In a conversation I was having with a couple of friends about the challenges of doing business, one of the gentlemen told us he was was particularly having challenges formalizing his business. As we continued to talk, we realized that for him, there were mainly two aspects of this he needed to address. First, the fear. He was worried about the bureaucracy that would come with the process of formalizing his business. The second was lack of enough knowledge or information about the right procedure taken in formalization of a business.
A number of micro and small business owners run their businesses informally and their reasons aren’t far from those presented by our friend. The fact is, running a business informally has a huge cost to the business especially if you want your business to survive the failure statistics
Business formalization could be interpreted in different ways. However, business formalization primarily hinges on registration of the business and takes into account compliance aspects like filling tax returns, among others. Registration of businesses in Uganda is a mandate of The Uganda Registration of Services Bureau (URSB) as instituted under the Uganda Registration Services Bureau Act Cap 210 to register all business entities in Uganda which are required by law to be registered.
Another component of business formalization is the aspect of building structures that allow for business growth and sustainability. Before we even think of what may be considered by some people to be the complex part of business formalization — registration, let’s pose some questions to guide us in the process of creating structures for the business.
- Do you know how much you make/ spend in a given period? (daily, weekly, monthly, quarterly or annually).
- How do you recruit workers (if any)?
- How do you acquire new customers and reach out to your old ones?
These are some of the questions that can help you gauge how formalized your business is at the most simplified level. Answering these questions leads to the creation of a business plan which is vital for business growth. Understanding how much your business spends and how much it brings in helps you make better informed decisions on increased investment, developing new marketing and sales strategies among other aspects.
Formalizing a business comes with a number of advantages some of which include the following;
Growth and Sustainability
For any business to grow, there must be structures in place to foster growth and sustainability of the business. Having clear terms of doing business and proper books of accounts helps to know the profitability of the business. The business therefore should have qualified people handling different aspects likes accounting, marketing, sales among others. Unfortunately, many small businesses have limited resources to hire professionals for these roles. However, there are steps that can be taken to progressively build structures that support business growth. Business owners can outsource talent. For example having an accountant review your finances on a periodic basis is good for proper financial management.
Access to Wider Markets
Accessing a wider market or bigger clients can easily be done by a formalized business. Micro, Small and Medium Enterprises (MSMEs) have a high chance at doing business with large scale business entities both in the private sector and government if their businesses are formalized. For example, for any business to legally qualifying as a supplier or vendor for a large corporation or government agency it must be fully registered and tax complaint.
Access to Financing and Partnerships
There are a number of initiatives and programs that have been established by both government and private sector players including banks and other financial institutions to support the growth of MSMEs. These initiatives, however, are highly scrutinized and can best be leveraged by businesses that are formalized and have proper structures. For example there are pre-requisites for any business to acquire a bank loan or even qualify for funding by a development partners including government.
Increased Value Output
Value in this case can be looked at in terms of actual product quality or service delivery as well as the quality or level of skilled labour attracted. With business formalization comes higher standards of operation to serve the high market needs and this calls for increased in value of output which largely depends on the highly skilled and efficient human resource.
Seeing as business formalization largely hinges on registration, what does it actually take to register a business? Below is the procedure you can follow in registration of a local business. Refer to this article for broader insights and requirements for business registration.
- Search for the business name
- Agency: Uganda Registration Services Bureau
- Period: 30 minutes
- Cost: free
- Notes: Quick name check – see main link for naming guidelines
- Reserve the Business Name
- Agency: Uganda Registration Services Bureau
- Period: 1 – 3 hrs
- Cost: UGX 24,000
- Notes: Check status of name application
- Obtain Certificate of Incorporation
- Agency: Uganda Registration Services Bureau
- Period: 4 – 6 hrs
- Cost: Various options
- Notes: Subject to submission of all relevant documents
- Obtain an Investment License
- Agency: Uganda Investment Authority
- Period: 2-5 Days
- Cost: Free of Charge
- Notes: For foreign investors
- Obtain a Taxpayer Identification Number (TIN)
- Agency: Uganda Revenue Authority
- Period: 1-10 Days
- Cost: Free of charge but if third party used, agent costs apply
- Obtain a Trading License
- Agency: Local Municipal Authority/Council Authority
- Period: 1 Day
- Cost: UGX 78,750 – UGX 498,750
- Notes: Business premises should be ready for inspection. Expire on 31st December each year
- Register with National Social Security Fund (NSSF)
- Agency: National Social Security Fund (NSSF)
- Period: 1-7 Days
- Cost: Free of Charge
- Notes: Applies to all employers with 5 or more employees
- Forms: Employer registration form, Employee registration form
- Make a Company Seal
- Agency: Seal Maker
- Period: 1 Day
- Cost: UGX 225,000
- Notes: Different from company stamp. Put in secure place and limit access.
