The biggest challenge in starting a business is raising capital.
Securing enough cash flow to keep the business going until it’s well established is a big challenge. You don’t want to lose sleep over the fact that you left a stable career with a steady and predictable income for uncertain future inflows while your business is still getting off the ground.
Having a plan in advance will increase your chances of owning a successful business going into the future.
Once you have prepared your business plan, you need to anticipate what it will cost to set up the business and to pay the monthly running costs. Staff costs, raw material costs, computer costs and rental expenses need to be paid every month. How long can you afford to support yourself without drawing an income? These are the financial commitments one has to consider in the planning stages of a successful business.
It is best that while you still have a job and a salary, you need to save so that you have capital to get your business going. Taking out a loan may be an option, but banks usually want collateral ceded to them and many people cannot meet this requirement. Micro-lending is very expensive, and will put more pressure on you as the interest payments rise. According to Imara Asset Management South Africa (Pty) Ltd, most businesses fail because the owner runs out of money.
‘’ It takes time to sell your products or services and sometimes payment only takes place after delivery which adds to the cash flow pressure.
‘’Consider the impact that leaving your job and starting your own business will have on your family. Who will support you and pay the bills? If you are the sole breadwinner then you need to provide for these costs as well. It will help if you can cut all your expenses down as much as possible. Get rid of all debts in order to save on paying interest. You will need to calculate how much you will need to live and support your family,’ ’said Thato Sebaeng a financial planner at Imara Asset Management South Africa (Pty) Ltd.
Thato Sebaeng indicated one of the things to consider is your retirement savings. Leaving a secure job means you won’t contribute towards an employer’s pension fund anymore. Some people cash in their provident funds to raise cash to start their businesses, but this means if the business fails you lose everything.
Imara is an established asset management and can assist new businesses reckoned bad tax consequences.
‘’It is best to preserve your pension or provident fund and once your business is making profits you should start a retirement annuity to make sure that you have planned properly for your future.
‘’Small savings while you are young provide the best retirement plan, and they also offer tax advantages. Another benefit is that your money is protected from creditors. This is very important when you are self-employed,’’Seboeng added.
Imara suggests that if one is thinking of starting a new business, a financial planner can help you to assess the amount of capital you needed and how best to raise the capital if there are choices to be made.
If there are any tax breaks that you can take advantage of in your new business, A good advisor can recommend suitable investments to get the best possible return to make your dream of owning your own business become a reality.
With most investments, assuming greater risk is taken, the investments hold the potential to generate greater returns but it also means that there is a greater chance of the value falling. A unit trust investment is an affordable way to invest even smaller amounts of money in financial markets with the skills of a qualified investment professional.
Many offer exciting capital growth opportunities over the medium- to long-term. You have access to the money at any time, so as soon as it reaches the required level you can resign and start your business.
A good piece of advice if you plan to start a business is to test the waters with friends and family – ask them what they think of your ideas. If you have some clients lined up before you start, the business should become profitable earlier and this will lower the start-up capital you need.
The starting point is to put a personal investment plan in place to provide security when you start your business. This plan will increase the likelihood of achieving your goals and lessen the burden of financial pressures along the way.
Thato Sebaeng / Financial Planner
Imara Asset Management South Africa (Pvt) Ltd. FSP884
T: +27 11 550 6179
F: +27 11 550 6194