This year may be
the year you seriously consider starting your own business in South Africa.
Daily, the news is bleak for the country and stories of retrenchments and youth
unemployment figures make for depressing reading.
Do you have what
it takes to make a success of running
your own business? Where do you start and how much capital do you need? We answer these questions and
others in this guide to how to start a business in South Africa with almost no
you should start your own business in South Africa?
The South African economy sunk into a technical recession in the fourth quarter of 2019. It’s expected to recover slightly in 2020 but economists warn us growth is likely to remain subdued for a while longer. Fiscal challenges remain high in South Africa and will only worsen if Eskom’s problems drag the country down deeper in a financial quagmire.
Industrial production hit an all-time low in October/November 2019 which is attributed to output decline in both the mining and manufacturing industry. December’s unexpected rolling power blackouts did nothing to help the situation.
published by The
Citizen in August 2019 highlights a few obstacles that came to a head in
2019 and stand in the way of real growth in the future:
- economic growth is low or
- tax revenue collection is
repeatedly below forecasts
- debt levels have risen rapidly
and are now at their highest levels in the post-apartheid era
- poor performance of state-owned
enterprises have necessitated large-scale government support
that a downgrade of government debt to ‘junk status’ by a third-ratings agency
would potentially lead to an outflow of investment and exacerbate matters
further. This fortunately has not happened yet but economists are expecting the
On the domestic
front, household spending was quiet in the fourth quarter of 2019 and didn’t
provide the necessary boost to prop up the economy. This is largely due to
lingering pessimism that encourages spenders to pull in their purse strings as
well as a cloud of gloom that hangs over the heads of the working force who
fear the threat of retrenchment or have been retrenched.
announced thousands of job cuts in January before we had even put away our
Christmas decorations. There is much debate as to whether the official
unemployment rate is 25% or 12% but regardless, it’s high and looking like it’s
on an upward trajectory rather than one going down.
reports its analysts see growth at 1.0% in 2020. This is down 0.1 percentage
points from its forecast at the end of 2019. At best, the analysts expect
growth to creep up to the 1.4% mark in 2021.
There’s no doubt
that South Africa’s economy is woefully frail. It’s not terminal and the
country has a history of rising to the challenge when faced with bleak
prospects. However, economists warn us that South Africa is fast running out of
time to fix its problems.
The question is
do you stay in the formally-employed workforce or do you take the risk now to
start your own business? By all accounts, there’s a risk to both.
risky is it to start a business in South Africa in 2020?
It’s a bit easier to start a business in South Africa if you’re an overseas investor with a lot of money. It’s a real challenge for locals to start a business in South Africa with little or no money. It’s not impossible if you venture into this space with due care and consideration.
statistic that continues to do the rounds is at least 80-90% of all new
start-up business fail within the first two years. Of the remaining 10-20%, up
to 80% fail in the following three years. The 2-4% that survive the first five
years will in all likelihood be successful and stay in business for a long
Why do some
start-up businesses in South Africa keep their doors open and others find
themselves out of business? This question has been the basis of hundreds of
studies and no-one really has come up with the magic formula. The trick is to
do whatever it takes to ensure your business starts on the right footing and
continues to grow in the right direction.
There are a few
factors to take seriously if you plan to start a new business in South Africa.
- Carefully select a product or service mix that is needed.
- Carefully select the right location for your business.
- Carefully select a bank that supports small business enterprises
- Ensure you have enough money to start the business and keep it going
in tough months
- Have a clear plan of who your customers are and how you are going to
- Adopt a marketing plan that clearly positions your business in the
right place and in front of the right people
- Commit 100% to your new business
- Start small and grow your
business on a steady but sure basis
start-up businesses fail
don’t bode well that a start-up business will survive beyond the first 2 years.
Don’t let that put you off though. One way to make sure your business is a
success is to study where others have failed.
Here are the top 6 reasons businesses fail and what you can do to avoid falling into that trap:
1. You are not mentally prepared or motivated to run your own business
You need to commit 100% to your
new business from the first day. You can’t be a ‘part-time entrepreneur’ with a
full-time business. It requires all your energy, self-belief and motivation to
make it work and keep your doors open.
Ask yourself… do you have what it
takes to be an entrepreneur or do are you better off working for someone else?
2. You don’t have a good understanding of business
Too many people start a new
business without really understanding the world of business. They have a great
idea but no idea how to bring it to the market, attract customers and grow
It’s worthwhile to find someone
who can coach or mentor you through the start-up process. There are also hundreds
of books available online and in stores that you can read to improve your
business acumen. Read as much as you can on how to run a successful business
and if possible, sign up for a part-time business management course.
You start your new business too soon
This means you are not fully
prepared and ready to start a new business. Don’t rush into it because you may find
yourself one of the 80% of start-ups who fail. Do thorough research and get all
the fundamentals in place before you take your new business to the market.
Develop a comprehensive business
plan, research your target audience and competitors and build a solid marketing
platform f social media and digital marketing. When all the prep work has been
done, you can open your doors to business.
You start a new business for the wrong reason
A big mistake to make is starting
a new business because you “want more freedom and time for your personal
interests”. A start-up business will consume all your time if you’re 100%
committed so don’t be fooled into thinking working for yourself will be easier
than working for someone else.
Other reasons like “I want to be
my own boss” or “I don’t want someone telling me what to do” can also come back
to haunt you. Running your own business is tough… it can be lonely, isolating
and hard work and some days you’ll find the pressure of making decisions solely
on your own very daunting.
You don’t ask for help
Pride before the fall… as they
say. Don’t be afraid to ask for help, preferably from business peers and
business coaches. A new business owner has to cover everything from finances,
sales, marketing, production, distribution etc. It’s unrealistic to think you
have the knowledge and skills for every aspect of your business so ask for
support and direction in those areas that you are weakest.
You work ‘in your business’ and not ‘on your business’
This means you are too inwardly focused on production, packaging, sales etc. and are not considering what is happening in the market. You need to consistently work on and adjust your business plan and marketing strategy to accommodate changes in the marketplace. Keep up your market research and strategic planning.
business or franchise: which is best?
The big question
is… do you have what it takes to start your own business in South Africa or is
it wiser to take the slightly more safer route and buy a franchise?
When you buy a
franchise, the franchisor provides guidelines and business systems that have
proven to be a success as well as ongoing mentoring and assistance. In return,
you pay a franchise fee.
said that franchises have a higher rate of success than start-up businesses,
mainly because the franchise owners have done the hard yards and developed a
formula for success. It’s also easier to get finance from a bank for a
franchise and the cost of setting up a franchise is often less than starting
your own business in the same market.
On the other
hand, owning a franchise doesn’t give you as much freedom and independence as
owning your own business does. And even though a franchise is easier to start
up, there is no guarantee it will be successful.
of buying a franchise
- you have the independence of
working for yourself but the support of a proven and successful business entity
- you receive ongoing training
and https://designerwater.co.za/wp-content/uploads/2016/05/Designer-Water-Alkaline-Water-500×500-1.jpgistrative support which means you don’t have to have extensive
experience in the business before starting up
- it’s easier to get finance for
a franchise and the finance offered tends to be less expensive than if you
borrow for a start-up business
- you have access to regional and
national advertising and digital marketing support
of buying a franchise
- you are bound by a formal
business agreement with your franchisor which dictate how you must run your
- your creativity and authority
is limited because you are restricted to the franchise’s strict way of doing
- your reputation can be badly
damaged by other franchises who offer bad service
- you have to share your profit
with the franchisor
- there is no guarantee the
franchisor will renew your franchise agreement at the end of the franchise term
it safer to buy an existing business?
business on your own is daunting, particularly if you start a new business with
little or no money. If the franchise option doesn’t appeal to you, you could
consider buying an established business.
A business that
has been operational for a while and by all accounts is successful should offer
an existing customer base that you can start trading with straight away. On the
other hand, you might inherit hidden problems.
When looking at
an established business, you need to know exactly how the business has been run
and how profitable it is. It’s a complex and time-consuming process to
investigate the ins and outs of an established business and you should get
professional help to make the final decision.
of buying an established business
- the hard work of starting a
business has already been done
- an established business should
generate immediate cash flow which is a better option if you’re taking over the
business with no money
- it is easier to secure finance
if the business has a proven financial history that shows it is profitable
- you don’t have to start from scratch:
you take over an existing customer base, contracts, suppliers, staff, stock and
- the managers and staff in the
business have the knowledge and experience needed to keep the business running
smoothly until you have got up to speed with how things work
of buying an established business
- there is no way of knowing
whether the current owner has ‘crooked the books’ or is hiding something that
could potentially derail the business once you take it over
- the equipment you take over may
be old and in need of repairs or to be replaced
- staff morale may be low which
often happens if they’ve been poorly treated by the current owner or are
feeling insecure about the business buy-out
- it’s very difficult to measure
goodwill and there’s a risk that damaged customer relations cannot be fixed by
a new owner
- customers may not ‘click with
you’; the success of many independent businesses is based on personal
relationships with customers that have been with the owner from the start and
there’s no guarantee they’ll automatically accept you and your style of running
Take a leap of faith and start your own
business in South Africa
If you have considered all the options and are still sure that starting your own business is the right way to go, then welcome to the world of entrepreneurship. As they say… with great risk often comes great rewards.
You will no
doubt experience some failures and setbacks and there will be days when you
wonder why you started your own business in the first place. If you take the
risk and make a success of your new business, the rewards are worth it.
What is an entrepreneur?
is someone with a thought, idea or concept for a business that turns it into
reality. It’s the process of creating a business and (hopefully) making money
from something that is either a unique and novel concept or something that is
done by others but you firmly believe you could do better.
is different to someone who is self-employed such as a freelancer. An
entrepreneur takes on greater than normal financial risks to run his or her
business where a person who is self-employed generally makes money for a set of
skills and there’s typically less risk to their business.
of being an entrepreneur
- you have more flexibility; you
can work from home or an office and can determine your own working schedule
- you learn a lot about business
which you might not have learnt working for a boss, from finances and project
management to marketing and sales
- it’s more fulfilling to work
for yourself because you have your independence, it’s never boring and you are
rewarded for your own hard work
- you can potentially earn more
of being an entrepreneur
- you are often ‘jack of all
trades and master of none’ because you are responsible for everything until you
can afford to employ staff
- it can be difficult to switch
off and leave your work behind at the office; entrepreneurs usually work long
hours and on weekends to grow their business
- you don’t receive a regular
- you don’t receive company
benefits such as a medical aid, pension fund or car allowance
- the pressure and stress can be overwhelming in tough economic times
are the characteristics of a successful entrepreneur?
Some people are
born entrepreneurs, while others take to entrepreneurship more slowly. Entrepreneurs
have what it takes to handle the risks and pressure of starting a new business and
are often seen as confident, self-assured and courageous people. However,
there’s more to being an entrepreneur than meets the eye, especially someone
who starts a business from scratch.
Here’s a list of
some of the characteristics of a successful entrepreneur:
Have a solid
belief in your knowledge, experience and skills which gives you the confidence
to tackle whatever comes your way.
An ability to
make sound judgements on issues you encounter every day, using good judgement
gained from past experience and a good understanding of the business.
thorough and diligent; putting in the hard yards to make something a success.
The ability to
persevere even in the most challenging times.
desire to succeed at something, not just for the money but because it’s
something that you are passionate about.
Willing to take
risks for something you believe in, where the reward is worth the risk.
The ability to
see what others don’t see and the ability to turn a vision into reality.
thinks out of the box and finds new ways to solve old problems.
Able to communicate clearly and effectively with people so everyone is on board and on the same page with you.
guide on how to start a business in South Africa
Slow and steady
wins the race. Start slowly with a thorough understanding of your market and a
strong grip on reality; is this really what you want to do and do you have what
it takes to make the business a success. Let the business grow organically
using common sense to make sound judgements on everyday business decisions.
Step 1 – Thoroughly research the market
identified a business idea, take time to research the market and determine if
it’s needed, what other companies offer the same product or service and how
hard it would be to break into the market.
Step 2 – Develop a comprehensive business plan
business plan has a lot of detail and includes information on all aspects of
the business. This includes information on which market you will operate in,
which customers you will target, how you will communicate with potential
customers and how much capital you need to start your business and keep it
running until you start making a profit.
have never written a business plan and don’t know where to start, there are experienced
people who will create one for you. Find freelance business plan writers on Fiverr.
Step 3 – Plan your finances
It’s possible to
start a business in South Africa without money but you still need to plan your
finances. You may need to borrow money for the initial investment and to cover
expenses before you start making a profit.
Step 4 – Register your business name
This is not a
step everyone takes when they start a new business but it’s a good idea,
particularly if your start-up business takes off and becomes a success. Choose
a name for your business and then register it.
information on how to register a business name in South Africa, visit the
following top sites:
of Trade and Industry (DTI) is in the planning and implementation phase of launching
a new business website which aims to significantly improve the ease of doing
business in South Africa. This includes significantly reducing the cost of
registering a business.
Through the new
DTI business portal, users will be able to access the following services:
- company registration
- tax registration number
- domain name registration
- B-BBEE certificate
- unemployment insurance fund
- business bank account
Step 5 – Find the right location for your business
right location for your start-up business is one of the most important things
you can do. It may be a home office, shared office space, a shop in a busy
shopping mall or factory in an industrial area.
Step 6 – Promote your business
As you know, you
can’t sit back and wait for business to come to you. You have to be active in
the right marketing space and saying the right things to your customers.
If you are
starting a business in South Africa with no money, you won’t be able to afford
the services of a professional marketing agency. This is not a problem because
there is a wealth of information online that you can use as a valuable business
Some ideas to
get started… attend free business seminars, join a business chat group, follow
your competitors on social media to see what they’re doing and call a friend.
Don’t be shy to ask for help from friends and business associates who know how
to market a business online.
Visit these top
5 sites for online marketing tactics for small business with no money:
How to start a business in South Africa
with no money
How do you start
a business with no money in South Africa? Is it even possible? The good news
is, yes it is possible.
It won’t be easy
but hundreds of people do it every year in South Africa and are successful.
Remember… Apple, Disney, Google, Harley Davidson and Hewlett-Packard all
started in someone’s garage.
One of the
biggest challenges of starting a business without capital is borrowing from the
banks. If you do secure funding from a bank, it’s usually at a high interest
rate. This is because business start-ups are considered high risk.
To get funding
from a bank to start a business, you generally have to meet the following
criteria (called the 4 C’s of Credit):
is sometimes referred to as ‘seed money’. This is the money you need to start a
new business and cover your daily expenses until the business starts to make
Collateral is an
additional form of security that can be used to assure a financial lender that
you have a second source to fall back on to repay a loan. Collateral provides
lenders with some assurance that they can recoup the money owed in another way,
which usually includes selling off or liquidating an asset (for example, a
Capacity is the
ability of a business to generate money to pay back a loan. Established
businesses have the benefit of their financial track record but a start-up
business will find it hard to prove it has capacity.
to your credit rating. A good credit rating will stand you in good stead for a
business loan; a poor rating will mean banks will turn you away before they
even consider your application. It’s important that you build up a good credit
rating before starting a new business in South Africa.
credit score here for free:
to get capital to start a business in South Africa
a few ways you can finance your new business in South Africa through government-supported
entities. These include:
IDC is a
national development finance institution set up to promote economic growth and
industrial development. It is owned by the South African government under the
supervision of the Economic Development ministry.
Government Investment Incentives (GII)
departments offer an array of incentive schemes to stimulate and facilitate the
development of sustainable, competitive enterprises by providing accessible
incentives that effectively support national priorities.
of incentive schemes seek to support the development or growth of commercially
viable and sustainable enterprises through the provision of either funding or
tax relief, thereby ensuring the creation of new and sustainable jobs.
intention is to increase participation in various areas of development. Most of
the incentives are housed within the Department of Trade and Industry, with a
few others in other government departments.
Small Enterprise Finance Agency (SEFA)
Enterprise Finance Agency (SOC) Limited (SEFA) provides financial products and services
to qualifying SMMEs and Co-operatives through a hybrid of wholesale and direct
lending channels within the following sectors:
- services (including retail
& wholesale trades and tourism)
- manufacturing (including
- agriculture (specifically land
reform beneficiaries and contract-farming activities)
- construction (small
- mining (specifically small
- green industries (renewable
energy, waste and recycling management)
SEFA is a wholly-owned
subsidiary of the Industrial Development Corporation Limited (IDC).
National Youth Development
Youth Development Agency (NYDA) was established to address youth development
issues at National, Provincial and Local government level.
NYDA designs and
implements programmes that are aimed at improving the lives of young people, as
well as avail opportunities to youth. These programmes could be clustered as
provides direct services to youth in the form of information provision, career
guidance services, mentorship, skills development and training, entrepreneurial
development and support, health awareness programmes and involvement in sport.
encourages young people to be catalysts for change in their communities through
involvement in community development activities, social cohesion initiatives,
National Youth Service programmes and social dialogues.
and National (Macro) level
Through its policy development, partnerships and research programmes, the NYDA facilitates the participation of youth in developing key policy inputs, which shape the socio-economic landscape of South Africa.
in South Africa that lend money to small businesses in South Africa
BusinessTech published an article in July 2019 which provides a list of 8 companies in South Africa that lend money to small businesses in South Africa.
Be wary of
borrowing money from micro-lenders because their interest rates are very high
and the cost can be crippling over the long run.
How to start a business through crowdfunding
Crowdfunding is a method of raising money through the collective effort
of friends, family, customers and individual investors. Most crowdfunding
initiatives are done online and the benefit is people from all over the world
can contribute. A fundraising campaign can help you get the finance you need to
start a new business and spread the word about your business.
With crowdfunding, entrepreneurs can tap into the power of Internet to
raise money for their small businesses. It’s an inexpensive way to bankroll a
new project and build a base of supportive customers.
If you want to use crowdfunding to raise money for your new business,
you need to have an engaging story to tell. Crowdfunding relies on appealing to
a large pool of people to contribute small or large donations to raise money in
situations where that kind of money couldn’t be accessed from a traditional source
such as a bank.
List of Crowdfunding websites in South Africa
How Crowdfunding works
Crowdfunding is a new way to raise money online for a not-for-profit,
charity, social enterprise, community project or person in need.
Crowdfunding works in 3 easy steps:
Step 1: Register and set up your Crowdfunding page. Customise the
content, images and video and set your target and timeframe.
Step 2: Promote your crowdfunding campaign via email, Facebook and
Step 3:Get paid. As funds come into your crowdfunding account, they are
transferred directly to your bank or PayPal account. You get 100% of what you
raise. The crowdfunding platform generally takes a 5% fee if you reach your
4 types of crowdfunding for business
Crowdfunding has been used in the past to raise money for a
not-for-profit initiative, charity or person in need. The fund-raising platform
has evolved and crowdfunding is now used to find financial backers for a wide
variety of projects and campaigns.
There a 4 basic forms of crowdfunding for business:
Reward-based crowdfunding is where you offer financial backers a reward
for their investment. This could be a discount, sponsorship rights or free
Equity-based crowdfunding is where you offer financial backers an equity
stake in your business. This is an online version of venture capital. It’s a
complicated option fraught with legal issues so do your homework carefully
before considering equity-based crowdfunding.
Lending-based crowdfunding is where you seek financial backing from
investors for a fixed return on the shares they are given in the business. It’s
different from equity-based crowdfunding where the value of shares owned by an
investor grows as the business grows.
Donation-based crowdfunding applies to businesses registered as ‘not-for-profit’ (NGOs). This is usually a charity organisation. Donors are offered a tax exemption for the donation. Projects that elicit the most support usually have a humanitarian angle.
Documents needed to start a business in South Africa
There are certain legal requirements that you should comply with to run
a business in South Africa. The law in South Africa requires you to register
your business and pay taxes on money that you earn regardless of the size of
Register the business
The Companies and Intellectual Property Commission (CIPC) was
established by the government of South Africa to deal with the https://designerwater.co.za/wp-content/uploads/2016/05/Designer-Water-Alkaline-Water-500×500-1.jpgistration
of company registrations, cooperatives and intellectual property rights such as
trademarks, patents, designs and copyright.
Select a reputable company to help you register your business in South
Africa in order to comply with the regulations of CIPC.
Register your business with the South African Revenue Services (SARS)
SARS is the governing body in South Africa that deals with all matters
related to tax. You are required to pay tax on any money you earn in a business
regardless how big your business is. Even a one-man freelance business must
comply with the South African tax regulations.
South African law dictates that a new business in South Africa must be
registered with SARS within 60 days of starting operations. If you register
your business through CIPC, your SARS registration is automatic except if you
are a provisional taxpayer.
Register with the Department of Labour
Any business that employs one or more full-time employees is required to
comply with the regulations of the Department of Labour.
These regulations are determined by the Compensation for Occupational
Injuries and Diseases Act (COIDA) and are put in place to safeguard the rights
of employees who are injured, contract a disease or get killed as a result of
Register each employee for UIF
The Unemployment Insurance Fund (UIF) provides financial support to workers
if they are unable to work if they are on maternity or adoption leave or are
ill. UIF registration can be done on Form UF8 at any SARS office or complete
Register for Pay As You Earn (PAYE)
law demands that you register any employee who earns over R40 000 per year for
PAYE (employee tax). Funds generated from PAYE is used to develop and improve
work skills in the country.
If your payroll
is in excess of R500 000 per month, you must register for the skills
development levy (SDL).
You are required
to register as a Value Added Tax (VAT) vendor if your projected sales per year
will exceed R1 million. VAT vendor registration is done by completing and
submitting a VAT101 form which is available at any SARS office or online.