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9 May 2022

7 Considerations to take into account when starting (or scaling) your company

– Kyle Freitag

Introduction

As you might imagine, we get a fair few new and/or scaling businesses through our doors seeking assistance with various aspects of their fledgling or developing companies. Since 2015 when Legalese opened its doors for the first time, we have run the gamut with our clients, assisting them with the management of a spectrum of issues. Through this experience, we have collected a list of common mistakes that the owners of new or growing businesses regularly make. Our hope is that you’ll benefit from reading this, and potentially avoid falling into some of these pitfalls yourself!

They don’t have a fully fleshed-out idea

This seems fundamental, but it would likely surprise you to learn that there are many new business owners who have what they consider to be a good idea (and a lot of times they are good ideas!) and just run ahead and start things without considering the important things: how much will manufacturing the product/providing the service cost you? Is there a need for this product/service? Who are the local competitors and what do they offer, etc etc etc.

It is a uniquely bad idea to do this. Consider every aspect of the business from every angle, discuss the idea with people you trust to give you their perspective and advice, and make plans and contingency plans for the situation where your original plans don’t work out. The world doesn’t owe you a successful business, so things that can go wrong, often do.

They want to run before they can crawl

Too often we hear things like “we are going to be the next Uber”, or “our app is going to revolutionise [insert industry here].” By no means are we being discouraging when we say that this is fantastically unlikely. “Unicorn” companies are called that for a reason, they’re extremely rare.

Who knows? You very well might be a unicorn company, but it still pays to be realistic in your approach, and recognize that there is going to be a lot of uphill before your company or brand becomes a household name. It is also a good idea to do some research into what is involved in starting or scaling a big, fancy company. Capital requirements, labour costs, rental, intellectual property management, none of this happens overnight.

They don’t have a business plan

A well thought-out, properly-presented business plan can mean the difference between your business becoming an attractive investment opportunity, or a complete flop. Properly defining your objectives, and the mechanisms through which those objectives will be achieved is an often-overlooked, but crucial, aspect of your business journey.

They are unaware of relevant regulatory aspects of their industry

The law exists, folks, and it does a lot more than you think. Many industries have stringent regulatory requirements that apply to all businesses that provide those services. You may have built an amazing payment solution, for example, but is it compliant with the National Payment Systems Act? Do you need to register as a Third Party Payment Provider, or a Credit Provider?

Failure to ensure that you are compliant with relevant regulations in your industry can find you lumped with huge, company-killing fines.

They don’t get tax advice or structure their taxes in the most efficient manner

An obvious one. It is important to ensure that you don’t fall foul of SARS, because interest and fines can rack up daily if you don’t tend to the necessary. More than this though, it is possible to structure your accounting and tax processes and procedures such that you get the utmost “bang for your buck”. It’s a great idea to speak to an accountant or tax professional to assist you in this regard.

The importance of company structuring and the legal agreements that you use cannot be overstated. Setting up appropriate relationships with your business partners is a fundamental, borderline non-negotiable step that you need to take right at the very beginning because things can very quickly take a turn for the worse, and that is the very time when you want every aspect of the relationship to have been reduced to writing.

The same is true for your clients and suppliers. If there is an objective document that the parties can go back and refer to when things go pear-shaped, disputes can very often be sorted out right then and there (or not arise in the first place).

Relevant parties are unaware of their roles and responsibilities

Do all the stakeholders of your company know what obligations they have toward the business? Does everyone know what they are and aren’t allowed to do? Directors, members, partners, shareholders, employees, whatever the case may be, they all need to be aware of their role, how that role fits into the greater contextual picture of your company and, most importantly, the limitations of that role.

The best way to do this is through the establishment of appropriate contractual relationships with all these people.

Conclusion

Basically, it is very easy to get wrapped up in the excitement of starting a business. We get it, it’s an exciting time. It is, however, crucial to ensure that you set things up properly and sensibly. In all likelihood, you will not be listed on the Johannesburg Stock Exchange inside of a decade, so you definitely have the time to ensure that your foundation is solid. You will not regret it.

Contact Legalese and have a chat with us about how best to set up your business from the very beginning so that it’s legally sound, and capable of scaling appropriately.