Steps to better a budget - Part 1

I often get approached by budding entrepreneurs wanting to start their own businesses. Many dream that owning their own businesses and will bring them financial independence, the fulfilment of a lifelong desires; being masters of their own destinies. All too often the dream becomes a nightmare. The stark reality is that few business ventures succeed. Studies show that fewer than 50% of all business start-ups will survive three years, 20% will survive five years, and 10% will survive ten years and over. The odds are not in your favour.
 
Now that you know what risks lie ahead, we will try to provide you with the tools to navigate you to financial success through a series of practical how-to-guides: the business survival toolkit.
 
Successful businesses, be they big or small, have many elements in common. Initially they all start with dreams or ideas. We hope to show you how to take those ideas and convert them into fledgling businesses and grow them into viable businesses using the 'diamond ‘model, illustrated below.
 
Setting up your business initially involves a significant amount of red tape.  The first decision you need to make is deciding on the legal form you will use. In South Africa, your options are as follows:
 
Sole Proprietor
This is also known as a sole trader. It is simply that you start trading as yourself. For example, you could fix people's cars and be paid by the car-owners. You are running a business, but there is no need to create a company name or structure. This is the simplest form of business and requires virtually no effort to set up and get going. You do need to inform the tax man of your extra income, although this will often be offset by business expenses. The biggest risk for this structure is that if the business fails, your creditors can take all your assets: your house, your car, your furniture - everything to recover the money you owe them, because you are the business. You cannot have partners as a sole proprietor, only employees.
 
So in summary, this structure means you are the business and no new entity is created. The new act allows you to trade in your personal name, but if you start the business now and want to have a trading name like 'A plus plumbers'or 'ABC Consulting', then this name will have to be registered with the Companies and Intellectual Property Commission (CIPC) at: www.cipc.co.za.
 
Partnership
When two or more sole proprietors decide to go into business together, they form a partnership.
 
Private Company
This is also known as a Pty Ltd.This is now the most likely structure for entrepreneurs who want to have the advantages of running their businesses as companies. Essentially a new entity (think of it as an imaginary 'person') are created and name, called a company.
 
This entity is separate from you personally. It will have the owners (shareholders) which may be one or more persons who own the company, and the managers (directors) who run the company. Sometimes these are the same people, but not necessarily.
 
These companies are registered with www.cipc.co.za and each year an annual return must be submitted here to ensure you are still trading. Smaller companies will require annual accounting reviews to be done by an accountant, which are much simpler and cheaper versions of audits.
 
The advantage of trading as a company is that it gives you a more professional image. Being reviewed by an accountant can help ensure that you are running things properly and following the law- particularly when it comes to certain taxes. You are also able to have other companies or similar legal structures that are shareholders of your company. It allows several people to get together and share in the ownership of a business and makes it easier to sell portions or all of it to future buyers. There is also the element that the debts of a company generally belong to the said company. So if things go wrong and you haven't traded recklessly, you only lose your investment and not your private assets too.     The registration procedure for a private company involves a detailed process and due to the complexities of the procedures involved, the services of an experienced professional is recommended for use in the registration process.
 
Other registration requirements includes the following.
Whatever your structure, you need to be aware that the government will still require you to register for income tax, VAT, UIF, PAVE and to apply for certain licences, depending on your industry, your size and whether you are employing staff.