Grow your business out of your kitchen

Cape Town – An entrepreneur running a small canning and spices manufacturing company from his home is seeking to grow and move into bigger premises, a move that one business development expert said needed cautious planning.

Fin24 user Siphokazi Omoluwa wrote: “I have perfected my unique recipes, have handed out samples to various traders and have received some orders. I have dreams to take this company to great heights as I know the product I sell is unique.

"I am now too big for working from home and need more space. I also need to grow the manufacturing and automation side of the business and get the proper accreditation, supply chain and way forward.”

Ravi Govender, head of Small Enterprises at Standard Bank, responded:

"The first step would be to make sure that you have opened a banking account for your business in order to keep your personal and business finances separate," he said.

"This will help you to plan the cash flow of your business more effectively," he said. "Planning your cash-flow is very important because you will need to pay a deposit for any facility that you want to rent and also need to buy raw materials for your products in order to fulfill the orders that you have received.

"By having a business account, which is separate from your personal account, you can also apply for finance from banks and this will help you to grow the manufacturing and automation side of the business.

"Also consider formalising your business if you are currently operating in your own name, as this will help you to implement the correct structures to grow your business to the great heights that you envision."

Catherine Wijnberg, Director and Founder of Fetola, responded:

“Firstly, congratulations on your success - I am a great believer in garage businesses, as low overheads take the pressure off financially and give breathing room for innovative early-stage activities.

“It’s important now to remain cautiously optimistic and avoid unnecessary financial burdens as you grow.

“Moving into dedicated business premises will add overhead costs, and landlords are notoriously unsympathetic of failure - so understand the risks of signing a multi-year lease with escalation clauses.  

“Separate business premises will also mean you cannot claim the business portion of home rental and operating expenses as a pre-tax expense, increasing your after-tax personal living costs.

“On the plus side, moving outwards and upwards is a clear signal to the universe that you really 'mean business’, and can be hugely empowering!"

Wijnberg gave this quick checklist for scaling up:

- Make sure your financial plan includes sufficient funds for the extra cash flow. Every time you increase your turnover, you will need more cash to fund the gap between income and expenditure. This can be significant in a manufacturing business with a long lag between buying raw materials and selling the final product. More businesses fail for lack of cash flow provision, than because they are unprofitable.

- Build your future in manageable stages. For example, if the capital expense fully automated machinery is prohibitive, consider sharing manufacturing facilities, or outsourcing production to an established company whilst you build your markets.

- Obtain firm orders and written agreements from suppliers, before you make the big move - and especially when they are critical to your success. Reduce your risk by ensuring that your sales are spread across a range of customers, and not just dependent on one or two big ones.

- Protect your unique recipes by adding IP clauses and non-disclosure agreements to your sale terms and conditions. It is unwise to rely on clients following an unwritten ethical code of behaviour, so if it's important to you, get proper legal advice and act to protect yourself.

- Get a mentor you can trust, who can provide sound advice for this exciting growth phase. Fetola has a range of mentor solutions for businesses, in all sectors.

* Catherine Wijnberg is the director and founder of Fetola, a fast growing economic development agency and not-for-profit organisation made up of respected development practitioners across Southern Africa.

- Fin24.

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