The cost of starting a business in South Africa is dependent on several factors including the size, type, industry, and structure of the business you intend starting. But generally, if you intend starting a small business, you are expected to spend anywhere between R125 and R475 (R125 for a private company, R475 for a non-profit company registered without members) and it could be more depending on what you are looking at.
If you are not sure what your expenses will be, then you would be required to research similar businesses in your industry. It is even advisable to consult a lawyer or accountant who has experience with starting businesses in South Africa.
Basically, start-up costs include the expenses before the starting date, such as market research, registration fees, legal fees, office stationery, design and printing of corporate identity (business cards and letterheads), registration of a domain name and creation of a website, installations and utility connections (if moving into a new property). Start-up inventory (if yours is a product-based business).
Cash reserves to support the company during the early months before sales reach breakeven levels. Current assets, such as fixtures and signage, office furniture and vehicle/s (either purchase price or down payments) and long-term or fixed assets, such as property and equipment.
Having said that, here are some of the costs as classified in different categories associated with starting a business in South Africa.
Table of Content
One – Off Small Business Startup Costs
- Purchase price or down payment if you are purchasing a business
- Office furniture
- Computer hardware and software
- Setup, installation and consulting fees
- Business cards and stationery
- Decorating and remodeling
- Fixtures, counters, equipment and Installation
- Starting inventory, raw materials, tools, etc.
- Deposits with public utilities
- Legal and other professional fees
- Business licenses and permits
- Advertising and promotion for opening
- Rent & security deposit (often equals 3 months rent)
- Operating Cash
Ongoing Monthly Expenses
- Salary of owner-manager (amount you need to pay yourself)
- All other salaries, wages, and commissions
- Payroll taxes or self-employment tax
- Equipment lease payments
- Advertising (print, broadcast and Internet)
- Postage and shipping costs
- Supplies (inks, toners, labels, paper goods, etc.)
- Internet connection
- Website hosting and maintenance
- General business insurance
- Business vehicle insurance
- Interest and principal on loans and credit cards
- Inventory, raw materials, parts
- Legal and other professional fees
- Franchise fee
Here are some of the steps you are expected to follow when starting a business in South Africa and some of the cost associated with the steps;
Steps to Starting a Business in South Africa
STEP 1: Check for Business Name Availability
The first step when it comes to starting a business in South Africa is to choose a business name and check for the availability of your preferred name. You can check this for free on the Companies and Intellectual Property Commission (CPIC) homepage. From the homepage, select ‘Check Name Availability’ from the drop down menu. This will tell you if anyone else is currently using your business name.
You then need to check if it is available as a domain name for your website and email addresses as well as a handle for your preferred social media platforms. According to the Online PTY Registration, a name reservation takes between seven to 21 days. Please note that you can as well carry out your trademark check.
STEP 2: Registration of the Business
If you have successfully secured your business name, then the next step to follow is to register the business name. Interestingly, in South Africa, you can register your business online with Companies and Intellectual Property Commission (CPIC). And of course, you can do it by yourself. This process is actually quite simple.
Please note that 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. In South Africa, a company registration may vary between R125 and R475 (R125 for a private company, R475 for a non-profit company registered without members).
In South Africa, there are five types of companies that you can register. If you wish to run a franchise business, you would register a private company. If you wish to register a church, you would register a non-profit company. A private school could be registered as a private company or non-profit company, depending on its objectives. An association of professionals such as lawyers, doctors, civil engineers etc., may be registered as a personal liability company.
It is very much advisable you take your time to decide on your business name before you go about creating assets like your website URL, logo or any other designs. Otherwise, you will need to change everything in the event that your business name changes. Also, when creating a business logo, it is worth considering if you need to patent it to protect yourself from copyright infringement.
When registering your company in South Africa, you will be required to submit the following supporting documents: Certified identity copy of applicant; Certified copies of the Identity Documents of the Directors and Incorporators; lodgement of a passport copy is only accepted as proof of identity for non-residents of South Africa.
STEP 3: Trademarking your Business Name
Despite the fact that registering your business name means it is registered nationally, it doesn’t mean another business can’t operate with a similar name. If you require exclusive trading or branding rights for your business name, you need to trademark it.
You can actually register your trademark yourself and please note that once registered, your trademark is protected in all South Africa territories.
STEP 4: Register for the Correct Taxes
When you start a business in South Africa – you absolutely must register for the correct taxes to avoid any potential legal implications. Have it at the back of your mind that the taxes you must register for are dependent on the type of business you choose to start, with some applicable to every type and others only mandatory for certain types. There are several taxes and returns to consider:
- Annual returns: Only necessary for companies and CCs, submitted to CIPC;
- VAT: Either by oneself or a professional service provider such as an accountant, by means of a VAT201 form;
- PAYE, UIF & SDL: Only if workers are employees of the business, by means of a EMP201 form;
- Provisional tax: Twice a year, after six months and at year-end (advance payment towards yearly income tax);
- Income Tax @ 28 percent of taxable income (28 percent for companies; individuals according to tax scale): Due annually, one year after financial year end;
- Dividends: A dividend tax of 20 percent 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.
Please note that 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.
STEP 5: Get Insurance
In South Africa, all businesses are expected to purchase the appropriate insurance cover and the cost vary greatly. Generally speaking, the riskier your business, the higher premiums you will need to pay. For example, professionals providing investment, legal or medical advice will pay higher premiums than graphic designers, interior designers and bookkeepers as the financial or health risk to the recipient is higher.
The required level of cover also determines the cost with most insurance companies providing cover for R1 million, R2 million, R5 million, R10 million and R20 million. A sole trader will also pay a much lower premium than a company with 12 or more employees. It is up to you to decide what level of cover you need. As a guide, professional indemnity advice for sole traders providing low risk advice starts from approx. R350 per year.
STEP 6: Register your Domain Name
Have it in mind that you can only complete this step after you must have secured your business name as it is only possible to get a .com.za address if you’re a registered South Africa business. Also note that the domain name you pick should be related to your business in some way to make it a lot easier for prospective customers to find and recognize.
Although you might have the perfect domain to go with a killer business name, you will still need to check that someone else has not taken it already. In South Africa, there are many sites that can help you with that. Immediately you have found a domain name that is not taken, you can go to the .za to find links to domain registrars and resellers.
Please note that based on the Companies Act, 2008, a company may be registered with or without a company name. In the case where a company is registered without a reserved name, its registration number automatically becomes the company name. This is the quickest way to register a company.
Such a company may transact with a trading (business) name, or may apply to add a reserved name at a later stage. In this case, the company will need to first reserve a name and then apply for a name change, which constitutes a change to its Memorandum of Incorporation (MOI).
It is important to state that there is no fixed amount when it comes to starting a business in South Africa and some of the amount listed above are what you are expected to pay to the government of South Africa and any other cost incurred are personal and should be spent at your discretion.
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