5 questions to ask before starting your own business

Launching a small business is a very exciting process but it is also very risky. Here’s what to ask yourself before you take the plunge.

Some figures, such as Adcorp’s Employment Index (released in February 2012), indicate that close to 440 000 small businesses folded over the past five years. However, South Africa’s business sector isn’t necessarily so dire: risk-finance company Business Partners conducted a survey, which found that roughly three-quarters of registered small businesses report that they are profitable.

There is certainly opportunity for entrepreneurs to start new ventures, but considerations such as rising fuel costs, employee wages and uncertainty in international economies necessitates that aspiring business people do their homework. Here are five essential questions to answer before you take out a loan or purchase the office space to start your business venture:

1. Why am I starting a business?

If you are starting a business just to make money or spend more time with your family, chances are you are not going to make it. You need a passion and a love for what you do, as well as an educated belief that your product or service will fulfil a need in the marketplace. There are pros and cons to entrepreneurship, and you should weigh these up before you embark on your business venture. 

Starting a business allows you to:

• Be your own boss.
• Do what interests you for a job.
• Be creative.
• Increase your earnings.
• Benefit from ownership tax incentives.

Some cons to starting your own business include:

• You risk not having a stable income.
• Running a business is a full-time job with a lot of stress.
• You carry all responsibility and risk for the business and any staff you employ.

2. Am I financially ready to start a business?

In the initial stages of starting a new business, some form of financial sacrifice is not uncommon. There is also the potential to lose money if the business fails. Bear in mind that you will be paying for expenses such as health insurance and retirement savings, office rentals and materials, staff salaries and the general running costs of your business.

Unless you have a large excess of start-up capital, there are different ways to acquire the necessary monies:

• Ensure that you have a convincing business plan with which you can approach venture capitalists.
• Investigate the possibility of government loans and grants for new businesses. Generally there are strict and specific conditions for these loans.
• It is not advisable to get a loan from relatives or friends, because new business ventures have the potential to fail, and lost money can strain friendships and family relationships beyond repair.

The best approach is to start your new business part-time, while working another job. Over time, this should provide you with enough start-up capital to get things off the ground. You also won’t be stranded if your venture is slow to take off.

3. Do I have the correct attitude?

Mental strength will steer your business towards success. Entrepreneurs are not necessarily born with a predisposition for business. It is something that is developed over time and with experience. Look to identify any of the following characteristics of entrepreneurs in yourself:

• Do you take calculated risks by making well-researched decisions?
• Do you approach problems logically while applying your intuition and experience?
• Do you have good interpersonal skills?
• Do you view failure as a learning experience that can be built upon?

The correct attitude takes dedication and effort. Remember that your mental drive and determination will permeate through your business.

4. Have I planned enough?

A solid business plan will form a great foundation for your business. Identify the business’ vision, goals and work-force needs. There are many business plan templates available online. Essentially, a comprehensive business plan should include the following:

• What your business will do.
• How your business plans to make money.
• Why your business will be successful.
• What your marketing plan is.
• What the management structures are.
• Where you will be operating.
• Financial forecasts for future income.

When your business has been in operation for more than a few months, you will include an income statement, cash flow statement and a balance sheet.

Remember to keep yourself up-to-date with all the legislation involved in starting a small business. You can read more about South African legislation here.

5. Do I have the necessary business skills?

Always improve on your qualifications with courses and certificates. Make sure that you have the necessary training and expertise to be a good leader and manager of a business. Poor management could severely hinder your business’ future. Effective business people are multi-skilled, with proficiency in finance, communication and people management.

Starting a new business can be a rewarding experience. According to the Small Business Administration (SBA), seven out of 10 new businesses survive at least two years, while 51% survive for at least five years. Therefore, if you plan thoroughly and add to your personal managerial credentials, you will be well-positioned to start your own business.

To learn more, consider the part-time UCT Start and Manage a Small Business short course. For more information, contact Stacey on 021 447 7565 or Stacey@getsmarter.co.za. Alternatively, visit: www.getsmarter.co.za