Epic Solutions

FAQs

Glossary of Terms Planning & Managing

Frequently Asked Questions

These are some of the main reasons for starting your own business.

· You have a trade or special training and you want to work for yourself.

· You have an idea for a new product or service which you think people will buy.

· You want to own your own business and feel that you have the necessary ability to be successful.

· You need to earn an income but cannot find a job.

Here are some suggestions to help you make this decision.

· Do you have a trade or formal training that could be turned into a business?

E.g. motor mechanic, hairdresser, bookkeeper.

· Are there things you are good at which you can offer to do for other people?

E.g. sewing, carpentry, cooking.

· Are there any goods or services which are not available in your area? Could you supply those goods or services?

· What businesses are doing well in the shops and markets in your area?

Think about opening the same sort of business.

Answering these questions may help you to make this decision.

· What products interest you?

· What products do you have the knowledge and skill to make?

· What products do you know a lot about?

· Are there people you know who can supply you with products to sell?

· What products are not available in the shops and markets in your area?

· What products are being sold successfully in your area?

Please refer to FAQ No 2 for further suggestions.

Please refer to FAQ No’s 2 and 3 for some suggestions.

· You must have decided what goods or services you are going to sell and who you are going to sell them to.

· You must have enough money to pay for the following –

a. Any equipment you need for the business;

b. Your first stock of products to sell or your first raw materials to start manufacturing;

c. The deposit on the premises you want to rent;

d. All other business expenses for the first few months (Aim for three months if possible).

· If you plan to work from home, you must make sure that there are no municipal regulations which will stop you doing so. For example, planning to open a boat building business in your front garden might not be allowed.

· You need to do a business course to help you understand how business works.

In most cases there are no legal requirements, but you do need to have a licence to sell certain products. Enquire at your municipal offices for details.

Enquire at your municipal offices or on the internet.

This is a personal choice but the name should reflect what your business does.

There is no legal requirement to do so but it is recommended for the following reasons.

· Security – Keeping cash at home is not safe.

· Savings – You need somewhere to save the money you want to pay out at a later date.

· Getting loans in the future – It is important to build up a history with the bank so that if you ever want to raise a loan, they know about you.

Business Tip: Bank charges can be expensive. Whenever possible pay your suppliers in cash but always insist on getting a receipt.

a. Retail: You buy goods made by other people or other businesses and sell them to the public.

b. Manufacturing: You make the goods yourself and sell them to other businesses or to the public.

c. Services: You perform a service for other people or businesses such as carpet cleaning, electrical repairs, hairdressing, driving lessons.

a. Retail

· Choosing the wrong position or area for your shop;

· Choosing the wrong goods to sell;

· Buying too much or too little stock;

· Your suppliers run out of the goods you need.

b. Manufacturing

· If you work alone, you may be limited in the number of products you can produce;

· You have to find the money to buy the equipment and raw materials needed to make the products before you can start selling;

· You make goods that do not sell e.g. in the wrong colours or sizes;

· You buy too much or too little raw material.

c. Services

· You have to find the money to buy any equipment needed;

· You are selling your time so you do not earn anything if, for some reason, you cannot work (e.g. because you are ill);

· The only way to expand your business is to employ staff.

In all three cases you have the benefit of being your own boss.Other benefits are:

a. Retail

· Because the products are ready to sell when you buy them, profits can be made very quickly.

b. Manufacture

· You can make your products look different to other peoples.

· You may be able to work from home until your business grows big enough to rent premises.

c. Services

· Service businesses have lower overhead costs than other types of business.

· You may be able to work from home.

Start-up capital is the amount of money you need to get your business going. It has to be sufficient to pay for all or some of the following:

· Deposit on premises;

· Equipment / Shop fittings;

· Goods to stock your shop / Raw materials to use;

· Overhead expenses for at least three months.

Working capital is money needed to fund the normal, day to day operations of your business. It ensures you have enough cash to pay your debts as they fall due and to buy the products or raw materials you need for the business.

Refer to the Glossary for working capital calculation.

This depends on what you are selling / making.

· Perishable foodstuffs – buy fresh as often as necessary depending on your sales.

· Seasonable products like women’s clothing – plan to sell out by the end of the season.

· Goods that sell all year – calculate how many you sell each week / month and plan accordingly. It is essential to make sure that your suppliers always carry stock of the products you want or, if not, how long it takes them to get new stock in.

Proper stock control is difficult in the beginning but gets easier as you go along and get more experienced.However, it is an essential part of your business and can often mean the difference between success and failure.

There is really no such thing as a “general” mark up as this differs from business to business and from product to product.

See Glossary of Terms.

The basic formula for working out selling price is common to all businesses.

Cost of Sales + Mark Up = Selling Price

However each type of business (retail, manufacturing and services) uses different methods of calculating Cost of Sales (also known as Cost of Goods).

Please refer to Glossary of Terms for further details.

· You must be sure that you have sufficient working capital (See Glossary) to pay your staff on time each week or month.

· You have to draw up a contract for each member of staff stating basic pay, the type of work they will be doing and working hours. For all other conditions, such as overtime rates, annual and sick leave and firing procedures, it is best to use the Basic Conditions of Employment Act as your guide.

· You have to register as an employer with SARS (See Glossary) for UIF and PAYE.

· For casual labourers who work for less than 24 hours in a month, none of the above applies.

No, but this depends on the type of business entity you have decided to use for your business. See Glossary for Types of Business Entity.

For running your business they are not important at all especially letterheads because, these days, most correspondence is done by email. But for marketing purposes a business card or a flyer to hand out to people telling them what you are doing and where to find you, is essential.

The answer to this question is “Yes” but sometimes “No”.

· No – If, for example, you are selling fruit in a market, you do not have to issue a receipt unless one is requested by the customer. Then you have to do so.

Business Tip: Keep a small duplicate book close at hand for this purpose.

· Yes – In all other cases.

This does not mean you have to keep a formal receipt book. The following documents are acceptable as receipts.

– Till Slips. These are the most common form of receipt.

– An invoice (handwritten or more formal) with the word “Paid” written on it.

Please note there are several cases where receipts are essential.

– When you require your customer to pay a deposit before work begins.

– If you are selling using the Lay-By system.

The amount of money coming into the business from sales and other sources minus the money paid out for whatever reason.

These are examples of some of the most common overhead costs.

Bank Charges

Cleaning

Electricity

Packing materials

Insurance

Rent

Repairs

Salaries (not those associated with Cost of Sales)

Owner’s Salary

Staff Refreshments

Stationery

Telephones and cell phones

You have to save in the good months so that there will be enough money to pay your expenses in the bad months when sales figures are down.

Use this simple method to help you decide how much you should save.

a. Calculate the total cost of your monthly overheads (See the list in FAQ No 24 above). Use averages for expenses like telephone and electricity.

b. Multiply the answer by three to give the total value of overheads for three months.

c. Add the cost of any other items which you know you will have to pay for during the next three months like buying extra goods to sell.

d. The final answer is the amount of money you should have in the bank. If you do not have enough then you must try to save towards it.

e. Do this calculation at the end of every month. It will help you make decisions about how to spend your money.

A break even calculation helps you work out how much you have to sell in order to make enough profit to cover your total monthly overheads. Please refer to the Glossary for details of the calculation.

Please refer to the Glossary for an explanation of these terms.

If you start off your business on your own, you are responsible for everything such as buying and selling products, working out selling prices, banking and bookkeeping.

You may find yourself having to work long hours every day of the week.

Business Tip: Make sure your family understands and accepts this.

Because you have included a salary for yourself when calculating your overhead expenses and in cost of sales if you are a manufacturer, you should be able to pay yourself something right from the start. But, always make sure that you have enough money to buy your next lot of stock (goods to sell or raw materials to make products) before you pay yourself.

Work out how much the business can afford to pay you while still keeping enough money back to buy you next stock.

Later on as the business begins to grow and make bigger profits, find out what it would cost to replace yourself with someone who has the same skills as you. Use this figure as a guide when working out a salary for yourself.

Avoid selling on credit for the following reasons:

· You have to wait for your money which you need to run the business.

· There is a lot of extra work involved in selling on credit.

· You may never get your money.

Business Tip: Before you open your business, think through your business rules. One of them should be not to sell on credit. Have this rule printed and stick it up where the customers can see it. For example –

CASH ONLY – NO CREDIT

Avoid selling on credit but, if you have done so and customers have not paid, you will have to ask a lawyer for help.

Business Tip: Lawyers can be expensive so it may be cheaper to write the debt off – this means you have lost the money owed to you.

This is very important. Happy customers will come back again and again. But be careful. If a customer wants to buy on credit you have to politely but firmly say “No”!

· Manage your shop yourself. Be there as often as you can and get to know the customers.

· By supplying excellent quality goods and services at a price the customer can afford.

· By being reliable and keeping your promises as far as delivery dates are concerned.

· By providing friendly, efficient service.

All of these are important but honesty in dealing with your customers is essential. Customers who know they are being fairly treated will become loyal customers.

· Listen carefully to the customer’s complaint then, to make sure that you both understand the complaint, repeat the customer’s words back to them. Be very polite while doing this.

· Next, if the customer is very important to you, explain that what they are asking you to do is against your business rules but that you are prepared to make an exception this one time.

· But if this is a casual customer, firmly and politely explain your business rules and stick to them.

· Listen carefully to the customer’s complaint then, to make sure that you both understand the complaint, repeat the customer’s words back to them. Be very polite while doing this.

· Explain that what they are asking you to do is against your business rules.

· Refuse, firmly but politely, to supply them with goods or to give them a refund whichever is the case.

Yes – guarantee your product or service for the correct use.

Business Tip: Before you open your business think through your business rules about matters like refunds and guarantees. Have these printed and, if possible, display them where customers can see them. For example –

REPAIRS GUARANTEED FOR THREE MONTHS

Yes – but only on foodstuffs and other perishable goods like cosmetics.

If you are making perishable goods you will have to do this by testing your products to see how long they stay fresh. Ready-made foodstuffs, liked tinned goods, will already have sell-by dates provided by the manufacturers.

This depends on the type of business entity you have chosen for your business.

If you are a sole trader or you are in partnership with someone, the monthly salary paid to you by the business plus your share of the profit are added together and taxed at the same rate as an ordinary salary. If this figure is below R60000.00 in a year, no tax is payable.

Business Tip: When your business starts to grow, it would be wise to get advice from an accountant to help you with tax matters.

· Not enough sales to earn the profit necessary to pay for the businesses expenses.

Poor sales figures can be caused by

– Choosing the wrong position for your business;

– Choosing the wrong products to sell;

– Products are too expensive;

– Quality of products is not good enough.

· Not enough working capital to keep the business going during difficult trading times.

· Owner taking too much out of the business when sales are good.

· Look at your overhead expenses – can they be reduced?

· Look at your selling price calculations – are they correct?

· Can you buy your products / raw materials at cheaper prices?

· Try to increase your sales.

· Take a business course so you know what you are doing.

· Set all your business rules before you open your business such as payment terms, refund and guarantee policies, then stick to them whenever possible.

· Aim to provide excellent quality products at a price your customers can afford.

· Choosing the correct and best products to sell.

· Deciding how much of each product you should buy / make.

· Planning and controlling the use of your cash.

· Starting with too little working capital.

· Buying too much stock. For example, it is better to sell out and have to buy new products in the latest styles and colours than to be left with old stock at the end of a season.

Business Tip: Be careful when you are offered specially low prices if you take large quantities of a product. These deals sound very good at the time but you might find yourself left with unsold stock.

· Buying / making the wrong type of product because you have not assessed your customer’s needs correctly.

· Selling on credit.

· Finding that your lease is not renewable and that you will have to move out at the end of it. Always check your lease very carefully before you sign it.

· Expanding too quickly before you are ready – this includes taking on too many staff.

· Taking too much cash out of the business when sales are good making you short of working capital when things go wrong.

· There can only be one boss. It is difficult for members of the family to accept this. This leads to fights and arguments which are not good for you or your business.

· If you employ a family member and it turns out that they are not right for the job, it is difficult to fire them without causing trouble in the family.

Business Tip: Ideally your spouse and/or family members should have a job so that they can earn a salary while the business is developing.

Your monthly financial statements will give you this information but an easy way to tell is to look at your bank balance. If you are successful there will be money in the bank unless you are taking out too much for your own use.

· You should have an informal marketing plan in place before you even open your business. Tell everyone you know (family, friends, neighbours) what you are doing, where you are doing it and when you will open.

· Satisfied customers are the best advertisement – do everything you can to provide excellent service.

· If you are offering a service like window cleaning, you need to have business cards or flyers ready to hand out and put in people’s letter boxes. As soon as you can afford it, place advertisements in the local community newspapers.

A more formal marketing plan can be put together when your business is more established and there is money available.

When customers ask for goods that you you can obtain or when you see a gap in the market.

Keep an eye on what your competitors are doing. Keep up-to-date with what is happening in your type of business by talking to your suppliers and wholesalers. Improve the goods you are making and add that little bit extra to make them different.

· Manage the business yourself – be there as often as you can and let the customers see you and get to know you.This makes them feel special.

· Do not let your standards drop – be consistent in providing the best quality and service at good prices.

· Work as hard as you can to make the business succeed.

This is difficult and planning is essential.

· Home: When you first start up, keep enough money to buy your next lot of stock (goods to sell or raw materials to make products) and to pay for any expenses that are coming up. What is left can be taken as salary.

Once the business starts to grow and make bigger profits, pay yourself each month as though you were a member of staff. Whatever money you have left after paying yourself can be used to grow the business.

· Business: Once you have calculated what you need for working capital, you have to work as hard as you can to ensure that the business makes enough profit to supply the cash you need.

· Savings: Please see FAQ No 25.

This depends on the type of business entity you have chosen for your business.

For sole traders and partnerships SARS stipulates five years.

· A financial statement is a document which you draw up showing the following financial information.

– Sales

– Less Cost of Sales

– Less Overhead Expenses (these should be listed in detail by type of expense)

· The final answer gives you your profit or your loss.

· You need to do one every month otherwise you will not know whether your business is successful or if something is going wrong.

It is sometimes very useful to start up business with a partner. For the following reasons;-

· The partner can bring in extra working capital;

· The partner can take some of the work off you;

· You can take sick leave, if necessary, and there is someone to run the business while you are away:

· If you and your partner are good friends, it can add to the fun of running the business.

But take care because both partners are responsible for the decisions made on behalf of the business and many problems can arise so choose your partner carefully. These are some of the problem areas.

· You and your partner have different ideas on how to run the business or have different standards;

· Your partner turns out to be lazy;

· The partner’s family interfere.

This is what is involved.

· You do not have to register a partnership.

· You must have a good partnership agreement drawn up before you start the business.