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Getting business licenses is about as much fun as having a root canal treatment at the dentist, but is has to be done and done correctly. One of the most common mistakes that Entrepreneurs make is not getting all the necessary licences and permits right in the beginning.
In South Africa anyone wishing to sell or distribute liquor is required by law to have a liquor licence.
If liquor is sold without a licence it is considered as breaking the law and the police can close down a business and confiscate its assets. Making an application and paying the required fees doesn’t necessarily mean that a licence is automatically granted.
The liquor act and its regulations are complex and applicants should seek professional advice in order to gain a successful result with regard to the application of a liquor licence.
Social responsibility has become an important issue which has to be considered by new applicants. This means that there has to be serious commitment to black economic empowerment and a positive contribution has to be made in order to combat alcohol abuse.
New licence holders will have to show how they intend to restrict or promote job creation, provide diversity of ownership, promote exports and deal with competition.
How important is it to choose the right site?
Over and above all the ways the right site can influence the success or failure of your business, lease agreements are even tougher to break than a marriage. Once you sign on that dotted line it is very difficult to walk away before the lease is up. You need to be 100% sure that the site you choose is the right one and that your business can afford it.
What should a business owner think about before signing the contract?
There are a number of important factors to take into account, but if we break it down, the core factors to consider are target market, where your competitors are situated (and fellow franchisees), rent vs location, size of the store and geographical area. More often than not choosing a location is a compromise between the ideal and what you can afford, and all these factors play a role in how much rent you can pay each month.
What impacts rental costs?
The geographical area, target market, size of a shopping centre, how large the store is and where in the centre it is situated – all these factors influence how much rent the landlord will charge. A store tucked away in the corner of a shopping centre will see far less foot traffic than one at the main entrance. Being situated next to one of the centre’s flagship stores will also ensure high foot traffic.
What happens if the store does not meet expectations?
There are always risks involved when choosing the right location, but it’s important to evaluate what those risks are and include them in an exit clause when signing a lease. If you haven’t got an exit clause and a major change occurs that leaves you dead in the water you have no re-compose – you are still locked into your lease.
What types of scenarios could be included in exit clauses?
For example, if you are choosing to lease a store in a centre because of a particular anchor store, and that store leaves, you could stipulate that without that particular brand in the centre your lease expires. Another example is store positioning. If the centre does renovations or changes and your position – without you moving – is no longer as desirable as it was, an exit clause can protect you. Finally, how many similar stores are there in the centre? Three coffee shops are fine, four might be too many. Your landlord cares about rent, not how well your store does. If you want to limit competitors in the centre you have to insist on this point.
How many competitors are too many?
That’s an interesting question, because competition isn’t always bad. ‘Accumulative attractiveness’ refers to the grouping of similar stores, but that grouping brings you customers. They might not always come to your store, or buy your product, but they are attracted to the choice that a number of brands grouped together offers. You need to overlay your competitors with the size of your market and its buying power. Even a big market can be too small if there are too many competitors, but if you are isolated are any potential customers going to find you?
What does ‘complementary attractiveness’ refer to?
This is slightly different to accumulative attractiveness. Complementary products allow consumers to get everything they need at one centre. A large mall or a moto city are good examples of this. Moto cities will have a range of different brands that all cater for motorists, and even if some of those brands overlap, the abundance of choice will attract consumers.
What do the terms micro and macro location mean?
A macro location is the shopping centre. The micro location is where you are in that centre. When choosing a location you need to take both into consideration. You need to think about which target market frequents the centre you are considering, how close it is to main roads and freeways, which brands make up the flagship stores and how big the centre is. The micro site’s rent will largely be based on the size and positioning of the store, and the fitments it has in place.
How important is the size of a centre?
Very. You get three types of centres. Convenience centres, large malls, and centres that are in between. Anything that is not either very large or a convenience centre is high-risk. It’s too big to have a big open parking lot and be quick and easy for shoppers, and too small to offer real variety.
What should a tenant pay for a site?
Before you can make a judgement on how expensive rental should be, you need to understand your industry’s optimal ratio. Every industry has one: the trading density you need per square metre to make a profit. The expected performance versus production that dictates how much space you need and what your turnover will be. Again, it’s a case of compromise. Find the best spot for what you can afford. There is no point finding a cheap site, if you don’t get feet through the door. Similarly, you don’t want to pay more rent than you can afford.
What red flags should immediately warn a tenant off?
The first is failed tenants. Yes, stores fail, but not everyone is wrong all of the time. If stores keep failing in the same location, there is probably a reason why. Unless you know what that reason is and you are absolutely certain your store will be different (based on facts, not confidence) don’t take the space.
Second, if the centre as a whole has a high number of vacancies, don’t take a lease – even if the rental appears cheaper. There is a reason tenants are leaving or failing. Rather pay more for a good landlord or busier centre. And finally, look out for any potential site killers. A good example is how much money the site will cost you. If you need to refit the store, fix the air-conditioning or put money into the store that you won’t recoup, rather look elsewhere.
Is it better to take a store that isn’t first choice or to wait?
Obviously you don’t want to wait too long, but don’t lock yourself into a lease that isn’t right either. In the long run it will cost you money or even hurt your business. You will need to compromise, sure, but compromise doesn’t mean settling for the wrong site.
Location, Location, Location.
How important is the micro site if you have found the right centre?
The actual site you choose is more often than not a compromise. You need to balance what you want with what you can afford. However, often for a bit more rent, you get a much better site and generate a far higher turnover. Nando’s in Sandton City recently moved to a better site. The centre is excellent, so any site would be good, but the micro site is still a key factor. For marginally higher rent that store has doubled its turnover.
Apart from the requirement of a valid liquor licence to legally sell liquor in Johannesburg, there is legislation and municipal by-laws with which a business owner or manager must comply in order to operate legally. These differ from municipal area to municipal area. Failure to comply can and will result in fines, prosecution and/or the forced closure of the business.
Liquor outlets can ONLY be run legally from a property if it is zoned for the type of liquor outlet being applied for. Zoning and consent information is not given over the phone. It can be obtained from the local municipality.
Someone wise once said, “Rules are not necessarily sacred; principles are.” For the entrepreneur with a maverick bent, this might sound appealing. But mavericks, although they are known to make pots of money given the right conditions, also have the unfortunate habit of running into difficulties with lawmakers; if you want your business to survive, playing by the rules is sometimes the smartest thing you can do. There are certain laws that have to be followed if you want to operate certain kinds of businesses.
Take, for example, the application for a trading licence. You have dreams of opening your own restaurant but before you done, your chef-cum-businessperson’s hat, you have some admin work to do.
To secure a business licence for any of these activities, you need to apply to the Licensing Department. You will be required to submit reports from the town planning, health and fire departments, all of which may need to inspect your intended premises for zoning, type of business activity, health and fire regulations. If you intend building or altering premises for your particular business, you will also be asked to submit your proposed business plan or how you intend to make alterations to existing premises.
The Health Department will ensure that the premises are hygienic and clean in accordance with the stipulations made by the Health Act while the Fire Department will check that the premises comply with fire safety regulations. Town Planning checks that the geographical area is zoned for business (see below). Once all these authorities are satisfied, the council can issue you with a licence. It is entitled to inspect your premises and if your business changes owners, premises or activity, then a renewal licence is required.
The Home Office
But what if your business does not fall into any of the categories mentioned above? You want to open a simple consultancy, for example. You start out on your own, as so many entrepreneurs do, at home in your spare room. No inconvenient trading licences to worry about. As you take on some support staff, you hire your first few square meters of office space. Times are good and suddenly your new business is legit and firing on all cylinders. Clients are happy, word of mouth has taken care of your marketing and you’ve had to take on more staff to cope with the increased workload.
All of a sudden you no longer fit into the modest office space you hired for your fledgling business and you have to think about expanding. But you’ve been paying rent for over two years and it seems such a waste. And now that you think of it, you were considering selling your substantial home and moving into a lock-up-and-go townhouse. It occurs to you that perhaps you should keep the house (it’s an asset after all) and convert it into business premises. That way you’ll save on rent.
On the surface it all seems to make perfectly good business sense. Except for one thing. Your house is in a residential area and therefore not zoned for business purposes. In order to trade as a business on those premises, you will have to apply for the property to be rezoned – and the time and energy needed to achieve that may make another year’s worth of paying rent not seem so onerous after all.
If you are operating a one-person business, don’t employ staff and don’t have clients calling regularly at your premises, you don’t have to apply for business rezoning. But if you need to put up signage, expect clients, suppliers and staff, and if the property is used solely for business purposes then, in all likelihood, you’re in for a rezoning application.
The Rezoning Battle
But here’s the catch – applying for a property to be rezoned as a business in no way means that it will automatically happen. As South African cities boom with business growth and congestion becomes an ever-increasing cause of frustration and wasted time, businesses are moving out of the CBD and into what were previously residential areas.
This is a natural phenomenon of urban geography and over time, as residents realise the potential value of selling up their homes to businesses that want to move in, areas are rezoned for business. However, if an area is not yet zoned for business, the residents usually have fairly strong objections to it becoming so. Businesses generate traffic and parking problems. Local councils typically take the concerns of residents seriously and are reluctant to rezone an area for business on the strength of one application. Add this to the fact that every local authority has a different set of parameters which guides rezoning decisions – and that each application is taken on its individual merits – and the process becomes extremely complicated.
Ultimately, if you want to avoid the daily horrors of traffic and purchase your own business premises in a residential neighbourhood, your best bet is to set up shop in an area in which other businesses are already established. After all, there is strength in numbers and this greatly improves your chances of getting the area rezoned.
To apply for rezoning in an area that is not zoned for business, you have to secure a zoning scheme departure or special consent from the City Council. Getting this can take a while – in some cases up to three months. You may need to advertise your business’s intention to conduct a particular business activity in the local newspapers. Residents and other stakeholders will have the chance to respond with any complaints, which are heard by a board, before you will be granted or denied the departure. Being granted a departure usually paves the way for successful zoning approval but, once again, there are no guarantees. And all the while, you can’t operate legally as a business in that particular area.
When it comes to the legal side of setting up a business, it pays to do your homework and get professional assistance where appropriate. The cost of mistakes and bad judgement calls in this area can be severe.
Trading licences are governed by the Business Act of 1991, No. 71, which states that certain businesses require licences. These include:
- Those that sell or supply meals or perishable foodstuffs
- Those that provide certain types of health facilities or entertainment. These are defined as Turkish baths, saunas or other health baths; massage or infrared treatment; escort services (male and female); games halls that have coin- or token-operated mechanical or electrical devices or three or more snooker or billiard tables; night clubs and discothèques; cinemas and theatres, and “adult premises” as referred to in section 24 of the Films and Publications Act, 1996
- Those that hawk meals or perishable foodstuffs.
There is a National Register of Liquor Licences
A National Register of Liquor Licences is operated by the Dti which lists the name, address, activities permitted, and conditions attached to any liquor licence that is issued in South Africa. As well as being published on the Dti website, the register can be viewed and copies made on request, but a fee is payable for this information.
Those who cannot apply for a liquor licence are:
- Un-rehabilitated insolvents
- Persons committed in terms of the Mental Health Act, 1973;
- Persons who have contravened this Act or provincial liquor laws to the extent provided for in the Act.
Liquor licence holders are governed by the Liquor Act, 27 of 1989 (Act) and the Liquor Act (59 of 2003) which states that the holder of a licence who keeps licensed premises open for the sale, supply or consumption of liquor, or sells or supplies any liquor at a time when the sale of liquor is not permitted by the licence shall be guilty of an offence.
The Act provides for the manufacturing and distribution of liquor to be regulated at national level, while micro manufacturing and retailing continue to be regulated at provincial level. This determines where and how an application for a liquor licence is made.
Time frame during the application procedure:
On the first Friday of the month:
- The completed application must be delivered to the Magistrate in the district where the premises to be licensed are situated.
- Two weeks before the application is forwarded to the Magistrate:
- A notice of intention must be sent to the Government Printers in Pretoria for publication in the Government Gazette.
- This notice in the Government Gazette is the only notice of the application provided to the public.
- The police (DPO) for the district will lodge a report with the Magistrate.
- The public has 42 days in which to reply, in writing, to the police report and any objections.
- If there were no objections received and the police report has been received, the application can be forwarded to the secretary of the Liquor Board.
- The Liquor Board will consider each application in terms of the applicant, the premises and the public interest.
Fees: Less than R5 million turnover
- Application: R500
- Initial Registration: R2000
- Notice to Review: R500
- Annual renewal of registration: R2000
- Transfer fee: R1500
- Request for variation of conditions: R1500
- Notice of change in location or activities: R1500
- Appointment of person to conduct activities: R1500
Certain businesses in South Africa such as a retail liquor store require a trading licence. Trading without a valid licence is punishable with a fine of up to R2 000.
How to apply for a trading licence
- Steps to follow when making application:
- Obtain an application form from your nearest municipal office
- Complete the application form (RPI).
- Pay the Application/License fee
These documents must be attached to application form (RPI):
- In case of a company, close corporation or partnership a copy of the company certificate and list of directors is required
- Copy of menu
- Copy of 10 documents of directors, partners and copy of 10 of person in charge are required
- Copy of liquor licence
- Copy of SARS tax certificate
- Copy of approved building layout plan
- Zoning certificate
When an application is made and the application form is complete with copies of all relevant documents which are attached to the application, a receipt will be issued in regard of fees and application received. The next steps are:
Request for reports will be drafted and forwarded to relevant departments
In the case of requirements have been set by a department; the applicant must comply with the requirements and then arrange a re-inspection with The officer or department concerned.
Only when all departments have retuned favourable reports and recommend approval the trade license will be issued.
If the applicant trades while waiting for a trading licence to be approved, the applicant is doing this at his or her own risk.
Note: The licence fees quoted above are those that apply in the Johannesburg municipal area. The fees change from area to area and the requirements may also change depending on the by-laws of the area that you’re applying in.
Alternatives to Starting Your Own Liquor Shop
Buying into a franchised system or buying an established business will assist you in getting your venture off the ground much faster that starting your own business from scratch.
eLiquor Franchises are safer. One of the perks of buying a franchise is that the franchisor’s listed suppliers supplies liquor to the store as well as designing and decorating the shop. As a franchisee you receive on-going training and franchisor support. Another huge advantage is that you have access to group marketing and strong purchasing power through the franchisor.
Buying an existing liquor store
Existing businesses can be a lot cheaper to get started. You must find out why the business is for sale and it’s very important to ask for copies of the financial statements for the last three years.
Take them to an accountant for an opinion on the performance of the business to date. Check whether or not there are any new developments planned in the area. You don’t want to pay a lot of money for a business only to find out that a new centre is going to be built next door featuring a huge discount liquor store.
Always ask what the owner is planning to do after he sells the business and if he or she is planning to open another liquor store.
You need to consider carefully how you are going to protect your investment. Installing high-tech equipment and having security personnel in the store are options you can make use of.
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