South Africa is alive and abuzz with entrepreneurs and first-time business owners, despite the current pandemic; and due to the nation’s unemployment rate igniting the spark of individuals wanting to start their own businesses. 

However, going into the world of business blind can be daunting. Failing to understand the essential procedures and rules of engagement can be problematic and perhaps most importantly, can cost vastly more than a few business mistakes along your journey. 

In this article, we explore ten things you need to know before starting on the journey of your new venture. 

Why do you have to register your company?

Registering your business boasts many legal benefits, one of which is asset protection. For instance, ensuring that your personal assets are secure in the case of a lawsuit against your business.

If your company name is legally registered, other parties can’t hold claim to your business name as their own, which of course is not the case if it is not registered. 

Furthermore, registration gives your customers added confidence to put their trust in your offering and business. Registering your business, signals to consumers that you take your business seriously, as no-one wants to do business with shady companies. 

In addition to the above points, registering your business will result in acquiring funding more easily. Traditional banks will not provide loans to unregistered companies, as the risk is too high for them to do so. Similarly, investors will only inject cash into businesses which they believe have potential and not being registered will only count against you when seeking out investment opportunities. 

How and where can I register my business? 

You can register your business online with the Companies and Intellectual Property Commission (CPIC). While some companies offer to do this at a price, you can do it yourself. The entire process is pretty simple and will only incur an upfront cost of between R125 and R475, depending on the type of business you are registering. For more on how to register your business, read our article on the statutory requirements for registering your business. 

Do you need to register for VAT?

It’s not necessary to register for VAT immediately and it’s voluntary if your income over a year exceeds R50,000. However, it is compulsory to register for VAT if your income during 12 months exceeds or is estimated to exceed R1 million.

Should you employ people or hire contractors? 

The answer to this question depends on the employer. In both cases, it will be an expense on your income statements. It would be best if you considered the long-term needs for your business; however, there are advantages to both options. If you decide on employing people, these employees are likely to remain loyal to your business and commonly are in it for the long-run. Furthermore, employment develops and fosters company and industry knowledge. 

On the other hand, with contractors, no PAYE submissions to SARS are required, and you will not be liable for workman’s compensation. Contractors tend to be useful in the short-term and allow for saving on operational costs during times of downturn. 

Why does your business need its own business bank account? 

It is a legal requirement of SARS for businesses to have business bank accounts. A business bank account also ensures that your personal and business transactions are kept separate for clearer bookkeeping/accounting.

Do you need a software package to handle bookkeeping?

Many accountants recommend using accounting software to accurately keep a record of your transactions and your financial position. That being said, it’s not necessary should your business be small with a few sales per month. If you’re in the position where software is costly to your business, we recommend using Excel. However, there are also relatively cost-effective solutions out there, such as Xero which boast excellent time-saving benefits.

What tax do you need to pay and which tax returns do you need to submit? 

These are the taxes and returns business owners need to consider:

A) Annual returns: Only necessary for companies and CCs, submitted to CIPC;

B) VAT: Either by oneself or a professional service provider such as an accountant, utilising a VAT201 form;

C) PAYE, UIF & SDL: Only if workers are employees of the business, by means of an EMP201 form;

D) Provisional tax: Twice a year, after six months and at year-end (advance payment towards yearly income tax);

E) Income Tax @ 28% of taxable income (28% for companies; individuals according to tax scale): Due annually, one year after the financial year-end;

F) Dividends: A dividend tax of 20% paid to SARS when declaring dividends. This will likely not happen in the early stages of a business, as most businesses prefer to spend excess funds on assets and scaling. 

Which sort of financing should you apply for? 

The answer to this question will depend on the financial position your business is in. For instance, you could consider debt finance, as this is cheaper but also riskier. By taking on more debt, you’re effectively increasing the debt-to-equity ratio of your business. Business owners might find it challenging to obtain future debt finance if they’re already “geared”. 

Furthermore, you also need to consider that the risk remains with your business to repay any loans or bonds should your business fail, but on the plus side, the advantage is ownership retention. 

Then there’s equity finance, which means cash from investors in exchange for shares of your business. The advantage here is that the risk is all on the investor; however, disadvantages include ownership or profit-sharing with your investors, and it’s significantly more challenging to find ideal investors. 

What is workmen’s compensation, and why must you comply? 

Workmen’s compensation refers to funds which need to be paid by employers for each employee. It is your business’s insurance in the event of occupational injuries, disease or death. Therefore, all employers have to comply in order for their employees to make claims in the unfortunate scenarios listed above. The process is simple and can be completed online annually. 

Conclusion. 

Starting a business in South Africa is no easy feat, but it need not be as complicated as many would believe. Once you’ve developed a business plan, financial forecast and addressed the above-mentioned points, it should be smooth sailing for your first business journey. However, should you require more help, it’s wise to consult with a business mentor, coach or a friend or family member who has been this road. The secret of getting ahead is getting started.

The secret of getting started is breaking your complex overwhelming tasks into smaller manageable tasks, and then starting on the first one.