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Being in a country as beautiful and diverse as ours on the eve of the world’s greatest sport spectacle, sounds like a tourism apple ripe for the picking. Rushing in without preparation, however, is bound to leave a bad taste in your mouth. Knowing that you want to work in the tourism industry is not enough to start a business. Simply put – you need a plan.

Many SME owners make the mistake of thinking that their businesses are too small to need a business plan and that the money spent developing one will be wasted. Others make the mistake of developing a business plan but never referring to it again.

Martin Duncan is an entrepreneur who learned this lesson the hard way. Martin and his business partner bought a lovely property in Pretoria a year ago to start a guesthouse. “We got involved in the tourism industry by accident, simply because we bought the house for an absolute bargain,” recalls Martin. Seemingly understanding the importance of a business plan, the partners had a planning session facilitated by a consultant and drew up, in Martin’s words, “a beautiful plan”. Unfortunately, they never got around to implementing it.

A year later, the guesthouse was running at a huge monthly loss, the renovations had overrun the budget and were not complete, the partners were at each other’s throats and they even considered selling the property on auction.

Fortunately, they have now dusted off the business plan and started implementing it, primarily in terms of the marketing strategy. Martin hopes that the guesthouse will soon turn the corner and become the profitable business they envisaged when they first saw the property.

Martin’s story illustrates the benefits of having a business plan and what it should help you to do:

• Develop a competent business strategy. Martin and his partner had no plan when they bought the property and no idea of the work needed to turn it into a profitable business.
• Take an objective, critical look at the business in its entirety. They had no knowledge of the tourism industry and did no research to fill the gaps.
• Determine the feasibility and viability of the business. Neither Martin nor his partner knew the area in which the property was, what kind of guests they could hope to get or how much it would cost to re-zone the property.
• Simulate the real situation on paper. They did not take the time to consider and plan for all the possible scenarios.
• Anticipate problems before they occur. They underestimated the time and cost involved in preparing the guesthouse for business, and how costly empty rooms can be.
• Develop an operating tool to manage the business. It was agreed that one partner would manage the guesthouse finances, but they neglected to put a process in place to produce and review monthly reports.
• Prevent ad hoc decision-making. When the initial relationship marketing plan didn’t yield results quickly enough, they changed tack completely – “the biggest mistake ever!” according to Martin. They have now decided to return to the initial strategy.
• Understand your competitors. Martin and his partner are only now getting to know their environment and how difficult it is to distinguish their guesthouse from the thousands of others.

The finance factor

Luckily, Martin and his partner did not need a loan to finance their guesthouse, but not all entrepreneurs can say the same. It can be daunting to ask for money, but when you have a solid business plan in place, you can approach the bank or other financiers with confidence.

Most banks have some form of credit model that they use as a starting point when evaluating loan applications. This model is often referred to as the “five Cs”:

1. Character (who are you?) Banks lend money to people, not to plans. Plans merely support people.
2. Capacity (why is the business financially viable?) Financial projections should be realistic and show that you will attract enough feet through the door to be profitable.
3. Content (where will the money go?) What will you use the loan for and how will it be repaid?
4. Contribution (what can you bring to the party?) You will be expected to contribute at least 25% of the total start-up capital to ensure that you have a vested interest in the success of the business.
5. Collateral (what will happen if the business fails?) A banker will, in most instances, require collateral to secure the amount to be financed.

For more information or advice speak to a consultant at your nearest Standard Bank branch, or visit www.standardbank.co.za.

A number of organisations in South Africa offer financing for businesses that want to enter, or expand their operations in the tourism industry:

Industrial Development Corporation
www.idc.co.za/tourism
Tel: 086 069 3888
Email: callcentre@idc.co.za

Development Bank of South Africa
www.dbsa.co.za
Tel: 011 313 3911

KHULA Enterprise Programme Finance
www.khula.org.za
Tel: 012 394 5560
Email: helpline@khula.org.za

National Empowerment Fund
www.nefcorp.co.za
Tel: 011 305 8000
Email: info2@nefcorp.org.za

Business Partners Tourism Fund
www.businesspartners.co.za
Tel: 011 480 8700
Email: enquiries@businesspartners.co.za

National Lottery Distribution Fund
www.nlb.org.za
Tel: 012 394 3440

Eastern Cape Development Corporation
www.ecdc.co.za
Tel: 043 704 5600
Email: info@ecdc.co.za

Gauteng Tourism Authority Development Fund
www.gauteng.net
Tel: 011 327 2000
Email: tourism@gauteng.net

Western Cape Department of Economic Development and Tourism
www.capegateway.gov.za
Tel: 0860 142 142
Email: questions@capegateway.gov.za

ITHALA Development Finance Corporation
www.ithala.co.za
Tel: 031 907 8911
Email: clientservice@ithala.co.za

How and why responsible tourism should be part of your plan

Since the mid 1990s there has been a shift towards defining economic performance in terms of the “triple bottom line” – growth that is economically, socially and environmentally sustainable. Your business plan should therefore give equal weight to the financial, social and environmental aspects of your tourism business.

Tourists themselves are becoming increasingly vigilant consumers. Recent market research by the UK’s Tearfund shows that more and more British tourists to countries like South Africa want to learn about the country they visit, reduce their environmental impact and meet local people. Destinations promoting responsible tourism practices undoubtedly have a market advantage.

Make responsible tourism and sustainability part of your business, by following these guidelines:

Economic guidelines – Your tourism business cannot exist in a vacuum. Look for ways to involve local people in your business and train them in the art of customer service. For example, boost local economic growth by using local artisans to renovate and maintain your guesthouse, or by purchasing fresh produce from local farmers. You could even commission local artists to produce souvenirs.
Promote equitable business by paying fair prices to your suppliers and fair wages to your employees.

Social guidelines – Involve local communities in your planning and decision-making, especially if you intend to start a new development such as a small hotel or want to introduce new activities to the area, such as hunting. Make sure that your intended tourism activities will benefit, not threaten, the social fibre of the area.

Environmental guidelines – Reduce the environmental impact of your business as far as possible, eg, recycle your waste and reduce electricity consumption by using energy-efficient appliances. Maintain biodiversity, even if all you do is plant an indigenous garden.

For more information on responsible tourism, visit www.satis.co.za/responsible_tourism_handbook.

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