When starting a business, for those entrepreneurs who aren’t legally minded, deciding what business form their start-up will operate as, might not be seen as an obvious starting point. The reality however, is that it is one of the most important decisions you’ll make, and so it should be the very first step you take in creating a start-up.
When choosing the form of business you are going to work through, the number one issue to consider is risk. You need to decide whether your start-up will be a separate legal entity to you, or whether you will work in your personal capacity.
Where you and your start-up are the same legal entity, you will personally be liable for all debts of the business (as is the case of a sole proprietorship or partnership) – be it a company (public or private), closed corporation, partnership, trust or sole proprietor.
If you work through a company (or closed corporation or trust), then you cannot lose more money than you have invested personally. Rather, it will be the company that will have the liability.
In other words, you won’t be held responsible to pay for any debts or liabilities in your personal capacity. This is the primary reason why companies have taken off and become the preferred form of business worldwide.
To break it down:
- Sole proprietorship (i.e. if you do business in your personal capacity): you are liable for all the debts of the business
- Companies: you have limited risk, and your risk is limited to the amount you invest
- Partnerships: you and your partners are liable for all the debts
The second issue to consider when choosing your form of business is professional presentation. Start-ups should opt for the ‘company’ vehicle for these two reasons:
Operating your business through a company allows you to present it more professionally to investors, lenders, business partners and even service providers like accountants.
This is due to the fact that the company is such a clear ‘vessel’ for the business, as it has no other baggage. For that reason, bringing investors on board is much more viable.
For example, if you ran your IT development business as a sole proprietorship, the business’ balance sheet would almost always overlap with your personal balance sheet – when are expenses yours, and when are they the businesses?
This may have short term tax advantages, but this is messy and confuses investors, lenders and accountants.
On the other hand, investors and customers themselves understand how companies work, and they can more quickly evaluate the prospects of your business without having any “contamination” or “noise” from your other interests.
Companies are familiar, which makes them crystal clear from a financial management perspective (compared to partnerships, trusts or sole proprietors).
Why the other forms are less appealing for start-ups:
- Sole Proprietorships are probably the most common business vehicles, as there is no registration or legal process required. However, it is less suited if you have your sights on growing an ambitious business, and certainly less presentable to prospective investors.
- Partnerships are also common business vehicles, but not recommended as it quickly becomes complicated to manage liability within itself. Should your professional body require it, we typically recommend using the company version and Inc. Although you will still have personal liability, it will allow you to present a corporate structure with all the benefits in that regard.
- Trusts are quite unusual and clunky to do business with. Unless you have a specific reason or need to use it, this form is not recommended.
More good news is that the South African business regulations are particularly supportive of setting up a company. In fact, it is your constitutional right!
For this reason, a new system was put in place (in 2008), which created simpler, better and faster company set up processes and regulations. Numerous websites for companies such as our firm also provide portals to assist you at low cost.
In closing, setting up a company has never been easier. It limits your risk and allows you to present your business professionally to customers, investors and business partners alike.
6 Resources For Start-ups Looking For Funding
Here are 6 online resources that can help you pay the bills and grow your business at the same time.
Anyone who has ever considered starting their own business, or is currently in the process of doing so, knows that every little bit helps when it comes to making ends meet. Part of the charm of start-up culture is the low-budget creative atmosphere that seems to continually fuel innovation. But, eventually you’re going to have to keep the lights on and water running, and you can’t do that with creativity alone.
Whether you are a business that is just starting out, or already well on your way, there are plenty of online platforms that offer start-ups advice and funding opportunities. Here are 6 online resources that can help you pay the bills and grow your business at the same time.
At one point it seemed that anyone with a clever idea could make a video showing why the world should invest in the next big thing. While a lot of crazy projects have gotten funded over the years, utilising a crowdfunding platforms like Kickstarter continues to be a viable way to get your project off the ground. Of course, if you want to reach your funding goals, it’s best that you have already done your market research, have a solid plan, and treat crowdfunding like a global VC.
Visit Kickstarter here.
Those who are new to the start-up world might not know exactly where to start when it comes to looking for funding. While the freelance economy has grown immensely in the last 5 years, it’s important to know where to look.
Platforms like Toptal offer a wide range of freelance professionals that specialise start-up funding. Start-ups seeking a consultant on Toptal can also rest easy knowing that they carefully screen each candidate, ensuring they have the necessary professional background and experience to guarantee a successful project.
Visit Toptal here.
If you couldn’t already tell by the name, appbacker is definitely worth checking out if you are a start-up working in app technology for both Android and Iphone. The platform helps people discover different apps through the crowdsourcing model. Investors can scroll through apps from around the world, and if they like what they see, they can choose to invest. Funding incentive is based on an investor’s ability to purchase an app at the wholesale price, eventually making a profit once the app starts flying off the shelves in the official app store.
Visit Appbackr here.
Investors are more likely to invest locally, which is why Gust is an attractive option for start-ups around the world, as they represent over eighty countries worldwide. Founded by a team of investors and lawyers, Gust knows their way around the start-up world.
With portals for both start-ups and investors, the platform seamlessly connects those seeking funds and those looking to invest. Start-ups can create a profile on Gust, and also have access to tools and tips to help them regulate finances and legal matters.
Visit Gust here.
Not just for investment, although that is a major part of the platform, AngelList is also a great place to find start-up jobs as well as recruitment. Those start-ups that are looking to expand can greatly benefit from this feature, while also getting their name out there to potential investors.
Their syndicate platform, led by technology experts make room for those who are looking to invest the chance to apply to a lead or directly invest in a fund.
Visit AngelList here.
From top corporations to big name accelerators, Seedrs aims to simplify the funding process for investors. Providing a vast network of investors from 48 different countries, who tap into an additionally impressive network of start-ups, there is plenty of room for collaboration on this platform. Seeders also encourages investors and start-ups to continue their relationship after the transaction is made. Their online and offline networks aim keep both start-ups and investors in the loop.
Depending at what stage of development your company has currently reached, exploring various funding options available to you is a worthwhile endeavour. Rather than blindly pitching investors, investigating each potential platform, whether it’s crowdfunding or a hiring a freelance funding expert, will save you time and resources so you can focus on the right type of investment based on your needs.
Visit Seedrs here.
Picking Your Lane: Maximising Your Chances Of Success And Happiness
How do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.
Most entrepreneurs start businesses out of necessity. They do what they have to. They don’t think far ahead. They fight fires every day. They are the foundation of every economy all over the world. Some succeed, some fail, few shoot the lights out. Some are happy, some are not.
For me, there’s nothing more thrilling than building a business. Seeing your ideas turn into reality. Seeing your team exceed your expectations every day. Seeing your customers’ lives improved by your products.
But, entrepreneurship is not for the faint-hearted. You pour blood and sweat and tears into your business. You get more than your fair share of punches in the nose. It’s hard, but if you’re lucky and you persevere, the rewards are great.
So, how do you maximise your chances of getting into the ‘happy and shooting the lights out’ club?
Picking the right lane – figuring out what you’re going to do – is probably the most important decision you’ll make. Once you’ve figured that out, you can get down to the nitty gritty of picking your team and building your business.
But, how do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.
The Sweet Spot Model, which has been drifting around the web for years, provides great guidance. If you do what you love, the hard yards won’t feel like work. If you do what you’re good at, you’ll beat or (even better) outstrip the competition. If you provide something the world needs, you’ll feel a sense of purpose. If someone will pay for it, you have a business.
When I co-founded Simply, I wanted to tick all 4 boxes AND work from Cape Town AND be extremely flexible (so I could prioritise family health).
I worked on three different ideas: A GIS-platform for solar and other utilities; a transaction platform for stokvels; and a cheeky online life insurance play.
The life insurance play quickly emerged as my best choice (it helped that my partners are top actuaries J):
- What I’m good at – doing start-ups, connecting people and teams, and using technology and data to solve business problems.
- What I love – working with people I like and trust to build businesses that solve hard problems and make the world a better place.
- What the world needs – most adult South Africans have one or more funeral policies. Few have life or disability cover and policies are often very expensive. There’s a clear need for simple, convenient, well-priced life, disability and funeral cover.
- What someone will pay for – the market we’re targeting is huge – nearly R7.5Bn of new premium is written annually.
With the stars lining up, we pressed the go button in early 2016. It’s now twelve months since we launched to market and early signs are good:
- Our innovative, online products – Family Cover, Domestic Cover and Group Cover – have been well received and are improving all the time.
- We have an amazing, engaged team – inspired by the purpose of protecting vulnerable people.
- We’ve sold more than 4 500 policies to date, providing more than R2.5Bn of cover to more than 20,000 people.
- We’re based in Cape Town, working hard and having fun, and I seldom miss a swimming gala, netball game or opportunity to go mountain biking.
While picking the right lane is no guarantee of success, it definitely helps stack the odds in your favour. You’re going to need all the help you can get. So, take the time to pick your lane. I bet it’ll be worth the effort.
9 Quotes Every Entrepreneur Should Live By
Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.
Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.
There are great learning opportunities that present themselves when we fail, but we must be willing to continue on and try again in order to learn anything at all.
It can be quite an arduous task to strive for your own means, to create your own vision and to rally the support within yourself that starting and running your own business requires.
Thankfully, we’re not in it alone. The wisdom of others can greatly ameliorate the process learning from our missteps and hiccups.
Taking from sagacious investors, inventors and thinkers can help you pick yourself up and make something meaningful out of your quest to become a successful entrepreneur.
By studying the thought processes of other entrepreneurs, we can become more enriched and more aware of how to approach the challenges we face in business and in life.
Here are 9 quotes every entrepreneur should live by:
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