Hello everybody, since this is my first post on this brand new blog I thought I would kick off with a topic that I get asked about on quite a regular basis: what do I need to know when I start a new business?
So you've had your brilliant idea and now you want to put it into practice. You start working at it and the idea takes off, orders start coming in, You're so busy you wish you had 30 hour days to get everything done. Is this success? Well, not really. Suddenly you realise your business is rolling along but cash flow is now becoming difficult, SARS is knocking at the door and your excel spreadsheets are growing out of hand.
Most entrepreneurs are to be commended for their bravery and skill, however, when it comes to organisation and handling the paperwork and regulatory issues they tend to fall short. These processes are left until they become a pressing problem. This is usually when I receive a call or email requesting help to bail them out of the hole they've dug for themselves. What is the solution? Don't start digging until you have someone holding the ladder.
Get an accountant on board before you even get started, my most successful clients did this with us and were rewarded with a pain free start. It's always easier to help you set up new systems using best practice than it is to first dismantle the moving gears and then put it back together properly. Let's take a quick look at some of the issues and questions I come across most often: business type and SARS requirements.
Firstly: business type
What form should your business take? We all remember the Economic Management Sciences lessons (giving away my age there) in high school. We learnt about limited liability an the number of member's in a CC etc. What we didn't learn is what these mean in the real world: cost & flexibility, what can you do yourself and what is better to outsource. Here is what I've found in the years I've been practicing:
Sole Proprietor/Partnership: These are basically the same thing with a different number of people involved. If your business has no reason to be registered, such as taking on loans or registering with suppliers who require it, then this is the type of business most new startups will choose. It's simple to start and operate. Basically you are the business and the business is you, there is no separation whatsoever. You can pick a trading name, this is only for showing on your invoices and records and doesn't become a legal entity. Usually you won't see Sole Props with sales of over R1 Mil, at this stage you would probably want to move into a registered company.
You put in a provisional estimate of your earnings with SARS in August and February of each year, followed by your usual final return in July - October. To do this it's essential to have accurate bookkeeping records. You run these similar to how a registered business would do it. Most of our sole props prefer to leave this in our hands due to the complexity but for simple businesses there is no reason you can't do this yourself.
Registered Company: Unless you pick up an existing shelf CC you would register a PTY (Ltd) nowadays. These are a good choice if you need some degree of separation from the company. These company's can function independently of the owner but the extra freedom comes at a compliance cost. On top of the provisional estimate of earnings in August and February and the final return within a year of the end of your financial year you will also have to submit a return of sales to CIPC and have financial statements drafted. We have come to understand that most businesses don't want to worry about having these done in bits and pieces with large lump sums paid here and there, which is why we offer set price monthly packages that have all of these included as they come due.
So in summary:
Obviously legislative complexity shouldn't be your sole deciding factor but I hope that I've given you something to think about when weighing up your options.
TL;DR (Too Long;Didn't Read)
Sole proprietors offer flexibility, I suggest you start with this form of business and transition into a registered business as you grow. Get in touch with us and we'll help you out with the technical bookkeeping side.
Business doesn't have to be a scary endeavor, in fact it should be an exciting time. You can make sure that there is more excitement than terror by choosing a knowledgeable accounting partner to walk this road side by side with you.
Author: Brandon Allen
I'm a business Accountant in practice. Nothing fancy about me, but occasionally I have a flash of inspiration you might find useful. My blood is also 50% coffee.
Note that no information in these posts constitutes official advise, please contact us with your specific needs.