With infrastructure spending having been identified as one of the key focus areas of the National Development Plan (NDP), tradesmen will continue to play a critical role in growing the South African economy through their skills. For many, this demand for tradesmen has led to them considering starting their own businesses.
Ethel Nyembe, Head of Small Enterprise at Standard Bank, says “Skilled tradesmen are in demand and there is no doubt that there will always be opportunities for those with the proper business skills to build a real future and legacy for their families.”
“However, tradesmen starting their own businesses should be aware of the fact that hundreds of small businesses collapse within their first year of operation. The major cause is poor forward planning and attention to the financial details that are vital if you are to build a successful enterprise.”
Ms Nyembe says tradesmen should consider the following factors when planning to start their own businesses:
A business plan gets a business off to a good start. Examining every aspect of your business will help you identify problems, work your way around them and realistically plan your future.
A good business plan should also include:
“A good business plan not only prepares you, but is also required by a bank if you intend on getting a business loan. Banks will examine the plan, your credit record and financial health before granting a loan. The more comprehensive your plan is, the better your chances are of getting the start-up finance you need. As a blueprint, it is also a document that can be constantly referred to and consulted to help keep the business on track,” says Ms Nyembe.
Many people fund a business from their own resources, look to investors, business partners or even friends and family for loans in addition to approaching the bank. Informal borrowing agreements between friends and family however come with their own challenges such as unclear payback periods and misunderstood conditions. The capital you raise must be large enough to cover establishment costs and also operational costs for several months. Few businesses operate profitably from ‘day-one’, so you need to have money available for the business until a positive cash flow enables the business to stand on its own. Putting up one’s own capital in partial fulfilment of the business’s short term capital needs demonstrates to the bank that you are a serious business owner that is willing to back your vision.
Many customers and suppliers will only deal with a business that is properly registered and has the appropriate tax and VAT numbers. It is also important that you get a specialist to explain what the requirements for different businesses are, so that you understand the financial implications.
“For many people starting small businesses, getting the right financial documentation in order is a major challenge. The harsh truth is that having a skill and passion for your work just isn’t enough to guarantee success. Unless you know exactly what your financial position is every day, you will have problems keeping the business on track. Things you must consider include:
“Successful small business owners understand that their business account is separate from their personal finances. Your financial plan should include a salary for yourself. This can help you to properly manage your personal and business spending, ensuring that your accounts are always accurate.”
“Taking the time to plan your business and combining it with financial discipline ensures success,” concludes Ms Nyembe.