A good idea doesn’t make a business. Executing a successful venture requires proper planning and hard work, writes Maya Fisher-French.A business plan is without doubt the most important work you can do before starting your business.
“The biggest challenge was putting together the business plan. I told my adviser, Theunis, when he gave me the template that it did not look that user-friendly; it was 20 pages long!” laughs Lwandile, who, together with his wife, is planning to start a cleaning business that will help employ family members. This is a great initiative and a way to help his family members help themselves.
While Lwandile found completing the sections about marketing relatively easy, once it come to the financials, things became more challenging.
“We had to estimate the price we could charge and then work out when the business would break even. That was challenging, even with a mathematical background,” says Lwandile, who has previously owned a business.
In 2012, he left his corporate job to start his first business.
“Having won a short course at Wits Business School, I thought I was ready to start a business. The parts I enjoyed were the ideation, creation and marketing. That was what I covered in the business plan. I left out the appendix that covered the financial section. Reflecting on this now, that is the reason the business did not do well. Even though it was a good plan – without the financials, it didn’t work.”
Lunga Madonela, area manager for relationship banking at Absa, says this is a common theme with many entrepreneurs – they have great ideas, but often don’t like working with numbers.
“A good idea doesn’t make a business. You need to know your own business on both the operations and finance side. We see business owners applying for finance, but when we ask them some basic questions about the financials, they say: ‘Speak to my accountant. ’I wouldn’t trust someone who doesn’t know their business plan,” says Madonela, who adds that, as a business owner, you need to understand basic accounting terms such as profit margins and ebitda (earnings before interest, taxes, depreciation and amortisation).
Madonela says that a basic understanding of business financials is a critical skill for all business owners, especially in the small and medium-sized enterprise space, where they wear many hats.
Lwandile has worked with Absa adviser Theunis Prinsloo on putting together his business plan, and these have been the key areas to focus on:
Understand the competition and demand
Prinsloo’s opening advice to Lwandile was: “Before buying mops and uniforms, first test the water. How big is the need and what is the need in the area for cleaning services?”
Lwandile wants to focus the business in Vanderbijlpark in the south of Gauteng, as this is where his in-laws live. However, he is not sure of the market demand. He has done his research and found that there are no established cleaning businesses in the area. This could be either a positive or negative factor. It may be that there is insufficient demand or it is a golden opportunity to be the first.
“I looked up competitors and spoke to one, but when I asked if they would service Vanderbijlpark, they said they didn’t cover the area, so there is a gap there. It also helped to see what they were charging so I could use that in my business plan analysis,” he says.
Another possibility is that Lwandile could enter an agreement with an established cleaning service in neighbouring areas and operate on a franchise basis. He would benefit from existing brand recognition as well as lead generation from an established business.
Getting your price right is an important part of a business plan. The pricing of your competitors can give you an idea of what people are prepared to pay, but be careful of trying to enter a price war. As Prinsloo explains, you want to enter at the right level so you do not end up repricing and losing the confidence of your customer.
Understand your costs
For Lwandile, the main costs are labour, transportation, equipment and cleaning supplies. There are also issues specific to the business that he needs to consider, such as insurance.
“You knock over the client’s Ming vase, you are going to have to pay for it. It may seem like a grudge purchase, but if you are cleaning someone’s house, you have to account for breakages,” says Prinsloo.
Have a good idea at what point the business will be profitable. Most entrepreneurs underestimate the length of time it takes to reach a point where the business can pay its bills. There is a difference between paying the bills and making a profit.
To protect the business, make sure you have appropriate legal documents. Apart from contract documents with clients, Prinsloo says that, when working with family, it is even more important to have a contract in place. This sets out the expectations on both sides and removes later conflict or disagreements.
Prinsloo says banks are less likely to provide 100% financing because of the uncertainty surrounding Covid-19 and that you should rather focus on building your own capital. Lwandile has been putting money aside since the start of the challenge and has already saved R10 000 in a notice deposit account.
Lwandile admits that a cleaning service feels very pedestrian and lacks the “wow” factor. “I normally think you have to be innovative and extraordinary, but my wife has taught me to be practical. Cleaning is a bread-and-butter essential service. To keep myself stimulated, I need to find ways to bring in different elements that will keep me interested.”
Lwandile is great with ideas, but admits to struggling with committing to them and being consistent. “I have learnt this about myself and know I need be disciplined. The best thing is to partner with a practical person.”
PLAN BEFORE YOU LEAP
Newlywed Stephan has invested a great deal of money in his vape shop, but, without a proper business plan, he made the same errors as many would-be entrepreneurs.
“A business plan was crucial and neither Stephan nor his wife had the knowledge to draw up a plan,” says his Absa adviser, Zettie Everson.
Test the market: Stephan did not test the market to see whether vaping was popular with the demographic in his area, nor did he keep up with the trends in vaping.
“The suppliers were not honest with them and sold stock that wasn’t popular. His knowledge around the market and vaping preferences was lacking,” says Everson, who adds that Stephan could have negotiated deals that involved consignment stock (where the supplier is only paid when the item is sold), which could have reduced his capital outlay.
Location, location, location: The premises Stephan selected did not have enough foot traffic to make the business profitable. A poor physical location can be compensated for by having an online store as well, and this is something that he needs to investigate. However, again, he needs to research and understand the existing online environment for vaping.
MARKETING: Any business needs to be marketed, but this is even more important if it is a niche product. The couple had no plan regarding marketing other than foot traffic, and had no social media presence.
Time management: Stephan has a full-time job and is unable to give the store enough attention. His wife runs the store, but they have not put enough time into developing the business.
Follow the money makeover journey: media24.shorthandstories.com/moneymakeover/