If it’s your dream to become and entrepreneur, you’ve come to the right place. While the Internet is a wonderful resource for research, the sheer volume of information can leave you feeling overwhelmed and unsure of where to start. So here is your comprehensive guide of how to start a small business, step by step.
Starting a Small Business – Step 1: Talk to small business owners
When you think ‘entrepreneur’, you think Richard Branson, Steve Jobs, Mark Shuttleworth and Zuckerberg. These are big names, even bigger personalities and industry giants. So it is natural for someone wanting to start their own business to be a little intimidated. This is why it’s a very good idea, once you’ve decided to start a small business, to get talking with as many small business owners as you can.
You needn’t confine your conversations to those operating businesses similar to your idea – the more people you talk to, the better idea you’ll have of the basic skills required, some of the common challenges faced by small business owners, what to look out for, how to deal with problems, and developing a network of entrepreneurs you can turn to for encouragement, advice, and guidance.
A small business owner needs to match their passion with their skill set
Once you’ve spent time talking with small business owners, you’ll have a pretty good idea that although the challenges are great and stress can run high, a successful small business is also extremely rewarding and fulfilling. What you’ll also have found is that the very successful small business owners you’ve spoken to haven’t achieved their success by accident: They will have identified their character strengths, skill sets and personal interests, and rolled them up in to a business that harnesses these strengths. And this is what you should do too before you even get started.
It doesn’t matter if you’re fresh out of high school, college, a housewife, are working for a corporate, have been retrenched, aren’t ready to retire, or just want to be your own boss. Take the time to match your passion with your skill set. Do you love people and have HR experience? Do you love restoring classic cars and have experience in sales? These are clear matches, but even those that seem less obvious at first can be paired up to form a business. Successful entrepreneurship is about having a passion and living it every day. If, however, you find you’re passionate about something but lack the necessary skills or depth of knowledge, your next step is to up-skill.
Get skilled: Attend a small business course
The business environment is a highly competitive one. Even if your business idea is revolutionary and nothing like it exists on the market, it won’t stay that way for long (especially if it’s a great idea!). Secondly, a great idea is nothing unless it can be set in motion and for this to happen you need to have the right skills. This is where up-skilling comes in: It can be as simple as day to day Internet research to gain more knowledge about an industry or skill, taking on an apprenticeship or shadowing, attending a short or part-time course, to enrolling in a degree or MBA.
Here are some tips for getting started on up skilling:
- Critically assess your business idea for the skills needed to make it work. Then critically assess yourself and ask others who know you well what skills you should improve on.
- Then allocate time to develop these skills. Be realistic about what you can achieve on a daily, weekly and monthly basis. Over committing yourself can lead to fatigue, burnout and a sense of defeat.
- Network. You can learn a lot from people already in the know. They’ve accumulated valuable time and experience and can help you avoid wasting time and energy in the wrong direction.
- If you’re still feeling like a qualification is needed, get researching to see what courses are available that best suit your time and wallet.
- Keep an eye on the bigger picture. If you spend all your time on up-skilling rather than getting your business off the ground, it defeats the object of up-skilling. Learn just enough to get you going, to know when you’re going wrong, and let the business and the industry inform you of where you have further skills strengths or gaps.
Write a plan for your small business
No matter what your goals are, without a plan a goal is just a dream.
- Step one is to pinpoint your business purpose. Assess why you want to start a business – do you want a business that will suit your lifestyle, give you financial independence, for additional income, to change up an industry, to sell to the highest bidder, to capitalise on an untapped market, to be your own boss, to help create jobs and uplift your community? Once you know the answer to this question you can plan your business goals accordingly.
- Step two is to get to work on a business plan. You’ll find a template for a business plan here. Writing a business plan can seem like a daunting task, but without one, you’re jeopardising your businesses chances of survival and your investment. So what is it? It’s fundamentally the blueprint for your business. And while you don’t have to have a comprehensive business plan from the start, you need at least some elements thought out and planned, and then set about modifying the blueprint as the business evolves. Your plan should summarise what you intend to sell, to whom (including how big this market is and what their profile looks like), how much it will cost you to get going and run, how much you can sell the product or service for, who your competition is (their number, strengths and weaknesses included), who you will need to help run the business and what skills they need (will they be temp, part-time, full-time, outsourced?), what your projected sales and margins are, how you intend to market your product or service, and how you plan to operate and grow.
Stress test your small business idea
You’ll only know the strengths and weaknesses of your business idea if you put them to the test. A stress test, by definition is simulating stressors to see how something reacts and performs. In business, these stressors can be financial, by changes in the industry and target market etc.
Ways to stress test your idea is to walk through the entire process detail by detail to find gaps or weaknesses in the processes, to pinpoint who your best and worst customers would be, to analyse your marketing campaigns and any mistakes you might make, to meet with advisors for an outside perspective, to cut costs and see how the business performs, and set ambitious goals as these will not only help you determine what your business can tolerate, but can help you keep a competitive advantage.
Starting a small business = A slow transition
Starting a business can seem like a risky move, particularly when you have a secure salary as an employee. While many entrepreneurs decide to dive straight into their new businesses by resigning from their jobs, this isn’t the only way. It’s possible to start a business of part-time while still employed. This route requires a lot of energy and discipline as you juggle responsibilities, and you must manage your expectations by understanding that a part-time business will take longer to reach its stride than a business you devote your full attention to. Many companies support employees working toward their own business goals provided it’s doesn’t impact on the hours and productivity you’re hired for, so it’s advisable to inform your employer of your intentions.
Know about legal agreements
In keeping with the transition from employee to entrepreneur, take a careful look at your terms and conditions of employment such as confidentiality clauses, non-compete clauses, and intellectual property agreements. The fastest way to end your entrepreneurial dreams is to come into conflict with the law and find yourself in court and/or bankrupt.
Have money in the bank
While many businesses can start with very little capital and run with low overheads, the rule of thumb is that a business can take up to three years to breakeven and see a return on investment capital. This means that while you may not need much to get started, you will need enough capital saved up to have working capital, kick start your cash flow, have emergency funds for repairs or purchases, and keep up with personal expenses like rent or a bond, school fees, medical aid etc.
Small business owners need to reduce personal expenses
Having said you need to have enough funds for business and personal expenses until breakeven, it’s advisable for would-be entrepreneurs to scale back their personal and business expenses as much as possible to reduce the pressure on the business. Making sacrifices to discretionary spending and scaling back on living expenses also applies to members of your family, which can cause tension and conflict. Make sure everyone understands the purpose of reducing expenses to minimise conflict and help motivate saving.
The Rising Cost Of Small Business
Many of the hidden costs that tend to surprise small business owners are related to the employment of people. However, the silver lining is that there are ways to mitigate the risks associated with scaling a business and several tools available to streamline HR processes.
A small business starts with a visionary dream fueled by energy and grit. Founders build on that and attract a small team of people who can help breathe life into the business. But not very long after setting out on course, the harsh realisation of rising costs like insurance, permits, licenses, equipment, maintenance, taxes, shrinkage and utilities suddenly appear.
Poor Labour Relations Management
Extensive labour laws in South Africa require dedicated overseeing and management, which generally lead to additional costs of employing labour consultants or hiring human resources managers that are not entirely relate to the core of your business. However, left unattended, labour relations issues can and will shut down your shop.
Labour relations issues cost South African companies R14 billion annually. Many companies have costly compensation orders from the CCMA due to Line Managers and HR employees not complying with legislation regarding disciplinary matters.
A surprising statistic from SEFA suggested that of the small businesses that fail, 40% of them can be attributed to poor labour relations management, therefore managing disciplinary processes by the book is critical. There are useful templates as well as step by step guides available online to help managers through disciplinary processes and to avoid incurring penalties from the CCMA.
By law employees are entitled to at least 15 working days’ vacation leave in every leave cycle. Employers could face substantial penalties from the Department of Labour if they do not allow employees to take leave. Planning for peak and off peak periods in businesses is a critical part of drafting job specs and these conditions must be communicated to staff early on.
The cost of poor leave management will contribute to the company’s leave liability i.e. the amount of leave an employee is owed is noted as a liability in the general ledger. Annual leave that employees do not take is a hidden expense for a business that if left unattended, will accrue and create cash flow problems for the business.
Employers are advised to make use of a leave management tool that enables both the employer as well as their employees to keep track of leave days owed to employees and brings some automation in to the process.
The Basic Conditions of Employment Act ensures that all employees are “entitled” to a minimum of 30 days (for a 5 day workweek) and 36 days (for a 6 day workweek) paid sick leave.
According to Occupational Care South Africa (OCSA), absenteeism costs the South African economy around R12 -R16 billion per year. This equates to around 15% of employees being absent on any given day. The answer isn’t to go on a witch hunt throwing policy at employees and demanding doctor’s notes for even a few hours off work (employers are not allowed to breach medical confidentiality by requesting a diagnosis on a sick leave note).
Alternatively, employers can be proactive in managing absenteeism by monitoring leave reports monthly and quarterly taking regular health interventions (e.g. flu shots) before a peak sick leave season e.g. before winter. Maintaining a positive work environment where employees feel acknowledged and are encouraged to perform goes a long way in keep workers present and absenteeism on the low.
Is Unmanaged Stress Killing Off Our SMMEs?
Most SMMEs don’t make it past their first year. This is worrying for an economy in which SMMEs are a vital part of growth. A range of reasons are given for what is stifling these businesses, from financing to access to markets, but one factor has been completely overlooked: Stress.
It is now widely understood that Small Medium and Micro Enterprises (SMMEs) are key to a country’s economic- and employment growth, but something is amiss in South Africa. Our SMMEs are just not doing what they should and understanding why this is – and fixing it – will be critical to the future success and sustainability of the economy.
The common conversations around SMME failure rates point at six main culprits: (1) access to funding, (2) access to markets, (3) infrastructure challenges, (4) scalability, (5) tough regulations, and (6) skills/education. The problem is that we have known about these for years, and for all the efforts to address them, we are unfortunately not seeing the growth in the sector that is needed.
A recent survey by the Small Business Institute (SBI) and the Small Business Project (SBP) put the number of formal SMMEs in South Africa currently at just 250,000. These numbers are alarmingly low – especially when compared with international benchmarks. SMMEs in Organisation for Economic Co-operation and Development (OECD) countries, make up 95% of businesses, and employ between 60%–70% of the working population, contributing up to 60% to GDP. In South Africa, while SMMEs make up 98% of the business population, they only employ 28% of the nation’s workforce, according to Chris Darroll, CEO of the SBP.
And yet the government continues to pin its hopes on the SMME sector. Initiatives like the DTI’s Invest SA and the South African Investment Conference this October, that claims to have attracted billions in foreign investment to the country, have foregrounded the role of SMMEs in economic revival. And the Government’s National Development Plan aims to have SMMEs contributing 90% of job growth by 2030. It is likely that more money will be channelled into support for the sector, to join the billions that have already been spent on incubators and initiatives to help small businesses.
This is a good thing, but it is not enough. The numbers speak for themselves. To date, none of these initiatives has borne much fruit and this signals that we may be overlooking something fundamental. Our collaborative research at the UCT Graduate School of Business suggests that what is being overlooked is something that most of us find difficult to define, or even talk about: Stress.
Stress is under-acknowledged by most people, personally and professionally, and for varied reasons. And this can have devastating effects. If ignored in business, the human devastation is likely to have larger scale effects on job loss, workforce disengagement, health-related days off, impaired teamwork, sub-optimal decision-making, lowering of productivity, and ultimately fuelling a declining economy.
While access to finance and markets, infrastructure and scalability challenges, tough regulations, and not enough educated and skilled employees are all valid hurdles tripping up SMMEs, the fact is that they are perfectly normal hurdles to have in a competitive, emerging economy. Our research reveals that good leaders, who are able to get their businesses over each encountered hurdle, are also able to manage their personal negative stress and harness their positive stress.
Stress can, generally, be quite motivating, however it is generally accepted that there are three kinds of stress: (1) positive stress, which is chosen and does not last very long (like writing an exam), (2) tolerable stress, which is unexpected and lasts a little longer, but then stops and there is time to process, and (3) toxic stress or distress. Toxic stress is tolerable stress left to run on and on without end, without rest and without time for healing and processing. It is this third and debilitating kind of stress that business leaders are likely to experience, and in SMMEs it can be even more severe.
Our research suggests that SMME owners tend to set very high, and often lofty, goals for themselves when setting up their SMMEs. And then they are constantly feeling stretched in either striving for these goals or ‘maintaining the course’. This can mean maintaining good business results, maintaining the customer base, where often 20% of the customer base accounts for 80% of the revenue, maintaining employment levels in changing political and economic conditions, maintaining pricing when squeezed for ever-lower prices while delivering good quality products and services, having their integrity challenged, and dealing with clients/customers who are not averse to replacing their products/services.
Another cause of stress for SMME business owners is that they mostly have internal loci of control, meaning that they take personal responsibility for outcomes and results and therefore blame themselves for every failure, and find it difficult to forgive themselves for deviations from intended results. In addition, an innate sense of accountability to their staff and their staffs’ families reportedly weighs heavily on business owners. Many feel similar accountability toward the broader stakeholder groups that their businesses serve.
All of these factors, which many argue are innate to the nature of business, place undue, long-term pressure (toxic stress/distress) on the cognitive, emotional, psychological and spiritual resources of individual business owners. This reportedly leads to drops in productive activity and motivation, withdrawal from relationships both personal and professional, low energy, impaired decision-making and ill health. And it also destroys resilience – leaving business leaders unable to ‘bounce back’ from personal- or business-setbacks, which is part and parcel of life and business. With a debilitated leader, the business is almost always likely to suffer, on a day-to-day basis and also in the long run. Like a virus, stress transfers to others.
An SMME’s success is inextricably linked to having an effective leader. And effective leadership is inextricably linked to effective stress management and self-care. It stands to reason, therefore, that improving the way SMME business owners manage their stress and boundaries could have a significant impact on improving business survival rates.
Along with offering business advice, funding incubators, opening up markets, attracting foreign investors, educating consumers, subsidising and improving infrastructure, the government should be looking at ways to encourage stress management and self-care into the daily operations of small to medium-sized businesses.
We need to get business owners educated about stress and self-care: about how exercise, sleep, diet, meditation, life-balance, self-forgiveness, and other-forgiveness affect them, their staff and their businesses. Effective self-care, of which stress management is a part, will enable business owners to courageously stay resilient in the ongoing stressful situations they will naturally encounter. This may, in turn, help to turn the tide in South Africa’s SMME sector so that it can drive the country’s economic revival like everyone hopes it will.
Many SMEs Start With Great Plans But Fail To Take The Big Leap
Most small-to-medium sized enterprises (SMEs) are aware of the benefits of good governance practice but, faced with limited time and resources, which could be costly in supporting growth ambitions.
- 27% of SMEs don’t have a vision that covers more than the next 12 months
- 45% of SMEs either don’t have a strategy, or one which covers only the next 12 months or less.
The latest global research, inclusive of Africa in supporting small business growth from ACCA, outlines the governance needs of SMEs. It highlights simple but effective practice over vision, strategy and human capital can provide them with greater flexibility, adaptability and resilience as they grow. This a huge factor in the long-term sustainability of the business, if put in practise.
“If you incorporate good practice for running your business from an early stage, your company is more likely to be resilient and is more likely to appeal to external investment,” explains Jo Iwasaki, head of corporate governance at ACCA. It is about leadership directing the company and being aware of factors both within and beyond their enterprise and build resilient organisations in the face pf the changing world.
The research also found that half (49%) of SMEs do not involve anyone external in their strategy discussions, despite the benefits experienced by those that do, which include additional experience and knowledge of the industry/sector (according to 46%), an independent perspective / constructive criticism (44%) and advice on their growth strategy (39%).
“There are a lot of daily concerns for the leaders of a small business, and often the biggest challenge is meeting day-to-day operations and cash management needs while thinking about the long-term future of the company. And while many leaders are keenly aware of the importance of resilience in the rapidly changing business environment and of buy-in from stakeholders, for example funders and employees, there often may not be the time to think or do much about it,” added Iwasaki.
“I hope that this research helps SMEs in focusing on some of the most crucial issues, and can be a resource not just to SMEs themselves but also to policymakers,” concluded Iwasaki.
How vision and strategy helps small business succeed is available at ACCA Global.
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