Introduction
Just as the other chapters are concerned with small-scale operations, this section will discuss only aspects of business related to small and micro-enterprises. The definitions vary, but in general, these are businesses that employ very few people. As a rule of thumb, the best legal structure for this scale of enterprise is the sole proprietorship. Thus, this discussion will only cover sole proprietorships.
In addition, this chapter is intended primarily as a summary of the guiding mindset of a small businessperson. It is not intended to be a course on marketing research, small business accounting or related disciplines. Rather, it should call your attention to the relevance of these subjects to your business.
Comprehensive free resources are widely available online for aspiring businesspeople. The Resources section lists just a few. In addition, multiple organisations in Eswatini provide mentorship and training to help small businesses succeed. Contact details for a few of these are also included.
Planning
Before venturing into any kind of business, it is important to plan. There is not a ‘best’ way to conduct business planning, but there is, in a sense, a ‘best’ outcome. Whatever method you decide to use to plan your new business, the outcome must be understanding. You must understand, for example, how your business will run, who else is in the same line of business, what you will need to start, and how things can go wrong.. In other words, the ideal outcome of business planning is to have a reasonably clear picture of the road ahead. Then you can make an informed decision to move forward or pick another route.
The more knowledge you have before you begin (and invest your precious time and money) the better you will be prepared . However, do not let the sun rise and set while you are planning. When you are satisfied that you understand enough for the moment, take the next step.
Even the best plans do not survive contact with reality unchanged, so don’t spend too much time trying to create a 'perfect' plan.
Deciding what business to start
There are two key things to remember when deciding what kind of business to start:
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A business must solve a problem.
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Someone must be willing to pay for that problem to be solved.
Using those two rules, you can evaluate any business idea quickly. A business that does not solve a problem is not providing anything that anyone wants or needs, and cannot succeed. Furthermore, a business that provides something that people want or need, but that they are not willing to pay for also cannot succeed.
There is also a third point to remember when you are thinking about your business. It falls in between the two above:
1.5. People may not always recognize the problem.
There is a commonly repeated adage that relates to this idea; before the motor car was invented, if someone had asked what people wanted in terms of personal transportation, the answer would have been "faster horses". This example serves to illustrate two points:
First that the market (potential customers) will not necessarily recognize its own needs correctly; in this case the actual need was personal transportation, not horses.
Secondly, you should avoid getting fixated on a given product. Always focus on solving a problem for people, even if it’s one they don’t recognize themselves. That is one way to make sure you will always be the one selling transportation--in whatever form--and not the one trying to sell fast horses.
Clearly, it is quite difficult to solve a problem that other people can’t even recognize, because you have to start by showing that the problem exists in the first place. However, it is also potentially the most lucrative type of business, because there are—by definition—no competitors.
Figure out what problems you, or people around you are facing. In the context of urban farming, it could be a shortage of affordable fresh food, or of low-cost container gardening equipment.
Once you have settled on a promising idea, it is time to make an actual business plan. In general, a business plan is a written document that summarises the idea. It does not have to be written. It can be a recording of your own voice, or a diagram or whatever form helps you the most to understand and think about your business. However, keep in mind that if you intend to seek funding from a commercial lender*, you must have a formal written business plan.
*(for your own financial safety, only approach financial service providers that are registered with the Financial Services Regulatory Authority.)
Market Research
Market research is the process of finding out about the business environment you expect your idea to work in.
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What other businesses are already doing what you want to do? Don’t be discouraged by existing competition. Some of the most successful businesses in the world merely improved on existing ones. Don’t be afraid of competition--be better.
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What are others charging for products similar to what you want to sell? This will give you an idea of whether customers will buy what you want to sell.
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What do people think of your idea? Approach anyone (friends, family or mentors) whose opinion you trust, and explain your idea to them. This can help you see things from a different perspective and improve your idea.
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Are you able to access all of the skills and materials you need? How much would it cost? Answering these kinds of questions will help you understand whether your operation can thrive.
When you have an idea and your research indicates it is viable, the next thing to do is figure out what resources you need to start. Most often, this means money. However, there are many businesses that you don’t necessarily need much money to start. You may just need equipment and a workplace to apply your skills and effort. A mobile app or web designer--for example--really only needs access to a computer and an internet connection (eg at a library) at the barest minimum. Essentially all of the software required to create a functioning smartphone application or website is available free-of-charge. The only other requirements are skill, creativity and effort.
Be as frugal as you reasonably can when starting out. The less money you need, the easier it should be to quickly get started and test your idea out in the real world.
Sources of funding
Once you have a plan, you will know how much money you need to start working. The main sources of funding are either personal or commercial. Personal funding is your own savings or salary, or loans from friends and family. Commercial funding is a loan from a financial institution such as a bank or microlender. Equity funding (buying ownership shares) is not legally available to sole proprietorships, so do not sell ‘shares’ of your business to people. You can only take loans or accept gifts.
If you want to divide the business into ownership shares, you must enter into a partnership or register a private limited company.
One of the leading causes of small business troubles is money shortage. To protect yourself from this risk, make sure that you have some extra ‘cushion’ in your initial funding that can keep you going if things don’t go as planned. Another way to protect yourself is to keep careful track of your cashflow, so you can recognize and correct when there is a problem on the horizon. This will be discussed further under the 'Running’ heading.
The most serious consideration with funding is liability. Liability refers to an obligation--in this case the obligation to repay debt. A sole proprietorship has unlimited liability. That means that any and all loans that your business takes out are really loans that you, personally, are legally obliged to repay. The liability persists whether the business succeeds or not. Unlimited liability is the main disadvantage of sole proprietorship.
What it means in practice is that you must never loan more money for your business than you can financially sustain with your personal assets. In other words, if you take out a secured loan (that is, a loan with collateral--something that can be seized by the lender in the event that you fail to repay), ensure that the security is something that you can stand to lose in the worst case scenario. For example, if you take a loan and provide your bicycle as security, knowing that you can walk wherever you need to if things go wrong, then you can financially sustain that loan. If you do the same with your house, then you will be homeless if you don’t repay the loan. That loan is therefore not financially sustainable, unless homelessness is not a problem for you.
The situation with unsecured loans is less straightforward. The lender of an unsecured loan cannot legally seize any of your belongings without your consent. However, they may be entitled to legal recourse--by requesting that a court compel you to make payments, perhaps by selling things you own or taking payments directly from any income you receive. This means that defaulting on (failing to repay) an unsecured loan also has risks to your personal property. In addition, unsecured loans tend to charge higher interest than secured loans, so keep this in mind.
If you choose to start your business using your own savings or gifts from family and friends, then you don’t have to worry about liability or any loan-related considerations. However, it is important to keep in mind one simple rule of thumb when deciding how much money you are ultimately willing to spend on your business:
Never invest more money into any business than you are willing and able to lose.
What that means is; profit is never guaranteed. Even the best business, being run in the best way under the best conditions is still subject to unexpected events outside of the owner’s control. If such an event happens--however unlikely--you may lose everything you put into the business. In that situation, you must still be able to live your life and move on. In a way, this is similar to the idea of only taking out financially sustainable loans. When you decide on how much money to invest, pretend that all of that money were to just disappear: stolen, burned or otherwise lost. Would you still be able to live? Would you be able to support yourself or your family? Would your personal relationships be damaged or destroyed?
Even if your business seems like a ‘sure thing’ and ‘can’t fail’, you must always know and accept that there are no true guarantees in business. Never take a risk for which you could not survive the consequences of a negative outcome.
Starting Up
Product Development
This topic could also rightly fall under planning. It is the process of physically making the product (or performing the service) that you will be selling (for a trading business, this is less important because the product has already been developed by your supplier).
If possible, provide it to a few people for free to get their opinions. Good product development can save you headaches later on if it turns out changes need to be made to the product or the process to make it.
An example of this might be a wire-car maker providing a few free cars to local children to see how they play with them, what breaks and when. This allows the design of the car to be adjusted to suit its actual use.
Legal
The main legal requirement for operating as a sole proprietor is to be in possession of a valid trading licence with respect to the trade you are in. However, there are some business activities for which exceptions are granted and a trading licence is not required.
The trading licence is also how the name of your business gets legally protected. Generally, only registered businesses enjoy protection of their trading names under the law. You can choose any business name you like, as long as it meets certain legal requirements (not misleading, for example), it is not reserved and does not already belong to a registered company, business, or other lawful association.
You are always allowed to use your name and surname (as they appear on your government-issued identification) as the name of your business. It does not matter in this case if another business has the same name as you.
If you would also like to legally protect a logo, then you must register it as a trademark. However, this process is potentially more costly than a trading licence application because it must be done through a trademark agent. In any case, having a logo is by no means a requirement for a successful business. By being creative, you can build a good image and customer recognition with the name alone.
Please contact the Ministry of Commerce for more information, and to apply for a trading licence. In some areas, another permit may be required to operate certain types of businesses (for example, a market trader’s permit). Contact your local authority (town/municipal council or traditional authority) to check if any such rule applies to your chosen business.
The Small Enterprises Development Company (SEDCO) is a parastatal that specialises in helping new and growing small businesses thrive. Get in touch with your nearest SEDCO office for advice and guidance on navigating the legal aspects of starting a business. Officers at SEDCO will be able to help you with planning, starting and growing your business. Most of SEDCO’s services are provided to the public free of charge or for a low fee. Before you make any major business decision that you are unsure of, contact SEDCO or a similar organisation for advice.
Running
Once you have the resources you need, and your trading licence has been granted (where applicable) there are no more barriers to starting your business. It comes down to your decision-making and the condition of the market.
Operations
Operations can be defined as all of the actions you take that are directly involved in producing the product you sell. For example in the case of a grass cutting service, it’s arranging transport to the job sites, equipment maintenance, communication with the customer, and the actual cutting of the grass . Operations must be made as efficient as reasonable, at the lowest price you can sustain while maintaining your quality level. That is:
Minimise the cost of operations without minimising the quality of your product.
Reducing cost is not always easy. In fact, it is not always possible. However, by carefully observing your operation, you might notice where changes will help minimise costs. Sometimes these improvements are not obvious, so keep an open mind. For example, spending more on higher quality equipment may increase productivity, thereby making the cost per unit of output lower. Such a move results in long term, sustainable cost reduction. Resist the urge to always go for the obvious and easy ways of reducing your costs. Sometimes it is the right choice, sometimes it is not.
Never resort to lazy corner-cutting to reduce costs. It may increase your profit in the short term, but often the customers quickly notice the decrease in quality and stop buying your product. Once a customer’s trust has been lost it can be much more difficult to regain that customer than to gain a new one.
The cost of getting new customers is always higher than the cost of selling to return customers. This is because you don’t need to spend time and effort marketing to return customers. They already know about your product, and already want it. Therefore, losing a repeat customer can have hidden costs that outweigh any benefit from reducing quality.
Marketing
Continuing with a more detailed discussion of customers; the one thing every business needs is willing, paying customers. Marketing is any activity that causes customers to purchase your goods. Marketing can be as simple as physically placing your business in the same place that you know potential customers will be, such as on the side of a busy road. It can also be a much more complex (and costly) process. Before embarking on a marketing activity, you must understand who your customer is. Remember, the customer must not just want the product, they must also be willing and able to pay for it.
A customer profile is an idea that is used to sharpen the focus of your marketing. Good focus is vital because marketing to people who have no use for your product is a waste of time and effort. That’s why there are no insurance brokers selling outside school playgrounds, but there are sweet and snack vendors. A customer profile is a description of an imagined person who is similar to most of your actual customers. It is meant to be general, but with enough detail to exclude the kinds of people who are unlikely to purchase.
For example, the customer profile of an insurance broker is a gainfully employed person who owns at least one important, high value asset (for example, an electronic device, a home, a car etc). The value of this asset is equivalent to several months’ income. In addition, this person’s behaviour must be very prudent with respect to the asset. What this profile indicates is that the person has the steady income to pay some recurring insurance premium, owns an asset which their income could not quickly replace, and the asset is important enough that going without is not an option. Finally, they must not routinely put the asset at risk otherwise, the insurer would lose money constantly replacing it.
Build a customer profile for your own business in the same way. Your market research (figuring out people’s needs, and getting opinions on your idea) will help you. Use what you learned about how people behave to create this profile. What is your customer’s income? Is your product something they want or need? Where do they live? Use this profile to guide your marketing decisions.
It could be as simple as placing your business where your customer spends most of their time on average (for example outside a school or transport hub in the case of a snack vendor). It could be posters placed in high traffic areas and designed to attract your customer. Is your customer very active on social media? Use that.
Sales
Sales and marketing can really be considered aspects of the same process: bringing customers to the point of purchase. Here, we will limit the discussion of sales to pricing, as well as customer service during and after the purchase.
Charging the right price for a product that is otherwise identical to others is an good way to attract customers. Generally, the most attractive is a low price, but for some kinds of products, people are actually attracted by a higher price—associating it with higher quality.
Select a price which is high enough to cover the costs of production and provide you some profit, but also low enough to attract customers. Don’t overly restrict yourself by selling at a price that is too low. Leave some margin for error in case of problems, such as a sudden increase in operating costs. Achieving the right balance is a matter of observing and responding to your customers, and watching your competitors.
If you are unable to beat the market on price, good customer service might still put you ahead. Customer service during (and after) the sales process is one of the best ways to differentiate your business. Often, people think customer service merely means being friendly and chatty with customers. While this can be a part of it, it is not the whole story.
Good customer service, in simplest terms, is a process which makes the purchase a positive experience for the customer. It means making things convenient, fast, and as simple as possible. A failure in any of these aspects can discourage customers even when you have a great product. For example, if the friendliest baker selling the best hot cakes in town only accepts fistfuls of 5 cent coins as payment, then buying hot cakes is inconvenient for customers and fewer people will buy them than otherwise.
Good customer service is arguably most important when there is a problem. Even when things go wrong, if you are honest and generous, your customer may still have a positive experience of the transaction. Then, they will either be a repeat customer or increase your brand recognition by word-of-mouth. The same is true of the opposite case, however. If they have a bad experience, you may lose more than just their contribution to revenue.
As mentioned previously, a repeat customer is much less costly to sell to than a new customer. Thus, good customer service helps to reduce costs by retaining repeat customers. It can also help generate new customers for free by word-of-mouth.
Practice putting yourself in your customer’s shoes all the way from when they interact with your marketing through to making a purchase. See your business from their point-of-view. Does your marketing show an understanding of their needs? Is the selling price reasonable? Is the process of buying fast and efficient? Is the product trustworthy? Enlisting the help of friends and family to test your business by acting as customers can help.
You can also just ask your customers themselves what they think. There are many ways of doing this (casual conversation, questionnaire, observation etc), so the choice is yours. However, keep in mind that unlike your friends and family, your customers don’t necessarily want to talk to you. They may just want to buy and go about their business.
Accounting
A successful business lives and breathes on good record-keeping. There are many different types of records that can apply to different businesses. The kind of records that become necessary depends on the kind of operations that the business does. The operational records of a trading business are quite different from those of a manufacturing or a service business. The main purpose they all serve is to understand exactly how things are operating from day to day, to be able to spot problems and opportunities for improvement.
The one type of record that is common to every successful business is the financial record. A business is a financial mechanism, so some form of financial record is absolutely vital--be it detailed accounts or a simple record of cash in and out.
You must know if you are making money, how much, and how much it costs for you to make that money. It seems obvious, but the total money you receive from customers must be greater than the total money you spent providing the product. The actual details can get very complicated in short order (accounting is a profession, after all) but the main thing to keep in mind is:
Spend less money than you make.
It is a very simplistic statement but do not underestimate the importance of this goal. It will help you make the decisions you need to. Also, it should be the guiding principle that keeps you meticulous in your record keeping. You have to actually know how much you make to know whether you are spending too much or not. And you have to understand exactly how you spend to know what income level to target.
As an example, if you buy materials and throw away the receipts, then sell your goods and don’t keep invoices, the first sign of cash flow troubles will be when you visit the ATM. Do not let it get to that point. Understand at all times when and how cash flows into and out of your business.
Do people buy at the end of the month? Weekends, holidays? Then manage your money so that you can survive the lean times until then. It is of no use if you know there will be plenty of customers in a week’s time if you have already out of the resources you need to provide any products.
More than just avoiding problems, a good accounting record might also help you to actively improve your business. Perhaps by providing a view weeks, months and years into the past and showing patterns that are not obvious day-to-day.
For example, if a goods trader (and all of their competitors) re-stocks their wares at the same wholesaler every day, the record of accounts might show a pattern of cost prices that increase over a week or two each month. This allows the trader to stock up slightly earlier, anticipating the increase and thus securing lower priced goods than their competitors.
Do not underestimate the power of a good record.
A final note on accounting records: since your business is not a limited liability company, there is no legal requirement for extensive, complex financial records to be prepared and distributed to shareholders. Thus, you have a lot of flexibility in terms of how you structure your accounting record. Its primary role is to serve you, the owner, so structure it the best way you understand. The Resources section has links to free learning materials for accounting and basic bookkeeping. However not every business owner needs to be familiar with the intricacies of double-entry book-keeping to benefit from an accounting record.
An example of a simple accounting record.
Record all of your transactions (in and out), including any debt, in a central record--could be a notebook or a computer spreadsheet--that is durable and convenient for you. Include a date for each transaction, and perhaps a comment on it if that will help. Beyond that, experiment with a format that works best for you, as you will be the primary user of the accounting record.
Taxation
The sole proprietor’s business does not have a separate legal existence, so all income received from it is treated and taxed the same as any other kind of personal income for the owner. The tax rate for a total annual income (including salary, business income, gifts etc) of less than 100 000 SZL (but more than 41 000 SZL) is 20%. Please contact the Eswatini Revenue Authority, or visit their website for more information.
Accurate record keeping is vital to understanding and running your business. It also helps you to accurately understand your income and tax liability.
Like the majority of modern tax systems, Eswatini’s tax structure is progressive. This means that the tax payable is calculated only on the sum that falls within a given bracket. To make this clear, we can use the example of an individual with 41 000 SZL in annual income. This amount is less than 100 000 SZL upper bound of the bracket and is taxed at 20%. A tax rebate of up to 8200 SZL gets subtracted from every taxpayer's payable tax amount. 20% of 41 000 SZL is 8300 SZL. Therefore, this person pays:
8300 SZL (income tax payable: 20% of 41 000 SZL) -8200 SZL (automatic tax rebate) ---------- 100 SZL (net tax payable) ----------
Another individual earns 101 000 SZL. The rate for taxable income exceeding 100 000 SZL is 25%. The common misconception about progressive taxation is that the tax payable would be 25% of the entire 101 000 SZL income, or 25 250 SZL. In fact, this is not the case. The taxable income is broken up into the portions that fall in each bracket, that is, 0-100 000 SZL and 100 000-150 000 SZL. Thus, this person’s tax payable is actually:
20000 SZL (Bracket 1 income tax payable: 20% of 100 000 SZL) + 250 SZL (Bracket 2 income tax payable: 25% of 1 000 SZL) ---------- 20250 SZL (total income tax payable) - 8200 SZL (automatic tax rebate) ---------- 12050 SZL (net tax payable) ----------
It is hopefully clear from the example that, contrary to what one might think when hearing 'a tax rate of 25% for income greater than 100 000 SZL', the actual tax payable could be much less when the rate is progressive and a rebate is included. It is important to fully understand your business's (and your own) financial position to be able to navigate these issues easily.
Finally, make sure to keep up with the legal requirements for your trading licence. It needs to be renewed annually. Fortunately, the only requirement for a new licence is the old licence, so the renewal process should be easier than the granting process was.
*contact the Eswatini Revenue Authority or visit their website for more information.
Closing
Closing a business, or ending operations is often unfairly characterised as a failure of some kind. However, that is often not the case. A business is a tool for generating income. Once a tool no longer produces the results required, it is not useful anymore. Once a business is incapable of generating a net income, it is no longer viable. Your options are to try to correct the cause of the problem, or cease operations. To continue running a loss-making enterprise is generally an unproductive use of time that could be better spent securing a new income stream .
In other situations, closing becomes necessary due to a condition other than a lack of net income. For example, personal or health problems of the owner.
Fortunately, the process to stop trading for a sole proprietor is just to stop trading. There are no legal obligations to deregister beyond surrendering the trading licence and any permits to the issuing authority. However, any liabilities incurred while running the business do not disappear with it. The owner remains responsible for any loans that were taken out, and any legal demands with respect to the business.
The business has no separate legal existence so it cannot be sold in the same way a registered company can. However, you can sell relevant assets (if they belong to you) to anyone wishing to continue in the same way you were.
Facing Challenges
Unfortunately, even the simplest businesses are too unpredictable and diverse for a list of troubleshooting tips to be of great value. Rather, for any problems you encounter, view them with the mindset of a businessperson.
Is your problem really a problem or perhaps actually an opportunity you have not yet recognized? Analyse your situation carefully.
If it is actually a problem, is it likely to get better or worse or stay the same over time? Understand it fully.
If your problem is temporary, persevere. Do what it takes to hold on and stay in business until it is behind you. Learn from it, and avoid it in the future.
If your problem is likely to stay the same or get worse over time, consider closing up to stop your losses. Perseverance in business is not the same as in life itself--it is not always desirable. Do not blindly persevere if the only prospects are further losses and there is no corrective action you can take. Move on, learn from your situation and use the lesson to guide you in the future.
