Beyond Funding

Business Toolkit

In line with one of our values, Partnership, we seek to enhance interactions and relationships with our current and potential clients through value-adding information. We look forward to your feedback on additional topics that you would like to see. Please contact us at service@idc.co.za.

 

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Funding Approaches
 
DTI Black Industrialist Scheme (BIS) Grant
  • Flexible repayment loan terms thus enabling entrepreneurs to service the debt.
  • As a Development Finance Institution, the IDC can structure loans with moratorium periods until the business builds up sufficient cash-flow to service the debt.
  • Grant funding or quasi equity/subordinated loans are good alternative funding mechanisms when entrepreneurs have low or no equity to fund their start-up businesses.
 
  • It is best for entrepreneurs to align their applications for funding from the IDC with the request to the dti for the BIS Grant. The main reason is that the dti grant is approved on the basis that co-funding has been raised/obtained.
  • The grant allows for the Black Industrialist to claim their approved funds to align with IDC (or other funders) disbursement.  The entrepreneur must ensure that they give the DTI 7 days to process claims/disbursements.
  • On a case by case basis, the IDC and the entrepreneur can arrange for an escrow account for a limited period not exceeding 3 months.  This could be in the case where Letters of Credit are used, or a deposit is required.  
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Developing Prototypes
  
Exchange Rate
  • Grant funding can be used to develop prototypes.
  • Prototypes can be developed at University facilities which often have small pilot scale equipment that mimic the characteristics of large equipment. Alternatively, negotiate with established manufacturers to utilize some of their facilities for prototype production.
  • Prototypes allow entrepreneurs to evaluate the pre-sales appetite/the market before sourcing finance for large-scale manufacturing.
 
                                      
  • Be aware of the fluctuations of the rand exchange rate in capex purchases (e.g. buying imported equipment for production).
  • Cost over-runs due to currency weaknesses may negatively impact the sustainability of a business.
  • The IDC budget often includes a contingency for exchange rate fluctuations.
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PRODUCTION CHALLENGES
 
Technology-Transfer Challenges
  • In most start-ups, there are delays in starting operations, leading to cost over-runs.
  • Ensure investors/shareholders can put in extra equity or acquire grant funding to cover these costs – stand-by equity or debt facilities.
  • Also, factor in time overruns in the commissioning schedule by pushing the launch date of start-up operations.
  • Entrepreneurs should have access to a technical partner’s expertise to support them when problems arise in the production process, for example when the manufacturing plant does not work optimally or when the manufactured product does not meet the required quality standard. Technical supporter/advisors need to be near the manufacturing plant to assist production staff on demand and on the ground.
  • Do not underestimate the attention to detail and effort of labour required in assembling and packaging finished goods.
 
  • Entrepreneurs should be aware of the technology-transfer challenges from one country to the next, when setting up a manufacturing plant, including purchasing equipment.
  • There is no seamless transfer even when one buys the same machinery, e.g. the environmental conditions are different and the staff operating the machinery is different. Adjustments need to be made in physically re-assembling or re-configuring parts of the machinery.
  • Entrepreneur’s staff need to be up-skilled. A technician from overseas may spend some time with local staff installing and operating the imported machine but this may not necessarily mean that skills and knowledge have been transferred to staff.
  • Thus, interrogate how rigorous the training is, as follows:
    • Is the overseas technician a competent trainer?
    • Is the level of training given to the local staff of high quality?
    • Are staff knowledgeable, skilled and competent after having received training?
    • Can staff replicate the assembly and production process? Can they be declared competent?
    • If a technical problem arises with the equipment, can staff troubleshoot and fix the problem? If not, is the manufacturer a reputable supplier with an after-care sales support office in South Africa to support staff when the machine does not work optimally?
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MANAGEMENT STRUCTURE
   
  • Start-ups are often thinly resourced, with gaps in management. Be aware not to expand and grow a start-up business too quickly if the production volume or quality is still low due to technical manufacturing problems
  • Ideally, take the leap of faith and employ the right people with the right skills to take the start-up from zero-base to a medium-sized business, and beyond.
  • Often the founders of the start-up business may not be the best managers to lead the business forward.