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 ﬁnd 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 ﬁnance 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; ﬁnancing 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, ﬁgures 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 damage) which loss, damage, costs, expense or injury results from a reader or other third party, utilising any Material herein. us your details and we’ll 45 Send put you on the Small Capital mailing list to receive future 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), ﬁnd 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 ﬁnancial publications and How to ﬁnd 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 ﬁt 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 ﬁnd 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 ﬁnding a new Fixed costs. These costs remain the same regardless of your level of sales. Because they are not directly linked to sales, ﬁxed costs have to be recovered by spreading them across all sales transactions. Examples of ﬁxed costs include rent, interest on debt, insurance, equipment expenses, business licences, salaries of permanent workers. Combination costs. Some costs are a combination of ﬁxed 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 ﬁnd 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 ﬁnite, the only advice here is place: that old cliché: 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 ﬁrst 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 ﬁle 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 ﬁed 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 ﬁnd 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 ﬁsh, but where do you ﬁnd 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 ﬁrst 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, ﬁnancial 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 ﬁnd 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 ﬁnance the working capital out of their own pocket. Most people wanting to buy a franchise approach a bank as a ﬁnance 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 franchising@standardbank.co.za 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 ﬁerce. 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 ﬁrst 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 ﬁnancing: leveraged and contract. Leveraged ﬁnance 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 ﬁnance is provided when small and medium-size BEE businesses (BSMEs) are awarded contracts by a corporate or government, but are unable to access ﬁnance as a result of a lack of security and/or equity. For more information on BEE ﬁnancing 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; ﬁnancial 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 ﬁnanced 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 ﬁnd 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, ﬁnd 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-ﬁts-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 ﬁguring 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 ﬁrst. 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. ﬁrst 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 ﬁnding 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 ﬁve 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 ﬁre a customer Some customers just aren’t good for business, but ﬁring 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 ﬁnances, 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 ﬁrst • 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 ﬁnancial 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 ﬁxed 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 ﬁrst-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 ﬁciently 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 ﬁnance 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 ﬁgures. 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 ﬁnancial 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 ﬁnance. 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 ﬁnancing. that several institutions will ﬁnance 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 ﬁnancing (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/ﬁnancing.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 ﬁnance 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 ﬁrst-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 ﬁnally 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 ﬁrst, 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 ﬁnances 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 ﬁve years. Financing a purchase Standard Bank offers two main mechanisms for ﬁnancing 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 ﬁnance 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 ﬁrewall, 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 ﬁgures 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 ﬁve 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 ﬁlms 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 ﬁrst 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 ﬁrewalls 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 ﬁles 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 ﬁrewall is your ﬁrst line of defence. don’t use server software. As a small business Overall defence. Ensure that employees who owner you should consider a ﬁrewall 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 ﬁrewall is a box that sits between on them, and make sure they lock their ofﬁces. you and your Internet connection, and ﬁlters 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 ﬁltered trafﬁc from getting through to your operating Need a ﬁrewall? 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 ﬁrewall/Internet Connection Firewall). to spread spam or viruses. Either way, a ﬁrewall For details see www.microsoft.com/athome/ can prevent this. security/protect/ﬁrewall.mspx. Simply put, a ﬁrewall works by inspecting every However, more advanced ﬁrewalls 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 ﬁrewall 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 ﬁnances over the Internet. • Once you have registered for Internet banking, download the free ﬁrewall 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 ﬁrst impression. Strive for accuracy and quality the ﬁrst 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 ﬁnd 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 ﬁeld? • 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 ﬁve 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. Don’t miss out … Join the Small Capital mailing list today Subscription details Full name Company name Postal address Do you run a small business in South Africa? Did Send the information opposite via email to: you ﬁnd this issue informative? If so, ensure you smallcapital@qualitywords.co.za, or post it to don’t miss out on future editions by sending us Small Capital, PO Box 780, Melville, 2109, or fax your details. We’ll put you on the Small Capital it to (011) 381-7710, or visit www.qualitywords. mailing list to receive any future editions for FREE. co.za/smallbusiness and subscribe online. 45 Email address Type of business Number of employees Region of operation (head ofﬁce) I received this copy of Small Capital: in Business Day from a Standard Bank branch in the post from MWEB Business in the post from Microsoft SA from a friend 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.) Yes No Would you like to receive additional information from the sponsors (ie, Standard Bank, MWEB Business, Microsoft SA) that would help your business? Yes No 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 ﬁnances. 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 ﬁrst 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 ﬁnancing activities. MWEB Business sales: 0860 100 127 fax (011) 453-9892; email kaizen@icon.co.za. www.smeafrica.co.za (email business@mweb.com) 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 mssatalk@microsoft.com) 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 information@standardbank.co.za) 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, ﬁnding 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: