How to open a night club
Be the toast of the town, the life of the party – and a successful entrepreneur? Yep. You can have it all when you open a bar.
Friends, laughter, celebrations, entertainment – fun! These are the things that might come to your mind when you think about owning your own bar as you imagine rooms filled with friendly conversation, music and people enjoying themselves.
If you’re thinking of opening a sports bar, you might envision an exciting game on big-screen TVs with everyone cheering and having a great time. Owning a bar sounds like the perfect life to many potential entrepreneurs, but it’s not always fun and games behind the scenes.
“There is a misconception out there that owning a bar is an easy business,” says Gary du Toit, an industry stalwart who has started 18 bars and pubs in South Africa, including the Jamaican and the ever popular Back-to-Basics, both in Westdene, Johannesburg. “The reality is that it consumes an enormous amount of time, and there is a direct correlation between the amount of hours you put in and your turnover and profit.”
Owning your own bar/club can indeed mean long hours, meticulous attention to detail, giving up vacations and weekends, and sometimes dealing with unruly customers. But if you have a clear vision, do your homework and learn the ins and outs of the business, it can also translate into a rewarding and financially successful enterprise.
Although people still gather to socialise in bars, just as they have for hundreds of years, other factors have come into play for the industry. Problems with driving while intoxicated have changed the drinking patterns of people in many countries, and South Africans too are more aware of the need to drive sober. “It’s one of the reasons,” says Du Toit, “that innovative taxi services like Toot ‘n Scoot are doing well.”
The growing concern with health and fitness toward the end of the 20th century also took its toll on the bar industry. Keeping tabs on this industry requires a look at the alcoholic beverage industry as a whole – what people buy in the store doesn’t differ much from what they buy in a bar. So what’s the status of the modern alcoholic beverage industry?
In 2008, the total income from bar sales was R216,3 million, down by just over 6% compared with the previous year, according to Statistics South Africa. The liquor industry on the whole is estimated to be worth R40 billion a year, and adult per capita consumption of alcohol is among the highest in the world – more than 17 litres a year.
This means you have some pretty tough competition out there. But you’re not just competing with the other bars in your area these days. You’re competing with every entertainment option from which your customers can choose.
What You Can Expect
Successful new bars can be in the black within the first six months, and they can go on to recover their initial investment within three to five years. However, like many new businesses, the statistics for bars aren’t in favour of the start-up.
Why do they fail? The most common reason is they don’t have enough capital to keep the business going. The second reason is a lack of knowledge about the business.
From a personal perspective, you need to ask yourself if you’re really the type of person who wants to own and run a bar. Of course, you don’t have to run it if you own it, but you’d better make sure you have a team of good, trustworthy managers working for you if you plan to be “hands off.”
In the beginning, you will probably have to be greatly involved whether you plan to be an active owner or not. If you’re the kind of person who would rather deal with paperwork or sit in an office where you don’t have to talk to people, this business is not for you.
You will need to be out there talking to people and shaking hands. Getting to know your patrons, even if it’s just to say “Hi,” can go a long way for your customer service.
Another thing you should consider is the time commitment and hours of operation. If you’re an early riser, you might not enjoy having to work until 3am or 4am at your bar. If you have a family, you need to discuss how owning a bar will affect them.
Many days you will have to be at your bar from the time you wake up – say, around 10am or 11am – to the time you go to sleep – say, around 4am or 5am. As you can see, this could take its toll on your family life. Eventually, you’ll probably be able to have a saner schedule, once your managers and staff are well trained, but it may take six months to a year to reach that point.
If this could cause problems for you or your family, you may want to reconsider the idea of owning a bar. If we haven’t scared you away yet and you’re ready to go for the bottle-in-the-sky dream, read on!
Choosing an Establishment
What’s Your Bar Type?
Some bars have great ambience, like the Zoo Lake Bowling Club. Some, like The Radium Beer Hall in Orange Grove, serve good food. Others offer excellent service. “Great food, excellent service and a good vibe will ensure that you get the customers,” says Du Toit.
“Often you just need to meet one of those criteria to get feet through the door. If the ambience is good, people will come back just for that.” Before you get started on the actual nuts and bolts of creating your dream bar, you have to decide what kind of establishment you’d like to own. Let’s take a trip through the various kinds of bars – from neighbourhood bar to large-scale club – and see which one is right for you.
1. Neighbourhood bar.
Conceptually, the neighbourhood bar is a version of the English pub. If you own this kind of place, you can expect to know many of your regular customers. Like the TV show Cheers, you may find yourself taking phone messages for customers or cashing their pay cheques.
It’s because of the friendly “home away from home” atmosphere that neighbourhood bars are successful. Some of these pubs open early in the morning, but they sometimes close earlier than other bars – depending on the clientele. This type of bar is perfect for small-scale entertainment options, such as darts, pool tables, video games and jukeboxes.
Across the country, this is probably the most popular type of bar you’ll find. There are a lot of neighbourhoods out there, but you might find that there is room for one more in your area. According to the experts, the start-up cost for this kind of bar ranges widely, depending on the size and concept, but mostly on location.
You can buy an existing neighbourhood bar for around R500 000. Not coincidentally, the amount of revenue these businesses produce varies greatly, depending on your bar’s location and capacity.
2. Franchise bar.
The Keg and My Grill My Bar are two examples of bar franchises available in South Africa. You won’t be able to bring your own style and taste to the bar, but you will have a great amount of support from the franchise system.
The initial outlay may make franchise bars more expensive than independent venues, but some prefer to have the power of a brand behind them. Du Toit believes that franchises and independent locations have different types of customers. “A student hangout with live entertainment will not attract the same customers as a more family-oriented pub,” he points out.
3. Sports bar.
Depending on the establishment’s capacity, sports bars can be a specific version of the neighbourhood tavern, or they can take on a life as big as a club. You may have the latter in mind, but your market research may point to the former. It’s important to do your homework!
Generally, sports bars offer some kind of menu options, such as sandwiches, burgers, pizza, sandwiches and appetisers. Since the main attraction is sporting events, sports bars have televisions in view of every seat, sometimes all tuned to different channels.
Audio and video technology comes into play, with some owners spending a large percentage of their revenue on keeping up with the latest in technology – from satellites to big-screen TVs. As with neighbourhood bars, start-up costs and revenue potential vary widely, depending on the size, concept and location.
4. Brewpub or beer bar.
Microbreweries are not as popular in South Africa as they are in the US, for example. The experts we interviewed say this is because South African beer drinkers are extremely brand loyal and tend to stick to the beers they know and like, and which are backed by huge advertising budgets.
There are, however, several brewpubs in the Western Cape which brew their own beer right on the premises. In this type of beer bar, you can offer a large selection of different types of beer, including microbrews produced elsewhere.
Most brewpubs only sell their own beer on tap (draft beer), with a few selections of bottled beer available too. Since you’re creating your own product in a brewpub, you also have the ability to control what you make and sell – from quality to quantity.
The start-up costs of a brewpub can be quite high because of the brewing equipment you need to have. Beer bars tend to have lower start-up costs, again depending on size and location. The revenue potential depends on the geographical location and drinking trends in the community.
5. Speciality bar.
Specialty bars, which concentrate on one type of libation, from wine to martinis, or theme, like cigar bars, are gaining popularity. Although some specialty bars focus on only one drink category, there must be a wide variety available within the genre.
Take martinis: They have become very popular due to the variety they offer. The traditional martini still has a solid appeal if made with quality vodkas and gins, but other mixes, like sour apple martinis, have expanded the martini-drinking base, especially among women. But even with their increased popularity, martinis are still looking up at wine.
Beyond the traditional glass or bottle with a nice dinner, for many, wine is the drink of choice. In fact, women order wine more often than any other alcoholic beverage. Wine bars offer guests the opportunity to taste a variety of different kinds of wine and the ability to learn more about their qualities.
Specialty bars tend to stay small and intimate in size and are located in more sophisticated neighbourhoods. The costs and revenues you can expect to find when opening a specialty bar depend mostly on the type of product you serve and your location.
Like the neighbourhood bar, nightclubs can take on a number of different personalities. You can open a small cocktail lounge with a jukebox or a tinkling piano in the corner. A medium-sized club might look like a neighbourhood bar during the lunchtime hours, then spring to life with a popular band at night.
Or if you have a big enough budget, your club might be a large dance club where the most fashionable people and hippest celebrities hang out every weekend.
Getting to Know your Market
Profile Your Customers
Whichever path you take, you must be prepared to spend a great deal of time and money on promotion to create your “buzz.” Clubs can make plenty of money if they’re managed properly. Most successful clubs draw on a city population of 500 000 or more. If you’re in a small town or suburb, you may not have the customer base to open a large dance club. Market research is key.
Gerard Schoonraad, who has over 23 years of experience in the industry and is currently setting up Mama Tembo’s in Greenside, Johannesburg, says that bars and pubs in residential areas in Johannesburg attract people from surrounding areas too.
“We will have no problem keeping a 150-seater bar full,” he adds. As a bar owner, you need to embark on some relentless detective work to profile your customers before you start investing large sums of money in your business. The majority of the research material you need is probably already available to you. You simply have to compile it.
You can go about developing your customer profile in several different ways, then compare the results to determine your direction:
1. General demographics
Contact your local chamber of commerce and industry to find out about the age, gender, income level, marital status, and political and religious affiliations of your target market. Your bar’s concept may go in a totally different direction if you’re in a university town like Stellenbosch or Potchefstroom with a high percentage of young, single students than if you’re in a quiet, conservative suburb populated with families.
2. Alcohol trends
Hotel & Restaurant magazine, a business-to-business publication for the hospitality industry, publishes an Alcoholic Beverage Review, incorporating Beverage Business yearbook. This annual independent survey of the liquor industry makes the total package the most comprehensive guide to South Africa’s liquor industry.
National and regional alcohol suppliers keep records of how their product fits into the market. Your potential suppliers can provide valuable information about your customers and what they like to drink. Generally, they are glad to help. If you do your research and have a successful bar, your suppliers will profit, too.
3. Lifestyle trends
Call the lifestyle and entertainment editors at your local newspaper and regional magazines, as well as the advertising and marketing departments of local radio stations. They can give you information about your competitors and tell you more about the establishments that have been successful in the area.
4. Your customers and the competition.
You can discover a ton of information about your customers using internet resources. Spend some time on the Internet and visit sites like Statistics South Africa and the South African Wine Information Centre to find out more about demographics and spending trends.
Besides general demographics, you can surf the web for information about other bars in the area. Pop into chat areas and news groups to find out where the action is and which bars are the hot spots. (This is especially important for clubs) See www.jhblive.co.za as just one example.
Using Your Research Effectively
Once you’ve compiled all your research, you can devise a concrete profile of your clientele. For example, you may decide your target customers are professionals between the ages of 30 and 50 who have incomes of more than R30 000 and like jazz music. Whatever you set as your target market will affect all the decisions you make from here on, so make sure you get it right.
Once you have a profile, you can develop the menu and bar inventory based on what your customers like. Look for trade magazines and industry associations that provide data on food and beverage spending patterns. The Federated Hospitality
Association of South Africa (Fedhasa) will be able to provide you with information about the performance of many eating and drinking establishments. You can get a large chunk of this information from your suppliers as well.
Keep in mind that you may have more than one profile to work with. You may have a conservative professional clientele during the daytime and a rowdy university crowd at night. If you use your research wisely, you can develop a bar that caters to both profiles for even more business.
What it costs
As we’ve discussed, the bar/club industry can be a pricey undertaking. Because of the high failure rate, you may come across desperate bar owners willing to accept a low purchase offer just to get out of the business. You’ll also find that start-up costs for bars vary depending on size, location and target market. So we can’t give you a concrete amount for what you can expect to pay to start your business.
We spoke with one entrepreneur in Johannesburg who spent R100 000 taking over someone else’s bar business. Another bar owner spent over R2 million starting his club (and he didn’t even build the building). The numbers vary across the board.
However, if you are able to do much of the work yourself in areas like design, alterations and décor, you can save a huge amount of money. Another good move is to buy all the equipment you need on auction. “There are many establishments that go under, and finding everything you need on auction is easy,” says Schoonraad. “You should expect to spend between R500 000 and R1 million to set up a bar.”
Both Schoonraad and Du Toit agree that set-up costs are higher in cities like Johannesburg and Cape Town, where you will need to differentiate your offering from what is already available. “In a smaller town, set-up costs will be lower and it will be easier to build your clientele as there is less competition,” says Du Toit.
Naturally, if you buy an existing bar, you’ll spend a lot less than if you decide to start a large-scale, über-trendy cocktail bar-cum-club. You’ll have to do some research to find out what your bar will cost based on your concept, size and location.
Schoonraad says that setting up a late-night drinking venue like the eclectic Gin can cost anywhere from R900 000 to R1,5 million. “When you have several years of experience behind you, you can spend a lot less, but if it’s one of your first ventures, that is what you should bargain on.”
Calling your bar an operation fits because of how much operating it takes to keep it running. Someone will have to mind the store every minute your doors are open and some minutes when they aren’t, and your place will need some sort of monitoring during the off-hours to prevent vandalism or break-ins.
Du Toit says experience has taught him that you cannot spend too much on security in this industry. “I recommend having more than one armed response company, and I always give security guards and the police as much free coffee as they like.” Many compare running your own business to raising a child.
If true, then a smooth-running, problem-free, profit-making bar compares to parenting a happy, well-adjusted, self-assured teenager preparing for adulthood. But don’t worry, the bumps in the road hold the best lessons. And as with parenting, you succeed with consistency and concern instead of rigidity and blame.
The Nitty Gritty
Applying for a liquor licence
To sell liquor, you are required by law to have a licence. When applying for a liquor licence, it’s advisable to use the services of a consultant. They have extensive knowledge and expertise regarding the Liquor Act, and are able to correctly advise and consult with prospective clients.
“The best consultants have worked for the Liquor Board,” says Schoonraad. “It’s a very bureaucratic organisation and someone who knows the ropes will save you an enormous amount of time. Expect to pay around R10 000 for a liquor licence, which will take between six to 12 months to be finalised.
Temporary licences are available on a week-by-week basis. Note that if your licensed premises cause a public nuisance, your neighbours can lodge a complaint. If the problem persists, the Liquor Board may hold a hearing and place conditions on the licence or withdraw or suspend the licence. This is why it’s vital to research your location thoroughly before you set up operations.
The Road to Success
The foundations you lay to operate your bar include the systems you use to track liquor and food. How much does the customer owe the server/bartender, and in turn, how much do they owe you? Also, what liquor and food do you sell the most? The systems you choose depend on the type and size of bar you have.
In most bars, only the bartenders and servers handle money. Cashiers or takeout staff may also have cash-handling responsibilities. Factors to consider when choosing an accounting system include the level of sales you expect, both from alcohol and food, and the efficiency needed for your staff to operate at its full potential.
Also, look for holes that your accounting system might leave open for theft at all levels, not just servers and bartenders. No-one thinks they are hiring a thief. Many people who might steal if the opportunity arises do not consider themselves thieves, either, so they don’t come across as such.
If you use the cash-and-carry system, where the drink is ordered by the server verbally and then paid for before the bartender or server rings it up, you might find many “forgot to ring it up” drinks, as well as a few given away for free.
It is the nature of the system. If your inventory controls are so tight that you will notice when too much has been used, or if your manager, who shares in the profits anyway, is your bartender, then you can use this system without much fear.
Finding Your Perfect Location
Your choice of location will depend on how you want your bar to look, what you want your bar to contribute to the community, and the kind of clientele you want to patronise it. Then you need to decide whether you want to buy the location or sign a lease.
Again, that depends on your budget. Finally, you need to figure out how to fuse your concept with both your name and your location to your best advantage.
People who know this industry well have polar opinions on the concept of location. Some owners and experts we talked to put enormous importance on the bar’s location while others refuted its significance altogether. It all depends on what you want your bar to be and what your strengths are as an owner.
If you want your bar to get impulsive neighbourhood traffic in a particular area, then you should be closest, and most obvious, to them. If you’d rather spend the time and money saved by more affordable real estate to develop your establishment’s concept and create your own buzz and destination, your actual location won’t matter so much.
You should consider factors such as safety, parking, and accessibility for customers – even the history of the site – when choosing a location.
Your Bar: The Place to Be
The word “location” can refer to two different things – what area your bar is in (downtown, uptown, suburbs, etc.) and where you are in relation to your customers. Are you on their way home from work? Or do they have to make an effort to get to you?
Gin introduced the idea of late-night drinking to a stretch in Greenside, which is known more for its restaurants than the nightlife. With a combination of great music, ambience and cocktails, it’s now one of the hottest spots in Joburg.
On the other hand, you can have an incredible spot and still not be successful. If your staff is stealing from you, operating procedures are badly managed, or your service isn’t up to par, you could quickly find yourself out of business – grade-A location and all.
Have You Heard?
Naming Your Bar
When it comes to naming a bar, experts generally fall into two major schools of thought. The first says your bar is your dream – your hard work – so you should name it anything you want. The second approach to naming says your moniker is the first and greatest form of advertising for your drinking establishment.
A name like Steve’s Bar & Tavern doesn’t really tell the public anything about your business. “People will expect the place to be a neighbourhood hangout,” says Du Toit. “I recommend giving customers something they can connect to.
Think of Cantina Tequila and Cool Runnings – there is a definite link between the name and the concept. Likewise, you’re unlikely to go to a place called The Jolly Roger for a quiet drink.”
Du Toit advises that your name should exemplify your concept. “First, I would try to figure out what my concept is going to be,” he says. “Sports bar? Club? High energy? Low energy? Singles bar? What exactly am I going to be? Then, what’s the name of this business going to be?
I would do tremendous research to try to come up with a name that literally fits with the concept.” When coming up with different names, don’t stop until you love at least three. In your brainstorming sessions, keep these three questions in mind:
- How well does the name fit the concept you want to create?
- What types of customers will the name attract?
- What will people expect based on the name?
Creating Buzz for your Bar or Club
It’s time to start planning how you’re going to get people into your bar to enjoy it. Just like any other aspect of operating your bar, marketing is an ongoing process. Many bar owners think marketing is the most fun and exciting aspect of running a bar.
The entrepreneurs we interviewed agreed that advertising in the media didn’t bring as much reward for the cost as it does for many other types of businesses. Generating a buzz for your bar will mostly come from word-of-mouth and the special promotions you set up.
“The best way to advertise a bar is word-of-mouth,” says Du Toit. “When you don’t have word-of-mouth working for you, you are in serious trouble. There are ways to get some advertising out there without spending a ton of money. But your customers are your main marketing tool.
“Word-of-mouth advertising is priceless,” he continues. “It means everything is right. Everything is happening. The bar is alive. Your employees love working there. They are talking and saying great things about the place, and that is passed on to your customers. The customers love being there, and they tell other customers.”
Schoonraad agrees, and adds that it’s important for a bar owner to have what he calls “an open hand”. “I’ve given out a lot of free tequila over the years, and if I see that a guy has wolfed down his burger I don’t mind offering him another on the house.”
He also recommends pamphlet drops, advertising in local newspapers and invitations. “You just need enough of a crowd to get the business going; if the service, the food and the vibe are great, people will come back.” One-on-one contact is vital, according to Du Toit.
“You have to build relationships with your customers. When you see people coming back, you know you are getting it right. I would send my own mystery shoppers to my venues and ask them to report back on everything from the food to the toilets.” So what are some ways to generate word-of-mouth buzz?
You can get involved in community events and charity functions to gain exposure. You can launch a direct-mail campaign with a newsletter for regular customers, develop a website, and use any other creative marketing techniques you can dream up.
Staging Promotional Events
A great way to promote your bar is to create special internal promotions. Once you have established what your promotions will be, it’s time to start making them happen. After your bar is up and running, you’ll have a better idea of what nights need a little boost.
Most bars are busy on Friday and Saturday nights, with Thursdays coming in third place. You might decide you need to pump up business on Monday or Tuesday, so pick one day and keep it going until you have established enough regular business to move the promotions to a different day.
Of course, you’ll still do your regular promotions, like Valentine’s Day, St Patrick’s Day and Fathers’ Day. Here are some ideas to keep in mind when you’re working on promotional events.
Work out a budget. If your promotion continues for more than one day, budget for the entire time you want it to run. A good goal to shoot for is to make a profit that’s three times the cost of the promotion.
2. Make a schedule.
Design a planning calendar at least eight weeks before the promotion. Depending on the size and magnitude of the promotion, you may want to start advertising it at this point, too. Never advertise an ending date, though, so you can cut it early if it doesn’t do as well as you planned or you can extend it if it really takes off.
3. Maintain the energy level.
On the day of the promotion, don’t stop the action to give away prizes or make announcements. You can turn the music down, but don’t turn it off. This will keep the energy level high and consistent. If you absolutely have to turn off the music, never keep it off for more than 10 minutes, or you risk people getting impatient and leaving.
4. Party all night.
Schedule your prize giveaways, contests and entertainment to run throughout the night. If you have a grand prize to give away or a finale planned, don’t do it until after midnight so your guests stay in your bar as late as possible.
5. Promoting your bar can be fun and creative.
During a promotion and after it’s over, ask your customers and your employees for feedback and critiques. Of course, your sales will give you a lot of the information you’re looking for, too.
SA Bar Culture
What Du Toit enjoys about South Africa’s current bar culture is the fact that it’s evolving, with professionalism becoming an important part of bar management. “A huge emphasis is being placed on bar training that gives people the ability to create cocktails and drinks with flair. There is definitely a move towards greater sophistication, and some of our best bars are on par with the top venues around the world.”
How Do I Start A Transport Or Logistics Business?
An all in one guide to starting a transport and logistics business.
Thinking about starting a transport business?
Forecasts indicate that the demand for freight transport will grow in South Africa by between 200% and 250% over the 15 to 20 years.
Some corridors, (high volume transport routes that connect major centres), such as the corridors between Gauteng and Cape Town (which amount to 50% of all corridor transport) will increase even faster.
Your Free Cheat Sheet: Transport and Logistics Business Cheat Sheet
The scope in the transport and logistics industry is varied – from a one-man show using a small truck to transport goods and offer services, to a fleet of transport vehicles which travel the length and breadth of South Africa’s roads.
Road transportation includes commuter transport from taxis to bus transportation.
It can be a tough industry and there are many threats facing transport businesses but if you get it right, you can build a successful business.
What is covered in this guide:
- How to start your transport and logistics business
- How to get funding for your transport business
- What are the costs involved
- Finding customers and getting transport contracts
- Getting onto suppliers lists
- Buying trucks and employing drivers
- What are the regulations and risks
- Where to find guidance to start your business.
Ready to get going? Click the arrow button to learn how to start your own transport business.
Want To Start A Property Business That Buys Property And Rents It Out?
Information on starting a property renting business.
Start your property rental business using this guide
I would like to start a property business where I purchase the properties and I rent it out, I already have a paid up property that I am renting out but my taxes are too high on the rental income so I am considering starting up a business. Could you advise me on where I can get more information on the requirements to start this and provide some guidance on whether it would be wise to pursue this business?
Before starting any business, it’s important that you’re absolutely clear about why you’re doing it – and that it’s going to be something that excites you, drives you and challenges you in the long-term.
If you’re only considering starting a property investment and management company to try and reduce your taxable income, then I don’t believe this is an appropriate – or a sustainable – solution. You should rather consult a reputable financial adviser about other investment options that would better suit your personal needs.
If owning and managing properties is, however, an opportunity you would like to pursue, I would then recommend that you start off by equipping yourself with a proper understanding of what it actually means to be a landlord. This will help you to make an informed decision about whether or not you want to start this (ad)venture as an entrepreneur.
At a very basic level, here are some of the things you might want to consider to determine if this is the right business for you:
You need to consider the initial cost that you will be incurring when setting up the business, especially since you have a property in your personal capacity.
You will need to transfer the property from your personal capacity into your business and pay transfer fees and transfer costs.
These costs will be calculated based on the current value of the property.
The work and planning
No matter whether you’re a residential or commercial landlord, property management requires a great deal of work and planning. Remember you will be responsible for all aspects of the property: From purchasing it to maintaining it on a day-to-day basis.
This involves everything from transfer to managing the monthly utility bills, all the way through to replacing the geyser when it bursts and ensuring your tenants behave appropriately in the building. You would also need to source your tenants and ensure that they pay you on time.
All by yourself
From a start-up perspective, you would probably need to do all of this yourself in the beginning. As such, you would need to work to build up your own database of reputable suppliers: Plumbers, electricians and handymen. It’s important that you find experienced, qualified suppliers that you can trust, and who will be able to deliver on time and cost-effectively.
This can be a very time consuming process. Also consider that you would need to be on hand to facilitate all of this work: Arranging the call-out with the supplier and the tenant; overseeing the work delivered; paying the supplier etc.
Business owner development
Above and beyond that, you’re then going to need to develop yourself as a business owner. You will need to equip yourself with the skills and knowledge required to lead and manage this business in order to make it both sustainable and profitable. This will require a significant investment from you: Time, effort and money. The more you commit to this journey of personal and professional development, the better your chances of success.
If you can picture yourself doing – and enjoying – all of the above, it’s then equally important to consider if this is a viable opportunity.
The greatest barrier to entry in this sector for you as an entrepreneur is probably going to be finance. You need to be conscious of this from the outset.
- Do you already have access to the funds you need to purchase the properties you are going to rent out?
- If not, what are your plans to secure this funding? And what are the returns you are expecting?
- Also consider the funding of the business itself. How will you finance this, especially during the first year?
My recommendation here is to take the time to do your homework – and the maths. While this could be a business opportunity, it might not be something that will be possible for you to do on your own.
If you have a feasible plan regarding the above, you then need to start working on developing a model for this business – as well as a strategy and plan. All of these will require research on your behalf: From reading Entrepreneur to accessing websites, possibly visiting walk-in centres etc.
This will include unpacking the actual opportunity itself – and determining if there really is a demand for your service offering.
Please note that the above are thinking or “trigger-points” – listed simply to give you an idea of some of the things you need to consider, as well as the mindset you will potentially need to adopt as an entrepreneur. Your response to them should give you a good sense of if this is the path you wish to walk.
Remember that entrepreneurship is a journey – and every day on this road is a learning opportunity. If it is for you, embrace it whole-heartedly, don’t be afraid of failure and be sure to seek out the assistance available to you.
How Do I Start A Child Services Business?
The ultimate guide to starting a child care or child services business.
Is It for You?
Does children’s laughter sound like music to your ears? Do you enjoy the idea of six kids chaotically crawling at your feet at any given moment? Then read on for your perfect business.
The number of working parents – including single-parent families and families with both parents employed is climbing, creating an ever-growing need for quality child care. That need is creating a tremendous entrepreneurial opportunity for people who love children and want to build a business caring for them.
Related: Free sample business plans here
Child-care services range from small home-based operations to large commercial centers and can be started with a small investment.
You can stay very small, essentially just creating a job for yourself, or you can grow into a substantial enterprise with potentially millions of Rands a year in revenue.
You also have a tremendous amount of flexibility when it comes to the exact services you choose to offer. You may limit your clientele to children in certain age groups or tailor your operating hours to meet the needs of a particular market segment. You may or may not want to provide transportation between your center and the children’s homes and/or schools. You may want to take the children on field trips.
As an alternative to child care, you may want to consider a business that focuses solely on providing transportation for children. Of course, the basic work you’ll be doing − caring for someone else’s children − bears a tremendous amount of responsibility and requires a serious commitment. When the children are in your custody, you are responsible for their safety and well-being.
You will also play a key role in their overall development and may well be someone they’ll remember their entire lives.
Filling an important need
One of the biggest challenges facing South African families today is caring for their children while the parents work. According to Stats SA 39% of women head households in South Africa. A higher percent than ever of married-couple families, both husband and wife work outside the home. The labor-force participation of women in their childbearing years continues to expand. As the number of working parents rises, so will the demand for child care.
Another issue that has an impact on child-care issues is the new, 24-hour global market. Occupations with a high number of employees working nights and weekends − such as janitorial, hospitality, customer service and technical support − are experiencing substantial growth, and workers in these fields find obtaining quality child care an even greater challenge than their 9-to-5 counterparts. For many working parents, there is no single solution to their child-care needs.
More than a third use more than one option, such as day-care centres part of the time or full time or use domestic staff to provide care for children who don’t attend a daycare centre.
Do you have what it takes?
What are the characteristics of a person who would do well operating a child-care. The person needs to be energetic, business-minded, a competent leader, have a pleasant personality, be professional, be willing to take calculated risks, be a good role model, have strong financial resources, be consistent in expectations of the staff, and be consistent in the delivery of service.
A child-care business can easily be started in your home with just a few weeks of planning and a modest amount of start-up cash. A commercially located centre takes a greater investment of time, energy and money. The size and type of business you choose will depend on your start-up resources and goals for the future.
Many child-care providers are satisfied with a one-person operation in their home that generates a comfortable income while allowing them to do work they enjoy (and possibly even care for their own children). Others may start at home and eventually move to a commercial site as the business grows. Still others begin in commercial locations and are either content with one site or have plans to expand.
The Beginning Stages
As you complete your startup efforts, use this checklist (and tailor it to your own needs) to make sure you’ve covered all your bases before you open your doors.
- Type of centre: Will you operate from your home or a commercial location?
- Licensing: What licenses are you required to have and from which agencies? What are the requirements, costs and lead times?
- Training and certification: What types of training and/or certification do you need?
- Market: What are the child-care needs of your community?
- Location: Choose a site that is appropriate and affordable.
- Legal requirements: Check on zoning and any other legal issues. (See regulations later on in the story)
- Financial issues: Estimate your start-up costs and identify the source(s) of your start-up funds.
- Health and safety issues: Plan for accident and illness prevention, and develop emergency procedures. See regulations later on in the story)
- Programs: Develop an appropriate schedule of activities for the children.
- Equipment: What do you need to adequately equip your centre, where will you get it, and how much will it cost?
- Insurance: What coverage do you need to adequately protect yourself and the children in your care?
- Staffing: If you plan to hire people, know the required staff-to-child ratios and develop your human resources policies.
- Links: What community and professional resources are available to you?
Conducting Market Research
Prime candidates who need full-time child care are parents with infants to 5-year-olds. Parents with children over 5 are good prospects for after-school care programs. The market segments most likely to use child-care services are dual-income families and single-parent households in most income brackets.
A number of government programs help low-income families pay for child care so the adults can stay in the work force.
Within this very broad market is the narrower group of clients you’ll serve. Use market research to figure out who these people are and how you can best attract them to your center. Lois M. says the primary market at four of her six locations is parents who are upper-income working professionals; the other two centers serve a number of middle-income families as well as those being subsidised by public funds.
Janet H. says about half her clientele consists of dual-income families, and the other half is single mothers who receive government assistance as they work through programs designed to get them off welfare. The goal of market research is to identify your market, find out where it is, and develop a strategy to communicate with prospective customers in a way that will convince them to bring their children to you.
When Lois M. opened her first centre, her demographic research revealed that there were 9,000 children from infant to 5 years old within a 5-mile radius of the site; half the pre-school children in the area were in day care of some sort because their mothers (or both parents) worked; and the number of households in the area was expected to double within a decade. Contained in that 5-km radius were six child-care centres serving approximately 800 children.
Brenda B.’s research wasn’t as sophisticated. Living in a small town, she knows just about everyone and is well aware of the lack of child-care services.
“There’s such a need for day care,” she says. “I go through periods where I’ll get as many as five calls a week from parents needing care, and I don’t have room for them. I’ve had families on my waiting list for up to two years.”
What licenses do you need to start a pre-school?
Early Childhood Development Centre have to be registered with the Department of Social Development (DSD). This registration can be done through your local branch of the DSD.
The DSD suggest that you follow the following steps:
- Complete an application form for registration as a place of care. You can get the application form on the web.
In order to apply you must submit a weekly menu and daily programme and then submit the following information:
- A building plan/hand drawn sketches of building
- A copy of constitution, signed and dated (only if you also require funding)
- Service/Business Plan (for application for funding
- Financial report of the past year (for funding purposes)
- Contract with the owner of the building (lease – for funding purposes)
Once the documentation is approved, you will have to undergo an assessment from the Local Authority on structural and health requirements
What types of child-care services can be offered
Before you open your doors to the first child, you should decide on the services you’ll provide and the policies that will guide your operation. To simply say you’re going to “take care of children” is woefully inadequate.
- How many children?
- What ages?
- What hours?
- Will you provide food or ask their parents to?
- What activities will you offer?
- What sort of price and payment policies will you have?
- And the list goes on.
Your first step is to check with the appropriate regulatory agencies, which in South Africa is your local municipality and the local division of the Health Department. They will explain to you what’s involved in providing particular services.
For example, each province has its own guidelines for the maximum number of children and maximum number in each age group in a family child-care facility. Municipalities in various regions also have guidelines regarding caregivers. There will likely be other requirements and restrictions, depending on the type of facility you run.
Decide what services to offer based on your own preferences and what your market research says your community needs. Your choices include:
- Full-time care during traditional weekday hours
- After-school care
- Non-traditional hours (very early mornings, evenings, overnight care, weekdays and/or weekends)
- Drop-in or on-demand care, either during traditional or non-traditional hours
- Part-time care
- Parents’ night out (weekend evening care)
- Age-based care
How to find the right location for a child-care business?
If you’re going to open a center on a commercial site, it makes sense to locate your facility close to your target market. Some parents may prefer a center close to home; others may choose a center close to their workplace. In the latter case, parents get to enjoy more time with their children during their morning and evening commutes, as well as the opportunity to spend time with them during the course of the day, perhaps for lunch or special programs.
Some site suggestions to consider include:
- A facility within or adjacent to a residential neighbourhood or near a school
- A facility in a shopping centre where parents with children are likely to pass by
- Sharing a facility with other community organisations
- Office and planned light-industrial parks with a sizable work force.
Opening a child-care centre at home
If you’re going to open a child-care centre at home, discuss your plans with family members and neighbours before you open. Younger children may resent other children coming into your home and changing their lifestyle.
Older children − especially teenagers who will need to be told what’s expected of them and what they can expect as your business gets off the ground. Spouses may not completely understand the time commitment involved in this business, so talk about things in detail well in advance of bringing the first client in.
You may find that your extended family and friends don’t really understand what’s involved in a professional child-care business and may think that, since you’re at home during the day, you’re “not really working” or you’re “just baby-sitting.”
Talk to your neighbours about the impact your business will have on them in terms of traffic (as parents drop off and pick up their children) and noise (think about the decibel levels five or six children can generate when playing). Let them know what steps you’ll take to keep any irritation or inconvenience to a minimum, and reassure them that they should feel free to contact you with any concerns or questions.
Some family child-care centre operators have certain rooms of their homes designated for their business; others use their entire homes. Your decision will be based on your state guidelines and personal preferences.
Brenda B. has a playroom for the children, but they are not restricted to that area; she says she pretty much uses her entire house and her large, fenced backyard for her business. Sherri Ax’s house in Durban has a living room that serves as the primary child-care area.
How much cash is needed to start a child care business
So what do you need in the way of cash and available credit to open your doors? Depending on what you already own, the services you want to offer and whether you’ll be home-based or in a commercial location, that number could range from a few hundred to tens of thousands of Rands.
As you consider your own situation, don’t pull a startup number out of the air; use your business plan to calculate how much you need to start your ideal operation, and then figure out how much you have. If you have all the cash you need, you’re very fortunate. If you don’t, you need to start playing with the numbers and deciding what you can do without.
Start-up costs can be low
Many of the child-care entrepreneurs we talked with used their own personal savings and equipment they already owned to start their businesses. Because the startup costs for a family child-care business are relatively low, you’ll find traditional financing difficult to obtain − banks and other lenders would much rather lend amounts much larger than you’ll need and are likely to be able to qualify for. A commercially located centre will take a more substantial investment and would likely qualify for a bank loan.
Brenda B. estimates that she initially spent R3000 to R4000 on equipment for her family child-care centre. She shopped at second hand shops and accepted donations of used toys and other items from friends and acquaintances.
Janet H. spent considerably more – about R40 000 – to set up her family child-care centre because she remodeled her garage to serve as the primary room for her business as well as added a bathroom for the children. When she opened her first commercial location, she used a combination of personal savings and credit cards to pay the expenses. By the time she opened her second location, she was able to qualify for a commercial loan.
Lois M. took out a second bond on her home to get the R105 000 she needed to adequately equip her commercial centre when she opened. Yvette B. in Miami, put R250 000 of personal savings into her children’s transportation service. Deborah B.’s start-up costs Johannesburg, were in the range of R40 000 to R50 000, which she funded primarily with personal credit cards.
As you’re putting together your financial plan, consider these sources of startup funds:
- Your own resources. Do a thorough inventory of your assets. People generally have more assets than they immediately realise. This could include savings accounts, equity in property, insurance policies, unit trusts, and other investments. You may opt to sell assets for cash or use them as collateral for a loan. Take a
- Look, too, at your personal line of credit. most of the equipment you’ll need is available through retail stores that accept credit cards.
- Friends and family. The next step after gathering your own resources is to approach friends and relatives who believe in you and want to help you succeed. Be cautious with these arrangements; no matter how close you are, present yourself professionally, put everything in writing, and be sure the individuals you approach can afford to take the risk of investing in your business.
- Partners. Though most family child-care centres are owned by just one person, you may want to consider using the “strength in numbers” principle and look around for someone to team up with you in your venture. You may choose someone who has financial resources and wants to work side by side with you in the business. Or you may find someone who has money to invest but no interest in doing the actual work. Be sure to create a written partnership agreement that clearly defines your respective responsibilities and obligations.
Take advantage of provincial and national government grants and funding programs designed to support small businesses. Women, minorities should check out niche financing possibilities designed to help these groups get into business.
Regulations, legal and licences
You have to register with the local municipality and apply for a health permit. Contact the Department of Health who will refer you to the correct area that you are zoned for and provide. Once you have selected a venue you have to register with the local municipality who in turn follows the regulations laid down by the Department of Social Development in accordance with the Childcare Act, 1983 ( Act No 74 of 1983).
When approving an application for registration, the Council can impose further conditions and restrictions as it sees fit. Once the application for registration has been approved, the Council will issue a Certificate which will:
- State the name of the person to whom it is issued
- Describe the premises in respect of which the application was approved
- Will specify any conditions or restrictions which it may have imposed
- Will state the period for which the premises will be registered.
The crèche or crèche-cum-nursery school has to comply with health by-laws to the to the satisfaction of the Medical Officer of Health who issues an Environmental Health Permit which every day centre or crèche should have. Setting up a crèche or day care centre regulations state that there should be:
Office, staff room and sick-bay
If there are more than 30 children are cared for on the premises, provision should be made for a separate office large enough to be divided into a sick bay to accommodate at least two children, as well as a staff room. These can be combined
Indoor Play Area
- There must be an indoor play area covering a minimum floor space of 1,8m² per child to be used for play, meals and rest.
- Cots and mattresses utilised for sleeping purposes by children must be arranged so that there shall be a minimum of 50cm space between the cots or mattresses.
- The kitchen must have suitable cooking and washing facilities. Kitchen has to be separate from the play area and not be accessible to the play area or the children
- There must be adequate natural lighting and ventilation
- Wall surfaces should have a smooth finish and should be painted with a washable paint
There must be one toilet and one hand washing facility for every 20 or less children under 5 years of age, irrespective of sex.
- Or one toilet and hand washing facility for every 20 or less children above the age of 5 years, separate for each sex.
- Separate toilet facilities must be provided for the staff as set out in the National Building Regulations.
- There must be a supply of hot and cold running potable water at the wash-hand basins, or if no running water is available, a minimum of 25 litres of potable water, stored in a hygienically clean container.
- If potties are used they must be emptied, cleaned and disinfected with a disinfectant immediately after being used and stored in a suitable place
Outdoor play area
If you have an outdoor play area it must provide at least 2 m² per child. The play area must have shady areas or other safe surfaces, be fenced / walled and have approved lockable or child-proof gates and should be free of excavations and dangerous steps and levels.
The crèche must keep a health register.
What licences are required and what legal, health and safety steps that must be taken?
A safe playground is crucial
Operating a safe playground for children to enjoy means that you have to follow the regulations as stipulated by the local council. You must also take advice from your insurer and your lawyer.
It is important to buy liability insurance, including accident and equipment liability. Be sure to get a detailed list of insurer’s requirements and follow those to the letter. When purchasing play structures, make sure that they include warranties.
Comply with local council
Once the playground is built, you will have to comply with health by-laws to the satisfaction of the Medical Officer of Health who issues an Environmental Health Permit for the playground. You will have to undergo an assessment from the Local Authority on structural requirements before you can open the business.
Health and safety bylaws apply
In terms of the playground, the business has to comply with health by-laws to the satisfaction of the Medical Officer of Health who issues an Environmental Health Permit for the play area. You will have to undergo an assessment from the Local Authority on structural requirements before you can open the business. Contact the DoH and request the details of the local authority in your area
Getting your own licences is difficult
If the business is an independent operation, it’s harder. Your first step is to check with the appropriate regulatory agencies, which in South Africa is your local municipality and the Department of Health. Each municipal area has different by-laws, which is why it is so difficult to be specific in terms of licence requirements. The local council will explain to you which licences are required in providing particular services.
Food and liquor compliance
To serve food, a Certificate of Compliance for Food Preparation is required. If you sell any form of alcoholic beverage, you have to apply for a liquor licence.
Get legal advice
Consider consulting an attorney to ensure that you have all the correct licences. Browse through the Entrepreneur legal directory for options.
How to set prices and receive payments for a child care business?
The fees you charge will provide the financial base for your company and your income. They need to be competitive in your market, reasonable and affordable for the parents, and also fair to you. You need to consider a variety of issues, including your costs, the profit you want to make, the going rates in your area and what the families you’re targeting can afford. Setting your rates, explaining–and often justifying–them to parents and then collecting the money are all part of being in the child-care business.
Since you’ll be offering a carefully planned curriculum that is far more than a mere baby-sitting service, you are justified in establishing a fee structure similar in design to a private school. A one-time enrolment charge of half a week’s tuition will hardly raise an eyebrow, but it will compensate you for the cost in time, paperwork and special attention each entrant needs.
Calculating how much to charge for space in your centre will be based primarily on three variables:
- Labour and materials (or supplies)
A fourth factor uncommon to most businesses but significant for a child-care centre the limit to the number of children you can accommodate. In most fields, if your business grows, you just keep hiring employees to serve the increasing number of customers. But in child care, municipal by-laws and practicality limit the number of children you can accept, putting a lid on the income potential of your business. To overcome this, successful child-care centre operators often open more locations in nearby areas to increase their client base and income.
Forms of Payment
You’ll receive payments by check and cash, and you may also want to set up a merchant account so you can accept credit cards or electronic transfers. Check with your bank or the different credit card companies for information on accepting credit cards. Many child-care and transportation service providers find that automatically debiting parents’ credit cards is the easiest way to obtain payment. “A debt order every month is the easiest way to get your money,” says Yvette B. “There are discount fees involved, but its well worth it.”
In most parts of South Africa, the demand for quality child care is so high that marketing your business will be relatively easy. In fact, many of the providers we talked to for this story − especially the home-based centres − do little or no marketing because they’re established, with strong reputations and waiting lists.
But every business needs a marketing plan, and yours is no exception. All your marketing materials should be professional and letter-perfect. Consider hiring a graphic designer and/or professional writer to help you with your marketing package. If they have children, you may be able to negotiate their fees in barter.
Keep these questions in mind as you form your marketing plan:
- Who are your potential customers?
- How many of them are there?
- Where are they located?
- What are they currently doing for child care?
- Can you offer them anything they’re not getting now?
- How can you persuade them to bring their children to you?
- Exactly what services do you offer?
- How do you compare with your competitors?
- What kind of image do you want to project?
The goal of your marketing plan should be to convey your existence and the quality of your service to prospective customers, ideally using a multifaceted approach. The child-care center operators we talked with used a variety of marketing methods, from simple word-of-mouth to more sophisticated techniques.
Ask new clients how they found out about you. Make a note of their answers and what kinds of businesses they represent (how many children they could potentially refer to your business). This will let you know how well your various marketing efforts are working. You can then decide to increase certain programs and eliminate those that aren’t working.
How many children can a day-care centre accommodate before registering the business?
If there are five children or less you do not need to register the business. However, once there are six or more children you have to register.
When should a day-care centre be registered?
“You only need to register a day-care centre if there are six or more children,” says community development officer, Tinyiko Shibambu at the Department of Social Development in Johannesburg. “First you have to register the business as an NPO (Non Profit Organisation). Once you have a NPO certificate, then you can register the day-care centre with the Department of Social Development,” advises Shibambu. Contact the Department of Social Development for details.
Procedure to register an NPO
There is a specific registration process to follow in order to register an NPO
In a crèche scenario, how many caregivers should there be for the number of children in a class?
According to the Department of Social Welfare, to operate a basic crèche you must have a minimum of three staff members per class. In South African childcare centres, the staff to child ratio for 0-2-year-olds in an ideal situation is one caregiver to every five children, 1:5. For 2-3-year-olds, the ratio is 1:10. However, according to the Department of Social Welfare, to operate a basic crèche you must have a minimum of three staff members per class and you can employ more if the business can afford it. However, it is best to contact the municipal office in your area and check the regulations as each municipality has different regulations
What goes into effectively managing a child-care business
The high rate of attrition in the child-care business is driven in large part by the fact that many caregivers focus almost exclusively on nurturing and caring for the children in their charge, and neglect the financial and management sides of their operations. But whether your goal is a small, family child-care centre or to build a chain of commercial locations, you must deal with administration and management issues if your business is going to survive. If you plan ahead, that won’t be hard.
Set up your financial record-keeping system
From the outset in a way that will provide you with the information you need to monitor your profitability and handle your tax payments to SARS. You may want to hire a consultant or an accountant who specializes in small businesses to help you at first; this small investment could save you a substantial amount of time and money in the long run.
Spend time marketing and doing admin
Expect to spend a significant amount of time on management, marketing and administration. If you have employees, they need to be trained and supervised. Although the demand for child care is high, parents won’t be able to find you if you don’t market your service.
And keeping up with administrative details–paying accounts, buying supplies, doing budgets and forecasts, meeting ongoing licensing requirements, facility maintenance, etc.− is a never-ending process.
Choose staff very carefully
The staff that you employ must be children-friendly. Conduct thorough background checks on all potential staff.
Ready to Take the Next Step?
You will need to create a business plan to get you going.
Here is a Free Sample Business Plan.
Capital is essential to starting up your business. You can self fund, or alternatively seek outside funding to assist you in starting up your business.
Here are New Ways SMEs Can Find Funding.
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