Too expensive?

Is it too expensive to start a business in South Africa?

Starting a business in South Africa can be expensive, although it doesn’t have to be. It also depends on your definition of a business and more specifically how you visualise your business.

In their business vision or plan, many entrepreneurs will picture their business with setup costs that may include any of the following:

  • Company registration costs.
  • Rental or purchase of business premises.
  • Office furniture and equipment.
  • Business software such as accounting, MS Office, CRM, etc.
  • Website design and internet connectivity.
  • Reception / office admin person; accounts clerk, driver, sales rep.
  • Delivery vehicle, sales vehicle and owner’s car.
  • Branding design, signage and product literature.
  • Machinery required to make product or provide service.
  • PCs, laptops and cell phones.
  • Product to use in manufacture or to resell.

Then there needs some to be some money to pay for company expenses before the sales start rolling in, such as:

  • Wages and salaries.
  • Petrol
  • Insurance
  • Security
  • Electricity and water.
  • Internet access and webhosting.
  • Phone data.
  • Loan interest and repayments.
  • Various taxes (VAT, EMP, UIF, SDL , etc)

Now your specific business might have slightly different requirements, but I think you get the idea. When you start adding up all those costs, suddenly you are looking at quite a lot of money. Then you find out that sales aren’t quite as high as you hoped they would be and it ends up taking a year before you start making profits, so you need enough start up money to pay for expenses for twelve months. Then factor in when your first product doesn’t work properly, or your service has some unexpected results, and customers refuse to pay.

Yes, it can be expensive to setup a business. Sometimes very expensive.

Setting up your business with all the costs mentioned above, especially if its your first time is not a good idea. There are just so many things that can go wrong, some that are beyond your control. Your business might fail for many reasons and although there is no accurate, reliable data, the general signs seem to indicate that most businesses never see out their first year. In any event, if it was a high success rate endeavour, many more people would be business owners and entrepreneurs.

To reduce your setup costs and overhead expenses we suggest the following:

  • Change the startup vision you have for your business. That picture you have of an office with staff, in a building with branding and cars parked outside is your five year or ten year vision. It should not be your start up vision. Instead I am afraid you have to settle for a much less glamorous vision which will be something like you doing all the jobs from your uncle’s garage using your bicycle to deliver. Totally uninspiring I agree, but at least it requires less money. Buy your cars and offices from your profits much later on.
  • Start and grow slowly. You will probably make many mistakes when you start. Rather make these while you don’t have big overhead expenses and only a few customers. Also the bigger your business is, the more it costs to run. Yes that can make it more profitable, but that is not always the case. Starting small and growing using your profits is a slow way to grow, but it is the cheapest.
  • Use a small business support incubator which uses existing assets and staff to run your business for you. This means no upfront costs for most overheads and expenses, with almost everything financed from sales. Essentially its possible to start your business this way with the only cost being providing some stock to sell. If your business is a service there might be no cost at all.
  • Spread out the costs by finding business investors or partners to invest in your business. You will have to share profits but at least they will help fund the business setup.
  • Change your business model to rather be an agent, which usually means you deal with and supply customers, but manufacture, storage , development and all those other expensive things are done by your supplier. Your margins will be lower, but so will your costs.