Biggest Hurdles Any New Business Will Face

If you are starting a new business, chances are, you are looking at the world through rose tinted glasses. It’s true – the prospect of ‘being your own boss’ and controlling your future is attractive. There’s no denying that. But there is also another side to that coin – one that most new business owners do not realise until they are committed to their start-up.

That is that there are plenty of hurdles that small business owners face. As long as you know what they are, and you plan for them, you will be fine, but in this article, we look at the most common hurdles new businesses face, and why they could sink your business.

Undercapitalisation

Probably the biggest hurdle that any small, new business faces is undercapitalisation. Even the best ideas cannot succeed if you do not have the funding to get them off the ground. Make sure that your business plan is based on the funding you have, rather than the funding you would like to have, and you should be able to get around this problem.

Competition

When you start a new business, you are always a ‘small fish’ in a big pond. That means that you are competing with established companies. The only way to get around this particular hurdle is to be better. Offer better services, or better prices. Have a broader product range, or add more value. If you are truly great at what you do, you will compete.

Burnout

When you are starting a new business, chances are you are doing it on your own, or with a very small team. That invariably means that you burn the candle at both ends, while you are working to establish your new business. Every entrepreneur and new business owner goes through this phase, but you need to be very careful that you do not push yourself too hard, and burn out before you reach the stage when you can afford to relax a little more! Remember that you have to have balance in your life, and try to make time for yourself too.

Too Much Growth, Too Soon

It is probably the biggest irony in the world of small businesses, but the fact is that too much growth, too soon, can sink your company as fast as too little growth. The reason for that is that even if you are making lots of turnover, rapid growth puts pressure on your cash flow, and without cash flow, your business cannot make it. Make sure that you plan your growth carefully, and do not overextend yourself too much while you are getting started.

Lack of Business Skill

The final hurdle we are going to look at, that many new business owners face, is a lack of business skill. Many new business owners are great in their field – whether they are plumbers or dressmakers. Most, however, know everything about their business, and not enough about business itself. A good idea, for anyone who is looking to start their own business, is to take a short course in business management. That way, you will know enough about business itself to get and keep going.

As you can see, there are plenty of hurdles that new businesses face when they are starting out. That is precisely what makes entrepreneurs such special people though. Not only are we great at what we do, but we also see those hurdles as challenges, rather than obstacles. Remember that every challenge your business faces has a solution – all you have to do is find it. 

BBBEE and Your Business Startup

Every business startup, in every country in the world, faces many of the same hurdles and challenges.  Finding funding, writing a business plan, figuring out if there is a market for your products and services, and how to market to them, and getting your systems in place are just a few of the challenges that a business startup has to wade through as it goes from idea to company.

In South Africa, however, we have an added hurdle, for many would be entrepreneurs: BBBEE.

Broad Based Black Economic Empowerment, or BBBEE as it’s also known, was, as you probably know, brought in 2003/4 to replace the original BEE system implemented post 1994, as a mechanism for addressing economic inequalities.  Several years on, it’s still in place, and looks to be a feature of our business landscape for some time, and if you’re planning to start a business in South Africa, it’s worth understanding how BBBEE works, and what you can do to make sure you can compete.

The Scorecard System

BBBEE works on a scorecard system, which is based on seven pillars of empowerment: ownership, management control, employment equity, skills development, preferential procurement, enterprise development, and socio economic development.

Under the new system, ownership and management account for only 30% of the overall empowerment of any firm.  That means that even if your business startup will not be owned or managed by previously disadvantaged individuals, you can still claim points for your other empowerment activities.  For instance, you could choose to hire staff from the designated groups, or you could increase the skills development of existing staff, or buy from BEE companies.

Individual sectors, such as construction, travel and others also have their own industry standards.  For instance, contractors operating in the construction sector can claim points when tendering for ownership or management by women, or by people with disabilities.  It is worth finding out if your industry sector has a specific code of practice regarding BBBEE, and where your company stands in terms of that guide.

Exemption

Another mechanism that government has brought in to ensure that all business startups have an equal opportunity to find their footing under the BBBEE legislation is an exemption structure.

Any business that has a turnover of R5 million or under per year is exempt from the BBBEE framework, although they might still need to obtain a certificate to prove that they are eligible for this exemption.

Qualifying small enterprises are business startups who have made it through their first few years, and have a turnover of between R5 and R35 million.  These companies will have to have their BBBEE credentials verified by a rating agency, but they can choose four of the seven pillars of BBBEE to be rated on.  That means that you can choose to exclude, for instance, ownership and two other criteria from your scorecard.

Generic enterprises are those with an annual turnover of R35 million or more, and they are not exempted from any of the assessment criteria.  Once your business startup reaches this level, you will need to be reassessed on all seven pillars of BBBEE, in order to determine your score.

What Does This Mean for Your Business Startup?

What all of this means for your business startup is that if you are a small business, with a turnover of less than R5 million per year, you are automatically considered to be contributing to BEE.  That makes you eligible to tender on contracts in the public sector, and to become a vendor to government and parastatals.

Since this is often a lucrative avenue for small businesses, it’s worth considering having your turnover verified, and your company certified.  There are many ratings agencies out there that can do this for you, or you can contact the Department of Trade and Industry directly to find out more.