Starting your own business? Here are the start-up costs to consider
Registration is the smallest part of starting a business in South Africa. What premises, equipment, insurance, salaries and hidden costs really add up to.
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Start-up costs in South Africa depend far more on the type of business than on registration fees. Reserving a company name with CIPC costs under R200, but an operating business also needs premises or equipment, a website, insurance, and enough working capital to cover salaries before it turns a profit.
Key takeaways
- Registration is the smallest cost. Getting the business operational is where the money goes.
- Budget by sector, not by an average. Premises, equipment and staff drive the number.
- A letter of good standing, confirming COIDA registration, is needed as soon as you hire.
- Plan for months of salaries and rent before the business turns a profit.
- Hidden costs – maintenance, IT, utilities, late customer payments and staff turnover – are the ones that catch owners out.
So you’re starting a new business – congratulations! It’s both an exciting and exhausting venture. It’s almost like moving houses, there’s a lot of initial stress and a seemingly endless list of things to consider but, once you’re set up, the benefits are worth the initial hassle.
As with moving, setting up and establishing your business comes with an assortment of costs – both obvious and not so obvious. How much money do you need to start a business in South Africa? And what hidden costs should you be aware of that can creep up unsuspectingly mid-launch?
We’ll be aiming to answer all the questions you might have about the costs of starting your own business.
How much does it cost to start a business in South Africa?
You may see lucrative promises online swearing that it costs less than R200 to start a business in South Africa. While this isn’t technically wrong, it’s also not correct either – and it’s misleading!
While it’s true that reserving your business’s name with the Companies and Intellectual Property Commission (CIPC) is currently less than R200 (subject to change over time), that’s just the cost of registering it. To launch your business and make it fully operational will cost more.
Exactly how much will depend on certain factors, such as the type of business you’re starting, whether you’re renting office space or not and how many employees you initially hire. It’s impossible to know for sure how much it will cost until you do a thorough cost estimate, which is why initial planning is so important. If capital is the constraint, our guide on how to start a business with no money covers the lower-cost routes in more detail.
Start-up costs to keep in mind when starting a business
As a general rule of thumb, it’s always better to be over-prepared when it comes to estimating how much start-up capital you require to launch your business. Here are a few standard expenses you can expect to pay at the beginning:
Registration costs for the business
As mentioned above, registering your business name with the CIPC will cost an initial, upfront fee. It is worth getting this right first time – see our guide to choosing a company name and registering it with CIPC.
Costs for the letter of good standing
If you’re planning on hiring employees, you will need a letter of good standing, confirming you are registered for COIDA. COIDA stands for Compensation for Occupational Injuries and Diseases and is registered by the Department of Employment and Labour.
Also known as workers’ compensation, COIDA protects and compensates staff members if they are injured on duty or work premises. In other instances, you may require other letters of good standing for tax purposes and so on, but this will depend on the size and type of your business.
Bank loan repayments and interest
This one is important to keep in mind! If you’re taking a start-up loan from a bank with the agreement to repay over time, you’ll likely be paying interest on top of the instalments you’re repaying.
Loans can also carry additional fees you’ll need to repay as well, so make sure you know all the upfront and ongoing costs to get an idea of exactly how much you’ll be expected to pay back each month.
Office space
This expense is optional and will depend on whether or not you need office space to run your business. The services that you offer might mean that you don’t need a physical office space at all, and you can run your business entirely online.
On the other hand, having a physical office space, warehouse or premises of some sort might be integral to your business’s success. If you do require space, you’ll need to factor in the costs of renting it, which may include an upfront deposit.
Website and marketing costs
Running a business today requires you to have some sort of online presence, ideally a website that clients or customers can use to contact you or learn more about what you do. Building a website from scratch takes time and a lot of skill and you’ll either need to create it or hire a web developer to create it for you. The cost of building a website will vary according to who’s building it and what the requirements are.
Marketing is also vital to getting the word out about your business. Digital marketing, in particular, can help you build trust and authority as a service provider. Most social media platforms allow you to market your business for free by creating a business page, but to extend your reach, you’ll likely need to pay for online advertising space.
Business insurance
This one’s not a necessity – not every business owner decides to get insurance for their organisation. It can, however, ensure that you’re protected in certain instances or situations should they arise. Types of insurance you might consider looking into include accidental damage, theft, public liability or business interruption coverage.
Wages and salaries
When you first launch your business, it may take a few months to a year (possibly longer) before you begin to turn a profit. This is normal for new businesses but, in the interim, any staff you’ve employed will still need to receive their wages.
Be sure you’ve budgeted enough to cover necessary wages and salaries unless you have a prior signed agreement between you and your employees agreeing that salaries will be paid on a later, specified date.
Hidden start-up costs
There may also be a few hidden costs that arise during the initial launch and while you’re finding a routine in your operations. It’s good to be aware of them and plan for them, just in case. Some of these hidden or unexpected costs can be:
- Maintenance and repair costs (website maintenance, etc.)
- Ongoing IT and internet costs.
- Utility expenses
- Interest lost from late customer payments or from paying suppliers before you’ve been paid.
- Employee turnover and replacement costs.
That last one is worth planning for properly. Late payment is one of the most common cash flow pressures on new South African businesses – our guide on dealing with late payments sets out what you can do about it.
Make sure your business has the funding it needs to succeed
We know that getting a business up and running takes careful planning from both an operational and financial point of view. If you’re in need of a bit of guidance, chat to us at Sourcefin.
We provide easy, accessible financing for small and medium-sized businesses, built around the opportunity in front of you rather than your balance sheet. We also provide guidance and support on end-to-end business processes like supplier sourcing and vetting, purchase order financing and arrangement, and reliable logistics and delivery.
Sources & references
- Companies and Intellectual Property Commission (CIPC) – company registration and name reservation
- Department of Employment and Labour – COIDA registration and letters of good standing
Frequently asked questions
How much money do you need to start a business in South Africa?
There is no single figure, because start-up costs in South Africa depend on the type of business. Registering a company name with CIPC costs under R200, but premises, equipment, a website, insurance and staff salaries make up the bulk of the budget. A service business run from home starts far cheaper than one needing a warehouse.
What is the cheapest way to start a business in South Africa?
The cheapest route is a service business you can run without premises or stock. Registering with CIPC is a small upfront cost, and a basic website plus free social media business pages cover your online presence. The main saving is avoiding rent, equipment and salaries until revenue can support them.
Do you need a letter of good standing to start a business in South Africa?
A letter of good standing is needed once you hire employees, not to register the business itself. It confirms you are registered for COIDA, the Compensation for Occupational Injuries and Diseases Act, through the Department of Employment and Labour. Many tenders and contracts also require one before you can submit a bid.
What hidden costs should new South African business owners plan for?
The costs that catch new owners out are ongoing rather than upfront: website and equipment maintenance, IT and internet, utilities, staff turnover, and the cash gap created when customers pay late or suppliers want paying first. Budgeting only for launch costs is the most common planning mistake.
How long does a new business take to turn a profit?
Many new businesses take several months to a year, sometimes longer, before turning a profit. Salaries, rent and suppliers still need paying throughout that period. The safest approach is to budget enough working capital to cover fixed costs for the whole runway rather than assuming early revenue will carry them.
Sourcefin is a South African alternative finance provider that offers purchase order funding and invoice discounting to SMMEs, enabling businesses to fulfil confirmed purchase orders or tenders and unlock cash flow without collateral. Unlike traditional lenders or banks, Sourcefin also provides end-to-end support including supplier sourcing, logistics, project management, and risk oversight.
