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Small business finance

The million-Rand question for every aspiring business person is nearly always, “Where do I find the money to get my great idea off the ground?”

It can be easy for first-timers to underestimate how much finance is needed and for how long. Often, people are overly optimistic about how soon profit will start flowing back into the business, or underestimate the long-term cost and effects of overheads, such as insurance, depreciations and equipment maintenance.

Finance checklist for start-up businesses

Don't worry; it's totally normal to be a little too optimistic when it comes to costs, especially if you have no previous experience running a business. When doing your figures and forecasts, it pays to be cautious and extremely thorough. Don't forget to consider both upfront and on-going costs. Other things to keep in mind:

  • Equipment: Get prices for both new and second-hand. You may be surprised by how much you’ll save by buying pre-loved desks and/ or machinery. Remember to factor in extended warranties, maintenance and repairs.

  • Location: Rented office/ workroom space, if required.

  • Phone and Internet: Shop around for “bundle” deals. Comparison websites make this process a lot easier.

  • Materials and Packaging: The cost of sourcing, delivery and storage. Ask for terms that give you a bit of breathing space with cash flow.

  • Insurance: Again, shop around for good deals and thoroughly research your options until you find something that suits your business.

  • Branding: Logo, business cards and stationery, if required.

  • Offline Advertising: Promotional material, such as brochures or flyers, may require the services of a photographer or graphic artist.

  • Online: A good website is a necessity for businesses these days and the services of a web developer may be required.

  • Staff: Wages, retirement/ pension funds, UIF, insurance and uniforms may be required.

  • Transport: Distribution and travel.

  • Tax: The SARS website has some great information about tax for small businesses.

  • Professional Fees: Accountant, solicitor, web designer/ developer and any other professional you have engaged.

  • Delayed payments: You may have to pay your suppliers before your customers pay you. This has the potential to cause a cash flow crisis that could stop your business in its tracks if there isn’t sufficient money in the kitty to keep things going.

  • Personal Finance: Make sure you have the funds to keep you and your household going until the business is booming.

Include finance information in your business plan

Before you visit your accountant or whisk your wealthy aunt off to your favourite shebeen, we highly recommend writing a business plan (an essential document that you'll need when it comes to financial planning). Typically, a business plan should include detailed costs, pricing structures, margins and projected profits.

This important document is the first thing a commercial lender or any savvy lender asks for, so make yours as professional and business-like as possible.

It's not just banks that will be impressed. If you're asking family or friends for financial assistance, your chances of being taken seriously will be greatly enhanced if you can show them your beautifully presented and cleverly thought-out business plan.

Talking to banks, investors and lenders

No matter who or what you're asking to lend you money for your small business, be prepared for lots of questions, some of which might make you feel uncomfortable. Think the possible answers through and rehearse them in front of your partner or a close friend. The more polished your responses, the more confident you'll feel when talking up your business idea to a prospective source of finance.

Some of those questions might be:

  • How will you use the loan?

  • How will you repay the loan?

  • Does your business have the ability to make the payments required under the loan?

  • How much money do you need?

  • Can you put up any collateral?

  • Are you willing to put up any personal guarantees? 

Commercial lenders will typically ask for:

  • Details of your current financial situation

  • Your tax returns

  • Security offered

  • A description of any litigation or bankruptcy filings

  • A completed loan application

  • And, of course, your all-important business plan 

Have these documents at the ready when applying for a loan:

  • Copies of last three months’ bank statements (for the account into which your salary is paid electronically) and it must include a complete month-end history.

  • Your most recent payslip(s) for three months.

  • Your South African green bar-coded Identity Document.

  • Proof of residence for Financial Intelligence Centre Act (FICA) purposes, i.e. Utility bill (electricity, rates, water account etc.) 

Put your best foot forward when talking face-to-face with possible lenders – and anyone else to do with your business. Dress and speak professionally, get your hair done (great excuse to visit your hairdresser), and carry your documents in a bag. It's also a good idea to find a babysitter for those times when Mom needs to talk business.

Approaching lenders for finance

Your first port of call may be your own bank. However, the big banks are by no means the only source of small business finance. Do your own online search and you'll find websites that will allow you to apply online for a free business loan assessment.

In South Africa the Small Enterprise Finance Agency helps foster the establishment, survival and growth of small and medium business enterprises in the country. They have nine offices across the country.

SMME Development by the Department of Trade and Industry (dti)

The South African government has prioritised entrepreneurship and the advancement of Small, Medium and Micro-sized Enterprises (SMMEs) as the catalyst to achieving economic growth and development.

There are many programmes available to help develop an SMME:

Black Business Supplier Development Programme (BBSDP)

Is a cost-sharing grant offered to black-owned small enterprises to assist them to improve their competitiveness and sustainability. This will help them to become part of the mainstream economy and create employment.

Co-operative Incentive Scheme (CIS)

This is a 100% grant for registered primary co-operatives (a primary co-operative consists of five or more members). The objective of the CIS is to improve the viability and competitiveness of co-operative enterprises by lowering their cost of doing business through an incentive that supports Broad-Based Black Economic Empowerment.

Incubation Support Programme (ISP)

The ISP is one of the support measures to encourage partnerships in which big business assists SMMEs with skills transfer, enterprise development, supplier development and marketing opportunities.

Seda Technology Programme (STP)

STP is a division of seda (Small Enterprise Development Agency) focusing on technology business incubation, quality & standards and technology transfer services & support to small enterprises.

Support Programme for Industrial Innovation (SPII)

SPII is designed to promote technology development in South Africa's industry, through the provision of financial assistance for the development of innovative products and/ or processes. SPII is focussed specifically on the development phase, which begins at the conclusion of basic research and ends at the point when a pre-production prototype has been produced.

Technology and Human Resources for Industry Programme (THRIP)

The dti designed three industry support instruments to enhance industry competitiveness and production capacity through the application of new technologies.

  1. THRIP: This programme has as a core part of its design the training and production of Science, Engineering and Technology graduates, as well as the facilitation of flow of these graduates and of personnel between the collaborating research institutions and industry partners. 

  2. Manufacturing Competitiveness Enhancement Programme; and

  3. Support Programme for Industrial Innovation  

For more information on getting your business up and running, read our articles on How to Write a Business Plan, Setting up a Business and How to Set Up a Website.

For more information: visit the Department of Trade and Industry (dti) website.