Starting your own business can be an exciting and rewarding experience, but it’s also important to know what you’re getting into. There are a lot of things to think about before launching your own company, so here are some key things to keep in mind.
You’ll need to have a clear idea of what you want your business to achieve, and how you plan to accomplish that. You’ll also need to develop a business plan and track your progress against your goals. Additionally, you’ll need to be prepared for the financial risks involved in starting a business. But with hard work and planning, owning your own business can be a great way to achieve success.
The high unemployment rate in South Africa has spurred an entrepreneurial spirit among individuals. There are so many opportunities for new entrepreneurs to start a business that going into it blindly is not only possible but can be extremely rewarding! But before you take the leap, make sure your knowledge about starting and running businesses outweighs any fears or doubts by consulting professionals who will teach you all there’s need-to know when getting started as well offer invaluable guidance through this process. The following Q&A provides guidance on this subject:
How and where do I register my company, and can I do this myself?
The Companies and Intellectual Property Commission allows online registration (CPIC). And you can certainly do it yourself. Actually, this procedure is fairly easy.
Why do I need to register my company?
Company registration guarantees several legal benefits, one of which is asset protection. Registration not only gives you peace of mind that your company name is yours alone, but also ensures customers entrust themselves to a reliable business. Funding can be easier for registered businesses as well- banks won’t offer loans or invest in unregistered companies due their high risks associated with transacting without registration; similarly, investors prefer investing into legal entities instead of riskier ones.
Why must my company have its own bank account?
This is a requirement of SARS. For “cleaner” bookkeeping, a business bank account ensures the division of business and personal transactions.
Do I have to register for VAT? When do I need to register for VAT?
It is not necessary to immediately register for VAT. In essence, VAT registration is optional if annual income is greater than (or is anticipated to be greater than) R50,000. However, if income for a 12-month period exceeds (or is anticipated to exceed) R1 million, VAT registration is required.
Should I employ people to work for me and put them on my payroll, or is it smarter to subcontract?
This depends on the employer; in either case, it will appear as an expense on your income statement. Consider the company’s long-term requirements; either option has benefits. If you choose to employ individuals, you can count on them to be long-term, dependable, and more likely to be loyal to your company. Employment also increases understanding of the business and sector.
Contrarily, using contractors eliminates the need for PAYE filings to SARS and eliminates your responsibility for workman’s compensation. Additionally, using contractors can help in the short term and save money during slower seasons.
What is the most effective technique to maintain my bookkeeping? Do I actually need to purchase a software package?
To keep track of transactions and financial situation, the majority of accountants will advise implementing accounting software.
What tax will I have to pay and what tax returns will I need to submit?
There are several taxes and returns applicable:
- Annual returns: Only necessary for companies and CCs, submitted to CIPC;
- VAT: Either by oneself or a professional service provider such as an accountant, by means of a VAT201 form;
- PAYE, UIF & SDL: Only if workers are employees of the business, by means of a EMP201 form;
- Provisional tax: Twice a year, after six months and at year-end (advance payment towards yearly income tax);
- Income Tax @ 28% of taxable income (28% for companies; individuals according to tax scale): Due annually, one year after financial year end;
- Dividends: A dividend tax of 20% paid to SARS when declaring dividends. This will likely not happen in the early stages of a business, as most businesses prefer to spend surplus funds on assets and growth.
What kind of financing should I apply for if I need funding?
The answer to this question is based on how well your business is doing financially. For instance, you might think about debt financing, which is riskier but less expensive. Your company’s gearing (debt-to-equity ratio) rises when you take on more debt. If a company is already heavily geared, getting future debt financing may be difficult. You must also take into account the risk that the business will be responsible for repaying the loan or bond if it fails. On the other hand, ownership retention is an advantage.
Contrarily, equity financing refers to the exchange of cash for shares with investors. The fact that investors take total risk is a plus, but there are drawbacks as well, such as ownership, profit sharing, and a greater challenge in locating the right investors.
What is workmen’s compensation, and must I comply?
Employers are required to pay workmen’s compensation for each employee (not applicable to contract workers). It acts as insurance against diseases, fatalities, and occupational injuries. As a result, in order for their workers to file claims in the unfortunate case of accident, disease, or death, all businesses must comply. Once a year, this can be completed online. However, a few types of employees are excluded from eligibility, so be aware of that.
Starting a business is no easy task. There are numerous statutory requirements that must be met in order to ensure compliance with regulations. Fortunately, our team of experts can help guide you through the process, from initial planning stages to ongoing operations. Need an advisor? Contact us today for a free consultation. We look forward to helping you grow your business!