Things to consider before starting a taxi business

2014-12-22 14:00

A teacher wants to resign and use his pension payout to enter the transport sector. We weigh up the pros and cons of this kind of decision.

Vuzane writes:

Due to financial stress and other related problems, I have decided to resign from my job as a teacher in the Eastern Cape and use my pension money to invest in a business to provide me with a monthly income. I would like to return to teaching at a later stage. I expect to receive R800?000 and would like to enter the taxi business.

Sanjeev Orie, CEO: FNB Business Value-Adds replies:

Starting a taxi business is a logical consideration for many people because a lot of us grew up using taxis and, at face value, making money could seem a bit easier in this sort of industry. But the reality could prove a bit different unless you address a number of key factors:

Regulatory environment

Whether your taxi business will be centred on metered taxis or minibus taxis, you need to be aware of the regulatory environment that governs the transport industry.

Assuming that yours will be a minibus taxi, you’ll need to apply for an operating permit, which allows you to transport passengers legally.

Permits are issued by licensing departments and even though they are relatively inexpensive, not having one could be problematic, so try to secure a permit before you begin operating.

Different routes and associations

Do your research around which routes will be profitable without a great deal of wear and tear on your vehicle. Most importantly, find out how much you are likely to pay in fees in order to operate along your chosen route and whether this makes business sense.

Information around taxi routes can be obtained from various taxi associations depending on where you live.

Financing and operating costs

A lump sum of R800?000 is enough to purchase two or three new minibus taxis, depending on which brand you prefer. But when venturing into an industry that is new to you, it is advisable to adopt a cautious approach until you have a better understanding of its ins and outs. In other words, buy one minibus until you “find your feet”, then expand.

The upside of buying a taxi with cash is that you will have no instalments to pay because you have invested your own money. But it is important to set a realistic financial management process that will enable you to recoup that investment and start making a profit or even grow your business.

Also consider operating costs such as fuel, service or maintenance costs and even insurance.

Run it as a proper business

In most cases, taxi owners don’t put the necessary measures in place to help the business flourish. Do not make this mistake, because you may end up losing your life’s savings. Register your business with the Companies and Intellectual Property Commission and open a business account so that you have records (financial and otherwise) that will help you run a sustainable business.

This is an easy process that could save you money in the long run and also give you useful options should you wish to make use of credit to grow your taxi empire.

Choose a driver or do it yourself

Unlike certain bus services, minibus taxis in South Africa do not issue receipts to passengers, so it becomes difficult to track transactions.

You will need a trusted driver who will not keep your money to himself while also expecting to be paid.

Have a reasonable wage structure that is in line with industry standards. If you have the time, also consider driving the taxi yourself or at least monitor where and how your taxi operates.

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