Summer Camp Guide - Mission Valley YMCA

issue two May 2005
A practical guide for
small business owners
Expanding your business
In this issue:
Managing growth
Get a measure of your success
How to п¬Ѓnd your competition; the strengths
and weaknesses scoreboard
02
04
06
Profit Ability – here’s how
Cutting costs; boosting turnover
2005: a better budget
How much tax you will pay; more
support for small businesses; budget
highlights
08
Outsource or employ?
What you can outsource; the ups
– and downs – of outsourcing
11
Staying one step ahead
Ways of growing your business;
getting ready to export
12
Are you ready to tender?
Tendering “musts”; where to find
tender advertisements
14
The franchising concept
Is franchising right for you? How to
п¬Ѓnance it
16
Choosing the perfect partner
Things to include in a business
partnership agreement
18
BEE: empowering people
– and business
Financing a BEE deal; calculating
your empowerment score
20
Simple steps to greater growth
The cardinal rules for business growth; connecting with your
customers; signs that you need a new marketing strategy;
identifying future growth; what to do when the vultures
start circling …
25
Expansion: the next big step
Re-assessing your resources;
п¬Ѓnancing a new acquisition; from
home office to small office; financing
a purchase; buying property
32
Technologies for growth
What e-commerce can do for you;
how to tell if VoIP is right for your
business; do you need your own
email server?
35
Protect yourself
Protect your ideas – and your
information; security tips for staff;
online banking CAN be safe
39
Does size really matter?
7 Steps to thinking big; making
technology work harder for you;
looking big while working small
43
Disaster management
Managing risk; planning recovery;
keyman insurance – and why you
need it
47
Real help
Where to learn more – must-see
websites, useful contacts and training
opportunities
34
Recognition and reward
Lessons to learn BEFORE opting for
an employee ownership scheme
The Small Capital practical
guide for small business owners
is proudly brought to you by:
Small business is big business
You’ve got a good team, a great client base and a product
that people can’t seem to stop buying. But are you ready
for the next step?
By making it through the first few years as a new business you’ve already beaten the odds. But the
decision to expand raises a whole new set of challenges. In fact, many entrepreneurs have seen their
businesses crumble as a result of uncontrolled growth. So how do YOU take that “next step”, and
how do you manage the growth that comes with it? How do you know if you have the right offering,
marketing savvy and solid management skills?
This Small Capital handbook is the second in a series of practical guides that offer facts, п¬Ѓgures
and must-have guidelines for small business owners in South Africa.
This issue offers hints, tips and valuable checklists to help you turn your small business of today into
the powerhouse of tomorrow.
Don’t miss out …
The opinion(s) view(s), information, article(s), reference(s), competition(s) or offer(s)
(the “Material”), contained in this publication are published without any responsibility
whatsoever on the part of Real Business, MWEB Business, Microsoft and Standard Bank
(the “Sponsors”) or Words’worth (the “Publisher”). The Material contained herein is
based on the best available information at the time of publishing. The Sponsors and
Publisher hereby disclaim responsibility for any Material contained in the publication
which may be incorrect, unacceptable or inaccurate, and shall therefore not be held
liable under any circumstances, for any loss, damage, costs, expense or injury (including
without limitation direct, indirect, incidental, special, punitive or consequential loss or
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us your details and we’ll
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editions for FREE
01
Get a measure of your success
How do you face up to the competition? Are you coming up
short? Before you think about expanding, take a long hard
02
look at yourself – and your competitors.
“I’m not a fan of benchmarking,” says Tom
Once you have identified your competitors (see
Peters in his latest book, Re-Imagine!. His
box), п¬Ѓnd out all you can about them. Start by
rationale is that benchmarking is done against
searching the Internet. Listed companies need to
the “industry leader”, whereas the real competi-
publish a wealth of information, much of which
tion for any business comes from “upstart com-
can be found on business websites. Information
petitors”, people who do things differently. And
on privately owned companies, however, may
who better to do so than small business?
be limited. Read the business section of daily
newspapers, specialist п¬Ѓnancial publications and
How to п¬Ѓnd
your competition
But, benchmarking is useful, as it provides you
advertorials in trade publications. All provide
with an objective perspective on how you stack
a good source for assessing your competitors’
up in your line of business. It allows you to
marketing strategies.
1. Do you know who competes with you for
the time and money of your customers?
2. What are the strengths and weaknesses
of these product/service providers?
3. Are they selling the same products/
services as you? Or a better/cheaper
version of them?
4. Where do they п¬Ѓt in the market? Are they
the preferred supplier, an alternative
when you fail to deliver, or a substitute
when you are closed?
determine your strengths and define opportunities for natural business progression and growth.
Probably one of the best ways to assess a competitor is to ask a customer for their view. Once
Benchmarking is not just about identifying and
you п¬Ѓnd out what they like about this supplier,
assessing your competition.
you will also tap into their real needs (is it pric-
It is about:
ing, timing, reliability, flexibility, creativity?).
• looking internally;
• determining a course of action; and
The next step is to distinguish your own product
• changing the way you do things.
or service:
Expose yourself. Search for websites that
rethink your costing strategy.
allow for free exposure. Send out pamphlets. Get
Stock right. Never run out of stock of a popu-
the word out that you are here to do business!
lar product.
Get working on the soft stuff. Create a
Never turn a client away. He/she may never
relationship with your client. Get to know their
return. Always try to offer them an alternative.
business challenges, their personal tastes, their
Create interest. Offer frequent specials/sales
dreams.
even if you do not reduce your prices. Clever
Be flexible. Make your business a one-stop
gimmicks separate you from your competitors,
shop for your customers. They want convenience
especially when they’re beneficial to your clients.
– give it to them!
Cost right. Price your product/service competi-
Remember! Benchmarking is an ongoing
tively without negatively impacting your profit
process, even if you do score higher than your
margins. If you’re always losing sales because
competitors. Business success is a marathon, not
your price is too high, then it might be time to
a sprint.
You vs your competitor:
the strengths/weaknesses scoreboard
Place a tick next to the category where you think you score higher than your competitor/s.
Place a cross where you feel you score lower.
Service
Management
Technological expertise
Pricing
Image
Client volume
Reputation
Financial strength
If there are more than three crosses, then you need to revise your business strategy.
However, if you are happy with the outcome of this test, then give it to one of your clients
and see how their assessment compares with yours. Do crosses appear in sections where you
thought you were safe? Take these differences seriously.
Analyse your competitors
• How big or small are they?
• What market share do they command?
• How does the quality of their service/
products compare with yours?
• Do they have better capital and
resources?
• Do they have a better image? Is it the
result of good marketing, a by-the-way
concept, or word-of-mouth?
• Are they growing? At what rate are they
growing? Same as you, or faster?
• Who are they targeting? The same
market as you? A broader market?
• How does their presence impact on your
business?
Analyse yourself
• Where is your business placed in the
market: are you servicing a general
market, or a niche sector?
• Why do people buy your product and
services instead of your competitors’?
If you know why, spend every waking
minute reinforcing this difference.
• How do the benefits you offer compare
with those of your competitors?
Remember, this benefit can be tangible
(cheaper, faster) or intangible (a great
experience).
• Are you constantly searching for
opportunities to show how you make a
difference to your customers’ lives?
03
04
Which costs
can you cut?
Profit Ability – here’s how
Variable costs. These costs increase
directly in proportion to the level of sales.
Variable costs increase as sales go up
and decrease as sales come down. These
costs can be directly built into selling
prices. Examples of variable costs include
cost of goods sold, delivery charges, costs
of materials or supplies, wages of parttime or temporary employees and sales/
production bonuses.
be as easy as cutting costs or as challenging as п¬Ѓnding a new
Fixed costs. These costs remain the same
regardless of your level of sales. Because
they are not directly linked to sales, п¬Ѓxed
costs have to be recovered by spreading
them across all sales transactions.
Examples of п¬Ѓxed costs include rent,
interest on debt, insurance, equipment
expenses, business licences, salaries of
permanent workers.
Combination costs. Some costs are a
combination of п¬Ѓxed and variable. Here,
the costs rise as your volume increases.
Your phone bill is an example. You pay a
line charge that is the same each month,
but the per-call charge will differ according
to how busy you are.
We all want the ability to increase our profit margins. It can
type of customer.
Simplistically speaking, there are only two ways
Target those who give high Rand volume and
to increase your profits: by increasing your sales,
are worth the effort you put into servicing them.
or by reducing your costs. When you are building
If you can sell a product in addition to a service
your business, it is important to note that the
(or vice versa) then you’ve already created an
lowest cost producer of quality goods or services
extra revenue stream. Better still, if you can sell
will dominate the market in the long term. Right
products created by your company (and not
now, though, you want to determine why your
sourced from a wholesaler), your profit margin
business is not earning enough to sustain it, or
rises considerably.
meet your expectations as an entrepreneur.
Low profits. The first thing business owners do
There are four negatives that can impact on your
is to look for ways to cut expenses by reducing
margins:
overheads. But don’t be tempted to cut down
on your marketing expenses just when you most
Not enough revenue (turnover).
need to advertise and get your name out into
Concentrate on increasing revenue, rather than
the marketplace. There are other options, which
squeezing more out of profit margins. Can you
could have a greater impact in the longer term.
sell more goods/services or sell existing ones
Analyse your products/services and focus on the
at a slightly higher price? Also analyse your
most profitable line of business. If you’re supply-
customers: are some just too demanding on
ing hardware stores, for example, and п¬Ѓnd that
your resources, but not worth the end result?
the highest-selling item is paintbrushes, then
Boost turnover
concentrate on this line. Focus on selling more
to existing clients, and build relationships with
and one you know people will pay for.
• Look for a more appealing way to package
those customers who will become long-term
your services – maybe your packaging is
clients because you service their needs so well.
old-fashioned, maybe people only want to
buy one or two items or services and don’t
Too few customers. The best way to get new
want to pay for the whole package.
clients is to impress existing clients so much
that their word-of-mouth referrals keep people
Too little time. This is the most common chal-
beating a path to your door. If you’re not at that
lenge in a one-man operation or an emerging
stage yet, there are a few other things to put in
business. As time is п¬Ѓnite, the only advice here is
place:
that old clichГ©: work smarter, not harder. Firstly,
• Create a marketing plan that spells out how
see if it makes a difference when you focus on
you will expose your business (trade shows,
the most lucrative market and clients instead of
mass distribution of flyers, advertising in
trying to satisfy too many markets. If your needs
specialist media, giving workshops where you
are more pressing, then п¬Ѓrst try to subcontract
share your knowledge).
to a reliable source before moving on to the
• Focus on the most attractive service you offer,
the one that will set you apart from the rest
next step of hiring an employee or bringing in a
junior partner.
Turnover is the most powerful performance
driver in any business, and it increases
when customers spend more each time
they buy from you, and when they do it
more often. Ask yourself:
• How many potential clients become
clients?
• On average, what do they spend each
time they buy from you?
• How many times on average do they
buy from you in a year?
Increasing any one of these will make a
difference to your bottom line.
Cross-sell, up-sell
Increase your sales by up to 80% simply
by following up. According to the National
Sales Executive Association in the US:
• 2% of sales are made on first contact.
• 3% of sales are made on second
contact.
• 5% of sales are made on third contact.
• 10% of sales are made on fourth
contact.
• 80% of sales are made on the fifth to
twelfth contact.
Increase your customers’ average spend
by following the McDonald’s example:
“Would you like fries with that?” This
simple technique of selling customers a
different, but related product, in addition to
what they asked for, increased McDonald’s
turnover worldwide by $19 million a day!
05
2005: a better
budget for
small business
06
Small business in South Africa
has long been held back by
restrictive legislation. But the
2005 budget speech brought
some welcome relief.
The 2005/6 budget introduced a number of
measures aimed at increasing cash flow for
small businesses, contributing to the surplus
available for reinvestment and thereby support-
How much tax will you pay?
The following tax rates are applicable to qualifying small businesses:
• R0 – R35 000 taxable income:
0%
• R35 001 – R250 000 taxable income:
10%
• R250 001+ taxable income:
29%
Another welcome improvement is that small businesses with a turnover of less than
R1 million only have to п¬Ѓle a value-added tax (VAT) return every four months, instead of
every two months.
ing business growth and employment.
• Corporate tax has reduced from 30% to 29%,
which should help to attract much-needed
foreign direct investment.
• Personal services companies can in future
qualify as small businesses, fully eligible for
tax relief provided that they maintain at least
four full-time employees for core operations.
• The annual turnover limit used to determine if
you are a small business or not (in tax terms),
30 June 2006. They will be replaced with
alternative tax instruments still to be advised.
will increase from R5 million to R6 million.
• Small businesses will be eligible for a simpli-
SARS has also announced various measures to
п¬Ѓed depreciation write-off rate. This will work
reduce tax compliance costs and red tape. This
over a three-year period for non-manufactur-
will include the use of community tax helpers,
ing assets, while manufacturing assets will
the establishment of small business help desks,
retain their immediate 100% write-off.
accounting and payroll packages and a VAT
• The government has removed the current
package for small retailers. This package will
R20 000 double deduction for start-ups. It
help small business owners (mainly within the
has also raised the threshold at which compa-
retail environment) to meet VAT Act require-
nies pay the skills development levy. This levy
ments without detailed recordkeeping or having
is now only applicable to small businesses
to buy expensive cash registers to keep track of
with an annual payroll of R500 000 (up from
sales on the various types of products.
R250 000 previously). This change comes into
effect on 1 August this year.
• Regional service council levies, currently
payable to the council of the area in which
For more information or details of your closest
revenue office, visit the South African Revenue
Services website at www.sars.co.za.
a business operates, will be abolished as of
More support for small businesses
According to the Treasury, there will be an increase in
targeted lending to SMEs in the future. These will include:
• transformational infrastructure finance of R25 billion by
2008;
• black SME financing of R5 billion by 2008; and
• a Corporate Social Investment target of 0,5% of
post-tax profit.
Other highlights
Although there had been much speculation
regarding foreign exchange controls,
no changes have been made. Currently
individual limits are set at R750 000, while
pension funds can only invest 15% of their
assets outside South Africa and unit trusts
are limited to 20%. As per a government
announcement in October last year, there
are no longer any controls on offshore
investment by companies, although they
must still be approved by the South African
Reserve Bank.
The budget specifically targets car
allowances, and caps the value of
company vehicles at R360 000. This means
that people who have vehicles valued at
more than R360 000 will see a significant
rise in their taxable income. Additionally,
the deemed private kilometres have been
increased from 14 000km to 16 000km in
the 2006/7 tax year, which will increase
to 18 000km in the 2007/8 tax year. This
aims to encourage people to use accurate
log books and monthly records rather than
rely on the formula for assuming business
travel.
The government has also reformed the
tax treatment on medical aid cover
to encourage broader medical scheme
coverage, extend the tax benefit to selfemployed individuals and achieve more
equitable tax treatment.
07
Should you
outsource or employ?
Your order book is overflowing (lucky you!) and your staff
08
overtime charges are rising (lucky them!). It’s clearly time for
more hands on deck.
Particular areas of business, such as labour law
and people management skills, are generally
not an entrepreneur’s key strengths. That is why
outsourcing seems like the pill that will take all
• offers a short-term solution to a once-off
project;
• offers a specialised service that would be
expensive to employ;
these problems away.
• allows you to offer a one-stop-shop service to
Outsourcing is ideal if it:
• gives you access to outside expertise and
valued clients; or
• could save you money in the long term;
technologies.
What can I outsource?
Business functions you might consider outsourcing include:
Specialist and expert help (eg, graphic design, multimedia presentations, engineering, bulk
mailing, sales and marketing, writing, translation).
Public relations services.
Virtual assistants (independent entrepreneurs who provide administrative, creative or
technical support).
E-commerce solutions.
Email marketing.
But DON’T outsource if:
you to focus your energies and resources on
• you have adequate internal resources;
your core competencies and strategic business
• the project is difficult to manage. Generally,
goals, while giving you access to technology,
projects that require team interaction don’t
expertise and IT support that you might not be
work well, while self-contained tasks do;
able to attract or afford otherwise. It also reduc-
• you want to abdicate management responsibility – it may take even more time in the
es the costs and risks associated with keeping
up with the latest technological advances.
beginning as you establish a working relationship and clearly outline service deliverables
Remember, though, to choose a supplier that
and client expectations; and
has a proven track record, and for whom infra-
• there aren’t clear parameters for costs and
over-runs.
structure design, installation, support and management is the core business.
Simplify IT
For more information on IT outsourcing, visit
Every aspect of your IT can be outsourced – from
www.mwebbusiness.co.za/outsourcing.htm.
office hardware and software through to your
network, your Internet connection, website and
Consider the costs
email.
Outsourcing certain responsibilities and jobs in
Three secrets to success
An outsourcing deal is not something you
assign and then forget about; it requires
an investment of time and management.
• Put a person or team in place to
manage the outsourcing relationship
and its continuing effectiveness.
• Put processes and systems in place to
integrate the outsourcing functions into
those of your own business.
• Look upon the outsourcing company
as a real business partner rather than a
simple supplier. Its success will lead to
your success.
But there’s also
a down side …
your company can save costs – up to 30% and
• You can lose control of the process.
More companies than ever before are estab-
possibly higher, some sources say. However, a
lishing strategic partnerships with outsourcing
Gartner research report predicts the opposite,
service providers because it allows them to
arguing that a number of hidden costs, like
• Service delivery could fall below
expectation and damage your
reputation.
implement a total IT solution that is tailored
higher turnover and setup costs, can dilute the
to meet their specific needs, but without the
savings of each outsourcing project.
headache of having to manage or maintain it
themselves.
The key is to weigh all the options carefully
BEFORE you outsource. Don’t underestimate
This is particularly important to you as a small
the time required to make an outsourced
or medium-size business owner, in that it allows
relationship work.
• Outsourcing contracts do not allow for
any changes, which could be limiting.
• Management changes at the
outsourcing company may lead to
friction or changed dynamics.
• The outsourcing company may go out of
business and put your relationship with
your client at risk.
09
Identifying new markets
10
You need to know how your customers
make their buying decisions in order to
tailor your products and services to better
meet their needs. Find out the following:
• What do your existing customers think
about your products or services?
• Why do they need your product or
service?
• Why do they buy from you and not your
competitors?
• What do they think of your prices?
• What do they expect from you (eg,
reliable delivery)?
• How do they rate your customer service?
• How do they think you could develop or
refine your products or services?
Then examine your potential customer base:
• Who are your potential customers, how
many are there, and in which sectors do
they operate?
• How much of your kind of product or
service do they already buy from your
competitors?
• On what criteria do they base their
buying decisions?
• What would it take to get them to buy
from you?
• When and where do they prefer to buy?
Use this information to identify where the
business opportunities lie and to formulate
a strategy to take advantage of them.
Ways of growing your business
•
•
•
•
•
•
•
•
Franchise your idea.
Get distributors, sales reps, dealers.
Open another location.
Diversify – sell complementary products.
Target a different group of customers.
Merge with or acquire another business.
Expand globally.
Joint promotions: Look for other noncompeting businesses already reaching
your target market and п¬Ѓnd a way of
incorporating their service with yours.
• E-commerce: The Internet is a means of
reaching markets that were unreachable in
the past. It also provides ease of purchasing
and selling almost anything online.
There are various e-commerce solutions for
small businesses that are both affordable and
convenient. For information or advice contact
MWEB Business on 0860 100 127.
Staying one step ahead
Business is booming and you’re tired of your little pond. You’re
ready to swim with the big п¬Ѓsh, but where do you п¬Ѓnd them?
Evaluating new growth markets is an important
process in the natural graduation of business.
Once the “fledgling period” of your business has
come to an end, you need to consider where the
market potential for your business lies and what
services that could complement this trend.
• Look at forthcoming legislation. Will it put a
dent in your profits?
• Consider whether the demand for your product or service is growing or shrinking.
risks this growth might entail.
Things to think about BEFORE you grow:
The п¬Ѓrst thing to keep an eye on is the economy:
a rise in consumer confidence usually leads to an
• The impact that a change will have on your
business processes and practices.
upturn in household spending in general and thus
• The extra training your staff may require.
more business for you. Keep an eye on external
• The extra resources you may need.
developments, such as a drop in share prices;
• Financing the new products or services.
unexpected price surges of important consumer
• Intellectual property that will need protecting.
goods such as food and petrol; political developments; or big changes in economic policy – all of
DON’T make sudden major changes in your
which could impact on consumer confidence.
business to exploit a new emerging trend.
Instead, add something to your business to
Also keep an eye on trends in your industry:
accommodate it.
• Examine your competitors and their prices
– have they changed, and if so, how?
• Have your customers changed? Think about
their requirements and look for products or
Know your market, know where it is headed,
consider where you are going, and then plan
your course.
So you think you’re
ready to export ...
Exporting can extend your market and
boost your turnover. But should you do it?
Rate yourself – yes or no:
• Do you know anything about pricing for
the export market?
• Have you considered how you will
distribute your product?
• Do you know how you will promote your
product internationally?
• Have you considered how you compare
with your competitors?
If you have answered NO to any one of
these questions, then you still have work
to do. If you answered yes to all of them,
then ensure that you have a detailed export
strategy, п¬Ѓnancial reserves for export
market development and sufficient staff
and administrative capability to handle an
increase in business.
The Department of Trade and Industry (the
dti) website offers information and advice
in terms of registering as an exporter,
export incentives and opportunities. It also
contains questionnaires to help you assess
whether or not your business is ready to
export its products or services.
For details visit www.thedti.gov.za/
exporting/learntoexport.htm.
11
musts
for tendering
12
Filling in a tender form is not about
pretending to be the best. It is about being
honest about your capabilities. Standard
Bank explains that tender documents
usually require you to do the following:
1. Explain the benefits and the value-formoney of your bid.
2. Be absolutely meticulous. You can be
disqualified for the tiniest error.
3. Be prompt. The completed application
needs to arrive at the correct address
at a given date and time. If you are one
minute late you are disqualified.
4. Describe and give proof of experience
relevant to the work to be carried out.
5. Ideally, provide some form of guarantee
for your products or services.
6. If you import goods, declare the
percentage and quantity of imported
products that you use, provide import
permits and supply prices.
7. When determining tender price, you
need to balance the need to make a
profit with the need to be competitive. A
useful rule of thumb is to calculate the
costs and then add 7,5% to that price.
8. Include your VAT registration number
and details of any patents and royalties.
9. Include project delivery times and dates,
and samples of your products.
Are you ready to tender?
Tenders offer small businesses the opportunity to access
empowerment benefits, consolidate, expand and grow. But
before you’re blinded by the Rand signs in your eyes, be sure
that you can deliver.
Usually put out by government, large public com-
can have a crippling effect on your business and
panies, parastatals and municipalities, tenders
even lead to penalties for breach of contract.
are a way of inviting businesses to provide goods
and services on a contractual basis. Once a busi-
Answer the following questions honestly to
ness submits a tender document, it becomes an
assess your readiness for a particular tender:
offer. Once the government or company accepts
• Are you able to deliver the work according to
the offer, it becomes a contract. While tenders
specification, on time and within the budget
may help you to build a strong and profitable
that you have quoted?
business in the long run, the competitive nature
thereof means profit margins are usually low.
• Do you have the necessary cash flow to cover
expenses?
• Do you have the experience to deliver goods
Many business owners do not understand that
when you win a tender you are entering a legal
and binding contract, which requires you to complete the work as set out in the tender. So before
applying for a tender, you need to be absolutely
and services of consistent quality?
• Are your employees qualified to carry out the
work required?
• Do you have the necessary resources to complete the work?
sure that you can deliver the tasks required.
If you answer “no” to any one of these ques-
Rushing into a tender when you are not ready
tions, you are not ready to apply for the specific
tender. In the unlikely event of you winning the
tender, you will probably struggle and could do
• You must be a registered taxpayer with SARS,
with all your outstanding taxes paid up.
lasting damage to your business.
In general, you are also more likely to be successIf you answer “yes” to all of these questions,
ful if you have a good credit history, a good rela-
you are a good candidate to win the tender. But
tionship with your supplier and clients, and if you
you will only be considered if you have the fol-
have products that comply with SABS standards.
13
lowing minimum requirements in place:
• Your business must be registered. This does
Bidding for a tender could be an exciting proc-
not mean you have to be registered as a CC
ess – but only if you prepare well and are aware
or company. You can also win a tender as a
of the ramifications. If you are not successful,
sole trader or partnership, but you must be
don’t despair. Even experienced contractors only
licensed through the relevant local authority
win one out of every 12 tenders they apply for.
to do business.
Remember that every time you apply you learn
• You must have a bank account and a good
record with the bank.
Where to
п¬Ѓnd tender
advertisements
something more about the process and you
increase your chances of success.
Major tenders are advertised in the
Government Tender Bulletin, available via
download from www.info.gov.za/documents/
tenders/index.htm, or by subscription.
Central or local offices of some parastatals
keep databases of preferred suppliers – find
out how to get your business listed on these
databases.
There are commercial services available which
scan the business world for tenders. For a
price, they will send you regular information
on tenders available for your industry.
Examples include www.tenderscan.co.za, or
www.tradeworld.net.
Tender Advice Centres (TACs) are nongovernmental organisations that help smaller
businesses access tender information.
They also help you to complete the tender
documents. To locate your nearest TAC, call the
Business Referral and Information Network
(BRAIN) on 0860 103 703 or visit
www.brain.org.za.
Financing
your franchise
Few people will buy a franchise for cash and
14
п¬Ѓnance the working capital out of their own
pocket. Most people wanting to buy a franchise approach a bank as a п¬Ѓnance partner. In
assessing risk, a bank should make sure that
the franchise you want to buy is reputable,
which will help you with your pre-buying
investigation.
For information contact the Standard Bank
Franchise Desk on (011) 636-6573 or email
[email protected] or visit our
The franchising concept
It was started by the Singer Sewing Machine Company
website at www.standardbank.co.za.
in 1863, followed by Coca-Cola in 1899 and is today a
significant driver of retail business worldwide.
It is estimated that 12% of retail sales in South
that multiplying your assets means multiplying
Africa are done through franchised business, and
your responsibilities – and not necessarily your
sustained growth in the sector is expected for
bank balance.
the foreseeable future.
By definition, franchising is a method of distribBut the decision to buy an existing franchise is
uting a product or service and a way of doing
not to be taken lightly. Even if you have had suc-
business based on a proven business format.
cess in the past with your business, remember
Money is paid, usually on an up-front and
ongoing basis, allowing the use of intellectual
be good, but if the business model or proto-
property and for the continuous provision of
type is not easily duplicated, the chances of
support and training.
success plummet.
2. Bad location. When it comes to business,
The advantage for the franchisor (the company
we often hear the words, “location, location,
who grants the right to a franchisee to trade
location”. This applies even to well-known
under his brand or trade name), is that his outlets
brands.
are run by owners driven by the success of their
3. Poor marketing. Chains like McDonald’s
business. The advantage for the franchisee (the
and Nando’s have national marketing cam-
owner who runs the business under the trade
paigns, but if you are considering a concept
name of the franchisor) is that the business is run
that requires self-marketing and you lack
through a tried and tested business concept.
these skills, it’s probably best to steer clear.
4. Competition. There are approximately 150
The franchise relationship is much like a mar-
listed major franchises in operation in South
riage: it requires close, constant cooperation and
Africa and many more smaller ones. The com-
plenty of hard work! There is also as much risk
petition is п¬Ѓerce.
attached to franchising as to any other business,
5. Unrealistic expectations. New franchisees
and it can fail for a number of reasons:
are notorious for having very high expecta-
1. The idea is good, the execution is poor.
tions for their businesses. It may take two to
The decision to franchise a known brand may
Is a franchise right for you?
• Find out if the business has been
profitable over a reasonable period.
• Look for defining characteristics that set
it apart.
• Determine if the trademark is well
known and respected.
• Find out if the operation of the business
is relatively simple.
• Establish that the profitability of the
business is predictable.
Is the franchisor right for you?
• Is the franchise concept tried and tested?
• How effective is the level of
management training?
• Has the franchisor registered with the
Franchise Association of Southern Africa?
three years before you see a profit.
• Find out what franchises are available.
• Assess franchise opportunities carefully, ask questions and talk to
other franchisees.
• Investigate the financial prospects for the business.
• Ask your bank if it will consider a loan for the type of franchise that
you’re considering if you’ll need to raise bank finance.
• Research the customers and competitors in your area.
• Draw up a business plan.
• Check the franchise agreement and get professional advice.
•
•
•
•
•
Take up the п¬Ѓrst opportunity before investigating alternatives.
Allow yourself to be hurried into making a decision.
Pay any non-refundable deposit.
Commit yourself before you’re completely satisfied.
Assume a business will work in your area just because it works
elsewhere.
• Rely on the forecasts provided by the company selling you the
franchise.
• Sign any agreement without legal advice.
15
16
things to
include in
a business
partnership
agreement
• Amount of equity invested by
each partner (as well as any other
contribution, eg, in terms of equipment,
property, etc).
• How profit and loss will be shared.
• Partners’ pay and compensation.
• Distribution of assets on dissolution.
• Provisions for changes or dissolving the
partnership.
• Dispute settlement clause.
• Settlement in case of death or
incapacitation.
• Restrictions of authority and
expenditures.
• Length of the partnership.
Choosing the perfect partner
A business partnership can be a relationship disaster or a
positive experience. It depends on how you approach it.
Partnerships generally offer more freedom for
this new business structure.
business owners, with shared tasks and the
• Partners need to complement one another.
potential to earn greater profits. And yet the
If both partners have strengths in the same
majority of small businesses are sole proprietors.
area, one of them is obviously not needed.
• Be clear about, and in agreement on, the
This suggests that business owners are cautious
values, mission, purpose and goals of the
about entering into partnerships – and rightly
business.
so. Partnerships face challenges that one-man
businesses don’t, particularly in terms of com-
The most common problem in partnerships
munication, decision-making and control, and
generally stems from disagreement regarding
personal differences.
individual responsibilities and work requirements. More often than not, one partner makes
Business partnerships usually stem from joining
a greater economic contribution to the business
forces with friends or associates who have com-
and works harder than the other.
plementary and mutually-supportive skills that
are necessary for the success of the business. If
To help solve that dilemma, remember that
you are considering a partnership, remember the
the focus of the partnership must always be
following:
on sales and revenue generation. The person
• A partnership is always easier to get into
who generates the most sales and revenue
than out of. Think about the risks and benefits
makes the most valuable contribution to the
carefully, before you sign on the dotted line.
partnership and is therefore logically entitled to
• Understand the strengths and weaknesses of
a greater percentage of the profits.
Smooth operations
A partnership agreement should clearly outline
divided and distributed. Ensure that you have
the job responsibilities and standards of
your partnership agreement reviewed by a lawyer
performance for each partner. It should also
who can advise you about any inherent problems.
detail how the money is to be accounted for,
What do you need in a business partner?
• A person with more experience and
contacts.
• Someone with money to invest.
• Someone who has skills that you lack.
Secrets to success:
• Have the same vision.
• Define business roles clearly.
• Steer clear of a 50-50 split. It avoids a
decision stalemate.
• Hold monthly partner meetings. Share
grievances, constructive criticisms, areas for
improvement, what’s working and what’s
not.
• Have a legal partnership agreement in
place.
The website www.dummies.com offers
the following tips for ensuring that your
partnerships operate smoothly:
• Date first. Before you get married, you
usually date for a while. This allows
you to see the good and the bad sides
of your partner. Business partnerships
work the same way: get to know your
prospective partner well before tying the
knot. Consider doing shared marketing
or a specific project together first.
• Partner only with someone you trust.
Trust is the glue that holds a partnership
together. Don’t even consider – not for
one second – partnering with someone
you don’t trust.
• Don’t partner until you can stand
on your own. You should partner from
a position of strength, not weakness.
Otherwise, your business will become
co-dependent, and thus dysfunctional.
• Enlist partners who add to the
business. You don’t want a partner who
is there just as a source of cash; you
want someone who will bring positive
personal value. Hire employees that
shore up your weaknesses and choose
partners to cover the skills that you lack.
These tips should ensure happy partnerships. If not, you can always split up and try
again, but it will be easier and more profitable if you do it right the first time.
17
Financing
a BEE deal
18
Standard Bank offers South African
businesses two main types of
empowerment п¬Ѓnancing: leveraged and
contract.
Leveraged п¬Ѓnance may be used to
acquire a stake in an existing business,
or provide expansion capital. It takes the
form of structured deals normally ranging
from R1 million to R25 million. Standard
Bank’s BEE division will also assist in
identifying BEE partners, and provide legal
documentation to facilitate a transaction
as well as advice on suitable tax-efficient
funding structures.
Contract п¬Ѓnance is provided when small
and medium-size BEE businesses (BSMEs)
are awarded contracts by a corporate or
government, but are unable to access
п¬Ѓnance as a result of a lack of security
and/or equity.
For more information on BEE п¬Ѓnancing
call the Standard Bank BEE division on
(011) 636-9643.
BEE: empowering
people – and business
There is a general expectation from government
For black empowerment initiatives to be suc-
that by 2014 all South African business will need
cessful they must be an inherent part of a
to be compliant with regulations regarding Black
business’s strategy. If you are looking for a BEE
Economic Empowerment (BEE). BEE is regarded
partner, you should take a long-term view and
as a challenge by some and an opportunity by
overcome initial shortcomings (such as price and
others, but ultimately it is the way forward for
cash) with the fundamentals of equity value add.
any business that is looking to succeed in the
In understanding the importance of BEE to your
South African market.
business you need to:
• analyse and “score” your current and future
While BEE is not seen as crucial to immediate
BEE position;
п¬Ѓnancial prosperity, it is seen as an important
• reformulate your business strategy, taking into
investment in people, and essential to driving
account your shareholders, current and future
sustainable growth.
client base; and
• utilise BEE to create long-term equity value
value to your business. Balance BEE with your
What should businesses
look for in a BEE partner?
business strategy, client needs and stake-
• Commitment (in terms of funding).
holder satisfaction.
• Access to finance.
by ensuring that BEE initiatives add strategic
How does your
business score?
• Must match your business needs and be able
What do BEE investors look for?
• A lower buy-in price based on the business’s
to add value to the business.
• Strategy fundamentals: good business con-
need for a cash injection and their ability to
tacts, a complementary culture, strong reputa-
bring new business to the table.
tion and solid corporate governance record.
• Healthy cash flow.
• Prior commercial success and sustainability.
• Growth potential.
• Capital resources (if possible).
• A strong management team.
• Synergies between the businesses.
POTENTIAL BEE PARTNERS
ADVANTAGES
The Broad-based Black Economic
Empowerment Act No. 53 of 2003 provides
for the formulation of transformation
charters for particular sectors of the
economy. Each charter outlines BEE targets
for the relevant industry, as well as a time
line for achieving them. For examples of
the sectoral transformation charters and
scorecards that have been developed to
date, visit www.cliffedekker.co.za/literature/
bee/bee_08.htm.
DISADVANTAGES
1. Established black
investment companies
Capital resources, significant influence and a high
profile.
Not all BEE investment companies are necessarily
in for the “long haul”, resulting in only a temporary
solution to a business’s BEE objectives. Some might
not be focused exclusively on one partner.
2. Trade unions
Credibility, long-term commitment, significant
influence, grassroots representation.
Lack of commercial expertise, limited value add, few
have substantial available capital resources.
3. Community-based
organisations
Grassroots representation, credibility, long-term
commitment.
May not have significant influence, may not be able to
add value, limited or no capital resources.
4. Operational empowerment
companies
Credibility, long-term commitment, ability to add value
to current and future operations, commercial and
sector-relevant expertise.
Difficult to find and often thinly spread, potential
conflicts of interest with other investments.
5. Key individuals
Significant influence and capital resources.
Might not be long term, limited commercial expertise
and grassroots representation.
6. Members of staff/
employees
Ongoing, value-adding partner, credibility, grassroots
representation, commercial expertise, able to be
п¬Ѓnanced through share schemes.
May not have significant influence, damaging if it does
not work, limited capital resources.
19
20
1 + 1 = 11 …?
Simple steps to greater growth
When marketing to п¬Ѓnd new customers,
one way to control costs and make them
pay off is by running net present value
(NPV) analyses of a customer’s worth.
You’ve got the right product, at the right price and right time.
Basically, NPV lets you calculate the value
of money over time – that is, how much
a project costs in today’s Rands vs how
much it will net you in the future.
could have left one little word out of your business
For example, if each new customer
costs R1 000 to acquire, 15 will cost you
R15 000. If attending a trade show costs
you R15 000, you need to be sure that
it will gain you at least 15 new, paying
customers. Otherwise, п¬Ѓnd an alternative
way of marketing.
So why isn’t your bottom line going through the ceiling? You
model: marketing.
It all sounds so easy: offer the right product at
is the compass that will help
the right price and you have a successful busi-
you locate the right customer.
ness. But, there’s an unexpressed third requirement: the right customer. And finding this can
Marketing includes all the activities
be as elusive as an honest politician. Marketing
needed to produce, price, promote and distribute
What is your marketing return on investment (ROI)?
Instead of one-size-п¬Ѓts-all marketing to every
user of your product, consider targeting heavy,
light and occasional users. That way, you can
customise messages that are more likely to hit
nerves and drive response.
Take the time to compare the cost of proposed
marketing against the profit you expect
from it – not sales, but actual profit. Monitor
customer response so that you can understand
what brought customers through the door,
or onto your website. Once you acquired the
lead, how much did it cost in time and money
to nail the sale? Can you make that more costeffective? Did customers return or move on?
What would help to make them more loyal?
Use a software program like Microsoft
Word, Excel or Publisher to set up a table
or grid that captures information about the
campaign, and evaluate results. You will need
the following information:
• The per-piece cost of your marketing
material and distribution.
• A score for the buying action respondents
take, such as high, medium or low.
• Some tracking code to categorise customer
response via phone, direct mail, email,
online or in person.
Now you have a way of п¬Ѓguring out how
much it costs to get a customer’s attention.
You can also put a price tag on what it takes
to drive a response and close the deal.
Information from the Microsoft Small Business Kit,
ISBN 0-7356-2054-7
The cardinal rules for business growth
products or services required by an identified
target market – at a profit. This implies that:
• no aspect of marketing should be seen in isolation; and
• marketing is not limited to one individual or
department – everyone in your company is
responsible.
The previous edition of Small Capital introduced you to the basic concepts of marketing
and low-cost marketing strategies. This issue
looks at marketing in greater detail, and offers
some guidelines on how to employ marketing
tactics to generate growth.
Hendrik van Schaik, from Kaizen Business
Education Centre, which offers IMM Graduate
School of Marketing degrees and diplomas in
marketing management, suggests you should
Read these “cardinal rules for business
growth”. Write down examples of how your
business is, or could be, implementing them:
1. Seek ways of improving what you offer,
and replace or update your products and
services before someone else makes them
obsolete.
2. Ask your clients how you can improve
and what more you can provide to meet
their needs.
3. Ask your clients how they perceive your
business offering and what you should
stop, start, or do more of to keep them
satisfied.
4. Form partnerships with companies that
offer goods or services that will help to
deliver a one-stop service to your clients.
5. Talk to your suppliers. They may have
6.
7.
8.
9.
10.
unique ideas to grow your business.
Remember, their business will grow if
your business grows.
Don’t box yourself in. Think about
markets outside of South Africa.
Introduce e-commerce and educate your
customers about its benefits.
Don’t get caught up with the herd
mentality: just because everyone else is
doing something doesn’t mean it is right
for your business.
Record and measure all aspects of your
business so as to assess what you should
change.
Business growth is not easy. There
will be mistakes, surprises and maybe
unexpected opportunities. Use these to
learn, adjust and innovate.
Don’t just acquire – RETAIN!
It is around 80% to 100% more profitable to
retain an existing client than it is to acquire
a new one. In fact, research shows that
retaining just 5% more customers can boost
profits by 25% to 120%. Your marketing
budget should reflect this.
Split your marketing budget between
acquisition campaigns and retention tools
that will help build client loyalty and closer
customer relationships. This should include
frequent personal contacts, for example,
acknowledgment of seasonal holidays and
personal milestones, invitations to special
events and sneak previews of new products.
Never underestimate the power of
the personal touch, which – thanks to
technology – has never been easier. Bulk
messaging systems like MWEB Business’s
Courier allow you to automate personalised
email communications that keep you in
touch with your clients.
For more info visit www.mwebbusiness.
co.za/email.htm or see overleaf.
21
Struggling to
stay ahead?
22
These are the top stumbling blocks to
business growth:
Improper cash flow management. Cash
is king – never forget it!
Fear and confusion. Plan, prioritise and
stay focused.
Lack of capital. Don’t start with a bang
(and a large salary). Grow slowly.
Not learning from your mistakes. Assess
what went wrong, then try again.
Not targeting a particular market. Focus
on a particular group, with a specific need.
Choosing the wrong audience. Speak to
a market that needs your service/product.
Confusing message. Know who you are
talking to and what you’re talking about.
Lack of planning. Choose the marketing
route you want to take and stick with it.
Laziness or greed. Your business exists to
service your customers. Put them п¬Ѓrst.
Being incompetent or losing focus.
Don’t be sloppy in your delivery. One
mistake could undermine client confidence,
loyalty and trust.
Not enough relationship building.
Track your sales and client contacts with
tools like Microsoft’s Customer Relations
Management software.
For information on this and other tools, go
to www.microsoft.com/southafrica/small
business.
Connecting with your customers
For many people, email has replaced the tele-
rates are higher.
phone and post as the preferred method of com-
They’re fast – email goes out instantly and
munication. MWEB Business, which offers the
delivers results in minutes.
Courier bulk messaging system, highlights the
following benefits of direct email campaigns:
A good bulk mailing system allows you to man-
They’re interactive – recipients can respond
age recipient lists, get detailed delivery reports,
quickly and easily with a simple “point and
monitor actual “click-through” statistics and set
click”.
up email messages to be sent at a future date
They’re cheap – as there are no paper or
and time. Systems like Courier work through an
postage expenses.
easy-to-use online interface, giving users the
They’re personal – you can personalise your
ability to manage and send messages from any-
communication with minimal effort.
where in the world.
They’re effective – most consumers who
receive email offers have already told marketers
For more information go to
what they are interested in. Hence, conversion
www.mwebbusiness.co.za/email.htm.
п¬Ѓrst determine whether your business has a
what their growth areas are and whether they
“production orientation” or a “marketing orien-
will best contribute to your long-term growth.
tation”.
• Production orientation. You aim to get
customers to buy what your business has
already produced.
• Marketing orientation. You aim to produce what customers need.
The latter is the preferred approach as you are
filling a specific need and thereby adding value.
3. Get the basics right! Exceed customer expectations, and never over-promise and underdeliver. “Delighted” customers are much more
likely to remain loyal to companies or brands.
4. Be confident of your abilities and have faith in
your company. Your clients will pick up on this
self-assurance.
5. Be seen as an innovator and always make it
The chances for increased – and continued
visible to your customers. This could take the
– growth are that much stronger.
form of awards, press articles, or pre-launch
briefings for special clients.
Once you have identified your target market,
determined that you can serve it and that you
can adequately fulfill their needs at a profit, your
business is ready to grow.
6. Do a better job than your competitors in identifying and satisfying customers’ needs.
7. Quality will always be important. As long as
customers perceive there to be a greater value
in your product/service, compared to a rival,
Are you top of mind?
you will always be in business.
When your clients think of a particular product
or service, does your company automatically
Keep on growing
spring to the top of the list? That’s the best
A successful business owner not only offers an
position to be in, and here are some ways to
excellent product or service, but is also continu-
achieve it:
ally looking for ways to improve his/her business.
1. Never stop п¬Ѓnding out what is important
Maybe that means looking for new products,
to your most valued customers. Adjust your
or offering your services to a new group of cus-
product/service offering accordingly.
tomers. Be creative and always remain on the
2. Get as much information as you can about
your customers so that you can determine
lookout for opportunities. You never know what
might come your way.
signs that
you need
a new
marketing strategy
1. Customers’ awareness levels are
dropping.
2. Customers believe that your products/
services are no longer relevant to their
needs.
3. Customers tell you that your offering is
no longer unique.
4. Your focus is internal (staff, operations)
rather than external (customers).
5. Your marketing strategy lacks ACTION
words: what you are going to DO.
6. You have nothing new to offer: no new
product or model, service or approach.
7. Your marketing strategy lacks depth.
Don’t just sell petrol, sell the great
performance it offers.
8. Your personality does not come across.
A marketing message needs to reflect
you/your company’s personality.
9. Your message lacks the added-value
component. People buy if they perceive
the value they receive to be worth the
investment.
10. You are following others instead of
treading your own path. Be bold, be
unique, be yourself.
23
What to do when the
vultures start circling …
24
So, you have a competitor who is circling
your client base like a vulture coming off a
diet. You’re the hyena who is yapping and
running around the carcass to protect your
livelihood. When the heat is on, it’s time to
get back to basics.
1. Have you recently lost any clients? Do
you know why? Can you entice them
back with a new package or a reduced
price?
2. Identify your top п¬Ѓve clients and visit
them personally to get their views on
your service, their opinions on how you
could improve and their thoughts on
what their company needs in the future.
3. Tell your customers everything about
your products/services – especially
the value they add – so that they will
ask for you by name and not be easily
enticed away to a competitor’s offering.
4. If it’s sales you’re after, then don’t
waste your time and money on
“image” advertising. Make sure each of
your adverts invites a response from the
reader (eg, call now, visit our website,
complete this form for a free trial, etc).
Keep track of which adverts get the
best response.
5. Send sales letters/emails to clients
and follow up with a phone call. This
personal approach guarantees more
results.
Where will future
growth come from?
If you’re looking for new markets, start looking
a few women engineers/architects/bankers on
closely at women and older people. These mar-
board to represent the thoughts of women.
ket segments have the purchasing power that
your business could be dying to get.
Another overlooked market is the mature market,
so-called Baby Boomers over the age of 50. “We
“Women are the primary purchasers of damn
assume, wrongly, that older consumers constitute
near everything,” explains Tom Peters in his
a stagnant market and thus we overlook an enor-
latest book, Re-imagine!. And this demands
mous opportunity. But we must understand that
a different approach to marketing. “Men and
the 50-and-over population is growing immensely
women … don’t buy for the same reasons. He’s
in terms of numbers, wealth and longevity. And
interested in completing the transaction; she’s
to serve that market we must completely reorient
interested in establishing the relationship.”
our enterprises,” cautions Peters.
It also demands a different approach to product
Ironically, in youth-obsessed America, the mature
development: if you’re going to sell something
market controls 70% of all US wealth and
primarily to women, then you had better get
accounts for 50% of all discretionary spending.
When to п¬Ѓre a customer
Some customers just aren’t good for business,
but п¬Ѓring one is never an easy decision. You
not only cut off future income, you cut off
what you thought you had already made.
It might be time to part ways if:
• the customer costs more than he brings in;
• the customer has unrealistic demands of
what you should provide for his money;
• he is unwilling to listen to your advice; and
• the account is keeping you from doing more
profitable business elsewhere.
Expansion: the next big step
The decision to expand your business requires thoughtful
consideration of various factors, including your п¬Ѓnances, the
logistics of growth and you, personally.
There are many ways to grow a small business.
• Are your competitors expanding? If they
The key is to manage the growth in such a way
are, they may have recognised new opportu-
that it can be controlled. Growing too rapidly
nities in the market or developed a new idea.
can sometimes be more devastating to your
You can either wait and see how their deci-
company than not growing at all, while control-
sion plays out or follow their lead.
ling the pace allows you to fully research the
market’s desire for your product and service.
• Do you have the necessary finances
without sourcing them externally?
• Consider your customers. How will they
It is best to expand only when you recognise
untapped opportunities that can benefit your
business. There may be a niche that you want to
capture or a location not serviced by your competitors. You will see the signs.
react to the change?
• Examine the business environment.
Assess whether it will support your expansion.
• Review your role. Expansion will involve a
change in your responsibilities.
• Get back to basics. Are you moving away
Things to consider before expanding
from what made you a success in the п¬Ѓrst
• Look at the economies of scale. You
place?
should only expand if you can sell your products or services at lower prices or take more
Growth is good for a developing company, but
profit per item. One way to do this is mass
don’t be misled by early success. Growth is a
production or bulk buying.
gradual process. Too much, too soon is too risky.
25
A number of things might indicate that you’re
business can stand alone, however the two gain
growing too fast:
an advantage by working in tandem.
• The decision to expand is impulsive and not
26
based on п¬Ѓnancial evaluation and market
According to www.diomo.com, a widely used
studies.
Internet strategy guide and reference resource
• High loans are acquired.
for business buyers, over 90% of the people
• The owner and managers lose touch with the
who begin the search to buy a business fail to
How to ensure
you come out on top
• The new administration gets in the way of
• Set realistic goals.
• Overheads keep growing.
ing process. The trick is not to take anything for
• Effectively plan your expenses.
• Customer complaints are increasing because
granted. The more you know, the easier it is to
• Finance smartly. Look for low interest
rates, no personal liability, little or no
collateral, a long payback period.
• Put more money into working assets
that bear cash, rather than п¬Ѓxed assets,
where your money is locked in.
• Get the timing right when expanding.
Consider it when your business is at its
peak.
• Up your sales without sacrificing your
profit margins. But remember, greater
volume of sales does not necessarily
bring a greater profit.
employees.
essential, basic business functions.
service delivery is flagging as a result of extra
ever complete a purchase. In most cases, these
are п¬Ѓrst-time buyers who admit to having totally
underestimated what was involved in the buy-
make good decisions.
responsibility.
• There is an overdependence on key customers, suppliers, lenders.
How to buy a good
business at a great price
Match your strengths with the business you
Expansion must play to your strengths and
choose. That way you get value for the money
not be a result of your weaknesses. Grow your
you spend. Be wary if you are handling your
business one step at a time, so that you can suf-
purchase through a business broker. Remember
п¬Ѓciently plan for your future success.
that a broker represents the seller, not the buyer,
and won’t necessarily have your best interests
Buying an added-value business
at heart.
• Be spiteful with your money. Spend only
where you will see a return.
An added-value business will do just that – add
Focus your search. Determine what is impor-
value to your business. For a petrol station, this
tant to you, and sift through what is available
• Understand your business. Don’t
just leave the п¬Ѓnance side to your
accountant.
could be a convenience shop or a car-wash.
according to the criteria you’ve chosen. If a
For a commercial printer, it might be a graphic
business suits you and is not “officially” for sale,
design studio. These complement the existing
speak with the owner. They may be willing to
businesses and build on their success. Either
sell at a good price.
• Don’t forget – the more you know, the
more control you have.
Review all the п¬Ѓgures. The seller may lie,
Hire the right professionals, ie, a lawyer and
but the sales records won’t. Verify figures with
accountants. A lot of money can be saved purely
accountants if need be.
from the choices you make at this stage.
Create a checklist for the seller that includes
Negotiate. Make an offer you can safely afford.
absolutely every part of the business, including
the competition, the suppliers, the customers,
There are a number of local listings that contain
the contracts, the employees, legal issues, the
details of businesses for sale in South Africa. For
industry – and make sure you are satisfied with
info see:
the background information that the seller
www.bizforsale.co.za/business.htm
comes up with.
www.buyabusiness.co.za
Make a purchase agreement to protect you
www.haggle.co.za
from future decline in business, bad inventory,
http://home.intekom.com/capebusinessbureau/
faulty equipment and other liabilities.
buy.htm.
Things to ask before signing on the dotted
line:
Q: What are the seller’s reasons for selling the
business?
Q: Do you have an income statement for
the last two years that will allow for a
meaningful п¬Ѓnancial analysis?
terms and conditions of trade are in place?
Q: Do you have a list of assets with a
valuation where necessary?
Q: Have you examined the accounts
receivable and assessed the recoverability
of these amounts?
Q: What track record does the business have?
Q: What agreements are in place regarding
premises and asset leases?
Q: Have you identified key customers? How
would the transfer of ownership affect
them?
Q: Have you taken into account the working
capital that you will require to cover the
initial outlays until income starts rolling in?
Q: Have you identified key suppliers? What
Q: Obtain details of the lastest assessment
Re-assess
your resources
Finance. Do you have enough capital to
expand? If not, where can you get more
and how?
Human Resources. Are you going to
need more staff to cope with the added
demands? Do they need more skills and do
you have to train them?
Time. How long will the process be? Have
you evaluated how long each growth stage
will take?
received from SARS. Are there any disputes
with SARS that may impact future taxation
payments?
Q: Is there any pending litigation against the
business?
Q: Does the business provide any guarantees
or warranties on its goods and are these
reflected on the balance sheet?
Q: Which employees are key to the future
viability of the business?
Q: What is the business cash flow cycle and is
it attainable?
27
Financing a new acquisition
While growth is best funded through existing capital, buying
an added-value business could be an opportunity too good to
28
miss. So, how do you pay for it?
Financing the purchase of a new acquisition
is much the same process as financing a startup. Once you’ve decided that you are ready to
take on the added responsibilities, you need to
• equity finance (own funds, or loans from
family, friends or shareholders); and
• debt finance (a loan from a bank or finance
institution).
ensure that you have enough capital to pay the
purchase price as well as the ongoing cost of
Use the following list as a starting point for
employees, raw materials, stocks, storage, etc.
sourcing п¬Ѓnance. Tick off the options that you
think will be the most likely sources of help:
Why a
bank might
refuse a loan
As with a new business venture, you have two
Personal savings.
funding options:
Friends and family.
• Applicants may not have the competency
needed to ensure viability of the business.
• The new acquisition is perceived as high
risk.
• The applicant isn’t able to offer collateral.
• The business plan is not “bankable”
because of a lack of feasibility, poor quality,
or inadequate information. If you use a
consultant to draw up your business plan,
make sure it includes plenty of your input
and insight into the business itself.
• Unsuitable profit margins.
• Insufficient security.
• Lack of owner commitment.
• The purpose of the loan is not justified, or it
is difficult to determine the risk involved.
A bank loan.
better chance of getting a loan because it shows
A bank overdraft.
their willingness to take the risk. If you can’t
Investors.
contribute cash, offer collateral. Also remember
Customer and supplier п¬Ѓnancing.
that several institutions will п¬Ѓnance certain
Strategic partners (alliances with other
deals if there is a BEE component, or if the deal
businesses).
has significant development spin-offs. For more
Inventory п¬Ѓnancing (a bank line of credit
information on these funding organisations,
secured by your inventory).
contact the BRAIN National SMME Information
Equipment leasing instead of buying.
Centre on 0860 103 703 or visit www.brain.org.
29
Make sure your loan application includes
the following:
za/sections/п¬Ѓnancing.html.
A clear outline of what you want, and
why.
an acquisition, remember that banks look for
And if they STILL say no ...
evidence of viability. You can demonstrate this
If you’ve approached banks, your generous
The history and background of your
business.
by having a sound business plan that outlines
uncle, and even your ex, but are still coming up
the details and projections of your business and
short, you’ll need to look for the extra cash with-
specifically the new acquisition.
in your business. It’ll take time, but in the long
If a bank loan is how you intend to п¬Ѓnance
term it will improve your general cash flow, not
If you haven’t already, visit the Standard
to mention your credibility with the bank. Here
Bank business banking website at
are a few ways of tightening your business belt.
www.standardbank.co.za to download a busi-
•
ness plan template and spreadsheets that will
Manage inventory more carefully – only
Information on:
Your share capital.
Key personnel.
Management information and
accounting systems/policies.
Trading results.
stock what you need.
Taxation.
help you with these projections. This business
•
Invoice early.
Contingencies and litigation.
plan must show strong projected cash flow. It
•
Don’t expand unless you can afford it, and
Profit projections.
don’t buy what you can make do without.
must also show that you/your partners have a
sound understanding of the new business, as
•
Negotiate longer payment terms with
your suppliers, or ask for early-payment
well as the skills to run and manage it.
discounts.
Bear in mind that applicants who make contributions in the form of cash and assets have a
•
Consider raising your prices.
Cash flow forecasts.
Current borrowings/liabilities.
Security.
30
Hidden costs
One in three п¬Ѓrst-time buyers
underestimate the hidden costs associated
with investing in property. Costs to look
out for are:
• Legal fees.
• Mortgage arrangement fees.
• Survey charges.
• Transporting furniture.
• Lawyer fees.
• Stamp duty.
• Tax.
• Furnishing and office equipment.
• Cutting keys.
• Connecting phones.
• Days away from work because of move.
From home office to small office
Has the time п¬Ѓnally come to move your mini-empire out of the
study and into an office block? If so, do you buy or rent?
If you’re expanding your number of staff, so you
default.mspx. For special offers on small busi-
will need to expand your computer equipment
ness software, visit www.microsoft.com/
and software. For guidelines on evaluating your
southafrica/smallbusiness.
needs and what to look for, see Microsoft’s
hardware and software buyers’ guides, at
Your п¬Ѓrst, and perhaps most important decision,
www.bcentral.co.uk/buy/hardware/default.mspx
however, relates to office space and whether to
and www.bcentral.co.uk/buy/ software/
buy property or to rent.
Buying property: the rewards
up. Think long and short term before buying.
The power of leverage. When buying
Maintenance. Remember there’s no landlord
property, pay the bulk of the purchase price
to take care of leaks and breaks. Being the
through a long-term mortgage. Borrowing most
owner costs money in regular wear and tear. Be
of the funds allows owners to profit from price
prepared to pay for routine maintenance and
increases on property they haven’t fully paid for.
sometimes, replacement of large items.
Appreciation. Properties usually increase in
Reduced flexibility. You can’t just pick up and
value over time. When owners sell a property,
move every year. If you sell property frequently
they often use the money they make on it to
or quickly, you can lose.
invest in something bigger and better.
Tax breaks. Property owners can deduct the
In making the rent vs buy decision, remember
mortgage interest and property taxes from their
that timing matters. Your п¬Ѓnances should be
income tax returns.
solid enough to shoulder the considerable
expense. And, in almost all cases, buying doesn’t
Buying property: the risks
pay unless you plan on staying in the building
Declining value. There is no guarantee that
for at least three years – preferably longer.
your property value will rise. That leverage that
looked so good could translate into a loss.
Before you exchange a rent cheque for a mort-
Lost opportunity. If you could invest your
gage payment, run the numbers, plan ahead and
funds elsewhere for better return, you might lose
carefully consider where your business is headed
out in the long run because your funds are tied
over the next three to п¬Ѓve years.
Financing a purchase
Standard Bank offers two main mechanisms
for п¬Ѓnancing a business property purchase:
A business mortgage to buy a “residential”
property for use as business premises. The
potential to convert the property back to
residential use must be maintained.
A commercial property loan for the
purchase or building of commercial or
industrial premises, for business purposes.
For information see www.standardbank.
co.za or contact the customer care line on
0860 012 345.
Choosing office
space: key questions
Answering these questions for each of the
sites you’re considering can help you decide
on the best location for your business:
• Is the building in an area zoned for your
type of business?
• Does it have all the office, storage or
workroom space you need?
• Do potential customers live nearby, or
can they access the area easily?
• Is the area heavily dependent on
seasonal trade, and if so, how will this
affect your business?
• Is the building consistent with the image
you’d like to maintain?
• Is it in a low-crime area, or will crime
insurance be prohibitively expensive?
• If your business expands in the future,
will the facility be able to accommodate
this growth?
• Is the location zoned for the kind
of Internet connectivity you need?
Remember that ISDN and ADSL lines
require additional infrastructure
from Telkom, which might not be in
place. Installing this could add to
your costs and delay operations by
several weeks. For more information
on what kind of connectivity would
best meet your business needs, contact
MWEB Business’s sales support on
0860 100 127.
31
What e-commerce
can do for you
32
E-commerce is about using your company’s
website to drive traffic to your physical
office, adding value to your existing
technology, streamlining your business
processes and building customer loyalty. It
is a question of looking at the things you
do every day, and then asking if there is a
way to streamline any of those things.
E-commerce solutions, such as those
offered by MWEB Business, can be
customised to your specific needs. These
range from online marketing tools and
basic payment mechanisms for selling
goods online, through to more advanced
options that allow you to analyse
customers’ buying behaviour, provide for
monthly subscriptions, debit orders and
ongoing monthly billing services.
Before you take the leap, analyse whether
you have the necessary in-house skills,
or whether you should outsource. You’ll
also need to ensure that any new system
integrates with existing business systems,
such as п¬Ѓnance and accounting.
For more information or advice, contact
MWEB Business on 0860 100 127
or www.mwebbusiness.co.za/
ecommerce.htm.
Technologies for
growing your business
You’ve seen the billboards, heard the adverts, but still aren’t
sure what VoIP is, or what it can do for your business …
There is a wide array of office software applica-
maintenance of which put it out of the reach of
tions that help growing companies to work
most small and medium businesses.
smarter, faster and more efficiently. But there
are also a few technologies relatively new to the
The newly deregulated telecommunication indus-
market, which challenge traditional ways of doing
try means that Internet Service Providers can offer
business.
businesses virtual private networks (VPNs), which
in turn means a company can have access to, and
Voice over Internet Protocol (VoIP) is one of
enjoy the benefits of, a private network, without
them. VoIP is a technology that uses the Internet
having to maintain, manage or upgrade it.
to transmit voice over the same network being
used to transmit data. Until recently, it had to
A VPN allows your business to bypass the public
be done on two separate networks, the cost and
telephone network and channel calls over your
How do you know if VoIP is right for your business?
If you answer yes to the questions below, the
chances are good that you may benefit from
using VoIP:
• Do you make a lot of cellular calls?
• Do you regularly make international calls?
• Does your business have branches that
need to be in constant communication with
each other?
• Have you considered alternatives in an
effort to reduce your business’s telephone
bill?
• Do you currently have a data network, or
have you considered getting one?
• Do you have an ADSL connection or higher?
own network, or via your service provider, usually
• intranets and extranets;
at a substantially lower cost.
• enterprise resource planning, customer relationship management and accounting systems;
VPN solutions use Internet technology and the
• email and Internet browsing services; and
web to improve productivity and efficiency of
• real-time inter-branch communications.
your business. For example, if growing your business means having branches or offices in different
There is a variety of VPN solutions available,
locations, then a VPN gives you a secure, reliable
depending on your needs. Look for:
and affordable way of being able to reach staff
• scalability, performance and redundancy;
and access information in real-time. This means
• cost effectiveness (some VPN solutions start at
that employees at these branches can access cen-
under R800 per month);
tralised services such as:
• thorough security; and
• business critical systems;
• manageability (reduced cost of ownership).
Do you need
your own
email server?
Internet and email communication are
open to abuse. However, the expense and
technical implications of monitoring this
yourself can be off-putting. Outsourcing
it to your service provider offers a costeffective, low-maintenance alternative.
Products like the MWEB Business Server
provide an all-in-one Internet server
solution that is located on your premises,
but maintained and managed remotely.
This approach has a number of benefits:
There is no initial capital layout cost.
It provides email and secure Internet
browsing for all your staff, as well
as the ability to manage all of these
through an easy-to-use web interface.
You can set different levels of web
browsing capability for different users
within the company.
It includes a п¬Ѓrewall, to prevent
unauthorised access to your system.
You can monitor hardware usage,
Internet traffic, Internet browsing and
email usage on a daily basis.
A mail spooling facility means that
email is not lost in the event of the
server being offline.
For more information visit www.
mwebbusiness.co.za/BusinessServer.htm.
33
Recognition and reward
You’ve met your monthly goals and business is on the up. You
feel like the hero who single-handedly elevated your business
34
prospects. But don’t forget the rest of the team …
Lessons to learn BEFORE
opting for an employee
ownership scheme
Often we get so caught up in the facts and
• Ensure fairness. Allow all employees the
opportunity to acquire stock.
• Maintain transparency of the process
and readily give information to
employees.
• Be prepared for differing expectations, as
not all employees are the same.
• Allow for flexibility.
• Involve employee groups in the process
from the beginning.
• Empower employees to participate in any
restructuring process.
• Facilitate the use of credit to help finance
the employee ownership transactions.
• Where possible, do not dictate the
permissible level of employee ownership.
Allow for input from employee groups.
• Education and training are important
as employees will not necessarily be
experienced in the transaction process.
are. Even in a small business, employee morale
• examine the tax implications;
is critical, and staff incentives are a good way of
• decide on performance measures of staff (eg,
recognising and rewarding individual contribu-
sales). Quantify the value of different activi-
tion to the company’s success.
ties, roles and value-add, and how each links
п¬Ѓgures that we forget that business is usually a
team effort. One weak link in the chain could be
your downfall, no matter how strong the others
incentive, what you hope to achieve and what
behaviour you wish to encourage as a result;
• ensure that the scheme is competitive, realistic and in line with projected business growth;
to the proposed incentive scheme; and
Incentives motivate and inspire employees to
• test out the scheme and revise accordingly.
reach company objectives. They help to improve
staff retention and encourage teamwork. They
When the scheme is up and running:
also sometimes have tax benefits. Financial
• evaluate employee performance in terms of
incentives could include profit-related and
share option schemes and cash bonuses. Nonfinancial incentives could include formal
the measures you have put in place;
• analyse overall business performance. Is it
improving as much you hoped?;
recognition through awards, gifts or vouchers.
• interview employees about the scheme and
Before implementing an ownership scheme:
• monitor and measure any differences in staff
keep a record of their feedback; and
• clearly outline your reasons for offering the
retention and satisfaction.
Protect yourself
Information is a precious commodity – whether it’s a creative
idea, a unique business system or your private banking details.
35
It’s worth protecting.
The concept of intellectual property allows peo-
If you have an invention – a unique product or
ple to own their creativity and innovation in the
system – you can protect it with a patent. This
same way that you can own physical property. It
gives you the exclusive right, either nationally,
includes ideas, discoveries, writings, works of art,
internationally or both, to produce and sell
software and collections.
the product for a particular period. During this
protecting information that can’t be protected
through other legal means, or where it is
difficult to detect infringement, for example
in manufacturing processes. However,
rights cannot be enforced in cases where
competitors copy publicly available works.
Materials transfer agreements. These
contracts govern the transfer of one or more
materials from the owner (or licensee) to a
third party for internal research purposes only.
They restrict the use of the material to noncommercial research, and reduce legal liability
for the recipient’s use of the material.
What are …
Plant breeders’ rights. These grant a plant
breeder exclusivity over the production, sale,
import and export of propagating material
or harvested material of the protected plant
variety. Application for this right is only
granted if the plant variety is new, uniform,
distinct and stable. It usually takes between
three and п¬Ѓve years to process. Rights extend
for 20 to 25 years, as long as the annual
renewal fees are paid.
Trade secrets. These refer to intellectual
property that is protected by confidentiality
agreements. This is an important way of
Confidentiality agreements. Confidentiality
is a legal principle that serves to maintain
secrecy between two or more parties.
Although an oral agreement is enough to
provide an obligation of confidence, the
existence of such an agreement is often
difficult to prove in a court of law.
Remember that software programs are
intellectual property, and by possessing illegal
software you are breaking the law. To check
if your Microsoft software is legal, go to
www.microsoft.com/southafrica/genuine.
period, the invention cannot be commercially
designs) or 15 years (for functional designs). The
made, used, distributed or sold without the
registration has to be renewed annually.
owner’s consent.
If you’ve come up with a brand name (like
36
If you are an author or designer your work is pro-
“Spar”), a logo (like the Nike swish), a slogan
tected through copyright, unless you have been
(like “Yebo Gogo”), or a publication name (like
specifically commissioned to produce it. Copyright
“Men’s Health”) you can register it as a trade
arises automatically as soon as an original work
mark. Although you can go to court to defend
has been reduced to a material form. Except for
an unregistered name, it is easier to protect if
п¬Ѓlms and videos, it is not necessary to register
you have officially registered it. The registration
copyrights legally. However, you do need to put
needs to be renewed every 10 years.
the words “Copyright”, “Copyright Reserved” or
“© [Your Name] [Date]” on the work.
The Companies and Intellectual Property
Registration Office (CIPRO) offers step-by-step
If you are a designer, you could go one step
instructions on how to protect your intellectual
further and register a design, which gives you
property. For more details visit www.cipro.co.za
an exclusive right for 10 years (for aesthetic
or call 0861 843 384 or (011) 254-9405.
Can you patent
your invention?
• If a similar invention has ever existed,
anywhere, at anytime, you cannot patent
it.
• The search and discovery of prior-art
patents helps to determine the novelty
of your invention. Prior-art references are
documentary sources, such as patents
and publications from anywhere in the
world, as well as non-documentary
sources such a things known or used
publicly.
• A patent search by a legitimate
registered patent attorney can be done
for a few thousand Rands.
Licensing: making money from your invention
There are some general guidelines to ensure a
successful licensing agreement:
RULE 1: Never assume that the royalty you
obtain will be any percentage of sales. Too
many inventors get greedy when it comes to
negotiating royalties – and almost 95% of all
patents are never successfully commercialised.
RULE 2: A good royalty agreement depends
on the accuracy of your market assessment
and competitive market analysis, NOT on how
much the buyer will profit once he develops
the product.
RULE 3: It is up to you to complete a business
plan detailing the possible sales, costs and
profits a licensing company might achieve if
they license your patent.
RULE 4: Know your competitors. Learn and
understand how they do business as well as
their top managers do.
RULE 5: Before you contact a company to
license your inventions, be ready to make a
good impression. Present them with your best
prototype and best market research. Your п¬Ѓrst
chance might be the only one you get.
Protect your information
Attack is the best form of defence. Tackle your security issues
head-on – BEFORE they become a problem.
37
Information security is both an internal and
anti-company attitude, or leave the company
external issue and ways of protecting it can
and still have a back-door entrance into your
range from simple controls and monitoring
critical systems. The better you know them, the
systems, to п¬Ѓrewalls that prevent external users
easier it is to take preventative measures.
from accessing any of the computers on your
Train your staff. Keep your staff on your side
network.
and “in the loop” with regard to your security
practices. Some 40% of internal security events
Put a security policy in place. Know what
are not malicious but rather accidents, errors,
you are trying to protect and why.
omissions or lack of knowledge. Education and
Know your employees. They may develop an
awareness are essential.
Tips to give your staff
1. Never, ever, give out or share user IDs or
passwords.
2. Be careful not to accidentally give away or
lose any company proprietary information.
3. Do not connect any computers, modems or
other equipment to the corporate network
without permission.
4. Only use licensed and authorised software.
5. Protect your workstation: use screen
savers and always remember to log off.
6. Back up your п¬Ѓles on a regular basis, and
store the backups in a secure location.
7. Always check email attachments, as well
as any new or downloaded software with
anti-virus software.
8. Treat email messages with the same
care you do company stationery. You
cannot “unsend” email and it has got the
company name on it.
9. Always shred or destroy sensitive
information on paper, disk or tape.
10. Report security incidents promptly.
Perimeter security. Change your passwords
considered unnecessary for individual users who
regularly. A п¬Ѓrewall is your п¬Ѓrst line of defence.
don’t use server software. As a small business
Overall defence. Ensure that employees who
owner you should consider a п¬Ѓrewall if:
take their work home have secure connections.
• your computer’s files need to be accessed
Don’t let their network problems become yours.
38
remotely across the Internet;
React quickly. Don’t leave a breach of security
• you are operating any sort of Internet server.
unchecked. Have an emergency plan in place.
• you use any sort of Internet-based remote
Physical security. Know about the vulnerable
parts of your business. Is there a particular room
that needs special security?
control or remote access program; and
• you want to properly and safely monitor your
Internet connection for intrusion attempts.
Don’t forget the little things. Make sure
your staff don’t bring in programs with viruses
A hardware п¬Ѓrewall is a box that sits between
on them, and make sure they lock their offices.
you and your Internet connection, and п¬Ѓlters
Start as you plan to continue. Don’t put in
incoming traffic. A software firewall is a program
security measures after the fact.
that runs on your computer, preventing п¬Ѓltered
traffic from getting through to your operating
Need a п¬Ѓrewall?
system. Some software systems (Microsoft
In many cases, a person who hacks into a busi-
Windows XP is one of the best examples
ness’s internal systems isn’t necessarily trying to
thereof) have built-in protection tools (eg,
steal info, but rather hijack part of the system
Windows п¬Ѓrewall/Internet Connection Firewall).
to spread spam or viruses. Either way, a п¬Ѓrewall
For details see www.microsoft.com/athome/
can prevent this.
security/protect/п¬Ѓrewall.mspx.
Simply put, a п¬Ѓrewall works by inspecting every
However, more advanced п¬Ѓrewalls are a combi-
piece of information being sent to a computer
nation of both. Most Internet Service Providers
and only allows access to those it has been
offer п¬Ѓrewall protection as part of their con-
instructed to let in. If you have a full-time or
nectivity solutions (such as Business Server, from
multiple-machine Internet connection, you
MWEB Business). For more information, see
should consider a firewall, but they’re generally
www.mwebbusiness.co.za/BusinessServer.htm.
Online banking CAN be safe
Online banking services such as those
provided by Standard Bank comply with
international Internet security standards
and are built according to the highest
encryption specifications. However, it
pays to follow a few golden rules when
managing your п¬Ѓnances over the Internet.
• Once you have registered for Internet
banking, download the free п¬Ѓrewall and
anti-virus software from the Standard
Bank website and install it on your PC.
• Never allow your web browser to save
your PIN.
• Keep your Internet banking, ATM PIN and
customer-selected PIN (CSP) safe, but not
in the same place as your card.
• Do not run any program files unless you
are sure they are safe.
• When doing online banking, check that
you are on the correct web page and that
the site is secure. Look for the security
certificate graphic (usually a small
padlock symbol) in the bottom right
corner of your screen.
• Keep your antivirus software updated.
• Control access to your computer. Do not
allow anyone to install programs on it
without checking that it is safe to do so.
• To access Internet banking, log on to
www.standardbank.co.za and click on
“Internet banking” or type in the full
Internet banking address https://www.
encrypt.standardbank.co.za. This is more
secure than linking from other sources.
Does size really matter?
No matter how small a company is, big business principles
still apply. You’ve put on big boots, now fill them.
39
It is said that when being attacked by a wild
strengths. Small businesses are often more
animal, you should spread your arms and appear
flexible and offer a more personalised
as big as possible to scare the animal away.
service.
The business world is very similar. Your turnover
might not be “blue chip” just yet, but your
approach should be.
6. Strive to have a good reputation. Keep
up your quality standards and be vigilant.
5. Be innovative. The business world changes
every day. You need to change with it.
The countdown to success
10. Work Smart. Spend your time productively.
Come up with new ideas and ways to service
your clients, better your product offering, or
manage internal processes.
9. Constantly improve. It’s not just about
keeping up with your competitors, it’s also
about setting trends. Think about how you
can improve on the previous day and the
previous project.
8. Differentiate your business. Be unique.
4. Make a good п¬Ѓrst impression. Strive for
accuracy and quality the п¬Ѓrst time around
– you may not get a second chance.
3. Find a niche market for your products
and services. You can’t reach everyone,
so focus your efforts where they’re most
needed.
2. Listen to your customers. React to what
they say. It is because of them that you are in
business.
1. Plan for success. It helps you to define
Sell the benefits of your product or service,
your business concepts, estimate costs, pre-
and the emotion attached to it.
dict sales and control your risks. It tells you
7. Think big. You can take on bigger competitors head-on by focusing on your specific
where you are going and how to get there.
Make technology work harder for you
Business Contact Manager is an Outlook 2003
Big businesses use IT to make them more effec-
add-on specifically designed to help entrepre-
stage, revenue potential and probability of
tive, so why shouldn’t you?
neurs, sales people and employees in small busi-
closing so that you can maximise your sales;
nesses better manage their business contacts
The average office IT system is a bit like the
and sales opportunities in a single solution.
• see all your activities related to an account,
business contact or business opportunity;
• run reports to quickly filter and summarise
human brain – we only use a fraction of its func-
40
• see important information such as the sales
tionality. For example, if you have Microsoft
You can use it to:
information about your business contacts and
Outlook 2003 with Business Contact
• organise and access information about the
opportunities; and
Manager (included in Microsoft Office’s small
business and professional editions for 2003),
companies and individuals with whom you do
business;
• create personalised, professional-looking
email newsletters, as well as track the results
you have the equivalent of a high-tech black
• track your sales opportunities to manage your
of your email marketing campaigns so that
book with which you could be managing your
sales forecasts and meet your targets more
you know how many people opened your
client information.
easily;
messages and where they clicked.
7 Steps to “thinking BIG”
Step 1: Differentiate yourself by focusing on your unique capabilities.
Specialisation is the entrepreneur’s greatest asset.
Step 2: Can you describe what you do in 30 seconds or less? Ask
someone who doesn’t know what you do to listen to your pitch and
watch for signs of fatigue.
Step 3: Knowing who you are and what gets you excited will help you
reach your goals. Delegate the tasks that you п¬Ѓnd yourself putting off.
Grow your capabilities in line with your interests and expertise.
Step 4: Map your capabilities with your target clients’ needs. List the
criteria that you expect your clients to use when choosing a provider in
your industry. Then rank yourself (honestly!) in each category. Is your
30-second “elevator pitch” still on target?
Step 5: Choose a marketing strategy that suits your personality and the
customers you serve. Identify the two most successful marketing tools
you’ve used in the past and add new ideas for a fresh perspective.
Step 6: Establish goals that can be reviewed at three and six months,
and specific actions that you’ll do every day to help you meet them.
Keep checking to see if you’re meeting your goals. If not, ask why.
Step 7: Complete the daily actions, and then do something extra to
accelerate your success plan. Don’t let unplanned tasks waste precious
time, and most of all – enjoy the process!
Client information is the heart and soul of a
For more information on Microsoft Outlook with
company, and forms the foundation upon which
Business Contact Manager, and special offers
all new systems are built as a company grows. It
and tools to help grow your business, see
pays to manage it properly from the start.
www.microsoft.com/southafrica/smallbusiness.
Look big while
working small
• Know your subject matter. Know
the market you’re working in. Read
newspapers, browse the Internet. Stay on
top of your business.
• Behave big. Research and organise
plans that translate well on the outside.
Look professional and act the way you
want to be seen.
• Step into your customers’ shoes.
Think about how you would want to be
treated. Set a standard and stick to it.
• Time for an upgrade? Examine
your business. What makes you look
small? Are your signs unprofessional?
What about your telephone manner?
Your letterheads and business cards?
Remember if you buy cheap, you look
cheap.
• Believe that you deserve good
things. Your confidence is reflected in
your actions and is noticeable.
41
42
High-end
marketing on a
low-end budget
Image is everything
Don’t be afraid to try doing it yourself. A
lot of the software already on your system
is sophisticated enough to enable you to
create high-quality, professional marketing
materials. For example, Microsoft
Publisher 2003 offers:
The corporate image of a business literally refers
• Leadership. Does your image reflect knowl-
to the way it is perceived or seen by members of
edge of the marketplace and the ability to
the public, customers and clients, business part-
conduct business in a way that has earned
Your image is like the weather. People notice it
when it is extremely good, or extremely bad.
ners, suppliers and competitors. It is reflected on
far more than just your company stationery – it
• a comprehensive selection of new
business publication wizards, such as
the Easy Web Site Builder and the E-Mail
Newsletter wizard;
is part of everything you do.
• an expanded collection of templates,
including personal stationery sets and
professionally-designed greeting cards
and invitations;
image, and evaluate which are (or are not!)
• automatic merging of pictures and
text from a data source (like Excel or
Microsoft Access) to create publications
ranging from a datasheet to a
sophisticated catalogue; and
• multiple publishing capabilities – you
can print a single publication to your
desktop printer; take it to a commercial
printer; save it to the web; or send a
single page in an email message or the
entire publication as an attachment.
the respect of others in the п¬Ѓeld?
• Innovation. Does your work and your
marketing reveal you as a creative company
that is able to meet consumer needs with the
Consider the following key aspects of corporate
newest and best products and services?
accurately reflected in your business approach:
Make a list of the attributes you feel should be
• Integrity. Do your products and presenta-
reflected in your corporate image, and a list of
tions show honesty, loyalty, determination,
the things that your company is definitely NOT.
strength, completeness, dependability?
Evaluate everything you do in terms of these
• Value. Does your marketing suggest that the
customer is going to get value for money?
attributes. You’ll soon start seeing things from
your customers’ perspective.
Nail down that business identity
When it comes to corporate image,
consistency is everything. But you don’t have
to pay an advertising agency to achieve it.
Software programs like Microsoft Publisher
2003, PowerPoint and FrontPage, have
sophisticated capabilities that allow you to
easily produce branded marketing material,
presentations and even your own website. For
assistance and training visit the Office Online
website at http://office.microsoft.com.
What is keyman
insurance and
do you need it?
One of the biggest risks in small business
is the fact that a company’s operations
generally revolve around one or two key
people, without whom the business cannot
continue. Keyman insurance is simply life
insurance on those key people.
Normally, a company purchases life
insurance on the key employee, pays the
premiums and is the beneficiary of the
policy. If that person dies unexpectedly, the
company receives the insurance payout.
Plan for it – and manage it
Risk is one of the most important, but often most ignored,
aspects of business growth, and planning for it is a must.
Risk is always present as it comes from both
or getting a product to profitability. The trick,
known and unknown factors. Risk in itself is
however, is to assess every area of your com-
not a bad thing – it is essential to progress and
pany, identify potential hazards and known risk
failure is often a key part of learning. It is an
factors, and then decide how you’ll deal with it
inevitable aspect of growing a new company
if and when it happens.
This payout helps to:
• cover expenses until a replacement is
found;
• pay off debts;
• distribute money to investors, if
necessary;
• pay severance to employees; and
• ensure the orderly closure of the
business.
43
Recovery:
conducting an
inventory
44
Be ready to react quickly in the face of
disaster – regardless of the cause:
• Make a preliminary list of all damaged
property and the degree of damage to
each item.
• Take photographs, videos, etc, of the
damage.
• Check this list against any list of
property and possessions you may have
made before the disaster occurred.
• If a pre-disaster inventory list was not
developed, make one from memory and
observation as soon as possible.
• Draw floor plans and sketches of your
business interior. Repeat this process
in two to three weeks. You are likely to
remember additional items.
• Collect all available receipts, cancelled
checks, credit card statements and
invoices to prove the value of lost
possessions.
• Do not consider your list final, you may
remember additional items later.
• By conducting an inventory you are
making sure your insurance company
pays you fairly for all covered property
and possessions that were damaged or
destroyed in the disaster.
Typically, risk comes from the following areas of
In assessing business risks, take a complete
business:
view. In other words, consider the present and
• Finance (eg, poor cash flow, bad debt,
future, from both a local and global perspective.
exchange rate).
• People (loss of key staff, inadequate skills or
training).
• Technology (technical failure, loss of data,
security).
• Changes in the market (disruptive technologies, a shift in customer needs).
It is estimated that with no tested plan in place,
up to 86% of small/medium-sized businesses
fail within three years of a major incident. Have
a proper contingency plan in place and allocate
the necessary time, staff and funds to prepare
for the possibility of emergencies.
• Growth of competitors (new competitors or
competitive products/services).
• Natural disasters (companies with all their
Use the following п¬Ѓve steps to guide your risk
management process:
resources in one place are at more risk
1. Assess continuously what can go wrong.
than one which has branches spread across
2. Determine what risks are the most important.
different regions).
3. Implement strategies to deal with those risks,
• Social threats, eg, terrorism (loss of life,
property/equipment, loss of business).
• Loss of utilities and services (power failure,
petrol shortages, no public transport).
including a back-up plan.
4. Test these plans and strategies.
5. Train your staff to constantly look out for the
top few risks to monitor.
The risk check-list
Working environments can pose risks that
lead to health and safety problems and a
drop in productivity. Check your business for:
loose cables; wet, slippery floors; poorly-lit
areas; lack of adequate ventilation; improper
handling and disposal of chemicals; faulty
electrical equipment; unsafe ladders and
scaffolding; poorly-designed workstations;
lack of sufficient rest breaks; and a lack of
appropriate, well-maintained protective wear.
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I received this copy of Small Capital:
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in the post from MWEB Business
in the post from Microsoft SA
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while in a waiting room/reception area
Other (please specify):
Would you be interested in small business
workshops hosted by the sponsors of Small
Capital? (See overleaf.)
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Series 1:
what you missed …
46
1. Overview and growth of the SME
business.
2. Personal assessment.
3. The game plan to success – successful
business plans & strategies.
4. Managing your п¬Ѓnances.
5. Considering BEE issues as part of your
business strategy.
6. Marketing your business.
7. Selecting and managing your people.
8. Choosing effective business resource
partners.
9. Reducing the risks to your business.
DON’T miss the next Small meets BIG
roadshow in September this year.
Content to be covered will include:
• BEE and small business: resolving issues.
• Growing your company to the next level.
• Case studies of successful companies.
• Financial support for small businesses.
• Successful marketing.
As part of the Real Business partnership,
accessible setting. Modules include practical
Business Day, MWEB Business, Microsoft SA and
information, case studies and examples on how
Standard Bank host a series of workshops in
to fine-tune your business for more efficiency
major centres countrywide for small and medium
and better profits.
business owners. These workshops aim to provide professional business training and coaching
The п¬Ѓrst series of workshops was held in April
by expert business trainers in an informal and
this year, with a second planned for September.
What attendees thought ...
• Over 400 people attended in Durban,
Johannesburg and Cape Town.
• 90% of attendees said they would attend a
next session.
• Attendees gave the workshops an average
quality rating of over 80%.
For more information and details of other small
business events, keep an eye on www.microsoft.
com/southafrica/smallbusiness.
Where to learn more
Small business resources
Your small
business partners
www.realbusiness.co.za
47
Please note: the Real Business partners do
www.dti.gov.za/startingabusiness/
not endorse the following resources in any way.
tradeandinvestment.htm
These are intended as information reference
The dti Trade and Investment Development
points only. For other general training and online
Programme provides different types of training
resources for small business in South Africa,
and assistance for small businesses.
please see Small Capital Issue 1 March 2005.
www.idc.co.za
Also see the Real Business printed
supplement in Business Day on the third
www.kaizen.co.za
The Industrial Development Corporation
Monday of every month.
Kaizen Business Education Centre, offering
(IDC) focuses on contributing to economic
a variety of business and marketing degrees,
growth, industrial development and economic
www.mwebbusiness.co.za
diplomas and certificates. Tel (011) 453-9930;
empowerment through its п¬Ѓnancing activities.
MWEB Business sales: 0860 100 127
fax (011) 453-9892; email [email protected].
www.smeafrica.co.za
(email [email protected])
www.microsoft.com/southafrica/
A service and an online database tool that
www.microsoft.com/southafrica/
solutionware
enables corporates in South Africa to fully
smallbusiness
A directory of Microsoft-accredited software
address their BEE procurement requirements.
0860 225 567
vendors, products and services.
www.enterprisezone.co.za
(email [email protected])
www.dti.gov.za/growingabusiness/
The website for a small business TV broadcast
www.standardbank.co.za
industrysectororganisations.htm
on SABC 1.
0860 012 345
A list of industry sector organisations for at least
(email [email protected])
30 industry sectors in South Africa.
www.sacob.co.za
www.businessowner.co.za
www.smesurvey.co.za
Market and local business news, from the South
News, information and resources for owners and
Brought to you by Standard Bank, MWEB
African Chamber of Business.
managers of small businesses in South Africa.
Business and Microsoft, SME Survey 2005 was
launched on 1 March 2005 and will continue
48
www.jcci.co.za
www.espn.org.za
until the end of the year. Participate by visiting
The website for the Chamber of Commerce and
Access to a range of value-added products and
the website or contact the call centre on
Industry.
services for small and medium-sized businesses.
0860 444 240.
www.indevco.co.za
www.gsb.uct.ac.za/cie/
www.labournet.co.za
Industrial Development Consultants, providing
The UCT Centre for Innovation and
Labournet is a privately-owned consultancy
consulting services relating to incentive schemes
Entrepreneurship at the University of Cape
that provides employment law, legal cost cover,
and grants.
Town’s Graduate School of Business.
payroll, employee benefits, staffing placements
and HR outsourcing services. LabourNet
www.uyf.org.za
www.gemconsortium.org
Umsobomvu Youth Fund portal, including
The Global Entrepreneurship Monitor, offering
information on entrepreneurship and starting
entrepreneurial research, policy and impact
www.actionwise.co.za
your own business.
across the globe.
Business and management enhancement
Helpdesk: 0861 522 638 (LABNET).
training, case studies and queries.
www.ofbnetwork.com
Open For Business – a website offering
entrepreneurial advice and information.
www.thebigidea.co.za
www.bentrepreneuring.com/
www.info.gov.za/issues/govtprog/
The Big Idea runs a series of interactive and
BEntrepreneurING comprises a network of
start.htm
practical conferences, workshops and interactive
associates who, among other things, provide
Information on setting up a business, п¬Ѓnding
CDs that assist entrepreneurs in growing their
business boosting projects or ongoing support.
business partners, contact details for support
organisations in your area, franchises,
businesses.
www.smallbusinessowner.co.za
www.regus.co.za
Opportunities and information on small business
Regus provides office space outsourcing options
issues in South Africa.
and advice, ideal for both small business owners
mentorship, etc.
www.franchiseworld.co.za
Contact details, opportunities and news about
www.bni.co.za
franchises. An interactive Entrepreneurial insight
Business and professional networking
quiz assesses your suitability to becoming your
www.masemola.co.za
organisation for dedicated small businesses and
own boss.
Business registrations, management courses and
entrepreneurs in South Africa.
and multinationals.
www.businesspartners.co.za
consulting services.
www.paralegaladvice.org.za
Invests in formal small and medium enterprises
www.bizplans.com
Information and contact numbers for assistance
and provides mentorship, consulting and
Tools for writing business plans.
in small business law.
property broking and management services.
Produced by Words’worth (011) 381-7700
issue two June 2005
The Small Capital practical guide is proudly brought to you by: