High unemployment rates are driving new startups in South Africa.

But starting a new business can be a nightmare if you don't have the correct methodology and guidance.

These are the questions you should be asking if you want to start your own business.

South Africa is brimming with a new breed of entrepreneurs, possibly because the country's high unemployment rate is spurring individuals on to start their own businesses.

But going into business blindly can be daunting. Not having the right methodology and not having necessary guidance can get problematic and, even more importantly, cost a bit more than a few initial lessons.

StartupGuy shares some of the most common mistakes a startup can make and the questions you should be asking if you intend to start your own business. This section will help you understand the types of businesses available to you and guide you to all the resources you need to register your business.

Why do I need to register my company?

The laws in South Africa obliges anyone operating a business in the country to be registered. Company registration guarantees several legal benefits, one of which is asset protection.

For example, keeping personal assets safe in case of a lawsuit against your company. "If a company is legally registered, others can’t claim your business name as their own, which is not the case if unregistered".

Also, registration gives customers an extra reason to put their trust in you. Registration signals that you take your business seriously. And no one wants to transact with a shady business.

Another benefit is that funding is more easily acquired by registered businesses. Banks do not give business loans to unregistered companies, as the risks are too high for them. Similarly, investors will only put money into a business which they feel has great potential.Not being registered will likely count against you.

How and where do I register my company, and can I do this myself?

Registering a business in South Africa is less of a hassle and can be done by anyone by following the right methodology. You can register online with Companies and Intellectual Property Commission (CIPC) through its newly launched BizaPortal platform, which offers bundled registration solutions like same day/instant company registration, domain name registrations and other statutory registrations like UIF, Tax and COIDA.

And yes, you can do it yourself. This process is actually quite simple. You will need to provide the preferred names for your business on the same webpage. I advise you to not pay anyone to register the business on your behalf, rather do it yourself! New companies costs only R125 without a name and R175 with a company name.

As a startup entrepreneur on a limited or no budget at all, you will need to avoid unnecessary startup costs. You should also be aware that there are many self-appointed CIPC representatives in our country and many people have fallen prey to these bogus representatives by paying them ridiculous amounts up to R3500 just to get their businesses registered. The best thing you can do to protect yourself as an emerging entrepreneur is to keep your eyes open and take heed of my advice lest you fall into the enemy’s trap. Or just make sure whoever is assisting you is not ripping you off.

Many people elect to let an expert do their company registration – an accountant or lawyer will be able to do all the paperwork required and leave you to focus on your business. However, it is possible to do it yourself with a little elbow grease, perseverance and patience.

Do I have to register for VAT?

When do I need to register for VAT? It isn’t necessary to register for VAT right away. In fact, VAT registration is voluntary if income for a 12-month period exceeds (or is estimated to exceed) R50,000. However, VAT registration is compulsory if income for a 12-month period exceeds (or is estimated to exceed) R1 million.

Should I employ people to work for me and put them on my payroll, or is it smarter to hire contractors?

The answer to this question depends on the employer: in both cases, it will be an expense on your income statement. Think about long term needs for the firm, but there are advantages to either option. If you opt to employ people, these employees are more likely to be loyal to your firm and will generally stay long term.

Also, employment builds company and industry knowledge. With contractors, however, no PAYE submissions to SARS are necessary and you are not liable for workman’s compensation; contractors are helpful in the short term; and contractors allow for savings during slower seasons.

Why must my company have its own bank account?

This is a SARS requirement. A company bank account ensures separation of business and personal transactions for ‘cleaner’ bookkeeping. Moreover, this is a SARS requirement.

What is the best way to keep my bookkeeping up to date and in tow? Do I really need to buy a software package?

Most accountants recommend using accounting software to record transactions and financial position. However, it is not truly necessary if the business is small with only a few transactions per month. "I suggest, therefore, if you really need to save money, use Excel, but there are also some inexpensive options for software out there which come with great time-saving benefits".

What tax will I have to pay and what tax returns will I need to submit?

There are several taxes and returns to consider:

a. Annual returns: Only necessary for companies and CCs, submitted to CIPC;

b. VAT: Either by oneself or a professional service provider such as an accountant, by means of a VAT201 form;

c. PAYE, UIF SDL: Only if workers are employees of the business, by means of a EMP201 form;

d. Provisional tax: Twice a year, after six months and at year-end (advance payment towards yearly income tax);

e. Income Tax @ 28% of taxable income (28% for companies; individuals according to tax scale): Due annually, one year after financial year end;

f. Dividends: A dividend tax of 20% paid to SARS when declaring dividends. This will likely not happen in the early stages of a business, as most businesses prefer to spend surplus funds on assets and growth.

If I’m looking for capital, what sort of finance should I apply for?

The answer to this depends on the financial position of your company. For example, you might consider debt finance, which is cheaper, but riskier. Taking on more debt increases the gearing (debt-to-equity ratio) of your company. Companies might struggle to receive future debt finance if they are already highly geared.

Also, you must consider that risk stays with business to repay the loan or bond should the business fail. On this flip side, the advantage is ownership retention. Equity finance, on the other hand, means cash from investors in exchange for shares.

While the advantage is that investors take on all risk, the disadvantages include ownership, profit sharing with investors, and more difficulty finding ideal investors.

What is workmen’s compensation and must I comply?

Workmen’s compensation is to be paid by employers for each employee (not applicable to contract workers). It is insurance against occupational injury, diseases or even death. As such, all employers need to comply for their employees to make claims in the unfortunate event of injury, disease or death. This can be done online, once a year. However, be aware that there are a few exclusions on type of employees who qualify.