By: Christelle Louw, Advisory Partner, Citadel
What to consider when planning and running your business
Can your business survive a rapid change in the environment? Would you be able to continue to operate if disaster struck? Such issues can be avoided if you consider several factors upfront, while still in the planning phase. Beyond that, being mindful of certain issues as you run your business can ensure that it will be able to survive the vagaries that life throws at you, and even thrive long into the future.
There are five essential factors to consider:
- Ownership: Selecting the most appropriate type of ownership for your business is crucial. It’s the first step in structuring your business and can have real consequences in the future when needing to weather a storm or when facing uncertainty.
In South Africa there are essentially four types of ownership for businesses, each of which bears different risks and responsibilities such as reporting, compliance, tax rates and personal exposure to liability. These are: sole proprietorship, partnerships, private companies and public companies.
The selection should not be taken lightly. In order to choose the type of ownership best suited to your undertaking, it is necessary to understand the industry that you are in as well as the size, complexity and nature of business conducted. The future growth of the business and your exit strategy are equally important in making the decision.
Lawyers, doctors and accountants may find great practicality in having partnerships. On the other hand, large corporations with multiple owners may prefer to establish themselves as private or public companies. Should you wish to finance your undertaking, compliance will be paramount. By ensuring that your business is properly set up, it will offer you the best opportunity for profitmaking and success.
Once you have worked out with the help of a financial or business advisor, what is best suited to your business you are on the track to ensuring continuity, flexibility and protection of both your and the business’ interests.
- Industry: If COVID-19 has taught us anything, it’s that when considering which industry to service, having the ability to adapt to be an essential service or product is invaluable for reducing non-systemic risk.
This will also depend to what extent you are entrepreneurial and can be agile in the face of adversity. Entrepreneurs with whom I have worked always seem to survive regardless of their environment. True business leaders are able to adapt swiftly and make the necessary changes for the survival of their business. They are able to pivot into new avenues for success. Having the right structures and relationships in place help to ensure a smooth and easier transformation.
One example, is that of a client involved in the fashion industry who was quickly able to turn her business into providing masks for corporates soon after the COVID-19 pandemic threatened to close it permanently. Another is a restaurant which pivoted to a bakery within weeks of the lockdown. While other restaurants were facing closure and layoffs, this one was able to continue to operate, support a soup kitchen for vulnerable members of the community and actually grow its customer base.
Look for an industry where you have skills and abilities, but also one where you will be able to adapt that expertise at lightning speed to new circumstances as things change around you.
- Liquidity/financing: The next important consideration for any business is liquidity and access to finance. If you expect to survive difficult times or uncertainty, having access to cash is essential. Whether that is the ability to access a loan through your banker or to put lazy assets to work, being able to weather the storm or spend money when a business has stalled, is vital.
Managing cash flow is, of course, a top priority for any company. However, when money is not flowing in, being able to buy time or acquire assets that can be utilised in new income-generating activities could be the difference between survival and closing shop. Having ready access to liquidity provides the tools to manoeuvre in tight situations.
To this end, shoring up relationships with one’s banker and accountant can yield invaluable returns. Often, being able to re-purpose or to put to work lazy assets on the company’s books can only be achieved through the correct leveraging of relationships with people or organisations with whom your business partners.
- Balance sheet: Having a solid balance sheet in the years leading up to any unforeseen circumstances will also hold you in good stead. A robust balance sheet will offer the possibility to unlock funds, release assets and provide gearing potential.
As a business owner, it is also prudent and wise to maintain your own personal balance sheet in a sound state: don’t allow the business to make you completely desperate. Pay yourself enough to build up your personal balance sheet as this will enable you to protect your assets in the event of troubled times. Depending on the ownership structure of your business, you might want to look at different ways to protect your personal assets.
- People: An increasing and ever-important focus for organisations, both large and small, is the triple bottom line. Sustainability, corporate governance, looking after the environment and your people are now just as important as making a profit. You cannot be successful on your own and you cannot be successful at the expense of society or the environment.
For this reason, my last important point for business owners and entrepreneurs to consider is their people. Look after your stars, take an active interest in who they are as individuals and they will return the favour by looking after and working hard for your business and the vision and goals you have aligned with them. Often, when your back is against the wall and times are tough, it is the human capital that steps up, generating great ideas or sacrificing to ensure the continuity of the business. Looking after your people ensures a healthy organisational culture that not only helps the business to flourish, but allows the individuals themselves to grow personally and sets up a virtuous circle of sustainable progress for all.
When setting up and running a business there are important factors to consider. If these are in place, they will assist you in overcoming obstacles that will inevitably arise, paving the way for long-term sustainability and business success.