How to start a Consultancy
Consultants have become a necessity in South Africa’s changing business landscape. As you work in a particular field you can offer your expertise to help others in the field that you know best, however, you need the ability to sell your skills.
Many consultants work on a retainer system, which is great if you can win signed contracts. It is just like having a monthly salary. With a retainer, you agree to be on call for a specified number of hours, days, weeks or even the whole month, for an agreed-upon monthly fee.
Because clients usually think of consulting services as a temporary expenditure, rather than an ongoing commitment, consultants need to work hard to offer top notch service and make themselves indispensible. Even with contracts, you need to continuously look for new business.
[box style=”gray,info” ]How to Register Your Consultancy[/box]
Steps to setting up a consultancy
1. Formalise your business structure
Decide if you are going to operate as a Sole Proprietor or Private Company.
- Sole Proprietor
You can operate as a sole proprietor. This type of business enterprise has one owner
Many small businesses operate as sole proprietorships. Businesses that require minimum amounts of capital often operate this way.
- Private company
A private company is a legal trading entity that cannot offer shares to the public and is subject to prohibition on transfer of shares.
2. Register the business with the South African Revenue Services (SARS)
Tax benefits will depend on the kind of business entity you choose. To find out if you will need to pay VAT click here.
3. Prepare your business plan
Before you can write the plan, you must conduct research. A business plan is the road map of your business. It’s a living document that you should refer to each and every day. Make a list of potential clients. Find out what their strengths and weaknesses are and look for a gap.
Use this gap as your sales tool. Prepare a strategy in order to create the sales and marketing plan.
4. Marketing and selling
There are many online resources for sales techniques, sales strategies, sales tips and sales training for selling products and marketing services.
[box style=”gray,info” ]The Complete Marketing Plan Guide[/box]
What types of consultancy business are there?
Although you can be a consultant in just about any field these days, here are 20 consulting business ideas to get you thinking.
- Accounting. Accounting is something that every business needs, no matter how large or small. Accounting consultants can help a business with all of its financial needs.
- Advertising. This type of consultant is normally hired by a business to develop, and sometimes execute a good strategic advertising campaign.
- Auditing. From consultants who handle monthly accounts for small businesses to consultants who handle major work for telecommunications firms, auditing consultants are enjoying the fruits of their labour.
- Business. Know how to help a business turn a profit? If you have a good business sense, then you’ll do well as a business consultant. After computer consulting, people in this field are the next most sought after.
- Business Writing. Everyone knows that most businesspeople have trouble when it comes to writing a report – or even a simple press release.
- Career Counseling. With more and more people finding themselves victims of corporate downsizing, career counselors will always be in demand. Career counselors’ guide their clients into a profession or job that will help them be both happy and productive as an employee.
- Communications. Communications consultants specialise in helping employees in both large and small businesses communicate better with each other, which ultimately makes the business operate smoothly and be more efficient.
- Computer Consulting. From software to hardware, and everything in between, if you know computers, your biggest problem will be not having enough hours in the day to meet your clients’ demands!
- Editorial Services. From producing newsletters to corporate annual reports, consultants who are experts in the editorial field will always be appreciated.
- Executive Search/Headhunting. While this is not for everyone, there are people who enjoy finding talent for employers.
- Gardening. Not only are businesses hiring gardening consultants; so are people who are too busy to take care of their gardens at home.
- Human Resources. As long as businesses have people problems (and they always will), consultants in this field will enjoy a never-ending supply of corporate clients, both large and small. (People-problem prevention programmes could include teaching employees to get along with others, respect diversity and developing skills in the workplace.)
- Insurance. Everyone needs insurance, and everyone needs an insurance consultant to help them find the best plan and pricing.
- Marketing. Can you help a business write a marketing plan? Or do you have ideas that you feel will help promote a business? If so, why not try your hand as a marketing consultant?
- Payroll Management. Everyone needs to get paid. By using your knowledge and expertise in payroll management, you can provide this service to many businesses, both large and small.
- Public Relations. Getting good press coverage for any organisation is a real art. When an organisation finds a good PR consultant, they hang on to them!
- Publishing. If you’re interested in the publishing field, then learn everything you can and you, too, can be a publishing consultant. A publishing consultant usually helps new ventures when they are ready to launch a new newspaper, magazine, newsletter – and even websites and electronic newsletters.
- Risk Management. Natural disasters, theft, fire, computer viruses, corporate espionage and more. Assist business owners in building threat-proof companies by mitigating risk and insuring against losses.
- Security: Today, every business owner is aware of the need to increase security, however many businesses are still vulnerable to internal and external crime. Apply your expertise to ensuring they cover all bases.
- Taxes: With the right marketing and business plan (and a sincere interest in taxes), your career as a tax consultant can be very lucrative. A tax consultant advises businesses on the legal methods to pay the least amount of tax possible.
A few things to consider before you become a consultant:
- What certifications and special licensing will I need? Depending upon your profession, you may need special certification or a special license before you can begin operating as a consultant.
- Am I qualified to become a consultant?
- Before you hang out your shingle and hope that clients begin beating your door down to hire you, make sure you have the qualifications necessary to get the job done. If you want to be a computer consultant, for example, make sure you are up to date in the knowledge department with all the trends and changes in the computer industry.
- Am I organised enough to become a consultant?
- Do I like to plan my day? Am I an expert when it comes to time management? You should have answered “yes” to
- all three of those questions.
- Do I like to network?
- Networking is critical to the success of any type of consultant today. Begin building your network of
- contacts immediately.
- Have I set long-term and short-term goals?
And do they allow for me to become a consultant? If your goals do not match up with the time and energy it takes to open and successfully build a consulting business, then reconsider before making any move in this direction.
The Industry & your Market
Is there a market for consultants in South Africa?
In South Africa there are many entrepreneurs looking for guidance and help. These start-ups frequently outsource administration and bookkeeping services as it is more cost effective than employing a full time person to take care of this side of the business.
If you target the right market there is certainly room for the kind of business you wish to start.
Start your research by compiling a market analysis. This is a regional and neighbourhood study of economic, demographic and other factors made to determine supply and demand, market trends, and other factors which may be important to your new business.
Make your study as complete as possible. Use the internet to conduct research. You can also approach the Cape Town Chamber of Commerce and some of the smaller Chambers to help you to narrow down your target by interest, demographic, and common trends. These are the kind of questions you need to ask.
- Who is your target audience?
- Where is your target audience located?
- How will you attract them to your products or services?
- Who else is competing for their loyalty and devotion?
- Are you targeting business or consumer sectors?
- What extra value can you offer?
- Are your rates competitive?
How will you reach the target market?
It is a natural instinct to want to target as many people and groups as possible. Don’t. Rather focus directly on the needs of a specific group, which in your case are Entrepreneurs. This is known as market segmentation. This information will help you write a business plan.
How to define a target market
You may believe you have a great idea and a well-defined niche, but you need to have a market for your idea. Someone must be willing and able to pay you for your expert advice.
Who are your potential clients?
Will you be marketing your consulting services to large corporations? Or will you offer a specialty that would only be of interest to smaller businesses? Perhaps your services will be sought after by non-profit organisations. Whatever the case, before you go forward, make sure you spend time preparing both a business plan and a marketing plan. You won’t be disappointed with the results – especially when clients begin paying you.
[box style=”gray,info” ]Steps for Conducting Market Research for Your Consultancy[/box]
Why an organisation wants to hire you
- A consultant may be hired because of his or her expertise. This is where it pays to not only be of the best in the field you have chosen to consult in, but to have some type of track record that speaks for itself. Usually your track record is built over a number of years, and this can be done in your field of expertise while you are in full-time employment, or alternatively while freelancing your services.
- A consultant may be hired to identify problems. Sometimes employees are too close to a problem inside an organisation to identify it. That’s when a consultant rides in on his or her white horse to save the day. In many small businesses, an owner is too busy working ‘in’ the business rather than ‘on’ the business. A knowledgeable and trusted outside expert can offer a fresh perspective.
- A consultant may be hired to supplement the staff. Sometimes a business discovers that it can save thousands of Rands a month by outsourcing, rather than hiring full-time employees. Businesses realise they save additional money by not having to pay benefits for consultants they hire. Even though a consultant’s fees are generally higher than an employee’s salary, over the long haul, it simply makes good economic sense to hire a consultant. Outsourcing to consultants is viewed favourably in terms of labour law because terminating a supplier agreement in many instances is far easier than terminating employment. A consultant may be hired to act as a catalyst. Let’s face it. No one likes change. But sometimes change is needed, and a consultant may be brought in to “get the ball rolling.” In other words, the consultant can do things without worrying about the corporate culture, employee morale or other issues that get in the way when an organisation is trying to institute change.
- A consultant may be hired to provide much-needed objectivity. Who else is more qualified to identify a problem than a consultant? A good consultant provides an objective, fresh viewpoint without worrying about what people in the organisation might think about the results and how they were achieved.
- A consultant may be hired to teach. A consultant may be asked to teach employees any number of different skills. However, a consultant must be willing to keep up with new discoveries in their field of expertise – and be ready to teach new clients what they need to do to stay competitive.
- A consultant may be hired to do the “dirty work.” Let’s face it: No one wants to be the person who has to make cuts to the staff force or to eliminate an entire division.
- A consultant may be hired to bring new life to an organisation. If you are good at coming up with new ideas that work, then you won’t have any trouble finding clients. At one time or another, most businesses need someone to administer “first aid” to get things rolling again.
- A consultant may be hired to create a new business. There are consultants who have become experts in this field. Not everyone, though, has the ability to conceive an idea and develop a game plan.
- A consultant may be hired to influence other people. Do you like to hang out with the rich and powerful in your town? If so, you may be hired to do a consulting job simply based on who you know. This channel demands the consultant has real credibility to ensure that they can deliver on their promises
How to go about setting the prices for a consulting company
If you charge too little, you won’t prosper in business. If you charge too much, you won’t get any clients. So how do you find that middle ground that seems fair to everyone involved? One way to help you decide how much to charge is to find out what the competition’s rates are. A simple telephone call, asking for their brochure and rates, should do the trick. Then set your rates so that you are competitive with everyone else in the community.
List all your expenses
Before setting your fees, make sure you have listed all of your expenses. There is nothing worse than setting your rates, having your client pay you on time and then finding out you failed to include several expenses that materialised.
This brings up an important point to remember in every job you take from a client: be specific about what your fee includes and what it excludes. Most clients will understand that in every project, there will no doubt be additional expenses. Just be sure everyone knows upfront an approximate figure for those expenses.
Check the competitions rates
Before you set your rates, find out what other consultants in your community are charging for their services. You may have to have a friend call and ask for their brochure, or any additional information they can collect regarding fees and pricing.
When setting your rates, you have several options, including hourly rates, project fees and working on a retainer basis. Let’s examine each one closely.
- You need to tread carefully when setting hourly fees, because two things could happen: Your hourly rate is so high that no one could ever afford you (therefore no client will ever knock on your door).
- Your hourly rate is so low that no one will take you seriously.
Keep one important rule in mind when establishing your fee, no matter which structure you decide on: The more money people pay for a product or service, the more they expect to get for their money. In other words, if a client agrees to your hourly rate of R800, then you had better give R800 worth of service to that client every hour you work for them.
Some clients prefer to be billed on an hourly basis, while others pay per project. Many consultants opt for a project rate and then use a pre-determined hourly fee to bill for extra work commissioned outside of the original finalised project specification.
When working on a project rate basis, a consultant normally gets a fixed amount of money for a pre-determined period of time. It is imperative that the deliverables and outcomes are determined upfront and billed accordingly. If details are not finalised the consultant may need to allocate more hours than initially catered for, resulting in the project becoming less profitable.
When it comes to billing by project another important detail to iron out is payment terms. Many consultants create a payment structure that includes a deposit or down payment at the outset of the job and then payments on milestones. Another method may involve the payment split into monthly chunks payable on 30 days of invoice.
Working on a retainer basis gives you a set monthly fee in which you agree to be available for work for an agreed-upon number of hours for your client. While in the ideal world you would have a dozen or so clients who hire you and pay you a hefty sum each month (and never actually call you except for a few hours here and there), don’t get your hopes up.
Most companies that hire a consultant on a retainer basis have a clause in their contract that prohibits you from working for their competitors.
Working and getting paid in this method certainly has its advantages. You are guaranteed income each month, and when you are starting out in your consulting business, cash flow can be a problem. Some consultants actually offer a percentage reduction in their fees if a client will agree to pay a monthly retainer fee.
Whatever your preferred method of billing, it is advisable to build up a nest egg to cushion your cash flow problems related to late payment. An efficient financial management system is critical to the success of every business. Take the time required to set up an effective credit vetting, monitoring and collection system.
Marketing & Sales
How can I build a reputation as a consultant in my community?
Public speaking is an excellent way to recruit new clients and to earn a reputation for excellence in your community. Unless you live in a town so small it doesn’t have a chamber of commerce or a Lion’s Club, Rotary Club or other similar service organisation, you can begin offering your services as a speaker for luncheons, dinners or any other special occasion.
Use the phone book
In addition to using the telephone directory, see if anyone has published a directory of service organisations in your community. Go through and make a list of organisations that hold monthly meetings and therefore may use guest speakers. Contact each group and offer your public speaking services. These gatherings offer an excellent networking opportunity.
Ask for referrals
This often-overlooked method of finding new clients is such an easy marketing tool (which is why it’s usually not thought of); you’ll kick yourself for not thinking of it yourself. When you have finished your consulting assignment and your client is in seventh heaven (and is no doubt singing your praises), that is an excellent time to ask for a referral!
Simply send a note or a short letter asking for the names of any colleagues, friends or business associates they feel might be good prospects for your consulting services. Ask their permission to mention their name when you write to the people whose names they pass on to you. Sometimes all it takes is having a mutual friend or respected business associate to get the potential client’s attention.
What are the best ways for me to go about marketing my consulting firm?
Marketing and advertising your business is essential and need not be expensive.
If your consulting business has no clients, then you have no consulting business. But you must remember that selling your consulting services is not the same as selling a car or a house. In the case of the car or the house, the customer is probably already in the market for one or both of those products.
Your job, then, becomes harder, because you are marketing your services to people who may not even be aware that they need those services. There are a variety of methods you need to become both familiar and comfortable with in order to begin attracting and keeping clients. Let’s look at some of the more conventional ones that are being used by many consultants today.
There are five issues your brochure should address. They are:
- It should clearly convey what your services are.
- It should tell customers why you are the best.
- It should give a few reasons why you should be hired.
- It should include some brief biographical information.
- It should include some information about who your other clients are. Remember testimonials from satisfied clients act as powerful influencers.
That’s it. Keep it simple, but do it right. Remember, your brochure represents you in the marketplace, so make sure you polish it before you send it into action. Roll out a consistent design into all other printed and digital material. Your business cards, PowerPoint presentation and sales proposal should reflect the same design style, colour, fonts and images.
A website need not be expensive to create, but before you embark on your digital journey you should identify the objectives for your site:
- Digital support tool. Is it a support tool for your marketing efforts, your brochure duplicated online? If so, does this add real value? Are you able to load additional information about your business, your track record or client testimonials? If not, you should evaluate whether you really need a website.
Are you expecting to drive traffic to your site via search engines to attract new clients? If so, you will need to follow Search Engine Optimisation (SEO) principles to ensure that search engines such as Google rank your page favourably.
One of the most important elements to make your website search engine friendly is unique and relevant information. Although this content may be time and/or cost intensive upfront, you will be able to use it in other marketing tools such as eNewsletters. Take action.
A further aspect to consider is the desired action you wish for visitors to take once they reach your site. Do you want visitors to complete an enquiry form, download your brochure, call your office or subscribe to your eNewsletter? Whatever your goal, construct your site navigation, design and prompts in such a way as to guide your user to perform the desired action.
Whatever your consulting field is you should have more than enough information to produce a printed or digital newsletter as a means of attracting potential clients. If you don’t have the time, or don’t feel comfortable self-publishing your own newsletter, hire a freelance writer and designer to do the job for you.
Again, you don’t have to make it an expensive, four-colour, glossy publication. The simpler you keep it, the better. A good newsletter will sell itself based on the content rather than the splashy design. Newsletters, particularly digital format, are an effective and budget-friendly means of communication.
The limits you place on advertising your consulting services will be directly tied to your advertising budget. If you are lucky enough to have a very healthy advertising budget, remember that you don’t have to spend the money on ads just because you have it to spend.
Advertising can be very expensive. Consumers respond more positively to advertising messages that are placed in context, so it may be worth your while to narrow your focus to niched channels. Depending upon the type of services you offer, it may be necessary to advertise in specialised trade journals, magazines or websites.
Before spending money
Before you spend any money, start looking through professional journals and newspapers relative to the fields you specialise in. Take some time and examine ads that have been placed by other consultants, and then carefully determine how effective you think their ads may be.
Then design one that suits you best, but be sure to differentiate your service from your competitors’ rather than creating a ‘me-to’ advertisement. Ensure that you clearly communicate a benefit to your target market.
You must do whatever it takes to make cold-calling work and make it easier for yourself. There are a few tricks you can use to make cold-calling a little easier for you:
- Prepare a script ahead of time. Spell out word for word what you expect to say when you get someone on the telephone. Remember, though, that your goal is to get a face-to-face interview and, eventually, a new client. So before you end up stumbling over your sales presentation (either in person or over the telephone), write your script and practice it again and again.
- Be creative in your efforts to reach the decision maker. Most times you will encounter a secretary or administrative assistant who has years of experience turning away cold callers like yourself. But don’t give up! Don’t let any obstacle stand in your way! To avoid being screened by the secretary, try calling before she is on the job. Yes, you may have to call before 08:00 or after 17:00, but at these times, chances are the decision maker you are trying to reach will answer their own telephone.
- Limit your cold calls to just several days each month. And look forward to those days, making sure you put your best effort into the process. That way, not only will it become easier to make those cold calls, but you will find yourself actually looking forward to making them!
How to make the selling process easier
People don’t care how much you know until they see how much you care about them and their goals. You have to get what you sell out of your mind and start focusing on what your customers sell. Here are three ways to stay focused:
- Forget what you sell. When you first meet a prospect, start thinking of questions that will uncover his hot buttons. What does that person do, and does he have goals for the next year or three years? What are his top three priorities or objectives? What challenges and changes does he face in his industry? How can you help him generate more business? Once you focus on the customer, it becomes easier to think of ways your product or service can fit into their overall goals. If you realise right away that it’s not a good fit, you can walk away and work on other, more qualified prospects.
- Go beyond the customer’s general business needs. Every time I ask my audience if they’ve ever sold an account because they did something helpful for the prospect that had nothing to do with their business, lots of hands go up. Maybe they helped them get one of their kids an internship at a client’s business, or perhaps they referred them to a great builder because they were listening when the customer mentioned she was adding on to her house. This breaks down barriers and opens customers up to looking to you as a resource. That’s when good things start to happen.
- Maintain your passion for learning about the people you serve. How well do you know your prospects and customers? How much more business could you get if you spent more time uncovering their inner workings? When I take a tour of a customer’s business, I interview people in various departments and research who their customers are; this always pays off. Your ability to serve is enhanced by knowledge. When you ask a customer for resources in their organisation that you can use to understand the bigger picture, your relationship and the trust with your customer improves, you’re much more aware of their needs and how best to serve them, and the results you bring them will provide you with repeat business and referrals.
How to save money as a consulting business
A consulting business will probably not require a large capital investment at first. In fact, if you are able to, you should consider operating from your home. There are many advantages to having a home office. Savings that can be enjoyed are:
- Low overhead expenses. You don’t have to worry about paying rent or utilities for an office; you will appreciate this feature until you establish a regular client base.
- Flexibility. There is little doubt that operating as a consultant at home gives you a great deal of flexibility.
- You can set your own hours and take time off as you need it.
- no rush-hour nightmares. For anyone who has had to commute to and from a job during rush hour, this will be a welcome change of pace.
- Your home office space will most likely be tax-deductible. SARS has rules in place for people who work at home, but check with your accountant or income tax preparer to see if you qualify for this deduction.
[box style=”gray,info” ]How to Manage Your Cash in Order to Survive[/box]
Staff and Setting up Office
When you first open the doors to your consulting practice, you may be able to handle all the operations by yourself. But as your consulting business begins to grow, you may need help handling administrative details or completing the actual consulting assignments.
You need to make some important decisions. For example, do you have the time it will take to prepare and despatch mail shots? Can you afford to spend time doing administrative tasks when you could be using that time networking and signing up new clients?
Will you need help with paperwork?
There are many options when it comes time to decide if you need help with your paperwork. For example, a quick look through the Yellow Pages will reveal a number of small secretarial support firms. The rates will depend on a variety of factors, including how large or small an organisation it is and what types of services it provides.
While it will pay you to shop around for these types of services, don’t select a secretarial service just because it happens to have the lowest prices in town. Instead, ask for references, preferably from other consultants who have used their services, or from small-business owners.
Office rental is an option
Another option may be a short-term full service office rental from Habitaz, Regis or The Business Place. A good, reliable support service is worth the price in the long run. There will come a time, however, when you may find it more cost-effective to hire someone to work in the office with you.
Hiring a good administrative support person can sometimes mean the difference between success and failure – between obtaining more clients and constantly losing clients.
Benefits of having someone in the office with you:
- You save time and money. By having someone concentrate on the more routine tasks (opening the mail, filing, answering phones, etc.) you can focus all your efforts on recruiting new clients. Think about this: Would you want to lose a R2 000-a-day client because you were too cheap to hire someone to manage your office for you?
- You don’t worry about being out of the office. If you are a one-person operation, it’s hard to be out on the road marketing your services if you’re worried about clients calling – and only getting your answering machine.
- You have someone to offer another perspective. Sometimes it can be pretty lonely trying to do everything yourself. Having someone around the office during the day who can offer another perspective can be worthwhile.
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?
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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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