Business Basics:

A practical guide for small business owners

Contents

Starting a business
Are you an entrepreneur? Starting your own business vs buying an existing one Taking the franchising route What structure suits your business best? Legal requirements Setting up your infrastructure Using savings and investments to reach your business goals Insurance protect yourself and your business

20 Creating a business plan

What a business plan is (and is not) Key components of a successful business plan

25 Basics of finance
How much is enough to start with? Financing options Managing your cash flow

34 Basics of banking
Why business banking? Understanding banking services How to conduct your business bank account Simplify your business banking

43 BBBEE basics
What BBBEE is all about How BBBEE can benefit small businesses Who is exempt EMEs and QSEs

47 Need-to-know info
Where to go for more information

Starting a business

Are you an entrepreneur?

Many people dream, at some point or another in their careers, of starting their own business. However, wanting to be your own boss is not enough to ensure your success: around 80% of all new small businesses fail within the first five years. Before setting up shop, you need to think carefully about whether you have the right temperament, leadership skills, support system and dedication to be an entrepreneur. Evaluate your strengths and weaknesses by honestly answering the following questions: Are you a self-starter? You need to be able to develop and drive projects, manage your time and follow through on details. Are you willing to work long hours? When you own a business you are committed to it 24 hours a day, seven days a week particularly during the first few years. Are you good at making decisions? As a sole owner you will have to make decisions quickly, under pressure and on your own. Do you plan well? Research indicates that many business failures could have been avoided through better planning. Good organisation of financials, inventory, schedules and production is the oil that keeps any business engine running smoothly. Do you have the strength to stay motivated? Running a business can wear you down, especially when all the responsibility is on your shoulders. It takes strong motivation and passion to survive a slump in business, or periods of burnout. Are you willing to invest? True entrepreneurs put their money where their mouths are. This might mean using personal savings or property. Have you considered the possible impact on your family? Starting a business can be hard on family life. The demands of a spouse who is not fully supportive of the venture may be hard to balance with the demands of your new business. There might also be financial difficulties until the business becomes profitable, which could necessitate lowering your standard of living. Do you have a network of friends or associates who could provide outside financing? Insufficient capital is a key cause of small business failure. If you are not able to obtain enough funds from a bank, you may need to rely on funds from friends and family. Most start-up businesses are funded this way. How well do you get along with different people? Business owners need to develop working relationships with a variety of people, including customers, vendors, staff, bankers and professionals like lawyers, accountants or consultants. 2

Can you deal with a demanding client, an unreliable supplier or a cranky employee in the best interests of your business? If you can answer YES to most of the above, then you may have the potential to join the ranks of successful small business owners. If you cant, you need to reconsider whether starting a small business is the path you should follow.

Starting your own business vs buying an existing one

A good idea is not necessarily a feasible and viable business opportunity. In order for it to become one, it must create and/or add value for the customer in other words, fill a gap in the market and be profitable. Starting a business is neither quick nor easy, but if you pay careful attention to detail, follow a well thought-out plan and ask for advice as often as you can, it can be a very exciting journey. Use the handy checklist on page 5 to make sure you have all the bases covered. Remember, though, that starting from scratch is not the only avenue open to someone who wants to be a business owner. Buying an existing business is also an option. The trick is not to take anything for granted the more you know about the business you

have in mind, the easier it is to make good decisions. When you consider buying an existing business, keep these guidelines in mind: n Be wary if a business broker is handling the transaction on your behalf. A broker represents the seller, not the buyer, and might not have your best interests at heart. n Focus your search. Determine what criteria are important to you and review what is available. Even if a business is not officially for sale, the owner might be willing to sell at a good price. n Review all the figures. The seller might lie, but the sales records wont. n Create an information checklist for the seller. It should cover every aspect of the business, from suppliers and customers to employees and the competition. n Set up a purchase agreement. This should protect you from future decline in business, bad inventory, faulty equipment and other liabilities. n Hire the right professionals, ie, a lawyer and accountant. A lot of money can be saved purely from the choices you make at this stage. n Negotiate. Make an offer you can safely afford. As mentioned earlier, one can never have too much information when evaluating a business thats for sale. Be sure to ask these questions before signing a purchase agreement: n Why is the seller selling? n Can the current owner provide an income statement for the last two years that will allow for a meaningful financial analysis? n What is the businesss track record? n Who are the key customers and how will transfer of ownership affect them? n Who are the key suppliers? What are the terms and conditions of trade? n Is there a valuation list of assets? n What are the total accounts receivable and how recoverable are these? n What agreements are in place regarding premises and asset leases? n Are there any tax disputes that may impact on future payments? n Is there any pending litigation against the business? n Does the business provide any guarantees or warranties on its goods and are these reflected on the balance sheet? n Which employees are key to the future viability of the business? n What is the businesss cash flow cycle? Advantages of buying an existing business n You save the time, money and energy that is normally needed to start a business from scratch. n A successful existing business may have a better chance of maintaining its success and is therefore less risky than a new venture.
To page 6

New business start-up checklist

Prepare a business plan. Make sure it includes your marketing strategy and pricing structures, and allows sufficient cash flow provision for the first 12 months. Decide on the legal structure of the business, eg, close corporation, private company or partnership. Select a name for the business and apply for registration. If working from home, contact the local municipality regarding by-laws that may affect the business. If not working from home, find appropriate premises. Determine all alterations and signage requirements. Discuss your plans with your business banker and obtain advice on the different financing options. Open a business bank account and make sure you understand how the related bank fees will be charged. Apply for and obtain written confirmation of a business loan or overdraft facilities. Apply for the licences, certificates and permits you will need to trade legally. Register with the South African Revenue Service (SARS) and obtain a VAT registration certificate. Review all your responsibilities as an employer, eg, regarding the Unemployment Insurance Fund and Compensation for Occupational Injuries and Diseases, to ensure legal compliance. Take out appropriate insurance cover. Establish terms and conditions of employment; recruit and train staff. Order business stationery and promotional materials. Make the necessary arrangements for credit sales and be sure to understand the legal requirements relating to finance charges. Consider joining the local Chamber of Commerce or other organisations that can help you get established. Appoint an attorney and accountant or bookkeeper and agree on service levels and fees. Locate key suppliers, confirm their prices and terms and conditions. Establish minimum inventory and distribution requirements. 5

From page 4
n n n n

Experienced and reliable employees are usually part of the deal. Supplier relationships exist. Inventory balances are known. Equipment is installed and production capacity is known.

Disadvantages of buying an existing business n You can be deceived by the owner into buying an unprofitable business. n The business may have a poor reputation or image that could prove difficult to change. n Some existing employees might not be suitable for the job. There may also be a history of internal politics and conflict, which may continue despite a change in ownership. n Inventory, facilities and equipment may be obsolete, damaged or old. n The business may be overpriced. Visit Standard Banks Business Banking website for a step-by-step guide on how to assess an existing business and how to calculate a realistic price when buying one [www.standardbank.co.za Business Starting a business Buying a business].

Taking the franchising route

Franchising is a way of doing business based on a proven business format. Money is paid, usually on an upfront and ongoing basis, allowing for the use of intellectual property and for the continuous provision of support and training. The advantage for the franchisor (the person who grants the right to someone else to trade under his/her brand or name) is that the outlets are run by owners who are 6

driven by the success of their business. The advantage for the franchisee (the owner who runs the business) is that it is based on a tried and tested business concept. When you consider buying a franchise, take time to do the following: n Find out what franchises are available. n Assess opportunities carefully talk to other franchisees. n Investigate the financial prospects for the business. n Ask your bank if it will consider a loan for your choice of franchise. n Research the customers and competitors in your area. n Draw up a business plan. Do not take up the first franchise opportunity that presents itself without investigating alternatives. More importantly, do not allow yourself to be hurried into making a decision. Also remember to do your homework properly: just because a business works elsewhere, doesnt mean it will work in your area as well. Dont pay a non-refundable deposit for the franchise or sign anything without legal advice. Refer to Standard Banks Business Banking website www.standardbank.co.za for more information regarding the rights and obligations of franchisees.

Franchising pros and cons

Advantages n Predictability you have access to a proven blueprint and coordinated systems and procedures to start the business. n Support the franchisor assists with all aspects of starting the business, such as staff selection and training. Once established, you continue to receive operational support from the franchisors field staff. n One voice the franchisor takes care of advertising and promotions on your behalf. n Buying power you benefit from lower prices due to the franchisors bulk buying capability. n Financing the franchisors backing makes it easier to obtain financing. Disadvantages n Rigid operating procedures can restrict your creativity and freedom. n Set-up costs can be higher than for a similar business operating independently. n You have to rely on the franchisor for major business decisions, which could affect your future earnings. n A deterioration in the groups reputation will also affect your business. 7

What structure suits your business best?

There are several ways to structure the legal ownership of your business, depending on the nature of the business, the number of people involved, management capabilities, personal risk and your future plans. Each type of business entity has different legal and tax consequences, which may influence your choice. A business that is altogether separate and distinct from its members is a legal entity. Its existence is independent from the continued existence of its members and it can have rights and obligations apart from those of its members. Such businesses are usually referred to as juristic persons to distinguish them from human beings or natural persons. A business set up as a legal entity has: n Legal capacity and is competent to have rights and duties. n Capacity to act and is competent to contract. n Capacity to litigate, which means it can appear in court as party to a legal action. In this case, the businesss assets are at risk, not the personal assets of the owners. The owners are therefore protected. Sole proprietorship: This is a business owned and operated by one person, under his or her own name or a trade name. This format is best suited to a business that is not fixed asset-driven (ie, is service-based) and in which the owner is the sole employee. Income accrues directly to the owner and is included in his or her income tax return. There are no complicated statutory returns other than meeting basic legal and tax requirements. The disadvantage of a sole proprietorship is that the business is not a separate legal entity, so the owner is liable for, and can be sued for, the businesss debts. If the owner dies, the business ceases to exist. Conversely, if the business fails, the owner could lose everything. Partnership: A partnership exists between a minimum of two and a maximum of 20 people who together carry on a trade, business or profession. It is based on the same principles as a sole proprietorship, which means the partnership is not a separate legal entity or a taxpayer in its own right. Each partner is taxed on their share of the profits and is jointly liable for the debts or obligations of the business. A partnership requires a contract to formalise each persons contribution to the business, their responsibilities, profit share, means of resolving disputes, disability/death insurance, and what procedure will be followed if the partnership changes or is dissolved. Close corporation: A close corporation (CC) is a simplified business entity specifically designed for small enterprises it is easier and cheaper to register and run than a 8

company. A CC can have between one and ten members, each of whom owns an agreed percentage of the business and who is liable for managing it properly. The CC is considered to be a separate legal entity, which can sue or be sued. The CC registers as a taxpayer in its own right; it must have an accounting officer but is not required to have audited financial statements. This structure is ideal for a business that purchases stock on credit. Company: A company is also created as a separate legal entity, which has to register as a taxpayer in its own right. The owners of a company, who are protected from individual liability, are called directors and shareholders. A company can make shares available to staff as a private company (Pty) or to the public as a limited company (Ltd), and these are easily transferred from one owner to another. Registered companies are required to have an accounting officer and to produce audited financial statements. This is the best legal structure for people who ultimately want to sell their business to a large competitor, or list on the stock exchange. Trading trust: A trading trust is created by a deed, under which property is held and managed for the benefit and profit of the beneficiaries named in the deed. It is not a separate legal entity from its trustees, but is regarded as such for tax and transfer duty purposes. Trustees must be authorised by the Master of the High Court. Trading trusts are appropriate for businesses such as property development enterprises. Cooperative: This is a separate legal entity that provides limited liability and conducts business for the benefit of its members. Its members are also, to a large extent, its customers. For example, cooperative societies or companies are used extensively in agriculture for the supply and distribution of farming supplies and products within farming communities. 9

Legal requirements
The easiest and, unfortunately, most expensive way to register your business is to use an expert, such as an auditor or a company specialising in registration services. You can complete the registration yourself at a fraction of the cost, but you may be overwhelmed by the paperwork. When registering your business, follow these steps: n Choose a type of business entity: For example, a CC or (Pty) Ltd. n Reserve a name: Before you can register your business, you will need to apply to the Companies and Intellectual Property Registration Office (CIPRO) to reserve a company name (using form CK7 for a CC and form CM5 for a company). You must submit three alternatives to the Registrar, in case your preferred name is already taken or is too similar to another business already in practice. Once your application has been approved, the name will be reserved for you for two months. n Register your business: A CC registration can only be processed once the suggested name is approved and reserved. For a CC, you must complete and submit a Close Corporation Founding Statement (a CK1 form). It takes between three and four weeks to register a CC but the processing time varies depending on the backlog 10

at the Registrars office. Registering a (Pty) Ltd is more complex and you should use an attorney to assist you. After successfully reserving a name, you will need to complete several forms, including a power of attorney document, permitting your attorney to act on your behalf. To speed up the registration process, it is possible to purchase a pre-existing CC or company that is dormant, known as a shelf company, from a business registration service provider. You simply have to apply to change the name of the entity and get yourself appointed as the member or director. This usually costs only slightly more than registering a brand new company, and can save weeks of admin time. In fact, you could be ready to do business within 30 minutes of purchasing a shelf company. The process of amending the members takes up to six weeks to complete, but does not prevent you from trading in the meantime. Depending on whether you use an agent or deal directly with CIPRO, the costs range from a few hundred Rand to a few thousand. Note: Copies of all the relevant forms can be purchased at stationery stores, or downloaded from the CIPRO website www.cipro.co.za www.cipro.co.za. Apart from establishing your companys legal status, you also have to register for a few other things: 1. Tax (provisional, PAYE, VAT): Individuals operating as sole traders, partners in a partnership, members of a CC and directors of a company, need to register with the South African Revenue Service (SARS) as soon as they register their business. PAYE (Pay As You Earn) is tax deducted from employees salaries. All employees must register with SARS. If your business turnover is more than R300 000 per year, you will also need to register as a VAT vendor. Electronic filing (eFiling) is a channel between SARS and the taxpayer through which tax forms and payments can be submitted online. You can access eFiling through Standard Banks Business Banking website. For the best tax advice, simply log on to www.sars.co.za or talk to a qualified tax consultant. 2. Skills Development Levies: Business entities with an annual payroll of less than R500 000 are exempt from paying Skills Development Levies (SDL). SDL registration is done at the same time as PAYE. 3. UIF: All businesses need to register for the Unemployment Insurance Fund (UIF) with the Department of Labour (form UF8). 4. COIDA: All businesses must register with the Compensation Commission at the Department of Labour in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA).

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Specific types of businesses require specific licences, over and above the generic registration requirements. For example, if you are planning to open, or currently run, an accommodation establishment, restaurant, coffee shop, pub, tavern or shebeen where food is served, you must have a valid business or trade licence. Trading without a valid licence is a punishable offence. Without a liquor licence you cannot legally sell or even give away liquor at a restaurant or guesthouse. By the same token, liquor distributors may not supply liquor to any trader who cannot produce a valid liquor licence. If you are in the transport business, the necessary licences are essential both in terms of vehicle and driver requirements. Anyone who transports passengers for reward must have a Road Transportation Permit (also known as a Public Operating License) as well as a Public Driving Permit (PDP). Protecting intellectual property Intellectual property (IP) is a vital, but often neglected, legal issue for every business owner. IP can be defined as patents, trademarks, service marks, design rights, copyright, know-how, trade or business names, ideas, concepts and other similar rights, whether it is possible to register these or not. Any person with an innovative idea is in possession of a piece of IP, and is protected against unlawful copying. For example, an invention is protected by a patent, which gives the owner the right to prevent others from copying it without the owners permission. The owner is given the patent right for 20 years. The Designs Act allows a person to register designs and prevent others from copying them. Depending on how the design is classed, registration remains in force for ten or 15 years, provided the owner pays the annual renewal fees. Trademarks are the words or marks that distinguish the goods or services of the owner from the goods or services of other suppliers or manufacturers. Trademarks may be registered and are renewed every ten years. Copyright is the material expression of an idea. The law of copyright protects literary, musical and artistic works, computer programs, broadcasts, sound recordings and cinematograph films. Owners of IP can give others the rights to use it by licensing it to them. A licence is usually in the form of an agreement, in terms of which the owner allows the other person to use the right in return for remuneration. If IP plays a large role in your business, it is essential to consult attorneys who specialise in this field to ensure that your rights are properly protected.

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Setting up your infrastructure

A home-based office or workspace is one of the easiest ways for a new or small business to reduce operating costs. But, as with everything else, there are advantages and disadvantages to consider. Use these three questions to help you make the right decision on whether to rent office space or work from home: 1. Will customers need to come to your workspace? If the answer is yes, you need to consider whether your home is conveniently situated, what kind of impression the environment will make on a new customer, and whether other residents in your home, such as small children, will have an impact. Also consider factors such as access to parking, a possible space restriction if the business expands, and authorisation from your local municipality to operate a business from home. 2. Will you be able to focus on your work? Working from home may seem like the perfect solution, especially for mothers, but there are pitfalls. You might find that you become lonely, or that your work is too frequently interrupted by domestic chores or distractions. Working from home may also mean that your workday never ends, as you dont formally leave the office to go home. 3. What kind of work will you be doing? If your business is mostly desk-based or if you are involved in a home industry such as baking or catering, it is relatively easy to accommodate your workspace within your home. If, however, you are selling building supplies or running a fleet of trucks, your neighbours might complain about the noise or the use of space. If you decide to rent office space, use these guidelines to inform your decision: 13

The location should be convenient for your customers and for you dont rent premises that are an hour or more away from where you live. Make a checklist of what you want before you look for premises, including the number of workstations, parking and access for disabled persons. Obtain a full breakdown of what the monthly costs will be, including extras like parking and water and electricity. Before signing a lease agreement, study it carefully. It might be a good idea to consult a lawyer to make sure you fully understand what you are signing and what your rights are. If you need to make substantial alterations or renovations to the premises, make sure these are permitted by the landlord, or you could lose your deposit. Many landlords actually give new tenants an allowance to do the necessary conversions. Make sure you understand the implications of your lease and notice periods. If you sign a two-year agreement and after six months discover that you cant afford it, you are still obliged to pay the landlord for the full term.

Connect to the world A desk, chair, filing cabinet and computer are not enough to connect your business to the world of trade and industry. You will also need: 1. A telephone number. You dont need a landline number to do business, but a company that operates with only a cell phone number may appear to lack permanence. Landline-to-landline calls are also significantly cheaper than cell-tolandline calls. At present, Telkom is South Africas only landline service provider. Neotel has been granted a licence to provide these services and aims to start doing so commercially in early 2008. Cell phone services are provided by Vodacom, MTN, Cell C and Virgin Mobile. 2. An email account. Email enables business to be conducted quickly, efficiently and conveniently over vast distances. No business today can afford not to have email access. Either get an email account as part of an Internet subscription or create a free email account at websites like Yahoo, Hotmail and Gmail. 3. A fax-to-email number. Once you have an email account, you can apply for a faxto-email number. This allows faxes to be sent directly to your computer, via email. The number is free; the sender pays a charge when making the fax call (but because the fax is transmitted digitally, call time is often much shorter than sending to a standard fax number). Internet Service Providers (ISPs) typically provide free fax-toemail services to their subscribers. You can also sign up with any number of service providers available on the Internet.

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4. Internet connectivity. There are a few options in terms of Internet connectivity, each appropriate for specific needs and circumstances. n Analogue dial-up operates through an ordinary telephone line and is often used by home users. It is one of the cheapest methods of access, but it also quite slow. n An ISDN line is a digital dial-up connection, which is faster than analogue. As with analogue, you pay for the time you are connected. n ASDL is a separate digital line, which means you are permanently connected to the Internet and email. It offers stable, secure, dramatically faster Internet access speeds at a fixed monthly cost, regardless of how much or how little you use it. n A leased line is a dedicated, permanent connection that offers real-time email and Internet access for a fixed monthly cost. Numerous people can use it simultaneously, and it is ideal for business users who spend eight hours or more a day on the Internet. n Wireless connections allow you to connect to the Internet through cell phone networks, which means that you have access to email and the Internet wherever there is cell phone reception. This option is not as fast as ASDL or leased lines, but is ideal for the business owner who is not office-bound. Internet connectivity has to be sourced from an ISP. Visit the website of the Internet Service Providers Association for a list of ISPs to choose from: www.ispa.co.za They www.ispa.co.za. all offer different packages and prices, hence you need to do your homework before signing up. In order for your chosen ISP to connect you the Internet, you need the basic infrastructure, such as a landline or digital line, or a wireless modem or 3G card (typically provided by your cell phone supplier). 5. A website. Creating and maintaining a website is one of the easiest and most costeffective ways to market your products and services to a global audience. Most ISPs offer website design and hosting services specifically for small businesses, for a minimal once-off fee and a fixed monthly cost. Your ISP should also be able to give you detailed statistics to show how many people have accessed your site on a daily, weekly and monthly basis. Establishing a website requires a few tasks to be done: Design These days most graphic design companies offer a website design service. ISPs also offer basic design services, and numerous websites will guide you through the process if you want to go the DIY route. Hosting Once the website is designed, it has to be hosted in order for it to find a home on the Internet. Once again, your ISP is a good place to start. Many website development companies also offer hosting services. Different companies offer different packages and prices, so shop around. Search engine optimisation (SEO) Internet search engines are the primary vehicles

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with which customers search for and find information. SEO is the process of designing, structuring and maintaining your website in such a way that your site is as close to the top of the results list as possible when someone does an Internet search for your kind of business. Make sure your website designer understands SEO. Payment options for doing business online These days, more and more people prefer to conduct transactions with debit or credit cards instead of cash. In setting yourself up to start doing business, you should seriously consider registering for merchant services, which would allow you to accept Maestro and Electron debit cards, Mastercard and Visa cheque cards, as well as Mastercard, American Express, Diners Club and Visa credit cards, not only for in-store transactions, but also for purchases over the Internet. When your application for merchant services is approved, your bank will supply you with the necessary infrastructure, such as merchant machines. At Standard Bank you can apply for merchant services with the assistance of a business banker at your local branch. Alternatively you can follow the instructions provided on the Business Banking website www.standardbank.co.za. In order to accept online credit card payments, you will need to link your website to an online payment systems such as MWEB Business Safeshop www.mwebbusiness.co.za, PayGate www.paygate.co.za Setcom www.setcom.co.za or Virtual Card Services www. www.paygate.co.za, virtualvendor.co.za. Debit card transactions are conducted via AutoPay. All AutoPay transactions are authenticated, which means cardholders cannot dispute their transactions. When you apply for Internet merchant services, you need to provide the bank with a business plan that includes a description of your business and estimates of the volume and value of the business you hope to achieve through card transactions. Your website must also comply with the Electronic Commerce and Telecommunication (ECT) Act. Additionally, the website you use to conduct your business must display: n Details of your business and contact information. n Your terms and conditions. n Full descriptions of the goods and services you offer. n Your policy on returns and refunds. n Details of the support you offer your customers. n The transaction currency. n Any export restrictions. n Your delivery policy. n Details of the types of payment you accept. n Your confidentiality and privacy policy. 16

Using savings and investment deposit accounts to reach your business goals
If you have spare cash and want to invest it for a rainy day or to finance a future business opportunity, talk to your bank about which savings and investment products are available to help you achieve this. A call deposit is an interest-earning investment deposit account that gives you the option of withdrawing your money when you need it. This account helps you to manage your monthly cash flow. A MoneyMarket call account offers all the benefits of an ordinary call deposit in that your funds are immediately available to you, but the entry-level, minimum balance and minimum transaction requirements are significantly higher. The higher requirements, however, mean a much higher return. A MarketLink account is a card-based money market deposit account that offers you attractive interest rates along with basic transaction functionality through a variety of Standard Bank self-service channels. A notice deposit is an interest-earning deposit account where you are required to give the bank at least 32 days notice before being allowed access to your funds. This helps you to save by keeping your savings out of temptations way. A fixed deposit is an interest-earning investment deposit account where a lump sum of money is invested for a fixed period, at a fixed rate of interest. A fixed deposit 17

offers you the benefit of knowing exactly what return you can expect to earn over the investment period. When considering a savings and investment deposit option, you have to consider these factors: n Access to your money is there a possibility that you might need to access your funds at short notice, or can you afford to tie up your money for a longer period of time? Generally, the longer that you are willing to invest for, the higher the return that you are likely to earn. n Do you want to add to your investment over time or do you want to make a once-off investment? n What is the minimum amount you have available to invest with immediate effect? Different types of accounts will require different minimum deposits, ranging from as little as R50 to as much as R250 000. Remember, Standard Bank offers business customers access to consultants who can provide expert advice on financial planning and more complex investment solutions such as unit trusts, online share trading and offshore investments. Your business banker can introduce you to one of these consultants.

Insurance protect yourself and your business

Small business owners often neglect to ensure that the wealth they create is secured. Optimal succession and estate planning is a complicated legal matter, requiring the advice of estate planning, legal and financial experts. Standard Bank has a consulting unit of estate planning specialists who can help you, for a once-off consultation fee, to assess your needs and draw up your will. The unit also specialises in setting up secure trusts for your assets. You qualify for this service if you have gross assets of more than R250 000. A related matter is insurance for your business a necessity that will provide you with peace of mind. Your bank can offer a comprehensive range of insurance options and you can tailor your policy to suit your business. When planning your insurance policy, discuss the following types of insurance with your broker: n Public liability insurance: This will protect your business from financial loss as 18

n n

a result of an injury, death or property damage caused by business operations, employees or products to a client or customer. Burglary or theft: This protects against loss of key equipment or movable assets. Vehicle and passenger liability cover: Not only must you insure your vehicle(s), but if you intend to transport passengers, you should consider some form of insurance to protect you and your business against potential claims due to accidents that result in injury or death. Others include: Bad debts, cash in transit, employee insurance, fire, glass, loss of profits, natural disasters, etc.

Standard Bank offers various business insurance solutions. A business banker at your local branch can introduce you to a financial consultant who can explain the following options: n Keyman insurance: This covers key individuals in a company, enabling the business to recover losses incurred if the employee dies or is disabled. n Deferred compensation: This is a mutually arranged plan between employer and employee, whereby the employer provides cash benefits, in addition to conventional approved funds, in the form of a gratuity at retirement or disability, or to the employees dependants on death. n Contingent liability plan: This is funded by a life policy which pays out on behalf of the business in the event of premature death or permanent disability. n Staff incentive scheme: Also known as preferred compensation, this provides staff who have special skills, training or experience, and who you wish to retain, with a cash benefit before retirement. n Restraint of trade agreement: This is used to protect companies against executives who want to leave their employer and set up a business in competition to them. n Buy and sell agreement: This provides surviving co-owners of a company with funds to purchase the interest or share of a deceased or disabled co-owner. n Loan redemption plan: This is a specially devised Standard Bank plan designed to release loan accounts for the personal benefit of shareholders, without affecting the capital needs of the business. n Health insurance: This includes traditional medical aid schemes, new generation healthcare products and top-up schemes that provide businesses with cost-effective health insurance solutions. A Standard Bank financial consultant can also help you to protect yourself and structure your personal wealth, eg, through retirement annuities, life insurance, disability cover, a hospital plan, medical aid and a will. Without insurance you run enormous risks and it is highly unlikely that you would be able to convince someone to invest in your venture. Therefore, it is a good idea to build an insurance review into your annual business planning cycle. 19

Creating a business plan

What a business plan is (and is not)

A business plan is a detailed overview of the current position of the business, where it wants to go and how it will achieve its goals. It is a strategic blueprint of a businesss past, present and future. A business plan is important because it forces you to think about what your business is doing. It prompts you to figure out where you want your company to be in the future and how you intend to make this happen. Your plan acts as an outline that guides and steers your business so that it can achieve all its objectives. This document will also be your calling card when you want to raise finance or find new investors and business partners. The importance of a comprehensive, well thought-out business plan cannot be overemphasised. Apart from financing, much hinges on it: credit from suppliers, operational and financial management and marketing. In short, achieving your goals depends on the creation and execution of a sound business plan. A business plan is: n The blueprint of your business and an explanation of your complete strategy. n A tangible representation to prospective stakeholders of who you are, what you are and what you want to achieve. n The result of research, planning, thinking and seeking expert advice. n A working document to be consulted frequently to keep you on track. A business plan is not: n Simply a means to raise finance. n Something a consultant can draw up without your involvement. n A thick file that gathers dust in the cupboard. The benefits of a business plan n It requires you to look carefully at your industry, customers and competition to determine what your real opportunities are and what threats or limitations you face. n It helps you to take a good look at your company in order to objectively recognise its capabilities and resources, its strengths and weaknesses. n A business plan also prepares you for an uncertain future by encouraging you to come up with business strategies and a contingency plan to increase your chances of success further down the road. n Putting your plan together will help you come to grips with the day-to-day running of your business by highlighting the kind of operational management that will be needed. In this way, ad hoc decision-making will be kept to a minimum. n A business plan provides direction to management and staff. 20

Key components of a successful business plan

Executive summary This is a brief overview that emphases the key issues of the plan. It is more than just an introduction; its the whole plan, only shorter. The executive summary should have the following headings: n The purpose of the plan (eg, to obtain finance, to attract investors, to stimulate growth). n Company description (including company name; industry in which it operates; key products/services; key patents/trademarks; a short analysis of the market in which you operate; characteristics of your target market; competitors and their activities). n Marketing and sales activities (your marketing strategy, eg, direct mail and advertising; your sales strategy, eg, sales staff or commission agents; your distribution systems; major customers; debtors information, eg, credit terms and debtors book maturities; and a sales forecast or sales budget). n Operating capabilities (including research and development, if relevant; major achievements; ongoing efforts; current status; key suppliers; credit terms; inventory details; production plan and a production budget). n Management and personnel (key owners and managers names, positions and expertise; key operational employees names, positions and expertise; ownership structure and owners contributions). n Financial overview (funds required and their use/application; historical financial 21

summaries; capital injected or current borrowings). The executive summary should not be longer than two pages, and should be the last part of the plan that you write. By completing the rest first, it will be much easier to identify the key ideas you want to convey in the first two pages. Business description and overview In this section you should provide an overview of how all the elements of your company will fit together. Touch on your companys business history and major activities, but leave the bulk of the detail for the later sections. This section should include: n Business and trading name/s. n Legal information (such as VAT number, tax number, tax clearance certificate, partnership or shareholder agreements). n Location. n Core business and market description. n Main products/services. n Debtors (describe the major potential customers, the credit terms the business will provide compared to industry norms, bad debt procedures, credit sales as a percentage of annual sales, and future market prospects). n Inventory (specify what kind of inventory shall be kept, such as raw materials, workin-progress or finished goods, and the average value thereof). n Creditors (terms arranged with suppliers and the delivery policies of these suppliers). n Competitive advantage. n BBBEE status. n Industry bodies (voluntary or compulsory) with which your business is associated. Market and environment analysis This part of the business plan deals with your business environment and should cover all the aspects of your companys situation that are beyond your immediate control. This includes the nature of your industry, the direction of the marketplace and the intensity of your competition. You should consider issues relating to the broader market as well as to your immediate environment. Broader issues may include: n Economic forces and international factors. n Social/cultural and technological trends. n Ecological issues and natural raw materials. n Political and governmental developments. Immediate issues may include: n Trade associations and trade unions.

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n n n n

Media and consumer groups. Public utilities. Transport and communications. Government regulations.

When writing the market analysis, be sure to include the following information: n The history of the industry. n The future potential of the industry in terms of outlooks and trends. n Details of your products and services. n A description of the primary target market and your market position (market share; future market share potential; the leadership position or potential position of your business and products). n Business analysis (sales trends in the market over the last three years and the expected trends for the next three years; the most profitable products/services now and in the future; the impact of technology on the business). n Competitive analysis (who the significant competitors are and which market segments they serve; their strengths and weaknesses; the threats that they pose both now and in the future). Company strategy The section on company strategy combines everything that you know about your business environment and your own company, resulting in your projections of the future. When discussing the overall company strategy, include the following: n A description of your market penetration strategy. n An outline of your planned geographical penetration. n A description of the distribution process for your product/service. n An explanation of your pricing and growth strategies. n An outline of any product support systems. n An explanation of how you will identify prospective customers. Product or service research and development As you develop this section, bear your readers in mind. Too much detail is likely to confuse and frustrate anyone who is not intimately involved in your business or industry. However, ensure that you do the following: n Describe the current lifecycle stage of the product/service and the factors that might influence this position. Every stage presents a unique set of market conditions and planning challenges. The different stages also require distinct management objectives, strategies and skills. n Examine any new technologies or scientific approaches that may find practical application in the next three years. Also list factors that may limit their development or market acceptance. n Describe new products/services that you plan to develop to meet changing needs. 23

Financial review The financial review covers both your current and expected future position. You should include at least these basic financial statements in the business plan: Profit and loss account: This presents the proverbial bottom line. Calculate net profit by adding all the revenue received from selling goods or services and then subtracting the total cost of operating your company. Balance sheet: This is a snapshot of your financial status at a particular time. It details the assets owned by the company, the money it owes to third parties and, ultimately, the worth of the business. Cash flow statement: This is a record of the flow of cash in and out of your company during a particular period. It tracks where money comes from and where it ends up. It is a good idea to include a three-year financial projection, taking into account growth and inflation rates. An accountant can help you to prepare these documents. If your business is new, include pro forma financial statements supported by adequate projections of the balance sheet, income statement and cash flow statement. Action plan In conclusion, you may want to draw up an action plan that describes how you intend to put your business plan into practice. This section could highlight any anticipated changes in management or business structure, as well as new policies or procedures you expect to implement. You could also outline any additional skills required by you, your managers or your employees to make the plan work.

Ten quality control questions

Before switching off your computer, check the quality and comprehensiveness of your business plan against these ten questions: 1. Are your goals tied to your company mission? 2. Can you point out the major opportunities? 3. Are you prepared for threats? 4. Have you defined your customers? 5. Do you understand and can you frequently assess your competitors? 6. Are you really ready for change? 24 7. Do you know your strengths and weaknesses? 8. Does your strategy make logical sense? 9. Can you validate and substantiate the numbers? 10. Is your plan clear, concise and up to date? Refer to Standard Banks Business Banking website www.standardbank. co.za for more information on how to formulate your business plan as well as a business plan template.

Basics of finance

How much is enough to start with?

Starting a business is a bit like moving into a new house you are usually well prepared for the obvious expenses, but the hidden extras can break the bank. During the start-up phase of a small business, the business owner needs funds for once-off costs as well as at least six months of working capital. Plan for things to cost more than you think, and include this budget in your business plan. If you are not sure what your expenses will be, make finding out part of your due diligence. Research similar businesses in your industry and aim to uncover any general expenses that you might not have thought of. If possible, consult an accountant who has small business experience. Typically, start-up costs include: n Expenses before the starting date, such as market research, registration fees, legal fees, office stationery, design and printing of corporate identity (business cards and letterheads), registration of a domain name and creation of a website, installations and utility connections (if moving into a new property). n Start-up inventory (if yours is a product-based business). n Cash reserve to support the company during the early months, before sales reach break-even levels. n Assets, such as fixtures and signage, office furniture and vehicles (either purchase price or down payments). n Long-term or fixed assets, such as property and equipment. Your start-up budget should also allow for initial monthly operating expenses, such as: n Rent, mortgage payments and loan repayments. n Website hosting and equipment leases. n Salaries and wages. n Ongoing advertising and marketing.

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Insurance. Tax and utilities payments. Transport. Office supplies and consumables.

Beware of the hidden costs Hidden costs are those you dont see, dont always expect and which seldom feature in a business plan. These costs vary, depending on the size and nature of your business, and can include: n Monthly interest on your business overdraft. n Bank interest charged by suppliers when you pay them late. n Interest lost when customers pay you late, or when you pay a third-party supplier before you have been paid by your own client for a product or service. n Maintenance, eg, IT support and vehicle services. n Depreciation of property and equipment. n Money lost by spending time on tasks that could be outsourced. n Commissions and administration fees of, for instance, benefit plans. n Employee turnover. This is one of the most substantial hidden costs in business today. Remember that an employee costs more than his or her salary. Factor in the cost of additional equipment, office furniture, perks, recruitment and training. You cant always avoid these costs but being aware of them helps you to minimise their impact and plan for them in your budget. 26

Financing options
The hunt for finance is an ongoing challenge for most small businesses in South Africa. Depending on how much you need and what you need it for, there are various funding options to get you up and running, as well as to help you provide for a rainy day. Before deciding how to finance your business, talk to someone who can provide you with expert advice, such as a business banker. Standard Banks business bankers offer practical advice and will answer any questions you have about your business banking requirements. These business bankers are situated at local branches across the country. They will help you to evaluate your business plan, set up accounts and arrange finance. They also have access to a team of support staff and analysts who will ensure that you get the best banking services available. You are welcome to visit any business banker at any Standard Bank branch should you require assistance when you are out of town. To find out where your nearest business banker is located call 0860 012 345 or visit the branch locator on the Standard Bank website www.standardbank.co.za. Financing options for every need 1. Overdraft: An overdraft is the ideal way to help you manage your cash flow on a daily basis. It is linked to your current account, is available when you need it and is repayable on demand. You only pay interest on how much you use and not on the full available overdraft amount. 2. Business loans: These are the most likely sources of credit for small businesses. Different banks offer different types of business loans, varying in minimum and maximum loan amounts, repayment periods, terms and conditions and value-adding features such as the ability to withdraw funds that were deposited over and above the agreed monthly repayments. Banks require a business plan and cash flow projections in order to evaluate the viability of the business for which you require a loan. 3. Contract finance: Another option available to small businesses (and especially Black Economic Empowerment companies) is contract finance. A small business might be awarded a contract to do a particular job, but might not be able to access the finance needed to start the work. Contract financing, as supplied by Standard Bank, is when the bank enters into a cash flow lending agreement on the strength of a firm contract. A specialist team reviews the contracting environment and assesses applications on an individual basis. As the business performs on the contract, so the bank pays regulated 27

amounts into a controlled account. Contract finance can be considered when a business has: n A contract from a South African blue chip company or a national or provincial government department. n A written, signed contract to supply goods or services for a defined Rand value within a defined period of time. n A contract for a minimum of 12 months. Collateral is not always necessary to obtain finance against a contract. However, the business owner/shareholders must be willing to inject some of their own funds into the project or contract. 4. Khula guaranteed loans: These are for small businesses that do not have enough assets to put up as collateral for a bank loan. To assist you, the governments small business finance agency, Khula, offers a credit scheme that provides an indemnity to the bank should your business fail to repay the loan. The business itself is not involved in the application to Khula for this indemnity; rather, the bank will facilitate this while the business merely applies to the bank for finance in the normal way. The amount of collateral required for a loan differs on a case-by-case basis and depends on a number of factors. To qualify for a Khula-supported loan, the sole proprietor or majority shareholder, member or partner must be the following: n Willing to make an own contribution to the business. This may be from 2,5% upwards, depending on the size of the loan. This contribution can be either cash or equipment that will be used in the intended business. n A full-time employee of the business. n A South African citizen. n Living in South Africa, which must also be the businesss principal place of operation. A Khula indemnity can be applied to all businesses, with lending up to R3 million, regardless of their ownership status. In other words, white-owned businesses and startup, existing or expanding businesses can qualify. 5. Vehicle & asset finance: This is the ideal way to finance all your new and used business vehicles and assets, in the following ways: n Instalment sale: The asset becomes yours when you make the last payment, but you can use it from the start of the agreement period. n Leasing: The asset belongs to the bank, but you use it and pay rent to the bank. At the end of the repayment period you may choose to buy it, refinance it or continue renting it. n Full maintenance lease: This is ideal for vehicle owners who dont want to concern themselves with car maintenance.

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Finrent: This package allows you to rent an asset without the burden of owning it. AccessFinance: This allows you to lower your interest by paying any extra money you have into an AccessFinance transaction account. If your business happens to need cash, you can withdraw the extra money from the account.

6. Commercial property finance term loan: This is a term loan primarily aimed at helping business owners to purchase commercial, industrial or retail property. In certain cases the loan can also be used to upgrade or improve a property. For property developers a commercial property loan offers building loans for the construction of commercial or industrial buildings. The minimum amount you can borrow is R500 000 and the interest rate is linked to prime. The loan is repayable over ten years in equal monthly or quarterly instalments. 7. Business mortgage: This loan offers business owners the opportunity to purchase, extend, or improve a residential property where up to 50% of the property will be used for business purposes. You can borrow up to R10 million over a repayment period of up to 20 years. The loan may cover up to 80% of the propertys assessed value and can be linked to an AccessBond facility. 8. Debtor finance: This is a form of finance to obtain the working capital needed for a growing business. Standard Bank purchases approved trade debtor invoices with an agreed portion, usually 75%, being paid at the time of purchase and a similar portion paid on all future approved trade debtor invoices. You can apply for debtor finance at Standard Bank if your business meets these criteria: n A minimum turnover of R200 000 a month. n Repeat orders from your customers. n You sell on credit terms not exceeding 120 days. n You trade with suppliers of sound financial standing. n You have few trade disputes. n All financial controls and administration should be fully computerised, allowing you to produce a monthly income statement and balance sheet. 9. Guarantee by bank: A guarantee by bank (bankers guarantee) is a written undertaking in which Standard Bank agrees to make stipulated payments on your behalf should you fail to fulfil or carry out specified terms of a contract. Guarantees may also be issued for the purchase of fixed property and against cash cover. The banks liability is restricted to the payment of a sum of money and under no circumstance does the bank accept responsibility for the completion of your contract.

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Managing your cash flow

Poor cash flow is one of the major causes of failure in small businesses. You can turn a profit but still go bankrupt if your business has a cash flow problem. Keeping your finger on the pulse of your businesss financial health is a daily job. Regardless of the size of your business, it is important to develop a cash flow forecast to indicate the estimated money flowing into and out of the business over a period of time. This will help you to set budgets and targets, and monitor performance. Other ways to control cash flow include: Keep overheads down: It is easier to save costs than grow profit, so dont buy new if you can do with second-hand, and dont buy at all if you dont really need it. Avoid credit terms: Bad debts are the quickest way to sink a small business. Make sure your payment terms are understood and agreed to in writing before a project begins or a sale is made. Debt collection: Follow up as soon as the money is due. A new debt is far easier to resolve than an old one. Improve supplier payment terms: Negotiate preferential payment terms, extensions of credit lines or discounts for early settlements. Keep stock/inventory to a minimum: Stock costs money to buy, transport and store. It can also be stolen, damaged or become obsolete. Managing stock sensibly is as important as managing cash flow. Budgets and budgeting A well-managed budget is the foundation as well as the scaffolding that you need to build a successful business. It helps you to keep an eye on the future while tracking past performance. It also tells you what you can spend each year and how much you need to make, thus helping you to set goals and prioritise your finances. Remember, though, that budgets are not set in stone and should be flexible enough to take advantage of unexpected opportunities, if and when they arise. How to make your budget work for you: n Set specific goals, eg, to increase turnover by 10% while keeping costs static. n Use as much data as you can when planning, eg, past statements and invoices. n Be sure that each expense category is a fixed expense that occurs each month on a set date for a set amount, like rent. n Variable expenses, such as advertising, can be controlled by monitoring what you 30

n n

spend and reducing or increasing it accordingly. Ensure that you have money set aside for fixed or variable periodic expenses. Review your budget each month or at least quarterly to check expenses against your financial plan. You may be under budget in one category and over budget in another. Find out why and amend your budget accordingly. A budgeting tool is a must and should form part of your software accounting package, either in the form of a ledger you keep manually or an Excel spreadsheet.

Financial statements All your activities have a financial implication directly or indirectly and good organisation is a must if you want your business to be profitable. You need to know exactly how your business is doing and how successful you want it to be, which is where financial statements come in. These are the statements most commonly used in business: n The income statement shows how profitable a business is by reflecting all income and expenses over a period. n The balance sheet is a key report that reflects the financial position of a business at a particular point in time. It indicates what a business owns (assets), what proportion of a business is financed with money from the owner (equity), and finally what money is borrowed and therefore still owing (liabilities). n A profit and loss account is a report of the companys profit on the sale of their 31

goods or the provision of their services over a trading period, normally one year. Management accounts reflect the companys current liquidity position and are used to help build cash flow forecasts and budgets. Management accounts compare your liquid assets, ie, those that can be easily turned into cash, (debtors, stock/materials, actual cash in the bank) to creditors, loans and taxes to determine cash on hand. A cash flow statement records your actual cash income and expenditure at the end of an accounting period.

Financial statements provide you with the information you need to measure your companys success and to make sound financial decisions. They allow you to analyse how profitable certain activities are so that you can take advantage of those that make more money for your business and eliminate those that dont. The statements are not, however, only for the business owners use. Even if you run a one-person business, you must submit financial statements for tax purposes. Larger businesses are legally required to prepare a full set of audited financials at the end of every financial year. Financial statements provide a history of the businesss successes, clues to its future viability, and essential information to financial institutions when you seek financing. A number of role players are involved in the process of completing a full set of audited financial statements: A bookkeeper records the day-to-day transactions in accordance with the money management framework and system of the business. The bookkeeper also completes the financial and management accounts on a regular basis. An accountant deals with more specialised tasks such as preparing the year-end financial statements and analysing them to advise the business owner on business strategy. An auditor conducts an official examination of the business accounts and financial statements and expresses an opinion on their validity and reliability. Bookkeeping chores As with most other administrative tasks, paying daily attention to your businesss bookkeeping is the best way to stay on top of your finances. This allows you to: n Keep track of your business expenses and stick to your budget. n Assess your daily, weekly and monthly sales to see if you are meeting your targets. n Provide a bookkeeper or accountant with all the necessary information to prepare financial statements for tax or other purposes. n Print your business bank statements regularly and go through them to check that the bank charges and debits are all correct. If you want to query a charge or transaction, call or email your bank immediately.

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Proper invoicing Many entrepreneurs are so caught up in their big idea that they neglect business basics, such as issuing proper invoices. A proper invoice should include: n Your business name, contact details and VAT number (if you have one). n The invoice date and number. n Your customers name and VAT number (if they have one). n A description of the product or service for which you are invoicing. n Amount due (plus VAT, if applicable) and date on which payment is due. n Your banking details. n A note asking customers to provide proof of payment via email or fax. Collecting debt An unpleasant reality of doing business is the fact that not all customers are good at paying their bills and late payments and bad debts can create cash flow problems for even the most successful business. Heres how to handle them: Communicate your payment terms. Is your invoice payable on presentation or after 30 days? Make sure your customer knows this. Have a standard reminder letter. Once a debt is more than a week overdue, issue a standard reminder together with a copy of the invoice or an account statement. Follow up with a phone call. Dont rely on post or email. You need to contact your customer in person to check that he/she has received the invoice and/or reminder letter. Often there is a perfectly reasonable explanation why an invoice hasnt been paid, eg, it was posted to the wrong address. Get everything in writing. If your customer promises to pay your invoice within a certain period, get the undertaking in writing. This provides additional proof of the debt (should you need to take legal steps) and gives you a timeline in which to follow up. If worse comes to worst and you have to take legal action, keep the following in mind: If you are owed money in your personal capacity (ie, if you are a sole proprietor) and the debt is less than R7 000, you can go to the Small Claims Court. A clerk of the Court will help you to complete the forms, send a letter of demand and set a date for a hearing. If your business is registered as a CC or a company, or if the debt is more than R7 000, you will need to use the services of an attorney, who will send out a formal letter of demand. The letter of demand serves as a notice that you intend to take the other party to court if the debt is not paid. If the other party does not respond, your lawyer will issue a summons. Depending on the other partys response, you may have to go to court to get a judgement.

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Basics of banking

Why business banking?

Your personal finances and those of your business are not the same and should therefore not be managed through the same account. Conducting your business activities through a business account makes it easier to keep track of all your transactions and a finger on the pulse of your companys financial health. Other benefits of business banking include: n Simplified accounts and bookkeeping. n Simplified compliance with legislation. n A credit history. Should you need to apply for business finance, a business bank account ensures that your bank is already familiar with your business and how it conducts its accounts. n Access to a business banker who specialises in business banking solutions and serves as your dedicated point of contact at your local branch.

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Access to a range of business banking solutions: Transaction solutions such as a business current account, cheque card, cheque book, ATM card, garage card and credit card. Payment solutions such as merchant services. Cash solutions such as a Bulk Teller in your local branch or an Autosafe Mini at your work premises. A wide range of savings and investment solutions. Lending solutions such as an overdraft, business loans, vehicle and asset finance, a business mortgage, property finance, home loans, debtor finance, etc. Wealth solutions such as insurance and investments. Self-service and electronic solutions such as online banking. If you are thinking about exporting or doing business abroad, Standard Bank has experts in foreign exchange and trade-related issues who can provide you with the necessary financing options. Standard Bank also has specialists in asset finance, debtor finance, property finance and online banking, who can assist you with your business.

Standard Bank offers the following products for business banking customers: Business current account You can deposit, withdraw and pay funds via various transactions and channels, such as ATMs, Internet banking, Business Online and branches. The account maintains accurate banking records, produces statements and helps you to build and maintain a banking relationship and credit risk profile. Business cheque card This card can be used like a credit card, but the money you spend is taken directly from your business current account, much like a cheque. One of the benefits is that you can use your business cheque card at an ATM to withdraw cash from your business cheque account. ATM/debit card With this card you can do your banking on the Internet, by telephone, cell phone and at AutoBank centres. You can also use your card to pay for purchases. Garage card This card can be used to pay for vehicle-related expenses, including fuel, repairs, spares and tollgate fees. To make tracking your vehicle expenses more convenient, you can have up to nine garage cards linked to your credit card account. Credit card A business credit card is ideal for small businesses and can be used to withdraw cash or pay for almost any purchase wherever you go. Some of the benefits of the card include duplicate credit card slips for more accurate account reconciliation, no transaction fees on purchases and improved cash flow thanks to 55 days of interest-free credit. 35

Understanding banking services

Many business owners still choose not to use banks to manage their money. Unfortunately the world has changed to the extent that it is no longer safe, nor wise, to keep large amounts of cash in your wallet or on your property. Banks continuously improve their understanding of business customers and their needs, and in recent years small businesses have become a specific focus area. Therefore, when you start your own business, open a business bank account as soon as possible. In order to do this you will need to take the following documents to your bank: n Original business registration papers. n Green identity document or passport. n A clean credit record. n Two business trade references (or a business letterhead). n South African income tax number (if issued and available). n Any one of the following (to show your businesss street address and your residential address): municipal rates and taxes invoice; water and electricity bill; a bank statement from another bank; a recent lease or rental agreement; Telkom statement; and letterhead of the business. n Three months of personal bank statements. Here are some basic explanations to help you understand the intricacies of banking. The cost of banking Banking costs fall into two categories: 1. Transaction-based costs, which are calculated per transaction. The more transactions you do per month, the higher your bank charges will be. 2. A fixed monthly fee, which covers a certain number of transactions per month. If you exceed the number covered by the fixed fee, a cost per transaction is levied. It is important to understand the value you receive for the price you pay. Benefits can include the safekeeping of your money, interest earned on savings and convenience. The bank records all activity on your account, so you can keep track of your money. Not only do different banks charge different fees, but each bank also has different types of accounts with different associated costs. It is therefore important that you ask enough questions before committing to a bank and an account type. There are, however, ways to cut down on banking charges: n If you are a Standard Bank customer, always try to use a Standard Bank AutoBank. It is cheaper than doing the transaction inside a branch or using another banks ATM. 36

n n

Use your bank card or credit card to shop and recharge airtime; it is safer and costs less than withdrawing cash. Look after your bank cards. You will have to pay a replacement fee if they are lost. Make sure there is enough money in your account for the payments that have to be made, to avoid paying declined transaction fees. Where possible and practical, arrange with customers to pay their accounts through direct transfers this will save you deposit fees. Where possible and practical, arrange to pay your suppliers through direct transfers rather than by cheque or with cash. Make use of self-service solutions, such as ATMs, Internet banking, cell phone banking and telephone banking. Not only is this cheaper than a branch but it also saves you time. And time is money. Services like MyUpdates and Standard Banks call centre can help you to keep track of your money, get easy access to statements, balance enquiries, update information, increase or decrease limits, make payments and inter-account transfers, and recharge pre-paid airtime, to name but a few.

The cost of borrowing money Borrowing money from a bank, in the form of a loan, attracts the following costs: 1. An upfront fee for structuring the loan, based on the loan amount. 2. A fixed monthly management fee for maintaining the loan. 3. Monthly interest payments, determined by the size of the loan. 4. A monthly capital repayment that pays back the actual loan. The last two payments are usually added together, resulting in a single amount to be repaid every month. When you want to borrow money from a bank, remember that you will need collateral or security. Collateral is any asset(s) you own, such as a house, a building, investments or savings, which you promise to hand over to the bank if you cannot repay the loan. Unfortunately, the smaller your business, the more collateral the bank may demand as you will be regarded as a high-risk customer. How to apply for a loan It takes patience and a lot of paperwork to apply for a loan. It therefore helps to be 37

prepared and well organised. Whether you are a first-time loan applicant who has no history with the bank, or an existing customer who needs a larger-than-normal loan, the type of information required is more or less the same. You will need to supply:
n n n n n n n n n n n n n

A copy of your business plan and CVs of directors or members. Projected cash flow for the next 12 months and annual financial statements. Six months of banking statements for an existing business (if held at another bank). Up-to-date management accounts. The reason why you need the loan and a breakdown of what it will be used for. Personal financial statements of all directors or members. A pro forma balance sheet (showing your expectations). A copy of the offer to purchase or lease agreement. Company registration documents. Six months of statements of the directors or members personal bank accounts. Identity documents of all directors or members. Details of the owners contributions and the source of these contributions. Details of the security to be offered.

When assessing your application for a business loan, banks consider the way in which the business is managed, its financial situation and prospects, security and collateral, and environmental factors that may impact on profitability and sustainability.

How to conduct your business bank account

It is important to manage your businesss bank account in a responsible manner. This will help you to maintain a good banking profile, which will come in handy when you apply for credit facilities. n Ensure there are sufficient funds in your account to cover debit orders and any cheques that you issue. n Keep your account active, ie, transact frequently or at least once a month. n Never exceed your credit allowance. n Keep your bank informed of any changes to your personal or business details, such as addresses and telephone numbers. n Be honest with your bank about your financial position when applying for a new product or service, or when changing details on accounts you already have.

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If you find yourself in financial difficulties, talk to your bank sooner rather than later. The sooner you discuss the situation, the easier it will be for the bank to find a practical solution that suits and protects both parties fairly. Never knowingly deposit a worthless cheque into your account, as this is fraud. You will be liable for all losses and will expose yourself to criminal prosecution.

As a business owner, it is important to treat your bank as a business partner, and not as the enemy to whom I owe money. Fortunately, banks also prefer building relationships with their customers in order to provide better service. Building a good relationship with your banker need not be an onerous task. Here are some tips to get you going: n Be open and honest and provide as much information as possible. n Interview your business banker to determine how well he or she understands your business and whether he or she needs more information. n Keep your business banker informed of developments within your business by inviting him or her to visit you, especially when you reach significant milestones. Think of your bank as an investor in your business. It has a stake in your business and needs to be treated as well as any other stakeholder. How to keep your money safe It is much safer to keep your money in the bank than at your business or in your wallet. However, you also have a role to play to ensure that criminals dont get their hands on your hard-earned funds. Use these tips to be more safety-conscious: n Your personal identification number (PIN) is your secret. Never tell it to anyone, not even if they work for a bank or are family members or friends. Remember that no bank official will ever ask you to reveal your PIN, therefore be aware of criminals who claim to work for a bank and ask for your PIN. n Be on the alert for muggings and card swapping at ATMs or other electronic banking devices, such as credit card machines in restaurants. Never ask for, or accept, help from a stranger. n Inform your bank immediately if you realise, or suspect, that any of your cards, cheques or other items that can be used to access your money, are stolen or lost. Make a note of the reference number given to you when you report the loss, as this serves as confirmation that you did report it. n Make sure you get your card back after paying for purchases or withdrawing money at an ATM. Report your card lost should it be retained in an ATM machine, as this could be a scam. n Never, ever respond to an email requesting you to verify your banking details by sending a return mail or logging onto a website. Your bank will never send such a request. When in doubt, contact your bank.

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Frequently asked questions

How long after I deposit funds will they reflect in my bank account? Cash deposits will be reflected in your account immediately and cheque deposits only after seven working days. If you need the funds quicker, you will need to contact your branch before depositing the cheque. Electronic transfers from debtors who bank with the same bank as you, will reflect in your account immediately or within 24 working hours at most. Electronic transfers from other financial institutions will reflect in your account within two to three working days. How long after making a deposit can I withdraw my money? This depends on the banking channel you use to deposit your money, whether cash or a cheque is deposited, as well as the type of account you have. n Cash deposits: If you deposit cash at a branch you can withdraw the money immediately. If you deposit money via an ATM you can withdraw your money two days later, unless you deposit it on a weekend or public holiday, in which case the money will only be available after two business days. n Cheque deposits: The value of the deposited cheque will immediately be added to your total balance, but only once the cheque is paid by the drawers bank will the money be available for you to use (the drawer is the person or business that issued the cheque). A cheque is normally cleared within seven business days. If you deposit a cheque at an ATM, the waiting period could be longer. For how long is a cheque valid? A cheque becomes stale six months after the payment date on it, except if it is a government cheque, which is valid for three months. The cheque will not be cashed or paid into your account after this time. What if my account is overdrawn? Your bank will charge you a special fee for the first transaction that causes you to exceed your overdraft limit as well as penalty interest on the overdrawn portion. Having unpaid items on your account could negatively affect your ability to qualify for additional credit facilities. You should therefore always make sure that there is money in your account to cover the cheques you issue. When will interest be paid to me? Some accounts pay interest on credit balances. The interest is calculated and paid into your account on the last business day of the month and includes interest up to and including the previous day.

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Simplify your business banking

Visiting your local bank branch is not always convenient when you have a business to run. Fortunately, there are a variety of options that make your life easier and simpler: ATM machines: AutoBank machines (Standard Banks Automated Telling Machines ATMs) give you the flexibility to manage your financial affairs without having to visit a branch. All customers who have a Standard Bank card and ATM PIN, or customers from other financial services institutions who have a Saswitch-approved card and valid ATM PIN, can use Standard Banks AutoBank and AutoCash machines. The following transactions can be done on AutoBank and AutoCash machines: n Cash withdrawals and cheque or cash deposits (AutoBank only). n Balance enquiries, mini statements and inter-account transfers. n Recharge Cell C, MTN, Vodacom and Telkom pre-paid airtime. n Account payments. Internet banking: Online banking allows you to do your banking from the convenience of your home or office. It is ideal for business owners who have basic online banking requirements. It works well in instances where there is only one person managing the finances and where a moderate number of payments are made every month. You can make payments, check statements, transfer money between linked accounts and draw balance enquiries via Internet banking. It saves you time, is immediate and easy to use. A Standard Bank customer can register for Internet banking by following these steps: 1. Go to www.standardbank.co.za and click on Internet banking. 2. Click on New Registration on the left hand bar. 3. Key in your Standard Bank card number and ATM PIN. 4. Complete the profile page and call the Customer Contact Centre on 0860 123 000. 41

5. A consultant will activate your self-service banking profile. 6. Return to Internet banking, click on Create PIN and Password and follow the steps. Business Online: For businesses that make a lot of payments every month and have two or more people managing the finances, Standard Bank offers a more sophisticated online solution called Business Online. To use this product, the bank needs to install software on your computer to ensure maximum security and quick response times. Apart from the usual Internet banking transactions, Business Online allows you access to international banking, foreign exchange services, online share trading, HR payroll integration and accounting system integration. You can register for Business Online by contacting your business banker at Standard Bank. A Business Online consultant will then phone you to set up an appointment to determine your requirements. Telephone/cell phone banking: It is also possible to use your telephone or cell phone to do your banking, 24 hours a day, from wherever you are. Telephone banking is safe and convenient and you only pay for the transactions you conduct. You can either use the self-service option to do basic transactions by following the prompts, or you can talk to a consultant who will help you with more complicated transactions. Cell phone banking is like having an ATM or Internet banking on your phone. How to register for telephone banking: 1. Call 0860 123 000 and select option 1. 2. Key in your Standard Bank card number and ATM PIN. 3. You will be transferred to a consultant who will complete and activate your selfservice banking profile. 4. You will be asked to create a customer-selected PIN. How to register for cell phone banking: 1. Go to sbcell.co.za on your cell phone browser. 2. Select Register. 3. Key in your Standard Bank card number and ATM PIN. 4. You will be asked to complete certain personal details. 5. Create your customer-selected PIN MyUpdates: Standard Bank offers a service that notifies you via SMS or email every time a transaction is processed on your account. With MyUpdates you will always know where your account stands and when money goes into or out of it. You will also be able to identify and report any transactions that you did not authorise. Types of activities on your account that you will be alerted to include purchases, withdrawals, transfers, account payments and deposits. 42

BBBEE basics

BBBEE and what it means for your business

Empowerment is not about giving away or receiving free shares in a business just to meet legislative requirements. Rather, it is a tool for growth and sustainability that every South African business owner should learn how to use. What is BBBEE? Broad Based Black Economic Empowerment (BBBEE) is the cornerstone of the South African Governments efforts to educate and train the large sector of the population that was disadvantaged under apartheid rule. It aims to accelerate the participation of black people in the economy by encouraging change in the following key areas of business: ownership, management and control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. When implemented correctly, BBBEE supports job creation, global competitiveness and economic growth. It also has the potential to reduce the burden on entrepreneurs and help to create a more skilled workforce. 43

How can BBBEE benefit small businesses? All businesses need access to capital and markets in order to operate successfully, and a carefully planned BBBEE strategy can help to provide these in the following ways: 1. Providing access to finance for BBBEE companies is a priority for banks and other lending institutions. Assuming there is a strong business case to support the application, a BBBEE-compliant company is therefore likely to find it easier to access financial and related resources such as training and mentoring. 2. Businesses that are BBBEE compliant have a competitive edge when tendering for new work. Preferential procurement is rapidly becoming standard practice and when all other factors are equal (such as price, quality and product offering), BBBEE compliance is the one factor that could determine which business wins the work. 3. As the benefits of BBBEE filter through, more black people will be brought into the mainstream economy. It is predicted that in a few years the vast majority of people who fall within the top few income categories (Living Standards Measures seven to ten) will be black. Complying with BBBEE legislation is the first step towards tapping into this market. Ultimately BBBEE affects everyone and every part of a business, and heres why: the BBBEE Codes of Good Practice are legally binding on all government and governmentowned entities, which have ten years to reach the stated targets. This means that all government entities are obliged to use the Codes to measure BBBEE compliance when choosing suppliers, granting licences or making concessions. In other words, they will require all their suppliers to be BBBEE-compliant and the cascading effects thereof will make it hard for any non-compliant company to grow or maintain their level of business success in South Africa. In terms of the Codes, preferential procurement counts as much as ownership does, 44

which means that publicly-owned companies will also be looking to use suppliers who themselves have high BBBEE ratings. Even if you dont do business with government or public entities, your clients might and they will need your score to help improve theirs. Simply put, BBBEE is an economic strategy, not a political one, and a comprehensive, well thought-out empowerment plan can help to deliver both the capital and broader markets that your business needs in order to grow. The business of getting rated Code 000 of the Broad Based Black Empowerment Act of 2003 outlines the general principles of BBBEE, including the generic scorecard and framework for measurement. BBBEE compliance is determined according to the number of points a business scores on the generic scorecard. The more points it scores, the higher its level of compliance. The BBBEE generic scorecard, as well as any industry or sector codes that are based on it, measure BBBEE compliance in three broad areas: direct empowerment, HR development, and indirect empowerment. These are further broken down into seven sub-indicators, ie, ownership, management and control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. A number of points and targets are allocated to each of these indicators and your scores are calculated based on how close your business is to each target. For example, if you meet or exceed a particular target, you can claim the full number of points allocated to it. If you are halfway towards the target, you can claim half of the points allocated. The total number of points you score on the entire scorecard tells you what level of BBBEE contributor you are. A business is regarded as being 100% BBBEE compliant when it reaches level four, ie, scoring 65 points or more. In this way, the scorecard provides an overall view of all the BBBEE actions your business takes, rather than measuring merely ownership status. However, ownership is still regarded as a strategic objective. Your rating is best calculated with the help of an independent verification consultant, especially if your business has a detailed ownership structure. A number of rating agencies, or verification consultants, such as Empowerdex, assess companies according to the BBBEE Codes of Good Practice and provide an independent opinion on their economic empowerment status. The result of the rating process is expressed in a rating certificate, which is valid for 12 months from the date it is issued to your company.

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Who is exempt from BBBEE? The generic BBBEE scorecard can sometimes make it harder for small businesses to compete head-on with larger companies that typically have more financial capacity and resources to pursue BBBEE compliance. The Codes make provision for this in two ways: by defining businesses that are exempt from BBBEE criteria (Exempted Micro Enterprises EMEs) and businesses that are given special consideration based on their size (Qualifying Small Enterprises QSEs). An EME is any business with revenue of less than R5 million per annum. According to the Codes, these businesses are automatically regarded as level four BBBEE contributors. They do not need to complete a scorecard all they need to do is prove that their annual revenue is below R5 million. Black-owned EMEs benefit even more these are automatically regarded as level three BBBEE contributors. A QSE is any business that has annual revenue of less than R35 million, but more than R5 million. The Codes state that QSEs may rate themselves using only four of the sections of the generic scorecard, in contrast to larger businesses, which have to be rated on all seven. Additionally, some of the sub-indicators and targets within each section have been simplified, and each sub-indicator carries the same weighting. This means, for example, that a black entrepreneur who is just starting out could focus on ownership and control until he or she is more established. Similarly, a QSE that is not black-owned, but which scores highly in skills development, preferential procurement, enterprise development and socio-economic development, can still score enough points to be a level one contributor. This levels the playing field and makes it possible for small businesses to contribute to BBBEE in a meaningful way.

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Need-to-know info

Where to go for more information

PLEASE NOTE: Standard Bank does not endorse the following resources in any way. These are intended as information reference points only. www.seda.org.za The Small Enterprise Development Agency (SEDA) is a development and support agency operating within the Department of Trade and Industry (the dti). SEDA and Standard Bank collaborate to provide capacity building tools for small and medium enterprises by giving entrepreneurs a wide range of financial services and non-financial support. This includes business plan guidance, information on franchising, and mentorship services for new and growing businesses. SEDA also has a National Information Centre that people can contact with questions about how to start and run their businesses. Tel: 0860 103 703 www.actionwise.co.za Business and management enhancement training, case studies and queries. http://africa.smetoolkit.org Free software, forms and tools. www.bizassist.co.za A South African information and resource centre for small businesses. www.bizland.co.za Applications, services and information for small businesses. www.bni.co.za A global business professionals referral organisation. www.businessowner.co.za A web-based source of news and information for owners and managers of businesses in South Africa. www.entrepreneur.co.za An information, workshop and coaching resource for entrepreneurs. www.espn.org.za The Entrepreneurs Service Provider Network, which provides access to a broad range of basic business services. www.idc.co.za The Industrial Development Corporation (IDC) is a self-financing, state-owned national development finance institution.

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www.info.gov.za/issues/govtprog/ start.htm Information on setting up a business, finding business partners, contact details for support organisations in your area, franchises, mentorship and more. www.jcci.co.za The website for the Johannesburg Chamber of Commerce and Industry, an independent, non-political organisation dedicated to promoting and protecting the interests of business. www.khula.org.za Khula Enterprise Finance is an independent agency of the dti, and is a financial facilitator for the development of small and medium enterprises. www.paralegaladvice.org.za Legal information on general and small business issues. www.sacob.co.za Market and local business news, from the South African Chamber of Business. www.saeverything.co.za/business.htm A South African business resource portal. www.small-business-hub.co.za Small business loans, business plans, business opportunities and finance.

www.smallbusinessowner.co.za Opportunities and information on small business issues in South Africa. www.smesurvey.co.za The SME Survey website offers access to a wealth of research information on the small and medium business sector in South Africa, as well as a chat forum, news room and events calendar. www.thedti.gov.za The official website of the dti. It includes general information and advice for small business owners, plus detailed information on BBBEE. www.theinnovationhub.co.za A hi-tech business hub in Gauteng that provides business support to technologyrich and innovation-based start-up businesses. www.uyf.org.za Umsobomvu Youth Fund portal, including information on entrepreneurship and starting your own business. www.windowofopportunity.co.za A free resource website that provides South African entrepreneurs with ideas and inspiration for new business concepts and opportunities.

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www.standardbank.co.za
Registered credit provider (NCRCP15) Authorised financial services provider The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06).

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