of SARB. Where the intended investment exceeds R500 million, specific approval will be required too.

Choosing a jurisdiction

“It is possible to incorporate offshore companies in many jurisdictions,” says Hylton Cameron, senior tax manager at Grant Thornton Johannesburg. “Some of the most popular locations include Botswana, the British Virgin Islands, the Cayman Islands, Cyprus, Dubai, Gibraltar, Guernsey, the Isle of Man, Jersey, Mauritius, the Netherlands, Antilles and the Seychelles.”

To determine which location is best for you, you need to take a number of factors into account, including the type of business and the reasons why you want to register an offshore company. Language may also play a role, as does time zone. Jurisdictions such as Dubai, Singapore, and Hong Kong appeal to many entrepreneurs setting up an offshore company because of their competitive tax systems, infrastructure and reputation as business hubs. It’s worth noting that in sub-Saharan Africa, 29 out of 46 economies reformed, implementing 67 reforms, according to the World Bank Doing Business Report 2010. Nearly half the reforms focused on making it easier to start a business or trade across borders.

For South African entrepreneurs looking to set up a business in sub-Saharan Africa, an advisor like Grant Thornton has offices in a number of countries and offers accounting and business advisory services, as well as the skills and expertise that you will require to ensure that your fingers don’t get burnt. “Our local offices ensure that business people have access to hands-on assistance, and to best practice methodologies and knowledge resources. It’s vital to consult providers who have first-hand knowledge of the countries in which you want to set up operations and how the various systems work. That will help you cut through the red tape.”

Cameron advises entrepreneurs to ensure that the jurisdiction they are interested in is politically stable and has flexible tax and company laws. When people invest offshore, he adds, it may be for a variety of business reasons, including expansion into that country, use of that country’s resources, tax benefits and exchange control benefits. He notes that small to medium sized businesses may be attracted to countries like Botswana and Angola because of cheaper labour.

“For a manufacturing business, the labour costs may be more attractive and could be a major driving factor in the decision to set up there. If someone invests in Kenya or Zambia they usually do so because their operations would be commercially viable there. When we help a client to decide on whether a location like Kenya, for example, is suitable, we advise the client to look at tax issues in Kenya, as well as the tax implications for a South African citizen investing in Kenya.

We strongly advise against identifying an opportunity and only then asking questions about tax. Worse still is the situation in which a client goes ahead and invests offshore and only asks tax questions later.” Referring to tax rates in sub-Saharan Africa, Cameron notes that the rates reflected are open to interpretation based on the circumstances of each business. “Issues such as the fact that some countries offer lower tax rates for individuals than others are of little real concern. Sometimes companies apply what is called tax equalisation. Simply put, if you receive the equivalent of R100, less tax of 30% in country A and you then move to country B where the individual tax rate is 40%, the company will pay the individual more, so that the net result is still 70% as per the original country.”

The Mauritian appeal

Among the many jurisdictions that may be attractive to business owners who want to go offshore, Mauritius ranks tops. Cameron notes that Mauritius has undergone major economic reforms and is today one of the world’s most competitive fiscal regimes. It was ranked 12th best out of 183 countries in the ‘Paying Taxes’ category of the World Bank Doing Business Report 2010. South Africa ranked 23rd. In the ‘Ease of Doing Business’ category, Mauritius ranked 17th, while South Africa was in 34th place.

In addition, the Mauritian economy has had an average growth rate of 5,6% during the last five years. Mauritius is regarded as Africa’s first tiger economy, supported by a robust education and social infrastructure. It is a highly active Freeport and so functions as a substantial duty-free distribution hub for the south-east African region. In addition, it is strategically located, politically stable, offers excellent infrastructure, a well developed information and communications technology network and excellent sea and air transport.

Mauritius is a member of the Indian Ocean Commission (IOC), which promotes regional economic co-operation, of the Southern African Development Community (SADC) and of the Common Market for Eastern and Southern Africa (Comesa).  Regardless of which region you are considering, it’s imperative to understand that not everyone will benefit from going offshore. You must seek professional advice before incorporation to ensure your actions are legal and the jurisdiction you have chosen is regulated and respected.

More Information

The Internet has many useful resources and sources of information for anyone who is interested in investigating offshore options. Here are some of the most valuable ones:

  • Alliance Trust, Alliance Trust Co. (Mauritius) offers expertise in the formation and administration of offshore companies in Mauritius.
  • Doing Business, The Doing Business project provides objective measures of business regulations and their enforcement across 183 economies and selected cities at the sub-national and regional level.
  • Formations House, Offers readymade offshore companies with bank and merchant accounts.
  • OCRA Worldwide, A service provider that has established and administered more than 185 000 companies and trusts worldwide from 20 global offices.
  • PKF International, A worldwide network of legally independent member firms providing local expertise in accounting and business advisory services.

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

Launch

How To Make Course Corrections And Finding Your Differentiator

A lot of launching a business is starting small, and pivoting as needed.

Alan Knott-Craig

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An advisor whom we trust, and who has been involved in our business since launch would like to buy into the business. We could make use of the cash injection, and we believe his experience would be beneficial to the business. His condition is that he occupies a board seat, and that we create an advisory board that he can also sit on. Should we do it? — Mvepho

If you trust the guy and need the money, do the deal. A board seat is fine. Voting should be based on shareholding, not hands raised. Don’t allow for any special minority rights like veto over budget or right to appoint CFO.

An advisory board for a start-up seems a tad overkill, but if he wants one, give it. He’s either going be an ass, or he won’t. Only one way to find out: Get into bed.

The key provisions of the shareholder agreement relate to divorce. How do you get out of relationship? There are three key parts to consider: Forced sale provisions (death, disability, prison, leave country, etc); Valuation formula for exit (5 x NPAT); Agree to arbitration being binding.

The simpler you keep things, the easier it will be to part ways if things don’t work out.

Related: Alan Knott-Craig Answers Your Questions On Finding a Funder To Managing Your Staff

I need to attract customers away from their existing suppliers who offer a similar product to mine. My value proposition is convenience and quality. What other value should I consider? My main customers are restauranteurs and households (flats), and I provide the convenience by instant deliveries of food (chicken and eggs) to their doorstep. — Mam

Pick one differentiator. If one isn’t enough, your product isn’t good enough.

In this case maybe it’s convenience. Or maybe it’s speed of delivery (30 minutes from order). Or maybe it’s the best eggs in SA.

Whatever. Ask customers what the most important thing is, then focus on pushing that as your unique selling proposition.

That doesn’t mean you ignore the other inputs. It just means your pitch is predicated on one key selling point.

My partners and I have managed to get an investment opportunity for our app but now we have an issue about how we should spend that money.

I think we should first get some traction with users with a MVP even though we’re not delivering on our value proposition in the beginning i.e selling before we commit to building and iterating based on user feedback before adding new features.

My partners think that now that we have an investment opportunity, we should build the app with all the features because that’s what differentiates us in the market.

How would you handle a situation like this? — Tula

Start with MVP. Get feedback. Iterate.

Do not start with an app including all the bells and whistles. Firstly, it will take too long to make and get bogged in scope creep. Secondly, if you’re on the wrong track and you’ve already spent all your money, its game over. Insert coin.

Rather start small. It lets you course correct faster and keeps you in the game longer.

Related: Your Questions Answered With Alan Knott-Craig

My waiter has contracted a chronic infectious disease (not HIV). He’s worked for me for seven years, but I can’t risk my staff/customers getting sick. What should I do? — Bob

The business comes before individuals. It can be painful losing a loyal long-time staff member, but you have to do it if he jeopardises your business survival. Exhaust all options, but if there is no medical solution then you have no choice. But you can’t just cut him loose. If you do that, all your other long-standing staff will look at you and think, “He doesn’t care for me.” Morale will go down, and your business may fail anyway.

If you are forced to lose a loyal staff member, you must go out of your way to ensure he/she is financially taken care of, either through a pension or a lump-sum payment.

It’s the right thing to do, and it will show your other staff that you have their backs through thick and thin.


Read this

13-rules-for-being-an-entrepreneur-coverAlan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available.

What it’s about

It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur.

For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy.

This book is a collection of tips and wisdom that will help you make money without forgoing happiness.

Get it now

To download the free eBook or purchase a hard copy, go to www.13rules.co.za.  To browse Alan’s other books, visit bigalmanack.com/books/ 

Ask  Al

Do you have a burning start-up question?

Email: alan@herotel.com

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(Infographic) The 20 Most Common Reasons Start-ups Fail And How To Avoid Them

These do’s and don’ts can make or break your start-up.

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So, you have a great new idea or invention, and you are ready to open your start-up business. But, you’ve been scared by the well-publicised statistic about start-up failure – more than 50 percent of small businesses fail in the first four years.

Opening and operating a successful start-up requires some luck hard-work and thoughtful planning – as well as the ability to adapt that plan. Having been involved as a consultant to numerous start-ups over the past decade, I have seen some fail, some achieve a modicum of success, and some make it big.

Here are a few do’s and don’ts that will help guide your start-up to the promised land:

Business plan

  • Don’t think that a great idea or a great product is enough. The start-up graveyard is littered with amazing ideas and products that have failed.
  • Do have a business plan that includes every aspect of how you will run your operation and how it will be successful. It should include all anticipated costs, marketing, manufacturing, the technology required and staffing. A business plan should also include how you will market and sell your product.

Related: 4 Tips To Secure Funding For Your Start-up

Research

  • Don’t think your idea or product is original and because you and your friends think it’s amazing, means that it is and there’s a market for it.
  • Do lots of research before you spend your money. As a consultant, I have on three separate occasions been asked to help with a business plan for a start-up, where I discovered almost exactly what they are doing has been tried before and failed. In two of those instances, the previous failures indicated that the idea wasn’t good. In the third instance, we were able to learn from the previous mistakes and actually make a successful run at it. The number one reason start-ups fail is that there is no market for their offering.

the-top-20-reasons-why-start-ups-fail

Funding

  • Don’t assume you will get financing other than the money you start with from yourself, family and friends. Only a very small percentage of start-ups get Venture Capital (VC) funding and in fact, the funding bubble has burst. And that means early-stage start-ups are getting little or no love from outside equity firms.
  • Do assume the initial funding you have will be all you get, so the goal is to have the lowest burn rate possible. Therefore, your initial business plan should have a route to profitability and sustainability before the money runs out. The number two reason start-ups fail is that they run out of money.

Investor deck

  • Don’t think that your expert knowledge of your business, a well-developed business plan and proficiency in PowerPoint are enough to craft an investor deck that will get a private equity firm’s attention.
  • Do hire an expert consultant who has done this before. VCs can smell an embellished or amateurish deck 100 miles away. You typically only get one look by a potential investor, so make sure your investor deck is the absolute best it can be.

Related: 9 Quotes Every Entrepreneur Should Live By

Tech

  • Don’t assume that technology will be easy or come as scheduled. In almost every start-up I have been involved with, where the need for technology advancement was crucial to success, there were unanticipated issues and delays.
  • Do assume that there will be delays in technological deliveries and therefore you need to leave a buffer for that in your business plan. Do have a competent development team and if they are not performing, replace them as soon as possible.

Team

  • Don’t think that you can go at this alone or that it will be easy to assemble a winning team.
  • Do select your team members carefully, trying to add as much diversity as possible. The most successful start-ups that I have seen have mixed experience and newbies as well as the more traditional kind of diversity. The number three reason startups fail is that they have the wrong team.

Ego

  • Don’t think customers are just waiting for your offering and investors will be lining up to give you money simply because your idea is amazing – even if you have been a successful serial entrepreneur in the past.
  • Do be humble and realistic about everyone you meet. Relationships are a key to success, and like with personal relationships, if you want to be successful, be sure you see yourself as others see you. I have witnessed a lack of self-awareness and a big ego from owner’s doom potentially successful start-ups.

Related: 7 Strategies For Development As An Entrepreneur

Old-Fashioned values

  • Don’t think you are leaving a nine-to-five job for the easy and flexible life of being your own boss. A start-up is a seven-day-a-week occupation and now it’s your money and reputation that are solely on the line.
  • Do plan to work harder than you ever have with little return on your efforts for an extended period. Do be honest with everyone you interact with, as your reputation will ultimately be a key to your success.

To have big success as a startup, you’ll have to master all the do’s and don’ts above, and that’s a daunting task. So, before you begin, the question you must ask yourself is: “How badly do you want it?!”

This article was originally posted here on Entrepreneur.com.

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The Complete How-To Guide for Starting a Car Wash

What you need to know about opening your own car wash in South Africa.

Katie Cubitt

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We all love to have a clean car – start your own business today

Shiny wheels, the perfectly clear windows and not a streak in sight. In today’s fast paced world we often don’t have the time to do it ourselves – and when we do, there are other things that quickly fill that time.

And so we pop off to the local car wash to have it done and ticked off the list so that we can move on to other things.

How often have you sat considering owning a car wash of your own while you’re waiting for your car to be done? If it’s more than once, then maybe you should consider taking the leap and starting a car wash business. 

Contents in this guide

  1. How to Choose What Type of Car Wash to Open
  2. Steps for Registering a Car Wash Business
  3. Car Wash Funding Options
  4. Choosing a Location for Your Car Wash
  5. Car Wash Insurance and Liability Cover
  6. Car Wash Equipment and Supplies
  7. Car Wash Marketing and Branding Basics
  8. Hiring and Managing Your Car Wash Staff
  9. How to Set Your Prices?

How to Choose What Type of Car Wash to Open

man-washing-car

There are many different kinds of car washes to choose from

The first decision that needs to be made involves deciding between a franchise and an independent business model. Both of these come with their own set of risks and rewards – all of which have been set out in the table below.

Pros and cons of a car wash

The decision between an independent venture and a franchise opportunity must be a personal choice based on your personality.

In general – if you are someone who likes to blaze your own trail and like to have complete and utter control over every aspect of your business, then starting a car wash, or any business, as an independent is the way to go for you.

If however, you are better at working within the guidelines and like the freedom of someone else, in this case the parent company, making the decisions for you – then starting a franchise is the way forward.

Make sure when investigating the car wash franchise you are interested in, that you choose a recognisable brand with a good reputation in order to get the full benefit of buying into a franchise.

With both franchising and independent ventures, you now also have the choice of starting a mobile car wash, instead of a fixed full time entity.

Need to know: Should You Purchase An Existing Franchise?

This also comes with pros and cons and these are listed below.

Pros and cons of going mobile

Steps for Registering a Car Wash Business

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Register your business using this easy guide

Here are the main steps for registering your new small to medium enterprise:

Register your business with the Companies and Intellectual Property Commission (CIPC). This involves lodging a Notice of Incorporation (CoR 14.1) and a Memorandum of Incorporation (CoR 15.1 A-E). These forms are available at www.cipc.co.za. They take roughly five to seven days.

Alternatively, it is possible to use a service that registers your company for you with the CIPC such as this one. These services do of course have their own fees attached.

Thereafter, you must open a bank account for your business. Depending on the correctness of the application forms, this only takes a day or two and is free of charge.

For an SME, earning less than a million rand a year – the only form that SARS requires is the IT77C that must be accompanied by a certified copy of your ID and a copy of the company’s registration documentation. The IT77C form is available from www.sars.gov.za. If your employees aged 24 – 65 will be earning more than R5 000 per month, then you will need to register for UIF and PAYE.

Read: Start A Business They Said… It’ll Be Easy, They Said…

To register for unemployment insurance – visit www.labour.gov.za for more information on the process and for the forms.

The final step that takes place in conjunction with the step above is to cover your employees in terms of occupational injuries, diseases or death in terms of the Compensation Fund. This is optional. These forms are available from www.labour.gov.za

In terms of the permits and licenses you will need to start a car wash you need to first assess whether or not the premise you want to work from is purely residential or if it has been zoned to allow it to be a business property.

Related: The Basics Of Registering A New Company

Furthermore, to operate a car wash you might need to apply for a permit under the water restriction bylaws depending on your municipality and the province you are in. For more information on the permits possibly required visit the Department of Water Affairs website.

Car Wash Funding Options

car-washing-business-advice

Fund your business using this guide

Before you even begin to look for funding, you will at this point need to create a detailed business plan. No institution will give you funding without one. For instructions on how to put a business plan together watch this video on business plans for dummies.

Sourcing funding for a start-up can be a bit of a challenge if you do not know where to go or what they are expecting of you. Here is a quick rundown of what you would need to prepare in order to encourage others, such as financial institutions, to give you the funding you need to start your venture.

Related: New Ways SMEs Can Find Funding

Broadly speaking there are four main options available to entrepreneurs starting their own businesses. These are: Loans from financial institutions, own capital, investors and grants. Grants usually come from the government and are loans that you won’t have to repay, but grants come with strict guidelines on how the funds may be used.

It is always preferable to start with the bank that you already do business with – that way they have all your information and know your financial habits and behaviours as well as your credit record. Another option is to look at credit unions.

When applying for funding here are a few tricks to help you get the cash:

  • Make sure that you have a detailed business plan that shows how the funds will be used and spent. It is highly necessary for you to have a detailed knowledge of the costs involved in your business – from supplies to staff to overheads and equipment.
  • Know about the industry and the market you are entering. It can be beneficial for you to do a market analysis.
  • You will more than likely have to use your personal assets and wealth as collateral for your new business.
  • It will show your dedication and commitment if you use your own capital to place an initial investment. In some cases, it is required for you to do so – such as with SEFA – the Small Enterprise Finance Agency who require a 10% personal initial investment.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Choosing a Location for Your Car Wash

man-washing-car

Location, location, location

With a fixed location – most of your business will come from ‘walk ins’. It is essential to your business that your car wash, or any service based business, is in a location that is convenient.

More often than not people do not specifically set out to go have their cars washed but rather end up having it done because it was easily available and they had the time.

Here are a few tips of choosing a successful location:

  • Being near a shopping area is always preferable
  • Heavily populated residential areas with high traffic volumes are better for business
  • The site must be easily accessible from the road
  • It must be easy for customers to get back onto the road once their car is clean
  • Highly visible
  • A decent size car wash has more than one washing and drying bay, there needs to be enough space for these as well as a waiting area
  • Enough space for cars to queue
  • It is also in your interest to pick a location that will allow for expansions as your business grows.

In South African law, verbal leases can be upheld in court, but it is always best to get the agreement in writing.

In clear and concise language that both parties can understand, make sure that your lease covers any changes you may or may not make both structurally and superficially.

Make sure you know how your rental will be calculated – it is usually quoted in Rands per square metre per month, excluding VAT for commercial and industrial properties in South Africa. Make sure you both agree on what costs will be covered by your rental and what costs you will incur (i.e. electricity).

Resource: How do I go about analysing and choosing a possible location for my business?

Know under what circumstances the lease may be voided by either party. And finally, know who is liable for damages to the property or for instances of burglary.

Car Wash Insurance and Liability Cover

car-wash-sponge

Ensure your business is fully insured

First off, for new owners the importance of a disclaimer needs to be highlighted. A disclaimer can exempt car wash owners from covering the costs of repairing vehicles that are damaged on their premise but they do not cover gross negligence on behalf of the business owner.

It is the responsibility of the owner to ensure that all machinery and equipment is well maintained and is regularly checked for foreign objects that could cause damage. It is also the responsibility of the owner to make absolutely sure that all cleaning products used throughout the process are car-friendly.

Furthermore, public liability cover is not enough. Property in the custody, care or control of the car wash owner is excluded from cover under the public liability section. The correct policy to have in place is the Motor Traders Internal section.

Your level of insurance coverage will have to be higher if you and your employees are the ones driving and moving the cars.

It is important that you as the owner of the car wash to have general liability insurance that covers:

  • Medical expenses to yourself and your employees in case of injury
  • Custody, care and control coverage
  • Equipment break down
  • Damage to cars – you will need to set this limit for your policy
  • It is also important (especially if you have bought the property) that you have property insurance that will cover your premise in terms of theft, damage, fire, flooding etc.

Leonard Degee, who has been in the independent car wash industry for 12 years, knows that in order for his car wash to continue successfully, it is important that only management handles all the cars.

Related: Insurance For Small Businesses: What Should Be Covered?

Not only does it make the insurance coverage easier and cheaper, but customers are usually happier knowing that the person who might be moving their car is more accountable.

Car Wash Equipment and Supplies

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Obviously the equipment you need will depend on the type of car wash you open.

In some cases, all you’ll need is a bucket, clean water, soap and some good cloths – and the willingness to approach people to offer your services. But if you would like to open a more professional business and reach a broader market then there is some equipment that you’ll need.

If you are opening a franchise, the parent company or franchisor will be making the decisions for you. If you are opening an independent location or mobile business then you will need to source the necessary equipment.

The basic equipment needed for a manual car wash is:

  • High pressure system
  • Oil/water separation Unit
  • Drainage unit
  • Industrial vacuum cleaner with wet upholstery cleaning option
  • Possibly an upholstery cleaner
  • Depending on the products you choose you might need a foam attachment on your hose.

Alongside your basic equipment you will also need your location to have:

  • Concrete wash bay slab
  • Pump room
  • Drying bay
  • Ancillary Walling and Paving

The Basic equipment you will need for a mobile car wash is:

  • Pressure washer hose with a compressor
  • An industrial hose with nozzle and gun
  • A good sized tank in the back of the truck/van or even trailer
  • A generator (remember to keep extra fuel handy)
  • A powerful vacuum cleaner

For cleaning products and supplies, you have a multitude of varieties to choose from. If you are inclined to go the eco-friend route, there are even ranges of waterless cleaning solutions.

The cleaning product basics you would need are:

  • Car soaps
  • Metal polish
  • Plastic polish
  • Car wax
  • Glass cleaner
  • Fabric shampoo
  • Leather cleaners
  • Detergent for the pedals
  • And then sponges, cloths, brushes – preferably suitable for use on all cars.

Here are some suppliers of equipment and cleaning products:

Keep all equipment in good working condition with regular check-ups. For an easier resale, make sure you have detailed maintenance records on all equipment.

In  Degee’s car wash, they purchase R3000 worth of stock every month – which covers the 360 or so  cars that they clean.

Car Wash Marketing and Branding Basics

car-wash-sign

Simply put, branding is your promise to your customers; marketing is communicating that promise to them.

Branding and marketing are two very different concepts, both of which are highly important to the effectiveness of your business.

In order to bring the customers to you, there are a couple of things you could do. These involve connecting on an emotional level, staying relevant and flexible, committing to the community you work in, staying visible and finally aligning your marketing tactics with your brand strategy.

The biggest secret to marketing is being able to differentiate yourself from your competitors. Brand Strategy Insider is an online resource for branding and marketing and they list 50 ways to differentiate your brand.

Related: Smart Marketing Ideas For Small Businesses

For the car wash business here are the applicable ones:

  • Expand your appeal
  • Rewrite the experience
  • Break away from conventional wisdom
  • Be the expert
  • Share values with your customers
  • Engage the senses
  • Focus on aesthetics
  • Treat people differently than your competitors do (treat them better)

When you are implementing these values in your brand, make sure that they go deeper than just your aims. Make these things that make you different the foundation of your business.

That means engraving these changes in the mission statement and instilling it in your staff. It’s important to note that your staff are your brand ambassadors. A good service experience means that people will come back and more than that, they will tell others about you too. Word of mouth is a powerful tool in launching a new business.

Degee says that the best marketing strategy they have is their car wash’s visibility.

Related: The Complete Guide To Writing A Marketing Plan

In terms of marketing schemes available to you as a new business owner, you have a couple of easy options:

  • Keep the conversation active with your customers
  • Flyers
  • Customer databases so that you can text or email them your specials (these must be opt in)
  • Signage
  • Posters
  • Advertisements in local papers and on local sites
  • Promotions
  • Coupons
  • Specials
  • Discounts
  • Always squash any bad word of mouth by proving the opposite
  • Consider loyalty reward programmes to encourage repeat customers.

Hiring and Managing Your Car Wash Staff

car-wash-man

Hiring staff should be your next priority

“Good management and good staff is the most important thing,” says Degee. With your staff often handling the money, it is easy for untrustworthy staff to “slip it into their pocket.”

Make sure your staff is reliable and Degee advises that you need to keep theft as low as you possibly can.

If you open a bigger operation than just yourself, or if you are needed to expand your business as it grows, then you will need to hire staff. Because you are in the service delivery industry, you need to remember that your staff needs to treat your customers well – as do you.

To this effect, hire people that are

  • Polite
  • Friendly
  • Punctual
  • Efficient
  • Have a good sense of service delivery.

The number of people you hire depends on your expected workload. The more washing and drying bays you have, the more people you will need. You also need to consider how many days of the week you are open and how many hours a day.

Read: As An Entrepreneur, Be A Motivational Leader To Your Staff

Obviously, if you want to go the more automated route with a machine run conveyor system, then the need for physical staff will be less.

How to Set Your Prices?

drying-car

People will pay a little more if the service that they receive is outstanding – but the quality of your work must justify the price.

If you are going to give a variety of different services then you should have options for all budgets and time frames to suit the biggest market possible.

As with any service industry business – you need to have competitive prices for the services that you offer. It’s important to do some market research in your area as to what your competitors are charging for which services.

Important factors to consider:

  • The cost of your cleaning supplies
  • Your overhead costs
  • The amount of cars you can do in an hour
  • The number of staff members you have
  • Your working hours for the week
  • Competitor prices for similar services
  • The type of area you are in (residential, urban, rural, business?)

For a mobile car wash it is important to consider many of the same factors including fuel price and distance travelled. In general, the cost of a mobile car wash service is higher than that of a car wash that a patron will go to because of the added convenience factor for the customer.

When deciding on prices for a mobile business, you will once again need to do current market research into what your competitors are charging.

To end off, it is important that you and your staff do a good job on the cars that you clean. The best way to get repeat customers is to supply the ones you have with an amazing service. For an in-depth tutorial on how to professionally clean a car – watch this video.

Advice from Car Wash Pros

Degee offers a few tips for an entrepreneur starting his own car wash.

  • Trustworthy staff is hard to find. Sort that out before anything else.
  • Sometimes, the easiest way to bring in new staff is through our existing staff.
  • A high turnover rate brings the possibility of more theft – try keeping good staff for as long as possible.

For the International Carwash Association visit www.carwash.org.


Next guide: How Do I Start a Transport or Logistics Business?

truck-driver

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