Things you should know when starting up a new business.

Step one:

Do you have a viable idea?

How do you know if your idea is viable? Well, honestly, you don’t always know for sure. It helps to take a step back, and be completely honest and objective with yourself, and ask yourself a couple of questions:

  • Does anybody need (or want) what we’re going to be selling?
  • How big is the need, or what is the demand and how high is the supply?
  • How badly will people want it? (Extensive market research will come later.)
  • Will your target market be willing to pay for it? Be honest with yourself, it will only prevent you from making a mistake you will regret later. Friends should not be your source of approval; they will say anything as they want to see you happy. You need to go to your target market and ask them.
  • Are they paying for something similar, now, already?
  • Do you honestly believe that if they are already paying for something similar that they will rather buy yours? Why? What will you do differently?
  • What will you focus on? Do you have a strategy, or are you planning on grabbing anything that comes your way and doing everything for everybody?
  • These, I know, are hard questions to answer truthfully but I believe they need to be answered before you commit because statistics show that up to 85% of new start-up businesses fail in the first 2 years. There are several common reasons for the high rate of business failure in South Africa:

Starting as a survivalist venture

This is one of the main reasons for the premature failure of small businesses in South Africa. It is almost inevitable for them to fail because their owners do not have the skills, experience or resources to build a sustainable business.

Sometimes you will find entrepreneurs who have a passion for business and more capital available, still struggle to build sustainable enterprises because they don’t have the basic training to become a successful entrepreneur.

Poor Planning

Many potential entrepreneurs who have no formal business training tend to ignore the vital step of developing a business plan. As a result, they do not have a realistic grasp on the costs, responsibilities and of the short/medium and long-term requirements of a business.

Access to finance

Many start-ups get financial support from family and friends. However, as many business owners do not plan correctly, they often find that the money runs out and that they need to subsidise the business. Costly trial and error in the use of capital often results in business failure and/or family rifts. To be a successful entrepreneur one needs to surround oneself with people that can help your company grow and support your own weaknesses. No one is the full package. You need to focus on what you are good at and then add to your team what you are missing. “All Things Bookkeeping” can help you with this. Bookkeeping is the pivot point for any business. Having your books up to date will allow you to have your finger on the pulse of your business at all times. It will tell you where you are financially at any given time. It will allow you to see if you are making money as well as if you are losing money. It will give you the opportunity to react quickly and allow quick adjustments to be made to ensure success.

Passion is no substitute for experience

Although passion is good and drives us it is no substitute for a lack of management experience and training. This could result in new entrepreneurs not fully coping with the range of responsibilities within a business. You need to be the leader at all times and this also means knowing the health of your business. Successful people surround themselves with successful people.

A lack in financial expertise

Many entrants do not understand the financial requirements of a business or the VAT, tax, costing, financial controls and other obligations that are part of the business mix. Here again All Things Bookkeeping can assist you with all your business Admin/Consultancy and Bookkeeping needs.

Poor stock and cash flow management

The link between stock on the shelves and the costs attached to having too much, too little or incorrect stock on hand is not good and needs to be addressed quickly in your business. Poor stock control can cripple a business. Processes and procedures need to be put into place to ensure the health of your business.

Failure to differentiate between company and personal accounts

Using the company account as a personal account leads to confusion regarding the true costs and profitability of the business. This is further complicated by poor record keeping.The bottom line is that people enter business to make money, but are not properly equipped with the knowledge required to manage cash flowing in and out of the business. Failing to plan correctly and manage budgets simply leads to errors and business failure.

Filling in the knowledge gaps, and then taking steps to keep operating costs down, controlling payment terms and tight control of credit can go a long way to reversing the current business failure rate. Again everything we can assist you with to ensure your business flourishes and becomes the business you have always dreamed of.

(keep an eye out for the next steps to follow)