Entrepreneurs that have started a business or are looking to start a business, especially in the green economy, should start, as soon as possible, with documenting their business development process to ensure they have that information available for when they start looking for investors, YWaste Solution MD Emile Fourie has recommended.
He was a speaker on the Africa Utility Week’s panel discussion on how to attract investment opportunities for South African small, medium-sized and microenterprises (SMMEs).
During the webinar, Fourie explained that investors were more likely to consider entrepreneurial businesses with solid and sound business plans, a good history of business research and development and decision-making processes.
It would therefore be in the interests of any entrepreneur and SMME owner to, if they have not already, document every stage of business development, from the first day, as well as future plans and projects in the pipeline.
In terms of getting access to early-stage funding, he said entrepreneur in the green economy had an “amazing opportunity” in the form of the Green Outcomes Fund.
This fund incentivises local fund managers to increase investment in green small and growing businesses (SGBs) by paying for green-oriented outcomes, such as green job creation, climate mitigation and improved water and waste management.
It creates demand for verified, pre-agreed green outcomes generated by SGBs and purchased through local fund managers. Simultaneously, it creates a common base for growing the South African green impact investing market.
“There are some exciting new ways to leverage assets and money that can help you grow and develop business in short space of time,” said Fourie.
He explained that there were three general type of SMMEs, each with different criteria that needed to be prioritised.
The first is SMMEs in the ideation phase, where the entrepreneur has an idea of what they want the business to be and is typically undergoing the research and development stage of a business start-up. This phase is typically within the first 12 months, where the business is being conceptualised.
“At this stage of development, the entrepreneur should absorb as much information as they can,” Fourie advised.
The next phase is the start-up phase, which typically takes place over the first two years, where an entrepreneur can enter the industry with a bit of experience from somewhere else and start their own business.
“This stage involves engaging with other sectors and stakeholders. It also involves building of business models, dealing with customers and learning operational practises,” he noted.
However, SMMEs in the start-up phase are still juvenile and may attract few investors.
The third type of SMME is the operational type. This stage of business development can take place with SMMEs just starting out and up to five years of being in operation.
“This type of business has more experience, they are more engaging and have a substantial business that is already operating,” said Fourie.
For each of these of SMME, there is different types of growth.
In the research and development phase, he said, the entrepreneur should be piloting business models and perfecting them with expansion taking place further down the line.
In terms of SMME start-ups, traction would begin to take place in the industry and that would require at least a small investment to get capital equipment or proof of concept, noted Fourie.
For operational SMMEs, expansion should be well under way or in the near-term pipeline. “You should have a proven model. These types of businesses should either be breaking even or showing a profit (in terms of profitability),” he stated.
Once a business is at the operational phase, Fourie said entrepreneurs should begin to seek ways to de-risk their investments. “When a business are ready to open to investors, they need to ensure they have undertaken due diligence. This requires entrepreneurs to standardise their business plans. Teams need to be experienced and diverse with the right qualifications.”
Investors also look at historical financials, he pointed out, adding that this was “extremely important”. In this regard, Fourie said entrepreneurs should, even from the first day of business, start documenting what the business does on a daily, monthly and yearly basis.
In terms of governance, he said investors would also be keen to get insight into what happens in meetings; so these should also be documented. Factors such as what questions were raised, how they were dealt with, decisions made and the results thereof should be kept on record to present to potential investors, should they ask for a business history.
Legal compliance is also a nonnegotiable, he noted. These includes things such as tax compliance and operational licences being kept up to date.
In terms of expansion, it is also important to ensure there is records of budgets for projects and projections with timelines that show where the projects should go.
Another key criteria to have on hand, should an investor show interest in an SMME is a value of the business, he stated.