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Doing Business in SA

What makes or breaks entrepreneurial success in SA?

In another step to bringing her expertise to the SME sector, Claire was recently on the board of judges on the ‘Think Big – Building Business Champions’ TV series, and shared her outlook on different SME business models at a board session.

Claire Busetti

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Venture capital companies traditionally invest capital in businesses they believe have the potential for growth. It can be a high-risk occupation that at first sight doesn’t seem to have much in common with SMEs.  Do they, in fact, share some characteristics?

Investing in SME’s is almost as risky as investing in start-up tech ventures. What makes venture capital more risky is that besides investing in companies that have potential, you are invariably investing in new and untested technologies.

Where do the worlds of venture capital and SMEs intersect in South Africa?

As an industry we at SiMODiSA are trying to find ways of enhancing entrepreneurship and supporting start-ups. There are two pillars we focus on.  We work with government looking at advocacy, to remove some of the challenges that small businesses face. On the second front, we are looking for ways to actively help entrepreneurs get started and become sustainable – as funders we need a pipeline of small businesses that we can support.

The failure rate in private equity investments into larger companies is about 15%, but the failure rate of SMEs and tech start-ups can be as high as 70%.

Because of this there is very little funding available for either SME or venture capital investment, which is very unfortunate because jobs are created by small business not by big business.

Plus there is a shortage of skills in South Africa. Again this applies to the world of venture capital, private equity and small business.

But most importantly, the country suffers from a shortage of entrepreneurs. South Africa lags behind the rest of the continent when it comes to entrepreneurship and the creation of successful small businesses.

What makes or breaks the successful development of entrepreneurs. Are there ways of creating successful entrepreneurs?

Yes, there are different models to help develop successful entrepreneurs. You could use the ‘Silicon Valley’ model.  In this model you have great universities, remarkable research, venture capital funders, angel investors and access to markets.

This has worked successfully in the USA, and we should use it here in South Africa because we do have great universities and good research, but now we need the venture capitalists and angel investors to help entrepreneurs start up their businesses and, very importantly, access markets.

One can also look at the ‘Mother Ship’ model.  This tried and tested model involves major corporate companies either spinning off small businesses or proactively supporting small businesses by providing them with financial and non-financial business support and access to their supply chains.

Of these two models, it sounds as if the ‘Mother Ship’ model is more applicable to South Africa than the first model? Is this perception correct?

Yes and no. In South Africa, the best example of the ‘Mother Ship’ model has been the mining industry. Many small businesses presently supplying the industry were created by people who left big mining companies to start their own enterprises.

More recently, we have seen how the BBBEE preferential procurement and enterprise development codes are encouraging the development of new entrepreneurs. However, the fastest growing economies are using government-backed venture capital programmes to get high technology businesses off the ground, and we in South Africa need to do that too.

Are there other ways of creating entrepreneurs?

Yes, there is the ‘Trigger’ model. For example, the introduction of new legislation such as BEE triggers the creation of a new generation of entrepreneurs. Interestingly, in South Africa not only have we created BEE entrepreneurs buying into existing businesses but also through necessity people who have been displaced by BEE have left and become entrepreneurs.

Then there is the ‘Local Hero’ model which is very powerful and underpins all of the other models because when people see someone they know successfully starting their own business they think ‘If he can do it, then I can do it’ – and so they are encouraged to take the plunge to start their own small business.

Hence, we need to celebrate our entrepreneurs and make them our heroes – we need to foster a culture of entrepreneurship which is why ‘Think Big’ was such a wonderful intervention.  We owe a lot to Standard Bank and the producers of the show.

What type of business start-ups does South Africa need the most?

South Africa needs ‘Gazelles.’ These are companies which grow quickly, but as they grow they create lots of new jobs. These companies include well-known brand names such as MTN and Vodacom and even Nandos. They begin small but they quickly grow into major businesses that employ large numbers of people.

While the ‘Think Big’ series has concluded on TV screens, episodes can still be viewed online by visiting www.standardbank.co.za/thinkbig. For an array of additional tips and tools on how to start, manage or grow a business, visit bizconnect.standardbank.co.za.

 

Claire Busetti, who is on the Board of the South African Venture Capital and Private Equity Association as well as SiMODiSA, which is a new “start up business” association, has spent many years in the world of finance, involved in areas such as listed investments, private equity, venture capital and the world of SMEs. Claire holds a B.Sc. from the University of Natal and an MBA from Wits.

Doing Business in SA

Free Payslip And Contract Of Employment Template Download

Download your free payslip and contract of employment here to get you started in the right direction.

Menét Hamel

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In your downloads you will find the following resources below:

1. A free payslip template with formula on how to calculate tax (PAYE), UIF, etc for a start-up business.

2. A standard contract of employment (template) that complies with all the relevant laws.

The payslip template is merely an example and should you need to have anything checked in terms of your remuneration structure, we can put them in contact with our remuneration specialists in Johannesburg, Tax Consulting.

Related: 5 Ways to Make Your Payroll & HR Solution Pay for Itself


Download your payslip template 

When launching your business you don’t want to be blindsided by the little but impactful costs, like PAYE or UIF. Ensure you have everything covered by using this payslip template.


Similarly, the permanent contract of employment should be read carefully and changes should be made in line with the offer of employment and the company policies and procedures. Please note the template provided is for a permanent placement.


Download your contract of employment template

When employing staff you should ensure the contract is legal and legally binding. Customise this contract of employment to suit your business and what you can offer your employees.


Related: How the Right Technology Makes DIY Payroll As Easy As 1-2-3

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Doing Business in SA

What steps do I need to take to start manufacturing toilet paper?

This comprehensive guide takes you through everything you need to know to start a toilet paper business.

Entrepreneur

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The business of producing toilet paper has been recognised as one of the fastest developing assembling commercial initiatives in Africa.

Toilet paper is used in our homes, work places, schools, hotels, restaurants, shops, maternity homes, hospitals, churches, clubs and many others. It can be used in various other ways such as cleaning up messes and decoration.

The difference between toilet paper and other tissues is that it is created to breakdown in septic tanks and other tissues don’t necessarily do this.

We recommend: What steps do I need to take to start manufacturing toilet paper?

To start and run a business, it is not enough just to have a good, viable idea. You also need to have the right skills, attitude and personality to make the enterprise succeed.

Benefits of starting a toilet paper production business

  • It has a simple production procedures
  • There are not many product offerings or varieties
  • Simple organisational involved
  • High interest on the product
  • Easy to market
  • Product is a primary necessity in society.

Possible challenges of starting a toilet paper production business

problems-with-making-toilet-paper

  • The biggest constraint will be the insufficient amount of planted trees. This will affect you as this is where you will harvest your raw materials from. This can result in a reduction of plantation productivity. According to the Paper Manufacturers Association of South Africa 60% of all plantation trees are planted and grown especially for pulp and paper production.
  • You will need to apply for water permits to meet the terms of the regulatory framework managing water usage. This is a long and difficult process and can limit you from achieving profitable operations.
  • Transport, labour and licence costs will have a negative impact on your ability to competitively trade. You will need to apply cost control measures to remain competitive.

Did you know?

  • In an average public bathroom, it takes 71 separate visits to finish a single roll of toilet paper.

Financing your venture

It’s most likely that you will need finance when setting up a toilet roll production business. The toilet roll production equipment is available in South Africa and ranges for a single machine from R175 000 for the bottom end of the range model to R500 000 for a fully automated machine.

Manufacturing plants are also very large in size which means financing it will be quite expensive. You should use your capital to purchase the equipment you’ll need.

Try and save money by buying economical but high quality equipment. Once you have all your equipment find a premise that will accommodate all of it. Once that is completed then contact stores and potential clients.

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

You can save money by renting or buying an inexpensive lot for your toilet paper business. You could even start in a smaller building and when you have increased your funds, upgrade your facilities into a bigger space. Make sure to take all of the costs into account when trying to finance your toilet paper business.

You’ll have to include raw material required to make the rolls. These are supplied in jumbo tissue rolls and cost from R6 600 per ton. You will also have to take into account staff.

Zhauns, a supplier of business opportunity machinery supports BEE by offering a variety of empowering programs for street vendors, unemployed and disadvantaged groups through consortiums, local and international joint ventures and has financial links which assist entrepreneurs in need of funding.

Related: Government Funding and Grants for Small Businesses

A start-up would need two-five people operate a small business of this kind. It takes about three months to set up the business and to properly train staff to operate machinery”. Zhauns offer free training when they install equipment purchased through them.

Planning

toilet-paper-stacked

Planning is always your starting point when starting a new business. There are several techniques you can use for your planning process. You can use ready and existing techniques and plans or you can use innovative techniques which will make your toilet paper business more unique.

Focus on the specifics of what you will need for your toilet paper business such as equipment, employees, property and raw materials. Making errors during the planning phase is normal. After your plan is finalised it should be flexible enough that you can add changes.

In this industry you are not just competing with local manufacturers. When you become a toilet paper business owner you have to figure out how you’re going to compete with different international manufacturers.

Speak to owners of similar businesses

The best source of information you can find about an area of business, is other toilet paper business owners. They will tell you in practical terms whether your ideas are feasible or not.

To locate similar businesses which can give you advice on any aspect of their toilet paper business, contact your local Chamber of Commerce. Shereen Crowie of Curviro Trading says: “It’s a commodity with no age restriction and no seasonal production demands.”

For support and guidance

toilet-paper-support-structure

If you are going to be a toilet paper business owner you need to have business skills, even more so than technical skills about your product or service. This means you have to understand finance.

You need to know how much your idea is going to cost you, whether it will make enough money to pay back these costs and make enough in addition to satisfy your requirements.

The DTI (Department of Trade and Industry) recognises that support in the form of advice from specialist organisations is vital and the offer support groups to SME businesses.

One such arm is Khula Enterprise Finance which is a wholesale finance institution that has well-developed ties in the public and private sectors.

Through these channels – which include commercial banks, retail financial institutions, specialist funds and joint ventures they play an effective role in order to bridge finance gaps that are not addressed by commercial financial institutions in the small business sector.

Did you know?

  • People use on average 8.6 sheets per trip, which is a total of 57 sheets per day. That’s an annual total of 20,805 sheets.

Training

It is recommended to get training when joining the toilet paper business industry. There are many essential practical skills which you will need when starting a toilet paper business.

There are courses offered by universities which will help improve your skills and understanding of the technology involved. You can alternatively get training from current experts in this field.

You can apply for internships at factories and get first-hand experience. If this is your plan of action make sure to take very detailed notes about all the process involved.

Draw up a business plan

Business plans are essential for businesses from when they start out to years later when your businesses has evolved and improved.

It becomes a guide for you and your employees to track whether your business has gone off course from the core of quality production. Experts can be hired to help you draw up a toilet paper business plan for a fee.

Business plans can be used to organise everything from your marketing strategy to the strengths and weaknesses of your business.

We recommend: Business Plan Examples to Get You Going

It will help your toilet paper business keep clear objectives as well as making your priorities recognisable. Milestones recorded in your toilet paper business plan will help you follow your progress.

Location

Choose a good location in an industrial area for your toilet paper business. It’s recommended that you get a realtor, since they are the experts in their field.

They will advise you on which buildings are better for your toilet paper business and which ones would be unsuitable.

Make enough time to view each property before purchasing or renting it. Your toilet paper business can’t be in a residential area.

Types of Machinery

toilet-paper-machinery

You will need to buy or rent the necessary equipment with the finances you have. Some of the machinery that you need to get going with your toilet paper business is:

  • Core making cutting machine – This produces the brown cardboard core that the tissue is wrapped around.
  • Jumbo reel winding machine– This winds the tissue paper from the jumbo reels to the cardboard core. It will automatically stop at a programmed size.
  • Embossment attachments or embossing machines – Embossments are the prints on the surface of the tissue and the tissue roll can either be plain or embossed.
  • Band saw cutting machine – this cuts the paper into the right side.
  • Other machinery requirements:
    • Generator for power outages
    • Auxiliary equipment
    • Transportation – its optional but can be essential.

We recommend: Where can I hire the machinery needed to manufacture toilet rolls?

Employees

This type of business will require trained employees. It would be a definite advantage if you hired experienced operators or people experienced in similar industries.

This will allow you to hit the ground running instead of slowly training your staff from scratch.

Hiring inexperienced people can also cause a decline in the quality of your production as well as a decline in the level of your toilet paper businesses productivity.

Marketing strategies

Once production has started you will need to come up with various ways of distributing your product.

Since your brand is new, you will most likely have to do a demanding marketing drive so that customers know who you are.

Customers won’t buy your brand if they don’t know who you are. Advertising consultants can help your toilet paper business with effective strategies which will help increase sales.

Which works better buying machinery first or getting orders before buying equipment?

toilet-paper-orders

Look at your market before spending the money. It is good business practice to establish if there is a market for your product before buying expensive equipment. For this reason, it is vital to do research and to prepare a business plan.

Renting manufacturing equipment for this purpose may be a solution. Once the toilet paper business is up and running you can then consider buying your own machines.

Buying outright can result in a huge drain on cash in the first year of your toilet paper business.

Did you know?

  • In South Africa a family of four uses approximately one toilet roll every 1.5 days

Example of innovative thinking

Chandaria Industries operates out of Kenya and Tanzania. They sell their products in 15 African countries.

What sets them apart from their competitors is they make their recycled toilet paper from used paper.

What innovative thinking does for them, their communities and their country:

  • They are making money from recycling
  • They are transforming waste into a necessity
  • They are now a source of national wealth
  • They provide employment for many thousands of people

Just the used paper recycling activities creates nearly 20 000 jobs. By doing this they have saved over 30 million trees since they started in 1964. They still have more room to grow, saying that they don’t get as much used paper as they need.

Expansion options

Toilet paper will always be a necessity in people’s lives. Where your toilet paper business can grow to:

  • Custom toilet paper – creating toilet paper with personalised images or custom images
  • Various sizes – You could expand your toilet paper business into various other toilet paper sizes and thicknesses
  • Various tissue paper opportunities – You can expand your business into the tissue paper manufacturing business

Paper Manufacturers Association of South Africa (Pamsa) executive director, Jane Molony says that the pulp and paper industry’s is continuing to grow and make profits because of their energy-saving initiatives.

Molony also says that the value of the pulp and paper industry (excluding forests and recycling) in 2014 was around R27.8 billion.

Tissue paper achieved a yearly turnover of R2.5 billion in 2014 which is a yearly growth of 2.7% since 2009.

This industry has large growth potential and is a great business opportunity. Toilet paper has become a basic need all across the world. It can’t be recycled so there is always need for more.

Every single person on the planet uses it on a daily basis. Why shouldn’t you be the one making it and selling it to them?

Related: Free SWOT Analysis Template

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Doing Business in SA

What should I know before registering a holding company and how do I go about doing it?

Holding company pros and cons.

Entrepreneur

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What is a Holding Company?

A holding company is one that owns at least 50% of the companies companies’ stock. It is a company that doesn’t trade but only has one purpose which is to own shares in other companies.

Under what circumstances would one need to register a Holding Company?

A holding company is a firm that owns other companies’ outstanding stock. It usually refers to a company which does not produce goods or services itself.

Related: The Basics Of Registering A New Company

Its only purpose is owning shares of other companies.

From a financial point of view, it is usually possible to obtain control of another company with less investment than would be required in a merger or consolidation.

However, the decision on how to split companies depends on the industries in which you operate the shareholding structures, risk profiles and many other issues that will be specific to your situation. This is why professional help is highly recommended.

What are the Pros and Cons of a Holding Company?

The Pros:

  • The shares of stock in the subsidiary company are held as assets on the books of the parent company and can be used as collateral for additional debt financing.
  • Holding companies and their subsidiaries are considered separate legal entities, so that the assets of the parent company and the individual subsidiaries are protected against creditors’ claims against one of the subsidiaries.
  • Each subsidiary retains its own management team, and the subsidiaries become responsible to the parent company on a profit and loss basis.
  • The law sees a company as separate from its shareholders and directors. This means that in a CC, the assets and debts of the business belong to the company and the assets and debts of the shareholders and directors have nothing to do with the Company.

 The Cons:

  • Companies have to obey all the rules of the Companies Act, which is a long and complicated law.
  • A company has to keep detailed records. A professional organisation is needed to help explain which records must be kept.
  • It is difficult to terminate a company. A lawyer’s help is needed.

What legal entity must one register for a Holding Company?

The best route is to register as a (Pty) Ltd. This is a limited liability entity and the registration process of a (Pty) Ltd is very cumbersome and professional help is almost always sought.

Related: 3 Key Law Areas To Know When You Launch That Start-up

A Close Corporation can also hold shares in a company and can become the holding corporation in a group of companies.

How do you go about registering a Holding Company?

To register a holding company you need to consult an attorney in order to lodge proper compiled documentation at CIPRO in Pretoria. The Shelf Co Warehouse registers most Companies and Close Corporations in South Africa.

For more information visit:
http://www.cipc.co.za/
http://www.pty-online.co.za/


Related: The Definitive List Of South African Business Incubators For Start-Ups

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