Starting a business in Africa is a step that several entrepreneurs take, either to expand an already existing business or to diversify their investment portfolios. Many foreign investors take an interest in starting a business on the continent due to the vast untapped opportunities available. Whereas diasporas and local entrepreneurs see it as a means of contributing to development and creating employment for the youth.
Whatever an entrepreneur’s reason may be for starting a business in Africa, getting the business up and running can still be stressful. The overwhelming excitement might even leave you in a state of confusion as to what to do or where to start, but you still need to start once you have already decided to. There is no avoiding this.
Luckily, getting your affairs together to finally start isn’t something a little business planning can’t fix. So in this post, we have put together twelve vital things that you need to consider to give you a little bit more clarity on where to start.
Let’s get started!
1. Do Your Research
Before diving into the African market and starting your own business, you want to understand everything there is to know about your industry and the market in general so you can dominate or have a competitive chance. You may have one of the most brilliant business ideas but that isn’t enough to build a thriving business, especially if you don’t have local knowledge of the market.
Conducting thorough market research is how you gain insights into the local business landscape. With that, you get to understand consumer behaviours, which will tell you if your idea is feasible in Africa in the first place. Market trends and potential competitors will also help you know how sustainable your business will be.
Is your business idea a seasonal thing in the market? Do you need to expand on your idea to find out what more you can do with it? All of these are vital questions that you will only get answers to by performing ground research and learning more about the businesses that are already operating within that scope. The beautiful thing about market research is that it opens you up to several possibilities that you can explore with your business idea.
2. Determine Your Audience
Business is all about making sales and also impacting lives, right? So, who do you intend to serve? Because those are the people whose lives you will be impacting with your business and also selling to. Without being able to specifically identify them, you can’t sell and without sales, you probably won’t have a business for long.
Hence, it becomes very crucial to identify and understand your target audience. If your business is serving other businesses, then it’s clear you will be operating a business-to-business (B2B) enterprise, and if it’s directly to a consumer, then it’s a business-to-consumer (B2C) enterprise. Once that’s established, you still want to identify the subgroup of consumers or businesses you’re targeting and learn everything you can about them. This helps you to:
- Fine-tune your products or services to their preferences
- Develop a message that resonates with them and
- Determine a price your audience can afford
It also helps you develop marketing and sales strategies that you can use to attract your target audience.
3. Know Your Why
In the African business landscape, most sustainable businesses exist to solve a problem or fill a gap in the market. Whether it’s to help solve a problem a particular customer base faces or to provide a cheaper or better alternative to an existing product, every business owner must know why they are establishing a business.
There is always the profit factor when it comes to “why,” but focusing solely on profits might mean you aren’t building a sustainable business. For instance, jumping on a market trend to start a business for the sole purpose of profitability might not turn out so well since some trends eventually fade.
So, clearly define the purpose and mission of your business. Knowing your “why” not only guides your decision-making, it also helps you frame your brand messaging so you can connect emotionally with potential customers. For example, if your business aims to provide sustainable solutions, communicate this purpose to connect with environmentally conscious consumers.
4. Ensure Legal and Regulatory Compliance
Unlike some of the other continents, Africa is one with many countries, each with its own set of regulations and laws governing businesses and how they operate. This means that whichever country you choose to start your business in, you need to familiarise yourself with the legal landscape by understanding the regulatory requirements for businesses in your chosen country or region. You also might need to go a step further and learn more about the particular industry you intend to operate in.
For some types of businesses, you will need to be licenced by a regulatory body before you can operate legally. For instance, financial institutions in Ghana, after registering their company with the Registrar General’s Department to become a registered business, still need to obtain a licence from the Bank of Ghana to be able to operate. The same goes for insurance companies.
5. Choose a Business Structure
Your business structure affects how much tax you pay, how much paperwork you have to file, how much personal liability you have, and how you raise funds for your business. It also affects your day-to-day activities in your business. This is something you will need to decide on before you can register your business.
Whether it’s a sole proprietorship, partnership, or limited liability company, each structure has its advantages and implications. Consider the nature of your business. Is it something you can handle as a sole proprietorship or do you need partners to share risks and responsibilities?
Whichever business structure you decide on, ensure it gives you the right balance of legal protections against your assets and benefits.
6. Plan Your Finances
Your finances are something you need to pay much attention to, especially if you are operating on limited resources. Starting a business requires money, whether it’s your money or money from investors, that’s up to your current financial state. The first thing to do when mapping your finances is to create a comprehensive financial plan, considering both startup and operational costs until your business starts making enough revenue to sustain itself.
Also, establish a budget that covers everything from initial investments to day-to-day expenses. This way, you can verify for yourself if you will need to seek additional sources of funds or if your available finances can cover what’s on your budget until the business becomes self-sufficient. Once you can secure adequate funding, your business can have a smooth start and scale for sustained growth.
Related: How to secure funding for your business in Africa
7. Understand Your Tax Burden
Tax is one of the social duties that every business has to fulfil in Africa, except if you fall within the tax exemption bracket in some regions. Otherwise, your business will be taxed and you will need to pay to avoid any altercations with the government.
The different countries in Africa all have varying tax structures and rates. Hence, it’s prudent to familiarise yourself with the local tax regulations of the country you intend to operate in to determine if you are satisfied with the rates before you move on with starting a business.
Some tax structures are based on industry or the type of business so while learning about the general tax systems of a particular country, you might want to consider your industry too. For example, in Ghana, the general corporate tax is 25% but mining and petroleum businesses pay up to 35% corporate tax.
Understanding your tax obligations will help you plan and allocate resources effectively, preventing financial surprises down the road.
8. Understand the Risk
Every business has some level of risk involved. How you manage the risks is what matters most. Some of the most common risks associated with businesses in Africa include political instability, currency fluctuations, or market-specific challenges. When you have an idea of these risks, identify and assess which risks are associated with your business and develop a robust risk management strategy to tackle uncertainties and safeguard your business.
For instance, a common risk that cuts across all businesses is political instability. One of the ways you can navigate that is to find a country with a stable political landscape for your business rather than depending on profitability alone to make your decision.
9. Put Together a Business Plan
Poor or no business planning is one of the major reasons why most businesses fail in their first to fifth years, including businesses in Africa. And defaulting on putting together a business plan for your business is a recipe for disaster.
A solid business plan is a roadmap that leads your business to success, helping you avoid common business mistakes along the way. It helps you take all the necessary steps to ensure your business gets up and running smoothly. And finally, it helps you seek funding from investors or lenders.
Your business plan outlines your mission, objectives, target market, marketing strategy, sales channels, the team you need, and financial projections, including your cash flow, hence, it gives you most of the clarity you need before starting a business in Africa.
Related: Common business plan mistakes to avoid
10. Bring in the Professionals
Starting a business can sometimes feel like you are treading on a lonely path, especially if you aren’t very familiar with the local landscape or market. But once you have someone or a support system to run your ideas by, the road isn’t lonely anymore. Business professionals like business consultants, lawyers, or accountants can be a great support system.
Not only do they act as support systems, but they also help you gain much-needed clarity on your plans or ideas. They bring their expertise and offer local business insights that you may not be aware of. But above all, it’s unnecessarily hard to start and run a business by yourself so having that dedicated help from professionals is highly recommended.
11. Form Local Partnerships
Local partnerships help you understand the local market dynamics and also gain community support. This comes in handy whether you are a foreign business investor or a resident Ghanaian. Partners could come in the form of suppliers or delivery companies, depending on your type of business.
Forming partnerships is also a way of reducing your operational costs in the form of discounts from your partners. For instance, if you have an e-commerce platform for your business, you can partner with a delivery company to handle all your deliveries at discounted rates. That is if your business can’t yet afford to buy trucks or vans to deliver the purchases.
12. Consider Language Barriers
Africa is a continent with thousands of languages. Ghana alone has over 40 languages but that isn’t to say you should learn all the languages. That is to say, you cannot ignore the language diversity within each country and region.
English and French are widely spoken but is that the case with your target audience or not? Local language barriers can hinder your marketing strategies or even sales. If your business involves customer interactions, offering support in multiple languages can enhance communication and customer satisfaction.
Starting a business in Africa
Starting a business in Africa requires a lot of work and it’s crucial to also prepare yourself emotionally for that journey. For that, we recommend you download our free e-book, 5 Things to Think About Before Starting a Business in Africa. This e-book helps prepare your mind and mood for what’s to come.
Once you are emotionally prepared to start your business in Africa, you can lay a solid foundation for your business ventures in Africa by carefully planning every step of the way. Also, involve a fresh set of eyes and perspectives on your business ideas through professionals who can offer valuable insights into the African business landscape.
