South Africa is alive and buzzing with entrepreneurs, possibly because the country’s high unemployment rate is spurring individuals on to start their own businesses.

But going into business blindly can be daunting. Not knowing the necessary procedures and rules of engagement can get problematic and, even more importantly, cost a bit more than a few initial lessons, says Riki Marais, a manager at accountancy firm Hobbs Sinclair.

Marais shares some of the most common mistakes a start-up can make and the questions you should be asking if you intend to start your own business.

Why do I need to register my company?

Company registration guarantees several legal benefits, one of which is asset protection.

For example, keeping personal assets safe in case of a lawsuit against your company.

“If a company is legally registered, others can’t claim your business name as their own, which is not the case if unregistered”.

Also, registration gives customers an extra reason to put their trust in you. Registration signals that you take your business seriously. And no one wants to transact with a shady business.

Another benefit, says Marais, is that funding is more easily acquired by registered businesses. Banks do not give business loans to unregistered companies, as the risks are too high for them. Similarly, investors will only put money into a business which they feel has great potential. Not being registered will likely count against you.

How and where do I register my company, and can I do this myself?

You can register online with Companies and Intellectual Property Commission (CIPC). And yes, you can do it yourself. This process is actually quite simple. An upfront cost between R125 and R475 is involved depending on the type of business you are registering. You will need to provide the preferred names for your business on the same webpage.

Do I have to register for VAT? When do I need to register for VAT?

It isn’t necessary to register for VAT right away. In fact, VAT registration is voluntary if income for a 12-month period exceeds (or is estimated to exceed) R50,000. However, VAT registration is compulsory if income for a 12-month period exceeds (or is estimated to exceed) R1 million.

Should I employ people to work for me and put them on my payroll, or is it smarter to hire contractors?

The answer to this question depends on the employer: in both cases, it will be an expense on your income statement. Think about long term needs for the firm, but there are advantages to either option. If you opt to employ people, these employees are more likely to be loyal to your firm and will generally stay long term. Also, employment builds company and industry knowledge.

With contractors, however, no PAYE submissions to SARS are necessary and you are not liable for workman’s compensation; contractors are helpful in the short term; and contractors allow for savings during slower seasons.

Why must my company have its own bank account?

This is a SARS requirement. A company bank account ensures separation of business and personal transactions for ‘cleaner’ bookkeeping. Moreover, this is a SARS requirement.

What is the best way to keep my bookkeeping up to date and in tow? Do I really need to buy a software package?

Most accountants recommend using accounting software to record transactions and financial position. However, it is not truly necessary if the business is small with only a few transactions per month.

“I suggest, therefore, if you really need to save money, use Excel, but there are also some inexpensive options for software out there which come with great time-saving benefits”.

What tax will I have to pay and what tax returns will I need to submit?

There are several taxes and returns to consider:

a. Annual returns: Only necessary for companies and CCs, submitted to CIPC;

b. VAT: Either by oneself or a professional service provider such as an accountant, by means of a VAT201 form;

c. PAYE, UIF & SDL: Only if workers are employees of the business, by means of a EMP201 form;

d. Provisional tax: Twice a year, after six months and at year-end (advance payment towards yearly income tax);

e. Income Tax @ 28% of taxable income (28% for companies; individuals according to tax scale): Due annually, one year after financial year end;

f. Dividends: A dividend tax of 20% paid to SARS when declaring dividends. This will likely not happen in the early stages of a business, as most businesses prefer to spend surplus funds on assets and growth.

If I’m looking for capital, what sort of finance should I apply for?

The answer to this depends on the financial position of your company. For example, you might consider debt finance, which is cheaper, but riskier. Taking on more debt increases the gearing (debt-to-equity ratio) of your company. Companies might struggle to receive future debt finance if they are already highly geared. Also, you must consider that risk stays with business to repay the loan or bond should the business fail. On this flip side, the advantage is ownership retention.

Equity finance, on the other hand, means cash from investors in exchange for shares. While the advantage is that investors take on all risk, the disadvantages include ownership, profit sharing with investors, and more difficulty finding ideal investors.

What is workmen’s compensation and must I comply?

Workmen’s compensation is to be paid by employers for each employee (not applicable to contract workers). It is insurance against occupational injury, diseases or even death. As such, all employers need to comply for their employees to make claims in the unfortunate event of injury, disease or death. This can be done online, once a year. However, be aware that there are a few exclusions on type of employees who qualify.

Source: Business Insider