Funding your start-up

Get your personal finances in order

Over the last five months, Sello, with the support of his Absa financial adviser Philander Tshivhenga, has worked hard on cutting his expenses and reducing his debts.

This has resulted in an improvement in his credit score and, in settling some smaller loans, has provided some cash flow. This has reduced the pressure on his personal finances and places him in a better financial position when it comes to applying for a business loan, which offers better interest rates than a personal loan.

While a funder will require a business plan, they also look at “backing the jockey”. This means they will take the personal finances of the business owner into account.

If the owner is not managing their own finances appropriately, it does not bode well for the way they will manage those of their business. Sello is currently looking at options other than borrowing to fund the final R10 000 that he will need to produce the prototype.

By using his 13th cheque, he expects to be able to finish the prototype by January.

It is also important that Sello keep his personal and business finances separate. Most banks offer cost-effective business banking for start-up businesses and Sello has opened an Absa Business Evolve account. By having a separate bank account, his business will develop its own track record and credit rating – this will be important for future funding.

Acquire business skills

While most entrepreneurs start with looking for funding, according to Norman Venketiah, head of small and medium enterprises (SMEs) in KwaZulu-Natal and Mpumalanga, funding is the last piece of the puzzle when it comes to starting a business. A start-up entrepreneur must first acquire business and financial skills, find a committed buyer or demand for their product and then apply for funding.

The mistake many business owners make when applying for funding is not having a comprehensive business plan. A business plan is not a wish list of what you hope to achieve – it must have hard figures and facts.

This includes a proper SWOT analysis – of strengths, weaknesses, opportunities and threats – understanding the market and competitors as well as a thorough financial analysis of the costs, breakeven point and potential profits. A business plan is important not only to acquire funding, but to inform the entrepreneur whether the business is feasible before they commit funds.

This is an area that many would-be entrepreneurs struggle with and it is important for them to work with someone who can assist them in acquiring those skills.

Absa partners with various service providers to assist with the non-financial aspects of their business. Sello is working with Precious Mvulane of GAD Consulting Services to put together a business plan, develop his business skills and formulate a strategy for his business. Entrepreneurs can also approach the Small Enterprise Development Agency for training and assistance with business plans.

The next step is access to markets. As part of its Enterprise and Supplier Development (ESD) Programme, Absa partners with blue chip companies that allocate a percentage of their profits to assist start-up businesses. Once Sello’s business plan and prototype are ready, he will be able to pitch his idea to Absa’s partners. Once he has secured a contract, he will qualify for the funding of his working capital.

Last month, Sello attended the Absa Manufacturing Conference at Sandton Convention Centre. He learnt about Absa’s ESD Programme, and it was an opportunity to see products from companies that specialise in machinery equipment.

Starting your own business, especially in the manufacturing industry is not an easy path but there are many programmes out there to assist you. It is important to understand the process and why you first need to invest in your own skills before applying for funding. You must put the work in and be prepared to make the sacrifices.

For Sello, spending the time getting his own finances in order has been invaluable.