Introduction of Crowdfunding to South Africa

With the introduction of crowdfunding to South Africa recently through StartMe, which helps entrepreneurs, creative projects and community initiatives to raise money, normally at levels where angel investors and venture capital firms don't get involved in,we can safely assume that the business finance landscape has changed for good.

With banks increasingly hesitant to support these projects especially where there may be no track record of success as proof, have we finally found a way to address this crucial need of money for start-up projects to succeed?


I’ve often said that I suspect that over the average person’s lifetime they will have probably spent about three years untangling headphones. It’s exasperating! When I heard about Flux Headphones that use tiny magnets to keep cords untangled, I was intrigued not just by their ingenuity but by the way the inventor is trying to bring the product to market. It’s called crowdfunding and it's just the thing for inventors in San Jose and the rest of Silicon Valley.

Crowdfunding uses the vastness and the power of the Web for entrepreneurs to solicit donations from people to fund their idea. Other crowdfunding sites for entrepreneurs include Kickstarter and Peerbackers. Crowdfunding is also used to raise money for political causes, to support artists, indie films and for charities. According to Wikipedia, crowdfunding can be used to attract business investors giving small amounts, in exchange for equity in the fledgling business, under a provision in the federal JOBS Act, which was signed into law in April by President Barack Obama.

Matt Scandora, the inventor of Flux Headphones, pitched his idea on the Web site Fundable.com, which features his product and other products and services by entrepreneurs seeking funding. It contains a two-and-a-half minute video on Flux Headphones, notes the amount of money Scandora is hoping to raise -- $45,000 -- the amount raised so far, $5,000 the last time I checked, and the number of days left for people to invest.

Unlike under the federal law, investors in Fundable.com do not get an equity stake in the business; instead they earn “rewards,” which can be redeemed for gifts from the entrepreneur. It could be something as token as a t-shirt or a free version of the product being developed, like the tangle-free headphones.

By the way, Flux Headphones work with several tiny magnets embedded in the main part of the cord before it splits off into the two ear buds. The video shows a runner wrapping the cord around their wrist when not in use and then unwrapping it when they plan to use the headphones. Flux Headphones only work on Apple products, including the iPhone, iPad and iPod.

Fundable only awards money pledged by backers if they meet their fundraising goal, which forces entrepreneurs to set realistic goals for a particular milestone, such as beginning production of the Flux Headphone. It does allow entrepreneurs to keep extra money if donations exceed their stated goals.

Another crowdfunding site called Kickstarter has the same approach as Fundable. Kickstarter’s mission is to fund “projects such as making an album, a book, or a work of art,” according to its Web site. While it is not intended to start a business, a project can include creating a product. It funds projects in a wide number of areas including art, dance, fashion, film, music or technology. It also has a long list of projects it won't fund, including political candidates, pornography, firearms or multi-level or pyramid marketing schemes, just to name a few.

So as South Africa now finally has its own crowdfunding platform, will we see the same level of involvement from the public in contributing to these projects as we have seen elsewhere, or are we as South Africans just not quite at the stage where we are happy to support someone who we have not quote yet met in person?

Business Succession Planning for Entrepreneurs

A succession plan is an integral part of your overall business plan document. It will clearly map out what must happen for you to exit the business—how and when you choose.

Putting a formal succession plan in place will help you:
• Survive changes in ownership and continue as a successful entity
• Identify and address family issues before they become  disagreements
• Minimise tax liabilities and maximise return
• Ensure an orderly transfer of control and competencies
• Prepare the business and future leadership for transition

Development of the next generation of leader is a paramount task. "It is instructive here to recall that Noah started building the ark before it began to rain." Prior planning prevents poor performance. Without the proper methodology being utilized to prepare for personnel turn-over or unavailability, the corporation can be sent into panic hiring, can fail to continue to implement strategic plans because of the loss of a key individual, and multiple other pitfalls because they were not ready.
Short Term Needs

Planning must account for short time frame notification items. What does the company do when two executive VPs are killed in a plane crash? Who has been groomed and is ready to be "acting" in their place until they can be either ramped up to the permanent replacement or until an executive search reveals the best candidate? When a top executive resigns and moves to a competitor, has the company already instituted a program to ensure that individuals know that strategic plans, customer accounts, and other vital critical business information is in fact the exclusive property of the company and had these key individuals sign off on non-disclosure agreements? If they had not done this prior to hiring the defecting manager, are they prepared to ensure that incoming key personnel are required to affirm their loyalty in exchange for the position?

Mid-Range Needs
Personnel will retire. The text gives the example of GM and their planning process. Any company that is not preparing a like plan for grooming and testing the capabilities of personnel who may be tapped to be the top executive must seriously consider how prepared they really are to do business. Failing to plan is, in effect, planning to fail.
Retirements with long lead windows give companies ample time to try people in the proposed position, to be more closely mentored, or to be given charge of substantially more responsibility to see how they are able to handle the situations that they will be confronted with when they are given the nod.

"Organizations that understand the immediacy of the baby boom exit and thoughtfully prepare for it will be in the best position to achieve unmatched success." The questions businesses should be asking themselves to prepare for the coming demographic change. Some of them are:

• What are your company's demographics (age, gender, position, years in position and anniversary date)?
• What are your company's retirement policies? Is early retirement encouraged or discouraged?
• What mechanisms and programs must be put in place now to capture key competencies and critical work knowledge of employees who will be retiring?
• Will your organization need to increase its reliance on new immigrants?
• If your organization is offshoring, what is the age breakdown of your overseas partners?
• Will your offshoring partners face a labor shortage that may impact their ability to provide services?

Others also point out that businesses need to position themselves to deal with the needs of an aging population. There may be a need for unique skill sets and competencies, as well as a need for new or modified product designs to be marketed to the aging population. These issues tie back into business continuity planning. To continue to be competitive in the future,
businesses have to prepare for the shifting change in the average age.

The Process
The process of succession planning entails assessing what positions are critical to have a succession contingency plan. The positions are assessed, and then the skill sets of the candidates that could fill these positions are assessed, factoring in the time frame that would be required to get them up to speed for the position. A training program must then be implemented to ensure that there is progress in bringing these individuals closer to a more immediate insertion rate in case a planned position turns over. This will ensure a more seamless transfer for the person in waiting and provide a measure of corporate stability in a challenging time.

Our Four Phase approach to succession:

Phase One:
Determine the exit timing and requirements of key stakeholders
• includes Succession Needs Analysis
• Interviews with key managers and family members

Phase Two:
Prepare the business for a smooth succession
• Includes detailed analysis of current state  of  business      
• Action plans for preparing the business for succession

Phase Three:
Research and consider all viable succession options
• Covers all viable options: legal, funding &

Phase Four:
• Select the preferred options and develop an implementation plan
• Provides a formal written succession plan

What ever the level of your business plan, using the latest in business plan software will ensure that you get the succession planning element of it right. With business finance increasingly hard to come by and competition being increasingly fierce, getting every element of your business ready for what the future may hold is now more important than ever.

SA Company in running for worlds largest business plan competition

A South African company is still in the running at the worlds largest business plan competition taking place in the US. Entrepreneurs are making use of the latest in business plan software technology to facilitate the planning process as competition this year is especially fierce.

The Accelerate Michigan Innovation Competition has announced the names of 50 companies that are semi-finalists for over $1 million in business finance awards at stake.

The competition, which kicked off in late August and ends in December, is aimed at growing Michigan business and putting the state — especially Southeast Michigan — on the map for venture capitalists and other investors.

The semi-finalists are listed under the “company competition” tab at www.acceleratemichigan.org.

They include entries from a variety of industries: alternative energy, medical devices, next generation manufacturing, life sciences, advanced transportation, defense and homeland security, information technology and advanced materials.

Billed as the world’s largest business plan competition for first- and second-stage companies, the contest drew about 570 entries, most from Michigan businesses and students.

But entries came from every region of the U.S. and even from Canada, Switzerland and the Western Cape of South Africa, according to Ann Arbor Spark, which is administering the competition on behalf of the Business Accelerator Network. Companies who receive cash awards are committed to located in Michigan.

The network also counts Detroit-based TechTown, Automation Alley in Auburn Hills andMacomb-Oakland University Incubator among its members.

A $750,000 grant from the New Economy Initiative is funding the competition, along with $250,000 through the Michigan Pre-Seed Capital Fund managed by Ann Arbor Spark, $100,000 from Business Leaders for Michigan and more than $100,000 in sponsorships.

Sponsors for the first year include Business Leaders for Michigan and the University Research Corridor through Accelerate Michigan, DTE Energy Co., Ford Motor Co., Strategic Staffing Solutions, Butzel Long PC and University of Michigan Health System.

The financial support will fund 17 awards, including a single cash grant of $500,000 to one early- or second-stage company.

The business plan competition will culminate with an "elevator speech" contest, open to the public, on Dec. 11 at UM, the same day as the UM/MSU "Big Chill" outdoor hockey game at Michigan Stadium.

Judges for the competition include angel investors, venture capitalists and other professional investors, many of them alumni of the University of Michigan, Michigan State University andWayne State University

Small Business Support: the Government promises to double their efforts

With the small business sector being such an crucial element of the economy as a whole, it was not surprising that the Government is vouching to do more  for both new and growing businesses. With a large amount of small business support already being provided in areas such as business planning, business finance, general business support, grants and business loans, more money will be provided to entrepreneurs. Small businesses of course benefit the economy hugely. From an employment perspective alone, the sector is the largest employer in the country by far. 

But small business owners often say that they don't see the support being provided. Entrepreneurs around the country will tell you that they often feel isolated in dealing with their day to day challenges and it really here where the support needs to be focussed.

In a recent interview with Engineering news, the Department of Trade and Industry (DTI) director-general Tshediso Matona said at the launch that it was essentially a "no brainer" that small businesses had great potential to grow the country's economy and provide employment in the country.

Matona emphasised that the DTI planned to double its efforts in this sector, through policy strategies and institutional architecture.

"Incorporated in South Africa's new industrial policy initiative, government envisages that the SMME sector could create a further 2,5-million direct and indirect employment opportunities over the next ten years."

The survey indicated that black business owners made up 84% of the small business sector, and that 58% of the owners were female. However, women in general engaged in the lower end of the entrepreneurial field, mainly engaging in product reselling.

TNS research surveys client service director Rob Powell said that the difficult economic climate over the past two years had definitely instigated the start of more small businesses.

The survey indicated that 41% of businesses have started up over the last two-and-a-half years, and that over 40% started up their own businesses because they could not find a job in the formal sector or were unemployed. Further, 35% of respondents, mostly women, said that they would take up employment in the formal sector if they were offered the opportunity.

Powell said that it was evident that the SMME sector was still very uninformed and unaware of support structures available to small business owners.

He said that currently, 41,8% of business owners did not have any engagement in the formal or informal financial sector, and that people were generally credit and even insurance averse.

FinMark Trust CEO Maya Makanjee said that one of the greatest challenges in the SMME sector was to now "take it to the next step" and assist active players in expanding their skills sets and in accordance their business size and the number of employees that they were able to employ.

The survey indicated that out of the six-million small business owners, more than 60%, or around 3,8-million, of them did not employ any other people.

"The main gaps that exist in the SMME sector relate to education and skills, cash flow, record keeping and budget management, the emotional barriers relating to credit use, and leveraging existing access to cellphones and other infrastructural support, providing access to low-level insurance and product unbundling," said Powell.

The FinScope study showed that for 67% of respondents this were their only source of income, while others also received grants and support from government and other family members. FinMark Trust information and research specialist Trevor Kaseke noted that around 500 000 people could be taken off government support, if the relevant role players were able to assist these business owners in growing their businesses.

Matona agreed saying that the everpresent and dire challenge of unemployment in South Africa, could be tackled by targeting and developing entrepreneurship and providing the proper infrastructure for the development of the sector.

Currently, around 73% of small business owners work out of their homes and respondents of the survey had identified a lack of space and a lack of funding as stifling the growth of their businesses.

"The growth and support of the SMME sector remains at the apex of government's economic policies, and we also call on other actors in the economy to play their role in promoting this vital economic sector and fighting unemployment in the country," concluded Matona.

Entrepreneurs and small business owners alike will be hoping that this time round the support reaches their officer, suburbs and stores but it remains to be seen if it has any effect on their day to day business activities, turnovers and ability to be competitive.

Positive business climate in South Africa

Great news this week from the World Bank that the business climate in South Africa is seen as very positive, especially in comparison with many of its peers. This is great news for entrepreneurs lining up new a business plan or those already in business working for business growth. With a positive business climate banks may be more likely to provide business finance and very importantly, consumers will be more likely to spend.

The article published on SouthAfrica.info this week reads:

Start:

South Africa's business environment compares favourably with its peer group of upper- to middle-income economies globally, according to a new World Bank report, which adds however that certain improvements are still needed.

These include raising the market share of efficient, high-performing enterprises, enhancing productivity, and increase export competitiveness for job-led, sustainable economic growth.

The report, entitled "South Africa: Second Investment Climate Assessment – Improving the Business Environment for Job Creation and Growth", was prepared by a World Bank team in collaboration with the Department of Trade and Industry, and released by Trade and Industry Minister Rob Davies and World Bank country director for South Africa Ruth Kagia last week.

The report presents the results of a 2008 survey of 1 056 manufacturing industries, 68% of which are located in Johannesburg, 14% in Cape Town, 12% in Durban, and 6% in Port Elizabeth. Of these, 231 businesses were revisits from an earlier 2003 survey.

Strengthening business competitiveness

The report provides survey-based analytical advice to policy-makers, business leaders and civil society, with a view to strengthening business competitiveness in South Africa.

The report's key messages are that:

• South Africa could improve its productivity and competitiveness by increasing the market share of efficient producers. Given the high concentration of South African industry, this requires further efforts to enhance competition through more activist and innovative policies.
• Investments in employee training in small, medium and micro-sized enterprises (SMMEs) should be increased with better targeted government support.
• South Africa could do more to improve access to finance by SMMEs and support productive informal enterprises.

"The findings of the report are very interesting, particularly where they refer to the business environment in South Africa – the ease of doing business, regulatory framework, and all the different steps that need to be gone through when one is doing business in this country – which actually compare favourably to those of other peer countries," said Davies.

He said that the government actively promoted the above factors as one of the country's competitive advantages, adding that it was something they wanted to preserve and even improve on, as it was clearly important to attracting new business.

"Furthermore, we acknowledge the challenges identified in the report, such as small business development and access to finance, and our department is working to address the challenges," said Davies. "We welcome the report as a tool of dialogue, discussion and debate."

African spillover

"Improving the investment climate in South Africa is critical for economic growth and job creation," said Kagia. "For Africa's largest economy, a better business environment will generate large spillovers benefits across the African continent.

"The challenge is to identify bottlenecks and take concrete actions."

For the purpose of the survey, the comparator group of emerging economies was Argentina, Brazil, Chile, China, Malaysia, and Thailand.

These countries are natural peers of South Africa, as all are relatively high-performing, resource-rich middle-income countries which have experienced significant export-driven industrialisation.

SAinfo reporter

End:

So weather you are in the process of writing a business plan or an existing business owner looking for growth capital or simply the confidence that things are going to remain positive for the foreseeable future, lets use this opportunity to say our final farewells to the now almost forgotten credit crunch.

Social Media for SA Entrepreneurs

As an indicator of just how popular social media has become amongst South African entrepreneurs we recently created a Facebook group for South African entrepreneurs and investors and within the first three weeks, membership grew to well over 1000, showing not only the popularity of entrepreneurship in the country but also how social media is increasingly becoming an option for entrepreneurs to source the resources need to drive their businesses forward.

South African entrepreneurs are flocking to social networks such as Facebook and twitter as new avenues to finding the business finance needed for starting or growing their businesses.

With the growth of social media and its uses in the last few years, innovative entrepreneurs are going online in the hordes to attract the business finance they require. Following the recent economic slowdown banks may have tightened their lending policies and entrepreneurs around the country has seen this simply as an invite to find alternative sources of financing and support.

Where services such as Facebook, Twitter and LinkedIn have been successful bringing entrepreneurs, clients and business investors together based on affinity and mutual interests, business-networking services are increasingly being used by small business owners to source the business finance that they need. Along with LinkedIn are such offerings as Ryze and Tribe.net. My take? This use of online, friend/associate-based networking will prove to be one of the most valuable business tools the Internet has yet provided.

Although the number of these services available to entrepreneurs and business people is growing, LinkedIn strikes me as the easiest to embrace, and the most effective. Typically, each service has formal sign-up steps that assist you in creating your online identity. This may include information relating to your current job, previous positions, and general interests. Some business networking sites enable you to publish you own "blog," or join specific community discussion groups.

Often, the key to using a business network successfully involves the creation of your personal friends — or business connections — group. The registration process is similar across the various social networking websites but LinkedIn boasts one of the simplest methods of inviting and maintaining your social network. By simply uploading an exported file from your contact manager, LinkedIn can immediately tell which friends of yours are members of the service. This method of contact maintenance and connection group development makes LinkedIn a breeze to start with, immediately enabling you to gain access to your contacts, without having to laboriously enter emails to discover if associates are already there.

The process of finding investment for a new venture

Irrelevant if you are a new or growing business, for most business owners the time will come when further business investment is needed. With many entrepreneurs realising that going to the bank for a loan is no longer the only or most beneficial avenue, other sources of business finance needs to be considered. So what are the steps that you need to take for this to happen? Michael Weaver, chief executive at investor network Beer & Partners, has compiled the following guide to securing funding.

1) Decide level of funding required
The level of funding required is largely dictated by what stage of evolution the business is at. Established companies with revenues, profits and an order book, and that are seeking working capital or replacement of bank debt will typically fall in the R350,000 to R1.5 million bracket. Broadly speaking, start-ups or early stage businesses seeking funding for final product development/take product to market will tend to require R150,000 to R450,000. In both cases, the amount must be sufficient to fund the delivery of the planned stage or end result.

When considering the amount of funding required, businesses must take the long-term view. It is important that the level of funding is sufficient to see the business through all of the identified stage of development. Otherwise they risk not achieving the desired goal and having to halt progress part way due to cash running out.

Remember to:

· Take the long term view
· Identify your end goal and ensure the funding is sufficient to get you there

2) Put in place a strong management team
Few early stage businesses have complete management teams and very few can claim to hold all the skills required to maximise the potential of a business. These skills include general management, finance, marketing, sales, production and licensing, to name a few.

Entrepreneurs who can recognise their weaknesses as well as their strengths and plan accordingly are well placed to raise investment. Many of the complementary skills required are available on a freelance or part-time basis, sometimes on a sweat equity basis and can on occasion be provided by an investor. Sweat equity is where someone invests time and skills in exchange for a shareholding stake in a company instead of cash.

There are different general management skills required to run a small business compared to those for required for larger firms. It may even be that the founder is not best placed to lead the company through all the stages of its growth and will at some point need to step aside.

Remember to:

· Consider what skills you and your existing team have and what needs to be brought in
· Be broadminded about your relationships with employees – putting someone on the payroll is not the only option

3) Create a business plan identifying the strategy
A solid business plan that identifies the strategy is crucial. The plan must contain a commercial idea which will provide an eventual profit for investors or, as a minimum, sufficient profit to repay the interest and the principal on a loan. However, not all plans need to be unique as many ‘me-too’ but better businesses are established to take advantage of a niche or to stake a claim for a share of an existing market.

The business plan must set out the key factors that determine success or otherwise of the business. In addition, the entrepreneur should be prepared to monitor these factors and not be afraid to set out the risks. If an entrepreneur does not recognise the risks, it may be either because they do not fully understand their own business or they are ill-prepared to manage these risks adequately.

Remember to:

· Always have a business plan
· Only include as much within the business plan as is necessary to keep you on track and to give investors a clear idea of where you are taking the business and how you are going to get there

4) Determine a sensible valuation of the business
Early-stage businesses are notoriously difficult to value. There are different ways to approach this. One rule of thumb is:

· A solid business idea alone: R10,000
· A solid business idea with a reasonably presented business plan: R50,000
· Both of the above, plus a good management team with relevant CVs: R250,000
· All of the above, plus a sale: any figure upwards of R500,000

A perhaps better approach is to apply the rule of thirds, with the valuation split between the inventor, the management team and the investment. As such, the level of funding sought determines the post-money valuation. This ensures that the management are sufficiently incentivised to drive the business forward. It also ensures that investors can retain an important stake after second and third round funding which is sufficient for them to make a respectable rate of return on final exit.

However, the bottom line is that the valuation is essentially what a willing investee will accept and a willing investor will pay.

Remember to:

· Be realistic
· Make sure you can justify the valuation
· Don’t be too greedy – remember that if you fail to secure any funds you may not have a business that can go forward

5) Define the unique selling points (USP)
Aside from coming up with a compelling business proposition, the entrepreneur must ensure that nobody else is offering exactly the same product or service, or have a particular USP which makes it different and potentially more profitable than competitors.

If the entrepreneur is certain that any competitor, even one with unlimited resources, will take at least two years to come up with the same product, then they are in a strong position to claim that they have a chance to establish their brand. However, in this example, it could be a case of weeks or a few months. As a result, the market will be saturated by other similar products, some of which may be backed by known brands.

Another valid USP is a unique management team mix. However, this would have to be very specific as it could be replicated. Alternatively, a patent or other Intellectual Property Right by definition would fit the bill perfectly. There are many further examples, but the crucial point is to have a clearly defined view of how viable the business proposition is in the long term.

Remember to:

· Research the market
· Research the competition and put yourself in the mind of the competition to figure out how they will react to you entering the market

6) Protect your business
Depending on the business, there are times when protection is an absolute must-have. An easily replicable product for example, if protected, can be a great investment. Entrepreneurs should also ensure they understand how patents and other forms of intellectual property work, which may require seeking professional advice.

Without replacing professional advice, it is worth remembering that once an idea is in the public domain, it is not possible to then apply for a patent. Therefore, it would be a mistake to assume it is possible to find the funding first and then look at a patent – if investors have told people the idea, the business will not be able to apply. There are many forms of protection for different aspects of the business and products. Patents are just one, which is why professional advice is very worthwhile.

Remember to:

· Seek professional advice

7) Prepare your business for due diligence
Due diligence is usually carried out when an investment or acquisition is going to be made and is the process of checking the facts of a business, including its market, key staff, directors, financials and legal position. Any investor and many banks who do not have a direct relationship with the entrepreneur will require a level of due diligence on their affairs before investing or loaning funds to the business. However, there is a real danger that investment deals will fall through if factors are uncovered during the due diligence process that were not already apparent. It could be that the investee had failed to recognise the point as relevant.

Companies can save themselves a lot of time and energy when negotiating an investment by completing much of the groundwork and making it available to the bank or investor during negotiations. There are certain legal advisors or financial services professionals who work with business investment networks who can provide specific assistance around due diligence. This includes providing a pre-packed questionnaire which reduces the risk of deals falling through and minimises legal costs on completion.

Remember to:

· Always expect due diligence to take place so be prepared
· Seek professional advice if you are unsure how to do this

8) Appoint a solicitor
It is essential to appoint a solicitor who has experience of similar forms of investment in small businesses. Just one example of where this is required is that, in line with the Financial Crime Prevention Procedures, the business and the solicitor will have to verify the identity of investors before accepting any investment. This will require a copy of an official photographic ID such as a passport, driving licence, services ID card or national ID card.

Remember to:

· Make sure the solicitor you choose has the relevant experience
· Make sure legal charges are commensurate with size of investment and try to obtain fixed fee for the work

9) Have an exit plan
Businesses that are a lifestyle plan for the entrepreneur often find it difficult to attract investors. One example is a business that will provide the entrepreneur with long-term employment and remuneration but which they will want to continue with until retirement. However, in these instances, a secured loan may still be viable. Having a well thought through exit plan is therefore a key element of obtaining investment. Exit strategies can take several forms, the most common of which are:

· A trade sale, which is arguably the most common
· A listing on a stock exchange, such as PLUS, AIM or London Stock exchange
· A management buyout.

It may be difficult for an entrepreneur to imagine selling their business when they are just starting it. However, most investors are looking for capital gains rather than a dividend stream so will want to know how they will make their profit. In many ways, the actual form of exit is less important than the principal that there will be an exit at some point - generally within three to seven years.

Remember to:

· Always have an exit plan in mind
· Ensure that the route to exit is front of mind when speaking to any potential investor

10) Find an investor
Arranging investments is a category of regulated activity which can only be carried out by firms authorised to do so by the Financial Services Authority (FSA). This must also be done with information authorised by a FSA-approved firm. It amounts to acting for a business with the expectation that they will be introduced to an investor. Direct approaches to potential investors by individuals can be a criminal act and result in the individual making the approach becoming personally liable for any losses incurred by an investor. This is unless the individual has received certain certifications from the investor before seeking investment.

The FSA aims to protect consumers; both companies and investors. It does this by regulating the way in which financial service providers operate, paying particular attention to the integrity, skill, care and diligence with which they are run and to the competence of those people delivering services.

Regulations under the FSA lay down, in some detail, the framework within which approaches to investors must operate in order to comply with the Financial Services and Markets laws.

Remember to:

· Take heed of the legal requirements when seeking investment
· Find a reputable business angel network or corporate finance house that has a proven track record
· Ask the right questions

To find business finance or investment in South Africa visit the SA Investors Network.

Supporting more than 14 000 small businesses

Latest figures suggest that various government incentives with services like business finance and business plan support have helped over 14 000 small firms in the last 12 months alone. SEDA, with the help of well chosen alliances such as SA Business Plans and the South African Investors Network is delivering on its promise of supporting the economy of South Africa through helping small business owners everywhere.

A recent article on the SouthAfrica.info website explains:

South Africa's Small Enterprise Development Agency helped over 14 000 clients with services ranging from business planning and registrations to cooperatives support and access to markets in 2008/09.

In all, 199 830 potential and existing small businesses accessed the agency's services through its 42 branches countrywide, an increase of 7.3% over the previous year.

Briefing a National Council of Provinces committee in Cape Town this week, Seda CEO Hlonela Lupuwana said that out of those, 46 695 clients' needs were assessed and 14 373 were helped.

The Seda technology programme assisted 835 small businesses with a total turnover of R129-million, through its network of 27 incubators, and also helped to create 224 new small enterprises, Lupuwana said.

Its Community Private Public Partnership programme, which offers support to co-operatives and community-owned projects, has also been revived.

In-house advisors
Seda had decided to limit the use of consultants to the supply of more technical services, and to 20% of all services offered by Seda, with the remainder being offered by in-house advisors, Lupuwana said.

Last week, a group of 25 Seda business advisers embarked on a seven-day visit to Taiwan, where they were expected to gather more diagnostic skills and training on helping business owners.

Another group of 25 advisers were expected to visit Brazil later this year, Lupuwana said, adding that the visits were a cost-effective way of supporting advisers as Seda only had to pay for "minor expenses".

Forging partnerships
Lupuwana said a random survey of 902 clients had shown that 80% of clients found that Seda's assistance had a positive effect on their business.

This support had come amid limited resources, and despite a six-month moratorium on the provision of all services by the agency to small enterprises.

The limited budget – the agency received R331.2-million for 2009/10 – was a "major problem" in terms of meeting the agency's targets.

Lupuwana said the key to widening the agency's support on a limited budget would be the partnerships it could forge with key partners such as provincial and local governments.

In the Eastern Cape, for example, a number of municipalities had donated buildings and paid for rent so that Seda centres could be set up there.

Source: BuaNews

Business Finance in Difficult Times

Although many small firms have been experiencing difficulties in the current economic climate, both with trade and accessing
business finance  , many smaller businesses are booming. So what does the future hold for small businesses in South Africa?

Both entrepreneurs and small business experts have said that we are through the worst, while other believe it may be that a W shaped, basically a short but unsustainable recovery. Trading conditions may continue to be challenging. Business finance from risk-averse lenders may continue to be an issue and as the case currently, Angel finance together with other types of funding may be the only option available to business looking to start or grow.

Given that small business account for 60% of all businesses in the South Africa, it will be this sector which will help lead the country out of recession. But is the SME sector currently in a fit enough state to effectively kick-start the economy? Many SMEs outside the financial, property and transportation sectors have not felt the same pain as larger businesses. Many continue to have good orders, profitable work and, if finances were pre-arranged before the clampdown by the banks, many have little difficulty in continuing financial arrangements.

The outlook is difficult but workable. Strangely, where the greatest challenge to SMEs lies is when the economy begins to recover.

The climb out of recession is the time when the greatest number of businesses fail. Those failures are not caused by poor sales or losses – many of those businesses that fail are profitable and expanding.

Rather, the reason is simple: a growing business needs increased working capital – it needs cold, hard cash. Cash to fund the next sale, cash to fund the next increase in turnover.

A lack of working capital can lead to over-trading. Despite increased turnover and profits a business may not generate enough cash to cover its daily needs. It’s a risk all companies face. If a business has a conflict between profitability and cash flow, it must choose cash flow every time.

Being a profitable growing company also means a business has greater need for finance. As turnover grows, so stock grows along with the money owed to suppliers, tying up increasing amounts of cash in these areas.

So where can businesses get the finance they need to survive the upturn?

Banks are being tougher on businesses – reviews are more common, renewals tougher and banks are demanding increased security or other guarantees, suggesting shorter repayment terms or alternative finance options.

Banks want more information, projections and plans and on a more regular basis. If they don’t like what they see, or don’t see what they expect, they are increasingly likely to withdraw facilities. Despite that, the South African banking figures show that bank lending to non-financial businesses increasing by R100 million in May, but that was after the slump in April of R2.3 billion.

Business finance is out there. Businesses needing extra capital can look to peer groups or to venture capital. This venture capital comes from two major sources – either business angels or Venture Capital funds.

These individuals or funds put up money for shares – and they risk losing the money if the project fails. Demand for funding is increasing and there is less money available, but people still want good businesses to invest in.

Given the current recession, what do small businesses need to think about, and what should they do differently?

The simple answer is that nothing should be fundamentally different – the basics always apply in good and bad times: you need to be providing the products or services that customers want. Look at those organisations that managed to thrive despite the economic slow down. When times are tough you need to be selling the product or service that customers think of first when there is a specific need. Solid client relationships are also key. The relationships you have with your clients will help them to not only trust your product or service but also refer you to their friends and colleagues. Last but not least, ongoing market research to understand the needs and situations of your clients are essential. The better you understand your customers, the better you can provide them with the product or service that they require, at the price they are willing to pay.

Getting Finance for Growing a Business

Corry and Jaco Coetzee started their small business four years ago. They decided on a goods supplier to the local community as there was a clear gap in the market at the time and they wanted to have flexible working hours. Recently they decided to grow the business further and have now secured R5 250,000 in funding to expand. Here Corry shares her top tips for getting business investors on board.

Update your business plan
A clear business plan is essential. If you acquired funding for your business when you started up you will probably already have a business plan. Now is the time to update the plan to reflect your business and its needs as it is today. Without one people aren’t even going to look at you. You need to make sure you have done your research properly so when you get grilled you aren’t going to loose people’s confidence. It doesn’t have to be long, it just has to contain the key factors.

Consider business angels
Business angels invest capital in new businesses and can also give a huge amount of advice. We were introduced to ours through an angel network called Investors Network and secured R2 000,000. At the beginning we didn’t feel worthy of their help, but it’s amazing how many people are prepared to give advice and invest their money in your business.

Be realistic about how much ownership in the business you want to give away
If it’s too low you’re not going to win confidence in your investors. Obviously you want to give away as little of your business as possible so decide the maximum and the minimum first and stay within that.

Get a good business manager
It’s important to have a good business manager at your bank to get advice from. After building up a relationship with ours we managed to secure R2 500,000 with the help of a local business loan guarantee scheme. The very fact the bank was prepared to give us this amount of money meant other investors had more confidence in us.

Be resilient
You are going to get knocked back lots of times. It’s not a quick process. We emailed a lot of people, and I think it paid off to keep revising the proposal to make it look more professional until it got somewhere.

Get an accountant on board
Be sure to get professional advice, even if this means spending money. No matter how excited you are about your business, the investors are going to be even more concerned because it’s their money at stake.

Where to find a business angel in South Africa

When looking for business finance, the term business angel is perhaps not as well known in South Africa as compared to the US, UK and Europe. Business angels who are often individuals who are well of from previous business success, may have strong industry links in specific business industries and come with plenty of experience, unsurprisingly really can be a great asset to a new business.

It comes as no surprise that in some countries, business angels are preferred partners for business finance and moral support. 'Wow that sounds like a great option for my business' you may be thinking at the moment, so where can I find a business angel?

Contacts with business angels are often made informally. You really need to be keeping a look out for these individuals where ever you are and may find the ideal person amongst:

Personal friends and family.

Wealthy business contacts.

Individuals known to your professional advisers (eg your accountant).

Major suppliers and clients of your business.

You may want to approach an angel networking organisation such as Investors Network.
Many of the most active business angels use these services to find out about interesting investment opportunities.

You usually have to supply a credible business plan and financial forecasts as part of the registration process.

Once you are registered, the organisation passes information on to business angels. Typically, angels will attend presentation meetings (where you present your business to them) or receive bulletins.

In addition to the above you may also attempt to find Angel Finance through the business to business sections of various newspapers include advertisements from investors and from businesses looking for finance.

If you want to advertise your business, the advertisement will have to meet the newspaper's standards.

The benefits of angel finance is well known and although it may not be as straight forward as walking into your local bank to apply for funding, as a new business just starting out it will certainly be worth your while to get a business angel on board as soon as possible.

Business Plan help: writing the executive summary

Today, with many organisations, especially those with much at stake preferring to opt for professional business plan service firms for business plan help, the art of writing a good executive summary for a business plan has largely been lost. With banks and business investors in countries such as South Africa, the US and a number of others, requiring a business plan before funding or business finance is considered, its easy to see why. So how do you write an effective and professional executive summary for your business plan?

The executive summary is the most important section of your business plan. It is normally the first section of your business plan that investors will read, and could be the last if it is badly written. An executive summary should describe the company, the product or service, and the unique opportunity your company is offering. It should also provide a short description of your management team and a summary of the investment you are seeking. Don't forget to tell the reader why you need the money and how and when they can expect to be paid back!

It creates a first impression (remember what your Mum said about first impressions!) in the Angel’s mind of both you and your business. Use clear and concise language and words that command attention, and excite your Angel.
Be honest. It is often tempting to exaggerate or Gild the Lily, but you WILL get found out eventually and Angels will not be happy. Angels like the truth. Your summary should promote trust and if "just one little white lie" creeps out, Angels start to look for the others. Now you are on the back-foot.

The executive summary is neither an introduction nor an abstract; it IS the business plan in miniature. It should stand alone and be interesting, concise and clear. It should take no more than 5 minutes to read and when finished the Angel should be able to say "So that’s what these people are up to"

Here are several common mistakes that can make your executive summary less effective:
Too wordy, and failing to get to the point. Angels are busy.
Trying to be all inclusive (it should be a summary)
Failing to show a unique or exciting opportunity
Failing to summarise the investment sought
Failing to generate interest in the reader

Some suggestions to combat these problems:
> Limit your executive summary to a maximum of 3 pages; 1-2 pages would be best
> Focus on the opportunity and explain why it is special
> Make certain that the opinions and claims in your executive summary are fully backed up by the other sections of your business plan.
> Use only concrete facts and figures that explain your business concept, market niche and financial projections.

Don't forget to include the details of your investment (the amount you need, what you will spend it on, and the return you offer your Angel)
Keep the Angel Investor in mind - why are they reading the plan and what response are you hoping to generate?

A good executive summary should demonstrate:

A business opportunity that makes sense

A clear plan for success

A capable management team

A clear, specific, and definable market

Significant competitive advantages

A solid and believable summary of the financial projections

An excellent chance for Angels to receive a healthy return

The outline of your executive summary will vary based upon your particular business. But regardless of the format, every executive summary should include the following areas:

The Opportunity
It should immediately grab the attention of your Angel. This is often best achieved by explaining why your business is different or unique. Clarify your business advantages, how you can break into your market first, the benefit of your proprietary product, or how research supports a significant customer demand for your product or service. Essentially, what differences or characteristics will lead to success?

The Product or Service Description
Describe your product or service in terms of its benefit to your potential customers. How does it work? What is it used for? Where is it sold? How much does it cost? How does the customer benefit? Remember to limit yourself to highlights in this section. Be brief.

The Market
Who is your customer? How large is your market? Who are the competitors? Why are you better? What are your market share projections? Your reader must be convinced that potential customers will have the want, need, and ability to purchase your product. Don't try to avoid the fact that you have competitors. Instead, explain how you can gain market share with your business advantages.

The Management Team
Describe the management and how they will lead to your success. Is it clear your team is well-rounded with the experience, expertise and capabilities to achieve the goals outlined in your business plan? Does your board of directors or advisors bring credibility and experience to the table? Be warned – management weaknesses will ensure that Business Angels will go no further.

The Finance Requirements
How much money has been invested to date? What are your earning projections for the next three years? What amounts are currently required? What will the funds be used for? From whom do you expect to receive your investment? What specific return do you offer an investor? What is the exit strategy, in terms of both time and return?
At what point in the writing process is it best to write your executive summary? There are three schools of thought. The first says prepare it before you write the rest of the business plan. The second says write it before, then again afterward to combine the best of both. The third says prepare the executive summary only after the rest of the plan is complete.

Which approach is correct? It's really a personal decision, but it has been our experience that preparing the executive summary when the rest of the business plan is complete is fairly effective. This allows us to summarize the plan after all the information has been laid on the table with the hindsight of compiling the entire plan.

Remember to review your executive summary many times and ask yourself whether it grabs the reader's attention. Will they be excited about your business? Will they want to read the rest of the business plan? If the answers to these questions are no, rewrite it. Show it to a friend or business associate and ask them to be critical. Many times after someone reads your executive summary they will say "It's great, but what about…?"

Most business plans are only given any concideration once the executive summary has been read and created enough interest for the business finance provider or investor found what they were looking for within the executive summary. Best of luck with your business plans and for business plan help, don’t be afraid to ask or seek help.

Tips for Young Entrepreneurs

One of the ma great things about becoming an entrepreneur is that there is no age limits. Any one young or old can be an entrepreneur and if I knew what I know now when I was 15 I would have started then. Young people often have few responsibilities and less to lose, plus with your whole life ahead of you, why not give it a try?

The entrepreneurial landscape today is of course much different from the one 20 years ago. With the benefit of the Internet and an electronic commerce not only have entrepreneurs have almost instant access to a world wide market but startup costs are of corse much lower.

In a recent interview with Business Link, Internet entrepreneur Marc Day, founder and creator of SwapGame.com spoke about the joys of being an entrepreneur, his challenges and what he would do differently if he started a business again:
 
Marc Day founded SwapGame.com Limited, an internet-based, games-rental subscription service, two years after graduating. A professional attitude and thorough research has helped him finance and build his business, set to achieve a turnover of £1 million in its fourth year.

What I did
Take time for thorough research
"After I left university I took on admin-type jobs just to get by. During this time I did lots of research into my business idea. I also carried out field research, questioning people coming out of video games shops. I got as many facts and figures together as I could and found out all the costs involved before I approached anybody for money.

"It took about 16 months. I wanted to go into the market as quickly as possible, but I knew I needed to cover every angle before I did. I knew people weren't going to throw money at me and that they'd want to know all the details. Besides, it was important I knew that the business was going to be viable too."

Explore all funding possibilities
"When I was first looking for start-up capital I approached private investors and venture capital companies, but they all wanted to see more experienced management in the company. It was a difficult situation because I didn't have the money to bring that experience on board. The feedback was always that I had a great idea, but they'd like to see me start the company and how it went first. It was very frustrating. "But I plugged away and eventually I got the money through loans - personal and family ones.

Importantly, I also secured a R300,000 bank loan. The bank was apprehensive, but I was able to use my parents' property as security and I made my father chairman of the company, which gave the bank more confidence. My father was experienced in business and I used him as a sounding board anyway.

"Two years later I wanted to raise working capital for expansion, so I used the Department for Business, Enterprise and Regulatory Reform Small Firms Loan Guarantee scheme (now replaced by the Enterprise Finance Guarantee). Age wasn't a factor at all. It was my track record that counted, the partnerships I'd made and my growth strategy. We got R1 000,000 and can go back for another R1 500,000 if we reach certain targets."

Show confidence
"A lot of my contact with people when I started was over the telephone and nobody questioned my age because I came over in a professional manner, knew what I was talking about and wasn't frightened of negotiating with people. I think that makes a big difference."

What I'd do differently
Scrutinise my business plan regularly
"I finalised my business plan when I got my finance and though I kept figures in my mind that I had to achieve I didn't look at the plan again properly until I entered the Shell Livewire competition. It was then, a year after starting up, that I discovered how high my packaging costs were and how that was impacting the business on a daily basis.

"I managed to trim those costs down by about 40 per cent and it really affected profitability. If I'd looked at my business plan after, say, six months, I could have made the business leaner much sooner."

Marc's top tips:
• "Get as many facts and figures together as early as possible to back up your ideas."
• "Find a mentor you can ask for advice and run new ideas past."
• "Keep plugging away - even when you come up against obstacles."

Marketing Plan

What is a marketing plan and what is the importance of this for someone writing a business plan, applying for business finance or starting a new business?

During a conversation yesterday with a decision maker at a well known South African business finance provider, I was pleasantly surprised when the it came to light that funding institutions in South Africa are increasingly looking at the viability of the marketing plan attached to the business plan when someone is applying for business funding.

To me this is logical. One of the biggest challenges a new business will face is to find and keep customers. It seems unthinkable that banks, SEDA, the IDC, angel investors and venture capital firms will not consider this part of your business strategy as key to future success.

Take a minute to consider the start-up process. It really dies not matter how good your idea for a product or s service is. If know one knows about it, it will remain as that, a good idea. With frightening statistics about business closure rates being banded about in so many articles and blogs today, the solution is a simple one. As a business you need to focus on finding clients and keeping them.

What is a marketing plan? Well it really depends on what type of business you are running. A marketing plan is a road map detailing the "route" you'll take to get your business noticed by potential clients. By following a properly crafted plan, you'll know what to do and why you're doing it, while avoiding some of the mistakes that can cost you money and future growth. When it comes to applying for business funding, the funding institution wants to know that you as an entrepreneur knows how to get your product to the market in such a way that those people buying your product will do so again in the future and maybe even tell their friends about you.

Without getting into to much detail and boring you with theoretical speak at a basic level you still need to consider your:

Product or service you will be selling and how that will benefit those buying it.
The Price you will be charging and whether this can be used as a marketing tool and how it will help you attract your customers.
Place of sale, whether it be on the internet, a physical location such as a shop, or which ever which way you can think of that is effective and cost efficient.
The Promotional method or how people will come to know about your product
The People who sell your product or service and this is especially important when dealing with people face to face. Your sales people and this providing the service is the face of your business, they need to reflect what you envision your business as being.

When starting or running a business these issues need to be thought through carefully and implemented with attention to detail and adjusted on a regular basis based on what works and what does not. It not rocket science, but it needs a marketing plan and constant attention to detail.

Business finance - Getting the best deal from your bank

When applying for business finance through a bank there are a number of useful tips that you may want to consider to get the best deal from your bank. In the current economic climate where banks are a bit more risk averse and entrepreneurs often may op for alternative business finance its important that you know your way around the financing landscape.

New business owners often turn to the bank that holds their personal account when finding funding, but you should compare charges from at least four banks (for example, how much does it cost for cheques, deposits, standing orders and overdraft facilities). If you’re already trading, changing banks is now much easier than it used to be and it could save you money. For more advice, read our guide to

Many banks offer free business banking for a set period, but find out what charges apply after the introductory period. Ask what ‘free banking’ means – it may be free only if you’re in credit or your turnover is under a certain figure.

When choosing a bank ask these questions:
 What support is offered? – Do they have a dedicated small business team, will you be allocated a specific adviser and is there support material, such as free websites and guides?
 What services do they offer? – For example, do they offer internet or telephone banking? If so, do they charge for this?
 How are charges levied? – Is there a fee per transaction or a one-off charge?
 How close is it to your premises? – If you’re likely to have a lot of transactions requiring you to visit the bank, then proximity is a key issue.

How to keep banking costs down
 Negotiate with your bank manager – Everything is negotiable, from overdraft interest rates and charges to loan repayment schedules. Get any special terms in writing
 Reduce transactions – Try to avoid cash and cheques. Automation – direct debits, standing orders, internet banking – tends to be cheaper
 Review charges regularly – Ask your bank manager to suggest how to reduce charges  Earn interest – If you have extra funds, put them in a high-interest deposit account.

 Make sure the charges are correct – Check any discrepancies between statements  Avoid unauthorised overdrafts – Telephone and internet banking can help you keep track of your account, to see approaching problems What to do if the bank says ‘no’One in 10 business loans applications are rejected. If this happens, find out why, so you can then revise your plan and try again.

There is also non-bank capital available. The South African Investors Network has a list of institutions that help fund businesses. Usually funding depends on the owners being from certain communities, age brackets or geographical locations, as well of course the viability of the business idea.