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Solid Basic Business Principles
Solid Basic Business Principles
Solid Basic Business Principles covers much more than web design. While having an effective website could most definitely save you time and get you more customers there are other crucial business principals which ALL businesses should adhere to.
Before we start this article on Solid Basic Business Principles let’s start by providing background on the authority of the author, Francois Marais , to write an article of such nature. Authority is something which is going to become more and more important for search engines like Google to determine the quality of information on website and which results to present in search results.
After matriculating Francois spend his December holiday working in bank as a cashier. Later that year he started with his accounting articles at an accounting firm in Durban. That was in 1990 almost 26 years ago. Most of his 2,5 years military service was spend in the admin department of the SAPS Head Office where he started his studies for a B-Compt degree. In 1993 he started with his 4 years articles at a firm of Chartered Accountants finally qualifying as an accountant himself in 1997. Francois plans on re entering the accounting profession while continuing with web design as a partner in Buddy Web Design. His 17 years financial experience included being in an accounting practise himself. In total he has 10 years tax and accounting experience with small and medium businesses in South Africa. He also spend two years as a senior financial manager at a large FMCG (Fast Moving Consumer Goods) company in South Africa before starting with the web design industry in 2007, 10 years after the company Google was formed before Facebook existed. Francois has since May 2016 been the Financial Manager of a clothing factory in Somerset West.
Many people would think that the world of web design and accounting are worlds apart but that is definitely not the case because Google and other Search Engines work with logical software programs. The design bit of web design is only a small part of web design. Most software programs are built on logic. Once you understand the basic functioning of a software program it is easy to master more advanced concepts. Besides that our software is backed by a South African company who employs the real skilled software engineers who develop the actual programs. The last 8/9 years has seen our almost off the shelve website builder improve drastically allowing world class websites at a fraction of the cost it used to cost.
The last decade and more has seen the world change rapidly and it seems to be changing at a rapidly increasing pace. Nothing like the Internet has changed the way we live, eat , work and play in human history. Suddenly we all have easy access the a wealth of information available on the internet. Big changes are already in place in the way we study and learn. Many courses are available online.
At the age of 46 after having been employed in the financial industry for 19 and 8 years in the sales and marketing environment of web design Francois is well qualified to write an article of this nature. Like most people Francois needs to work hard to ensure that he has something of value to offer the world in a world where supply and demand determines price / value of someone’s services. Francois favourite work in the accounting world is that of assisting people to draft Business Plans. Few people are qualified to write really good business plans because a mix of accounting, tax and sales and marketing knowledge is required to write a good business plan. Enough said of the authority of the author to write and article on 10 Solid Basic Business Principles.
Why a 10 point article? Business Owners are busy and they do not always have the time to read trough books to get the knowledge required in order to run a small business on their own. The good news is that nobody runs a successful growing business completely on their own. For a business to grow you need to either employee people or to outsource some aspects of your business to third parties. Likewise you normally would build a working relationship with your accountant, legal advisor and or financial planner all specialists in their respective fields.
“A chain is only as strong as it’s weakest link ”
You may have a business that has the best product and services but perhaps a weak admin system and therefore setting yourself up for possible theft by an employee or unwelcome, debilitating penalties by SARS.
Or you may have the best admin systems in place but a very weak sales team resulting in no sales to account for.
Or your product and or service may be of such sub standard resulting that even the best sales person (s) will not be able to increase your sales to your breakeven or better (profit) level.
Above scenarios illustrates some of the problems ALL businesses are faced with on a daily basis. When we see the word “problem” we automatically also see the word “opportunity”. Why?
Because when it comes to problems no one business is unique. We all are faced with universal problems. Businesses who survive and thrive are those businesses manage to manage problems better than their competition
What can we do better than our competition?
Admit the problem areas in your business.
Deal with it better than anyone else.
The current South African business environment
South Africa‘s is country which faces it’s own unique problems with examples being:
As previously stated when we see the word problem we also see the word opportunities.
Using South Africa’s problems here are some opportunities which have been created:
We have identified a business opportunity and that is in the field of educating start up entrepreneurs and assisting them trough a coaching program. South Africa desperately needs more entrepreneurs to create wealth and employment opportunities for the country. This document is the result of this process.
1.)Healthy and happy leadership (spiritual balance)
To quote the Christian Bible”: Seek first the Kingdom of God and all these things will be added to you”.
Whether you believe in the Christian Bible or not you will agree that unhappy business owners or business owners battling with personal problems at home like a divorce or addiction problems unfortunately brings there problems with them to work.
The most successful business owners are those who are passionate about what they do. They usually did not start out with their businesses because of money but because of passion. People (their clients) buy into their passion.
The Solid Basic Business Principle number 1 is:
Running a business is a tough job. You need to be mentally and physically in the best possible shape to get great long term results. Having your personal life in balance will do a great deal to achieve business success. A lot of businesses which are actually profitable fail because the personal financial situation of the small business owner exceeds the capacity of the small business. We should all strive to become completely debt free as soon as possible unless it is healthy debt. (Geared debt which increases the bottom line of your business.) You can not blame your competition for under cutting your price if they are debt free and you are not.
2.)Unique products and services
The more unique your products and services the more people will be willing to pay for those products and services. The world does not owe you anything. The sooner young people realise that and get a proper qualification or skill to present to the outside world the better. Why is medical specialist able to charge almost what they want? The answer is simple: because it sometimes takes 12 years to become that specialised. Prices are determined by the laws of supply and demand.
Even if your business is possible it is important to often re-define your service or product offering. You have to stay on your toes , be humble and consider an ever changing world. Today we see fewer and fewer video shops. Did people stop watching movies? No! They started downloading it online. You might be the only role player in a certain area but tomorrow someone who offers the exact same service might move into your area.
There are times where big and small businesses should diversify and there times where big and small business focuses on their core products.
“If you fail to plan, you plan to fail”
In both business and private life above saying is true. How does anyone expect to achieve something without knowing what it is that they want to achieve?
In business often a business plan is drawn up, complete with budgeted financial statements and cash flows. Business plans are typically needed by potential investors, financial institutions, franchise holders, landlords.
Please note that in South Africa the overriding factor when approaching a financial institution for a loan is, because of the National Credit Act only two things:
Affordability and Security
If you plan on borrowing money without answering those two questions you are wasting your time and money. (Time and money for a small business owner has the same meaning more often than not.)
A business plan is not any of the following:
Above are elements of a business plan but not a business plan.
We assist people with business plan drafting but one of the most important elements of a business plan is that it must be owned by the entrepreneur. When you walk into that interview room, be it with the land lord or the bank manager you must be ready to defend and sell YOUR business plan.
A website and tools like Google’s Keyword planner or actual website results are great market research tools. If there is a demand for a specific type of product then people will use websites like Google to search for those products and services.
4. Marketing and Sales
Without marketing and sales no business will exist.
Time and or money need to be invested into marketing and sales.
Even if you are an established business and seemingly not able to cope with the current workload remember that the economy can change rapidly. By continuing with advertising and marketing you can replace not so profitable or difficult customers with more profitable or easy customers.
If sales and marketing is a weakness in your amour then you need to admit that fact and manage the problem. You can employ or outsource your business sales and marketing functions but without advertising and marketing spend your business will not grow.
(Having said this if you deliver an excellent service your clients will become your marketing and sales representatives. In the accounting industry for example word and mouth is the preferred method for growing an accounting practise.)
If you are serious about growing your business you will have to start with sales and marketing and become knowledgeable about the art of selling. A good sales person understands the psychology behind the buying decision of a potential customer. Sales does not always come naturally. The world is full of good self help books.
A website is part of the sales process but discussed because of importance as a separate point.
5. Websites and SEO
Search Engines like Google have replaced the Yellow Pages. Websites can be employed as a successful marketing tool but it is subjected to the website adhering in turn to the most important basic principles of SEO or Search Engine Optimisation.
You need to understand how search engines work plus understand that search is only one marketing strategy to market your website.
Many times we repeat that time is money. Websites , if designed properly and containing comprehensive information about your business can save you money. Some advanced web design software even allows for forms and surveys linked to automated emails, adding people to mailing lists. These software tools combined with your website could lead to a powerful lead generation and conversion system.
6.) Financial Education and Accurate Accounting systems
There is a reason qualified Chartered Accountants often occupy the MD position of large companies. All business owners should educate themselves and become financially educated.
Choosing the right accountant or auditor to advise you at regular intervals are important.
At the minimum you should aim to understand the following:
The gross profit structure of your business
If you are serious about your business finances your cash flow budgets should include budgets for provisional and final tax payments. You should own your budgeted financial statements and compare actual results with budgeted results.
South African law requires that proper accounting records are kept of daily income and expenses.
If registered for valued added tax you are required to calculate your Vat liability accurately. You will in affect be required to have knowledge of the Value Added Tax Act and specific requirements when calculating input tax. By aligning with an experienced and competent bookkeeper / accountant this specialised function can be outsourced. Taxation needs to be mentioned separately.
7.) Tax compliance and planning
It is vital that you comply with appropriate taxation laws as you could otherwise be faced with penalties and fines and arrear taxes which can mean the end of your business. As with other problems taxation presents itself with opportunities as well. You can be a newcomer in a competitive market but with a turnover below R1million per annum. Because you are not required by law to register for Vat you may have an “unfair” advantage over more established businesses because automatically you will be 14% cheaper than the competition. (Note: this only applies when your products and services are sold to households for private purposes meaning your customers can not claim input vat.
Small businesses with a turnover of below R1Million should be aware of the much more simplified option of registering for turnover tax.
There is a big difference between legal tax planning and criminal tax avoidance. A husband and wife team for example should both reflect a fair salary and would benefit from a lower tax rate because Income tax is calculated on an incremental scale. The higher the income bracket you fall under higher the percentage of your salary or profit is taxed.
Small business owners, who keep accurate records can legally claim expenses such as entertainment, travel and accommodation for business, fuel and motor vehicle expenses (provided log books are kept).
Quite often businesses who do not comply with taxation laws are able to quote at lower rates than those businesses who do keep the law. On the long run this is not advisable as a single audit by SARS can not only see you paying heavy fines and penalties but also see you facing jail time.
8.) Employees and other strategic partners
Some businesses view their employees as their biggest assets. In order to grow from a one man show into a bigger business one needs to either employ people or to outsource certain functions to third parties. South Africa is known for the practise and political landscape of labour broking. Businesses that employ a number of employees often need the services of labour practitioners who can advise on labour issues such as disciplinary hearings, employment contracts, minimum wages etc.
Labour practitioners are one example of a strategic partner a business owner can contract to perform certain functions for the business even though the ultimate responsibility lies with the business owner himself.
Often the monthly calculation of payroll and payslips are outsourced to bookkeepers or accountants.
These strategic partners are important for any business.
One of your most important strategic partners are you accountant responsible for your annual financial statements and the compilation of your financial statements.
Often your more senior and experienced accountants charge much higher fees than a young, recently qualified accountant keen to start a new business and to develop a relationship with his clients.
A similar relationship should exist with your web design and SEO expert and you should also annually meet with them to implement changes which could increase your websites presence on the internet and ultimately your business sales.
9.) Risk management / Credit control
For simplicity these two distinct disciplines or business functions are grouped together.
Risk management simply refers to ensuring that your income producing assets are safely guarded and in the event of loss are adequately insured against loss from theft, fire or accidents. A good relationship with a trusted and experienced short term insurance broker can assist a long way in ensuring that a business is not over / under insured. You can go the direct route of saving on premiums but unfortunately this can turn out to be more costly in the end when you did not receive proper advice and you find out you are under or over insured or when you need someone to plead your case with the insurance company in the event of you being treated unfairly when it comes to claim time.
Credit control is important when you provide products and services on credit. Sometimes even attorneys with large debtor’s books write of large amounts of bad debt. Having bad debt as a percentage of turnover is almost as certain as death and taxes. It becomes a problem when one single debtor can take you down with them. Remember no one is too big to go under – Titanic. More recently a lot of building contractors for example themselves went into liquidation when the bubble of Sharemax burst in middle of constructing a +- 2 billion rand shopping centre.
The ideal business model sees no one such a big client in your basket. If that’s the case you may in fact rather view yourself as an employee and not as a business owner. This principle agrees with the investment principle of diversifying / not having all your eggs in one basket.
Your long term insurance broker will advise you about Key man insurance policies when you are in a partnership or where you employ a specialist employee. A key employee in your business in the event of whose death you are bound to suffer financially.
It is important to choose the right long term insurance broker who is able to advise and guide you and who is not only interested in receiving the maximum amount of commission.
10.) Business Processes and Policies
Your business processes or terms and conditions should be designed to ensure that no misunderstanding with clients occurs as to when payment is due. It is vital that processes be designed to ensure that deposits are received and final payment made upon agreed upon times. It should also be designed to ensure that clients understand how your fees are calculated in the event of a service orientated company. Not having a proper designed business process and clearly defined terms and conditions will often see an unhappy and unfortunate unhappy client / business owner.
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