10 steps to being your own boss
- Mohammed Bin Rashid Al Maktoum Foundation: Its Sawaed programme awards non-refundable grants to business concepts aiming to develop regional projects, while providing the opportunity for businesses to develop commercially sustainable enterprises. The Foundation also offers graduate scholarships, literary programmes and entrepreneurship initiatives. https://www.mbrfoundation.ae
- Young Arab Leaders: Its Enabling Entrepreneurs programme is a mentoring and networking platform for start-ups and early-stage companies in the region. It also has forums, sponsorship programmes and other projects for budding entrepreneurs. www.yaleaders.org
- Mohammed Bin Rashid Establishment for Young Business Leaders: It offers all kinds of information about starting your own business, including finding a niche, protecting your ideas, buying a franchise, and even explains why some small businesses fail. Launched in 2002 to encourage entrepreneurial activity among UAE nationals. www.sme.ae
1. The business plan
When you're starting out, everything comes down to a business plan. You may know what you want to do, but can you convince other people there's money to be made from it? From licensing authorities to potential investors, you will constantly be asked for one, so get one quick. Basically a formal statement of your goals and why you believe they're attainable, a business plan must lay out a path to those targets, with investment and marketing strategies and revenue streams.
This is when you decide what kind of company you want: A sole proprietorship or are you setting up with partners? Or does the nature of your business warrant setting up a corporation that limits your liability and brings in experts?
One word of warning: Many entrepreneurs aren't a success in business until they've had one or two failures.
All businesses must be licensed to operate in the UAE and procedures vary across the Emirates. Depending on the activity you undertake, there are two main types of licences, Limited Liability Company (LLC) or Professional, says Alex Watson, Head of Corporate Services at legal consultants MAC Davidson & Associates. The former require a UAE national to hold 51 per cent of shares in the company and must have a paid-up capital of Dh300,000. Professional licences have no shareholding, but must list a UAE national as Service Agent. On the other hand, licences issued by the various free zones allow for 100 per cent foreign ownership with no local agent or sponsor.
"Choosing the right licence is key to the success of your business," says Watson. "There is no 'magic' licence that covers all activities, so you must be diligent in your choice."
Once the trade licence is issued, you can apply for immigration card and labour cards. The company owner has no option but to have an investor visa, available at a deposit of either Dh10,000 or Dh20,000 depending on the type of licence. All employees receive employment visas from the labour department, with deposits of Dh3,500 each. Visas issued by freezones are to all intents and purposes identical to a visa issued outside them, and entitle the holder to work in the freezone. A new law last year allowed workers and professionals to start their own firms without losing their jobs or changing their visas, but until last month this was yet to filter through.
"There are many differences in procedures dependent on the type of business and location, so get a full consultation before starting out, as early mistakes can be costly," says Watson.
4. Financing structure
You can finance operations either through equity or loans. To minimise costs, a company should use as little debt as possible at the start, at least until it starts generating profits. With low or no profits, the obligation to service both the loan and interest charges may become a burden. "Companies must understand their cost profile well and focus closely on those that are sensitive to the bottom line, such as a small change that can have a large impact on overall results," says Michael Potella, Director Planning and Budgets Industries, Emirates International Investment. "Prioritise costs that add value and be careful not to eliminate the wrong ones."
5. Form strategic partnerships
Many suppliers or service providers may be willing to negotiate their rates upfront – either for a larger deferred payment later or a guarantee of regular assured business as a "preferred" supplier, once your business is established. "Don't shy away from asking about these. Any arrangement that helps you achieve a lower start-up cost or defer payments to a later date can have a significant impact on your operation's ability to succeed in the crucial start-up phase," says Anurag Chandra, Managing Director of the UAE-based Aurora Management Consulting.
6. Keep overheads low
Any business must invest in certain fixed-cost items such as offices, plant infrastructure, communications equipment, support staff and so on. Keep costs down with innovative approaches – consider setting up operations in a low-cost area rather than a swanky commercial office in a prime location – the rent difference could be 300 per cent. And if you're flexible, offices in a business centre could be an easy solution.
The main focus of the business has to be sales of its products or services. A business involving products should seek to make its sales on a cash basis and minimise the amount of credit extended to customers. An organisation selling its services must emphasise advance payments of at least 50 per cent of the total transaction. This will ensure liquidity to pay early bills and meet the deadline.
A service-based business should avoid recruiting staff in the initial stages of operation to cut costs. Once there are more than two clients, extra hands can be acquired in no time at all. A thing to remember while hiring staff is that they should be multi-skilled and capable of multi-tasking. All efforts should be taken to ensure they are productive and work is not overlapping. Whatever your business, getting the right candidate for the right post, who can do the work of two people, is best suited for start-up companies.
9. Technology and processes
Processes should be carefully reviewed and considered to ensure that only value-added steps are included. Processes that do not add value and those that are excessively time consuming should be eliminated or outsourced. Michael Potella says: "Technology is key to today's business and should be fully exploited to allow for effective communication and to reduce costs. Some simple software packages can be utilised to integrate financial and non-financial systems."
Identify non-core activities and outsource them aggressively until you have a critical mass where developing the capability in-house cuts costs. Outsourcing even a single position helps save in many areas, such as fixed salaries, office space and consumables. Typical areas that a start-up operation can outsource are IT, accounting, and distribution and logistics. Anurag Chandra says: "In some extreme cases, it might even be possible to outsource your entire manufacturing operation by utilising the services of specialised contract manufacturers. You can then move to be a nearly 'virtual' organisation."
Every business, be it a start-up or an established one, needs to market itself. And while blanket television advertisements may be both expensive and unnecessary in the early stages of the business, websites are an imperative tool to showcase your services. They are inexpensive and allow for client interaction and could even open up alternative revenue streams through e-commerce capabilities.
Somna Tognait, Managing Director of Gurukul, a start-up specialising in traditional Indian-style education, says: "In today's global market, our website puts a face to our business while reaching out to Gurukul's enthusiasts." Finally, explore marketing barters and cross-placement of advertising collateral rather that stumping up for everything up front.
Getting that loan
Small business entrepreneurs are finding it harder to get start-up loans from UAE banks given the current tightened lending conditions. In contrast to the high availability of funds as recently as last year, some banks are now even pulling all financing for existing or start-up small businesses.
Nigel Watson, Sales Director at investment advisory firm Nexus Group, says banks now only consider customers who have an extremely well thought-out business plan that can show it has cash flow, and who demonstrate capital investment of their own in the business. "The multiple at which a bank is going to be prepared to fund is probably going to be lower than it would have been a year ago," he says. Watson says there is always the opportunity to raise capital through private investors, but "the potential downside to that is any private investor would seek a stake in that business."
Emirates NBD offers small business loans of up to Dh2 million for start-ups by UAE nationals, as part of its Al Tomooh Finance Scheme, but it does not currently offer business start-up loans for expats and residents. Al Tomooh will fund up to 90 per cent of the total requirement interest free, up to a maximum Dh2m for new projects.
Lloyds TSB says it stopped offering financing in the UAE as of last October due to the market conditions. HSBC does not offer loans for start-ups unless the company has been operating in the UAE for at least a year, and at Noor Islamic Bank the minimum is two years. NIB said that it is currently also very difficult to apply for a personal loan to cover the start-up costs, given you would need to be an employee of a UAE company for at least one year with a minimum salary of Dh10,000.
At Mashreq, small business owners with one-year-old firms in the UAE are offered loans of up to Dh250,000 with a repayment period of up to 48 months. Hemant Lalitraj, Head of SME Business at Mashreq, says customers are evaluated on the basis of their business track records and the strength of their bank account statement.
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