Month: May 2016

Unemployment remains the country’s greatest economic and social challenge

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“South Africa should be tackling the rising unemployment rate by facilitating and driving entrepreneurship.” This is according to Christo Botes, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, who was speaking in light of the recently released unemployment figures.

Statistics SA yesterday revealed that unemployment increased to 26.7 percent in the first quarter of 2016, up from 24.5 percent in the previous quarter, making it the highest rate since the labour force survey began in 2008.

“With rising interest and inflation rates as well as low growth expectations for South Africa – expected at 0.6% this year and 1.2% in 2017 – local businesses are increasingly facing the pressure and this impacts employment levels.”

It is during such challenging times where entrepreneurs can play a significant role in driving economic growth, says Botes. “Despite slow economic growth, South Africans have proved to be resilient and standing together in times like this.  Entrepreneurs are ready to capitalize on opportunities and society at large needs to dedicate more resources to identify, facilitate and promote entrepreneurship as the answer to creating jobs and wealth for all. Entrepreneurs and small business are typically more nimble and flexible to capitalise on the gaps created in the market from economic difficulty.”

Botes adds that he welcomes President Jacob Zuma’s recent announcement of a plan for government and business to set up a joint fund to support small businesses as part of Government’s short-term interventions to boost economic growth. The joint fund is expected to provide funding and support for entrepreneurs. The private sector already committed R1.5bn towards this joint fund and it is expected that government will match this amount to start off this fund with R3bn in total.  It is expected that this fund will be expanded to R10bn in the near future.

He acknowledges that entrepreneurship can be daunting, even for those seasoned business men/women with years of business knowledge, and that is the reason such initiatives – as mentioned above – are needed in the country. “While very rewarding, entrepreneurship is also a tough journey, and entrepreneurs need to be supported to grow their businesses to levels at which they can positively contribute to job creation and economic growth. The country needs to be providing the right guidance and infrastructure to motivate and encourage entrepreneurs to embark on their own business.”

Five common mistakes to avoid when buying a property

Posted on by Business Partners Limited

When things go wrong in commercial property investment they can really go badly wrong, because the consequences are often counted in millions or rands. Owen Holland, Business Partners Limited (BUSINESS/PARTNERS) national asset manager: properties, lists five common mistakes made in commercial property investments.

Before you venture into your next commercial property deal, says Holland, it pays to be aware of the following common mistakes so that you steer well clear of them.

Common mistake 1: Shoddy due diligence

Fundamental flaws in a commercial building can be completely hidden from sight, says Holland. A perfectly sound structure might be built half a metre over the boundary line – a mistake that puts you at the mercy of your neighbours and one that may cost you millions to fix.

The only way to avoid these pitfalls is to perform a due diligence investigation in which every aspect of the building is checked: not only the condition of the physical structure, but its plans and approvals, the facilities such as water and electricity, and the state of the leases if the property is being bought with existing tenants.

Holland says it is crucial to hire professionals to perform a due diligence investigation. They can cost up to R30 000 depending on the size and complexity of the property, but their costs are negligible compared to the money they can save you.

When you are keen on buying a commercial property, Holland’s advice is to sign an offer to buy the building subject to the outcome of a professional inspection, including the structure, facilities and leases. If the investigation exposes any defects, you can either walk away or renegotiate the sale with seller. Either way, the cost of hiring professionals is money well spent.

Holland says even vacant land should be subject to due diligence in the form of soil inspection. Again, this is expensive, but your building plans may be scuppered by the existence of, an unexpected geological structure, a hidden rubbish dump, or even toxic waste buried in the soil.

Common mistake 2: Not calculating upgrades and future maintenance costs

A thorough due diligence must not only look at the current health of the structure and facilities but must include a careful consideration of upgrades and maintenance that may be required in future. These can pounce on the buyer quite unexpectedly, says Holland. An anchor tenant might only agree to renew their lease if certain upgrades are made. The rise in electricity costs may force the new owner to upgrade the property to become more energy efficient in order to remain attractive to tenants. An asbestos roof may have to be replaced.

“The buyer must be aware of the fact that the seller will always know more about the property,” says Holland. It is up to the buyer to discover the hidden costs before buying. The seller won’t volunteer the patent information.

Common mistake 3: Not considering the bigger picture

Even if the property itself is in a pristine condition, the area in which it is situated may have reached its peak and is in a downward spiral. If you buy property in a devaluing node, the value of the property will decrease, says Holland. It is therefore just as important for the buyer to look into what is happening to the area as it is to investigate the condition of the building itself.

Well-known examples are the CBDs of Durban and Johannesburg which devalued dramatically as Umhlanga and Sandton became the focus of development. Holland warns that properties in the high streets of many towns and regional centres can be significantly affected by the establishment of a mall on the outskirts.

Nothing beats driving through the streets of the node in which you intend to buy. Signs of refurbishment, development and rejuvenation are good. A lack of upgrade activity could signal the fact that the node may have reached its sell-by date.

Holland also recommends speaking to municipal town planners and local developers to find out about any plans that may affect the area.

Common mistake 4: Being too fussy about price

Not every property that you buy as an investment has to be a bargain. If you set your mind on only buying properties that can give you more than, say, a 10% return on investment, you run the very real risk of not buying anything, and missing opportunities to build up a substantial portfolio.

A well-engineered, prime property situated in a low-risk area is most probably not going to be priced at a bargain level, but as long as it is not overpriced, it will give a fair return on investment and can help form the backbone of a solid property portfolio, says Holland.

The bargain hunter will miss excellent buying opportunities of prime properties at fair market prices and run the risk of building a portfolio very slowly if at all. There are many investors in this hot market chasing prime properties for the yield so the bargain hunter or over pedantic buyer may be left with cash in the bank at low returns for a significant time period.

Common mistake 5: Gearing too high

Cash is king in any business, says Holland, and property investment is a business like any other. Buying a building with too much borrowed money exposes the investor to grave risk. The bond of the property has to be serviced by the operating income earned from the property. If this is too high, the failure of one tenant to pay his rent could jeopardise the whole investment.

Holland says there is no single rule of thumb to guide investors about how much money is prudent to borrow for a property investment; it depends on the reliability of the tenants and the vitality of the node. If the tenants include the branches of established, nation-wide companies, the buyer could borrow more, but if the tenant mix is made up entirely of small mom-and-pop stores, it is better to have a loan to value of 50% or less. The cash flow forecast, including bond repayments and tax, must allow for a realistic vacancy and arrear factor as well as for any short term increase in interest rates.

Holland urges prospective property investors to consider joining up with an established joint venture partner as a good way to start a commercial property portfolio. BUSINESS/PARTNERS, for example, are always keen to consider joint-venture proposals for property investments from entrepreneurs. The advantages go beyond the availability of finance, and include expert knowledge on due diligence investigation and assessing commercial nodes.

Most importantly, a joint venture partnership with an established property expert can teach you how to avoid the common mistakes without paying painfully high school fees.

Is your business continuity protected to survive a crisis?

Posted on by Sanlam
By Jannie Rossouw

Head: Sanlam Business Market

www.businessdirectory.co.za defines a crisis as: “A critical event or point of decision that, if not handled in an appropriate manner (or if not handled at all) may turn into a disaster or catastrophe.

Financial challenges in a business may come in many guises.  For instance:

  • A big contract is suddenly cancelled.
  • A debtors’ book is not being managed well and bad debt skyrockets.
  • A piece of equipment that is crucial to your production process breaks.
  • A natural disaster damages or destroys your business premises.
  • A business partner dies or becomes disabled.

This article will focus on the impact of your death, or the death of a business partner (if applicable), on your business and your personal estate.

There are 3 key financial planning risks that every business person should address:

  1. Taking out life insurance to cover business debt that you signed surety for in your personal capacity.
  2. Making sure that the business is able to pay out your debit loan account (that is, your capital and time invested in the business) in the event of your death/disability.
  3. Protecting your shareholding in the business in the event of the death/disability of one or more shareholders, by means of a buy-and-sell agreement en accompanying life insurance.

If these 3 elements are not properly addressed, the impact will be as follows:

Allegiance Risk Type Classification

Risk Subject of the risk Risk relevant to the applicable owner/person Remaining owners Business Solution
ARTCTM 1 Exposure to 3rd Party Creditors Suretyship that the owner signed for the business. The creditor may call up the suretyship, exposing the estate of the owner. If surety is called up against the estate of the deceased, it will result in a claim against the business, ultimately affecting the funding structure of the business. Long-term and short-term funding structure may be exposed. Third-party creditors may withdraw finance or may increase cost of finance. This risk can be addressed with a contingent liability solution.
ARTCTM 2 Unrecovered Capital The capital, time and expertise spent on the business are the subject of the risk. The loan account may never be recovered. The risk of having to raise a large amount of capital to repay the loan account. Capital structure of the business is exposed. Risk of not being able to replace the capital. Business may be sued for the loan account. The risk can be addressed with a loan account solution.
Risk Subject of the risk Risk relevant to the applicable owner/person Remaining owners Business Solution
ARTCTM 3 Unrealised Capital (Wealth) The equity in the business is the subject of the risk. The risk that the equity in the business may never be sold. Risk of having to seek funding to purchase shares or face “foreign” partners. Risk of foreign partners that may adversely affect the future management of the business. This risk can be addressed with a buy and sell solution.

My advice: Obtain the advice of an accredited financial adviser if you are unsure of whether these financial planning risks have been properly addressed in your business.

You work hard to make a success of your business. Make it a priority to protect this asset and your work.

To support business owners with the important task of business planning, Sanlam gives you free access to the book Your Annual Business Game Plan for Success, which provides an easy and straightforward framework needed to draft a well-crafted game plan that will create the positive change and growth necessary for business success. Go to www.sanlam.co.za/gameplan to download your free copy.

Self-belief is the biggest ingredient for success

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A successful entrepreneurial journey starts with a determined vision, a little bit of self-belief and faith in your own ability. According to Erina van Schalkwyk, owner of GEL Supply Chain and entrant of the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, this is the winning recipe for a thriving business and fruitful entrepreneurial adventure.

Erina and her husband, Gert, have had an exciting journey in the logistics sector over the last few years, and even more so recently with the opening of new successful businesses in 2015.

Inspired to support her family after her father’s unexpected death some 10 years ago, Erina started her first business, VS Logistiek – a brokerage business that transported bulk truck loads. She was at the time assisting her husband’s family business, which owned 27 trucks, but soon noticed an opportunity to turn her side-line business into a fully-fledged operation.

As with most entrepreneurial journeys, there were many ups and downs for Erina’s business. She credits her success to the experience she gained over her lifetime in the investment, banking, retail and logistics sectors.

In 2010, Erina and Gert relocated to his family’s farm outside Jacobsdal in the Free State. Here, Erina took over Gert’s role in his family’s logistics company and used her own business to manage the farming operations. Times however became tough for the family business, and in 2013 the couple decided to go on their own after Erina had identified a gap in the market for an intermediary between traders and transporters. By August 2013, the logistics business had a turnover of R 16 million.

In December 2014, the couple decided to change the trading name of their business to GEL (Gert Erina Logistiek) Supply Chain, and within just seven months of operating under the new brand, the successful entrepreneurial duo started another four businesses GEL Import and Export in South Africa, Gel Freddy’s in the Democratic Republic of Congo, GEL Investments in Namibia and M3T2 in Rotterdam. The mother company, GEL Supply Chain, remains as successful as ever, and the ever-adventurous entrepreneurs are also gearing up to open their first coffee shop in Gobabis in Namibia by August of 2016.

Erina attribute’s her business’ good fortune to hard work, perseverance and her personal faith which she holds dear. “Our big break came in 2013 when a co-op in East Free State approached GEL Supply Chain to move a large quantity of grain. We were given eight weeks to complete the project, yet we handed over the final load in just six weeks,” recalls Erina.

“Last year, we were awarded a contract to transport 500 tons of imported maize into South Africa – by December, we had transported 8 900 tons in 67 hours. So far this year, we have already transported more than 10 000 tons of imported maize.”

Erina has big dreams for the future and is confident of achieving them. She aims to expand into Europe and the Americas in the export sector and also aims to contribute to society by partnering with various feeding schemes across rural Africa. On the logistics front, GEL Supply Chain’s next goal is to manage an entire 30 000 ton shipment of maize, and to become the leader in their field.

Commenting on the team of good people she keeps around her, in both a personal and professional space, including her teams of staff, Erina urges like-minded entrepreneurs to never fail to lead their teams: “When leading others, lead not to have followers but lead to have more leaders growing from your example.”

Her parting advice to aspiring entrepreneurs is to continuously work hard and believe in yourself.

Should entrepreneurs pay attention to economic “noise”?

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The South African economy had a bumpy start to 2016, impacting both small and large businesses alike. Recent attention grabbing headlines – from interest rate hikes, petrol increases and talk of a possible credit rating downgrade which has been averted – make it challenging for business owners to feel positive amongst the gloomy news.

Gugu Mjadu, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says that as it is difficult enough for established businesses with a sound client base to feel positive in turbulent economic times, relatively unestablished entrepreneurs in the process of starting or growing a new business venture are even further impacted.

She says that in such times, entrepreneurs need to carefully assess which types of economic ‘noise’ present in the media and marketplace they should pay attention to, and carefully consider what to take into consideration when developing strategic growth plans – both in the short-term and the long-term.

Some of the more prominent news recently, says Mjadu, is the country’s low growth forecast for the year. The recently released IMF World Economic Outlook report reveals that South Africa, Africa’s most advanced economy, is expected to see economic growth halved in 2016 to 0.6%. The report attributes this decline in growth to “lower export prices, elevated policy uncertainty and tighter monetary and fiscal policy”.

Another issue that’s currently dominant in the media is the electioneering by political parties as they campaign for votes in the upcoming local government elections, scheduled for August this year, which usually impact government programmes. “During any election year, policy decisions are often halted as Government politicians shift focus to campaign efforts, and this can provide uncertainty for both entrepreneurs and investors,” says Mjadu.

She adds that the fluctuating rand also reluctantly forces many businesses who source products and goods overseas to increase their prices in order to maintain profit margins, thereby possibly impacting client loyalty.

Lastly, the Monetary Policy Committee (MPC) also hiked the repo rate by 25 basis points in March 2016, resulting in the repo rate rising to 7% and the prime lending rate rising to 10.50%. “While this impacts all businesses, in particular, it impacts early stage entrepreneurs more as the lending rate is higher today than six months ago, or even a year ago.”

While faced with this negativity, Mjadu says that entrepreneurs cannot afford to pay attention to every negative economic situation and should instead analyse how each indicator will or potentially harm the business, and then plan accordingly to put pre-emptive or corrective measures in place.

“In the short-term, business owners should take the economic ups and downs, such as interest rates, into consideration as interest rates are expected to continue to rise this year. If possible, business owners should seek to increase loan repayments to avoid paying more interest. Similarly, if interest rates or inflation rises, customers won’t have much disposable income to spend. Businesses need to know how such market indices can have an immediate impact on business.”

She adds though, as much as it is important to keep an eye on daily influences that directly affect a business and how these will impact cash-flow and month-to-month bottom line, small business owners should allocate more time and focus on long-term objectives. “It is sometimes impossible to plan for all the short-term ups and downs, but by focusing on the business’ larger annual milestones and then planning realistically how you are going to achieve these, a business is more capable of surviving volatile periods.

Mjadu concludes: “While there were many macro-economic factors influencing investor and business confidence in the economy during the first quarter of 2016, many local businesses continue to survive and some even thrive. This is because there are reasons for entrepreneurs and small and medium enterprise (SME) owners to feel confident in the economy as with time invested to seek opportunities true entrepreneurs – those that see potential, rather than challenges – will continue to find the many gaps and business opportunities available in the South African economy.”

Value in having an expert evaluate your business

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Five reasons entrepreneurs should enter business competitions

Entrepreneurs running small and medium enterprises (SMEs) are required to assume many roles and wear many hats as they often don’t have the resources and staff complement available to manage all the necessary day-to-day activities and challenges that the environment presents. Entering a business competition is therefore often the last thing on an entrepreneur’s mind and may seem to be an additional, unnecessary task. However, taking time to reflect on the business can assist in identifying problems and aid in developing growth strategies.

Gugu Mjadu, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says that apart from the cash prize money, which can be put towards funding the growth of the business, entering a business competition allows entrepreneurs to gain a different perspective of their businesses, which can often prove to be more valuable than funding.

“It is easy to get caught up in the day-to-day running of a business and get distracted with the various tasks and challenges. Presenting a business to a judging panel not only forces entrepreneurs to reflect on their businesses, but also exposes entrepreneurs to experts who can analyse the businesses and point out aspects that they may have overlooked during the rush of running and managing the  businesses.”

Mjadu adds that as access to capital to grow a business is considered one of the top challenges for many entrepreneurs, taking part in a business competition is one of the most cost-effective measures to grow awareness of the business without dipping into the business’ resources.

Mjadu shares five reasons why entrepreneurs should consider entering a business competition:

  1. The cash prize money: While not the most important aspect in the greater scheme for the business, a cash lump sum offers entrepreneurs the potential to either pay off existing business finance debt or use the capital to expand the current business or fund new avenues.

 

  1. Expanded network of likeminded people: A business competition brings together a group of people with the same objective – to build and grow a successful business. Apart from the opportunity to learn from fellow entrepreneurial entrants, entrepreneurs are able to engage with credible business experts and mentors involved in the competition and have the opportunity to draw on their business knowledge and insight. Some business competitions also offer an alumni network that entrepreneurs can tap into for new ideas and wisdom.

 

  1. Access to business experts and independent analysis of your business: As part of an entry process, the competition judging panel is required to analyse the entrant’s business to gauge worthiness of being named a winner in the competition. Through this process, entrepreneurs can gain an independent and fresh perspective of the business, as well as learn valuable lessons about their business plan and model.

    For example, the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS has three stages to its judging process. Consisting of five independent judges, who represent different areas of the business community, the evaluation process includes a preliminary screening of the entry forms, followed by a review of financial information, and lastly an interview with each finalist and on-site visit to the business. This in-depth process allows entrepreneurs to gain greater insight and awareness of opportunities and challenges that exist. Entrepreneurs should embrace the opportunity to have their businesses scrutinised by a group of experts.

 

  1. Acknowledging a business’ true value and capabilities: Entrepreneurial competitions offer the necessary push for entrepreneurs to analyse their own business’ worth. Entrepreneurs are often so involved in the operations of the business, that they don’t realise the true success of the business and what it may be worth. This downplayed perception of success can hinder a business’s growth path and prevent it from capitalising on potential opportunities.

 

  1. Increase the profile of your business: Building a positive reputation is often a key challenge that business owners encounter on their entrepreneurial journey as smaller businesses can’t compete with larger market players’ marketing spend and advertising campaigns. Not only are entrepreneurial competitions cost-effective to enter, but if entrants are successful as finalists or winners, the awareness thereafter can have a significant knock-on effect on their business’ brand and bottom line.

Now in its 28th year, the free-to-enter 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS is open to entrepreneurs from all industries and for businesses of any size. For more information, please visit www.eoy.co.za. Entries close 16 June 2016.