Money Makeover: How to boost your income

Monique. Picture: Sino Majangaza
Monique. Picture: Sino Majangaza

Having a side business has become increasingly common among employed people. Two of our contestants are working at turning their secondary jobs into money-spinners.

Nearly 40% of employed people are running a business on the side, according to the Old Mutual Savings and Investment Monitor.

The term ‘slasher’ has been coined for someone who has multiple jobs, and it is a trend found primarily in middle- and upper-income earners as a way to supplement their income. The majority have a sideline business that is not related to their current job, and would like to turn this business into their main career.

Contestants Monique and Howard are classic slashers. They are both employed – Monique is a bookkeeper and Howard works for a security company – yet they each dream of turning their sideline businesses into a career.

Sales-focused business – little capital required

Monique’s direct-selling beauty product business is a form of multilevel marketing, so she can boost her sales by recruiting salespeople beneath her.

This type of business is ideal for someone with a full-time job as it can be done over weekends and evenings, and can produce a reasonable income with a well-managed team.

However, Monique has come across a few challenges.

Until recently, the structure of the business was such that she had to supply the stock to her sales team. This meant that she needed access to cash flow of about R50 000.

As she did not have the capital to carry the stock, she funded this through a revolving loan. If her sales team underperformed, she did not receive the necessary income to settle the debt, so her interest bill kept growing.

There were also cases in which some of her team members would sell a product but not pay the money over to Monique.

The first question her adviser, Jacques Venter, asked was whether this business was really making money – because, like so many small business owners, Monique had not separated her personal and business finances.

READ: How to start tackling the debt monster

If you are continually dipping into the business to meet household expenses or not drawing a salary from the business, you have no idea if it is worth your energy and time.

“Monique has now realised how important it is to separate her business account from her personal account. This forms the basis of good planning, control and management for both household and business,” says Venter.

Elton Govender, from Absa business banking, says managing your cash flow is an art: “You need to have monthly savings to see you through the tough months, but make sure that you replace the savings as soon as possible.”

He adds that, if the business continues to make a loss, you need to assess it as if it were a new business and decide on the following:

- What do I need to change to make the business successful?

- Do I need to reinvent the business or change the course of the business? For example, do I go from manufacturing coffee and selling to a distributer to selling directly to the consumer?

“If there are no options, do not be afraid to close the business and try something completely different,” says Govender.

Fortunately for Monique, the company changed the structure of the sales model in October and the agents now purchase their own stock. This has been an interesting exercise for Monique as she could immediately see the weak links in her sales force.

“Some of the team members left because they did not have the capital to buy their own stock,” she says.

But these were mainly people who did not pay her for their stock.

“Previously, I had to write off money that was never paid to me. Now I have got rid of people who were costing me money.”

Although her sales initially declined, Monique has been able to focus on her own direct sales.

Now that she no longer carries her agents’ debt, Venter says it is easier for her to plan her stock levels and cash flow.

“She does not need to run around and collect money or deliver stock to clients. She has more freedom now and is not burdened with lots of unnecessary responsibility and admin, which has also contributed to a less stressful environment at home.”

The change came just in time for Monique to capitalise on the festive season as her product is an ideal Christmas gift. In the new year, she will have the time and energy to look at new sales channels, such as creating her own website and using social-media platforms such as Instagram to market her products.

“I am gradually getting to what I should have been working towards. Although I could have done it on my own, working with Jacques has made me focus, and I am taking the time to look after my money,” she says.

Building a passive income over time – capital required

Howard’s property business requires capital and time to build up a passive income. This means he makes financial sacrifices for a longer-term vision, rather than receiving an immediate income. The risk is much higher, but the potential returns make the risk – if managed correctly – worthwhile.

In February, we will take a closer look at how Howard has built his rooms-to-let business, but he has learnt some valuable business lessons along the way.

Firstly, he learnt that it requires personal sacrifice to be a successful entrepreneur.

“I live a simple life and do away with luxury items,” he says.

“The other strong driving force for me to stay disciplined is the fear of losing my job and having absolutely nothing to fall back on. Losing a job in today’s economy can easily become a reality, so you have to face it head-on.”

As part of his application for a business loan with Absa, Howard had to complete a business plan.

“The exercise was very interesting, though tiring,” he says – but it made him focus on where he wanted the business to be in three years’ time, along with the potential risks and important administration issues, such as tax.

“I have no clue how tax is calculated on a small emerging business like mine,” he says.

READ: When car finance drags you down

His financial adviser, Absa’s Elton Govender, says a business plan requires market research.

Howard did a great deal of research before he started his business – he understood his market, the demand for rooms and what he could realistically expect to receive.

“Two key questions to ask yourself are: ‘Am I competitively priced?’ and ‘Why would someone pay my price or buy my product?’,” says Govender.

“You need to know that the price you set covers your costs and provides a profit, but remains affordable. This is a fine balance – too low and you run at a loss; too high and you have no customers.”

Govender says you also need to ask why a customer would want your product in the first place and how easy it would be for a competitor to copy your offering.

Too many small businesses start with the “me too” premise, where they see several people in their area offering a service and then start their own. This can soon become an overtraded market where supply exceeds demand – and you are competing on price alone, which is a sure-fire way to lose money. You always need to have a differentiator other than price.

How to make a sideline business work
  • If you are looking at sales-related businesses, avoid one where you need to carry stock unless you have capital. Funding stock on a revolving credit basis will erode your profits and increase your risk.
  • Always separate business and personal accounts. Pay yourself a salary from the business, rather than dipping in on an ad hoc basis.
  • Do your research and write a proper business plan. Even if it is just for yourself, it will help clarify your vision.
  • Be prepared to work those extra hours required to make the business successful. There is no such thing as passive income – there is always work to keep the business growing.
  • If you are starting a business that requires upfront capital, be prepared to make financial sacrifices until the business is able to generate a profit. The more you invest in your business and spend on maintenance, the longer your business will be around to fund your lifestyle. Do not buy fancy, depreciating assets to show off to family and friends. Live within your means.
  • Save as much as you can for that rainy day and do not lend your resources to anyone – no loans to family and friends.
  • Monitor your bank account and ensure that you collect all your income from debtors and pay your creditors on time.
  • Ensure that your SA Revenue Service payments are up to date and do not try to cheat the taxman. Make provision for tax payments every month by transferring any tax due into a separate savings account each month, so you can make sure that you have the money to meet your tax obligations.

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