These Invoicing Tips Could Save Your Business

“Never take your eyes off the cash flow because it’s the lifeblood of business” (Sir Richard Branson, entrepreneur, investor, and author)

Cash is king, said one anonymous business genius. At the end of the day, it’s having money in the bank that keeps a company running smoothly. According to a recent study by Sibongiseni Selby Myeni at the Walden University, the majority of SA’s small to medium enterprises are destined for the scrap heap and the majority of these cases will be due to a lack of cash flow. In an era where more invoices are going unpaid, how can your invoicing process help to make sure you are one of the lucky ones?

Send the invoice immediately

The best time to send an invoice is when you and your relationship with a client is still fresh in everyone’s minds. Ask for the invoicing details up front, so you can send the invoice with the final deliverable.

Invoice for immediate payment

The invoice should request payment immediately, or failing that, at the end of the month and not only when you need the money. Smaller businesses are likely to comply, and bigger companies may rush faster to ensure you get paid promptly within their next payment cycle.  Making the assumption that your client needs leeway or payment time scales well into the future only guarantees your invoice loses priority.

Check your clients

If you are going into a large contract, it’s wise to do some groundwork on your client. One of the biggest reasons for non-payment is the client’s own cash flow worries. Getting some intelligence from other clients, or if possible, running a background check on them, will ensure you don’t invest huge amounts of time and resources into defaulting clients. If you do establish a client might default, you don’t have to cut them off, simply invoice with the intention of being paid up front, or at least request a deposit and include a punitive “late payers’ fee” or interest on non-payment to encourage them to prioritise you.

Never miss the payment cycle

Your larger clients are going to be fanatical about their payment cycles. Ask them upfront when they need to receive invoices and make sure you get the invoice in before that date. Failure to do so will often mean a 30 or even 60 day delay in payment.

Request Debit orders

If you have a client who uses the same service regularly, don’t be afraid to ask for retainers and other contracts, to be paid by debit order, to cover the costs rather than invoicing each month. Be sure to offer perks to encourage your clients to take you up on these offers.

Build relationships

When it comes time to pay, even struggling companies will want to pay the people they know and like first, over the anonymous supplier. Knowing who at your client is responsible for the invoice and following up politely with them is a great way to ensure your invoices are treated with priority.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Build Your Team Stronger This Year

“Great things in business are never done by one person. They’re done by a team of people.” (Steve Jobs)

There are many benefits to having a great team, and these have been backed up by scientific research around the world.

These include, for example:

  • Improved productivity, with thousands of employees noting that having the respect of their peers is the number one reason they go the extra mile at work.
  • Better problem-solving, as team members pool their diverse unique talents and skills to find smart solutions to ever-more complex problems.
  • Generation of innovative ideas as team members with different experiences, opinions and perspectives collaborate.
  • Taking more calculated risks, as team members know they have the support of a team.Personal growth, increased job satisfaction and reduced stress are all benefits of working in a team.
  • Reduced risk of burnout as the workload is shared among team members.
Five steps to build your team stronger
  1.  Take care of the basics with the help of your accountant
    • Ensure fair remuneration and that each team member’s salary is optimally structured.
    • Put the basics in place: Employment contracts, salary slips, leave and sick leave, job descriptions and performance reviews.
    • Offer incentives for employees to increase their earnings – from simply working extra hours to profit sharing for achieving company goals.
  2. Provide the right skills and tools for each team member
    • Team members should have a clear understanding of their roles and responsibilities, and how it contributes to achieving the team’s goals.
    • In addition to safe, clean and friendly working conditions, each team member should have the right skills and the right tools to make their contribution to the team’s success effectively and efficiently.
    • Be sure to provide practical means to track the team’s progress to maintain motivation.
  3. Offer perks that matter!
    • Non-monetary perks that have proven to be very popular include flexible working hours, extra time off, transport, childminding facilities, fun social activities and opportunities to volunteer during work time.
    • Health and wellness programmes are an affordable and practical option to help team members to better care for their health, improving productivity and reducing both absenteeism and presenteeism (when team members are at work, but are too ill to perform their duties).
    • Financial wellness programmes can provide team members completely confidential assistance to deal with the financial stress that is known to negatively affect work performance.
  4. Ensure open and regular communication
    • Regular and prioritised communication – from weekly team meetings to reports with regular due dates are crucial to share information and provide feedback to the team and individual members.
    • Provide all team members with opportunities to share their input, actively seek out suggestions, listen to understand and work to build consensus, which is likely to result in the best decisions.
    • Define common goals and clear steps to achieving these goals.
  5. Celebrating successes and implementing lessons learned
    • Be certain to celebrate milestones and successes with the team, recognising each team member’s efforts.
    • Define the lessons learnt from failures and adjust the team’s approach accordingly.
    • Consider team-building activities that can foster cooperation and build trust and team spirit.

This year, build your team stronger with these simple steps, and set your company up to enjoy all the well-documented benefits of great teams – from increased productivity to better problem-solving and innovation – in the year ahead and beyond.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Adapt or Die: How to Develop a Digital Transformation Strategy

“At least 40% of all businesses will die in the next 10 years… if they don’t figure out how to change their entire company to accommodate new technologies.” John Chambers, former CEO of Cisco Systems)

Around the boardroom tables of the world, one thing is on every agenda – digital transformation. From global conglomerates to SMEs, leadership is keenly aware that in a digital world, those who do not adapt will quickly become irrelevant. In fact, a recent study revealed that 55% of businesses believe they have less than a year to digitalise before they start to suffer financially and lose market share. Businesses must adapt to stay ahead of the game.

By integrating advanced technologies across all aspects of the enterprise, businesses are able to significantly improve a business’s efficiency by automating manual processes, reducing errors and improving productivity. This allows them to not only keep up with the competition, but also to enjoy greater efficiency, productivity and customer satisfaction. This process of implementing these modernising technology advancements is referred to as a digital transformation.

However, the process of digital transformation is not one a company should enter into lightly as it’s not simply about implementing the latest technology and tools. The goal of digital transformation isn’t just to eliminate manual processes, but to augment your operations, streamlining workflows and improving the customer experience. This must all be considered within the context of your budgets, timelines and overall business goals, while managing organisational risks. As a result, it’s imperative to develop a digital transformation strategy which takes into account all of these aspects and potential pitfalls of an overhaul of this nature.

Get buy in from the highest levels

A digital transformation is a necessary change, but it can’t work without buy in and leadership from the top down. This is something the company needs to do together, and some tough choices are coming. With a likely high price tag and disruptions on the cards, the company is about to go through a challenging time; making sure everyone at the top understands this is a powerful first step.

Analyse your current system

Before embarking on your digital transformation, you will need to know exactly what needs to change. To do this you will need to do a complete, top to bottom analysis of your current technology and systems in order to:

  • Review business processes and highlight inefficiencies
  • Identify technology gaps or areas where your existing systems fall short
  • Define functional capabilities needed to effectively support or improve your processes.
Develop your company mindset

Digital transformations are not as much about technology as they are about change. A thorough digital transformation will likely change the way everything is done in your company and will therefore require a culture of agility, communication and open mindedness.

Leaders will need to take ownership of the transformation and prepare all involved well ahead of any actual proposed developments. Employees, clients and other stakeholders will all need to understand the transformation strategy and how it will affect them. Training sessions will need to be organised and feedback sessions should be incorporated into the strategy at each step to see if the changes are working as proposed. This is an exciting time that will hopefully end up with your employees working on fewer mundane tasks and clients getting better service. Make sure they know that this is what the effort is about.

Budgeting and finances

With so much exciting new technology around it’s easy to get carried away with what you decide to implement. It is important that whatever projects go ahead are done to the benefit of the business and that they do not put pressure on cash flow and savings for other projects. Speaking to your accountant should help you determine which areas are most critical for advancement, and which will have the biggest impact on company operations. They will also be able to assist you in developing a roll out plan, so you can be sure to get all you need within a reasonable timeframe.

Analyse the necessary technologies

It’s one thing to read about these new technologies online and quite another to truly understand how they might impact your workplace. Proper research and expertise need to be included when deciding which elements of cloud computing, edge computing, AI, Data Analytics and Digital Experience will make a difference for your business. Would better reporting help you to make decisions? Do you have a large remote force that needs better organisation? Do you have a factory floor that could do with less wastage? Your business’s needs will determine where you have to invest.

Work with good partners

Your digital transformation is not the time you want to cut corners with your technology partners. When choosing which solutions to use, don’t be afraid to ask the hard questions around whether the technology is scalable and easily adaptable for future needs. Does your partner share the same vision as your organisation? Do they understand your industry? Do they provide support for upgrades and downtimes, and what does that support look like? Will you be down for a day or a month? Does the technology work with your current systems, or will you need to retrain everyone? How future-proof is your partner?

Education and training

Critically, you need time and budget to educate and train your staff on your new systems. It’s futile implementing new technology if no one can use it. This needs to be built into your timeline. As an added benefit, investing in employee training has been shown to increase employee satisfaction, business efficiency and consistency so don’t be afraid to give your employees the skills they need to operate in a modern workplace.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article 2024: Best Year Yet for Your Business?
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2024: Best Year Yet for Your Business?

“The best way to predict the future is to create it.” (Peter Drucker)

Facing what may well be another tough year, company owners and managers will be well aware that many of the external challenges will be beyond their control.

Fortunately, what remains under your control is how this new year is approached and starting 2024 with a thorough understanding of the three metrics below will ensure that this could be the best year yet for your business –

  1. The business’ past performance,
  2. Its current status, and
  3. Its mission for the new year.

You don’t need an MBA or special knowledge to assess the company’s past performance, to understand the present situation, or to plan for the year ahead. Just schedule some time with your accountant, take inventory of what’s truly going on in your business and decide how to make 2024 your best year yet.

Assessing the past

An assessment of the company’s performance over previous years provides invaluable information about what is working and what needs to be changed.

A relatively quick and easy way of assessing the past performance is looking at the business accounts and financial reports.

  • For example, your profit and loss (P&L) statement, or income statement, will reveal reasons for periods when net losses were recorded (for example, slow business periods or extraordinary expenses) as well as raise red flags where expenses regularly exceed income.
  • balance sheet summarises total assets and total liabilities, showing the company’s financial position and measuring liquidity or ability to pay short-term liabilities.
  • Summarising expected cash inflows and outflows over a period, a cashflow report reveals where the most cash is generated and used; highlights potential cash flow problems and enables informed budgeting and spending decisions.
  • Regular debtors’ reports enable proactive management of current and overdue invoices to improve cashflow. Similarly, budget vs actual spend reports compare actual spending to the amounts budgeted for the period, to reveal areas over or under budget and to flag problem areas.
Determine where the business is now

Review the business operationssuccesses and challenges, and the reasons for missed targets, whether simply drawing on paper or using special software. Understand the company’s current capacity for production and its performance – how many targets met, on target and/or overdue. This enables current strategies, practices and operations to be evaluated, and to pinpoint what is working or not.

Also look at customer satisfaction and retention rates, as well as employee satisfaction, both of which can be assessed through electronic surveys or simply speaking to clients and staff.

Planning ahead

Building on what’s working and realising that doing things differently is the only way to achieve different results, you can choose the goals that will create the future of your business.

Specific, Measurable, Achievable, Relevant and Time bound goals – or SMART goals – focus your team’s efforts and increase the chances of successfully achieving the targets, particularly if these are supported by step-by-step plans, a budget for the required resources, accountability assigned to specific people, and ongoing reviews to track progress.

SMART goals are crucial for achieving success, as they provide a clear focus, specific targets to work towards and motivation for the entire team.

Assistance is at hand

Your accountant will be able to assist you with the financial reports that will allow you to assess the past and present, with advice in respect of tracking non-financial metrics, and with planning for the year ahead – so remember: help is at hand to ensure you approach 2024 with clarity and a solid plan to make it your company’s best year yet.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article How to Survive Ongoing High Interest Rates in 2024
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How to Survive Ongoing High Interest Rates in 2024

“Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price.” (Robert Orben, comedian and writer)

Interest rates and inflation are a nasty partnership that can, if managed badly, derail any small to medium enterprise. Their effects are felt in every area of the business and if they are not addressed correctly, high interest rates can have a significant impact on business, driving up costs, slowing growth and minimising competitive advantage.

Governments use high interest rates to manage the impacts of inflation. When inflation is growing, people should expect interest rates to do the same.  Unfortunately, the global phenomena that have been driving increased inflation over the past few years show no signs of slowing down – the Ukraine war drags on leading to both oil and food supply issues, while supply chain issues and the pandemic’s grasp are both proving more difficult to overcome than expected. This has meant that economists have abandoned any hopes for lower rates in 2024 and have instead coined the mantra, “Higher for longer”.

What does this mean for your business in 2024?
  • More difficulty borrowing: Rising interest rates leads to businesses paying more to borrow money and reduces the ability to pay debts that have already been incurred. High debt repayments may make it difficult to finance new expansion projects or invest in new products and services, which in turn can stifle growth.
  • Less demand: Customers feel high inflation too. They may turn to buying cheaper products thereby eroding the competitive advantage your company once held, or they may give up on your service altogether. This too can have long-term impacts on growth plans and could severely impact cash flow.
  • Declining reserves: Longer high interest rates may mean businesses are required to dip into their cash buffers to service debts or simply to cover costs as earnings slowly dip.
  • Improved earnings on cash: Those companies with large cash reserves can see benefits in times of high interest as the return from banks improves.
  • Faltering competition: Those companies in good standing may also find their competition struggling. This is the perfect time to seize additional market share.
How to thrive in high interest conditions
  • Assess your weaknesses: Evaluate the risks associated with your business operations. Take into account elements like how sensitive your income sources are to economic fluctuations, dependence on particular clients or suppliers, and any external influences that could affect your financial strength. Recognizing potential risks and vulnerabilities empowers you to create tactics that lessen their effects when confronted with an interest rate increase.
  • Trim expenses: It’s time to go through your monthly expenses and see where you can save. Are you getting the best deals on rental, internet, and office supplies? If your staff are largely working from home, can you afford to move into a smaller office? Consider outsourcing jobs that aren’t part of your core business – PR, designers, IT professionals and even HR and Admin are good places to start.
  • Refinance debt: Take careful note of the debts you have. Is there some way you can refinance them to your benefit? If you are paying off a lot of small, high interest loans such as credit cards, it might be wise to see if you can consolidate them all under one larger, lower-interest debt. Understanding the details of your outstanding debts enables you to assess how an increase in interest rates might affect your monthly payments and overall financial commitments.
  • Increase prices: If you have resisted raising prices thus far it might be time to take a look at whether an adjustment is in order. You are likely paying a lot more for your raw materials and supplies than you did a year ago, while delivery costs, advertising and everything else have been climbing as well. If you are managing with the lower prices, then is it possible to turn this to your advantage and aggressively market to snatch a greater portion of the market from competitors who just got a lot more expensive?
  • Create a business buffer: Cash flow can be the biggest killer during times of high interest rates. Clients may be struggling to pay off their debts leading to you receiving late payments or even no payments at all if they go under. Consider applying for overdrafts or lines of credit so you are prepared should anything go wrong. If you are able, start building a cash buffer to further protect your company.
  • Invest in marketing: Any additional money should go into advertising. The interest rates will eventually start dipping and when they do customers are going to go to the people who are most top of mind. According to a study conducted in 2018 by the Ehrenberg-Bass Institute, brands that halt their advertising efforts for extended periods typically encounter a 16% decline in sales within the initial year and a 25% decrease after two years.

    However, this doesn’t mean simply throwing money away in the hopes of future income. Look at your product offering and focus on advertising those brands and items that might appeal to your clients in times of crisis. Remember, you may need to adjust the channels you market in as your customer’s purchase decisions on their media are likely to be impacted by increased pricing.

  • Get expert advice: If you feel uncertain about scrutinising your financial records or evaluating your financial standing, ask your accountants for help. Their specialised knowledge can offer valuable perspectives and counsel customised to address your unique business requirements.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article Why January is the Perfect Time to Start a Business
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Why January is the Perfect Time to Start a Business

“The way to get started is to quit talking and begin doing.” (Walt Disney)

Whether starting a business is your New Year’s resolution or something you have been waiting to do for years, if you are thinking of launching it in January 2024, then you have already made a wise decision. January is a popular month to officially launch new businesses, not just for those inspired by a New Year’s Eve conversation, but for seasoned entrepreneurs. There are several reasons why January is so popular. Perhaps they will inspire you to make it your foundation month too?

You have the energy

Coming off a holiday and filled with the buzz of a new year is the perfect time to launch a business. New businesses require long hours and energy you may not have after a year in your corporate job, but that short break can do wonders for your energy and give you just the lift you need to get it all started.

January is a slow month

Following on from the Christmas spending boom and a lazy holiday it usually takes corporates a few weeks to get back to full speed. While this might sound terrible to someone eager to get going immediately with a new venture, it’s a big benefit. There are a lot of admin tasks that need to be done to launch a business, from registering with the CIPC to opening a bank account, drawing up business and financial plans and getting your logo designed, so having a quiet first month to get that out the way while you aren’t missing out on sales will help.

Hiring

According to TransformSA, January in South Africa is the month when the highest percentage of people quit their jobs. Following on from the holiday many unsatisfied, driven or unsettled people decide they can’t face another year of doing the same thing and leave looking for something else. As a start-up, this means that there are many more people on the job market looking for a new opportunity and you stand a greater chance of finding the right people for your enterprise. Given that you will be starting small, it is absolutely critical to get the first few hires right, and January’s talent pool will make that easier.

Refreshed clients

Just like employees, potential clients are also arriving at work eager to do something new and exciting. It is extremely common for business leaders to use the chance of a quiet January to go over the past year’s figures and reevaluate client relationships and long-standing suppliers. This is the perfect time to walk into their offices with something fresh.

Lower advertising costs

Studies show that the fourth quarter of every year is by far the busiest when it comes to advertising, while quarter one, and particularly January can be a problem. If you are looking to do a significant amount of advertising, walking into a publisher to negotiate ad space in January is a power move that could see you net a reasonable discount if you play your cards right.

Align your year-end with financial year-end

The financial year in South Africa runs from March 1st to February 28th. Launching a business in January and issuing your first invoices in March could see you perfectly placed to have your year-end line up with the end of the financial year in South Africa helping you to keep things simpler and more manageable.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article Corporate Gifting: How to Boost Your Business This Festive Season
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Corporate Gifting: How to Boost Your Business This Festive Season

“A real gift comes attached with ribbons, not strings.” (Raymond C Nolan)

Most clients, suppliers and business associates will appreciate a thoughtful gift from your company, and the Festive Season is the most appropriate time to send such a gift.

The challenge lies in selecting a gift that conveys genuine intentions to thank the recipients for the role they play in the success of your business, to strengthen the relationship and to stand out from the competition.

Here are some great tips to ensure your corporate gifts achieve these objectives.

  • Keep it simple: Choose gifts that are relevant and useful to the recipient, and also align with your business values and goals, for example, sending locally sourced gifts made and packaged with sustainable materials.
  • Stick to the popular choices: For good reason, certain gifts are most popular among recipients – with gift baskets, food and gift cards the most popular choices, along with handy tech gifts like portable speakers, headphones and tablets.
  • Allow a choice: Gift cards and vouchers are particularly popular because recipients can choose their own gifts.
  • Edible gift baskets: Gift baskets filled with delicious treats are very popular, because they can be shared with others. Chocolates and baked goodies like brownies are the favourites.
  • Don’t send these items: Avoid gifts like candles, soaps or magazine subscriptions, useless trinkets, office supplies, keychains, magnets and t-shirts.
  • Avoid over- and under-spending: A corporate gift does not have to be expensive, but it should be thoughtful and useful, as well as durable and long-lasting. Rather send great gifts to a few top clients, than worthless trinkets to all your business associates.
  • Presentation: The gift should be attractively packaged, with a personalised note or card included.
  • Personalise: Gifts that are specific to a certain industry, or – even better – to a particular client, will be much more appreciated. Customised products and personalised gifts are also gaining popularity.
  • Avoid in-your-face advertising: While part of a company’s marketing strategy, corporate gifts should come across as tokens of appreciation, not merely as billboards for your company’s advertising. Gifts should be branded with your company name, logo and contact details, but keep it elegant, professional and low key.
  • Experiences: Recipients may prefer experiences to things, for example, tickets to sporting events, theatre performances or even spa treatments, but be sure to allow a choice, unless you know the recipients’ preferences.
  • Host an end of year party: Another example of gifting an experience is hosting a party (a “Christmas party” if that terminology is appropriate to your guests) to thank business associates, creating an opportunity to get to know each other better.
  • Send an office lunch party: A favourite food gift is one sourced from well-known local establishments in quantities that can feed the whole office.
  • Charitable donations: A donation made to a charitable organisation on behalf of a client or supplier can also make a thoughtful corporate gift but allow the recipient to select the cause.
Mind the tax implications

Gifts could be tax deductible as marketing expenses or as cost of sales expenses, but the onus will rest on your business to prove that these expenses were incurred “in the production of income”.

When hosting an end-of-year or Christmas function for clients, expenses such as the venue, meals and entertainment can be claimed as a tax deduction, if your company can prove that expenses were incurred in pursuit of business. Check with your accountant that you will meet all the criteria before you rely on this tax deduction.

Similarly, before making a donation, ask your accountant if it will attract donations tax, which will be payable in the month following the donation date. Only donations made to a registered PBO (Public Benefit Organisation) approved by SARS are not subject to donations tax.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article How to Write a One-Page Business Plan
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How to Write a One-Page Business Plan

“If you do not know where you are going, every road will get you nowhere.” (Henry A. Kissinger)

Creating a business plan is one of the most important processes when running a business. It is the roadmap for the success of any business and should include everything from cash flow planning to expansion strategies and the company’s mission statement. If you want to take out a loan a full-length plan is invaluable, but on a day-to-day basis these documents can be lengthy and difficult to access.

A one-page business plan is primarily a communication tool and is developed as a way to quickly summarise the key points of a business and its goals. It’s a great way to clearly define often complex issues in a simple manner and keep executives, partners or staff focused on the mission at hand. They are also a strong place to start when developing a full-length business plan and can help companies to pivot in changing times.

What should a one-page business plan include?

Your one-page business plan needs to include everything below, but resist going into the details. Keep each point to a few well focused sentences. Remove unnecessary words and adjectives.

  • A Brief Description
    The first thing to do is to simply describe the types of products and services that make up your business.
  • Customer Pain Points
    What problem are you solving for your customers? Why does your product or service exist? And why are these products or services better than those of your competitors? Avoid generalities and keep your answer focused.
  • Competitive Advantages
    This is where you look at the things that make you and your company perfect for your industry. What makes you stand out? Is it the team you have put together? Your business model or a unique invention?
  • Making Money
    This is the space for a three-point financial model. It should include your revenue sources, your company costs and the pricing strategy for your products. Again, avoid the specific amounts. This is not a budget. It simply points to where the money comes from and how it is spent in three sentences.
  • Marketing Plan
    How do you get your product to your customers and how do you tell people about your business? What are your main sources for attracting new business? This is just a high-level overview on how you go about marketing and making sales.
  • The Competition
    In one line only, describe each of your major competitors and what makes their business a success.
  • Your Co-workers
    This is your chance to look at the key figures you have hired to make your company a success. Who are the most important people and why are they important? This will help you to understand which of your employees should be earmarked for promotions or bonuses, and training.
  • Future Funding
    What are the major things you may need funding for over the next few years? Why do you foresee the need for money in these areas?
  • Your “Why”
    Why are you doing this? What do you hope to achieve from your company and what is the end goal? While this is not included in a normal business plan, in your one-pager it can help act as a motivation and remind you why everything else exists.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article Employee Incentives That Really Work for Small Businesses
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Employee Incentives That Really Work for Small Businesses

“Always treat your employees exactly as you want them to treat your best customers.” (Stephen R. Covey, author of The Seven Habits of Highly Effective People)

Small businesses often lose their talent to large companies simply because they can’t afford the kinds of salaries and incentives on offer at a global corporate. Keeping staff happy is, however, critical for business success. Here are five employee incentives that really work to keep your staff happy, effective and engaged.

1. Allow flexible time

In the modern world nothing is as precious as time and employers should not underestimate what this would mean for employee motivation. In a recent study on the 4-day work week 89% of all respondents said they would make sacrifices to work four days a week, and 54% said they would gladly work longer hours on the other four days.

It costs nothing to offer employees the opportunity to set their own hours, and work when they are able. It also gives them the ability to look after families, run errands and still meet their work obligations – something larger companies may not be able to do.

2. Profit sharing

Profit sharing is a bonus incentive scheme that effectively only kicks in when the company is profitable. Better yet, it provides personal incentive to employees to make the company as profitable as possible. By offering employees an equal share in the profit sharing regardless of their position you also create a strong sense of teamwork and bond them in a united cause.

3. Public recognition

A big positive of working in a small company is being able to see and know each employee as an individual. Genuine recognition of achievements is therefore possible – did someone go above and beyond, or make a personal sacrifice to make a deadline? Acknowledge it publicly, in front of everyone else.

In a recent survey, 92% of all employees say they are likely to repeat an action if they are recognised for it. Simple acknowledgement can be motivation enough, but if this is backed up with a real reward, like paid time off or a monetary bonus it can become even more effective.

4. Make the office more fun

Small companies can introduce flexibility in office protocols as well as work hours. Think about how you can make things more relaxed in a genuine and helpful way. Consider providing a room where people can bring their children to do their homework after school pick up or allow employees to bring pets in on one day a week. Is South Africa playing a cricket test match? Put it on in the break room. Let people have a say in which coffee and tea are available and always remember birthdays with a thoughtful gift.

5. Points-based incentives

A points-based incentive program allows employees to gather points and ultimately redeem them for rewards. You could develop a book of rewards your employees will genuinely enjoy from small things like free lunch and gift cards to theatre tickets, holidays, spa treatments, and cell phones.

These incentive programs offer two major benefits, firstly your employees get things they actually want instead of generic rewards creating more motivation and secondly, they allow you to closely tailor where, how and for what employees are rewarded. This means greater incentive can be given for things that move your business closer to its goals.

Ask your accountant for advice on structuring these incentives to be as beneficial and cost-effective as possible.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article The Hidden Costs of Starting a Business
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The Hidden Costs of Starting a Business

“There are only two things in a business that make money – innovation and marketing, everything else is cost” (Peter Drucker, author)

Running a business is never cheap and starting one up may be one of the most expensive things you ever do. According to the U.S. Small Business Administration, most microbusinesses cost around R60 000 just to get to the point where you are ready to start operating. Clearly, larger businesses with extensive infrastructure would cost much more. While it’s easy to plan for obvious production costs, office equipment, marketing and even taxes, the hidden costs we list below may come as something of a surprise.

  • Registration, licences and permits

    Business registration is a cost that is absolutely essential for all businesses. Just registering a business name will require a payment to the CIPC.

    Depending on your industry there may also be licences and permits necessary to manufacture or sell your products. This is particularly relevant in the manufacture and supply of foods. Restaurants, hotels and B&Bs may also need permits to offer specific services and any business that wants to make use of natural resources, such as fish, water, or land will undoubtedly also need to pay for government permission. Health clinics, spas, nightclubs and many more will also have to find money to meet permit requirements.

  • Business Insurance

    Not every business owner needs to take out insurance, but anyone with a business that deals with the public would be wise to at least cover their liabilities in that regard. If employees are going to operate onsite, employee liability insurance is also highly recommended. In addition to this you may need to insure key equipment, vehicles, and important and expensive stock items.

  • Shrinkage

    Shrinkage is any loss of inventory that occurs before it can be delivered to your customer. New business owners may not account for any loss whatsoever, but studies indicate that depending on the industry, shrinkage can account for up to 7% of turnover.

    Usually though, shrinkage will be in the region of 1% to 2% of turnover, which can add up.  These losses come from customer thefts, employee fraud, administrative errors and damage, and need to be controlled, but the truth is, some will always sneak through and have to be accounted for in any business calculations.

  • Delayed payments

    New business owners might develop their projections based on their sales always going to customers who pay for the products or services as soon as they are received. The reality of doing business is that this is extremely rare. Some large corporates may only pay on a 90-day cycle.

    Meanwhile, new stock must be purchased/developed and staff have to be paid. Taking loans to cover costs because of delays will result in interest payments, whereas monies held back to meet these payment requirements will mean that other investments or growth opportunities will have to be delayed. All of this incurs unexpected costs. It is therefore essential that you meet with your accountant to determine the most cost-effective way to meet your obligations and keep the company running.

  • Banking and credit card costs

    No matter which bank you use, their services do not come free. Whether it’s structured through monthly account fees, transaction charges or interest on credit cards, businesses will end up paying a significant portion of their income to their financial service providers. Every bank will structure these costs differently, so it’s important for a company to find the one that best suits their way of doing business.

  • Administrative costs

    Working for someone else, it’s hard to imagine just how much the everyday office costs to run. Everything from toilet paper to paper clips, and printer paper costs money. Even if you aren’t offering free coffee and tea to employees, you can still expect to pay for cleaning supplies, software registration fees and the electricity bill at the end of the month. Individually these items don’t cost a lot, but added together they will amount to a significant extra burden each year.

  • Market research

    Many business owners start their businesses based on their own knowledge and gut feel for their industries. This is generally a good starting point, but getting a company to thrive requires a solid knowledge of your market and your product’s key differentials. This takes market research, and this isn’t free.

    You do not necessarily have to hire an expensive consultancy to do the market research for you and can choose to instead do it in-house through emails and phone calls. Whichever way you go, however, it will take money, and time, both of which are valuable resources you may not have accounted for.

  • Hiring and training costs

    Entrepreneurs know of course that they will have to pay the staff they employ. They probably also know that each employee costs the company more than their simple salary. What they may not take into account is that hiring someone costs money and training them up to standard costs even more.

    Hiring someone may well require you to either contact an agency or pay to put adverts online. Then there is the process of vetting CVs, conducting interviews and ultimately bringing someone on board. All of this costs money as does the time, and equipment needed to train them for their position.

  • Graphic Design

    Building a successful company will also require you build a recognisable brand. This takes proper logo and website design alongside copywriting fees for working brand slogans, corporate values and web content. All of this costs money, but without it, you can’t expect to maximise your profits.

    In order to ensure you aren’t surprised by unanticipated business expenses, there is one other cost you should always budget for – an accountant. Your accountant will be able to help you make the crucial decisions that stretch your money as far as possible each month while ensuring you aren’t tripped up by these hidden costs.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Tips for Pacing Business Growth for Sustainability
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Tips for Pacing Business Growth for Sustainability

“Growth is never by mere chance; it is the result of forces working together” – (James Cash Penney, Founder of JCPenney)

Every business decision carries profound consequences for the enduring existence of the organisation, and this is no more true than when it is applied to those decisions affecting business growth. Knowing how and when to expand, open new branches, roll out new features or engineer new products takes planning and is not something leaders should be trying to do by the seat of their pants in response to external events. A meticulously crafted business growth strategy is therefore essential to plotting sustainable growth. Here are the things you will need to consider when constructing yours.

Set clear targets

You know you want to be successful, but do you know what that success looks like? Just how much money do you want to make? What do you want the lifestyles of your employees and yourself to be like? What kind of turnover and profit would you consider to be successful? What would you like your reputation in the industry to be? If you haven’t considered the destination for your journey, how will you ever plot how to get there?

Talk to customers

You probably already realise the value of getting expert advice. Speaking to accountants about your finances, or lawyers about contracting just makes sense. But perhaps you have not considered that no one knows your customer’s needs quite like your customers? When choosing which customers to speak to, first look to those who are your ideal customers – those people who are getting good value from your services and who are happy with your products. By speaking to them, you will slowly uncover patterns for what you are doing right and what a successful business in your industry looks like.

The next step is to speak to those customers who are not happy with your service and find out why. This will help you to uncover the opportunities you are missing, and the things you need to fix to get yourself onto the right growth path.

Don’t ask these customers what you should be doing though, as changing everything based on the impressions of a few disgruntled clients is a sure-fire way to failure. Rather ask them what the challenge was that they came to you to fix, why they came to you specifically, and then what they were feeling at each stage of their journey. Once again, it is about uncovering patterns, and by asking these sorts of questions you will quickly work out whether you did something wrong, whether your services lack potential solutions the industry might need or whether you were simply the wrong fit all along.

Now that you know what a successful client interaction looks like, and where your business is falling short, it becomes easier to see which holes will need to be plugged and where you can comfortably expand over the coming years.

Build a road map

Now that you know where you want to be, and the things that will help you to get there, the next step is to set targets within your company to move things in that direction. With your long-term goal already established, and the information you have on hand it is now easier to start breaking that long term goal into short term targets. How many people do you need to hire this year to ensure they are trained for where you want to be five years from now? How soon should your factory be upgraded to take advantage of missed opportunities? What must marketing look like now, for your customers to all know about you five years in the future?

Of course, cash flow and profitability are all going to play a part in what can be achieved now and what will have to wait. Your accountant will be able to help you prioritise your expenses, and make sure you get the most out of your investments without risking your cash flow and the related ability to meet financial obligations.

Now is also the time to institute your company KPIs (Key Performance Indicators) and get everyone singing from the same hymn sheet. Your profit needs to grow steadily year-on-year if you want to make the big long-term target, so breaking it down into manageable bite size chunks is critical. Remember to also consistently track client satisfaction, revenue per client, client retention, and employee satisfaction. KPIs help you identify what tactics are working and which aren’t, so you can make adjustments to your strategy and achieve your goals.

Plan for disruptions

Before you reach your goals there are going to be setbacks. Whether its key staff leaving, new competition entering the market or surprising new developments, these disruptions are going to slow down your growth. To make sure that the impact of these is lessened it is critical that you think about diversifying your income streams to mitigate high concentration areas or reliance on one client. You should also pinpoint succession candidates for your key positions and begin training now to ensure they are ready when the time comes for them to step into a departing employee’s shoes. Try to picture which disruptions might hit the business the hardest and start threading the solutions into your targets and growth plans to ensure that when they do arrive, you are ready.

Stick to the plan

While many believe that being scrappy, flexible and prepared to change the whole business on a dime is the best path to success, history proves that long term growth instead comes from having a properly constructed plan that takes into account all aspects, including possible future disruptions, and then sticking to it. At times you may be tempted to deviate heavily from the plan, but if you are matching KPIs and growing the business, do not give in easily. Don’t make decisions on a whim and rather apply yourself to the plan, making smaller adjustments along the way as necessary. After all, you made the plan for a reason.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Why the Four-Day Working Week Just Might Happen
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Why the Four-Day Working Week Just Might Happen

“We need to do a better job of putting ourselves higher on our own ‘to-do’ list.” (Michelle Obama, former First Lady of the United States)

The four-day work week has been in the news a lot recently with a number of significant studies and trials coming out in favour of the arrangement. While many would assume that workers are thrilled with four-day weeks, but that bosses are finding it hinders business, the results do not back this up. Repeatedly, these studies are coming out in support of the four-day work week with the benefits simply racking up. Here are the reasons why it just might work:

Employees want it

In terms of work schedules, employees are increasingly seeking flexibility, with a four-day workweek emerging as their top preference, according to a recent survey of American employees conducted by Bankrate. The survey revealed that a significant majority of full-time workers and job seekers, a staggering 81%, express strong support for a four-day workweek over the conventional five-day arrangement.

What’s more, an impressive 89% of these respondents indicated their willingness to make sacrifices in order to enjoy a four-day workweek. Among these concessions, a noteworthy 54% are open to working longer hours, while a substantial 37% are even willing to explore career changes or transition to different industries. Additionally, a considerable 27% are open to increasing their in-person office presence or working entirely on-site.

Productivity Increases

Many assumed that a four-day work week would hamper productivity, but a recent study in the UK that included 61 companies and more than 3000 workers found exactly the opposite. The study, which followed the companies and their workers through a six-month test of a 32-hour, four-day week, with no loss of pay for employees was the largest of its kind, making its results extremely impactful. Perhaps more impressive though, is that after the study was over, 56 of the 61 companies that were involved decided to continue with the shorter week indefinitely, and two more said they were voluntarily extending the trial.

Among the benefits reported by companies were an increase in revenue over the same period in previous years, as well as a sharp decline in resignations. One company reported a productivity increase of 22%, a lower carbon footprint as well as an increase of 88% in job applications, and a 66% decrease in absenteeism.

The results back up those achieved by a smaller pilot program that covered another 30 companies and 1000 employees.

Employees are happier

As for employees, well they were almost unanimously happy. Participation in the above trial led to a significant decrease in people saying they lacked sufficient time during the week to attend to their responsibilities towards children, grandchildren, or elderly family members.

Additionally, they reported feeling reduced work stress as well as better mental health, more time for exercise, better sleep and generally less negativity. 55% reported an increased ability to work. The results also suggest that the shortened workweek could lead to better gender parity as the time men reported spending with their children increased nearly double that reported by women. So impactful were these benefits that 15% of employees said there was literally no amount of money that could make them go back to 5 day working weeks.

If your company chooses to adjust your working hours to fit in with the four-day work week, there are numerous ways to do it. Do you give extra days off to make up for the shorter week, work with Fridays or Mondays off, or allow employees to simply work fewer daily hours? The various options will come with their own unique financial considerations, and you should speak to your accountant to make sure you make the most of the new situation.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Don’t Fall Prey to the Most Common Cybercrimes!
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Don’t Fall Prey to the Most Common Cybercrimes!

“The bottom line is that cyber risks sit right alongside rising systemic risks, and is the biggest emerging, and constantly evolving risk facing businesses today.” (SHA Specialist Risk Review 2022)

In Africa, Interpol has identified phishing – particularly Business Email Compromise (BEC) – as well as online scams, as both the biggest current crime threats, and the crimes most likely to increase in the next three to five years.

This is Interpol’s list of the prominent cyberthreats identified in the African region:

  • Business Email Compromise
  • Phishing
  • Cyber extortion including ransomware attacks
  • Online scams
  • Banking trojans and stealers

Below, find out how these cybercrimes are perpetrated and how to protect yourself, your company and your employees with tips from SABRIC and CISA.

Business Email Compromise (BEC)

For 7 consecutive years, BEC attacks have been the most financially devastating cyber threat worldwide, and continue to be the most prevalent cybercrime, says Interpol. A type of phishing attack, it causes significant financial losses and often reputational damage.

It includes cybercriminals using an organisation’s email account to send out fraudulent messages with malicious links or attachments that install malware or steal confidential information.

Most commonly, however, BEC involves cybercriminals manipulating emails, especially payment requests containing bank account details. This is because it’s common business practice to send confirmation of or changes to bank details, or invoices containing bank details, via email.

In BEC attacks, these emails are intercepted – or fraudulent emails or invoices are created – changing the account details to the cybercriminal’s account. Any payments subsequently made are lost to cybercrime.

A recent High Court ruling in this regard, set a precedent applicable to all businesses, as the judge noted: “… the plaintiff’s case established clearly that sending bank details by email is inherently dangerous, and so must either be avoided in favour of, for example, a secure portal or it must be accompanied by other precautionary measures like telephonic confirmation or appropriate warnings which are securely communicated.”

Specific BEC preventative measures include:

  • Inform clients that your company will never change banking details via letter, SMS or email.
  • Consider not putting banking details on your invoices – rather ask customers to phone you to check the details they have.
  • Use bank-defined beneficiaries for online banking where possible.
  • Before making payment to a supplier’s bank account after receiving an emailed invoice, check that the bank account details on the invoice are genuine.
  • If you receive any instructions to change banking details from a supplier, call them to verify.
  • Check with your insurers if you can get cover for this risk.
Phishing

One of the oldest, most pervasive cyberthreats and a major source of stolen credentials and information, phishing is a cyber-attack aimed at stealing sensitive information like usernames, passwords and credit card details, typically using deceptive emails or websites, apparently from trusted sources, that contain malicious attachments or links to viruses or malware.

Phishing is linked to an estimated 90% of data breaches and causes not only direct financial losses but enables other forms of cybercrime.

Cyber extortion and ransomware attacks

Cyber extortion involves cybercriminals using digital methods to threaten or extort victims for money and/or assets. It often involves the attacker threatening to reveal embarrassing personal information, delete important data, sabotage systems and networks, or launch distributed denial-of-service (DDoS) attacks.

An increasingly popular type of cyber extortion is ransomware, a malicious software that locks users out of their own data, business systems and devices by encrypting their files. Victims must pay a ransom to have their files decrypted and regain access.

Such attacks can be extremely costly to businesses with substantial financial losses incurred due to ransom payments and recovery efforts, as well as downtime, lost production, and reputational damage.

Ask your accountant for help in preparing a business continuity and disaster recovery plan so you are prepared if the worst happens.

Online scams

Online scams take advantage of users’ poor levels of digital literacy to lure them with false promises. Below are the most common online scams increasingly prevalent in the African region.

  • Advance payment scams – fraudsters ask for financial deposits and then fail to deliver goods or services.
  • Shopping scams – criminals deceive online buyers to pay upfront and then receive counterfeit items or nothing at all.
  • Romance scams – criminals create a false social media identity and build an emotional connection with a victim, with the aim of soliciting money or gaining access to personal accounts.
  • Tech support scams – criminals posing as representatives from technology companies offer technical assistance to gain access to users’ computers and extract valuable data such as passwords and financial information.
  • Cryptocurrency scams – criminals entice investors into buying fake currencies.
Banking trojans and stealers

These malicious software programs are spread through phishing emails and malicious websites to steal sensitive information such as usernames, passwords and financial data by capturing keystrokes or stealing login credentials from unsuspecting victims. Cybercriminals may use the information to steal money directly from the victim or sell the information on underground markets.

What are the risks?

According to the 2022 SHA Specialist Risk Review, cybersecurity ranks third on the list of top threats for local businesses, after power disruptions and labour matters.

The report says that not addressing cybersecurity opens companies to a range of risks, including:

  • the financial loss of payments made into incorrect accounts due to BEC;
  • the financial impact of business interruption due to a cyberattack;
  • the financial impact of having to pay a ransom;
  • the legal consequences that follow a breach of confidential or personal information;
  • the reputational consequences that may impact a company’s share price and brand.
How to prevent becoming a cybercrime victim 
  • Keep applications, software and operating systems (OSs) updated with the latest patches.
  • Use and keep updated preventative anti-virus and anti-malware protections, software and protocols, as well as data encryption, firewalls and email filters.
  • Use long, complicated passwords and change them often.
  • Always double check you’re really on the right website or app. Only download apps from trusted app stores.
  • Use YIMA, a website vulnerability scanner, to do website security checks for scams, known vulnerabilities and security headers.
  • Register for 3D Secure to secure your card details and use secure payment portals with two-factor authentication (2FA).
  • Backup your system and other important files, and store on a separate device not accessible from the network, like an external hard drive.
  • Beware of phishing emails. If an email looks suspicious, verify the email’s legitimacy by contacting the sender directly.
  • Do not click on links or icons in suspicious or unsolicited emails, and do not reply – delete immediately.
  • Be careful when clicking directly on links in emails or opening email attachments, even if the sender seems legitimate.
  • Don’t fall for any offer that seems to be too good to be true – it usually is.
  • Never provide your password, credit card or other financial information, or control of your computer, to a third party who calls unexpectedly.
  • If you suspect you are being targeted by a scammer, stop all communications immediately and report it.
  • If you click on a harmful link, immediately disconnect your device from the internet by unplugging your network cable or disconnecting from the Wi-Fi, then run a full anti-virus scan.
  • Regular, mandatory cybersecurity awareness training for all employees is crucial to keep everyone informed about the latest cybercrime techniques.

October is Cyber Security Awareness Month – Stay Alert!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Using a “Risk Matrix” to Risk-Proof Your Business
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Using a “Risk Matrix” to Risk-Proof Your Business

“Don’t be fearful of risks. Understand them, and manage and minimize them to an acceptable level.” (Naved Abdali, Financial journalist and author)

Managing risk in your business is absolutely critical for developing it to success. Knowing exactly which threats are really relevant and which will help any leader to develop strategy and prepare for the worst eventualities. One of the simplest and most useful ways of determining the greatest risks to a business is through developing a “risk matrix”, otherwise known as a “risk assessment matrix”. Risk matrices give leaders a visual way of understanding the risks in their business by plotting these risks on a grid.

An example to illustrate…

Let’s illustrate the concept with the help of an example. A catering company has identified three risks to its business and has plotted them on a typical matrix which looks like this –

Source: Adapted from a template available for free download from ProjectManager.com

As you can see –

  1. The caterer has decided that a food poisoning event is deemed to be unlikely but with severe consequences. This puts it in the orange “High” category.
  1. Staff not arriving for shift is deemed likely with major consequences. This puts it in the red “Very High” category.
  1. Catering customer paying a month late is deemed possible with insignificant consequences. This puts it in the green “Low” category.

This allows the caterer to visually compare the identified risks with one another at a glance, and to prioritise addressing them.

Create your risk matrix in the context of your own business

Any risk that is high on the likelihood scale and high on the consequence scale needs to be paid attention to immediately, while conversely those that are low on both axes can be attended to last.

Leaders would determine where each individual risk falls on the matrix dependent on the context for their own business. For example, while a food poisoning risk may be a very low risk and unlikely event at a mining company, it is more likely for, and could mean bankruptcy for, a catering company.

This simple outline may differ depending on the organisation or leader using it. Often, they appear colour coded with severe risks marked in red and less severe ones in blue or green. The effect of the matrix, however, remains the same, so choose whichever format works for you.

How to build your risk matrix

There are essentially four steps to creating a risk matrix, each of which will be influenced by your knowledge of your business and its particular details.

1. Identify risks

The first step is to identify all the likely risks to your business. You cannot plan for things that you don’t know about and haven’t imagined. At this stage every avenue should be covered, and each eventuality considered. The catering company cannot prepare for a mass food poisoning if they have never even considered it enough to put it on their risk matrix. Risks are not just direct dire threats, however, and include anything that could prevent your company achieving its goals or bring harm to its staff or customers or investors.

2.  Evaluate them

This is the critical stage that makes the risk matrix work. Looking at the list of risks, you must determine which of those could cause a critical failure to your business and which are merely small annoyances. You should also determine which of these risks are likely to happen and which are more fanciful and unlikely. This is a subjective decision you will make dependent on the unique circumstances of your own company.

In the catering company example above, we have mentioned how a client paying late may be of insignificant consequence. Perhaps this is an established company, with good cash reserves? A newer company, that is not in as strong a position may deem the risk level of a late payment to be closer to severe making it a “Very High” threat to the existence of the business.

3. Enter them into the matrix and prioritise them

Now that the threat levels have been determined, these values can be entered into the matrix and the danger of the various threats can be measured against one another.

Low risks, or those that would fall within a green area, can generally simply be accepted and no risk-mitigation actions need to be taken.

Moderate risks, or those that would fall within the yellow area, will likely need risk-mitigation strategies to reduce their likelihood or improve circumstances should they occur.

High risks, or those that fall within the red area, need to be urgently attended to. Processes need to be put in place to eliminate these risks or greatly reduce their likelihood of occurrence. This may involve staff training, or changes to entire systems of logistics and ordering.

Continued analysis

Risk management is not something that is set in stone. Risks may move within the matrix over time dependent on internal and external factors. Increasing interest rates, for instance, may move cash flow problems higher up on the matrix, while the discovery of new mineral deposits may make the threat of raw material shortages lower. Leaders should be prepared to update their matrices in-line with these new events.

Weaknesses

While risk matrices are extremely useful in decision making, problem solving and communication of challenges, they are not without their weaknesses. Good leaders should be cognisant that due to the matrix’s reliance on context and the leader’s own subjectivity, errors can creep in due to over- and under-estimation of threats. A risk matrix is therefore something that should be shared with the team, and other interested parties such as investors, and partners, and feedback should be sought to lower the risk of this happening.

The bottom line

In the end, risk matrices are a powerful tool to help you manage your company’s risk. In the hands of knowledgeable and experienced leadership they have helped numerous companies to thrive or to avoid harm when the risks eventually become realities.

Ask your accountant to help you identify and address those risks that are particularly relevant to your business!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Quiet Quitting and How to Prevent It

“Quiet quitting” isn’t laziness…When they don’t feel cared about, people eventually stop caring. If you want them to go the extra mile, start with meaningful work, respect, and fair pay.” – (Adam Grant, organizational psychologist and speaker)

The idea of the recently acknowledged trend of quiet quitting is not really new at all. Some people have been coming to work and doing the bare minimum since work has existed. It has, however, become a lot more noticeable and, more important, socially acceptable since the pandemic. It’s therefore unsurprising that a 2023 Gallup report states that as few as 32% of employees now class themselves as engaged at work.

As any business leader knows, workers who are only barely fulfilling the terms of their contracts in the least productive ways can be detrimental to corporate culture and bottom line, and “quiet quitting” therefore does need to be addressed.

Causes

The time spent at home with families during the pandemic has awakened many employees to what work/life balance could be like with a little more life and a little less work. Rather than being the habit it had been before the pandemic, the return to work and the daily commute now seemed unnecessary and expensive. In instances where employees were forced to return to the office, resentment built and, without meaningful communication and explanation from management, began to fester.

At its core, therefore, quiet quitting is not laziness. It’s a direct response to a perception that employees are being used and that management does not really care about their needs, desires or hopes. If they don’t care about me, why should I care about my job?

What can be done?
  • Reward employees adequately
    The first step toward making an employee feel valued is to actually value them. Resources on the internet make it extremely easy for employees to see what other companies are paying for similar roles and if they aren’t earning the same, they will feel undervalued. Paying a good salary also leads to better employee retention, which lowers your recruitment and training costs and in businesses with small skill pools can ensure you stay ahead of the game. Your accountant will be able to assist you to determine just what you can afford to pay for each role, and how best to structure benefits to get the most from taxes.
  • Take care of employee mental health
    Those who engage in quiet quitting often state that their mental health was a critical reason why they did so. Proactively addressing your employees’ mental health needs is therefore a priority if you want them to be engaged at work.It is essential that you make sure work/life boundaries are a built-in aspect of any job. Simple rules like preventing employees from calling each other after hours, or keeping lunch hours free for lunch, will go a long way toward ensuring your employees don’t have to draw those lines themselves.

    Other ideas include matching overtime with additional time off or giving employees their child’s birthday as paid leave. Your accountant will be able to help you find funds to develop a wellness program that could include reduced gym fees or tickets to theatre, concerts or sports events.
  • Recognise hard work
    Feeling underappreciated is a large part of why people quiet quit. Working hard and having no one notice leads to people feeling unrecognised and unimportant. Make sure you acknowledge and visibly reward those employees who do work hard. With the right motivation it could even encourage others to step up as well.
  • Listen to your employees
    The ultimate reason for quiet quitting is the disconnect between management and staff. It is essential for team leaders to get to know their staff as human beings, to genuinely engage and listen and understand the challenges in their lives. People who view their bosses as caring human beings rather than faceless authority figures are much more likely to work harder to avoid disappointing their team. If they are then also adequately rewarded for doing so, this can lead to a strong positive spiral of effort.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article The True Cost of an Employee
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The True Cost of an Employee

“The value of a business is a function of how well the financial capital and intellectual capital are managed by human capital.” (Dave Bookbinder, author)

There are a lot of factors that go into working out the true cost of an employee. According to the US Small Business Administration, employees really cost between 1.25 and 1.4 times their monthly wages.  Understanding why this is, is critical to working out whether the company can really afford to bring someone onto the team. Determining the true cost of an employee helps a company to draw up better budgets, cost products more accurately and ultimately, make more profit. Here are all the things you need to consider before choosing to onboard a new hire.

  • Salary: The monthly wage paid to an employee is usually the base for deciding whether a company can afford to bring them on board. Obviously, the full “Cost to company” monthly wage needs to be taken into account including taxes, UIF and any other built-in components such as equity schemes or medical aid. The salary also includes the cost of leave. All employees are by law allowed to take holidays and days off when they are ill. These are days that you are paying your employee, but not gaining any benefit.
  • Additional employees: When you hire new employees, you may also need to consider hiring other people to manage those people, conduct the hiring process, administer employee disputes and complaints and ensure they are paid timeously each month. While new business owners may find it possible to do this themselves for one or two new employees, this can quickly start taking over in terms of hours, meaning the company owner is no longer doing their own vital job. It is advised that the costs of HR, finance and middle management are therefore looked at separately as this will give you a clearer idea of the ongoing costs for each employee.
  • Onboarding and training: From the minute you start writing the advert for a job posting, the cost of hiring an employee starts to add up. How much time is lost sifting through CVs, conducting interviews and running background checks? Once they are onboard, they will need to be trained on the company systems and rules and will take time to get used to their role. How much time do other employees need to do this rather than their own jobs? Employers should also not expect peak performance right from the beginning and this loss of productivity also has a cost.
  • Equipment: Any employee you hire will need to be given equipment, the cost of which will be determined by your industry. Everything from overalls to laptops and company cell phones as well as desks, chairs and meeting rooms need to be considered. What software do they need installed and how much is the annual subscription? How much office space does each employee take up? What does that space cost you to rent each month? On top of this comes costs like toilet paper, lighting, stationary and even coffee and tea, mugs and cutlery.
  • Overtime, bonuses and promotions: While generally optional, there are some industries where overtime cannot be avoided. As time passes business owners may also want to look at paying bonuses or giving their employees a promotion to ensure they remain happy and productive. These costs also add up and should never be forgotten.

If all of this seems too much to consider, don’t hesitate to contact your accountant who will be able to advise on whether bringing a new employee onboard is right for your business.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article Tips for Getting out of Business Debt
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Tips for Getting out of Business Debt

“Borrowing isn’t inherently bad; it depends a lot on what the debt is financing” (Stephen Moore, writer and economic commentator)

 Taking on debt can be a good thing for a company. It can fund expansions, help you seize market share or diversify offerings. Handled incorrectly it can, however, lead to severe problems that could ultimately result in bankruptcy. Managing company debt is, therefore, something that should always be done alongside your company accountant, who can advise on whether taking on new debts is possible, whether the debt will pay itself off and how best to keep the payments down. Understanding just how debt works is, however, essential for any business owner and knowing how to pay it off before it becomes trouble is a skill that needs to be nurtured. These are our tips for paying off business debt.

1. Analyse and prioritise

The first step to breaking free from debt is understanding it. By knowing exactly how much you owe and to whom, and the different interest rates and payments involved, you get to take control of that debt. Look at the debts that are the most crippling and which cost you the most in interest each month and target paying these off first. Pay any extra money you have there and in the long run your bank balance will thank you.

2. Cut expenses

No matter how closely you monitor your expenses on a day-to-day basis, there are always items that can be cut to finance debt repayments. Your accountant can help you to analyse your monthly expenses and find areas for improvement. Whether you are making multiple small savings, such as trading to less expensive office coffee, and buying energy saving light bulbs or selling vehicles that aren’t currently utilised, each cent found will make a difference.

3. Shorten your payment cycle

Many businesses operate on an invoicing system which gives clients a certain amount of time to pay for a product or service. The standard amounts are generally 30, 60 or 90 days. While it may be beneficial to clients, having long payment cycles can unnecessarily hurt the supplier. By getting paid sooner, a business is able to maximise the interest it receives on the income, or, in the case of companies with debt, decrease the interest they pay on any loan.

4. Negotiate better debt repayment terms

If your business goes under, your creditors will lose the vast majority of their money. To prevent this from happening, don’t be afraid to approach the banks, or other lenders to renegotiate your payment limits, or interest rates. It is in your creditor’s best interests to ensure you pay (and to keep your business for the future!) so you might be surprised by what they are willing to do when you say you are struggling.

5. Consolidate debt

Depending on how your debt is currently structured and the different interest rates, it may be advantageous to consolidate that debt. Consolidating debt means taking out one large loan with a lower interest rate to cover all the other debts. Doing this can also help pay off your debt faster, as having only one monthly debt payment can feel more achievable than paying off numerous others.

6. Look closely at your pricing

Many people make the mistake of pricing a product based on their costs, plus what profit they hope to make. Accurately pricing a product is about so much more than that though. When pricing your products, you need to take into account the prices being charged by competitors, your true expenses in making that product and what your product brings to the market that is different from your competitors. It is distinctly possible you could be charging more per item, or conversely perhaps you could sell vastly more product if you simply lowered your costs slightly.

7. Diversify

Take a close look at your product offering. Are there things you could add that would be beneficial to existing clients? Getting a new product onto the market that you can upsell as an add-on to already successful products is a great way to generate extra income, which has thus far not been tapped. Diversification is, however, not necessarily just about adding new products to your catalogue.

Take a look at your current clients and your marketing. Are there other markets that might benefit from your product?Using your advertising budget to tap into groups of people who you may not have sold to before, is an excellent way to improve income and pay off that debt.

8. Inventory management

Incorrect inventory management can lead to your company buying too much product, clogging up your storerooms and having things expire on your shelves. Buying too little product can also be a problem as it means you don’t have it on hand when clients come calling and might miss out on sales. Both of these are expensive drains on a company’s accounts and streamlining your inventory and ordering could ultimately save you a significant amount of money.

9. Don’t lose sight of success

In difficult times, companies often make the mistake of cutting back on advertising, or downgrading the business in other ways, by retrenching key staff or not maintaining or upgrading equipment. This thinking will hurt the business in the long run as you lose market share or aren’t able to take advantage of new opportunities. Remember if your profits grow, it will be easier to pay old debts.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article Ten Often-Overlooked Ways Your Accountant Can Help Your Business
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Ten Often-Overlooked Ways Your Accountant Can Help Your Business

“If you talk to a top accountant about his field of expertise, it’s mind-boggling.” (Vincent Kompany, professional football manager and former player)

Accountants are the tax and compliance champions of any industry, but the best ones do so much more for their clients, as strategic advisors and trouble-shooters who can also assist with automating a variety of tasks and pave the way for the running of a smooth and profitable business. Here is a list of not-so-obvious services an accountant can assist with that will help your business thrive.

1. Setting up a new business

Setting up a new business comes with a number of potential pitfalls that may not be discovered until it’s too late. For instance, the type of business you choose to set up, be it a company, sole trader, trading trust or partnership will come with different tax requirements, paperwork and personal liabilities. Changing the kind of business vehicle at a later stage can be a costly process, so having an accountant assist you in ensuring you are starting off with the best entity for your business could make a huge difference.

2. Buying or selling a business

If you are thinking of either selling your business or buying a new one, your accountant should be your first stop. Accountants can assist with business valuations, form exit strategies, and get the right financial reports and documents together to ensure you only make good decisions. Your accountant will also help keep costs down and make sure you don’t find yourself on the wrong end of a bad deal.

3. Cash flow adjustments

One study performed by Jessie Hagen of U.S. Bank revealed that 82% of businesses fail because of poor cash flow management. There is, therefore, no doubt that not being able to meet financial obligations when you need to is certainly an indicator that things are not going well. The good news is that your accountant can help.

By conducting a thorough business analysis, your accountant may be able to rebalance your budget and debts, optimise your cash flow and build cash flow projections.  By simply showing you what needs to be paid when, organising cash reserves, and adjusting the way money is used in the business, you can avoid upsetting suppliers and staff and ensure your business operates as smoothly as possible.

4. Business operations

There are many decisions in a business that look like they may be simple, but the fact that they involve an element of finance makes them a critical task to take to your accountant. Accountants can help with analysing whether your equipment should be bought, or leased, whether offices should be rented and where, and whether the terms and conditions offered by one supplier are truly better than those of another.

Your accountant is also best suited to assist in pricing your products to make sure you are getting the most profit from each sale and maximising your potential client base. They will also be able to point to areas of under-performance in the business and suggest possible areas for expansion.

5. Cloud software

Your accountant is also able to help you automate much of your business’s monthly bookkeeping and set up an invoicing system that will tell you at a glance who has paid and who has not. This smart software can even send emails to clients to chase up unpaid invoices, all of which saves you time and keeps you on top of your finances.

6. Networking

Good accountants work with other good businesses. If you are looking for suppliers or even investors it can never hurt to chat to your accountant about what you need – you never know, perhaps they know the right person?

7. Securing financing

At some stage in every successful business’s life, there will probably come a time when additional finance is necessary. Whether it’s securing a loan that helps bridge tough times, or attracting investors for necessary expansion, getting this money will need well-structured and legible financials.

Your accountant is therefore the first person you should speak to. They can help you structure your investment pitches and loan applications in a way that investors prefer, showcasing your business and making your investment-seeking efforts more likely to succeed.

8. Stock management

It isn’t always easy to tell on a day-to-day basis if your stocks are being managed correctly. Fortunately, your books will reveal a lot to your accountant about what’s happening in your stock room. Are you ordering too much, and therefore spending too much on storage, or writing off a high percentage of obsolete or expired goods? Or is the opposite true and you are missing out on sales by not having the correct parts or products in store? Your accountant can look at the trends over time and reveal what changes need to be made to ensure you are operating at peak efficiency.

9. Long-term planning

An accountant can put long-term plans in place, which will ensure loans are paid off as efficiently as possible, staff are taken care of as well as possible within the business’s means, and that its systems and resources are set up to ensure the inevitable difficult times are as painless as possible.

10. Advice

Your accountant will no doubt be working with a number of other businesses in numerous different sectors. They may therefore be able to see the bigger picture. This together with their wealth of experience in business operations and in seeing where things have gone right and wrong in the past, makes them the ideal people to ask for advice or even get onto your board. Accountants will be able to help you make the right decisions to grow your business, pay off debt or point you in the best direction when you are struggling with a tough decision.

Ultimately, your accountant is so much more than simply your “tax guy”. By assisting you in every facet of your business your accountant can help you avoid a variety of frustrations and troubles and help you build a successful, well-oiled and streamlined business.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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How to Prepare for a Possible Electricity Blackout

“Eskom plays a critical role in the life of South Africa, and life of South Africans. Due to its important role in the economy, its inability to provide electricity on demand and on time is a crisis.” (President Cyril Ramaphosa)

The South African Reserve Bank’s Financial Sector Contingency Forum (FSCF) has recently encouraged South African businesses to develop plans for operation at stage 8 load-shedding levels and a total countrywide blackout. While it has tempered this warning by saying that total blackout is an improbable scenario (with a chance of 0.1% to 1% of happening), it’s not an impossible one. The FSCF does however, think that businesses would be prudent to prepare nonetheless, particularly given the very real possibility of load-shedding levels that could see power being shut off for 12 hours a day or more. Here is how businesses can make that happen.

Analysis

The first step is for your business to analyse exactly how a critical power failure or extended loss of power would impact you. Would it be a shutdown of production or a loss of e-commerce sales? Would information loss be important, or do you still need to communicate with clients? Understanding this will inform the rest of the process.

Plan financially

Talk to your bank, investors and insurance companies to fully understand what can be done at the moment of shutdown to ensure continued operations and put risk financing in place to make sure you can cover costs in the event of grid collapse. If you have insurance, you need to know if they cover blackouts and what you need to do when that occurs to ensure they provide assistance. Make sure you have a hard copy of the policy accessible even when the power goes out. We are no longer at the stage where blackouts can be considered “unforeseen”, which means your insurer will have requirements for your preparation in such an event if you expect them to pay out.

Backups

Set your computers to autosave and back up all necessary information to the cloud regularly.

Alternate Power Sources

While it may not be feasible to run the whole business on alternate power indefinitely, you should at least provide UPS units at key positions such as Wi-Fi to ensure that when the power goes out you can still save the necessary work, run billing, or ring up customer sales. Also turn off and unplug all sensitive equipment so that the surge of returning power does not damage equipment.

Security

In the event of a total collapse, businesses may be wiser to shut down entirely. With both fires and crime expected to dramatically increase at that time it’s important to prepare an evacuation plan for your building or factory and shut off all electricity points at the mains. Ensure your property is safe, even when electric fences and CCTV are off.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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How to Use AI to Improve Your Small Business

“The amount of work we can automate with AI is vastly larger than before. As leaders, it is incumbent on all of us to make sure we are building a world in which every individual has an opportunity to thrive.” (Andrew Ng, Co-founder and lead of Google Brain)

Artificial Intelligence has come a long way very fast, and now every second app is claiming to be able to change your life using this ground-breaking technology. Many of these apps are simple software solutions designed to automate routine tasks, sometimes while mimicking a level of human interaction – as in chatbots, and the aim is to use them to free up human focus for more important, strategic or engaging activities, which cannot be mimicked. The truth is that many of these apps are only able to offer services at a fraction of the skill of a human new to the job, or still require significant human knowledge or input to get the most use out of them.

There are, however, some apps out there where this assistance is more than just a little valuable, particularly for a new company that may have no staff at all in a specific role, or where an entrepreneur may simply not have the time to do everything themselves. Here then, is a list of ways you can use current AI to improve your small business.

Customer service

Probably the most common use for Chatbots is the spreading of content marketing on social media. Many people are familiar with these fake profiles popping up to link to various services or leave comments defending various points of view. While at one time there may have been a benefit to such marketing this is rapidly reaching its climax as people become more savvy to the existence of these tools and online bots now seem to outnumber actual people online.

A far more interesting use has been in customer service where bots are being deployed as a first line of assistance to clear the bulk of customer questions before they take up the time of real members of staff.  Sold as being capable of mimicking a human conversation, business owners should, nonetheless, never fool themselves that modern chatbots are coming across as real staff members. People are, however, becoming increasingly comfortable with having their questions answered by an automated service, and chatbots in this scenario can help free up time by becoming an interactive FAQ. The benefit to a small business owner is that their time is no longer cluttered with routine enquiries and response times to customers are now rapidly sped up, lowering frustration and improving real world relationships. They can also be set to send you notifications to alert you to serious cases, or issues that only humans can resolve.

Among the best AI chatbot programs are Netomi, WP-Chatbot, Microsoft Bot Framework and of course (the one getting all the media attention!) ChatGPT.

Cybersecurity

Cybersecurity is an increasingly important and regulated aspect of modern business. Doing business these days requires that companies have top of the line security with no flaws in order that they meet the legal requirements for protecting customer information and data. In the past, they would just ignore it and hope for the best, but fortunately this no longer has to be the case.

The days of constantly needing to upgrade and deploy security software, learning new skills and manually backing up servers to prevent malware, ransomware and phishing attacks could now be now a thing of the past. AI solutions save business owners time and give them peace of mind by handling all of that, ensuring companies are safer than they have ever been.

But it doesn’t stop there. In a world where hackers are able to bypass common virus protection programs with little effort, and the average ransomware pay out sits at around R2-million, AI security is also capable of analysing networks for weaknesses and vulnerabilities, and spotting abnormalities in user behaviour. These AI security systems are also capable of using their database of previous malware versions to predict and prevent future attacks based on patterns and commonalities.

These security solutions are also able to monitor staff behaviour on the company network, and over time learn normal patterns of behaviour. By identifying the usual patterns, it can quickly recognise if one of your staff members has an account that has been compromised and shut it down before it can be used to cause any damage. Just be careful of privacy concerns before implementing any such solution in the workplace.

All of this helps keep the small business up to date with regulations, and customers safe, while preventing costly downtime and giving owners peace-of-mind.

While there are literally dozens of useful and important security apps some of the best AI Cybersecurity solutions include IBM Security, Targeted Attack Analytics by Symantec and Tessian.

E-Commerce

Online shopping is only getting more embedded in our society and small businesses often have a long way to go to keep up with the Amazons of the world when it comes to their level of operations. Luckily, AI can now be used to automate or assist with a variety of tasks such as product recommendations (Clarifai), listing optimisation (Klevu) and inventory management (Inflow Inventory) while also analysing customer behaviour and personalising the shopping experience (Amazon Personalize). All of this can save the business owner time, and lead to a richer, more satisfying experience for customers, which in turn leads to improved sales and better client retention.

Financial Management

One of the most arduous, but also necessary, tasks for small business owners is the management of all financial affairs. Luckily, financial management software has been around for a while and the very best solutions are all incorporating AI to automate bookkeeping tasks, reconcile bank transactions and generate reports.  While they are by no means a replacement for an accountant who can help with advice, compiling complete financials and assisting with tax savings, both Xero and Quickbooks, for example, have AI apps that can help ease the burden of your day-to-day, time-intensive bookkeeping tasks.

There are even apps that help small businesses stay up to date with regulatory requirements. Compliance.ai for instance will monitor and analyse regulatory changes, automate compliance tasks, and generate reports reducing penalties and other non-compliance risks – even in South Africa.

Take specific advice from your accountant!

Don’t implement any AI solution without first running it past your accountant, particularly when it comes to the financial management aspect. There is still no substitute for specific (human) advice tailored to address your particular needs.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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When to Say No to an Opportunity (or a “Barnacle”)

“The difference between successful people and really successful people is that really successful people say no to almost everything.” (Warren Buffet, Investor)

Anyone who has ever started a business knows the feeling a new enquiry can generate. The excitement that things seem to be working, may make the new entrepreneur set aside their concerns and leap at any opportunity. The sad news is that this excitement to help anyone who asks could be diluting the brand, lowering the quality of output and even damaging the business’s ability to grow. Here are the signs it may be time to say no to an opportunity.

When you don’t have the capacity

Your hours are stretched as it is, but now a potential new client has come calling and you are determined to make it work. In the early days clients are a lifeline to a business, but there will come a point where taking on new responsibilities could see you dropping the ball when it comes to your other clients. With each new arrival, it is therefore important to carefully analyse your resources, and options and determine whether you can truly do justice to their needs, and those of your other clients, with the capacity you have. If you can’t, and you try, then you will only end up damaging your reputation for good work and harming your business in the long run.

When you don’t have the skills

Knowing what you can’t do is as important as knowing what you can do. Don’t assume you will learn as you go. Taking on work under your brand banner that you are incapable of delivering will be a death knell to your business.

When the long-term cost outweighs the short-term benefit

A new client has come in with a promise to pay you more money than you have ever seen for the next three months, but they need you to drop your other clients to do it. This is a perfect example of short-term gain being outweighed by long term benefit. Sure, these next three months will be good, but those clients you currently have won’t come back and worse, will tell others that you dropped them. Six months down the line, the new client’s money will be gone along with your original clients.

It’s not making financial sense – saying no to “barnacles”

Traditionally, it is thought that loyal customers are the heartbeat of a business, but increasingly studies are finding that businesses need to ask their accountants to regularly evaluate the value versus effort that these loyal clients are bringing to the business. Harvard business review suggests that some “loyal customers” may in fact be using more of your resources for less of your profit, preventing you from servicing other potentially more lucrative clients. These customers who use up your resources, perhaps through continued complaints, returns for changes, or negotiations for better prices, are referred to as “barnacles” and like barnacles on a ship they can slow down your business growth. Sometimes it might be better to have a frank discussion with these customers to see whether your business still fits their needs rather than simply saying yes to everything they ask, because they have been loyal.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Affordable Ways to Reap the Benefits of Engaged Employees

“Always treat your employees exactly as you want them to treat your best customers.” (Stephen R. Covey)

Gallup describes “engaged employees” as those who are involved in, enthusiastic about, and committed to their work and workplace. Numerous studies over many decades have confirmed the benefits of engaged employees especially to smaller companies, where they are often required to take on many diverse responsibilities.

Many studies have also identified employee engagement strategies that have proven most meaningful to employees and are therefore most effective. In these difficult economic times, business owners and managers will be pleased to find that some of the most effective employee engagement strategies do not require a substantial cost.

The many benefits of engaged employees

This isn’t just hype. Studies have confirmed that –

  • Engaged employees often go beyond the call of duty.
  • Employee engagement is positively correlated to company growth rates.
  • Improved employee retention and loyalty.
  • Lower absenteeism rates.
  • Higher productivity – some studies have found engaged workers to be up to 21% more productive.
  • Improved customer satisfaction.
  • Improved company reputation and overall stakeholder value.
  • Reduced incidence of internal theft and fraud.
  • Reduced safety incidents.
Some effective employee engagement strategies
  • Employees have a good understanding of the business’s values and mission, and clear expectations about their role in achieving these.
  • Employees have the necessary equipment, resources and authority to do their jobs well.
  • Regular employee performance and progress catch-ups with good quality, authentic and genuine feedback.
  • Good relationships with superiors who are truly concerned for employees’ wellbeing and willing to provide support.
  • Opportunities for employees to voice opinions and contribute ideas.
  • Genuine and meaningful recognition, given publicly and timeously in front of superiors and peers.
  • Peer-to-peer recognition has been found to have twice the impact of recognition from managers.
  • Flexible work schedules and remote working options that allow employees to meet family obligations.
  • Onsite employee programmes addressing, for example, health and wellness, or personal finances.
  • Onsite family day care facilities and/or onsite food services.
  • Having friends at work significantly improves employee commitment and satisfaction, by as much as 50% according to some studies.
  • Volunteering unites employees towards a common greater good.
Implementing employee engagement strategies on a budget

When looking at the employee engagement strategies listed above, it is encouraging that most don’t involve high costs. What is crucial is to ensure that any strategies implemented add real value to your employees and impact their work and personal lives in a meaningful way. The best way to do so would be to ask your employees directly, perhaps at a team meeting or via an anonymous online survey.

Perhaps an employee-of-the-month program with rewards such as breakfast with the Boss or gift cards could yield great results. It may be that a Friday afternoon off once a month or paid leave on an employee’s birthday are top choices. Celebrating national holidays or sporting events as a company, or providing paid time off for volunteering together, will create opportunities to build friendships and create a sense of belonging.

Especially in small businesses, such employee engagement strategies can create a happier, more productive and faster-growing company.

While most of the employee engagement strategies discussed are not part of formal compensation packages, employee relations are always subject to intricate labour and tax laws as well as a host of practical business considerations. Be sure to run any employee perks you are planning to offer by your accountant to check there are no unintended outcomes.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Setting Up Your Finances in a New Business

“A house built on granite and strong foundations, not even the onslaught of pouring rain, gushing torrents and strong winds will be able to pull down.” (Haile Selassie, Former Emperor of Ethiopia)

When starting a new business, few things are as important as establishing your finances and making sure they are right. Building the foundation for stable, accurate financial reports and tax filing will see you in good stead in the future and establish the practices that will lead your company to success. Here are the top seven tips.

1. Set up a deadline calendar

Whether you use a large whiteboard in your office, or a digital reminder service like Google Calendar, it is vital that you track which payments are due and when. Whether it’s your staff salaries, business loan payments or accounts payable, you need to know exactly when each amount is due in order to plan your cash flow accurately. Not having the cash on hand when a payment is due not only hurts your business credit rating but can also cost you more in fines or late-payment fees.

2. Monitor your accounts receivable

Just because you have invoiced a client doesn’t mean that money is immediately coming in. Check the terms of each client’s contract to understand exactly when they are likely to pay. If a client pays on a 60-day cycle it is unreasonable to expect the money will come in before that and you therefore need to plan other ways to have cash on hand to meet payments. For each invoice make a note on when it is likely to be paid.

3. Track your inventory

Inventory on hand is as much a part of your finances as the actual cash in your bank. Are you ordering too much and letting things rot on the shelves, or are you ordering too little and being forced to pay for rush deliveries to meet your orders? Tracking inventory will allow you to make better purchase decisions and streamline the operations of your business thereby reducing costs and stress.

4. Consider opening two business bank accounts

Account 1: It is vital that you be able to track all expenses you are incurring in order to make accurate business decisions and monitor your business spending. To do this you will need one bank account in the name of the business dedicated to the daily running and expenses of the business. This will allow you to accurately reconcile the account at the end of the month and see whether more money is coming in than going out. Don’t have more than one daily operations account, and don’t use your personal accounts to pay business expenses – if you do, monitoring your cash flow, income and expenses becomes that much harder.

Account 2: The second account you should think of opening is a savings account, into which you will deposit a percentage of each month’s income to cover the taxes at the end of the year. The last thing you want to do is arrive at year-end unable to afford what you owe to SARS. Ideally, you should pay more than you owe on taxes alone into this account to also build a cash reserve. This cash reserve will see you through difficult times or cover unexpected expenses.

5. Get a bookkeeper

Whether you get a bookkeeper or download bookkeeping software, it is vital that you keep track of all your incomings and outgoings. QuickBooks, Wave, Zoho BooksXero, and FreshBooks are a few examples of the best apps for small business owners. Apart from making the issuing and tracking of invoices easier, knowing exactly which jobs have been invoiced, which have been paid and which are still owing as well as to whom, and how much you owe, will help you to plot payments, make cash flow decisions and price your product more accurately. Moreover, come tax time, you will have all of the paperwork necessary to give to your accountant to ensure as favourable a tax season as possible.

6. Download a receipt scanning app

Now that your bookkeeper or bookkeeping software is tracking your invoices and accounts, you need to also track and accurately record your expenses that are made independent of your monthly suppliers. Fortunately, there are many receipt scanning apps that will help you to quickly and accurately record each business lunch receipt and stationary purchase, and then add them to an online database. Exactly which one you download will depend on your exact needs, but here are a few to get you started: Zoho ExpenseExpensifyWaveQuickBooks Online and Evernote Scannable.

7. Download an app to record business travel

While you can get digital logbooks that you plug into your computer, it is far easier these days to simply download an app that will record each of your journeys automatically in the background on your phone. MileIQ, for instance, is great, because with a simple swipe after each journey you can record whether it was for personal or business reasons, and at the end of the year can print out a full record of all your travels and the related expenses.

Setting up your business foundation is essential for the health of your business. Once you have done all of the above, and accurately tracked your expenses and income for the year your accountant will have an easy time saving you money, ensuring you only pay the taxes you owe and not a cent more.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Why (and How) to Submit Skills Development Reports by 30 April
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Why (and How) to Submit Skills Development Reports by 30 April

“We need to give importance to skill development because this way we can end unemployment.” (Narendra Modi, Prime Minister, India)

Since 1999, the Skills Development Levy (SDL) has served to fund skills development in the country. It encourages a planned and structured approach to skills development so employers, employees and the economy can benefit from a better skilled and more productive workforce.

All South African companies with a payroll exceeding R500,000 per year (that’s just under R42,000 per month) – including salaries, wages, overtime payments, leave pay, bonuses, fees, commissions and lump sum payments, and with certain specific exclusions – are required to pay SDL of 1% of the total amount paid in salaries to employees each month. It is declared and paid by employers to SARS with the other monthly employee taxes (PAYE and UIF) via the Monthly Employer Declaration (EMP201) and is then paid over to the relevant SETA by SARS.

Employers can claim back more than half of the levies paid each year, but most miss the opportunity by not meeting the stipulated requirements. Depending on the size of a company’s payroll, this could be a substantial amount. There are also other benefits that can be unlocked by meeting the requirements for claiming back the levies paid.

We briefly summarise below the benefits of claiming back the SDL paid, as well as how to do it in the most efficient way.

Benefits of claiming back levies paid
  • Claiming ensures valuable revenue is not forfeited – up to 70% of SDL paid to SARS in the financial period can be claimed back through the mandatory grant and other avenues.
  • 20% of the levy paid can be claimed via the mandatory grant, paid by the Seta every quarter, which is accessed as follows:
    • Appointing and registering a skills development facilitator (SDF)
    • Timeously submitting an approved Workplace Skills Plan (WSP)
    • Timeously submitting an Annual Training Report (ATR) based on the WSP.
  • 50% of levies paid can be claimed in discretionary grants for learnerships, skills programmes, apprenticeships, workplace experience placements, internships and bursaries, and organisations can apply using the same requirements for claiming the mandatory grant.
  • By offering SETA-accredited training, for example, mandatory training and registered learnerships, further tax rebates can be accessed.
  • Successful submission of the required reports will earn your company points for the Skills Development priority element under the revised B-BBEE Codes.
  • The WSP and ATR reports contain similar labour demographics information as the Employment Equity reports, facilitating improved employment equity management in the workplace.
  • Skills development initiatives positively promote a better skilled and more productive workforce, as well as proper succession planning.
  • Submitting the reports provides important sector information to the SETAs (Sector Education and Training Authorities), which informs the development of the SETA’s sector skills plan (SSP) and ultimately the National Skills Development Plan.
How to claim back levies paid
  • Appoint a suitably qualified and registered SDF to facilitate the training needs within the organisation and liaise with the SETA.
  • Companies with 50 or more employees need to establish and consult with a Skills Development Committee before the submission of the skills report.
  • Submit the Workplace Skills Plan and Annual Training Report for the period 01 April to 31 March via a registered SDF to the SETA with which the business is registered.
    • Workplace skills plans detail a company’s skills needs and the skills development interventions to address these needs, providing access to mandatory grants.
    • Annual training reports reflect the actual training data of the previous year, showing how priority skills defined in the Workplace Skills Plan have been addressed.
  • Keep records of all training provided, including attendance registers, invoices and all certifications.

Ask your accountant for help if you are uncertain about anything.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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5 Business Plan Mistakes to Avoid

“Proper business planning demands that you focus on the self-interest of the customer at all times.” – (Brian Tracy, Author and Speaker)

Writing a business plan can feel like a daunting process, and making mistakes is part of the package, even if you follow the online guides and templates.  To make this process simpler, we have made a short list of common errors that somehow keep creeping into these vital documents.

Making it too long

As Amazon founder Jeff Bezos once said, “You know the business plan won’t survive its first encounters with reality. It will always be different. The reality will never be the plan.” He did, however then go on to stress that writing a business plan is essential to understanding what will make your business tick. It’s important to realise that your business plan will never be able to cover every contingency and every possible incident that can occur and should rather be focused on revealing the core business. Once you understand your core business implicitly, you will be able to write it down in a much more succinct fashion. A long business plan is therefore only evidence that you don’t yet understand what’s going on.

Understand your target market

No product is for everyone. Understanding who you are selling to and what will motivate them to buy is the first thing any investor will look for, and the most fundamental thing you will need to understand to be successful. It will shape who you hire, what your marketing looks like, and even what your startup’s logo will be. Simply believing you will market to everyone is putting your business on the path to failure.

Ignoring competitors

It is extremely common for companies to exclude business competitors from their business plan. Many believe that their new product is so superior, cheap or well-supported that competitors won’t stand a chance once it is marketed correctly, or simply don’t have as much understanding of the market they are entering as they think they do.  Having a sound, realistic competitor analysis shows investors you understand the market and know where your unique differentiators lie.

Neglecting a financial forecast

Many business plans ignore financial forecasts as they either don’t have the experience necessary or don’t believe they are important – of what use is guessing things that don’t exist? The truth is that a good financial planner or accountant should be able to help with these forecasts which need to include profit and loss, but also, essentially, cash flow and balance sheet. This area of the business plan will reveal to potential investors whether your plan has been carefully thought out, and takes realistic rates of growth into account, or whether it’s simply pie in the sky. No investor is going to work with someone who believes they will sell a million items in the first three months.

Being too strict

The business plan should always be viewed as a guide and not as a set of hard and fast rules. Any business plan that locks a business into a specific course of action is a bad one. You should always have the ability to pivot and make changes as necessary based on the latest feedback. Your ability to research new information and change direction will make it much more likely that your business will meet its long-term goals and needs.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Read more about the article UDZ Tax Incentive Extended: Could Your Business Benefit?
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UDZ Tax Incentive Extended: Could Your Business Benefit?

“…governments internationally have increasingly used tax measures to support efforts aimed at regenerating urban areas.” (SARS Guide to the UDZ Allowance)

The urban development zone (UDZ) tax incentive, provided for in section 13quat of the Income Tax Act (the Act), was introduced 20 years ago in 2003, as an accelerated depreciation allowance for property investments in certain central business districts. It aims to promote investment by the private sector in the construction or improvement of commercial and residential buildings, including low-cost housing units, situated within demarcated UDZs.

In the most recent 2023 Budget, this incentive was extended for another two years, to allow for the completion of a review of the incentive, which has yielded some successes, by motivating investment in South Africa’s cities. We briefly overview below what the tax incentive entails and the criteria that must be met, where it applies and other issues to take note of when deciding if it could benefit your business before it expires at the end of March 2025.

What the UDZ tax incentive entails

Individuals and companies investing in residential or commercial property in South Africa’s urban zones from which to carry on a trade, should carefully consider the UDZ tax incentive before deciding where to buy.

This tax allowance, when deducted, can substantially reduce the taxable income of a taxpayer, and – because the allowance is not limited to the taxpayer’s taxable income – can create an assessed loss.

However, five specific criteria must all be met before the allowance is granted. In addition, only certain costs can be considered for the purposes of the allowance. These are listed below, along with the UDZs listed by SARS, and some further issues to take note of.

Five criteria to be met
  1. Building requirement – The building must meet certain requirements, and only the cost of the erection, extension, addition to or improvement of the building, covering either the entire building or a floor area of at least 1,000m2 qualifies. Land costs are excluded.
  2. Urban development zone requirement – The building must be located within a UDZ.
  3. Trade requirement – A taxpayer will qualify for the allowance only if the relevant commercial or residential building or part of the building is used by the taxpayer solely for the purposes of trade, and only once the building has been brought into this use.
  4. Owner requirement – The building or part of the building that was erected, extended, added to or improved must be owned by the taxpayer deducting the allowance. Where the building or part of a building was purchased directly from a developer within three years after completion, an allowance may be deducted, provided the developer did not deduct any allowance, among other criteria.
  5. Date requirements – There are specified dates to which the allowance applies, including a commencement date requirement and a trade date requirement.
Costs that may be considered – and those that are not
  • Construction work
  • Architect and approval fees
  • Sidewalks
  • Parking for the building
  • Landscaping as part of the development (including earthworks, greenery and irrigation)
  • Drainage
  • Security (fences, cameras and surveillance equipment)

Costs specifically excluded are the purchase price of the land, VAT and transfer duty, financing charges, agent’s commission and transfer and related legal costs.

Where does the UDZ tax incentive apply?
  • Buffalo City
  • City of Cape Town
  • Ekurhuleni
  • Emalahleni
  • Emfuleni
  • eThekwini
  • Johannesburg
  • Mangaung
  • Matjhabeng
  • Mbombela
  • Msunduzi
  • Nelson Mandela Bay
  • Polokwane
  • Sol Plaatje
  • Tshwane Metro

Source: SARS

Other issues to take note of
  • Depending on the type of development involved – new, improved or low-cost – the allowance is calculated at a different rate of depreciation, providing for 20 – 25% of the costs allowed to be deducted in the first year, and the remainder over one to ten years
  • When purchasing a building or part of a building from a developer, 55% of the purchase price of a new building, or 30% of the purchase price of a building improved will be allowed as costs for purposes of the UDZ incentive
  • The UDZ incentive is an accelerated depreciation allowance, and not an additional tax allowance. A taxpayer claiming a UDZ deduction may not claim any other deductions on that building or part of the building.
  • For each building or part of a building on which the allowance is being deducted, you will need the necessary UDZ forms (UDZ 1, 2, 3 and 4 forms), as well as a location certificate and, where applicable, a certificate of occupation.

Taking advantage of this tax incentive, if it applies to you, could mean a difference of millions of rands to your future tax bill. However, this is a very complex tax incentive and there are many issues to be considered.

It is highly recommended that business owners consult with their accounting and tax practitioners to find out if they would qualify for the maximum allowance when investing in a UDZ, and to do so while still ticking all the compliance boxes.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Tips for Generating Customer Trust as a Start Up

“Consumers don’t just buy products and services anymore; they buy experiences. This demands a new approach to marketing, sales, and services; one that hinges on winning customer trust.” (Ben Jackson, Author “The Future of Commerce)

With customer trust being the most important element in attracting sales, contracts and clients, gaining that trust is an important step for any new start up. How can you make sales if you have no way to prove you are good at making sales? These tips should help any start up build that all important trust and make their first sales.

Make top level products

It may seem obvious, but whether you are offering a service, or selling products online, the first, and most critical thing you can do to develop as a company is to make sure your product is as high-quality as possible. Products that are easy for a customer to use, and that fulfil the client’s needs will always win their loyalty.

Price your product accurately

Pricing a product isn’t as easy as adding profit to cost. You need to price your product in such a way that you are covering all costs, making a profit, and pricing yourself correctly within the market. Getting this right will be crucial to finding, developing and retaining customers. Your accountant can help ensure no one feels cheated while you are also operationally effective.

Provide top level service in every way

The first few weeks and months of operation are absolutely critical when it comes to customer service. It may feel like nothing is coming in, but the day you receive an email it would be extremely wise for you to answer as quickly as possible. Handling enquiries politely, quickly and thoroughly will translate in the customer’s mind to a business which is caring and paying attention.

Show them your humanity

The first inclination for any customer is to mistrust brands – they are money-making machines. We do, however, want to trust new people we meet. Because of this, it’s a great idea to reveal the human face of your business early. Use the About Us page to introduce yourself and the team right from the start. Let people know your story, and how you came to establish your company. This allows you to imbue your brand with the real-life values you believe in and so establish the human connection in a way that only small brands really can.

Offer a free sample

People view free things as being risk-free interactions, and so are generally likely to take you up on the offer. By trading free samples or an hour of your work at no cost, in exchange for nothing but an email address, you give clients the chance to try your product or service and potentially even leave a review. You also get their email address, which is a good way to communicate with them and establish a genuine relationship.

Use testimonials

Whenever anyone compliments your business, you should think about asking them for a testimonial. According to studies, people these days trust online reviews and testimonials almost as much as they trust recommendations from friends. So, every review could be the difference between success and failure. If possible, make these videos. Video is increasingly important online, and the humanity showcased by a video of someone is a very strong incentive.

Have an easy return policy

If there is one thing that will make a customer take a chance on an untested brand, it’s the knowledge that should something go wrong they can get their money back. A strong returns policy also sends a clear signal to potential customers that you believe in your product.   Your returns policy should be clearly defined and easy to find on all of your media channels.

Handle all your reviews

Your reviews will influence new buyers’ desire to interact with your company, so do not ignore them. Answer every one. It’s easy to thank people for leaving good reviews (and you should), but it’s how you handle the bad ones that will give people the most confidence. Apologise for problems openly and reveal what you will do to fix them. This gives new customers a clear indication that while problems do happen to everyone, you go out of your way to resolve them.

Offer a loyalty program

According to Annex Cloud, 65% of a company’s revenue comes from repeat business from existing clients.  Harvard Business Review says it can be up to 25 times more expensive to sell to a new client than a returning one. It’s therefore a great idea to do everything you can to retain good customers. A loyalty program is a proven way to reward these clients and also give them an incentive to stick around. The Yotpo study on brand loyalty 2022 revealed that 83% of global respondents said belonging to a loyalty program influences their decision to buy again. Starting a worthwhile loyalty program will therefore impact the future performance of your company.

Promise only what you can deliver

It may be tempting as a newcomer to do everything you can for your customers, even if it’s not part of your business or your core ideals. The worst thing you can do though is over promise and then not deliver. This can be the start of the business developing a bad reputation that it would be difficult to recover from.

Eradicate the trust eroders

Many small things can erode trust: a lack of social media, spelling mistakes on your website, a longer than necessary purchasing process, hidden costs, or a lack of information about the product. Ask friends to go through your website, buy a product, or call your service centre and mark down a list of snags, or things they are concerned about. Points that come up more than once must be attended to as a matter of priority.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Budget 2023: How It Affects You and Your Business

“This is not an austerity budget. It is a budget that makes tough trade-offs in the interests of the country’s short and long term prosperity.” (Finance Minister Enoch Godongwana – Budget 2023)

Finance Minister Enoch Godongwana’s second Budget contained no major tax proposals, thanks to an improvement in revenue from higher collection in corporate and personal income taxes, and in customs duties.

Instead, the focus of Budget 2023 was firmly on the current energy crisis, which has resulted in a State of Disaster being declared. It announced that government will take over R254 billion of Eskom’s debt over the next two years, subject to stringent conditions.

Of the tax relief amounting to R13 billion to be provided to taxpayers in 2023/24 announced in the Budget, R9 billion is earmarked to encourage households and businesses to invest in renewable energy. More specifically, R4 billion in relief is provided for households that install solar panels and R5 billion to companies through the expansion of the existing renewable energy incentive.

These incentives are briefly detailed below, along with some of the other announcements that will impact individuals and businesses.

Budget announcements that will impact you personally
  • A new tax incentive to install rooftop solar panels: For one year from 1 March 2023, individuals will be able to claim a rebate of 25% of the cost of installing rooftop solar panels, up to a maximum of R15,000, to reduce their tax liability in the 2023/24 tax year.
  • The personal income tax brackets will be fully adjusted for inflation, increasing the tax-free threshold from R91,250 to R95,750.
  • Medical tax credits per month will be increased by inflation to R364 for the first two members, and to R246 for additional members.
  • The retirement tax tables for lump sums withdrawn before retirement and at retirement, will be adjusted upwards by 10%, increasing the tax-free amount at retirement to R550,000.
  • Revised draft legislation on the ‘two-pot’ retirement system will be published, including the amount immediately available at implementation from 1 March 2024. Withdrawals from the accessible “savings pot” would be taxed as income in the year of withdrawal.
  • Social grants will increase in line with CPI inflation. The R350 grant will continue until 31 March 2024.
  • Increases in the excise duties on alcohol and tobacco of 4.9%, in line with expected inflation. This means that the duty on:
  • a 340ml can of beer increases by 10c,
  • a 750ml bottle of wine goes up by 18c,
  • a 750ml bottle of spirits will increase by R3.90,
  • a 23g cigar goes up by R5.47,
  • a pack of 20 cigarettes, rises by 98c.
Budget announcements that will impact your business
  • Expanding the existing section 12B tax allowance for renewable energy, businesses will now be allowed to reduce their taxable income by 125% of the cost of an investment in renewables for two years from 1 March 2023. There will be no thresholds on the size of the projects that qualify. According to National Treasury, where a renewable energy investment of R1 million is made by a business, that business will qualify for a deduction of R1,25 million, which could reduce the corporate income tax liability of a company by R337,500 in the first year of operation.
  • The existing Bounce Back Loan Guarantee Scheme will be updated to become the Energy Bounce Back Scheme, to be launched in April 2023. Government will guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis.
  • The research and development tax incentive will be extended for 10 years and will be refined to make it simpler and more effective.
  • The urban development zone tax incentive will also be extended, by two years.
  • Manufacturers of foodstuffs will for two years (from 1 April 2023) also qualify for the refund on the Road Accident Fund levy for diesel used in the manufacturing process, such as for generators, to ease the impact of the electricity crisis on food prices.
Budget announcements that will impact all
  • Providing tax relief of R4 billion, the general fuel levy and the Road Accident Fund levy will not be increased this year. However, the carbon fuel levy will increase by 1c to 10c/l for petrol and 11c/l for diesel from 5 April 2023.
  • The health promotion (sugar) levy will remain unchanged for the following two fiscal years.
  • The brackets of the transfer duty table will also be increased by 10%, allowing properties below R1.1 million to avoid any transfer duty payments.
How best to manage these changes and their impact?

In addition to the announcements detailed above, there were other technical amendments proposed in the Budget review that will require professional advice.

As tax collection remains government’s main source of income, you and your business would do well to rely on the expertise and advice of tax professionals as you determine the impact of the Budget 2023 announcements on your tax affairs.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article How To Prepare a Reliable Disaster Recovery Plan
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How To Prepare a Reliable Disaster Recovery Plan

“The time to prepare for disasters is before they happen” (Stephen Matheson, Vice President of Product at BridgeHead)

Given how reliant we all are on our IT infrastructure, it will come as no surprise to learn that one of the worst things that can happen to a business is for a failure to occur in that department. Whether it’s fire, floods, or hacking, being taken offline can spell a serious period of trouble for most organisations. In the time it takes to get back up and operational projects can be delayed, the quality of work can suffer, or worst of all, everything is put on hold for months while data is recreated. All of this can lead to strained relationships with both customers and suppliers and potentially the end of the business.

A Disaster Recovery Plan is the pre-planned process a company will turn to when disaster strikes to ensure that a short-term problem does not become a permanent one.

Here are five simple tips for what you need to consider when drawing one up.

  • Have a response checklist
    The response checklist is a detailed breakdown of which employees should be contacted and what they should do in the event of a disaster. These should cover everything from who phones your IT support company to who puts out the fire or organises the evacuation drill. Ideally, these responses should be practiced. It’s no good telling someone they have to turn off the building’s water in the event of a flood if they don’t know where to do that.
  • Have a data backup plan
    All company data needs to be backed up, as regularly as possible. How this is done will depend on how vital that data is to the operational capabilities of your business but should happen at least once a day. Look at your company carefully and decide which information is vital and which can safely be lost. You don’t need to back up all your client emails if you also keep other records of their projects for instance.Data is a business asset and has real value. The more important the data, the more strictly and safely that data needs to be backed up. Can you do it yourself on a hard disk that the secretary takes home, or do you need a full-scale external, cloud-based solution?
  • How are you going to tell your clients?
    While it’s usually a good idea to keep drama and difficulties far away from your clients, in this instance it may be important to tell them what is going on to explain any delays they may be about to experience and how you are planning to meet their orders.  In addition, provide them with any alternate contact details.Your plan should detail exactly how that is going to happen. Having pre setup and approved email addresses and telephone numbers organised will save a lot of time and frustration until your company is back on its feet.
  • Cost considerations
    Your plan should also take into account the cost considerations of setting things up anew. Will you need to buy new servers? Do you need to bring in IT experts to recover data? The money for this should be set aside and available as every day you delay your recovery is another step closer to bankruptcy.Speak with your accountant as to how you can finance this fund, or whether insurance options may be a financially viable option for your company.
  • Vital document and data storage

On top of all of this, your Disaster Recovery Plan should also detail where copies of all the most vital information will be stored and how they can be retrieved. This should be a safe and secure offsite location. Keys and access codes need to be kept in a third location as well.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Five Essential Bookkeeping Tips for Small Businesses

“Making good judgements when one has complete data, facts, and knowledge is not leadership – it’s bookkeeping” (Dee Hock, Founder and CEO of VISA)

When running a small business, it often feels like you are doing everything yourself, and some important tasks can slip under the radar. One aspect that should never be forgotten though is bookkeeping. While intimidating, keeping your finances in order need not be as hard as it sounds. Here are our tips for ensuring your accounts remain ordered and your peace of mind intact.

  1. Ask your accountant
    If you want to keep things as simple as possible and guarantee you never run foul of the law, getting your accountant in to do your bookkeeping is the safest and most efficient way to do your books. Apart from being able to manage your finances, an accountant would be able to help save on taxes and advise you on areas of the business that may be streamlined.
  2. Keep your personal and business accounts separate
    It may not seem like much, but mixing up which account pays for what can lead to hundreds of extra hours of work over the course of a year working out which deductions and expenses relate to your business. Rather keep personal and business accounts and banking separate.
  3. Set up reminders for important deadlines
    Using an online calendar, it’s now easy to set up reminders for all those important tax and other deadline dates so you know when things are becoming urgent.
  4. Keep receipts
    Be sure to keep all receipts to build a verifiable audit trail. Whenever you pay anything out to a supplier it’s important to get an invoice and file it away. Keep all your receipts for all business expenses and purchases. You never know when you may be hit with an audit and need to prove everything you have said.
  5. Keep reports
    Every month generate a one-page document detailing all your income and expenditure. Ask your accountant to set up a simple monthly one-page report that, in addition, compares actual income and expenses to your budget. It doesn’t have to be detailed but should give you an idea of just where the money is going and what is coming in. As well as making bookkeeping easier, it will also help you track the growth and health of your company.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Ignoring an Online Review Could be Catastrophic for Your Business!
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Ignoring an Online Review Could be Catastrophic for Your Business!

“Your most unhappy customers are your greatest source of learning” (Bill Gates)

If you have founded a business then there is little less certain than that at some point in the future, you will get a bad review. It’s simply impossible to please all of the people all of the time, which is why many business owners say they don’t worry too much about reviews and try to keep on doing their best. The sad part is, they really should be worrying about their reviews, both good and bad.

A series of recent reports suggest that there is little as damaging to a modern business as bad reviews that go unanswered. With 91% of all 18 to 34-year-olds saying they trust online reviews as much as recommendations from a friend and as many as 93% of all customers saying they check reviews before buying, the impact of a company’s online reviews is obvious. But there’s more – you should respond to all reviews, both good and bad. According to the BrightLocal Local Consumer Review Survey 2022, 57% of all consumers say they would be ‘not very’ or ‘not at all’ likely to use a business that doesn’t respond to reviews at all.

Under this climate it might seem that, while a good review could gather new customers, getting a bad review could be a death knell for your company. Fortunately, all kinds of reviews are good opportunities to show off your company, turn experiences around, and even gather customers. Assuming you do the right things. Here then is how you should be handling your online reviews.

Track your reviews

The first step is to make sure you know when and where a new review has been written about your company. How can you possibly respond to something you don’t know exists? Once you know a review is up, you need to react quickly. It’s no good responding years later.

Two different sites will help you to track and respond to reviews across the internet and may become valuable tools for managing your reviews as well.

First is Google my Business which not only allows you to manage and track your online reviews but can also help with sending information to clients and promoting your business. All it takes is a free account and you can help potential new customers find your business and ensure they get the information they need. Having positive Google Reviews can often be critical when it comes to customers making buying decisions.

In South Africa, Hello Peter has established itself as a core place to review companies and for companies to respond. While it can be more expensive to respond as a business, there are definite benefits and keeping tabs on your Hello Peter reviews will help you to know exactly where you stand.

Professional accounts on other sites like Trust Pilot or Media Tool Kit can also help you to track and interact with customer reviews. If you are a new company this may seem like an unnecessary or unwarranted expense, but as already seen, it can also be one of the most valuable tools you can use. If you are battling to find the space in your budget, it is highly recommended that you speak to your accountant about how to streamline and maximise your finances to ensure it can be afforded.

Respond to all reviews, good and bad

As already established, it’s absolutely vital that you respond to reviews, whether they are good or bad. According to the Local Consumer Review Survey 2022, 89% of consumers are ‘highly’ or ‘fairly’ likely to use a business that responds to all of its online reviews.

For a good review, you should of course thank the customer for their kind words (see some tips on how best to do that here), and you can also ask them if they would be open to you using what they said in future marketing. A bad review takes a little more finesse. While most sites give you the option to turn off reviews, avoid the temptation to do so. The worst thing you can do is censor your customers. According to Oberlo, 62% of customers say that they won’t buy from brands that censor reviews.

It’s not necessarily about what they said

For a bad review you may be tempted to reject what the reviewer is saying. Do not do this. The person reading your reviews is much more likely to side with the person leaving a review, even if they are being unfair or wrong. Instead, take this as an opportunity to show how good your customer service is. Those reading the review will understand that sometimes things go wrong and want to see how you react when they do, or how you react to unfair or mistaken criticism.

Customers who write reviews are desperate to be heard and understood. It is therefore vital that your response to a bad review does more than simply apologise. You need to show the customer that you are listening. This is done by looking into their particular experience, responding directly to that and clearly acknowledging how they are feeling. Ultimately, nothing is going to make this customer more upset than ignoring the way they feel or trying to invalidate their emotions.

Instead, take a minute to express their feelings are valid – “I am sorry for how you feel”, then back that up with what you are going to do to fix it. Describe the facts of their case, and show you know whom you are speaking to, then explain what will be done to correct their unhappiness. Conclude by asking if there is anything else you can do.

If it looks like the review process is going back and forth online, ask the customer for their contact details so you can respond personally. Never ask them to contact you. Asking them to contact you elsewhere suggests you are simply trying to hide your response while giving them the personal attention of a phone call makes them feel like they have been heard.

What to do with fake reviews

There is a third kind of review, one that can be even more damaging than a really bad review and those are reviews written by bots or fake accounts. Usually, these reviews are damaging simply because they tend to use much more emotive language. The reviews are never casually negative, but rather fumingly angry and as there will never be a response from the complainant, can make it look like you never resolved the problem.

Fake reviews are easy to spot. Usually, the reviewer will have no personal information, and their reviewing methods will be inconsistent. Additionally, their reviews are far more likely to link out to third-party products or websites. Often the review they left for you will be repeated on other sites and for other brands as well, so do a Google search to determine if this is the case.

Luckily handling them is simple, but it must be done. Simply find the administrator contacts for the review site and alert them to the fact that you have been fake reviewed with whatever evidence you have on hand. This should be enough to get those reviews taken down.

Ask for reviews

The final and best way to handle a bad star rating for your company is to ask happy clients to post positive reviews. If someone sends you an email or letter thanking you, why not pop them an email with a link asking them if they would consider leaving a formal review? WordStream has some more tips for you here. According to the Local Consumer Review only 3% of consumers will even consider using a company that has only 1 or 2 stars from reviews, down from 14% in 2020, so ensuring you keep that star rating up is going to be critical to your future success.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Loadshedding: Survival Tips for Small Businesses
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Loadshedding: Survival Tips for Small Businesses

“We want to assure business that by the time you get back to work in January, we will have a much more stable situation.” (Public Enterprises Minister, Pravin Gordhan, December 7, 2018)

With loadshedding now a constant reality in our lives and Eskom and the government offering no signs of any form of short-term recovery, small business owners are being forced to increasingly adapt in order to survive. Here are our top five tips that might help, beyond simply “buy a generator/inverter”.

Adopt work from home

Those who are single will have heard the advice to date someone on a different loadshedding schedule, and this tip can be liberally applied across a company. By allowing staff to work from home, most businesses can be reasonably assured of having someone online and capable of handling client calls and enquiries at any given time.

At the very least companies need to be looking at offering flexible work hours, so they don’t find employees sitting in the traffic caused by all the traffic lights being out, only to arrive at work to sit in the dark. Allowing staff to do the work when and where they want could do wonders for productivity. Perhaps you can even negotiate with a local coffee shop for discounts when your staff come to work there?

Move to cloud-based solutions

If you aren’t already using cloud-based solutions now is the time to adapt. Storing everything you do on the cloud with storage and backup solutions such as Dropbox or Microsoft’s OneDrive will mean your data can be accessed from anywhere and is much less likely to be lost should servers or computers become damaged by the power cuts. Set computers to do regular saves and backups so nothing gets lost.

Use mains-free tools

If your tools can come in a battery-operated version, then now is the time to start trading out of plug reliant technology. PCs should be traded in for laptops, electric cookers and fridges can be traded in for gas and everything from power tools to hairdryers have battery operated versions. Move your company’s main number to a cell phone or to a VoIP solution and make sure all key personnel cell phones are permanently charged.

Unplug equipment

The second the power goes down it’s time to unplug all the expensive equipment. Don’t take the risk of the surge destroying your vital machines, assembly lines and computers when the power comes back on. If you can, invest in insurance, but make 100% sure that it covers loadshedding damage, as some companies have removed that protection from their contracts.

Ensure that your, and your key employees’ Wi-Fi connections are attached to a UPS system.

Use more than one payment system

Using two or even three different network options will ensure you are always able to take payments whenever your equipment is charged, even if the power is off. Don’t lose a vital sale or shut up shop simply because you have a contract with one network service provider whose tower always goes down when the power is off.

And of course, get solar, install an inverter and/or buy a generator – there are tax incentives for some solutions that your accountant can help you with.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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The Financial Steps You Need to Take Before You Open Your New Business

“Good fortune is what happens when opportunity meets planning,” – Thomas Edison

You have your idea, you have your mission statement and perhaps you even have an idea of who your first customers will be, but there are still a few things you should consider doing before you launch your company. When it comes to your finances doing these five things in advance will ready you and your business for success and allow you to focus more on the company and less on the necessary financial administration.

Deal with your personal finances

For some entrepreneurs starting a company is seen as a way to get themselves out of financial trouble. Unfortunately, if this is the case, the company will be starting off on the back foot. If your motivation for starting a business is as a way to repay your own loans or debts, then you won’t be making the best decisions for the company. Ideally, your finances should be clean with debts paid off and taxes up to date. This will allow you to focus on the company for what it is, rather than on what you need.

Ideally, you will be starting your company with your own personal finances sorted for the first six months at least, and with no debt.  If you are in trouble, or don’t have any savings, then it is important that you get any loans and debts under control and reshape your personal expenses in line with leaner times before you take your first new business step.

Consolidate any debts you may have and arrange for lower monthly payments. Cancel any unnecessary services and costs and try to get your monthly outgoings as low as you can before you quit your job or start your company. You are going to have tough months and it’s important that you are ready to weather them if you hope to succeed.

Open a business account

Many new businesses begin as extensions of the owner. Sometimes the owner’s finances are used to pay for business expenses and these costs get lost along the way in the search for success. It is therefore important to decide on a vehicle for your business (ask your accountant to advise you on whether you will be best off with a company, trading trust, or sole tradership) then open a business banking account to more accurately keep track of exactly what is owed by your business to you, or you to your business. All relevant business expenses are tax deductible, but this can’t happen if they aren’t accurately tracked and accounted for in the business. Opening an account will help you not only look more professional but also track your income and outgoings more effectively.

Get your taxes up to date

Your personal taxes are an important aspect of business leadership. If your taxes are not properly filed and up to date when you have a job, the chances are they are only going to get worse. Ask your accountant to look at your personal situation and ensure everything that is owed is paid and signed off.

The good news is that at the same time you can also ask your accountant to look at your business and advise you on how best to structure things to get the most from the money you are earning. In the early days, every cent is going to count, and you will want to wring every benefit possible out of the company to get it launched. You don’t want to be paying more tax than you are required to.

Take a basic finance course

Everything these days can be learnt online. Whether you take a formal course or watch a series of YouTube videos, it is highly advised that you learn the basics of finance, especially if you have never worked in that department before. While working with your accountant is an important step when starting any new endeavour, it is also important that you understand the basics of what is going on day-to-day when it comes to pricing, sales, expenditure, profit and loss. Without this knowledge you won’t be able to make the important decisions that can make or break a company.

Set up automatic invoicing

Many small business owners opt to use Word and Excel invoice templates when starting out, but these require manual entries, can be time consuming and are difficult to track. A recent study also revealed that 39% of invoices are paid late and 61% of late payments are as a direct result of invoicing errors.

Do you know which invoices have been sent out, which have been paid and which are outstanding? There are many automated invoicing systems, which will take the worries out of invoicing and allow you to track payments and due dates. This in turn helps you to keep track of cash flow and ensure that you always have the money necessary to pay your expenses.

Invoice automation systems can also offer automatic reconciliation, generate recurring invoices and even capture data on expenses from photographs of receipts. Importantly you can also generate automatic reminder emails to chase up payments and make your monthly payments automatically, too. The time and stress savings are enormous and at the end of the day you will be able to hand over organised and presentable books to your accountant, enabling them to file taxes and notice potential areas for savings more easily.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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How to Know if You Need an Office for Your Business (and How to Make the Most of a Lease if You Do)

“In business, you don’t get what you deserve, you get what you negotiate,” Chester Karrass, Founder of Seminar group Karrass.

At some point, around halfway through the pandemic, experts began to whisper that office space was dead. “No one will be using an office by 2023,” they said. And yet, while it’s true that office space use has declined steeply in some parts of the country, many companies are still finding a use for a dedicated environment in which to conduct business.

Do you need an office for your business?

Remote work has proven that the humble office we remember is not essential, but there are still several functions an office can serve. For many employees, an office can serve simply as a distraction-free environment in which to work, while for others it may cement team relationships. For others, it can be a way to separate work and home lives. Employees also often need physical meeting spaces, a place to pore over designs and showcase physical models. Moreover, introducing new employees is easier in a formal physical office space, as is hosting company celebrations.

Despite this, remote work has seen a decrease in demand in many parts of South Africa and given this there has never been a better time than now to negotiate for that dedicated office space if you find that your company needs it.

These tips will help you get what you need.

Get the right amount of space

Here’s a quick guide to getting the space you need and no more:

  • Conference room (15 to 30 people): 75 to 90 square metres
  • Small meeting room (2 to 4 people): 30 square metres
  • Large meeting room (4 to 8 people): 45 square metres
  • Manager’s office: 25 square metres
  • Senior Manager’s office including private meeting table: 50 square metres
  • Server room (1 to 4 racks): 12 to 40 square metres.

In addition, you will need roughly 30 square metres of space per employee. This may adjust upward dependent on the kind of work you do (do your employees need to spread plans out on their desks for instance?) or downward if employees are hot-desking and not expected to be in the office each day. Finally, remember your future expectations. If the plan is to hire more people shortly, then they should be catered for as well. No use incurring the cost of moving in a few years if you can avoid it. For a more accurate picture that includes what you need, try this office space calculator.

Consider also the “hive” or “shared office space” alternatives on offer in some cities.

Other facilities

When renting an office, you may want to consider a variety of factors that don’t include size. How easy is the office to travel to? Is there traffic and easy access to public transport? Does the block have a generator or solar for loadshedding? Do you need access to printing shops or mailing? What sort of hours will you be open, and will employees need night security and parking? Will your employees need food stores nearby, or are you catering for them?

The rent is only a part of the cost

Most people will want to exclusively look at the price per metre in rent, but remember, while important the monthly rental is only part of the cost. What will you pay for water, lights, security and internet? Can you afford the phone charges? What is included in the rental? Are you responsible for building maintenance or renovation? Is there an allowance for any renovation that might be needed before you take occupation?  Refuse removal costs? What about the cost of furnishing a new building? Will you need to change the carpets or put-up signage on the building? Now is the time to bring in an accountant to help you work out the true cost of your office.

Negotiate

Do not assume that the rent or the terms of the rental agreement are set in stone. These days there is a lot more supply than demand so those who are leasing have the option to ask for rent decreases and favourable terms and conditions.

At this stage, it may be wise to bring in a professional to look at the terms of the contract and negotiate for you. Remember, the party that wins in these situations is always the one who is prepared to walk away.

The ongoing level of rental (and agreed rates of escalation) are likely to be your focus when negotiating the best deal but other negotiation points could include:

  • Maintenance of the building – who is responsible for what?
  • Length of the term – if you plan a long-term rental, many landlords could be open to lowering the initial rental, perhaps even granting an initial rental holiday, and/or to carry some of your other costs beyond rental.
  • Amenities (such as internet, water or electricity) might be included in the bill.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article The Why and the How of Annual Price Increases
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The Why and the How of Annual Price Increases

“Pricing power is important in business. You want your business to have the ability to raise prices as needed, especially with regard to inflation.” (Hendrith Vanlon Smith Jr)

It is imperative that businesses increase their fees, rates or product prices annually by at least the rate of inflation, just to keep pace with the ongoing increases in the cost of materials and production.

Inflation is the increase in the cost of goods and services in an economy. It ensures that, year after year, a business pays more and more for the same goods or services it uses in the production of its income. The higher the inflation rate, the higher the increase in your costs each year.

Without related annual price increases on goods or services provided by your business, the inflationary increases in the costs of production will result in lower profits, reduced product or service quality, or even market perceptions that your goods or services are cheap. In addition, the compounding impact of not increasing prices means your business falls progressively further behind in its ability to generate the appropriate and needed levels of profits.

Why do businesses neglect price increases?

There are many reasons why businesses do not increase their rates annually. Some may simply not have the business skills to set or maintain correct pricing. Many business owners are concerned that in a highly competitive market, a price increase will result in lost customers – a fear that was particularly heightened during the COVID years. Most businesses may simply not know how to increase their prices, especially if they have not done so for a few years, and then a substantial increase is required just to return to previous levels of profitability.

Why increases are crucial

In South Africa, the inflation rate is currently at a 13-year high of 7.5% – almost double the average inflation rate of 4.5% in 2021. This means that the cost of producing goods and services has increased by 12% over just two years, and without a related increase in sales prices, your business profits are being eroded at an alarming rate and with every sale.        

Conversely, increasing prices correctly can have a substantial impact on a company’s profitability. Studies quoted in The Harvard Business Review found that improvements in price typically have three to four times the effect on profitability as proportionate increases in volume. In fact, it was noted that a 1% improvement in price, assuming no loss of volume, increases operating profit by 11.1%.

Top tips for implementing price increases
  • Speak to your accountant about the impact of various price increases on your company’s income, profitability and tax liabilities.
  • Remember to discuss the potential impact of price increases with all staff, from the production team to marketing, sales and the accounts teams.
  • An easy place to start raising prices is to issue quotes for new business at the higher prices.
  • Include an annual price increase clause in all new client contracts and in contracts that are being renewed.
  • For existing clients, ensure that any price increase is communicated clearly, accurately and well in advance.
  • Link the price increase to improving or at least maintaining the value your clients perceive, for example, the use of co-friendly materials, unique expertise in an industry or high-quality products.
  • When implementing a price increase, consider adding extra value to a client, such as a free consultation, free deliveries or improved packaging or wrapping.Once a price increase has been finalised, update all relevant sales documents, website pages, POS systems and the like.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Simple Communication Tips to Boost Your Profitability
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Simple Communication Tips to Boost Your Profitability

“Communication is a skill that you can learn. It’s like riding a bicycle or typing. If you’re willing to work at it, you can rapidly improve the quality of every part of your life.” (American business speaker Brian Tracy)

Successful communication can be the difference between a profitable business and a failing one. Leaders who are unable to get across the needs of the company to their employees will very quickly close its doors. Likewise, people who are effectively able to communicate the things they need to be done will find their reward in a harmonious team and profitable enterprise.

This article is for those people who believe themselves to be among the latter. Those who have managed to traverse the minefield of communication and who find themselves surrounded by a largely effective team. In this position, it is possible you may still be making communication errors that are chipping away at your profitability and leading to a team that isn’t as effective as it possibly could be. They are common errors that anyone could make and everyone has seen at some point, but they definitely impact the bottom line. Here is how to cut them out and take your company to a brand-new level.

Avoid these communication errors
  1. Not answering the question

    No matter how well you explain things, being a leader sometimes requires you to answer follow-up questions from your team. While most of the time these questions are simple enough to answer, there may be occasions in which a manager may not be able to answer the question. Perhaps they don’t know the answer or simply didn’t take time to understand the question or misunderstood the question.

    When it comes to the effectiveness of your employee who is asking the question though, purposefully avoiding a response is as bad as mistakenly answering it incorrectly or ambiguously.

    For example, imagine your employee has sent you an email asking, “Did you say you wanted that report today, or next week?”

    A distracted communicator may see the first half of the message and rush to reply “Absolutely” or “Yes.” This ambiguous reply now wastes time and further confuses the employee. Does this mean the deadline has been pushed out or that it’s still due today? The employee may then be forced to follow up, or worse, assume an extension has been granted when it has not. Either situation wastes that employee’s time and can even lose a client.

    Avoid this simple error by ensuring you automatically read the full email and understand it before responding. Then make sure you make it clear which answer is to which question. Don’t assume the employee will be able to infer what is meant each step of the way.
  2. Too much information

    There is a very clear difference between providing your employee with the context and information they need to do their jobs and live up to expectations and giving them too much information. Giving an order with the right amount of information and the proper context will save time and make that employee better at their job.

    This error creeps in due to the manager’s assumption either that the employee needs more information than they do, or that extra information will help them to contextualize and make their own decisions. In the worst-case scenarios, it comes from the manager themselves not being sure what information the employee needs and simply giving them everything in the hope that this may cover it.

    The problem here is that having too much information can lead to time-wasting and analysis paralysis.

    For example, why share all the product information with your sales rep, when at the end of the day there are only three key points that separate your product from the competition and help to make the sale? Sending your sales reps a manual and expecting them to work out for themselves what aspects of your product will help them sell it to clients is as unhelpful as giving them no information at all. The time they waste reading the manual could rather be spent perfecting their sales techniques or working on their pitch documents.

    This also extends to bombarding your employees with opinions or reasoning that they may not need. Sometimes, in order to err on the side of caution, or to seem smarter than they need to be, managers can lean towards being verbose. As a manager you should avoid sending long paragraphs or speeches packed with thoughts, reasoning and explanations when a simple email explaining what needs to be done will remove wasted time and confusion.

    At the end of the day, conciseness is the key to good communication. Managers who impart all the necessary information and no more will find their teams perform more effectively and more profitably.
  3. Too little context

    Just as bad as too much information is when managers share information assuming the context is known by everyone in the organisation. Context gives meaning to orders and conversation in general, and not including it puts the person at the receiving end of the communication at a disadvantage. Without the proper context, they may think they have been left out of the loop or have forgotten something important and may never bring it up, instead choosing to muddle through and therefore doing a worse job.

    To avoid all this, communication should give a quick background to the new information, a short description of the client and what they like and how they like it to be done and an explanation for why any deadlines have been set. Once people understand why they are doing something and how it should be done and by when, they are much more likely to deliver on the task itself in the way you want it to be done.
  4. Emotional communications

    There are few places where emotional emails or other communications (WhatsApp or Teams messages and the like) are wanted, and the workplace is not one. Corporate culture places a lot of constraints on human behaviour and as such an emotional communication is definitely going to be not only career limiting, but also cause a lot of discomfort to all who are unlucky enough to be tagged in.

    The problem with emotional communications is that they cause so much discomfort that the issues they are discussing can often become more difficult to deal with. The delays in resolving these issues will lead to poor performance and an uncomfortable work environment.

    These kinds of constraints can also lead to the other kind of bad communication – passive-aggressive emails and communiques. In many cases these cause hurt feelings and divide teams without resolving issues because they claim not to be calling attention to any issue to begin with.

    This issue is fixed by encouraging an open and honest communication policy in your business. Allowing people to speak their minds respectfully and then genuinely listening allows people who have noticed problems to bring them to your attention and for those problems to be resolved. Do not let them linger in the shadow of hurt feelings.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article What is the Metaverse and How Will It Impact Your Business?
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What is the Metaverse and How Will It Impact Your Business?

“Metaverse isn’t a thing a company builds. It’s the next chapter of the internet overall” (Mark Zuckerberg, Meta)

Among businesses, one of the most misunderstood aspects at the moment is ‘The Metaverse’. Businesses that do understand this new phase of the internet are currently seizing opportunities that their competition doesn’t even know exist. This is beginning to change the face of business and social interaction around the world. But what is the Metaverse and why should you be paying attention?

What is the Metaverse?

Quite simply, the metaverse is an extension of the current internet. It is a virtual three-dimensional space where people can interact with one another by developing 3D avatars. This space can take on the appearance of numerous real-world places, such as meeting rooms or concerts, or even more fantastical spaces. It is a fully immersive space on the internet

A blend of virtual reality, second lifestyle online worlds and augmented reality, the Metaverse can be accessed using a simple smartphone or laptop. This makes it extremely accessible for everyone.

What will it be used for?

No one knows for sure just how wide the eventual use case will be, but it will no doubt be huge. Some diverse examples will help illustrate just how fundamentally this might affect our lives and businesses:

  • Advertising and marketing – finding new customers and communicating with them;
  • The average person in the street – who may use it as a virtual reality gaming platform, or a place to attend a concert by an artist they would otherwise never get to see;
  • Businesses tapping into machine learning and AI to incorporate multiple, diverse data sets into a virtual space to improve presentations and decision making;
  • Surgeons from around the world all interacting over a patient’s scans;
  • Classrooms exploring the James Webb telescope images in 3D projections they can fly through;
  • Immersive in-depth product demonstrations;
  • Interactive TV shows;
  • Remote maintenance assistance to areas where technicians are usually unavailable; or
  • News production that puts viewers seemingly on the spot.

At the moment, the opportunities seem unlimited.

How will this affect your business?

At the moment only a small percentage of businesses are using, or even aware of the Metaverse, but this is set to change.  A recent Gartner Marketing Survey found that 35% of consumers have never heard of the Metaverse but as per projections, Gartner expects that by 2026, 25% of people will spend at least one hour a day in the Metaverse for work, shopping, education, social media, and entertainment etc. Be ready to adapt!

Here are just a few areas the rapidly developing Metaverse may impact your industry:

Remote work

Using the Metaverse for remote work will involve more than simply creating a virtual office to connect teams that may be working from home. Short, interactive virtual reality meet-ups could allow chats between colleagues and facilitate gatherings with, for example, a comedian or musician for entertainment.

Three-dimensional online shopping

Online shopping has the distinct downside of not allowing customers to interact with what they are buying. They are unable to visualise the object or get a sense of just what it may look like in their homes. Interactive 3D shopping will start narrowing this gap.

Manufacturing

Prototyping and product testing can be accelerated online. Factory layouts and warehousing can be tested for efficiency and raw materials can be sourced and shipped more easily and with fewer delays.

Streamlined workflows and cost optimisation

In a virtual world of in-depth, real and accurate simulators, employee training, onboarding and orientation need no longer take as much time as they once did. Everything from how to work your unique machinery to pitching the product to clients can be done in quantifiable virtual simulations.

Better sales

Advertising at the moment is all about connecting emotionally and drawing the consumer into the world of the brand. Imagine how much easier this will be when you can invite the customer into a virtual world to experience a tailor-made experience?

Global market for talent

Companies that operate out of countries with weaker currencies are going to find it increasingly difficult to source the staff they need. As the Metaverse draws the world together, those with talent and skills are going to be able to work remotely wherever they like and that will generally be in the places that pay them better. Everything from HR policies to salaries and benefits will need to change.

What is abundantly clear is that businesses that fail to adapt to the sea-change coming with the Metaverse will find themselves facing precarious times, as did those who failed to adapt to the internet.

The Metaverse is coming. Will you be ready?

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Selling Your Business – Plan Well, with a Tax Benefit When You Retire
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Selling Your Business – Plan Well, with a Tax Benefit When You Retire

“A diligent buyer will want up to five years’ worth of profit and loss statements, bank statements, tax returns, leases, supplier and vendor contracts, and customer data.” (Barbara Findlay Schenck – Author “Selling Your Business for Dummies”) 

The reasons why a business owner might decide to sell their business are many – perhaps to pursue a new or more exciting business opportunity, relocation, health reasons or retirement. Selling a business to family, to the other partners, to a loyal employee or a group of employees could also be part of a succession plan; or the business owner’s exit strategy may involve selling to an outside buyer, perhaps a competitor, a supplier, or a customer, or even an investor. 

Whatever the reason for selling, a smooth transition requires:

  • Planning well and in advance,
  • Determining a fair value for the business,
  • Getting books, accounting records and financial reports in order,
  • Collating the required paperwork, 
  • Managing stakeholder relations, and
  • Exercising a legal duty of care. 

The outcome of this approach is a business sale to the right buyer at the right price, with little to no disruption to business operations and no negative impact on staff morale or other stakeholder relationships. 

Plan well and far ahead, and beware the tax implications 

Planning well and ahead provides more control over the process, as well as time and opportunity to strategically enhance the business to ensure its full value is realised when you sell, and also ensures financial and tax implications are well understood. 

As just one example, the disposal or deemed disposal of assets, including the sale of a business, will attract capital gains tax (CGT), levied at a stiff 18% for individuals. 

Planning to Retire? Do you know about this CGT relief?

There is fortunately some CGT relief – little-known but very advantageous – if you are older than 55 (or in situations where the disposal is “in consequence of ill-health, other infirmity, superannuation or death”) of up to R1.8 million on the disposal of an interest in a small business; or of active business assets of a small business; or the sale of a small business. Of course, many conditions apply, including that the total active business assets of the taxpayer do not exceed R10 million and that the R1.8 million exclusion is cumulative over the taxpayer’s lifetime. 

Such a single tax implication can make all the difference between a profitable sale and one that is not. For example, let’s say you bought shares in a company 7 years ago for R2 million, and have since been actively involved in running the business. You decide to sell your share for R4 million, triggering a capital gain of R2 million. At 18%, the CGT liability would be R360,000. If you are over 55 years of age and meet all the other conditions, applying the R1.8-million exclusion would mean only the remaining R200,000 is taxed at 18%, reducing the tax liability to R36,000.

Seek professional advice

Consult with your accountant to ensure that you understand all the potential financial and tax implications of selling your business and ensure that the necessary legal documents are in place, such as non-disclosure agreements for potential buyers and a legal sales agreement. Ask your accountant whether you should consider employing a business broker. 

Finding fair value 

As the seller, you want to ensure that you get the best possible return for the money, time and effort invested in your business. Similarly, all potential buyers want a business that is financially stable and profitable and that will deliver a good return on their investment. 

To set a fair price, you will need to determine the value of the business, and the expertise of an accountant or a professional valuer is highly recommended. This is because there are different ways of valuing a company, as well as many factors – mostly intangible – that affect the valuation beyond simply the financial reports. 

This means choosing the right method for valuing your business is important because it will influence the price you can ask for it. The three common methods used to evaluate a business are asset-based valuations (difference between assets and liabilities, also called the book value, net asset value or equity); market-based valuations (considers comparable sale prices for businesses sold in the industry); and income-based valuation (average profit year-on-year for at least the last three years), together with a profit forecast for three or more years ahead. 

All of these valuations will be influenced by factors such as location, the condition and age of equipment and fittings, new competitors in the market, branding and goodwill, reputation and customer loyalty. 

Get your financials in order

To determine a fair value for your company, you will need a comprehensive picture of the company’s financial situation. Potential buyers, too, will want to see full financial records.

  • A minimum of 3 years – but preferably 5 years – of financial statements, audited where necessary 
  • Monthly management accounts covering the period since the most recent financials 
  • Profit and loss statements 
  • Balance sheets
  • Tax returns and assessments    
  • Tax clearance certificate 
  • A complete detailed list of plant and machinery, furniture and fittings, and equipment 
  • Complete inventory if the company holds stock 
  • Three-year financial plan.
Paperwork required

In addition to the above, prospective buyers will likely request records to assist them in conducting a due diligence, which is an investigation or review of factors that influence value or market price, some of which are listed below. 

  • Formal contracts with suppliers and clients 
  • Organisational charts and employee records   
  • Material agreements such as property lease agreements, credit agreements, and joint venture agreements 
  • Details of crucial advisors, such as accountants, attorneys and insurance brokers 
  • An up-to-date business plan, with growth projections, overheads and working capital 
  • Marketing and sales strategies, profit margins and sales targets 
  • SWOT analysis evaluating the business in the current market environment and identifying areas to increase the company’s value 
  • Statutory documents such as memorandum of incorporation (MOI), shareholder agreements and regulatory authorisations. 
Managing stakeholders

Selling a business can take months – if not years – and during this time, business owners should maintain ‘business as usual,’ while also making the business more attractive to potential buyers by establishing a clean and friendly working environment, keeping equipment well-maintained, and improving processes. 

It will also be important to manage relationships with stakeholders when it becomes known that the company is up for sale. Employee morale may be impacted if they are fearful of losing their jobs or of a change in working conditions or status. Clients may feel uncertain about receiving the same level of service, while suppliers and creditors may be concerned that the business will continue to honour its commitments. It is advisable to be upfront and honest with everyone concerned before announcing the sale or engaging with prospective buyers.

Duty of care

Among the responsibilities of business owners is the duty of care – a legal duty to take reasonable care not to cause harm when it could be reasonably foreseen. 

This duty is certainly relevant when selling a business and creates a legal responsibility or obligation not to omit any information, procedure or activity when it can cause harm to others or the business, including physical harm or financial ruin, and intangible damages such as reputational damage.

In line with this, if you are thinking of selling your business, you are well advised to enlist professional assistance from your accountant to ensure the best possible outcome for all concerned.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Business Loan or a Credit Facility – Which Is Right for Your Business?
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Business Loan or a Credit Facility – Which Is Right for Your Business?

“I would borrow money all day long, if the cost of borrowing is less than the expected return.” (Brad Schneider, American congressman)

At some point it’s more likely than not that your small business will require a business loan. A 2021 study done by Fundera (a US financial resource business that sources financing for small businesses) suggested that 56% of all small businesses will need a loan to expand operations, pursue new business or acquire business assets. The same study found that 29% of small businesses fail simply because they run out of capital.

Knowing that you need additional funding is not the same as acquiring it though. Other than angel investors there are two principal ways in which a company gains the financing it needs when cash flow is in short supply: a small business loan or a line of credit. But what are these? What are the differences? And how do you decide which you need for your business?

An overview

Essentially, small business loans and lines of credit are similar. They are both ways that businesses can borrow money from lenders and approval is determined based on past financial behaviour, the borrower’s credit history and their established relationship with that lender. 

A traditional loan is a non-revolving credit limit, which means the borrower will be paid out funds once and will then be required to pay the money back, with interest, at a set rate and over a set period. A loan can be granted either “secured” or “unsecured”, meaning it is either backed by collateral or not, and the interest rate charged will depend on the risk to the lending institution, with lower rates available to those with collateral. With a loan, interest accrues immediately upon pay out either in cash to the company, or through payments to other firms where assets are purchased. Examples of loans that may impact a business include car loans, property financing, debt consolidation and commercial loans, which allow companies to hire extra staff, or continue day-to-day operations.

A line of credit is different in that it offers the borrower a maximum amount that they can withdraw at any given stage and payments are made back based on the amount withdrawn and the interest accrued. Provided the borrower keeps up with the terms of the arrangement, this amount is available indefinitely and can be topped up and withdrawn at will. Generally, the interest rates on a line of credit are higher, and the amounts smaller than those offered for a small business loan. Interest only accrues when the line of credit is being used. Should it be fully paid up, then nothing is owed.

Which is right for your business?

Determining which of these loan types is best for your business will require you to look at a few factors. 

  • How much money do you need?

    If the cash injection needed is large or you need to make significant equipment, vehicle or property purchases then a loan will almost always be the correct solution. With lower interest rates and set monthly fees that are easier to account for in a monthly budget, a loan will help you secure what you need, while also keeping costs as low as possible.

    Credit lines are better when the amounts needed may be smaller, but more frequent. It is therefore vital for you to know exactly what money you need, and what you intend to use it for before you approach the lender.
  • How do you plan to use that money?

    As one-off payments or cash injections, loans don’t allow a lot of space for adjustment after they are issued and rarely offer any form of protection in difficult conditions. 

    A line of credit can, however, give you access to extra working capital with no restrictions. Having a line of credit ready to go when needed is a good way to ensure small, unforeseen problems can be negotiated. Late payment by a critical client shouldn’t mean you can’t pay your bills on time. 
  • What kind of flexibility do you need?

    Lines of credit offer a great deal of flexibility for you assuming you’re not sure how much money you will need, or if you expect your expenses to be spread out over an extended period. A line of credit also offers options when it comes to monthly payments, as, provided you meet the minimum payment, you can pay back as much or as little as you can afford. 

    Loans, however, provide the better option when flexibility is not an issue, and your main aim is to limit the amount of debt you take on.

Before applying for any business credit, it’s advisable to speak to your accountant to evaluate just what needs to be accounted for in the financing and what you can reasonably expect to pay back each month. Knowing exactly which potential costs are going to be vital to assist your company’s growth, and which are nice-to-haves, will enable you to make the right decisions when it comes time to choose what kind of financing you are looking for.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Read more about the article Don’t Let Fraud Infect and Damage Your Company
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Don’t Let Fraud Infect and Damage Your Company

“In a way, fraud in business is no different from infidelity in marriage or plagiarism in scholarly work. Even people committed to high moral standards succumb” (Miroslav Volf, Director of the Yale Center for Faith and Culture) 

Fraud (in this context) is the act wherein an employee or trusted partner makes a financial gain through criminal behaviour or deception within an organisation and it is extremely common. Recent studies suggest that as much as 46% of all companies will succumb at some stage or another. Given this, much thought has been put into how to prevent fraud and lower the impact that it can have on a business. Unsurprisingly, the issue is extremely complex and there is a lot that you as a business owner will need to do if you want to avoid the financial loss and reputation damage that fraud can cause to your business. 

What is fraud?

Business fraud has many aspects, and generally comes in three defined categories:

  • Asset Misappropriation 

    This is the most common type of fraud. Some numbers suggest that 90% of all fraud is this kind, in which employees will either steal or exploit their company’s resources. Examples include where employees make false expense claims, help themselves to cash or even non-cash items, the creation of ghost employees, “buddy clocking” systems or under recording of the cash that is received for goods.
  • Financial Statement Fraud 

    Significantly less common than asset misappropriation these schemes are, however, significantly more damaging to the company itself. This is the deliberate manipulation of financial statements to mislead those who would use those statements for legitimate purposes. Usually, this is done to make a company appear more profitable than it is, or to avoid tax payments. 
  • Corruption

    Corruption occurs when employees use their influence or positions in a company to benefit themselves to the cost of the company or agency for whom they work. An example of this would be when someone agrees to hire a less than ideal candidate because they are being paid a kickback to do so.
Tips for detecting and preventing fraud
  • Know your employee

    According to the Association of Certified Fraud Examiners the average fraudster will operate their scheme for 18 months before getting caught. The reason for this according to employers’ reports is that quite often it was the employee they least suspected

    It is therefore vital to have regular feedback sessions with employees, even those who have been with the company for a long time, to discuss their personal circumstances and be aware of any significant changes in their lives. Someone who has been a model employee for years, may, due to changes in their life’s circumstances, feel they have no choice but to steal to make ends meet. 

    Look for those employees whose habits have suddenly changed or who exhibit a change in attitude. These habits can point to problems in their personal lives, or potential bitterness at their employer resulting from perceived slights they may have received, such as a poor raise, or lack of promotion.
  • Fraud policy

    Set up a fraud policy and communicate this to all staff. Staff should be aware that management is fully clued up on all the types of fraud, knows what to look out for, is actively searching for it and that the punishments for being caught will be severe. 

    In doing this you also trigger honest employees who are not tempted by fraud to become aware of the signs and symptoms of fraud and empower them to report suspicious behaviours to you. Refer also to ‘Be Available’ below.
  • Internal Controls

    This is potentially the most important step as it is not subjective. It is extremely important to set up systems within your company which safeguard the company’s assets and ensure the integrity of record keeping. The first step is to make it abundantly clear to whom responsibility lies in each situation. Do not, for instance, leave the key to the petty cash in a cupboard, but rather assign one staff member to take full control and sign for all expenses and payments into the cash box. 

    Use a paper trail and have those responsible for each transaction or sale personally sign for each element of their part of the process. If the preparation of bank deposits is personally signed for in a ledger that is then passed to a manager, then it becomes much harder for either of those parties to deny their role in the process. 

    Make sure all payments are authorised, that purchase orders and invoices are numbered consecutively and cross referenced to prevent the passing of false invoices. Require new vendors and employees to be personally vetted and authorised by a senior manager to stop ghost accounts from being set up. Require two signatures on any payment above a minimum amount. 

    Internal controls need to be re-examined regularly and any discrepancies with the procedure followed up with rigorously. Don’t be afraid to bring in an external team to set up these procedures for you should you not have the means to do so yourself.
  • Watch those who take no leave

    This may sound strange to anyone who has never dealt with fraud, but one of the surest signs that something suspicious is going on is if an employee never goes on holiday. On the surface, these employees may appear to be diligent hard workers, but the truth is much more likely that they are afraid of having their schemes uncovered should they allow someone else to do their jobs when they are on leave.
  • Be available

    Your best line of defence is your other employees. Being the kind of business owner who has an open door, is approachable and who listens is the best way to ensure that honest employees come to you if they have any suspicions. They should know that you are trustworthy, and that their names will never come up in any discussions you have with the people they have pinpointed. At the end of the day, having everyone looking out for you, is much better than trying to do it all yourself.
  • Work with reputable partners

    Companies do not operate in a vacuum. Many of the services you use may need to be brought in from the outside and when it comes to your finances it’s vitally important that these companies are reputable. Good bookkeeping services will be at the frontline of defending your company from fraud and will be able to quickly pick up discrepancies in the books. Therefore, when hiring any professional who will have access to your accounts and books it is vital that they be registered with the relevant professional bodies and that they come with a reputation for integrity and providing top-class service. Ask your accountant’s opinion in any doubt.
  • Do spot checks

    Once a month pick random employees and go through their expense accounts, travel allowances and claims for cell phone usage to make sure that these are on par with what is expected and do not ring any alarm bells. If they have signing powers take a close look at what they are signing and the reasons and flag any unusual signatures for a follow up. Even if you only do this for one employee a month it will be known that you are checking, and that any fraudulent activity will ultimately be caught. 
  • Reconcile 

    Reconcile your bank accounts at the end of every month. Ideally, this should be done by an independent person who does not have bookkeeping or cheque signing powers within the company. This person should also check invoices and payments (EFT or Credit card) to make sure they are cross referenced. 

    They should then sign off on the reconciliation personally.

It is impossible to close all the gaps that fraudsters may use to take advantage of your company, but if you implement the above changes and controls you will either deter them from trying or find them quickly once they have started. The best tip is vigilance, both by you and your honest employees. Building an honest and open company culture that fosters communication will ensure your employees are both aware of what needs to be done and open to telling you when it isn’t.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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Loadshedding: Tax Incentives for Energy Efficiency and Alternative Power

“This is a call for all South Africans to be part of the solution; to contribute in whatever way they can to ending energy scarcity in South Africa.”

President Cyril Ramaphosa

For more than a decade, local businesses have faced the huge challenge of an unreliable power supply from a state-owned monopoly that allowed very little in terms of affordable or practical alternatives.


In addition, since then Eskom’s electricity prices continued to skyrocket – increasing by more than 400%.

Source: Eskom Distribution

Just a month ago, Eskom proposed a further tariff increase of 32.7% to the National Energy Regulator of South Africa (Nersa) and is also contesting, in court, the tariff increase of 9.6% for 2022/23 Nersa allowed, which was far below the 20.5% requested. 

A national crisis

South Africa’s energy crisis has been described as the biggest risk to the country’s economy. Recently President Cyril Ramaphosa, in his address to the nation on the energy crisis, announced measures to tackle it, including scrapping the licensing threshold of 100MW, Eskom buying more electricity from existing independent power producers, importing power from Botswana and Zambia, and doubling the amount of renewable generation capacity procured through Bid Window 6. 

Of particular interest to businesses and individuals are the measures designed to enable businesses and households to invest in rooftop solar. 

“South Africa has great abundance of sun which we should use to generate electricity. There is significant potential for households and businesses to install rooftop solar and connect this power to the grid,” the President explained. “To incentivise greater uptake of rooftop solar, Eskom will develop rules and a pricing structure – known as a feed-in tariff – for all commercial and residential installations on its network. This means that those who can and have installed solar panels in their homes or businesses will be able to sell surplus power they don’t need to Eskom.” 

This certainly provides reasons for companies to re-assess the long-term viability of alternative energy sources, particularly photovoltaic (PV) solar energy projects, which are incentivised because of their low impact on the environment and our scarce water resources.

In particular, the President called on businesses to: 

  • seize the opportunities that have been created and invest in generation projects 
  • reduce consumption through greater energy efficiency.

The good news is that there are tax incentives to assist in achieving these national priorities.   

Section 12B of the Income Tax Act provides for capital expenditure deductions for assets used in the production of renewable energy and particularly incentivises the development of smaller solar PV energy projects with an accelerated capital allowance of 100% in the first year for solar PV energy of less than 1MW. 

Section 12U of the Income Tax Act provides for capital allowances for roads and fencing used in the generation of electricity.

Section 12L of the Income Tax Act is aimed at directly incentivising investments in local energy efficiency projects and provides a deduction for actual savings resulting from a reduction in energy use. 

Capital expenditure deductions (S.12B)

Section 12B provides for a 50%/30%/20% income tax deduction over three years for certain machinery or plant – which means 50% of the costs of the assets can be deducted in year one, 30% in year 2, and 20% in year 3. These assets must be owned by the taxpayer, brought into use for the first time by the taxpayer, for the generation of electricity from, amongst others, photovoltaic solar energy or concentrated solar energy. The tax deduction also applies to any improvements to the qualifying plant or machinery that are not repairs related.

The following types of renewable generation projects may benefit from the allowance:

  • wind power;
  • photovoltaic solar energy;
  • concentrated solar energy;
  • hydropower (producing less than 30 megawatts); and
  • biomass comprising organic wastes, landfill gas or plant material.

In respect of photovoltaic solar energy of less than one megawatt, a 100% income tax deduction is allowed in the first year of use.

What this means is that the cost related to a new solar power system can be deducted as a depreciation expense– reducing the income tax liability. The reduction can be carried over to the next financial year as a deferred tax asset.

In a previous binding ruling, SARS confirmed it will allow for both the capital cost of solar power units, as well as the direct cost of installation or the erection thereof.  

The capital costs that may be deducted are:

  • Photovoltaic solar panels; 
  • AC inverters; 
  • DC combiner boxes;
  • Racking; and 
  • Cables and wiring. 

In addition, related allowable costs of installation are:

  • Installation planning expenses; 
  • Panels delivery costs;
  • Installation expenses; and 
  • Installation safety officer costs.

Taxpayers installing assets used in the production of renewable energy, and particularly smaller solar PV energy projects or systems should investigate the tax benefits of Section 12B, particularly now that selling electricity back to Eskom will soon be a reality.

Capital allowances for roads and fencing (S.12U)

Section 12U provides for capital allowances for roads and fencing used in the generation of electricity greater than 5MW from wind; solar; biomass comprising organic wastes, landfill gas or plant material; and hydropower to produce more than 30MW. It is granted in full in the year of expenditure and covers improvements to the roads and fencing related to the generation project, as well as foundations or supporting structures.

Energy-efficiency incentive (S.12L)

Section 12L, read with the Regulations, allows any person or entity registered with the South African National Energy Development Institute (SANEDI) to claim a deduction for energy-efficiency savings derived from activities performed in the carrying on of any trade.

The incentive allows for a tax deduction for all energy carriers (not just electricity, but also fuel) but with the exception of renewable energy sources.

Ownership of energy-efficient machinery and equipment is not a requirement to claim a deduction under section 12L, so a lessee of the machinery or equipment can equally claim a deduction under section 12L.

The deduction is calculated at 95 cents per kilowatt hour or kilowatt hour equivalent of energy-efficiency savings and can create or increase an assessed loss. 

A taxpayer must comply with certain requirements before being eligible for this deduction, for example, taxpayers are required to register with SANEDI, and a measurement and verification professional belonging to an accredited measurement and verification body must be appointed. An energy-efficiency performance certificate must be obtained from SANEDI detailing the energy-efficiency savings generated for the year of assessment.

Examples of energy-saving measures include, for example, investing in more efficient technologies such as LED lighting; installing clear acrylic door refrigeration equipment to reduce energy consumption in retail stores; using recycled waste heat from refrigeration plants or furnaces to reduce another electrical heating load; or investing in energy saving solutions for HVAC and refrigeration. 

With this incentive, businesses can ensure their energy efficiency measures not only result in lower energy costs but also reduces their tax liability. 

When heeding the President’s call to invest in generation projects and reduce consumption through greater energy efficiency, businesses and individuals are well advised to investigate further the tax incentives and rebates available. These are complex, so seek professional advice!

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How To Avoid Bad Customers

“Happy customers are your biggest advocates and can become your most successful sales team.”

Lisa Masiello

Anyone who has started a business has had those meetings. The ones where you trade a dozen emails explaining what you do and how you do it, what your rates are and why you are the best, and now your potential client has asked for a meeting. You drive to the other side of town, have a two-hour meeting explaining all the things you had explained before, and get back to the office feeling like you did everything you could, and then you wait. Perhaps for weeks there is no response from the prospect and you wonder exactly where you may have gone wrong. The problem here might not be you, but may instead lie with the potential customer, and all that time and effort you sunk into trying to win their business was perhaps always going to be wasted.

Success for a small to medium business is built on resource management. Those companies that manage to get the most return on investment are the ones that will grow the fastest and last the longest. Getting this return requires not only that you create excellent products or deliver excellent services, but that you do this with the right people – and that includes your customers. Being able to tell the difference between good customers and bad ones is a skill no one starts with, but everyone can learn. Here is a guide to recognizing a bad client before you get too committed.

Recognise what makes a good client

Being able to tell the difference between good clients and bad clients will first require you to know exactly what makes a good client. At a very basic level a good client is one that doesn’t take much of your time but is profitable. The best ones are regular customers as well.

Using your accounting software, you will very quickly be able to see which of your clients are giving you the most return for the effort being put in. While some clients you think of as “good clients” because they always take you to lunch or invite you to company golf days may not be having as much impact as you thought, the numbers will never lie.

Try to see if there are any patterns in the clients that deliver the most value to you. Are they of a particular size? Do they come from the same industry or are they from the same areas? What is it about your service or product that seems to appeal to those kinds of businesses? What are you doing for them that your competition can’t? Are there any other companies like them?

Now try to see if there are any patterns among the personalities who work for those clients and who pay for your services. What positions do they hold and do they have the power to sign purchase orders themselves or must they go further up the chain? Knowing these things will help you to avoid dealing with people who may not have the power at the end of the day to order from you and you might be better served focusing on those who can.

The first impression

In order to find good clients or customers, it’s important that your first meetings with them be as much about you examining them as it is about you selling yourself. Do not be afraid to ask the critical questions of them to gauge how much effort it’s going to take to get your first payment.

Are they simply weighing up options or do they have a project that needs completion by a certain deadline? Why are they looking for a new supplier or service? What happened to the people who used to do it? Clients who bad-mouth the previous company they worked with clearly had an acrimonious relationship and it may be time to ask yourself why.

While they may prove valuable in the long run, clients who are simply looking at options are going to be a lot more work moving forward. You may be called upon to offer advice, or chat over coffee more than you would like, and at the end of the day, the work that earns you money may never arrive. Those with project specifics and needs, on the other hand, are looking for solutions that you can provide and want to be quoted. At the end of the day they have to deliver a completed project and will need your help. These customers are much more likely to not only earn you money now but are clearly actually doing things rather than talking about them, making them far more likely to offer you work in the future too.

But even those with work that needs to be done immediately can come with warning signs. Any small business owner should automatically be aware of the clients who want you to “prove yourself” or “do a test job for free.” Filling your time with discount seekers ultimately means you can’t take on work for those companies that would actually want to pay you and anyone who asks you for free or heavily discounted first jobs may not value you or your time and should perhaps go immediately onto the bad customer pile. 

This is a good time to also be cautious of those who refuse to work with a written contract. Anyone who actively does not want to sign on the dotted line likely has a very good reason for avoiding commitment and usually, that reason is that they don’t want to pay what or when they say they will. Remember that although in our law most verbal contracts are binding, only by reducing your agreement to writing can you minimise the risks of misunderstanding and dispute. If you insist on a contract and they suggest you don’t need one, rather walk away.

Watch out for red flags in the first few weeks

You are through the initial introductions, have quoted for work and after negotiation have had your quote accepted, in writing. Now it’s time to buckle down and do the job. This might feel like the time when you just want to focus on delivering the best work you can, but it’s also a time to be wary. Watch the client’s behaviour carefully over this period because it’s at this stage that the first signs of an imminent bad relationship will start to raise their heads.

Does the customer respect your time or do they want you to be available 24/7? Are they calling you after hours, or looking for constant updates on your work? Are their deadlines reasonable or does everything need to be done yesterday? Do they micromanage you or nit-pick your work? People with high demands aren’t always problematic, but when it crosses over into your personal time, and they think nothing of calling you late at night to hash out tiny details then you know they are already becoming more effort than they are worth.

You should be equally cautious of those clients who work the other way around as well. These clients who don’t respond to your emails or take weeks to get you answers to important questions. Clients who can’t be bothered to live up to their own project timelines will also struggle to meet your payment deadlines.

The third thing to look out for is those clients who are constantly adjusting the scope of the project. Scope creep starts out with asking you for a few small unpaid favours and slowly slips into the entire project taking on a different life to what was negotiated. Clients like this are usually more disorganised or inexperienced than dishonest but as the project grows and expectations around your workload increase, so should your remuneration. Don’t be afraid to speak up and ask for an adjustment to the contract.

The final red flag is if clients come back to renegotiate your rates for a job that’s already begun. Negotiating up front is normal and healthy, but when they don’t want to accept what has already been agreed or want to fiddle with the details it’s time to reconsider. This renegotiation technique is a sure sign they can’t really afford the project and at the end of the day they’re going to be someone who is likely to leave you unpaid.

At any stage…

So far all the issues that have arisen are probably excusable or can be overcome if the compensation is good enough, but there are some signs that are just too dangerous to ignore. If any customer of yours ever does any of these things it is far better for the long-term survival of your company to immediately terminate any further partnerships or projects and rapidly move on.

The first of these is when they ask you to copy brand logos, ideas or products from a competitor. Anyone willing to ask this of you neither respects you nor your company and certainly does not respect their competition. Being dragged into tacky business projects such as this will only end in your company being made to look bad as when they are inevitably caught, they will pass the blame squarely on to you and your new brand. 

This warning goes double for any client who asks you to ignore the law or break it outright. Examples can range from the small, such as when you are in construction and they ask you to just go a little outside of the building code to the large, such as when they ask for kickbacks or offer incentives to work with specific companies. Any form of corruption or criminality will eventually not only ruin your company but could also ruin your life.

If you have been in business for any small amount of time you are bound to have come across some people who tick some of these boxes and might be reliving the trauma of projects you would rather forget. Now is the time perhaps to head over to “Clients from hell” for a wry laugh from these people who may just have had it a little worse than you.

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Are You Ready for a COIDA Employer Site Visit and Audit?

“The main objective… is to provide compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees, or for death resulting from injuries or diseases…”

Compensation for Occupational Injuries and Diseases Act

Most employers – and particularly smaller businesses and domestic employers – are not able to provide cost-effective medical or insurance cover for their employees, even though the vast majority would want their employees to be compensated if they are injured, become ill or die at or because of their work. 

This is the objective of the Compensation for Occupational Injuries and Diseases Act also known as COIDA: to ensure that anyone who is employed under a contract of service, whether full-time or on a casual basis, and receives wages or a salary, whether on a weekly or monthly basis, can claim compensation in terms of the Act and, where an employee is fatally injured, the dependents can claim compensation.

What are the benefits of registration?

Employers are obliged by the Act to register and to take out this insurance, because it provides a means to assist employees who are injured on duty or contract occupational diseases with medical costs and loss of earnings, and also protects against civil claims. The Compensation Fund is a no-fault system, which means there is no need to prove that an employer was at fault. 

Employees who are injured on duty or contract occupational diseases are not left destitute and unable to work but have the means to cover the necessary medical expenses and rehabilitation costs, as well as to claim compensation for the loss of earnings. Where an employee is fatally injured at or due to work, the dependents will receive a pension. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt.

COIDA prevents employees from suing their employers for occupational injury or disease, instead giving them this statutory insurance cover. So the Fund will still process claims from employees whose employers have not registered with it as required. But the Fund can then recover from the unregistered employer all the compensation it pays out, plus it won’t refund the employer for any medical costs the employer has paid. In other words, if you don’t register you risk having to pay out of your own pocket the full compensation claim, in addition to fines and penalties for non-registration. The total could be substantial, incorporating medical costs and compensation for loss of earnings, permanent disablement, death and even pension payments. 

What is covered by COIDA? 

The compensation is money paid by the Compensation Fund to employees who were injured on duty, to replace loss of wages and/or to pay medical expenses. The compensation is only paid if the employee is off work for three days or more but cover for medical expenses is not limited by this provision. The Fund does not cover pain and suffering.

Medical Expenses: Immediately after incurring an injury or disease on duty, employees can get medical attention from any medical practitioner of their choice in their area. Emergency treatment does not require pre-authorisation from the Compensation Fund. Medical expenses are paid by the Fund where it has accepted liability for the claim, covering reasonable costs incurred for the first 24 months. All reasonable medication related to the employee’s injury and prescribed by the treating doctor will also be covered. 

Loss of earnings: If an employee is booked off from work for a serious injury, the employer is obliged to pay 75% of the employee’s earnings/wages (as at the time of the accident) during the time the employee is unfit for duty but limited to the first three months. This can be claimed back from the Compensation Fund. The salary/ wages of employees booked off work for more than three months must be claimed directly from the Compensation Fund.

Permanent disability: A permanent injury, such as deafness, blindness, amputation or permanent disablement, is assessed according to a percentage of disability specified in the Act. If a disability is assessed at 30% or less, an employee may qualify for a once-off lump sum payment for that injury. If the disability is assessed at more than 30%, the employee may receive a monthly pension for life, based on earnings at the time of the accident. 

Death: If an employee dies as a result of the injury or disease, the dependents may receive a pension for life. All children will qualify up to age 18 years unless still at school or attending a tertiary institution.

Should you be registered with the Compensation Fund?  

All employers who employ one or more part-time, casual, temporary or full-time employees for the purpose of a business, farming or organisational activities must register with the Compensation Fund within seven (7) days after the first employee was employed. 

Sole proprietors and partners, shareholders or “silent partners” who are only paid dividends or sharing profits, are not employees in terms of CIODA.

Following a Constitutional Court ruling that domestic workers should also have the right to access social security in terms of COIDA, all employers of domestic workers – including those employed before the ruling – must now register with and submit the necessary returns to the Compensation Fund. A “domestic worker”’ is defined as any employee who performs domestic work in the home of their employer, and includes gardeners, household drivers and care takers but not farm workers. 

Employers must also notify the Compensation Commissioner within 7 days of any change in the particulars provided when registering. 

What is required for compliance? 

An employer is regarded to be in good standing when: 

  • Registered with the Compensation Fund  
  • Records of earnings and particulars of employees are up to date and ready to be produced upon request
  • Accidents are reported timeously 
  • Annual Return of Earnings is submitted timeously
  • Assessments are paid up to date

For registration with the Compensation Fund, employers require Registration of Employer form (W.As.2); a copy of Companies and Intellectual Property Commission (CIPC) documents; and a copy of the authorised director’s ID document. (Companies with no employees who need to register to meet the requirements on tender documents, can request an exemption letter and do not have to complete the registration process.) 

Employers are also required to keep updated records of earnings and particulars of employees and must be able to produce these records on request.

Furthermore, an employer is mandated to report an injury on duty within 7 days of receiving notice or an occupational disease contracted on duty within 14 days as soon as receiving notice. Employers can register and use the online claims registration system called COMPEASY. 

The next requirement is to submit Employer Return of Earnings (ROE) forms as per the Government Gazette. These can be filed via the free online Compensation Fund ROE Online System. A penalty of 10% on the final assessment will be imposed if the ROE is submitted after the due date.

Once ROEs are submitted, assessments are raised before the financial year end on the basis of a percentage of the annual earnings of the employees. The assessment tariffs are fixed according to the class of industry, are reviewed annually and are calculated based on the risk related to a particular type of work. Annual assessments are paid by registered employers and cannot be recovered from employees.

Payment must be made within 30 days and a penalty of 10% of the assessment is charged if the account is not settled after the due date. Interest at 15% of the balance is then charged every month until the account is settled.  

Facing a site visit? 

The Department of Labour has on previous occasions encouraged employers not to be threatened by site visits or inspections, but rather to regard these as opportunities to achieve compliance, knowing that follow-up site visits may be conducted to ensure any non-compliance has been addressed.

Indeed, if the requirements for compliance as set out above are met on an ongoing basis, a site visit should be a quick and painless process. 

Facing an audit? 

The Compensation Commissioner suggests submitting the following documents if an assessment is referred for audit. 

  • Affidavit stating the reason for variance or credit assessment 
  • Signed audited or independently reviewed annual financial statement for the year under review 
  • Detailed payroll report for the assessment year under review 
  • SARS EMP 501
  • UIF Registration number
  • Manual Return of Earnings (W.As.8)
  • Power of Attorney if your company is represented by an accountant or consultant.  

If the required information is not received within by the date stated, an assessment based on estimation will be made.

Getting ready 

While these COIDA requirements may seem straightforward, small businesses may simply not have the resources to ensure continuous compliance. Failure to comply with the prescripts of COIDA constitutes an offense in terms of the legislation.

Having been pre-warned to expect site visits and audits by representatives of the Compensation Fund, you would be well-advised to seek professional assistance to ensure that the requirements for COIDA compliance are met at all times.

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Recession on the Horizon: Here’s How to Survive

During recession greed dies, frugality survives.”

Amit Kalantri, Wealth of Words)

With yet another return of loadshedding in August, and major banks upgrading their forecasts to reflect an increased possibility of further economic downturns, recession feels inevitable in South Africa. A recession is simply where an economy stops growing and starts retracting. A generally held definition of recession is when the Gross Domestic Product of a country declines for two consecutive quarters, or half a year. Apart from the shrinking GDP, recessions typically come with reduced employment opportunities and incomes, and a stalling in industrial productivity, all of which then impacts all other aspects of life from retail sales to reduced travel and entertainment. To be overly simplistic, when people are scared about their futures, they stop spending, which in turn means businesses, particularly those relying on consumer spending, stop making as much money and the economy has nowhere to go but down.

Businesses, already on the edge from years of pandemic, are preparing themselves to take yet another battering. Managing these economically turbulent times has become an ongoing challenge. Fortunately, though we have had numerous recessions before, and unlike the pandemic, economists are better able to predict the beginning, if not the length of recessions. We also have evidence for the things you can do to make sure these economic downturns don’t close your business. 

1. Manage your cash flow

In even the best of times healthy cash flow is the key to a healthy business. This is doubly so in a recession. With recession coming it’s wise to take another look at all your expenses and cut out everything that isn’t 100% necessary, while also starting to build a healthy cash reserve. Is it possible to get a better price with another supplier while maintaining your quality? Can you renegotiate your rent? What extras can be trimmed from the budget, even if it’s just temporarily? 

Sadly, this attitude also extends to your workforce. If you can afford it and your cash flow looks healthy enough, then keeping staff on is always the best solution as rehiring and retraining when the recession is over is expensive. However, if things are looking touch-and-go it might be wise to consider just who among your staff is essential. Moving your business to a model where you hire freelancers during the good times instead of bringing on full-timers, will ultimately mean that your lean full-time staff quotient is better able to weather the tough times. Remember not to fall foul of our labour laws in the process.

It is also important to ensure your money is coming in. In tough times it may not be as easy for your clients to pay you, and you need to get ahead of these situations. This is not a time to go easy on those who may have fallen behind on payments. Every cent you can recoup now is going to make the recession easier to navigate. 

2. Take another look at your debt

When the economy is booming debt is a good tool for growing a business, but in times of recession it can be the added millstone that sinks you. Debt doesn’t go away just because your business may be experiencing a downturn, so now is the ideal time to visit your accountant and take a new look at your debts, repayment dates and deadlines and how they fit into your projected, possibly reduced, cash flow.

Paying off high-interest debt first is always a good idea. However, before things get bad it may, ironically, be a good time to renegotiate your debt agreements or even take on some added debt if you think you may struggle to meet other obligations during the recession. At the end of the day, lenders are much more likely to work with you on your repayments than see you go into default. Taking the initiative may well build trust between you and your business and lenders. 

3. Don’t stop getting out there – recessions bring opportunity as well as risk

If you are anticipating a bad time ahead, then it’s likely your competition is too and it’s wise to remember that periods of downturn can often make the perfect time to grab extra slices of the market. 

The first step is to nurture the client relationships you already have. Good relationships are going to help convince people to stay with you even if there are cheaper prices elsewhere and having strong relationships with suppliers and creditors will likely give you more wiggle room and time to pay off debts if the real problems start taking hold. Equally, there has never been a better time to market your business and start putting yourself out there for new work.

In recessions it will be tempting for your competition to slow down on advertising spend, leaving you plenty of room to be noticed. The reason for this is simple; advertising during a recession is likely to be seen by clients at just the time when they are carefully considering their current service providers and what they are receiving. By having your offering in front of them when no one else is marketing you give yourself a better chance of turning their heads in your direction. 

Breakfast cereal manufacturer Kellogg is proof of this. Under the most difficult circumstances, when the market crashed in America in 1929, Kellogg doubled its advertising budget and invested heavily in staff and expertise. By 1933 their profits had increased 30% and they had grabbed their spot at the top of America’s breakfast company food chain.

4. Diversify your offering now

Don’t wait until the recession has hit to start making panic station plans. By diversifying your offering now, you will be ready to take advantage of gaps in the market that may arise due to the struggles of your competition. By now most companies are already online and selling their services and products direct, but diversification goes well beyond your online store. If you are in an industry that struggles during recessions, then expanding into products and services that don’t take a hit during tough times is going to give your company longevity. For example, basic essentials like toothpaste, medical supplies, food, baby items and in-house entertainment are all things people will need when their budgets get tighter.

Remember also to plan creatively. For example, the pandemic-fuelled shift to online purchasing hasn’t just boosted the profits of those suppliers and retailers that switched to online sales – companies that looked beyond the obvious and invested in packaging manufacture and in delivery services have also boomed.

5. Take professional advice!

Now is the time to be ruthless with your company, your products and your marketing. Getting advice from your accountant will allow you to accurately evaluate just where money may have become unnecessarily lost and will help you to spot areas of improvement. Additionally, plans can be put in place to ensure you do not struggle with your cash flow and that ultimately, you come out the other side of the recession as strong, or potentially stronger than you were before.

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Choosing Accounting Software for Your Small Business

“Creativity is great – but not in accounting.”

Charles Scott, Former governor of Kentucky

Being able to track money as it is coming in and going out is essential for small business owners. Not having proper cash flow management and a full understanding of where your money is going makes it hard to analyse where your business can improve and whether it is succeeding. Come tax season compiling your tax returns accurately becomes extremely difficult if you haven’t been keeping track of every receipt and invoice. 


Fortunately, small business owners can now use out-of-the-box software that is capable of helping them to track these important aspects and ultimately to compile their various tax returns. This software can also help when it comes to invoicing clients, reconciling transactions and generating the reports. But how do you know which software programs are right for your business and which are simply more powerful than you need? And how do you balance the features you want with the budget you have?

Ask yourself these six questions – 

1. Is it simple to use?

Perhaps this goes without saying, but any software you choose needs to be simple to use. As a new business owner you are likely not an accountant and perhaps you lack basic IT skills (which is not unusual). The more complex the system the more time it will therefore take for you to get used to it, and further, to actually complete the day’s necessary tasks. When you are already overloaded with work, the addition of an extra thirty minutes of bookkeeping a day can really add up and put strain on your other deadlines.

While reviews can be helpful to narrow down your selection, it is advisable that you try out a few accounting systems before you settle on the one you want to use. Most accounting software is offered on either a free trial or comes with a guided demo to explore the interface that is easily visible before any purchase. If the software you are looking at has neither, it is wise to stay clear. 

If there is more than one person who will be using the system involve everyone in the decision-making process. Draw up a list of essential, common uses and take the opportunity of the trial to run through generating monthly reports, sending invoices, and running payroll. Simply by testing the software you will quickly discover which is the better fit for you and your team. 

It’s very important that the software is easy enough to use straight from the get-go. Don’t make excuses for the program by blaming yourself or promising it will be easier to use once you have “played around a bit.”

2. How good is the technical support?

In this light, it’s also extremely important that whatever software you do go with has helpful and responsive support. If you do ever run into a problem, it can cost a fortune to get an independent expert to help out, so rather go with a program that comes with the support you need from the beginning.

Generally, the best way for you to gauge whether their technical support is good is by looking at the reviews. Make sure you read these carefully and look for any issues around a lack of responsiveness from their side. Believe us, if there are problems, they will all be spelt out in the review. The worst time to find out that a company you are about to work with is not helpful is just after the system has collapsed and invoices are waiting to be sent out.

3. What features do you need?

Before you commit to buying any software it is extremely important that you work out just which features you need, which you don’t and which may be nice to have. What do you need the accounting software to do? Must it be able to track accounts receivable and payable? What kind of reports do you need to generate? Do you need it to track inventory? Do you need it to include ancillary services, such as time tracking, project management and payroll? Determining these aspects is important as every feature you add will likely also add to the cost and you don’t want to be paying for features you really don’t need.

There are other features to consider too that have little to do with the actual accounting functionality of the system. There are:

Integration: How easily does this software integrate with your other systems. It’s no good buying an accounting program that only runs on Apple when you are a Windows Office user. Beyond the obvious you should ask, “Does this software integrate with your shipping system, and sales platform?” Choosing software that integrates across the board could save hundreds of hours of troubleshooting in the future.

User access: Just how many people can be authorised to use this piece of accounting software? Can you set different levels of visibility and authority for different people? Perhaps you want your sales team to be able to invoice clients, but not see all the same things your accountant can see? Is this possible? Make sure the system you buy has the user access capabilities you need.

Accessibility: How accessible is your data? Most accounting solutions these days offer cloud-based access, allowing you to check your accounts from anywhere in the world and on any device. Which services are available on the app and which are available on the core program? Which services are essential for you to be able to operate remotely?

4. What is your budget?

Every cent can make a difference to the small business and your accounting software is no different. When making your choice, it’s important to formulate a budget and stick to it. Apart from your starting costs watch out for any additional charges, which may add up. When purchasing make sure you fully understand things like setup and customisation fees, to make sure you’re not missing anything. 

5. Will you need to upgrade down the line?

When choosing an accounting system, you need to be aware, not only of your needs now, but also of your potential needs in the future. You may only need essential recording and reporting at this stage, but in the future might foresee the need to scale the system to do payroll and other valuable tasks. Carefully balance your current budget and your needs with your potential growth – how long will it take before you need to upgrade? What features will you need when you do? You may decide that you need to choose a system now that can be easily scaled at a later date, requiring you to spend a bit more money. Alternatively, it may make sense to use a simple system now with no scalable benefits and then overhaul it to a more complete system later. All of this is going to depend, not only on budget but on how much appetite you have for training and learning new systems in the future.

6. What do your accountants suggest?

Discuss your financial recording and reporting needs with your accountants. It is likely they have assisted and advised other clients on the selection and set-up of systems appropriate to various businesses’ needs. They may well have ‘war stories’ to tell of issues and systems you need to be wary of.

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The Importance of a Good Credit Score

“You cannot escape the responsibility of tomorrow by evading it today.”

Abraham Lincoln

A good business credit score is a critical tool in business success as it helps your business unlock, establish and maintain relationships with lenders, suppliers and vendors. It reveals whether an organisation should lend your business money, give it credit or enter into a business relationship.

Building good business credit is, therefore, a vital aspect of running any enterprise and the sooner you embark upon developing a good credit reputation, the better. Business credit allows access to the funding you may need to expand, or get through a tough time, and can even give you better terms with suppliers and other vendors. Perhaps most importantly though, by establishing a good business credit score, you can take an important first step toward creating a dividing line between your business and personal finances, even if you’re running a sole proprietorship or partnership. 

So just how do you build this credit score and just what do you need to do to ensure you have the best score possible when the time comes to use it?

So, what is business credit?

Your business’s credit is a score that measures your history of borrowing and making repayments. In South Africa, Experian, TransUnion and XDS compile commercial credit reports and generate business credit scores using the information given to them by financial institutions such as your bank as well as any defaults that may have been recorded against you by those who may have loaned your business money or advanced it credit facilities which the business has failed to repay on time or at all.

Putting together this information will give any potential vendors and loan companies a clear picture as to just how reliable your business is when it comes time to pay back any loans or accounts. 

In South Africa, scores can range from 0 to 100 for some bureaus and 300 to 850 for others. The higher the score on the scale the safer it is to loan money to the business. For instance, any score lower than 527 on the latter scale is considered high risk, while scores above 750 are considered low risk.

Any business that records a high-risk level will therefore find it difficult to secure loans or indeed potentially even rent office space.

There are four different criteria that the bureaus look at to calculate your score. 

  • Your debt payment history, 
  • Amount of credit used or your credit utilisation ratio, 
  • Your length of credit history, and 
  • Your credit mix which looks at how you use credit and what kinds of credit are available to you.

As these reports are generated based on past behaviours, new companies may find it extremely difficult to secure loans. Without the history of past behaviour for a potential loan company to examine, your business’s risk would likely be considered fairly high.

How do you build your credit score?

So just how do you go about building your credit score? And how do you avoid falling foul of the system?

  • Pay your creditors on time: This one really goes without saying. If you contract for a service or supply, you must pay the bill for that service timeously and on the agreed upon terms and date. Failing to do so could allow that creditor to list you with the bureaus thereby damaging your credit score.
  • Use less revolving credit: Revolving credit is the kind of credit that is always available to you to use as long as you keep on making the necessary payments on the outstanding balance. Credit Cards, where a set amount of credit is extended and which can be drawn against and used as needed is an example of this type of credit. This differs from instalment credit where there is an end goal amount to be paid off and that amount may not necessarily be advanced again once a payment is received.

Revolving credit can be a good way to establish a relationship with financial institutions and help you build a credit score, but it can also be a trap. Revolving credit impacts a portion of your credit score called Credit Utilization which looks at just how much of your available credit you are using at any given time. Your Credit Utilisation is a calculation of how much of your overall credit you’re using and the amount of credit available to you at any given time. This calculation shows lenders and the credit bureaus how reliant you are on credit. Keeping it low on all your store and credit cards will positively impact your score. It will show lenders that you know how to use credit and you aren’t racking up debt that you cannot afford to pay. As a guide, you should try not to use more than 25% of your available revolving credit at any given time.

  • Fix your cash-flow errors: Missed payments don’t always happen because your company is doing badly. Quite often they can be missed because a large invoice has simply not been paid on time. Making sure you have a balance of reserve money is important to ensure you don’t miss any crucial payments as credit scores do not have an excuses column to factor in as to why you missed your repayment obligations.
  • Avoid missed payments and judgments: This takes us on to the next step, which is missed payments and their severe cousin, judgments. Missing too many payments is already bad, but worse is when a company gives up on you and files a warning with the bureaus that you are not to be trusted. Typically, defaults are listed for credit accounts overdue by 90 days or more. 

“Defaults” such as subjective classifications of consumer behaviour (delinquent, default, slow paying, absconded, not contactable and the like) typically remain on a credit record for one year, whilst classifications related to enforcement action (handed over, legal action, debt write-off etc) remain for two years.

If a court judgment is issued, that stays on your credit record for five years and remains collectable for thirty years in total.

  • Keep your suppliers in the loop: To avoid missed payments and judgments it’s highly advisable that you keep suppliers and creditors in the loop should you miss a payment or expect to miss one in the future. Explain what you have done to rectify the matter and when they can expect payment to avoid having your mistake recorded on your credit score. Of course, it is essential to then ensure the payment is made as promised.
  • Establish business credit with companies that report trades: Establishing a good credit reputation with companies such as banks that report to the bureaus is a good way to ensure you build a credit score quickly. Using credit responsibly helps establish your ability to show discipline and pay on time and in full. Other companies that may report on your behaviour include telecommunications and utilities companies.

Get your free reports

The National Credit Act states that every business is entitled to access their credit reports once a year, totally free of charge from each credit bureau. Keeping track of your credit score will allow you to see whether your business is improving or falling behind on its goals and give you a clear picture of just how others perceive you. It will also allow you to see if the information there is correct – incorrect judgments can be included on these bureaus, and checking the reports helps you correct any that may be hurting your company’s credit score.

Head to these links to get your credit score report directly from each bureau:

In conclusion, a credit score is about your relationships with those with whom you transact. If you make payments timeously, use the credit that is available to you, and keep an eye on your credit score for any inaccuracies, you should be able to build a solid credit score in about two years. 

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Top Ten Tips for Maintaining a Strong Cash Flow

“Never take your eyes off the cash flow because it’s the lifeblood of business.”

Sir Richard Branson

Managing cash flow is often one of the biggest challenges business owners face and is also the reason for a concerningly large percentage of business failures. 

Cash flow can be defined as the total amount of money that comes in and then goes out of a business and – crucially – the timing between cash flowing in and cash flowing out. 

A positive cash flow means the business earns more than it spends and is a key indicator of the financial health of your business. A consistent, positive cash flow ensures there is cash on hand to cover payroll, expenses and loan repayments on time and enables business growth by ensuring cash is available for timely equipment purchases and upgrades, and investment in new opportunities that arise. 

As such, proper cash flow management is key to your short – and long-term financial success, and cash flow strategies should be a priority in your business planning. Good cash flow planning will allow you to predict when money can be expected to be received, and when it must be paid out. With this information, you can plan ahead and make smart business decisions.

Implementing the ten top tips below for maintaining a strong cash flow will ensure businesses can enjoy all these benefits in a short time and with little effort.

  1. Increase sales – More sales are obviously the preferred strategy for a business to grow the amount of cash flowing into the business, and it provides more benefits than other options such as liquidating assets or taking out a loan. 
  1. Collect client payments quickly – Late payments from clients are one of the most common reasons why businesses experience cash flow problems. Manage this proactively by invoicing clients promptly and sending monthly statements early. Verify the invoice was received, and contact late payers well in advance, reminding them to pay on time. Follow up on late payments right away, offer discounts to clients who pay early, and implement a cash-on-delivery policy for chronic late-payers. You could also consider requesting deposits when taking orders, and if you offer credit to clients, make sure to do credit checks first and maintain stringent credit policies.
  1. Adjust inventory – Inventory that doesn’t sell well will also negatively impact your cash flow. Move outdated inventory and offload less frequently purchased items for discounted prices and don’t replace this stock – rather invest more into stocking items that do sell well. 
  2. Manage and trim expenses – Cash flow reduces as and when expenses are paid, so managing your expenses better and eliminating unnecessary costs will immediately boost cash flow. Also consider other ways to conserve cash flow, such as leasing instead of buying equipment.
  1. Prioritise payments – Know exactly which payments must be made when, then order according to priority, and spread payment dates so the most important bills are paid first and the less critical account payments with more flexible payment dates are paid later. Where necessary, negotiate payment terms with your suppliers.
  1. Increase efficiencies – Take advantage of technological advances and artificial intelligence-enabled solutions, such as apps, software and equipment to streamline your business processes and increase efficiency. Also, consider identifying operations or tasks that can be cost-effectively outsourced to freelancers and third-party service providers. 
  1. Use a business credit card – A well-managed business credit card could be used to pay day-to-day expenses during the month to free up cash. This will require keeping a tight record of those expenses and being disciplined in repaying the full balance within the interest-free period. It will also allow the business to benefit from any rewards programs that can reduce expenses, such as a certain percentage of cash back on some purchases.
  1. Keep a line of credit – A business line of credit can be a saving grace for small businesses and companies impacted by seasonality. It provides quick access to funds when needed, for example, to bridge gaps between invoicing and payment, to buy equipment, to cover seasonal or unexpected expenses, or to take advantage of growth opportunities. The business will have to negotiate such a facility before cash flow problems arise. 
  1. Make your money work – At times, there may be a surplus of cash, for example, in seasonal businesses, and at these times, it is crucial to make sure this money works for the business. This can be achieved through building up a reserve fund for emergencies, which experts suggest should ideally be sufficient to cover six months of business expenses; making smart short-term investments and paying off debts faster to reduce interest and shorten loan terms. Consider investing any surplus cash, short-term or otherwise, in a money-market call account to earn interest rather than leaving it idly resting in the bank account.
  1. Use accounting expertise – Successfully monitoring and projecting cash flow often requires professional assistance. Alongside the balance sheet and income statement, the crucial cash flow statement is one of the three main types of financial statements. Generally covering three main areas: everyday business operations, investment activities, and financing, it reveals trends and allows potential cash flow problems to be identified and managed in time. 

Projecting future cash flow requires assessing the previous year’s numbers as the basis of cash flow for the following year and then adjusting these numbers for anticipated changes, such as new pricing, more staff and new funding sources. Of course, these forecasts will change continuously, so it’s important to monitor cash flow on an ongoing basis. 

Speak to your accountant about accessing cash flow reports regularly and for professional assistance in understanding what they reveal about your business, to enable more accurate and relevant business decisions.

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Is Your Trust Registered and Ready for Income Tax?

“A trust is a ‘person’ for tax purposes and is therefore a taxpayer in its own right.”

SARS

SARS recently sent out a reminder confirming that in terms of the Income Tax Act, 1962 (ITA), all trusts are taxpayers and that the trustees, who are also the representative taxpayers of the trust, have a responsibility to register the trusts – whether active or dormant – for income tax purposes. 

The representative taxpayer (trustee/s), or the appointed tax practitioner, must also file an income tax return for the trust on an annual basis, and before the tax season deadlines to avoid penalties and interest.

Trusts that are required to register include all local trusts, non-resident trusts that are effectively managed in South Africa, as well as non-resident trusts that derive income from a South African source. 

Why business owners use trusts 

Trusts are used to hold, protect and ensure the continuity of ownership of personal or business assets, shares in businesses, and the right of use of assets. 

The benefits include protection of assets against creditors, for example in the case of liquidation or sequestration, and against other parties – for example an ex-spouse, or ill-intentioned family member. 

Where appropriate, a trust can be a useful tool to help ensure effective future planning; achieve continuity through efficient succession; and even managing certain tax liabilities, such as estate duty. 

A business can also be registered in a business trust, also called a “trading trust,” instead of registering as a company with the CIPC. This option, however, is only appropriate where the main aim is conducting business, and a contractual agreement will task the trustees to manage the assets of the trust for a profit.

While a business trust can be useful to protect assets and safeguard the business owner against certain liabilities, it also has several drawbacks and may not always be the right alternative to registering a company. 

Whether a business or personal trust, professional advice and guidance is crucial, because not only are the rules governing trusts complex, but the taxation of trusts requires specialised expertise. 

The taxation of trusts 

Whereas companies in South Africa are taxed at a flat rate of 27% for years of assessment ending after 31 March 2023, the income tax rate for trusts is currently 45%, and it is levied on any income retained in the trust. 

This is the highest income tax rate, and trusts also do not qualify for any of the rebates provided for in Section 6 of the Income Tax Act.

Trustees may allocate income and capital to multiple beneficiaries, so that the tax obligation is spread, possibly at a lower rate in some instances. This is because, depending on circumstances, income distributed may be taxable in the hands of the founder, the beneficiaries or the trustees. 

There are also special trusts, taxed at a sliding scale of 18% – 45% (the same as natural persons), and some special trusts also qualify for certain relief from Capital Gains Tax. 

How to submit a tax return for your trust

It sounds quite simple in theory: an ITR12T must be completed and submitted. 

In reality, a ITR12T trust tax return is a 31-page document, and completing it correctly is no quick or easy task. 

Firstly, a trust must be registered with SARS for the taxes for which it may be liable. In addition, the trustees of the trust – who are also the representative taxpayers of the trust – must file the return within the tax season deadline. This responsibility may be conferred to a specific trustee, or to a professional appointed by the trustee(s).  

To make it easier to comply, SARS has announced some enhancements to its system. For example, whereas one could previously only register a trust via a visit to a SARS branch, taxpayers can now register a trust for tax purposes through the SARS Online Query System and also submit any supporting documents online.

Furthermore, the ITR12T trust return form is now available on eFiling. The representative of a registered trust can request the return on eFiling and customise it by completing the questions on the Tax Wizard. Requesting the ITR12T to be posted, as was previously required, is no longer an option and trust returns received via post will be rejected. 

Taxpayers registered for eFiling are also able to complete and submit the return online. Only trusts with ten or fewer beneficiaries have the option to have the ITR12T return captured by a SARS agent at a branch, and only if an appointment has been made.

When the filing period for trusts ends, SARS will raise original estimated assessments on ITR12Ts that were not officially filed by the taxpayer.

After the estimated assessment has been raised by SARS, the taxpayer will be allowed to request an original (new) return to be submitted to SARS. The same estimated return will be issued on eFiling to be completed, with a new version number of the return. 

The taxpayer will be able to request a correction after the original return has been submitted, until one or two rejection letters have been received from SARS. Thereafter, the taxpayer will have the option to dispute the decision taken by SARS.

Bear in mind…

  • SARS introduced a number of form and system changes in respect of trusts from 24 June 2022.
  • SARS has advised trusts that all outstanding income tax returns are submitted without delay to avoid further penalties and interest.
  • SARS reminds trusts not registered for income tax purposes of the availability of the Voluntary Disclosure Programme (VDP), an option that should only be considered after obtaining professional advice. 
  • If the ITR12T return is not submitted by the relevant deadline, the trust will be liable for an administrative penalty due to non-compliance.
  • Provisional taxpayers are required to make provisional tax payments within six months after the commencement of a year of assessment and then again by the end of the year of assessment.
  • The trust is required to keep all the relevant material and supporting documents for a period of five (5) years from the date of submission of the return. SARS may, within the 5-year period, request these documents to verify the information that was declared on the ITR12T.
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Keep Your Business Simple!

“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

Steve Jobs, co-founder of Apple

It is easy in business culture to start believing that more is more. Entrepreneurs often fall into the trap that more meetings, more employees, more products and more leads is equal to more success. Many large companies have failed because they branched out too much, lost focus and, as a result, lost their market.

Quite often the idea that bigger is better and more is more can lead to poor decision making that guides a business away from its competitive advantages, confuses the market and leads to a lack of focus internally. The flip side of this is the ability to strip back unnecessary complexity and instead focus on simplicity. 

Simplicity is defined as “the quality or condition of being easy to understand or to do” and it comes with some genuine advantages.

The advantages of simplicity

  1. Being understood

The major advantage of simplicity is that it makes it easy for everyone in your organisation to be on the same page. Having everyone understand the goals and ambitions of an organisation is easier when you are a small company, but as things develop it becomes increasingly difficult to get everyone pulling in the same direction. 

Removing jargon and chaff from company communications, and simplifying product offerings, your vision, team structures and communication will ensure that not only do your team know what they are doing day-to-day to achieve success, but also that they know how to do it. 

Once your whole company is singing from the same hymn book it’s far easier to get the world at large to understand what you are doing too, which makes defining your brand and selling your products a simpler proposition at the same time.

  1. It’s easier to operate

The more things that have to happen right for your business to succeed, the greater the risk. Keeping your business practices simple; from the number of suppliers to the levels of training needed by your staff will help you avoid the problems that complexity can bring. If you have thirty suppliers, it takes only one of them to fail to start impacting your business. 

On the other side, if you have one supplier of a common product that can be sourced somewhere else, it’s much easier to keep a handle on your production line and ensure that you always have the products you need. (Of course, you do not want to be reliant on a sole supplier without the option of other sources for your essential resources). Obviously, this is an extreme example, but it will never hurt to go through your supplier lists, staffing or any other factor of your business and look at where the number of cogs can be reduced.

Also, with a select group of suppliers, it will be easier to keep informed of their health and sustainability and ability to continue supplying your business regularly and on time. 

  1. It’s adaptable

A simple business model is much easier to adapt should the need arise. A simple business with easy-to-understand communication lines and supply chains is easier to pivot because staff can all be contacted at once and updated, while supply adjustments can be adapted as needs be on the spot.

  1. Results are easier to measure

Overly difficult strategies are harder to implement, and they also make it harder to gauge results. It is far harder to work out which staff and departments are delivering the most value in a company when you have two dozen departments with different KPIs and a hundred staff each than it is in a small company with just a handful of staff. The most successful companies have a straightforward direction, along with clear and simple measuring parameters that keep them on track. 

If, however, your operation has grown into a business with a number of divisions, apply these tips for simplification to each division to encourage their efficient and effective performance.

Tips for simplifying your business

Ironically, making a company easy to understand and operate is not necessarily an easy thing to do. Getting to grips with where changes need to be made will take some time and will require bold decision making. Here are our tips for keeping things simple in your business.

  • Outline your goals

Whether you want to reduce waste, increase employee happiness, or boost profitability, simplifying your business should always start with defining your goals. This should be a short list that allows you to more clearly understand and communicate just what is being tackled and why. Having a short list makes it much more likely that it will get completed without burdening staff further, and also allows you to easily see if the process has been successful. 

Having simple, clearly defined objectives and goals, that the whole team understand and commit to, gives the business the best possibility of success.

  • Consider the outsider’s perspective

There is no doubt, if you lead a business, that you know what it is you are offering and just how many ways you offer it. Being in this position of full understanding can, however, mean that you have lost track of what the average person, or woman, on the street thinks it is you do. Looking at your company from the perspective of an outsider is therefore important if you want to get a sense of how your company and brand are perceived. 

The easiest way to do this is simply to ask. Ask customers, ask friends, ask people at business meetings, or, if you are a larger company, hire a company to do a survey or bring in a consultant. Getting other people’s opinions will quickly show you if you have lost track of your core business. If there is confusion about what you do, or what your primary services are, then it’s a sure sign you may need to go back to basics or change the messaging around your company.

At the same time, ask your customers what they really want. The answers may surprise you and reveal areas where you have been putting in a lot of effort that doesn’t necessarily give the customers what they actually need. This is an essential exercise to determine the continuing relevance of and need for your service offering or product. Change is an ever-increasing factor and new products and services are coming to market. Keeping your business focussed and simple can enable recognition of the emerging threats and need to change, adapt or even develop new offerings.

  • Focus on outcomes

While it may be tempting to watch every move every employee makes, doing so is a hugely time intensive activity that adds layer upon layer to the complexity of a business. Instead of simply hiring someone to do the job, you are now hiring people to supervise and check up on them, and to do that requires more HR functionality to manage all their expectations. Your focus should be on performance outcomes of your key employees.

Additionally, not all rules and regulations will assist your company and these need to be looked at carefully if you want to streamline workflows and increase employee job satisfaction and retention. Look, for example, at how many people need to review and sign off on expense reports or small purchases; or how many times slide decks need to be reviewed before they are presented. 

Reducing menial tasks and making things easier to do gives employees more time to actually do their real jobs properly. The answer to all of this is to focus on outcomes and avoid micromanaging your team. Be sure to maintain an open line of communication with the understanding that the more you listen to your team, the simpler things will be and the better the entire group will work. In addition, being accessible and listening to your people will alert you earlier to emerging risks and potential opportunities in time to take action.

This is going to extend to your ability to hear bad news or have employees tell you when they think your decisions may be wrong. You are only going to find out about bad practices and unclear instructions if you are genuinely interested in fixing problems rather than protecting egos.

  • Fix your non-functioning processes

Whether it’s because you have been in operation for so long that your processes have become redundant or because you are just starting out and haven’t developed any, having non-functioning processes can hamper your workflow and cause a huge amount of unnecessary and time-consuming work. 

The first step is identifying your pain points. Start with the areas of the business where you are actively getting complaints. Break down what processes are leading to these complaints and fix them. The time you spend developing good practices will be more than paid back in the decreased amount of time you spend putting out fires and dealing with unhappy customers. Ultimately, you will want to look at all your processes to make sure they are running optimally, and that time isn’t being wasted unnecessarily dealing on a daily basis with inconvenient problems that could be solved outright. 

  • Organise administration assistance

Administration is a necessary but unfortunate consequence of doing business that can clog up all the otherwise smooth flowing systems. You did not hire those important and highly educated staff to have them sit filling in order forms. You and they should be focused on driving the business, not dealing with payment complaints. Whether you choose to use automated assistance that frees up a researcher’s time in a laboratory, an accountant to organise your finances and save you money on your taxes or someone in HR to deal with errors in pay, getting others to do the finicky work will allow your core team to focus on what they need to do to bring in the profit. Keep management of operating/production teams simple. In the long run, the time saved for everyone will turn into a smoother, and more efficient company. 

At the end of the day, simplifying a company is about getting to the core of what it is you need to do, supplying customers with exactly what they need and no more, making sure your staff are well informed and working together and not overburdened with work that isn’t their place to do.

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Learning The Essential Art of Delegation

“The really expert riders of horses let the horse know immediately who is in control, but then guide the horse with loose reins and seldom use the spurs.”

Sandra Day O’Connor, former Supreme Court Justice

n be tempting, and even inspiring, to be seen “rolling up your sleeves” to execute tactical assignments. But as your responsibilities become more complex, the difference between an effective leader and someone who is battling to do everything themselves will become clear. While it may seem difficult, elevating your impact requires you to embrace an unavoidable leadership paradox: You need to be more essential and less involved. The trick is learning to delegate effectively – a skill you may not have expected to need to know.

To know if you are delegating well or need to still learn a few tricks, you just need to ask yourself this one simple question, “If you had to take an unexpected week off work, would your initiatives and priorities advance in your absence?” If the answer is no, or only maybe, then you need these tips for learning to delegate.

Work out what can be delegated

Step one is knowing exactly what can, and should, be delegated. It’s important you take time to analyse the work you are doing to assess which things aren’t maximizing your efforts and time to the fullest and then work out which tasks would help your teammates develop into the kinds of people the company will need in the future. For your team members to grow, you will need to offer them opportunities to prove themselves and learn new skills. The perfect tasks to delegate are those that are within an individual’s capabilities, but which push them outside of their comfort zone and force them to develop new skills or ways of thinking.

Take time to teach them how to do it

When you first delegate a task you will need to take the time you would have used actually doing that task to teach the new person just how to get it right. This period of training will achieve a few things. Firstly it will make the person who is tasked with the new responsibility capable of actually getting it right first time, but secondly it will give you the confidence to hand the task off effectively as well as develop your new and valuable skill of mentoring and training. 

During this period of training you need to stress the reasons for the task. When people lack understanding about the value of a task or why they have been chosen to do it they also lack the motivation to do it well. Giving them the context about what’s at stake, and the benefits of the opportunity, increases personal relevance and the odds of accurate follow-through. As well as reasons, you also need to clearly provide your expectations. Your employee cannot read your mind, so the need for quality and meeting the delivery date must be equally clear-cut when you pass the job over. Once clarity is established, confirm their understanding preferably face-to-face to avoid any later confusion. Often, mistakes by trusted employees can come down to poor communication on the brief.

Let them do it themselves

For people used to doing everything themselves, this may be the hardest aspect of the entire process. While monitoring them doing the job from afar will allow you to pick up any mistakes as they happen, micromanaging them will only put unnecessary pressure on them and can force mistakes. You need to get out of their way. If your hiring process has been good, you have chosen the right person to delegate to, have clearly defined the task, taken time to teach it to them and then explained your expectations, micromanaging them doing it will not be necessary. Demonstrating that you trust them to do the work will likely yield rewards. Part of delegating is learning to respect the varied and creative ways your teammates get the jobs done instead of requiring that they do it exactly the same way you would have. 

Being able to do this successfully builds confidence in the employee tasked with the job and also gives them greater job satisfaction at the end of the day when they achieve it. This in turn will make them more willing to take on other tasks and keep them happier in their workplace, meaning you are less likely to lose a now skilled employee.

Prepare accurate feedback

Once the task is complete for the first time, it’s important to have a follow-up session at which you analyse their performance with the task and offer both positive and negative feedback. This is an important step in reinforcing the lessons, building confidence and correcting any errors in technique or process before they become locked in habits. It’s as important here to recognize the things the employee did well as it is to recognize the things they did badly. Likewise, if the work differs too much from what you were looking for, take immediate and decisive corrective action. Mutually agree on a plan to return to the targeted goals and take a more active role in monitoring of the task. If the situation doesn’t improve, end the assignment and move on. 

Once you are confident the job can be done well, feedback sessions remain important, but can be conducted less often. It’s vital to ensure you continue to recognise the input of your employees and reward those who are doing well. Exceptional performance is more likely to continue if it’s noticed and rewarded. Do follow through when someone performs exceptionally and be generous with promotions, salary increases, bonuses, and a sincere and heartfelt thank-you. 

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How to Prepare for and Manage a Business Crisis

“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.”

John F. Kennedy, 35th U.S. President

When people hear the term “crisis management” they immediately picture a PR team in front of the media defending a company from an unpredictable disaster, but crises that close down businesses are seldom unpredictable and even those that come out of the blue don’t need to close a company down. Here are 6 things you will need to do if you want to avoid a crisis from closing your business.

Be Prepared! Set up a crisis management plan

The first step to handling any crisis is being prepared to accept that a crisis is possible and having a plan in place for how you will handle it. This plan should attempt to anticipate any future crises and should look at the best possible way to resolve them. Throw the net wide and try to come to terms with all the things that could potentially go wrong and then develop step-by-step plans for overcoming those things. 

The plan should include important aspects such as budgeting for costs and employee time should a crisis arise. This will allow you to at least have the resources available to handle the crisis correctly, something which is even more important should your company be small or relatively new.

If for instance you are releasing a new product in the near future, have your accountants run the numbers on recalls vs repairs and the costs of PR and marketing around potential problems. This will help you to make quick decisions should something actually go wrong.

The other important aspect of a crisis management plan is determining which of your employees will make up the crisis management team. The primary role of your crisis management team is to assess the situation and implement your plan. Strategic thinkers are especially useful in this situation, as is an empathetic team leader with a proven ability to communicate effectively. If the budget allows, consider hiring a crisis management leader whose experience can guide the team in times of crisis. If none of this is within your scope, ask your accountant to assist or recommend a consultancy to do so and start to develop a relationship with them, so they are on hand if the worst does happen.

Regularly review your business plans and systems

Many crises, particularly those of a financial nature, arise because companies have become complacent in their business practices and plans. Going back and looking at the way you are doing things is an important part of avoiding future errors. Just because something has worked in the past, doesn’t mean it still works. 

These reviews should specifically look at where your company stands using simple financial, cashflow and product quality milestones and then compare your company with its competitors. Are you getting ahead or sliding behind? What changes have occurred in the industry or in technology, which may assist you to do things in a more streamlined fashion? 

How does your business plan describe your business? Is it still relevant in today’s environment or are new products, services or the convergence of technologies threatening to make your operations and products obsolete? Think of Polaroid, telex and then fax machines and so on. 

If you find you are stagnating or falling behind your competition then that’s a strong sign that your plans or systems may be obsolete and in need a bit of a shakeup. The best way to avoid going bankrupt in a crisis is to stop yourself from having one entirely.

Lean on others

With your plan in place, once a crisis does hit it’s important you follow the plan. This will often mean leaving things in the hands of your crisis management team, or the company you have agreed to bring in for the crisis. As CEO or company founder it can be tempting to take control yourself but getting through a crisis will require all hands on deck, working together collaboratively. Your role is then not to do everything yourself, but to rather help co-ordinate the important people and get them working together. 

This may be easier than it sounds though. Making sure your team is willing and ready to do whatever is necessary in a crisis begins long before the crisis itself. The crisis is just where you cash in on all the goodwill you have built up with your employees over time. If you have looked after your employees, treated them fairly and built a reputation as a trustworthy and fair leader then there is no doubt they will be ready to help you in your time of crisis.

Communicate clearly

Communication with all stakeholders is going to be one of the most important pillars when it comes to getting you out of your crisis. Being able to clearly define what is happening and the path to fixing it to your employees, customers and other interested parties such as the media is critical if you hope to undo, or at least mitigate, the damage that has been done. The last thing a company needs in a crisis is leadership that goes silent.

If you discover that a crisis is imminent it’s important that you face it head on, and immediately send out communication that acknowledges the crisis and explains that you are working on solutions and workarounds. This will show nervous clients and employees that you are in charge of the situation and are taking care of it, giving everyone a sense of important calm. This gives the public a sense of trust in you and your company, which will be important to weathering this storm.

If you are required to make a statement, keep that statement simple. There is no point flooding the market with information or excuses. Always focus on acknowledging the problem, apologising for it, if appropriate, and then on what is being done to fix it. This gives a sense that the worst is behind you and the problem is being actively addressed. 

Be decisive

In times of crisis people look to those in charge for leadership. This will require making hard decisions and doing so quickly. This is partly where your crisis management plan comes in, as it allows you to make these decisions with the most important information on hand. It’s far easier to explain where the company will find the money it needs if the money is already set aside and your accountants have analysed exactly which aspects of the business are most likely to survive cutbacks.

If one particular person was responsible for the crisis (say by slandering clients in the media) decisive action needs to be taken to remove that person from their position. Leaders cannot allow sentiment and emotion to dictate their actions at this stage. This is most important in the early days of the crisis when the public, essentially your customers, clients, financiers and suppliers, may demand to see that you are doing something positive to manage the situation. 

Be prepared to change everything

While planning is extremely important, no plan can cover all contingencies. Your plan should identify potential actions, but it should not make those actions prescriptive. Allowing your team to adapt the plan as opportunities and good ideas arise will make the plan fit better to the crisis you are in and strengthen the outcome. At the end of the day, every organisation and every crisis is different, but historically the companies that fare the best are the ones that have a plan and the right people backing it.

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Estate Planning: Act Now to Protect Your Family and Business After You Are Gone

“The golden rule of all estate planning is: don’t wait.”

MissionWealth.com 

Just 20% of South Africans have a valid will (“Last Will and Testament”), resulting in countless heart-breaking stories of grief-stricken surviving spouses and children with no income or access to funds as bank accounts have been closed, floundering in confusion with no idea where the deceased’s will or important documents are kept, what assets and debts there are, how to access password-protected devices or who to contact for help.  

To avoid this sad scenario everyone, regardless of age, health or financial position, should have their own estate plan ready, including a valid and properly executed “Last Will and Testament.”

If you are a business owner, estate planning is even more important, especially if your business is your family’s only income. Without proper estate planning, your passing may leave them at a most difficult time without any money and possibly trying to manage a business with no experience.

Implement the six steps below as a matter of urgency to ensure that when you pass away, the legacy you leave behind is maximised and structured, and protects those important to you when you are no longer around to protect them yourself. 

Act now!

Not one of us is assured of tomorrow and the consequences of dying without estate planning and a will are dire. 

Act today! Allocate time right now to attend to this most urgent and important responsibility, or contact a trusted professional to help you get the process started. 

If you already have an estate plan and will, schedule time to review and update them immediately, and diarise regular reviews – at least quarterly and definitely no later than annually. It is essential to ensure an always up-to-date estate plan to account for any ongoing changes in personal circumstances, business circumstances, financial structures, laws and taxes. 

Call in the experts 

Your legacy depends on the quality of your planning, involving a combination of financial planning, wealth planning and estate planning, and therefore requires the expertise of qualified professional advisors such as your accountants. 

The issues at stake are too complex and the consequences of mistakes, omissions or oversights too dire to risk going it alone – there is just no substitute for specialised expertise and professional advice specific to your circumstances. 

For example, a professional should draw up or check your will, which must be properly formatted and worded to reflect your wishes correctly and clearly, and it must be validly executed. 

Similarly, specialised advice may be required where there are minor children, or if you have assets in another country. 

If one of your assets is an operating business, or an interest in a business, you will need professional advice to ensure the best outcome for your loved ones, business partners, employees, investors and other stakeholders.  

Draw up a will 

The absence of a will; or an invalid will; or a will containing areas of uncertainty or dispute, will almost certainly result in animosity and long delays in winding up your estate.

If you pass away without a valid will: 

  • You put your grieving loved ones at risk of financial and emotional hardship;
  • You forfeit your right to choose who inherits what from you, instead leaving assets to be distributed according to the laws of “intestate succession”; and
  • You forfeit your right to nominate someone you trust to administer your deceased estate.

A valid and updated “Last Will and Testament” is the core and foundation of your plan to protect the people you care for. It should communicate precisely your expectations to all concerned and be valid and accurate in every respect. 

Proper estate planning 

Estate planning means arranging your financial affairs in such a way that you leave behind a legacy that is as large and as well-structured as possible. 

Without a proper estate plan, the assets you have accumulated over a lifetime may be decimated by costs and taxes and the business you worked so hard to build could be lost.

Proper estate planning doesn’t have to be overly complicated or expensive, but must:

  • Maximise the assets in the estate, including business assets, 
  • Reduce estate costs and taxes, and 
  • Streamline the process of winding up your estate. 

For business owners, a well-conceived estate plan will include consideration for the owner’s specific intent, for example, that the business continues to provide income as an ongoing concern; or becomes a source of capital for the surviving family. This may involve handing over to the next generation, or an employee, or an outside buyer. A business might be sold to family or staff, and this often requires special planning, for example, staggered payments or a slower transition where the cash is not available upfront. 

If you have business partners, a buy-and-sell agreement should be drafted in advance and measures put in place to ensure co-shareholders are financially able to take over your share of the business when you pass away, and vice versa. A shareholder’s agreement is also necessary to deal with potential conflict and shareholders selling their shares.

Provide liquidity   

To protect your family from financial distress, it is essential to provide money for ongoing financial needs during the lengthy winding up of the estate. 

As soon as the bank learns of your death, all your bank accounts will be frozen. Pensions and insurance policies will take time to pay out, and your assets will generally be tied up in the estate, inaccessible to your loved ones. This means you need to find other ways to provide your family with immediate funds to live on after you pass on. 

Separate bank accounts and investments, businesses held in entities unaffected by your death, and family trusts are some options, while nominating beneficiaries for life policies, annuities and tax-free investments can ensure payout directly to the chosen recipients. 

In addition, your family will need funds to cover significant ‘final expenses’ such as existing debts, medical bills and funeral costs, income taxes and capital gains taxes, estate duties and executor fees. 

Similarly, if you have a business, you may need to provide operating capital or liquidity through, for example, key person insurance, life insurance for partners and contingency policies. 

If there isn’t enough money in the estate to meet the various costs and taxes of winding it up, heirs will have to use their own funds or the executor will have to sell an asset, such as the family home or the business, to cover the liabilities. 

Create an “Important Information” file

All the relevant parties will require documents and information to settle your affairs quickly and easily. 

Create a file for your loved ones that contains all the information they might need, for example, details of funds they can access while the estate is being wound up; the location of your will and important documents such IDs, passports, and power of attorney; bank account numbers, card numbers and PIN numbers; and details and passwords for devices, apps and social media accounts. 

The executor will also require a file of documents and details, for all assets, all income and all accounts, insurance policies, loans, agreements, business assets and interests, as well as personal documents, along with the required access codes, PINs and passwords. 

Business owners will also have to prepare and keep updated documents such as statutory documents; the succession plan; a power of attorney so business affairs can be taken care of by a nominated person; and professionally drafted buy-sell agreements for partnerships or where there is more than one owner. 

Taking these six steps without delay will ensure you have structured a full estate plan that will protect those you care about from unnecessary uncertainty, worry and risk, at the time they most need your protection.

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Five Financial Reports for Informed Decision-Making

“What gets measured, gets managed.”

Peter Drucker 

Financial reports, such as a balance sheet, income statement, cash flow statement, debtors reports and actual spend vs budget reports, provide an understanding of where your business stands financially at a certain point in time. They detail the business’s financial performance over a period and also raise red flags, reveal opportunities and highlight changes that need to be made to meet business goals in the future.

Especially in trying and uncertain times like these, keeping a finger on the pulse of the organisation’s financial position and regularly reviewing its financial performance provides a range of benefits. 

What the right financial reports reveal

  • The financial position of the business – past and present – provide invaluable insights for informed decisions about the future, for example, forecasting future cash flow requirements or identifying financing needs timeously.
  • Business financial performance can be assessed and analysed with the right reports, for example, evaluating marketing efforts or projecting inventory needs, which allow for improvements to be implemented and tracked.
  • Important indicators of financial health – such as liquidity ratios, efficiency ratios, profitability ratios and solvency ratios – can be calculated based on accurate and timeous reports. 
  • How to better manage costs – costs that are unnecessary, duplicated, over budget, or rapidly increasing are often only managed, reduced or eliminated once categorised and identified in the financial reports. 
  • Trends – financial reports provide a means to compare financial trends in the business from one reporting period to another, as well as to benchmark company trends against industry trends.
  • Where the opportunities are – financial reports reveal opportunities and are essential to review before making big spending decisions or considering ways to grow the business. For example, financial reports may reveal where outsourcing or automation are viable options, or where changes to employment structures, operating systems or processes are required; or where there are opportunities to grow and expand into new locations or product lines.
  • Tax liabilities, challenges and deductions – reviewing financial reports can help manage ongoing tax liabilities, flag potential tax challenges, and reveal possible tax deductions. 
  • Financial irregularities or risks – regularly reviewing financial reports ensures that potential areas of concern regarding irregularities, risks or even fraud are picked up timeously and can be quickly addressed.
  • Viability for third parties – financial institutions, creditors and potential investors will request financial reports to consider credit lines, loans or investments in the company. 

The 5 financial reports to understand

To enjoy these business benefits, there are five financial reports to understand – and review regularly – at least on a quarterly basis, but ideally on a monthly basis. This will provide a finger on the business’s financial pulse and enable more accurate and relevant business decisions.

  1. Profit and loss (P&L) statement

The profit and loss statement, also called an income statement, summarises the profit or loss over a certain period by reporting on three components: 

  • total income (or the total sales less costs of goods sold);
  • total expenses including operating costs, taxes, utilities, insurance and interest on loans; and
  • net profit or loss, calculated as total income less total expenses.

This report reveals whether the business made a profit or a loss during the specific period, and also allows the calculation of profit margins, operating profit margins and operating ratios. This allows profitability to be evaluated and enables investors or creditors to assess the level of risk in the business.

To be profitable, the income in the business should exceed the expenses. However, companies may show a net loss at times, and the reason should be evident in the reports, for example, slow business periods or times when extraordinary expenses are covered. Where the net profit is continuously lower over more than one period or expenses regularly exceed income, these may be red flags of financial trouble. 

  1. Balance sheet

A balance sheet provides a summary of the company’s financial position at a specific point in time by summarising total assets and total liabilities, as well as shareholders’ equity, or investments and retained earnings. 

The assets, or what the business owns, can include cash and investments, equipment and property, stock and accounts receivable. Liabilities, or what the business owes, include loans, accounts payable, wages, rent, taxes and utilities. 

It is used to calculate factors such as the current ratio of assets to liabilities, a measure of a company’s liquidity or ability to pay short-term liabilities. This is a particularly crucial consideration when borrowing money from a financial institution or requesting credit from a supplier. A declining current ratio could also indicate financial problems. 

  1. Cash flow statement

A steady cash flow is one of the most crucial success factors for business, especially smaller business, and this makes regularly reviewing the business’s cash flow statement vitally important. 

Summarising the expected cash inflows and outflows over a period, the purpose of this statement is to reveal which areas of the business are generating and using the most cash; enable informed budgeting and spending decisions; as well as to allow potential cash flow problems to be identified and managed in time. 

A cash flow statement will also show how readily a company can meet its debt and interest payments; and how much money was distributed to owners or investors as dividends.

  1. Debtors’ reports

Cash flow problems are often a result of poor management of debtors. An aged debtor’s report enables current and overdue invoices to be tracked and proactively managed to ensure payment is received on time. Lenders and investors will also look at this report to better understand a company’s creditworthiness.

  1. Budget vs actual income and expense reports

Comparing actual revenue/sales against the budgeted figures for a period indicates how well or otherwise the business is trading.

These reports allow a comparison of actual spending as recorded primarily in the income statement, against the amounts budgeted for the period, to assess how well spending matches financial forecasting projections and where there are areas that are over or under budget.

The percentage of costs of goods sold to sales for a period indicates how sales pricing and control over the costs of goods sold are being managed.

Speak to your accountant about accessing these reports on a regular basis and for professional assistance in understanding what the reports reveal about your business. Regularly reviewing your company’s financial reports will unlock many business benefits, provide a finger on the financial pulse of your business and enable more accurate and relevant business decisions. 

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The Simple Solution to Hassle-Free EMP501 Final Recons

“The employer in collaborating with SARS plays a critical coalition towards adherence and compliance of tax principles and laws.”

SARS External Guide – A Guide to The Employer Reconciliation Process

By law, employers must deduct or withhold employees’ tax from remuneration and pay this to SARS monthly on or before the 7th of the following month with the EMP201 declarations; and must also reconcile employees’ tax during the interim reconciliation (due end October) and the annual reconciliation (due end May) when tax certificates (IRP5s/IT3(a)s) must also be issued to employees. 

What the EMP501 achieves

The Employer Reconciliation Declaration (EMP501) is effectively a summary of all the monthly Employer Declarations (EMP201s) for the filing period or tax year, and as with the EMP201, also contains information regarding the ETI (Employment Tax Incentive), where applicable. 

The EMP501 matches the payroll information regarding the employees’ tax deducted or withheld from remuneration – the PAYE, UIF and SDL (Skills Development Levy) liability – as well as ETI, with the payments made to SARS and the information on the employees’ tax certificates.

As such an EMP501 reconciliation requires:

  • the monthly EMP201 employer declarations for the period detailing the payroll taxes liabilities (PAYE, SDL, UIF), as well as ETI 
  • all employees’ updated details and correct values on their (IRP5s/IT3(a)) tax certificates 
  • actual payroll tax payments made to SARS.  

The values on the EMP201 declarations and the tax certificates should balance with actual payments made to SARS.  

An accurate and correct EMP501 reconciliation is important because SARS uses the IRP5/IT3(a) certificate information submitted by employers through the annual reconciliation process to prepopulate the employees’ annual income tax returns (ITR12). Employees cannot change this information, so any incorrect information will influence the employee’s personal tax assessment.   

The reconciliation process also allows employers to review the monthly EMP201 declarations and if any discrepancies are identified, these must be corrected before submitting the EMP501.  

Furthermore, ETI refunds (unused ETI amounts) can only be claimed by submitting interim and annual reconciliations (EMP501s). Failure to do so will result in an ETI refund being forfeited.  

The solution to a hassle-free EMP501 submission

In theory, if all the employees’ details are correct and updated, and each EMP201 for the period was correctly completed, submitted and paid, the EMP501 reconciliation should be quite simple. 

In reality, it seldom is. 

Here are a few of the most common examples where the recalculated (actual) monthly liabilities could differ from the original liability amount declared on the EMP201s:

  • A delay in implementing the correct tax tables resulting in an over/under-deduction of tax.
  • Any administrative timing difference in updating your payroll records with updated employee information.
  • Differences arising due to fluctuations in monthly remuneration.  
  • An over/under-deduction where, for example, an employer spreads an employee’s 13th cheque tax over a year and the employee resigns before the bonus is due. 


Any differences must be reconciled and corrected before the EMP501 can be submitted. 

In addition, verified and updated employer and employee information is required to successfully submit the EMP501 reconciliation. 

This all adds up to a potentially time-consuming and frustrating process. Of course, the simple solution is to ensure that at all times, the employer and employee information is updated and correct, and that each month, the correct EMP201 declarations and payments are made and that any discrepancies are corrected promptly. 

Given the complex nature of employee taxes, a recognised payroll system with automatic updates when tax and other changes are made, is a crucial tool to achieve updated and correct payrolls month after month, and as a result, hassle-free EMP501 reconciliations.

Running out of time? 

With the next deadline for this year’s final EMP501 reconciliation around the corner, some companies may realise that they are running out of time. 

Before the end of May, all employees’ information must be verified and updated – including valid ID/passport numbers, employee income tax numbers, residential and postal addresses, payment methods and bank account details, and employee classifications. It is not possible to submit the EMP501 reconciliation unless all the mandatory fields for each employee are correctly completed.   

The employees’ tax certificates must also reflect all the income, deductions, benefits and contributions pertaining to each employee for the period, recorded under the relevant codes.

Keep in mind that this information is legally required, and you may be subject to penalties for missing information.  

If there are any errors, the certificates must be rectified and the EMP501 reconciliation resubmitted. This is costly in time and resources and may result in penalties.

Offences and penalties

An employer who, ‘wilfully or negligently’, amongst others fails to submit monthly declarations; interim and annual reconciliations and/or the annual IRP5/IT3(a)’s is guilty of an offence and is liable, upon conviction, to either imprisonment for up to two years or both imprisonment and a fine.  

Non-compliance also includes wilful or negligent failure to deliver an IRP5 to an employee or former employee, deducting or withholding employees’ tax from employees without paying it to SARS, or failure to keep the correct employee certificates, EMP201 and relevant documentation for audit purposes.

The final reconciliation and submission of employee tax certificates to SARS must take place by the end of May. Not doing so will result in a PAYE admin penalty being imposed on the EMP501 return reconciliation for non-compliance. The penalties are levied in 1% increments over a period of 10 months and are based on the employer’s liability for that year of assessment (12 month period). Depending on the number of months outstanding, the penalty is up to 10% of the total employees’ tax liability. 

Given all these obligations to be met, as well as the penalties that may apply, companies are well-advised to seek assistance from a professional with the necessary knowledge, experience and resources to assist in completing the process in the few short weeks ahead, as well as to ensure hassle-free EMP501 recons in future. 

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The 7 Signs It’s Time to Move Your Business Out of The Garage

“One doesn’t discover new lands without consenting to lose sight, for a very long time, of the shore.”

Andre Gide

All of the largest businesses in the world started small. Apple, Google, and Amazon were all famously founded in garages. Now these giant multi-billion-dollar companies occupy multiple office blocks that dwarf football stadiums. This happened because at one time their founders moved them out of the garage and into the office. Moving away from a comfort zone can be frightening, but knowing when to move a business into its own space may be one of the most important decisions a company owner can ever make. How do you know it’s time to take the plunge and get your business its own space? Here are the signs.

  1. You need more employees than home can handle

This may seem like an obvious sign. Your business is doing so well that it’s time to take on new staff, but you have not done it yet, because you have no idea where you would put their desks. Staff are the lifeblood of any venture and opting not to move your company in this situation would directly and immediately impact its potential for growth.

This is the simplest scenario to recognise and also the one that needs the quickest attention. It will be better to find the new office space and then hire staff, than to hire them now and find that once you have moved, your business is no longer situated in a convenient location for your staff. 

  1. You need more space

While finding a home for staff may not be your issue, finding storage or workspace may be. If your business keeps a lot of inventory on hand or needs large work areas then it’s better to find a dedicated space to grow than it is to try and fit it all in your home. While it may be feasible to work surrounded by boxes piled on top of boxes and supplies crammed in the spare bathroom for a while, eventually it’s going to become unmanageable and lead to unhappiness in your home and your personal life. Workplaces where everyone needs to work on top of everyone else also cause employees to become unproductive and unhappy, which in turn leads to disappointed customers, and a decrease in business. If you don’t find a new space to fit the business, you will soon find the business decreases to fit the space.

  1. You want to create a brand identity

Your brand is about more than simply the service or product you produce. Think about Google’s offices and what they say about the company, the image they project, the culture they are able to create among employees and the impression it gives to customers. Working from your home may fit your own personal brand, but it becomes difficult to establish a corporate culture and image when the office itself does not reflect what you stand for. 

Moving into a separate workspace allows a business to tailor that area perfectly to reflect what it is all about, and the needs of its employees and customers, better reflecting the brand you are trying to build. Even if you are happy with your employees working from home, having a small space where they can have meetings with clients, share concerns with HR or attend company functions, helps them to feel a part of something that’s bigger than simply your couch at home, and lets them feel like the brand is strong, reliable and somewhere they can easily stake their long-term futures. 

  1. The industry is changing

When starting your business you may have had ideas of just who your customers are and what their needs might be. A few years down the line you might be servicing an entirely different customer bracket than expected, selling products you didn’t even think of initially or catering to a market that isn’t even in your city. Depending on the kind of business you run, the changing demands of your customers can dictate exactly where you should be located and what your office needs to look like.

Maybe you are losing out on retail opportunities and need to move closer to customer businesses to better service their needs? Perhaps your suppliers will give you cheaper delivery costs if you are located in a different area? Maybe your customers have all semi-grated away from your city? Or perhaps employees with a particular set of skills can’t be found in the town where you live?

Understanding the needs of your business and your industry will help you to determine where to best situate your company and if that place isn’t near your home, it’s time to consider moving.

  1. Home distractions

Working on a new business from home comes with a number of benefits. It allows a founder to easily fit their lives in around the needs of a new company. There will come a time, however, where that personal life and the needs of the family, will become a distraction to the optimal operations of the company. When the demands of family life, including children, start keeping you from achieving what needs to be done then it is definitely time to move your company into its own space. Being able to establish a good work/life balance will be important if you want to both grow a successful business and have the kind of happy, healthy family life that supports the energy it takes to be an entrepreneur. 

  1. Money

At the end of the day, money and affordability are going to play the largest part in deciding whether you need your own office space. Perhaps you aren’t being taken seriously by the larger brands or need to scale up quickly if you are to grow? Maybe you want to move, but can’t quite afford it? Carefully considering the pros and cons of moving will ultimately give you the real answer as to whether it’s time to move out of home. The needs of the business and the potential for growth will have to be balanced with the costs of renting and establishing a company space before you can truly determine whether it’s time to move out of the garage.

When you move you must know that the benefits of moving will outweigh the costs of buying office furniture and signing a multi-year lease. You will need to take into consideration, whether you want to own or lease the new space each of which comes with different cost and tax implications, the projected growth of the company over the long term and which employees absolutely need desk space and which can work from their homes. Carefully analysing your budget and balancing it against your needs and projected earnings will give you a clear idea of whether you should move, and if that works out in your favour, and you can 100% afford to pay the bills of the new space, then it would be absolutely foolish not to.

  1. Balancing the possible tax benefits

Running a business from home can allow you some tax benefits dependent on a number of factors including how much of the house is used for the business and what exactly that space is used for. Moving into your own space may, however, provide additional tax relief that can sometimes ameliorate the costs of moving out. 

Ask a professional to help you with a careful analysis of the costing and to advise you on whether you stand to benefit in this regard.

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Companies: How Will the Reduced Tax Rate and Assessed Loss Rules Affect You?

What the government gives it must first take away.”

John S. Coleman

It certainly seemed like a win for taxpayers when Finance Minister Enoch Godongwana announced in his February Budget Speech that the corporate income tax (CIT) rate has been reduced from 28% to 27% for companies with a tax year ending on or after 31 March 2023. 

But as we are reminded by John Coleman’s quote: “What the government gives it must first take away.” 

In this particular instance, to give a 1% reduction in the corporate tax rate, government limited the tax relief corporate taxpayers have enjoyed in the past in terms of assessed losses and interest deductions. 

According to Treasury, South Africa is following an international trend evident over the past few years to restrict the use of assessed losses and reduce the corporate income tax rate.

What’s the link to the corporate tax rate reduction? 

The 1% reduction in the corporate tax rate is expected to cost the fiscus R2.6 billion -in the year of assessment commencing on or after 1 April 2022. To ‘neutralise’ this – and thus achieve a revenue-neutral reduction in the corporate tax rate – two further changes to corporate tax rules have been made.

The first is further limitation of corporate interest deductions, specifically on multinationals; and the second is restrictions on the use of assessed losses to reduce future corporate tax liabilities. 

The first involves changes to, amongst others, the scope and thresholds of the interest deduction limitation, achieved by fixing and limiting the interest deduction limitation ratio to 30% of a taxpayer’s “adjusted taxable income”, instead of the earlier flexible percentage (adjusted upwards and downwards based on the average repo rate) capped at 60%.

What are the new assessed losses rules?  

Assessed loss rules were originally created to smooth the tax burden for:
– businesses that require a significant upfront capital outlay, causing assessed losses to accumulate before any profit is realised;
– cyclical businesses that realise losses in some years and profits in others, such as farming operations, and
– companies that suffer temporary setbacks and losses before recovering to become profitable again.

As a result companies could previously offset the full balance of any assessed loss carried forward from a previous tax year against all its taxable income for the current year. In addition, companies could carry over any assessed loss balance remaining to future years indefinitely subject only to the requirement that the company continues to carry on a trade. In effect, it meant that a company would only become liable for income tax once it earned a taxable profit and the balance of the assessed loss was exhausted. 


Under the new rules, assessed losses brought forward from a previous year of assessment – regardless of the amount – can only be offset against the higher of R1 million or a maximum of 80% of taxable income for the current year. 

This means that income tax will now always be levied on 20% of the taxable income for the year where the taxable income in the current year exceeds the R1 million threshold, no matter what the assessed loss balance carried forward from previous years may be. This will have adverse tax cash flow implications for some companies. 

Small companies unaffected, and losses are not forfeited, unless…

Smaller companies with a taxable income below R1 million will not be affected by the new rules.


Further good news is that companies will not forfeit the balance of the assessed loss that could not be utilised. The balance can be carried forward to the next tax year, provided that the company earns income from trade in the succeeding year of assessment.

However, beware: if a company does not trade for a full year of assessment and no income is earned from such trade, the assessed loss will be lost. 

When do the new rules apply, and which companies are affected?

The new rules apply to any year of assessment that ends on or after 31 March 2023, which, in more practical terms, means years of assessment that begin from 1 April 2022 onwards. 

It is also important to note that the new limitation will apply to assessed losses generated prior to the effective date, as well as those arising after 1 April 2022.

Some companies will not be affected immediately, for example, companies with no assessed loss balance, or those with a taxable loss. 

The cash flow implications, with examples

For those companies affected, the changes will have tax cash flow implications, best illustrated by the way of examples –

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When, Why and Whose Jobs You Should Be Outsourcing

“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”

Lee Kuan Yew, Former Prime Minister of Singapore

Launching a business requires the small business owner to wear many hats. From marketing, to accounting and HR the small business owner needs to learn any number of skills to get their venture off the ground. Eventually though there comes a point where doing everything yourself as owner is hurting the company more than helping it and knowing when to bring help on board can be the difference between success and failure.

If you aren’t quite ready to hire employees or if you just need a few hours of help a week as opposed to full time, outsourcing work can become the solution you are looking for. With many professionals working freelance it is easier now than it has ever been to find the right people to pick up the slack and give you a few extra hours in your day to focus on the core of your business.

When is it time to outsource?

Knowing when to outsource is critical. Bringing people on board at the right time can free up hours a week and give you the opportunity to win new clients or refine your product offering. So what are the signs you should be considering outsourcing?

  1. You find you don’t have time to do all the work

Having plenty of work is a blessing but having too much can mean repeated late nights or missed deadlines. Making sure you keep on delivering at your best means you can’t afford to be tired, rushing jobs or worse, simply turning work away. If this is a problem that’s happening every month then it’s definitely time to consider bringing someone on board.

  1. You want to turn away new work

Turning away work is always a bad idea. Once turned away those clients may never come back whereas getting what they need done could build additional income for life. Whether it’s simply helping them with your core services or taking on new growth areas for your company, always rather outsource some of the work and make sure you can make it work for these new customers.

  1. You get hired for irregular or once off projects

If you find the work is regularly outstripping your capabilities and capacity it might be time to bring on permanent employees, but when your business is getting once-off projects or work that will only last a short while it can be much safer to outsource work to freelancers or agencies. This way you can meet your needs for those projects and not worry about paying people in the months where you don’t have as much work.

  1. There are tasks you hate doing

You may be surprised to see this on the list, after all surely you have become used to telling yourself to get over it and just plough through? The truth is, work you hate is work you are likely doing badly. Save yourself the time and the pain of doing a bad job by giving it to someone who specialises in that field and is going to get it done well.

The best jobs to outsource

Outsourcing doesn’t just refer to those jobs that are directly related to your business. Sometimes it can actually help you to hire a domestic, an au pair or a personal assistant at home to free up a few more hours you can dedicate to the business. Outsourcing business functions though is much more likely to be the right choice when it comes to getting yourself some valuable time as these jobs can generally be trickier, better done by professionals and may, in fact, lead to long term growth of your business as well as simply giving you some breathing room.

  1. Accounting, bookkeeping and payroll

For those unused to finance, tracking income and expenditure, invoicing clients and filing tax returns can be extremely time consuming. Given that you are running a small business it might be cost-effective to outsource bookkeeping and payroll because you can then pay a set amount that changes as the company grows, rather than paying an employee full time and having the hours vary. This bookkeeper can also be in charge of extra tasks such as document scanning to help keep your receipts and bank statements in order. 

At the end of the year handing your taxes over to an accountant is invaluable. Not only will it take an important task off your plate but can often get you a percentage of that spend back in tax savings. Outsourcing some decision-making to an accountant may help as well, as they will be able to run the numbers and advise on whether a new venture, expansion or client is viable. They can also help you work out whether outsourcing or bringing someone in-house is the right solution for you.

  1. Human Resources

Human Resources isn’t quite as simple as hiring and firing. There are so many rules and regulations involved in the running of good HR, not to mention submission of PAYE, UIF, pension contributions and returns etc., that doing it yourself may end in bitter acrimony and high costs. 

Hiring a company that specializes in human resources laws and regulations will not only help you stay compliant and up to date but can also streamline the onboarding process of new employees and the hiring process in general. A good HR company or freelancer will additionally handle details such as retirement plans, group health insurance, and other benefits that you offer, saving a huge amount of effort and time.

  1. Marketing and content creation

Almost everyone believes they can write well enough for a website, blog or LinkedIn update, but there is a lot more that goes into these things than simply filling a page. With SEO, and content tailored for the outlet it’s being used on, creating content can be a time-consuming job for those who aren’t experts. Developing strategy and deploying it correctly takes a professional and handing this task over to an outsourced freelancer will often pay for itself in the success of your digital marketing. 

This is all also true for PR and other marketing. It may seem simple to send off an email detailing your recent projects and successes, but professional PR people will ensure it’s read by the right people. With a PR professional you aren’t hiring a writer, you are hiring a network of important contacts. 

Finally, no business can succeed without advertising and bringing marketing people on board will be essential if you don’t want your extremely useful product or service to vanish unnoticed by the public. The good news is that provided you hire the right people, what you spend on advertising will almost certainly come walking back through your door at a later stage in the form of customers. 

  1. Graphic design and presentation construction

Your last job required you to put together a few PowerPoints so now you sit and laboriously put together your pitches and presentations yourself. The truth is, unless you’re a skilled designer yourself, your digital presentations could definitely use a boost, so instead of wasting your time on PowerPoint animations and choosing fonts rather spend a little money to make your pitch look extra good and use the time you’ve just saved to rehearse your presentation.

Is outsourcing “the future of work”?

Outsourcing is increasingly being touted as “the future of work”, and certainly the truth is that it is here to stay. Those who refuse to put the work they can’t do perfectly out to the new wave of freelancers and outsourcing agencies are ultimately only hurting their business. 

Of course, the ultimate question is whether outsourcing makes commercial sense for your business, given your particular financial situation and business structure. Chat to your us at Emma Pardoe Chartered Accountant (SA) to see where it may be right for you.

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A Guide to Accessing Funds That Can Help Your Small Business

“Since the unemployment rate in the Republic is of concern to Government; and since Government recognises the need to All company bosses want a policy on corporate social responsibility. The positive effect is hard to quantify, but the negative consequences of a disaster are enormous”

English economist and academic, Noreena Hertz

Stimulating the SME sector is considered as one of the quicker ways to rejuvenating the economy. According to a 2020 survey by McKinsey & Company, SMEs make up over 98% of South African businesses, and employ between 50% and 60% of the workforce. 

However, it takes money to run a business and there is a need for assisting and guiding SME owners to secure more funding, particularly given the devastating impact of the Covid-19 pandemic over the past two years. 

There are varying reasons why these small businesses need additional capital, determined by differing requirements in the business value chain – including the scope of production, workforce and the nature of the business, among other factors. 

Some – but not all – of the funds available in the market are allocated according to specific trades, departments in the production process and demographics of the directorship – usually according to age, race, location and gender. 

Here are some examples of the grants and funds available, along with a brief overview of the funding models

  • Equipment related financial support. The Department of Trade and Industry’s (DTI) Small Enterprise Development Agency (SEDA) Technology Program, provides both “financial and non-financial technology support” – meaning either funds or equipment support for small enterprises.
  • Staff training. The DTI’s Black Business Supplier Development Program offers grants in a cost-sharing scheme to black-owned businesses for the purpose of business skills training. 
  • Female directors can take advantage of gender-empowerment funding programs like the Business Partners Women in Business Fund, which is aimed at increasing access to finance for female entrepreneurs for them to start, expand or purchase existing businesses. 
  • A more narrowed down version of this model of funding is the I’M IN Accelerator Fund, which is for black South African women who have founded technology start-ups. They can apply to be part of this 10-month long acceleration program and possibly access up to R1,5 million in pre-seed capital, mentorship, marketing support and follow-on investment. The business has to be 51% black- and-women owned to qualify. 
  • The National Empowerment Fund (NEF) is a black economic empowered driver and funds businesses with a black majority ownership. 
  • The DTI funding model is usually segmented according to factors like industry, marketing channels and/or the age of the directorship. However, qualifying small businesses can currently obtain the following loans and grants:
  • The Export Marketing and Investment Assistance Scheme (EMIA) is designed to support the export market and stimulate new foreign direct investment into South Africa. This is closely linked to the Sector Specific Assistance Scheme (SSAS), which is a repayable cost-sharing grant that supports stakeholders in the export market for South African goods. This scheme comprises three sub-programs, namely: Generic Funding, Project Funding, and Project Funding for the Emerging Exporters. 
  • The Umsobomvu Youth Fund: A Government initiative aimed at creating opportunities for South African youth in entrepreneurship and job creation, helping youth setup, expand and develop their businesses by teaching them essential business skills. Umsobomvu is a Voucher Program not a loan program. The Voucher Program provides support services to both new and existing youth owned businesses
  • The Agro-Processing Support Scheme (APSS) is a R1-billion cost-sharing grant fund aimed at boosting SME investments in the agricultural space. Minimum qualifying investment size, including competitiveness improvement cost, will be at least R1 million.
  • The Aquaculture Development and Enhancement Program (ADEP) is a cost-sharing incentive program for projects in primary, secondary and ancillary aquaculture (activities in both marine and freshwater).
  • The Support Program for Industrial Innovation (SPII) is aimed at funding the innovation and development of technological products in South Africa.
  • R&D Tax Incentive is supported by the Treasury and offers a deduction of 150 percent in respect of expenditure on eligible scientific or technological Research and Development (R&D) undertaken by companies in South Africa. In his 2022 Budget Speech, the Minister of Finance announced that the R&D Incentive is under review but that it will be extended in its current form until 31 December 2023.
  • The De Beers Fund: At a more localised level, a large diamond mining company also awards grants, for small businesses located in its operating areas. These areas are Kimberley and surrounding areas in the Northern Cape, Viljoenskroon and surrounding areas in the Free State, Musina, as well as the Blouberg Local Municipalities in Limpopo.
  • Tshikululu Social Investments: Tshikululu is South Africa’s leading social investment fund manager and advisor, working alongside investors and other development partners to achieve sustainable social impact. The organisation manages other companies’ CSI funds.

Over the years, the organisation has managed the likes of the De Beers Fund, Rand Merchant Bank Fund, among others. 

  • SA SME Fund:  Established by members of the CEO Initiative as a collaboration between government, labour and business to address some of the most pressing challenges to the country’s economic growth – as an avenue of support for the SME sector. The SA SME Fund invests in repayable funds that support and develop entrepreneurs, typically with an enterprise value of less than a R100m.
  • Financiers: These are licensed lenders with their own products and terms of trading, being that they are private entities. However, the terms have to be agreeable with trade regulations, including Fair Practice – which protects the borrower’s interests.

If you need an urgent loan, private financiers might be an alternative to the grants and cost-sharing schemes mentioned above. There are several types of loans that small business owners can apply for, depending on the individual needs of their businesses. The following are the repayable financing products available to SMEs:

  • Purchase order finance is used by a business to complete an existing order.
  • Working capital finance is an option that can boost a small business with much needed cash flow.
  • Bridging finance is a short-term loan that can be used by small businesses to finance their working capital. An example of this is Lula-lend, which positions itself as a good option if your business requires a loan provider and you need urgent funds of between R10 000 and R5 000 000. The company can have the funds in your account within days and repayment is over 3-12 months. 
  • Credit cards can be handy for entrepreneurs; however, they require discipline as their interest charges and repayment rates are normally higher.
  • Inventory loans can help your small business keep enough stock in the inventory. It is more suitable for small businesses with tangible products to sell. 

Because of the varying types of funds, SME owners are encouraged to consult with financial advisers in order to make the right decisions for their individual businesses’ needs, the amount required and the right funding model.

Don’t miss out, ask for professional advice about grants and take advantage of the opportunities they afford small businesses.

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What The New Employment Tax Incentive Limits Mean for Your Business

“Since the unemployment rate in the Republic is of concern to Government; and since Government recognises the need to share the costs of expanding job opportunities with the private sector…”

Preamble to the Employment Tax Incentive Act 26 of 2013 [ETI Act]

During Finance Minister Enoch Godongwana’s 2022 Budget Speech, a substantial 50% increase in the limits for the Employment Tax Incentive (ETI) was announced, effective from 1 March 2022. This will increase the amount of tax relief employers can claim when employing young people. 

ETI fast facts 

  • An incentive encouraging employers to hire young work seekers aged between 18 and 29 years.
  • Reduces the employer’s cost of hiring young people through a cost-sharing mechanism with government.
  • Can be claimed for a 24 month period for all employees who qualify. 
  • Came into effect on 1 January 2014 and will end on 28 February 2029.
  • ETI is claimed by reducing the amount of Pay-As-You-Earn (PAYE) due by the company, leaving the wage received by the employee unaffected. 

The new limits 

 

As the monthly remuneration increases, the amount of the rebate reduces: at the upper limit with a monthly remuneration of R6 400, the monthly rebate is R750. 

Even so, especially for companies with many employees, these rebates will add up on a monthly basis, and stack up over two years. There is no limit to the number of qualifying employees that you can hire.

Pitfalls to be aware of 

  • Beware the qualifying criteria 
  • Employers must meet the qualifying criteria on an ongoing basis, including being registered for Employees’ Tax (PAYE) and being tax compliant. 
  • Employees must meet the qualifying criteria on an ongoing basis, including having a valid South African ID or permit; be between 18 and 29 years old; earning between minimum wage or R2 000 and R6 500 for a 160-hour month; and who is not a domestic worker or a “connected person” to the employer.
  • Beware the continuous changes 
  • The value of the ETI is not static but depends on the value of the monthly remuneration paid to the qualifying employee, and must be calculated each month for each qualifying employee. In addition, if a qualifying employee worked less than 160 hours in the month, the value of the ETI must be calculated proportionally. 
  • The ETI is constantly being refined, expanded and tightened – including a series of amendments to the ETI Act with effect from 1 March 2022, so employers claiming ETI must stay updated to ensure they remain within the bounds of the ETI Act.  
  • Beware the deadlines 
  • If all the allowable ETI wasn’t used at the end of each six-month reconciliation period (1 March – 31 August and 1 September – 28 February), employers may be refunded the amount, if they are fully tax compliant. 
  • A non-compliant employer will have until the end of the next reconciliation cycle to correct any non-compliance and be able to receive the ETI refund. If the employer doesn’t become compliant by the end of the next six-month reconciliation period, the ETI refund will be forfeited.
  • Beware the possible penalties 
  • Penalties equal to 100% of the ETI claimed will apply when an employer claims the ETI for any employee who does not qualify.  
  • Penalties imposed will result in under-payment of employees’ tax, which could result in possible interest and penalties in terms of the Tax Administration Act.
  • A penalty of R30 000 will be levied for each employee displaced to employ an employee who qualifies.
  • It has been proposed that the ETI Act be amended to impose understatement penalties on reimbursements that are improperly claimed.
  • Beware the potential of audits 
  • A number of taxpayers have faced time-consuming and costly verifications and audits of their ETI claims.
  • Additional assessments issued by SARS may reverse the ETI initially claimed by employers.
  • Recordkeeping is required by the ETI Act.
  • Beware of potential scams
  • Employers should exercise vigilance regarding tax abusive ETI schemes and scams offered by third parties, as the employer would carry all the risk in respect of the tax and labour obligations.  

Seek professional assistance to ensure you can navigate all these potential pitfalls and claim this ETI incentive, so you can employ more young people while sharing the cost with government. 

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SARS Makes SMME Tax Compliance Easier

Tax complexity itself is a kind of tax.”

Max Baucus

NOTE: Bear in mind that although many of the resources mentioned below are addressed by SARS to you as a private taxpayer, there is just no substitute for professional advice and assistance when it comes to matters of tax. Contact us at ep@emmapardoe.co.za for assistance.

“SMME Connect # 1”, the January issue of a new SARS newsletter for SMMEs available here, has focused on the issues around tax compliance in the sector. In the letter SARS acknowledges problems around the pandemic that lead to increased difficulty for SMMEs attempting to meet their tax obligations saying, “We acknowledge that the COVID-19 pandemic has impaired our ability to be physically ‘At Your Service’ as we had to limit the number of taxpayer visits at SARS branches and promote digital channels”. It adds, however, that the bulk of the problem comes from the fact that business owners in the sector either find their obligations difficult to understand, or are not aware of their obligations, and just what is required of them. 

In acknowledging the problem SARS has also stated that its direct aim is to make the processes simpler, increase knowledge around requirements and ultimately to bring all SMMEs up to date on their tax compliance. This is what the letter, aligned with a new initiative called Vision 2024, sets out to correct.

Aligned with “Vision 2024”?

In March 2020 SARS introduced their new Vision 2024, which they said was an attempt to update the goals and services of SARS in order to improve efficiency and their ability to collect owed taxes. 

“Our Vision 2024 is to build a smart modern SARS with unquestionable integrity admired by Government and public and our international peers. We proceed from the base that all taxpayers are honest and if we make it easy and seamless, compliance will increase simultaneously,” SARS said in a statement at the time.

In line with this, SARS’ new newsletter endeavours to not place blame for past non-compliance. The issue in fact begins with a number of startling stats on the SMME sector in the time of the pandemic. SARS says “95% of SMMEs reported a decrease in revenue attributed to the consumers’ inability to earn income” and that “90% of SMMEs are either struggling or temporarily closed”. The purpose of these stats is for SARS to say, “We understand your plight and aren’t out to get you.” It goes on to state that “When you comply with your tax obligations, you place your business at an advantage by eliminating the potential cost of non-compliance and administrative penalties.”   

What are the changes?

In order to simplify the system and make it easier for SMMEs to meet their tax obligations SARS has introduced a number of new measures, initiatives and system upgrades.

The first step is to confirm your “tax compliance status.” This can be done by acquiring a tax compliance pin. The process for doing this is illustrated on a simple YouTube video. The pin can then be used by your accountant over the next 12 months to verify your compliance status.

In addition, SARS has also introduced an online query system designed at assisting taxpayers to raise queries with SARS without going into a SARS branch or calling the contact centre. The query system allows taxpayers to fill in a form and, amongst other things, request a tax number, submit supporting documents, submit a payment allocation, report new estate cases, register a tax representative, make tax compliance status requests and verify tax compliance status.

SARS has also introduced a new “Enhanced Debt Management” process, which will allow taxpayers to arrange debt repayments directly through eFiling for four separate tax types: Personal Income Tax, Corporate Income Tax, Value-Added Tax and Pay-As-You-Earn (PAYE). Previously, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling. 

The new Enhanced Debt Management Process easily allows individuals and companies to catch up on outstanding administrative penalties and taxes from a number of different pages on the site and gives them the ability to: 

  1. Initiate and simulate a payment arrangement, with an instalment plan of up to 36 months,
  1. Supply the reason for the request and preferred method of payment,
  1. Attach mandatory supporting documents where required,
  1. Submit the request if they meet qualifying criteria.

These new facilities come with a reminder for business owners to also submit their own income taxes, which are a requirement in law that can affect the business’ compliance status.

Communication and social media

Finally, SARS has also updated their communications generally, with the newsletter only being one of three communication tools to educate people on their obligations. While the best solution remains conferring with a professional for all possible tax solutions, SARS’ new YouTube channel, which covers such diverse topics as, Understanding Tax Compliance Status, Illicit Trade and Counterfeit Procedures, Value-Added-Tax, Turnover Tax, Registration, Licencing and Accreditation and more, will certainly help the modern SMME owner to better understand their responsibilities when it comes to taxes.

SARS has also encouraged SMME owners to follow the service on social media through the following channels: Facebook, Twitter, LinkedIn and YouTube.

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Six Tips for Creating a Distraction-Free Home Office

“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”

Albert Einstein

To many people the idea of working from home can seem like a dream. Just avoiding the daily commute makes it worthwhile for many, but add in the benefits that arise from being present for your family, and being able to work the hours that suit you, and suddenly it’s an extremely attractive proposition. 

While it definitely does depend on the individual, working from home can present a number of new challenges when it comes to getting work done. Laundry is building up, the home needs cleaning from the weekend, and your TV and fridge are also always on hand. 

Luckily there are some small changes anyone can make to ensure their home office is at least as good as a corporate office for concentration, and potentially even better for productivity.

1. A dedicated workspace

While not everyone has the ability to turn one room of the house into an office, it is wise to try and create a dedicated workspace for when you are “at the office”. Even just pushing a desk into the corner of your lounge and working from there will put you in the right state-of-mind for getting your business done, and at the end of the day you can log off and go back to your family life. Sitting in bed to work may be fun for one day, but long term blurring of the lines between the spaces for work and those for play can mean you can never really get away from your job.

For the same reason it may be wise to have a “work computer” and one for social media and recreation. Use the work computer the same way you would the one at any corporate office. When you turn it on there will be no non-work apps to distract you, and you should immediately be able to get into a work state of mind.

Ideally your work desk should face out a window, or failing that, towards a wall so you aren’t constantly looking at the distracting build-up of dishes, or the temptation of the television. Put up some work-related art, keep the table organised and you will find that when you sit down you are already thinking of working.

2. Noise is a distraction too

It’s not just visual things that can be distracting. The noises of a home can also take you out of that important work mindset. If you live alone this will be a lot easier, but if you have a family around, their activities can break your train of thought as easily as if they were tugging on your shoulder.

You don’t need to go overboard but finding ways to mute the external noises will help you to concentrate. Consider changing your office door from a hollow one to a solid wood one. Adding weather-stripping or a door sweep along the bottom of the door can also cut down on the amount of sound pollution that seeps in. If you use a corner of a common room for your office, consider investing in a pair of noise-cancelling headphones to ensure your thoughts remain entirely undisturbed.

3. Get an office chair

By now you will no doubt have spent a day working from a dining room chair, or on a couch and will know that this is not an effective way to do it. There is a reason offices splash out on their chairs. Dining room chairs are intended for short stays whereas an adjustable office chair will enable you to set your ideal height and maintain good posture throughout a full workday. No one’s watching to see whether you’re sitting up or slumping, but your back will let you know if there’s been any cop-out. 

Giving yourself a sore back or painful legs is a great way to ensure you get no work done, so apart from getting a good chair, make sure you take scheduled breaks away from your computer. Be sure to look away from the screen every 20 minutes and don’t be afraid to get up and walk around the house from time to time. A study conducted a few years ago by DeskTime indicated that the most productive interval was 52 minutes of work interrupted by 17 minutes of break. Just don’t allow yourself to get caught up in home chores.

4. Keep it tidy

A cluttered desk may make you look busy, but it isn’t doing you any favours when it comes to focus. You might be surprised by just how much paper can build up doing an average job and often this is something you need to keep under control. Getting decent paper storage is therefore an important thing to consider when building a distraction-free office. 

If your job is particularly paper-heavy you may want to invest in a filing cabinet, but for most a couple of desk drawers or shelves should be fine. Set aside a designated place for incoming mail or work on the to-do list, another for projects in process, and a third storage area for completed projects or paid bills. Organising your computer files in a similar way, to keep upcoming work and work in progress in a designated accessible area and finished projects stowed away in a cloud database, may help you stay on top of the jobs you need to do.

5. Be Work Ready

When you sit down to work you want to be able to do just that. In order to make sure you will be at your most efficient your workspace needs to be work-ready. You don’t want to have to interrupt your flow with a trip to the shops to get printer paper for example. Invest in your workspace so that it’s the same as you would find in any corporate building. 

Make sure you have the stationery and things you need to get the job done, and this includes having a good internet connection. How easy is it to get to your router if you need to reset something? Do you have enough bandwidth for online meetings? What is behind your desk? What will your colleagues and clients see when they get you on camera?

Have everything on hand that you need, and make sure it’s up to date and in working order, because trying to make things work with the wrong equipment, or dealing with problematic old technology, are real distractions. As an added benefit, the investments you make in your home office, and the equipment you use, may be tax deductible (but there are many factors at play here so professional advice is essential before you claim!).

6. Have a plan for your family and pets

Children and pets are probably going to be the biggest distractions to your day, so make a plan to ensure neither interrupt you. Children must understand that while you are working only emergencies are worth interruptions. 

Pets may be a little simpler – replace their squeaky play toys with chew sticks, and move their beds close to you so they feel comfortable lying quietly with you even though you aren’t being attentive. Good luck by the way with persuading your cat not to sit on your keyboard – this  article may help but all bets are off!

Make sure you plan to take time out to spend with both the children and your pets, so they know that you are not ignoring them, just busy when you are at your desk. Taking your dog on a lunchtime walk, or playing with your children for an hour on a sleepy summer’s afternoon can really invigorate you for the rest of the day, and are the absolute perks of working from home as well. You might as well enjoy it.

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Budget 2022: Your Share of Billions in Tax Relief and Business Support

“Now is not the time to increase taxes and put the recovery at risk! Accordingly, we have decided to keep money in the pockets of South Africans.”

Finance Minister Enoch Godongwana

The 2022 Budget Speech brought some good news and welcome tax relief to personal and business taxpayers, 

This is possible thanks to tax revenue collection estimates that exceed the 2021 Budget estimate by R182 billion. Given the improvement in revenue collections, government proposes R5.2 billion tax relief to help support the economic recovery, provide some respite from fuel tax increases and boost incentives for youth employment.

Tax changes for individuals 

  • Personal income tax brackets and rebates will be adjusted downwards by 4.5% to prevent taxpayers moving into higher brackets due to inflation, resulting in tax relief of an estimated R13.5 billion.
  • The income tax threshold (under 65) has increased to R91,259 per year. 
  • Medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members.

Tax changes for companies 

Reduction in company income tax rate from 28% to 27% from 1 April 2022 (i.e. for tax years ending on or after 31 March 2023). 

Support for small businesses 

To support businesses in distress owing to the Covid-19 pandemic, a new business bounce-back scheme was announced; a new version of the R200 billion loan guarantee scheme that was part of the R500 billion stimulus package announced at the onset of the Covid-19 pandemic in 2020. 

It will be implemented using two mechanisms which will be introduced in sequence:

  • Small business loan guarantees of R15 billion will be launched next month provided through participating banks and development finance institutions, with Government underwriting the first 20% of loan losses.
  • Treasury wants to introduce a business equity-linked loan guarantee support mechanism by April this year.

Some other issues to be aware of 

  • The Minister cautioned that while VAT and other taxes have not been increased, this may change in the future, saying that if there are permanent expenditure increases in coming years, there would be no choice but to revisit this.
  • Amendments are proposed to provisions relating to the taxation of variable remuneration to ensure wider application of these rules – particularly to the informal sector (‘Variable remuneration’ includes overtime pay, bonuses or commission; an allowance or advance paid for transport expenses; an amount the employee becomes entitled to as a result of unused leave; any night shift or standby allowance; or any amount paid or granted for a reimbursement as contemplated in the Act).  In effect this income will only be taxed on receipt.
  • Provisional tax: Government has proposed a review of the provisional tax system on the basis of international developments. 
  • Corporate tax reduction will be funded by limiting the interest deduction and assessed losses. Assessed losses brought forward will be limited to 80% of taxable income. Smaller companies with a taxable income below R1 million will be exempt.
  • To address abuse of such incentives such as the Employment Tax Incentive, government proposes to impose understatement penalties on reimbursements that are improperly claimed in terms of this incentive. 
  • The Minister urged all companies that have not already done so to develop plans to progressively reduce their carbon emissions, to avoid facing steep taxes. Exporters will also face overseas border taxes for carbon-intensive goods such as iron and steel, which will reduce their competitiveness. 
  • SARS will be reviewing the processes surrounding the issue of tax clearances as well the declaration of the returns in order to curb tax compliance status abuse in which taxpayers may file an inaccurate return in order to obtain a tax clearance.
  • To assist with the detection of non-compliance or fraud through the existence of unexplained wealth, all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns. 
  • Other future tax proposals include plans for a new personal income tax regime for remote work, a review of the exemption of foreign retirement benefits in domestic tax legislation, a review of depreciation and investment allowances.
  • SARS says it focused on deliberate work audits of large business, which has generated an additional revenue in excess of R4 billion. It will focus on a number of revenue-generating priorities, which amongst others include the expansion of the use of data and intelligence; increasing capability to maximise debt collections; implementing the Davis Tax Committee recommendations for the corporate and High Wealth Individual compliance landscape; accelerate criminal investigations and counter illicit practices; and shaping the policy on the informal economy.
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Seven Crucial Tax and Other Issues to Address When an Employee Dies

“Employees are the key to your success… Treat them well!”

Ron Kaufman

The death of an employee can be a difficult situation in any company, but particularly so in smaller businesses where employees work more closely together and often consider each other more than just co-workers. 

In addition to handling the emotional aspect of such an event, companies must also keep the business running and take care of various compliance and tax issues. 

Here are seven crucial issues to address swiftly after the death of an employee. 

  1. Contact with the employee’s family 

Obtain the name and contact details of a person from the deceased’s family with whom the company can communicate about a range of matters, including funeral details, collecting company property such as keys, equipment, (company cars, computers and the like) and credit cards, finalising employee benefits procedures, and the return of the deceased’s personal belongings.

It is also helpful to have the details of the executor of the deceased employee’s estate, who is also the ‘representative taxpayer’ for the deceased and responsible for finalising the deceased’s financial and tax affairs.  

  1. Inform employees and establish internal processes

Notify other employees with respect, tact and care, providing as much information as possible. Nominate a company representative to answer employees’ questions; to accept flowers, communications and donations on behalf of the deceased’s family; and to make appropriate plans for memorials, tributes or gestures.

Realise that some people are better able to deal with such an event than others. Encourage employees to seek the help of lay therapists or religious advisors, and to provide mutual support to each other. Also consider arranging grief counselling and providing time off as needed, as well as for attending the funeral, preferably on a paid basis.

  1. Keep the business running

Update business roles and functions and reassign space and equipment to reflect the employee’s death in a respectful and compassionate manner. 

To minimise disruption to the business, assign the deceased’s tasks, functions and responsibilities to other team members, and redirect phone, voicemail, email and mail communications as soon as possible. Collect company property and address security issues as per the company’s established termination procedures. 

Inform clients, suppliers and other stakeholders who are affected of the change, while beginning the process of finding a suitable replacement. 

Compensate for those employees who find it difficult to focus or make more mistakes, especially where this presents a safety issue, for example, in manufacturing or production environments.  

  1. Calculate the final remuneration and benefits

In calculating the deceased employee’s final renumeration, the normal procedures for terminating employment must be followed: all hours worked until the date of death must be compensated, any outstanding leave must be paid out and, if the employee had any savings or loans with the company, these need to be finalised. Depending on the circumstances, payment will be made to the executor of the deceased estate, to the family or to a beneficiary.

At the same time, finalise employment benefits, such as medical aid and pension or provident fund membership, ensuring that all compliance issues are promptly attended to, so the family does not experience delays caused by the company when claiming benefits. 

  1. Take care of tax issues

Whether the deceased was registered with SARS or not, and whether there is estate duty payable or not, SARS must be notified of the death of the person. This must be done by the executor of the deceased employee’s estate or by a tax practitioner acting on behalf of the deceased or the company. 

The employer must provide the executor acting as the representative taxpayer of the deceased employee with the employees’ tax certificate within 14 days after the employee passed away. The provisions that state that employees’ tax certificates may not be delivered until the EMP501 reconciliation has been submitted does not apply.

Once the deceased employee has been coded as such by SARS, all outstanding tax returns should be submitted up to the date of death by the executor of the deceased’s estate. This applies to all tax types – income tax, VAT, PAYE, SDL, UIF and estate duty. As soon as all the tax liabilities have been paid in full, a Deceased Estate Compliance (DEC) letter is issued for all taxes except estate duty and an ED clearance letter for estate duty. Any refund due will only be released if all other taxes are up to date, all accounts have zero balances and all outstanding returns have been submitted and processed.

  1. Take care of UIF matters

Following the death of an employee who contributed to the Unemployment Insurance Fund (UIF), the dependants – a spouse or life partner, children under the age of 21 or a guardian of dependent children – can claim benefits from the UIF. The death benefit is the amount that the employee could have claimed if he/she was unemployed and it is paid out in one payment.

The dependants must apply within six months of the date of death by going to a Labour Centre to complete and submit Form UF126 (for a spouse or life partner) or Form UF127 (for a child). 

The dependants will also need the following from the deceased’s employer: 

  • Copies of the deceased’s last six payslips; 
  • The employer’s details on form UI19; and
  • A service certificate from the employer. 

They will then receive another document, Form UF128, which needs to be filled in by the deceased’s last employer and then submitted at the Labour Centre. 

  1. Take care of Compensation Fund issues

The surviving spouse or dependants of a deceased employee may be able to claim from the Compensation Fund if the employee died while working or as a result of a work-related accident, injury or disease. The Compensation Fund covers most employees.

By law, anyone who employs one or more part- or full-time workers must register with the Compensation Fund and pay annual assessment fees, based on the employee’s earnings and the risks of the type of work. Workmen’s compensation is a no-fault system, which means there is no need to prove that an employer was at fault. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt. 

Assisting the deceased’s family in these matters reflects well on the reputation on the company/employer.

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Small Businesses That Survived 2021 – How They Made It

“At the heart of the strategy is a strong belief…that systemic problems require systemic solutions 

MIT Sloan associate deans, Fiona Muray and Ray Reagans

Businesses usually spend the last quarter of the year reflecting on how they have done and using the lessons learned in planning for the year ahead, while also keeping a keen eye on government’s financial plans as revealed in the budget – which will be tabled this month.

The 2021 calendar year has been tougher on the private sector than any other time in memory due to the global pandemic. A study by Wits University on accounting and governance in the context of covid-19  suggests that the danger of the covid-19 pandemic and resultant restrictions on businesses is the knock-on effects and  the negative impact in the short-to-medium term and short-to-long term, rather than the immediate impact.

The knock from 2020, when the pandemic was first declared, was apparent in the first half of 2021 – with record breaking rates in demand for capital and liquidations.

So how did the businesses who made it through 2021 do it?

1. Proactive accounting and governance

Good quality accounting and governance with qualified finance professionals helped these companies navigate through the storm. Particularly in addressing the necessary extra expenses involved in setting up remote working and communication systems and equipment for their staff and even, in some situations, the costs of Personal Protective Equipment.

2. Loans 

The South African Reserve Bank reported that “Year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated slightly between March and October 2021, after slowing markedly since the onset of the national lockdown. The gradual lifting of lockdown restrictions boosted the demand for loans by companies in particular, although growth remained subdued.”

3. Good saving habits

Reducing spending on anything but necessities was essential during the pandemic, and it is interesting to note that South African saving trends were at an 11-year high by the end of the Second Quarter of 2021. This was amid fears of an uncertain future due to the ongoing covid-19 pandemic and the rate remained high towards the end of last year. The South African Reserve Bank said that the high rate was driven up by higher savings by companies and households.

4. Embracing digital 

Businesses that survived and even, in some circumstances, flourished during the global slowdown, used the opportunity as a means to be innovative and embrace digital, and where appropriate and possible, they developed or expanded their online offerings. This included keeping their essential staff busy by investing in systems to enable them to work remotely.

The CEO of IBM, Arvind Krishna famously said,When we look at the usage of AI and cloud, I think it is especially going to accelerate also not just us, but how our clients are going to go on their digital transformations. And I believe this crisis is only going to accelerate that as we go over the next few months.”

Ask a professional for tips on how to use these lessons effectively as the pandemic continues.

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Financial Year End Reporting: Challenges to Manage, Opportunities for Benefit

“Any remedy is going to depend on having financial statements that are reliable”

Tom Foley

On the last day of February each year, many companies face their end of financial year or “EOFY”.  Whether it’s referred to as the EOFY, Close of the Financial Period, Financial Year End or FYE, or simply ‘Year End’, this important time is just around the corner for many companies on the 28th of February. It is often a stressful time as the financial loose ends from the last 12 months are tied up, various reports and registers are produced, crucial decisions are made, and the accounts for the last year are closed off. All necessary to present an accurate and up-to-date overview of the financial performance over the period, enabling proactive tax planning, ensuring audit-readiness and providing key information for business owners to strategise for the future, plan, structure, invest and grow. 

Why a specified financial year end? 

The financial year of a company is its annual accounting period and can be any 12-month period the company uses for accounting purposes. 

A financial year is a legal requirement. The Companies Act stipulates that a company must have a financial year, with a start and end date. The financial year end date must be set out in the Company’s Notice of Incorporation.

For many companies this date is the end of February each year, although some companies have a financial year end on a different date. A company can change its financial year end by filing a notice of change with the Companies and Intellectual Property Commission (CIPC).  

Why is a financial year end so important?

A company’s financial year is not only a statutory requirement, but also – crucially – the period on which its tax liability is assessed. It also determines when the tax payments are due. 

Annual income tax returns must be submitted within one year from the end of the company’s tax year. Payments are made with provisional returns filed at six-month intervals from the tax year end based on an estimate of taxable income for the year. 

Interest is charged on any underpayment outstanding for more than six months after the tax year end, except in the case of February year ends, in which case it is seven months. Any balance with interest is then paid following assessment.

Furthermore, the company’s financial year also determines when the annual financial statements are due. These annual financial statements are used for compliance purposes, as well as by investors and other stakeholders, such as banks and other creditors, to understand business operations and to assess a company’s performance.  

But perhaps most importantly, financial year end is the crucial time for business owners and managers to thoroughly analyse business performance and make important decisions. This is made possible by an accurate and timely financial year end that produces accurate and reliable financial statements. 

So how can your company best prepare for the looming financial year end?

Tips for financial year end success

  • Identify the important deadlines and the activities that must be completed by each date, such as data processing and reporting deadlines, the tax return and payment dates, and the annual financial statements submission dates. 
  • The difference between a successful year end close and a stressful one is accurately managing the accounts all year, keeping the bookkeeping up-to-date and correctly and timeously completing each month-end. 
  • During year end closing, accounts must be checked carefully for discrepancies, omissions and human errors as these can be costly in consequences. Every rand must be accounted for and all supporting documentation available for a possible tax audit. 
  • Thorough and accurate inventory checks to determine stock levels, consumables and assets on hand will produce up-to-date asset registers for accurate balance sheets, and that will inform asset purchase decisions, depreciation expense claims and capital gains tax calculations. 
  • Current accounts payable reports will allow accurate budgeting for accounts to be settled before financial year end; while up-to-date accounts receivable reports allow payments to be chased and income due to be collected within the current financial year. 
  • Tax planning involves structuring the company’s finances to ensure the company pays only the tax that is legally required to be paid. This might involve accelerating transactions into the current year or delaying transactions into the next financial year to better manage tax liabilities. For example, a company might make asset purchases, pay annual subscriptions earlier, make donations before year end, delay issuing invoices where permissible, or consider writing off debtors or assets before the year end. Any such measures must be lawful, consistent in application and able to pass a possible tax audit, so professional advice is essential. 
  • There are tax changes each year and these could include new or amended deductions or concessions for small business, so be sure to speak to your accounting and tax advisor to ensure all possible tax breaks are considered before finalising the financial statements. 
  • Backup and store business information – including registrations, financial information and customer data – in a secure off-site location. 

Reap the maximum benefits of an accurate and successful financial year end

An accurate and successful financial year end will produce reliable and timely financial records and reports that provide a holistic view of the financial health of the company, enable proactive tax planning, and ensure tax audit readiness. 

The annual financial reports detail the company’s assets and liabilities, profit and expenses, and cash flow. Reviewing annual financial statements will reveal if adjustments are required, such as more sales or fewer expenses, as well as where adjustments must be made and how much adjustment is required in the year(s) ahead. 

As such, financial statements are key tools for business owners to strategise for the future, plan, structure, invest and grow, and are often required by stakeholders such as banks and other creditors, potential investors and business partners to obtain an overview of the company’s financial performance and opportunities for growth and improvement. 

In addition, accurate and reliable annual financial statements produced over the years provide an essential record for any potential investor or buyer of the company in the future and also ensure the appropriate value of the entity from the owner’s perspective.

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Small Businesses That Survived 2021 – How They Made It

“At the heart of the strategy is a strong belief…that systemic problems require systemic solutions

Fiona Muray and Ray Reagans, MIT Sloan associate deans

Businesses usually spend the last quarter of the year reflecting on how they have done and using the lessons learned in planning for the year ahead, while also keeping a keen eye on government’s financial plans as revealed in the budget – which will be tabled this month.

The 2021 calendar year has been tougher on the private sector than any other time in memory due to the global pandemic. A study by Wits University on accounting and governance in the context of covid-19  suggests that the danger of the covid-19 pandemic and resultant restrictions on businesses is the knock-on effects and  the negative impact in the short-to-medium term and short-to-long term, rather than the immediate impact.

The knock from 2020, when the pandemic was first declared, was apparent in the first half of 2021 – with record breaking rates in demand for capital and liquidations.

So how did the businesses who made it through 2021 do it?

  1. Proactive accounting and governance

Good quality accounting and governance with qualified finance professionals helped these companies navigate through the storm. Particularly in addressing the necessary extra expenses involved in setting up remote working and communication systems and equipment for their staff and even, in some situations, the costs of Personal Protective Equipment.

  1. Loans 

The South African Reserve Bank reported that “Year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated slightly between March and October 2021, after slowing markedly since the onset of the national lockdown. The gradual lifting of lockdown restrictions boosted the demand for loans by companies in particular, although growth remained subdued.”

  1. Good saving habits

Reducing spending on anything but necessities was essential during the pandemic, and it is interesting to note that South African saving trends were at an 11-year high by the end of the Second Quarter of 2021. This was amid fears of an uncertain future due to the ongoing covid-19 pandemic and the rate remained high towards the end of last year. The South African Reserve Bank said that the high rate was driven up by higher savings by companies and households.

  1. Embracing digital 

Businesses that survived and even, in some circumstances, flourished during the global slowdown, used the opportunity as a means to be innovative and embrace digital, and where appropriate and possible, they developed or expanded their online offerings. This included keeping their essential staff busy by investing in systems to enable them to work remotely.

The CEO of IBM, Arvind Krishna famously said,When we look at the usage of AI and cloud, I think it is especially going to accelerate also not just us, but how our clients are going to go on their digital transformations. And I believe this crisis is only going to accelerate that as we go over the next few months.”

Ask a professional for tips on how to use these lessons effectively as the pandemic continues.

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Top 10 Complaints Against SARS: What You Can Do to Protect Your Rights

“… the OTO commits to continue doing everything possible to ensure that taxpayers are not forced to pay a cent more than what is required.”

Judge Bernard Makgabo Ngoepe, the Tax Ombud

The list of the top 10 complaints made against SARS over the last eight years to the Office of the Tax Ombud (OTO), published in its recent newsletter, makes for interesting reading, and highlights the areas where taxpayers are most likely to encounter pitfalls in their dealings with SARS. 

The Top 10 complaints made against SARS

  1. SARS placing unwarranted stoppers on taxpayers’ accounts for refunds not to be paid, significantly impacting the taxpayer’s cash flow. 
  1. Delays in finalising verifications result in delays in releasing refunds due; even when taxpayers have submitted all the requested information.
  1. Non-adherence by SARS in finalising dispute resolution within the dispute resolution timelines – already an identified systemic issue. 
  1. Incorrect allocation of payments, often first covering administrative penalties before principal debt and ignoring taxpayers’ letters to SARS about how to allocate the payments.
  1. Taxpayers do not receive outcomes of their objections, and in some instances, SARS could not prove that they had sent the outcomes to the taxpayer.
  2. Recalled refunds where SARS pays refunds into taxpayers’ bank accounts and then recalls these refunds, in some instances taking more than six months to resolve the issues.
  1. E-filing profile problems for tax practitioners, resulting in them not being able to add or remove clients from their profiles. 
  1. SARS deducting more money from taxpayers’ bank accounts than it should, prejudicing the taxpayer financially.   
  1. Banking details of taxpayers have been updated, but the refunds are still not released. 
  2. SARS Complaints Management Office (CMO) incorrectly rejects taxpayers’ complaints lodged with it.

Source: OTO Fair Play Issue 22

The Ombud has also launched a new taxpayer rights awareness campaign, #TaxpayersRightsMatter, to help improve taxpayers’ understanding of their rights and the recourse available if their rights are not upheld by SARS.

What are your rights as a taxpayer? 

Issues with refunds feature quite prominently on the list of complaints, as do delays and ignored requests or complaints. These certainly constitute infringements of taxpayers’ rights, when considering the brief overview below of the rights related to these complaints.    

The interaction between SARS and taxpayers is governed by the TAA (Tax Administration Act), and SARS’ Service Charter also stipulates service levels and time frames.  

The TAA, like all laws in South Africa, is also subject to the Constitution and the Rule of Law. Conduct inconsistent with the Constitution is invalid and illegal. 

Some key features and principles of the Constitution are included in other Acts such as the TAA, PAIA (Promotion of Access to Information Act) and PAJA (Promotion of Administrative Justice Act). 

  • Taxpayers’ Constitutional Rights 
  • The right to privacy includes the right not to have your person, home or property searched; your possessions seized; or the privacy of your communications infringed. SARS cannot search or seize in violation of this Constitutional right. 
  • The right not to incriminate yourself – there are Constitutional restrictions on the information SARS can use to determine your taxes and potential penalties. 
  • The right to a high standard of professional ethics as well as rational and accountable actions from SARS; services provided impartially, fairly, equitably and without bias; transparency; and accessible and accurate information. 
  • Taxpayers’ Legal Rights 
  • The TAA details many taxpayers’ rights including, for example, SARS must keep taxpayers informed at all times, including providing a Letter of Findings before issuing a revised assessment. 
  • PAIA provides the right of access to information, detailing rules regarding how SARS is allowed to obtain information and ensuring taxpayers can find out what information SARS has accessed.
  • PAJA protects the right to just administrative action, requiring that any action by SARS must be lawful, reasonable and procedurally fair. 
  • Taxpayers’ Rights as per SARS’ Service Charter 
  • Where a current year’s refund is due to a taxpayer and no other debt is due; all obligations have been met; SARS administrative control processes are adhered to; and no inspection, verification or audit is required or has been initiated; SARS will endeavour to pay the current filing period refunds within 7 business days of finalising the final assessment. 
  • SARS endeavours to provide reasons for an assessment within 45 business days; to consider objections within 60 business days; and to respond to service complaints within 21 business days.

 How to protect your personal and business rights  

  • Careful compliance and excellent record-keeping are always the first line of defense when it comes to dealing with SARS. An annual tax audit by a professional will help ensure that you have the correct processes in place to ensure both. 
  • SARS’ Service Charter stipulates service levels and time frames with regards to returns and declarations; inspections, audits and verifications; refunds; payments; debt and disputes; and provides official channels for complaints. Understanding these can help you protect your rights as a taxpayer.  
  • Private and business taxpayers have free and independent recourse against SARS through the OTO. However, the powers of the OTO are very limited. It can only deal with complaints against SARS that relate to a service, administrative or procedural issue and only after all avenues of recourse within SARS have been exhausted, except where there are compelling circumstances or the matter is a systemic issue. For example, the Tax Ombud has no control over how long SARS will take to implement its recommendations, which are also not binding on either SARS or the taxpayer.
  • Access to an expert who can defend you or your business in the event of a tax dispute is essential.  
  • If taxpayers are uncertain of their rights or if their rights are being infringed, they must seek expert advice to protect their Constitutional and legal rights.
  • A long list of High Court cases against SARS reveals a growing trend of taxpayers seeking legal recourse against procedurally unfair conduct by SARS or administrative decisions by SARS that prejudice the taxpayer’s rights. The cost of legal defense is often prohibitive, making tax risk insurance worth considering to ensure access to experts in constitutional and tax law when required.
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SMEs – Why You Should Consider Employee Benefit Packages

“Human resources isn’t a thing we do, it’s the thing that runs our business”

Steve Wynne, American real estate developer

An effective employee benefit strategy is more of an advantage to an employer than may at first meet the eye. Although providing benefits naturally comes at a price, it also comes with substantial benefits, plus you stand to regain a portion of your investment from SARS in tax deductions.

Moreover, providing benefits that employees can’t readily access on their own could position you as an employer of choice in your industry, affording you the best pick of available talent. This leads to better products and service, meaning your business wins. 

The year-old Africa Insights from the 2019/2020 Benefit Trends Survey shows that employers are getting more creative concerning the mental and physical wellbeing of their staff, as these companies are more aware of the benefits of a healthier staff. 

A report by Johannesburg based HR firm, Willis Towers Watson states “A third of African employers are planning/considering stress or resilience management programs. A quarter is planning/considering mental health or substance abuse programs. 23% is planning/considering health coaching.”

Employee benefit packages are not forced by law on business policy; however the World Health Organisation (WHO) has drawn a link between employee benefits and a physically and mentally healthier workforce. The organisation’s Healthy Workplace Framework and Model, which is a guideline to creating a healthier working environment, says “the mind and body are one, and what affects one, inevitably affects the other.” 

The document also advises that “If the insurance costs for health benefits in your enterprise keep increasing, even after implementing healthy workplace programmes, that does not necessarily mean the programmes have failed. Look at industry benchmarks for comparison. If health insurance costs have increased by 20% in similar industries, yet have only increased by 5% in your enterprise, that is an indicator of success.”

Five major reasons why SMEs should consider employee benefits 

  1. The tax advantages via tax deduction of contributions.
  1. Health insurance as an employment benefit translates to a healthier workforce, which translates to improved quality of production and efficiency.
  1. Improved employee retention, which is key in certain industries where employees have to maintain relationships with specific clients, who may view continuity as a vital consideration.
  1. It improves the work culture between employees and employer.
  1. Improved staff recruitment, as the employer would be better positioned in the job market.

Changing or initiating an employee benefits strategy involves new financial responsibilities so take professional advice on the best way to go about it.

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Interest Rate Hikes: How to Buffer Your Business in 2022 and Beyond

“The implied policy rate path of the Quarterly Projection Model indicates an increase of 25 basis points in the fourth quarter of 2021 and further increases in each quarter of 2022, 2023 and 2024.”

Lesetja Kganyago, SARB Governor

After cutting interest rates by 275 basis points to record lows in response to the economic crisis brought about by the COVID-19 lockdowns, the South African Reserve Bank (SARB) recently announced the first interest rate hike in three years. The vote was split 3-2, indicating conflicting sentiments within SARB as it looks to address inflation fears while supporting a recovery.

At its November 2021 Monetary Policy Committee (MPC) meeting, the SARB hiked its main repo rate from a record low of 3.50% by 25 basis points to 3.75%, citing growing concerns about upside inflation risks. 

The repo rate hike came earlier than many economists had expected, and certainly earlier than consumers and business had anticipated. 

It also signals a turn in the interest rate cycle, with further increases forecast by SARB for each quarter over the next three years. While such a normalisation in rates is to be expected, its early arrival and likely extent surprised many.

Some economists estimate hikes of 150 basis points over the next two years, with others expecting around 250 basis points within the next 18 months! It is generally expected that increases will continue until pre-pandemic levels are reached at around 6.5%.

Of course, when interest rates are changed, it has a ripple effect throughout the broader economy. This is because low rates make it more affordable to borrow money, which encourages consumer and business spending and investment, and can also boost asset prices. Rising interest rates have the opposite effect. 

It is important for business owners to understand how interest rate increases can affect and influence how their companies operate and perform, because of course businesses generally depend on a healthy economic environment to thrive. 

Smaller businesses in particular feel the effects of changing interest rates more keenly because they have lower cash reserves and are generally more vulnerable to economic shocks. 

However, if you understand the impact of interest rates on your business, you can adjust to interest rate changes to protect yourself from negative effects. 

Let’s start off then by analysing the possible impact of higher interest rates on your business –

What might the impact be on your business?

When interest rates are low, consumers tend to borrow more money, and also to spend more on products and services, because they have more disposable income.

As interest rates rise, consumers with debts ranging from home loans to vehicle finance to credit cards and personal loans will pay more interest to all those creditors. In South Africa, where the debt repayment to income ratio is as high as 66.7% (2021: Q2) when interest rates are at historic lows, interest rate increases can be problematic. 

An increase in interest rates typically impacts consumer spending habits negatively, because with their debt costs increasing across their credit lines, they have less disposable income to spend on products and services. 

The impact of a change in interest rates on customers varies from business to business. In a rising rate environment, consumer-driven businesses often see a reduction in sales. Companies that make luxury goods are hit hardest when interest rates rise because most customers first cut back on non-essentials when their disposable income decreases.

  • The impact on your cash flow
  • This impact on consumer spending and the resultant reduction in sales is likely to affect cash flow in businesses across the board as their customers simply have less to spend.
  • In addition, just like consumers, nearly every business has outstanding loans, and when interest rates rise, those loans also become more expensive – both immediately and over the longer term.
  • Typically, these loans are longer term debts that will take years to pay off, so any increase in the interest rate on those loans means carrying the debt for longer and paying far more.
  • Higher credit costs will also impact a company’s cash flow, compounding the effect of reduced consumer spending. 
  • What about your access to credit?
  • Higher interest rates make it more difficult – and more expensive – to take out new loans to cover unexpected expenses or to fund the expansion of a business. 
  • Higher loan repayments on existing debt will also reduce business profitability, which can make securing new loans even more difficult. 
  • This can curtail the growth of a company for months or even years.
  • The impact on your business planning
  • Reduced sales, constrained cash flow, and the cost and difficulty of obtaining credit caused by rising interest rates must impact your business planning. 
  • Of course, with changing interest rates it is more difficult to ascertain the cost of future borrowing and the cost of existing business loans on a variable rate, which makes it harder to plan your company’s finances. Nevertheless, the expertise of a professional can assist in adjusting your business planning. 
  • In addition, projects which were viable during low-interest rate periods may no longer be viable due to the cost of – and constrained access to – loans, as well as reduced cashflow and consumer demand. Companies might decide not to start new projects or expansions during periods as interest rates rise, which hampers business growth.

How to buffer your business

  • Consider the impact on your customers and how your business can offer more value for money as their disposal incomes tighten. 
  • It is important to factor in the effect of interest rate increases on budgets and cashflow, both immediately and over the next three years.
  • Review your business loans and other borrowing to ascertain affordability as interest rates increase using a business loan rate calculator. 
  • Consider refinancing some of the business loans while interest rates are still low to help stabilise the debt load. 
  • Consider locking in the lower interest rates now to ensure loans will cost less as the interest rates increase over the next three years. 
  • Re-evaluate projects or expansions planned for the next few years and the impact of interest rates increases on the viability of these plans. 
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Festive Season Cybercrime Alert: Tips from SARS

“Cyber Attack: An attack, via cyberspace, targeting an enterprise’s use of cyberspace for the purpose of disrupting, disabling, destroying, or maliciously controlling a computing environment/infrastructure; or destroying the integrity of the data or stealing controlled information.”

CSRC – Computer Security Resource Center

South African businesses, already facing significant risk of cyberattacks, have been warned to step up their cybersecurity as the festive season is expected to see significantly more and increasingly sophisticated cyberattacks. Below are listed some of the common types of cyberattacks.

Common cyberattacks

  • Phishing (random fraudulent emails), spear phishing (emails targeting specific people or companies), vishing (voice phishing) and smishing (SMS phishing) – these all refer to fraudulent communications that appear to come from a reputable source, such as a bank or a government organisation, with the aim of tricking employees or individuals to share data, pay money to criminals or download malware.
  • Malware – including viruses, worms, trojans, spyware, rootkits – typically used to breach a network when a user clicks a link or an email attachment from an apparently trusted source that then installs risky software.
  • Ransomware attacks – ransomware infects networks and encrypts or locks data, allowing attackers to demand a ransom for unlocking or releasing the data.
  • Hacking – including distributed denial-of-service attacks (DDoS) and keylogging.
  • Man-in-the-middle (MitM) or eavesdropping attacks in which attackers insert themselves between a user’s device and a network to filter and steal data, commonly through unsecure public Wi-Fi and compromised devices.

SARS: a favourite cyberattack ruse 

SARS says that there is a steady increase in scams and attacks in which the SARS brand is abused, via the Internet, emails, spoofed websites, SMSes, unsolicited telephone calls and even social networking sites such as Facebook, Twitter and others.

A firm criminal favourite are phishing scams involving false “spoofed” emails made to look as if they were sent by SARS. These fraudulent emails contain links to fake forms and malicious websites purporting to be authentic and lure unsuspecting taxpayers to disclose private and confidential information such as bank account details. Examples include emails that appear to be from “returns@sars.co.za” or “refunds@sars.co.za” indicating that taxpayers are eligible to receive tax refunds. 

The latest scams involve smishing, which is phishing via SMSs, and vishing which most recently involves taxpayers being called by a person purporting to be a SARS employee to inform them that SARS owes them money. 

Another common cyberattack approach involves refund scams in which identity thieves use a legitimate taxpayer’s identity to file a tax return and claim a refund fraudulently. Yet another threat involves cybercriminals using personal or company information to change the banking details on the taxpayers’ SARS profiles. 

A further version involves criminals purporting to be SARS auditors or employees contacting businesses using all the means described above to inform taxpayers that they are under investigation and that an audit will be conducted.

SARS Tips for Improved Cybersecurity

  • Do not open or respond to emails from unknown sources and beware of false SMSes.
  • Be suspicious of emails and/or SMSes that request personal, tax, banking and eFiling details.
  • SARS will not request your banking details, login credentials, passwords, pins, credit/debit card information, or other confidential information by phone, SMS, email or websites.
  • SARS will never notify you about refunds by telephone, SMS or email.
  • Immediately report a notice or letter from SARS that states:
  • More than one tax return has been filed in your name
  • You have a balance due, refund offset or have had collection actions taken against you for a year in which you did not file a tax return   
  • SARS records indicate you received a salary from an employer that you don’t work for
  • there has been a payment error or incorrect refund requiring you to deposit the “overpayment” into a bank account. 

Speak to your accountant first!

It is easy for criminals to dupe unsuspecting taxpayers, and yet, at the same time, taxpayers should never simply dismiss or ignore a notice or demand from SARS as a scam. 

The best line of defence against cyberattacks that misuse the SARS brand is to get advice before taking any action. If you suspect the legality of a particular communication or believe you have been contacted by a fake SARS representative, immediately contact your accountant, who will be able to verify the communication or report suspicious activity for you.

This will ensure that you never fail to respond timeously and correctly to legitimate SARS communications, while also safeguarding you from becoming a victim of a cyberattack, especially during the upcoming festive season which promises to be a busy one for cybercriminals. 

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The Hybrid Workforce Debate: What SMEs Need to Know

“Success in a hybrid work environment requires employers to move beyond viewing remote or hybrid environments as a temporary or short term strategy and to treat it as an opportunity”

Vice President of Gartner, George Penn

The gradual transition from the conventional office environment to a remote, tech-savvy workforce has been topical in various industries for a while. However the pandemic has  accelerated acceptance of the reality of remote working.

The recent Digital Corporation in South Africa 2021 study, conducted by IT research organisation World Wide Worx with the support of Syspro, Dell Technologies, Intel and Cycan, looked into the hybrid work place model among enterprises in South Africa. It found that a third of respondent companies did not foresee their workforce returning to the office environment. 

The hybrid workplace is an operating model incorporating both remote and in-office working. This is made feasible by cloud computing together with collaborative tools such as direct messaging tools like WeChat, WhatsApp and Facebook Messenger, as well as task management tools like Asana, Google Workspace and Trello. 

The above-mentioned research also analysed the spending habits and investment trends of companies concerning hybrid environment technologies, among other things. 

Budgeting is a critical consideration in remote working. Cloud computing – an important aspect of hybrid working, is second only to business intelligence, which is software designed to retrieve, analyse and report data for business improvement, in terms of budgeting for specific technologies in South Africa, according to the report 

“Spending is surprisingly uniform across numerous operational categories, from computers and cyber-security to accounting and ecommerce,” says Arthur Goldstuck, CEO of World Wide Worx and principal analyst on the project.

Furthermore, remote working involves tax considerations for both employees and employers – an area best tackled only with professional advice.

For example, employers are often requested to issue letters confirming that employees performed their duties mainly in a home office and the difficulty is that the employer has to vouch that all requirements were met.

In general, the hybrid workforce debate is of particular interest to SMEs, particularly since they may be able repurpose the savings of reducing office space and overheads. 

The three pillars of a functional hybrid working model

The University of Cape Town’s Graduate School of Business lists the following pillars as vital to a functional hybrid working model:

  1. Trust: This is the foundation of the employee-employer relationship. The working model requires both parties to actively work on making it a success.
  1. Practicality: The nature of the business offering should determine the inner workings of the model and budget.
  1. Organisational policy: Policy needs to complement the working environment. 

Take professional advice on how hybrid working can impact your business’ bottom line.

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What To Do When Preparing to Sell Your Business

“As much as you might love running your business, you must have an end-goal in the plan. At the very least, an exit strategy keeps you from turning your business into a glorified job – working from home, but with longer hours.”

Kevin J. Donaldson)

A new year beckons, and you may be thinking that it will soon be time to sell your business. Perhaps you are nearing the age of retirement, or want to move on to a new endeavour? Whatever your reason, your business could well be your most valuable personal asset, and something you have invested in for years, if not decades. The prospect of selling can therefore feel overwhelming, and clearly you want to receive a fair price for the asset you’ve worked so hard to create.

Selling your business is therefore likely to be not only a busy period, but an emotional one too and you’ll need to engage in extensive preparation if you want to come out satisfied at the other end. 

These tips will help you to prepare for a business sale and get the price you deserve for your company.

1. Have a reason why it is for sale

Anyone who is going to buy your business will want to know the reason why it is for sale. Your reason should be clearly thought out and easily explained to avoid spooking potential buyers. Simply saying “It’s time for me to move on” will not build anyone’s confidence. The aim here isn’t to obfuscate your reasons; honesty will always be appreciated.

A serious buyer will spend time doing their due diligence investigation and so know a fair amount about your business, its reputation and sustainability. So remember that whilst your books are likely to tell them more about the health of your business than your words, your words will give them an idea of what the reputation of the business might be and just what they are likely to be dealing with when it comes time to deal with existing clients and suppliers. Common reasons for exiting a business include retirement, partnership disputes, illness or death, feeling overworked or even plain old boredom. When explaining why you are exiting there is an opportunity to add in some of the strengths of the business. “I am feeling overworked”, becomes a lot stronger from a sales perspective when it’s backed up by, “We have so many orders” or “We have a reputation for never letting our customers down”. 

2. Give yourself time

Selling a business takes time and should not be done in a hurry. Trying to sell in a hurry can only mean the correct things are not in place, and buyers will sense your urgency. In general, you should give yourself at least one year to sell a business and preferably two. 

3. Get your finances in order

A company with clear, legible finances is also going to sell much quicker than one with a drawer full of receipts and a box of demands from SARS. It is essential at this stage to liaise with your accountant to ensure that all financial records are in place, fully up to date and that any outstanding issues are cleared up.

The more organised and accurate your accounting records are, the easier it is for a potential buyer to assess your company’s value. A potential buyer needs a clear picture of your financial condition, and that includes accurate financial statements for the past several financial years. When someone buys your firm, they may need to integrate your accounting data into their systems, and your accounting transactions must follow industry standards.

A company’s finances tell potential buyers a lot about a business and very few will take the plunge if things aren’t organised and transparent. For example, a purchaser can review your interest expense to determine if the expense is increasing as a percentage of sales. If interest expense climbs say 5% to 8% of sales, your firm’s total debt is also increasing.

There is a second, even more important reason your finances need to be accurate, and this is that you will need them to determine the value of your company. It is impossible to sell something if you don’t know what it is worth, and just how much value there is in it. Knowing your bottom-line price will be important come time for negotiations.

A vital consideration in determining the price is future prospects and profitability. The final purchase price will not be simply based on net asset value but also on likely future profits giving a potential return on investment (the purchase price). There is no substitute for professional advice here!

Also, be clear in your mind how you expect the payment to be made – a lump sum, an earn-out over so many years based on the projected profits being realised. A note here – most sale agreements have clawback clauses if the future profits do not materialise. You will need sound advice on what is in the agreement in this and other considerations.

4. Succession Planning

Making sure your business can thrive after you have left will make it a far more attractive proposition for a potential buyer. Hopefully you have always had a succession plan in place in the event that something happens to you, but if you don’t it’s time to get to work.

A succession plan may require you to train and mentor a successor, and to put legal documents in place (be sure to incorporate some flexibility in case a buyer has other ideas!). Both of these tasks are time consuming. If you plan on selling the business on to the employees then an Employee Stock Ownership Plan (ESOP) will need to be developed and, employees funding the ESOP will need a number of years to accumulate the funds to buy out the owner.

For each of these reasons, you should plan for succession as soon as possible. Putting a detailed plan in place can help you avoid a forced sale. A forced sale occurs when the owner is under pressure to sell the business, or the owner’s heirs are trying to sell the company. The seller does not have any bargaining power and will likely receive far less for the business when the sale is finalised.

Finally, in this regard: Consider your reaction and plans should the buyer ask you to stay on for a term or two while they prepare their own successors to take over from you.

5. Increase the value of your business

While it may be tempting to take your foot off the gas pedal as you prepare for a sale, this is exactly what you shouldn’t be doing. Businesses whose performance noticeably declines before all the documents are signed only give the impression that the owner is the only thing that matters, and this will give prospective buyers all the excuse they need to make a lowball offer.

On the contrary now is the perfect time to perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Write down the key issues in each of those four areas. Get input from your staff, share your SWOT analysis with your team and ask them for feedback. Once you perform this analysis, you can start focusing on business improvements.

The aim is to make sure that the year before you sell is a record breaker. Imagine you are starting all over again and spend this year getting the word out about your business, building clientele, cementing long term contracts and relationships and cutting back on costs. So ideally start planning to maximise value at least a year before you sell!

Make sure that you account for every cost you incur to operate your business and if there are areas of the company that are not profitable, consider closing them. Now is not the time to be keeping your pet projects alive. Having a great year, cleaning out the business chaff and showing investors that the company has a strong future will undoubtedly provide a huge boost to your sales price.

6. Identify target buyers

As already indicated, selling a business takes time. You can speed up this process if you identify potential buyers and understand exactly why they might be eager to put in an offer. There are generally two types of reasons for buyers to take on a new going concern: financial and strategic.

Financial buyers treat the purchase as an investment, looking at the potential returns they can achieve. Their aim is to make an acceptable return on their investment and then flip the business either to another buyer or through an IPO. Financial buyers will consider the company’s track record based on a history of strong financial statements, and potential for solid growth. They won’t necessarily worry about flaws in the business as they will see these as opportunities to quickly increase the value before selling it off, but they will haggle every cent on the sales price to ensure the most profit for themselves.

Strategic buyers look for purchases that will fit into their own long-term business strategy. They may, for example, be competitors who are looking to expand vertically (to different parts of the supply chain) or companies that need to expand horizontally to a new industry to diversify their portfolio. Strategic buyers are typically larger and willing to pay more for the purchase, since they can immediately take advantage of economies of scale.

7. Bring a good team on board

The final step before actually putting the business up for sale is bringing in a strong team of experts. At the very least you will need an accountant to handle any financial questions the buyer may have and to advise you on choosing a lawyer to attend to the contractual side. 

Seek advice also on whether you should employ the services of a specialist broker to help oversee and facilitate the sale. Negotiating a sale yourself allows you to save money and avoid paying a broker’s commission, so it may be the best route to take when the sale is to a trusted family member or current employee, but still bounce that off your accountant first.

In other circumstances, getting a broker on board can help things run more smoothly as the broker will help free up your time to keep the business up and running, will help keep the sale quiet and get the highest price, because brokers are incentivised to maximize their commission.

At the end of the day, having the right people working toward your sale means that at the very least they will pay for themselves, and more often than not they will increase your profit.

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Read more about the article ‘Tis the Season for Giving but Beware the Taxman!
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‘Tis the Season for Giving but Beware the Taxman!

“Think of giving not as a duty but as a privilege.”

John D. Rockefeller Jr.

Christmas is a time for giving, and in our local business environment, as well as in many other markets around the world, it may even be unofficially expected of companies to give generously to their employees, to their clients and suppliers, and to the communities in which they operate. Many companies give generously in these ways, but may not be aware of the tax implications of their generosity. 

In this article, we briefly look at some of the tax implications of various forms of giving, to emphasise that before any corporate giving decisions are made, companies should seek professional advice about the tax implications. 

Giving to employees

  • Company Christmas party: For many employees the annual office Christmas party or lunch is a highlight: a great meal, free drinks and the opportunity to mingle socially with colleagues. Although the costs of such an event would have to be carefully considered, this would be a tax-deductible expense, regarded as a non-taxable occasional meal.
  • Gifts: Whether you are considering gift vouchers, physical presents or intangible gifts, there is no minimum value below which employer-provided gifts are tax free. If it can be regarded as an asset, it will be seen by SARS as a taxable benefit in the hands of the employee. 


Some examples include gift vouchers, prizes or awards; physical items such as a mobile device; and intangible gifts such as flights or accommodation. This applies whether the gift is given to an employee or an employee’s family member, such as a spouse or child. The cost to the employer of any such gift must be reflected as a taxable fringe benefit on the employee’s payslip, and PAYE must be calculated and deducted.

There are some exceptions. For example, in the case of a long service award (15 years or more), the first R5 000 of the cost of such a gift is not taxable, but any amount in excess thereof is taxable as described above. Other possible exceptions include where the employer incurs no cost in conferring the gifts, or where the gifts are utilised by the employees for business purposes. However, even these simplified scenarios are subject to complex considerations and should first be discussed with a professional.

  • Bonuses: When considering giving annual bonusses or “13th cheques”, remember that a bonus is taxed at the same rate as other remuneration. This means that the amount of the bonus will be added to an employee’s annual salary to determine the rate of tax payable for the year. However, the bonus amount might push some employees into a higher tax bracket, significantly eroding the amount of the bonus the employee receives after tax. Be sure to get professional advice on structuring bonuses to be tax efficient. 

Giving to clients/suppliers

  • Christmas functions: Where clients or suppliers are entertained at a Christmas function, expenses such as meals, venue hire and live entertainment can be claimed as a tax deduction. However, this is only allowed where the taxpayer can prove that expenses were incurred in pursuit of business. It will be necessary to keep a comprehensive schedule of the entertainment expenses along with the date, the venue, the company and people entertained, and the purposes of that entertainment (for example prospecting for a new client) to prove to SARS that the expenses were genuinely business-related.

    In the past, this deduction was prone to abuse. Consequently, a claim for entertainment expenses is likely to be flagged for investigation by SARS, and taxpayers should not risk this unless they have verified their tax position with a specialist and are certain they are able to prove the expenses claimed are again, genuinely business-related. 

In addition, input VAT cannot be claimed on entertainment expenses, including but certainly not limited to business lunches and dinners; annual functions; and expenses incurred for entertaining clients at restaurants, bars and night clubs.

  • Gifts: Many companies show their appreciation and build relationships with clients and suppliers with corporate gifts that can range from bottles of wine to keyrings. These expenses could be tax deductible as marketing expenses or as cost of sales expenses, but the onus will rest on the taxpayer to prove that these expenses were incurred in the production of income. 

Giving to charities 

  • Donations: Before making a donation, consider that there may be donations tax implications. A company will not incur donations tax for the first R10,000 per annum in donations. However, any amounts over this limit are taxed at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. Furthermore, any donations made to a registered PBO (Public Benefit Organisation) are not subject to donations tax, even for amounts over the limits set out above. The PBO must have been approved by SARS – have a professional check.

The deduction may, however, not exceed 10% of the donor’s taxable income during any year of assessment. Should the company (donor) have given more than 10% of taxable income in one year, the excess over 10% can be carried over to the next year.

Staff can also get tax relief on their PAYE through “payroll giving” whereby the employer donates on their behalf up to 5% of remuneration to qualifying section 18A PBOs. The donation relief will be reflected on the employee’s IRP5 at the end of the year.

Ask for professional advice to structure your company’s donations in the most appropriate and tax-efficient manner. You may also require assistance to declare and pay donations tax, as it does not form part of the business’ normal tax returns. Following a donation, you will need to submit a donor declaration (IT144 form) and pay any donations tax owing by the end of the month following the month during which the donation was made.

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Cloud Computing Offers Small Businesses New Age Solutions for Less

“Cloud is about how you do computing, not where you do computing”

Author and former CEO of tech company VMware, Paul Maritz

“Working in a cloud” favours companies of all sizes, specialising in different trades, and allows them to manage their work according to their own preferences of operations. The “cloud” is simply a server facility.

Smaller businesses looking to adopt cloud computing and digitalising their workload would need to make sure that all members involved in the value chain are properly connected to the internet at times they’d need to perform their duties. However, as South African small businesses become more reliant on the internet – the reality of the three “economic disablers” affecting this country creeps in from time-to-time. These are copper theft, load-shedding and poorer quality internet connectivity.

Small companies looking to adopt cloud computing should be aware of these shortcomings, which are a current reality in the South African economy, and plan around them.

There are digital solutions companies that provide and host cloud computing as a Business-to-Business offering (B2B), for example eNlight Cloud and AWS Cloud Services. However, there are also other software solutions and applications which companies frequently use that have capacity to host cloud computing services without extra charges. For example, Google Workspace gives multiple users the opportunity to work on documents, images, presentations, calendars, sheets and slides, among other things, remotely. All they need is to be granted access through a Gmail account, which is available to the public free of charge.

Working in a cloud has notable benefits, and these include…

  • The availability of data in real-time, without the involvement of the originator of the file/data.
  • Remote working, particularly during the Covid-19 pandemic where social distancing is advised.
  • Businesses are able to save on expenses such as logistical costs.
  • The time used to travel can rather be dedicated to work, which could increase productivity. 

The disadvantages associated with cloud computing on the other hand include…

  • South Africa’s digital migration is limited by a lack of computer literacy as discussed here. This is predominantly among the older workforce. This is exacerbated by limited access to digital solutions, with only 52 percent of South Africans using phones and internet regularly, according to a report on the country’s digital divide published by the University of Cape Town.
  • Read Huawei’s article on the lack of proper connectivity in Sub-Sahara Africa, which could disrupt operations/production. There is a low rate of access to the internet in South Africa in general, with only 37 percent of households having regular access to the internet according to the Mail & Guardian.
  • There is an increased risk of sensitive information being accessed by unauthorised individuals. 

Don’t get left behind, take professional advice on how cloud computing can benefit your business and save you money on operating expenses.

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How To Get a R1.8m CGT Exclusion When Selling Your Small Business

“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital… the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy”

John F. Kennedy

Since October 2001 South African tax residents have been liable for capital gains tax (CGT) on the disposal or “deemed disposal” of assets, such as a business or a property. Events that trigger a disposal include a sale, donation, exchange, loss, death and emigration. 

For individuals, the CGT rate is a stiff 18%. No separate registration for CGT is required. Since CGT forms part of the income tax system, a person must simply declare capital gains and capital losses in the annual income tax return. All capital gains and capital losses made on the disposal of assets are subject to CGT unless excluded by specific provisions. 

One of the lesser known of these exclusions offers CGT relief, for individuals older than 55, up to R1.8 million on the disposal of a small business with a market value not exceeding R10 million; or active business assets of a small business; or an interest in a small business.

Start planning for your retirement with this exclusion

The exclusion is ideal for those thinking of selling their small business to retire. Whilst, as we see below, you have to be over 55, or disposing because of retirement, infirmity, ill-health or death to actually take advantage of it, it makes sense for a business owner of any age to start planning upfront to meet the various requirements. 

Of course, pages of conditions apply, and these are described briefly below to help you determine if this exception is applicable to you already, or how it can be applied to your future planning should you dispose of your small business; your shares in it; or the qualifying assets. 

Do you qualify? Take the quiz! 

If you answer yes to all these questions, you may qualify for the R1.8 million CGT exclusion. 

  1. Do you, as an individual, own a small business or a share in a small business?

A small business is defined as one in which the market value of all the assets is less than R10 million. The business liabilities are not included in the calculation. 

The individual may be a sole proprietor; run the business in a partnership; or hold a direct interest relating to ‘active business assets’ and have a shareholding of at least 10% in the company. 

  1. Are you older than 55? Or is the disposal in consequence of ill-health, other infirmity, superannuation or death? 
  1. Will the gain (profit) from selling the assets or business accrue to you personally?
  2. Have you held the business or interest in the business for a continuous period of at least five years?
  1. Have you been substantially involved in the running of the business during the above-mentioned five-year period? 

If, for example, you employ a full-time manager to run the business, the exclusion will not apply.

  1. Is the market value of all assets of the small business (as well as other businesses owned) less than R10 million at the date of disposal? 

The market value of all assets – whether ‘active business assets’ or not – must be included. If you are a sole proprietor of a business, who also owns a rental property, both these assets must be included. If you own more than one small business, the combined assets of all your businesses must be less than R10 million. 

If the business is a partnership, and the business assets of the partnership has a combined market value of more than R10 million, none of the partners qualify for the special CGT exclusion. 

  1. Is each asset eligible for the capital gains exclusion?

Eligibility is determined on an asset-by-asset basis because the exclusion only relates to “active business assets”. These include moveable assets such as furniture and equipment used exclusively for business purposes. 

For immoveable assets like a building, where part is used for personal purposes, the capital gain must be apportioned between business use (exempt) and non-business use (not exempt). Assets generating passive income (investment income, rental, royalties) and financial instruments (bank deposits, loans, options, shares, unit trusts and more) are also not exempt.

  1. Will the capital gain be realised within two years from the date of the first disposal? 

    If you sell the business in stages, you only qualify for the exclusion when the full capital gain is realised at the completion of the sale, and that must be within two years.   
  1. Have you already made use of the exclusion? 

This CGT exclusion is cumulative and limited to R1.8 million during the natural person’s lifetime. If you sell your business this year and claim R800,000 as a capital gains exclusion, you could possibly have R1 million to deduct in the future against the capital gain of another business. Any capital gain above R1.8 million is taxed as per usual. 

Best advice! 

CGT is a very complex area and there are many issues to be considered. 

However, not taking advantage of this exclusion if it applies to you could make a substantial difference to your future plans.   

For example, let’s say you bought shares in a company 7 years ago for R2 million, and have since been actively involved in running the business. You decide to sell your share for R4 million, triggering a capital gain of R2 million. 

Taxed at your marginal rate of 18%, the CGT due would amount to R360,000 (R2 million x 18%). Applying the R1.8-million exclusion, only the remaining R200,000 is taxed at 18%, reducing the CGT due to R36,000.

Take professional advice and speak with your accountant to ensure that you qualify for the maximum benefits while ticking all the compliance boxes. 

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Boost Your Business Plan – Build an Effective Website with These 6 Tips

“Almost overnight the internet has gone from a technical wonder to a business must”

Bill Schrader

No matter the size of your business or what industry you are in, building and maintaining an effective website should be at the heart of all your planning. The internet has become an essential part of everyday life and having a presence online is extremely important for anyone conducting business in 2021. According to a recent survey conducted by Weebly, 56% of the consumers surveyed said they don’t trust a business without a website. 

A website provides a business with numerous benefits, even those businesses who may not think this is the case. Websites expose businesses to a wider audience, provide leads to people already interested in your service, and help save on advertising costs, but only if they are done right. 

A website that exists, but that is unattractive, unhelpful or simply impossible to find will instead do damage to a brand. As a customer’s most likely first port of call for a business, it is essential it reflects the service and diligence put into all other aspects of the enterprise. Here’s how you make that happen.

1. Buy a good domain name

On the surface choosing a domain name may seem like a simple thing. Most people will immediately focus on their brand name and leave it at that, but what if your brand name doesn’t make it clear what you do or has already been taken by another company?

In the instances above it might be wise to reflect your industry in the domain name. If your travel company is called Bob’s, using the domain name BobsTravel tells potential customers more about what you do, and also gives you one key word that helps the client stumble upon you when searching for their new holiday.

Apart from the simple name it’s also important to remember to keep the domain name as short as possible to make it easier to remember. Those with fewer than 15 characters or 3 words have been shown to be easier for people to memorise. It is also important to avoid using numbers, hyphens, double letters, and special characters to avoid misspelling, which also applies to making the name easy to pronounce. The simpler it is, the more likely your clients will remember what to put into their browser.

2. Focus on the platform

Choosing which platform to build your website on is going to be critical to its success. The platform you choose will depend entirely upon the kind of website you are looking for. A simple business card style website might be built using online website builders, but as soon as you need anything more it would be wise to consult a professional web design company to ensure your needs are properly met. 

For starters the business owner will want to consider the platform’s ability to correctly display the website on a variety of new and old browsers. Having a website where some browsers are not supported is a good way to frustrate your potential clients.

Mobile responsiveness is also critical for a website to be effective. According to the most recent Media Nations Report by British regulator Ofcom, the average adult now spends five hours and 40 minutes looking at their phone every day. Needless to say, this means your business’ mobile website must offer a positive user experience so the platform you choose must integrate seamlessly with mobile browsers.  

According to Steve Grey, Creative Director of web design company Plastic Duck Armada, other things to consider include the platform’s ability to scale at a later date. Building a site that can easily be added to as your company grows allows you to upgrade for lower cost in the future. It doesn’t make sense to build a website that needs to be thrown away a year later simply because it won’t include a feature you now desperately need.

“Maintenance is something very few people consider,” says Grey who explains that as technology advances sites will need to be updated to keep up with the new developments in browsers and web searching technologies. 

“Is there a high cost involved in updating your platform? How easy is it? Can someone in-house be trained to do it? This is all going to have a long term impact on how much the site costs and how effectively it runs,” he explains. 

Likewise he says people should consider how easy it is to upload new information to the site. 

“Do you need a blog? Is that system intuitive? Can you update it regularly by yourself or do you need to now hire someone to do it?” asks Grey. 

The final thing to consider according to Grey is the plug-ins and themes which can alter the look of your site. If you want to update the appearance of the site in a few years, do you need to scrap everything and start again, or is it simply a matter of buying a new theme? 

“Ultimately this all comes down to cost and time. With a little forward planning and choosing the right platform you can actually save a lot of money,” says Grey.

3. Make it easy to find: SEO

Search Engine Optimisation (SEO) refers to practices that help your website appear and rank on search engines. This is one of the most important issues to consider when building your website as, according to WebFX, organic searches through search engines now drive more than 50 percent of all website traffic. As a comparison, paid search only drives 10 percent of site traffic, while social media takes credit for just five percent of website traffic.

Your ranking on Google is influenced by a number of factors, all of which must be considered when building a website. Perhaps the most surprising of these is the speed at which your website loads – no matter how good they are, websites filled with large images and videos are getting bumped down the rankings. Ensuring your site is enriched with meta descriptions, and that its tags, images and text are all reflective of your business and the industry will ensure it is found more easily by your potential clients.

Making sure these are optimised requires you to do keyword research on which words you should use to better help Google understand what it is you do, and therefore send the right people to your site. Correctly linking your pages and sharing your site map with Google and the other search engines, to put the site on the right searches.

4. Security is important

According to the Washington Post, global losses from cybercrime skyrocketed to nearly $1 trillion in 2020 and these losses are only growing each year. It is therefore vitally important to protect the integrity of your website and therefore your brand name.

This can be done by creating strong passwords that include random characters, capitals and numbers and are at least 15 characters long to avoid brute force attacks. Updating your site regularly will prevent hackers from exploiting weaknesses and bugs in the code, while running regular backups will allow you to quickly restore the site should it be hacked anyway. Anti-malware software will stop web scanning, DDoS attacks and remove any Malware, which does manage to infect the site. Finally installing SSL will encrypt data transferred between you and your users thereby preventing hackers from reading and exploiting it.  

5. Keep it easy to use

There is nothing more intimidating for a customer visiting a new site than non-intuitive, cluttered web pages. Keeping things open, clear and easy to read will reduce the pain points for customers, while also helping them to find what they are looking for.

The ideal website has five or fewer tabs at the top to navigate and each page should also offer a clear way to get back to the homepage, as often Google searches may take your reader to a page on your website other than the homepage. 

Limit the use of fonts, colours, and GIFs, which can distract and pull the eyes away from the focus of the webpage. Short paragraphs and bullet points also make the information easier to read.

The whole point of your website is to get people to contact your business or to buy something. It’s perhaps surprising then how difficult information can be to find. If your business depends on people being able to contact you or call your sales team, put that information where customers can find it easily. Don’t be afraid to put contact information where it can be found, even at the top of the homepage, so that visitors don’t have to search for a phone number or address if they want to contact your business.

Similarly, if the company uses social media to connect with customers, social media links should be in the website header or footer where they can be easily found.

On sites where ecommerce is an option, the average cart abandonment rate is a staggering 69.57%, meaning most users don’t complete their orders after setting products aside. The most common issues are all linked to complexity and a lack of information – unexpected extra costs, members-only checkout, and a lengthy checkout process. Keeping it simple is clearly the right choice in every circumstance.

6. Market your website

Marketing your website is going to be essential if you want to climb in the search rankings and increase the number of brand new clients it attracts. While social media and paid Google adverts are common ways to market sites it’s usually the more subtle things that climb a site up the rankings and ultimately affect profitability. There are numerous cheap and free tools on the internet that can help with getting the website in front of the people who need to see it as well as helping them once they are on the site. These include, Google My Business, HubSpot, BuzzSumo and MailChimp. 

While social media only accounts for 5% of all web site traffic it is an area that is completely in your hands as business owner. Using a good social media management tool and properly engaging with clients and followers is a great way to attract new business and owners should not ignore it. There are numerous cheap or free social media management tools to help put up the correct posts and monitor their success, such as Hootsuite, Sprout Social and Buffer.

Take professional advice on formulating your business plan with a website at its core, using these simple tips to ensure that it helps drive sales and boost profitability. 

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Small Businesses: Reap the Benefits of Cashless Transactions

“Mobile devices, high-speed data communication, and online commerce are creating expectations that convenient, secure, real-time payment and banking capabilities should be available whenever and wherever they are needed

Chair of the Federal Reserve of the United States, Jerome Powell

South Africa is already a cash-heavy economy as it is and this reliance on cash is financially and socially costly for the economy. This cost alone is estimated at approximately R88 billion per year. This number is calculated by the Payments Association of South Africa (PASA) and is derived from consolidating the costs to consumers, businesses, banks and the SARB and is made up of both direct financial and indirect social costs. “The direct financial costs primarily relate to transactional fees incurred by end-users, the costs of printing cash, the supply of cash, and the maintenance of the expensive cash infrastructure (ATM’s, branches and cash centres). The social indirect costs relate to unnoticed factors like time wastage, investment opportunity lost, inflation, crime and others”, according to the Association.

“Fintech” solutions such as tap-to-pay, interbank instant deposits, eWallet, PayPal, Snapscan, Zapper continue to grow in popularity, primarily because of considerations around minimising exposure to Covid-19 and social distancing. 61% of respondents interviewed during the survey cited social distancing as a driver for digital commerce. 

General Manager at Business Partners Limited, Jeremy Lang says “In this new ‘less-cash’ society, the worst thing that any SME can say to a customer is, ‘I don’t accept that method of payment.’ This means that South African businesses are under significant pressure to adapt and evolve their mentality towards digitisation. It is a change for the better, for a number of reasons and we urge all SMEs to get onboard and use digitisation as a way of establishing a competitive advantage going forward.”

Cashless transactions come with the following benefits:

1. Increased safety

Cash exposes the user to higher risk due to the physical exposure to a third party. There is a high risk in holding cash, where users are at risk of theft and leakage. In the current Covid-19 environment, the less contact with cash the better due to safety reasons. 

2. Cashless is more convenient

Another major appeal in cashless commerce is the convenience of having your “money” in a central depositary that you have access to at any location and time, without having to physically count it.

3. SMEs can keep better records of their transactions

A paper trail of every digital transaction lives in a cloud – and can therefore be accessed by either the account holder or the financial service provider should there be a need to reference the transaction in future.

4. “Cash Is Expensive for South Africa” 

This is according to the Payments Association of South Africa. In its “Modernised Real-time Electronic Retail Payments: A Case for Change for South Africa” report, there is a Cost of Cash to Businesses section, which states that “when assessing the cost of accepting payments for businesses, cash is largely perceived as cheaper than card-based payments (POS and QR codes).”

“However, businesses often do not account for all the costs associated with accepting cash payments (e.g. the risk of theft, leakages, infrastructure costs for safes, tellers etc.) over and above the costs associated with depositing this cash. On average, for smaller businesses, cash deposit fees are about 1.5% including the fixed base costs, which is significantly lower than the average merchant service fees (MSF) for accepting card payments. However, if we include the indirect costs of cash acceptance utilising the same proportion of indirect costs for the cost of cash to consumers, then the true cost of cash for businesses increases to approximately 3.4% for small businesses,” it clarifies.

Take professional advice on the best and safest ways to take advantage of the cashless transactions trend.

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How to Build Your Business with Freelancers

“The gig economy is empowerment. This new business paradigm empowers individuals to better shape their own destiny and leverage their existing assets to their benefit”

John McAfee

The modern world of work was already changing by the time Covid-19 hit. The “gig economy” had taken hold and numerous apps allowed employers to connect with freelancers more easily to get small jobs done quickly. The work from home culture, which was necessitated by the virus, only reinforced for business owners the idea that their employees need not be on site and there has been a veritable boom in the use of freelancers across all industries.

A recent LinkedIn study of small businesses in the U.S. found that “51% of sole proprietors have used freelancers and intend to hire more, while 58% of companies that have 2-20 employees and 66% of companies with 21-200 employees plan to hire more freelancers in the future”. The reason for all this is flexibility. With full time employment becoming a serious commitment for employers, freelancers are picking up the slack. But, with so many people taking chances and selling skills they don’t have, how does one go about building a reliable team of high-quality freelancers and get the most out of them?

Here are five tips.

1. Determine your needs

It may seem like an obvious first step, but working out exactly what work needs to be freelanced and which to keep in-house is important. Knowing what skills you are looking for, and just when you need them available will also make it more likely you will find a freelancer who matches with your vision.

While freelancers can offer flexibility and their productivity is generally much higher than in-house staff, they can also be more costly, and knowing which work you can easily manage and which should be left to an expert will both save money and ensure you are maximising your resources.

Make a list separating the important tasks, and the ones you can’t do, and those you could reasonably manage with your existing employee complement. Determine just how many people it will likely take to complete each assignment and work out just who needs to be brought in to complete the most important tasks first.

Secondly it’s important to ask yourself just what you want from a freelancer. Is it important that the freelancer works alongside you? Do they need to come into the office, or do you just need them available during your work hours? What skills do they need? Must they be bilingual, own their own transport, or be familiar with your communications platforms and systems? Once you understand your needs you can move on to actually finding someone who is right for the job.

2. Finding freelancers

Finding freelancers is similar in many ways to finding permanent staff. The first thing to do is ask around and get recommendations from people in your industry. Those people who come recommended already have a track record and you know they won’t need additional training. Failing that, there are a number of social media groups and apps where freelancers advertise their skills and employers can advertise jobs. A quick online search should easily help you find those that cater to your industry and needs.

Once there, you will need to post a job listing. You have already determined your requirements so that listing should be as comprehensive as possible to ensure only the people who are interested and have the relevant skills apply. Make sure to include a clear description of exactly what the job entails, how many hours you need and by when, what it pays and how payment is made. Do you pay at the end of the job, upon complete satisfaction, or within 30 days of completion? 

The more details you can give the better.  For example, when contracting a social media manager, outline which platforms they will be managing and how many posts a month you expect.  Writers need to know whether to send ideas or write based on topics you assign, and how many words you hope the stories will be. Website developers need to know about the purpose of the site, the functionality and also how much tech support you expect once the site is live. A research analyst will need to know whether they are simply collecting and collating data or making recommendations on it as well.  An administrative freelancer will need to know exactly which tasks are being handed over and the scope of their powers in handling them.

Once you are in touch with someone, ask to see their portfolio of past work. That work should then match with your requirements. Being a designer who works on logos and animations doesn’t automatically make you a good web designer. Does the freelancer have experience in exactly the type of project you need? 

The second thing to look at on a potential freelancer’s portfolio is the tone of the work. If you’re looking for a technical writer beware a portfolio full of social media management or lifestyle feature articles. The freelancer needs to have examples of just what you are looking for before you commit. Ideally, you’ll see strong samples in a range of styles as this is a good sign that the freelancer is versatile and adaptable.

3. Start small

No matter how well recommended a freelancer is, the smart business manager knows to start them on small tasks. The benefit of a freelancer is that you aren’t immediately locked into a long term relationship, so use that to your advantage and get them going on less crucial tasks so you can evaluate their performance and potential. Freelancers who excel at the small things, meet deadlines and maintain a professional outlook can then be trusted to move on to the bigger and more important jobs without any anxiety on your part. 

Starting on a smaller job will also take less of your time in managing the freelancer and ensuring the work that comes in is as you expect it. It’s easy to forget that while freelancers may be highly skilled people, your company has its own quirks and ways of doing things and your expectations are in line with that. Initially it will take more time to manage the freelancer, explain the jobs and ensure things are being done the way you like it. A good freelancer is open to constructive feedback on his or her work, will be happy to make the necessary changes for you and will adapt their work quickly to your situation. Hopefully then, when it comes time to assign them to the more critical projects, they will already be in step with how you work.

4. How much should you pay?

Determining what to pay is one of the trickier aspects of hiring a freelancer. Given that they could conceivably come from anywhere in the world and have totally differing levels of expertise, working out what to offer for the right person can be hard. Generally, freelancers are paid either an hourly rate, or a rate per project. The latter is probably the easiest as both sides already know going in what they can expect to pay or receive upon completion and there are no nasty surprises. 

The freelancer’s experience and expertise, project complexity and timetable, and the project’s ultimate value to you all affect price, but in the end you should look at your own budget and allow that to determine the level of freelancer that the job will attract. What is it worth to you and your company for this job to be done well and on time? That’s what you should offer. 

5. Treat them well

Now that you have found a good freelancer, and have them aware of just what you need, it’s important that you maintain the relationship. High quality freelancers are eventually inundated with work and if they need to chase payments each month, or haggle to get their rates, or are otherwise treated badly your work will fall down their list of priorities and eventually they may end up firing you – remember they do what they do, because they also like the flexibility of not being locked into a single arrangement.

Paying punctually, and well, communicating clearly and not making impossible demands has the opposite effect and will see your freelancer value your contract, and go the extra mile in ensuring you get what you need, when you need it.

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Business Combinations: A Path to Exponential Growth and Profitability?

If everyone is moving forward together, then success takes care of itself

Henry Ford

Initiating, setting up and launching a new, typically, small business is a challenge and can be a lonely journey to growth and, hopefully, success. 

Could developing a partnership or co-operative with like businesses be a pathway to growth and profitability?

How do you describe your business?

Truly understanding how to properly describe what your business is can make the difference between success and failure. This is an important consideration for both the entrepreneur and potential customers. Is a company that uses a truck(s)/bakkie(s) to move goods around simply a moving company or is it in reality a logistics organisation offering a range of transporting options? A proper description can put what the organisation really is in proper perspective for those who are looking for a supplier of goods or services.

Next, ask yourself “Are there other products or services that relate to what my business does and should we pool our resources?”

The story of a plumber and how he grew his business

Consider, for example, the construction industry. Not the big guys but those who supply into that industry. Tradesmen such as plumbers, carpenters, electricians, painters, plasterers and so on.

Some years ago a plumber who had a good reputation (an essential element) for both the quality and timing of his work wanted to grow and develop the operation. He had a team working with him but found it difficult to scale up the business.

Because of his standing (reputation) in both the residential and commercial construction industry, he had been asked, from time to time, to recommend other tradesmen of similar quality. He turned those requests into a growth business. He approached the artisans he had worked with who had proved to be reliable and for whom he had a good regard and suggested they join his business. He explained how it would work.

He would find the work for them and refer them to the client. This was in respect of all the trades servicing and supplying the industry. He took a small percentage of the fee/charge for the following benefits he offered these tradesmen:

  • Work sourcing,
  • Administration for them (and their teams if they were more than ‘one-man bands’),
  • Handling all the finances, banking, submission of regulatory returns
  • Sourcing of supplies for them where necessary,
  • Managing their payrolls and attendant administration,
  • Other issues.

Of course, there was a simple written agreement between his little company and those who contracted with his business.

The consequences of this “pooling” of talents and services

  • His business grew in influence, reach and demand as its reputation grew,
  • There was a growing demand from tradesmen to join his operation, and he was able to be selective in deciding with whom he would develop relationships,
  • Because of the aggregation of supplies he sourced he was able to obtain quantity discounts. He retained part of these savings which went to meet the costs of his business with the balance being passed on to the tradesmen contracted to his operation,
  • The individuals who contracted with his business were able to scale up their operations as they were introduced to suitable lucrative and reliable contacts who paid their bills on time and in full,
  • Eventually, some decided to go on their own. This was always his expectation, that once they were on a sound footing they would develop their own operations further,
  • He was able to turn his full attention to growing the broader operations even though he kept his hand in his original plumbing operations,
  • Finally, he was never greedy and kept his focus on growing both his and his cooperative partners’ businesses.

His operation grew exponentially and after many years he retired a well-off man who had the satisfaction of having contributed to the well-being and success of others in a tough industry.

What do you need to consider?

Once you have determined exactly what your business really can be described as, consider whether there are any other businesses that relate more or less naturally to your operations. 

Is there an opportunity for you to ramp up your operations to offer relevant services to these businesses to grow both their and your operations and provide your business with additional income streams?

The construction industry example used here is but one where collaboration could lead to growth and improved performance and income generation.

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SMEs and Microinsurance: Benefits and Risks

“Do you know the difference between education and experience? Education is when you read the fine print; experience is what you get when you don’t”

American singer and social activist, Pete Seeger

Microinsurance refers to an area of cover made accessible to low-income individuals and businesses at relatively low cost. Within the South African context, they originally dealt heavily with funeral insurance. Since 1 July 2018, in terms of the Insurance Act of 2017, microinsurers were allowed to offer additional product offerings. 

The Insurance Act introduced a new microinsurance license category. Now microinsurers may be profit-making, not-for-profit or co-operatives. This has brought stability to the sector and even opened up the market, and extended the list of options.

Legislation included a time cap on contract terms of 12 months for life insurance and a “No Waiting Periods” law for policies covering accidental death or disability, as well as credit risk policies.

The importance of the microinsurance sector for local SMEs

A South African Microinsurance Case-Study, which was conducted by the University of the Western Cape (UWC) for the International Labour Organisation, surveyed SME operators to assess the risks that they face and then explored the possibility of insuring those risks. 

It concluded that “there is an important, albeit limited, role for microinsurance (especially life insurance)” among SMEs. The case study assessed the risks SMEs face in totality, from operational to employee benefits. 

The avoidable financial risks negligent SMEs face

Given the many companies advertising funeral cover, employees of SMEs should first find out if such cover is offered as an employee benefit to avoid making unnecessary contributions to their own policies given the payout caps in the event of a claim.

Accordingly, SMEs which contribute to their employees’ life insurance and/or funeral policies as benefits, run the risk of wasting money should they not fully understand the regulations relating to these policies. This should be fully discussed with employees as the impact of the R100 000 cap on life and/or funeral cover affects SMEs which offer these employee benefits directly to staff. For example, if an employee is covered by multiple funeral policies and a claim is filed, the insurers will scrimmage and divide the R100 000 cap liability among themselves. Regardless of the policies’ individual values, not a single rand will be paid beyond that amount. 

These are usually taken out as group covers. Communicating with employees is vital as there is no need for multiple funeral policies if the R100 000 aggregate sum is reached.

Advantages of using microinsurance over traditional insurance

  • They provide cover at lower premiums.
  • No exclusion is allowed due to pre-existing health conditions for funeral and credit life insurance policies.
  • Excesses only concern the non-life insurance policies.
  • Authorisation and payment of claims are not allowed to take more than two business days.
  • SMEs that have microinsurance cover for employees have them as group schemes with less admin and red tape as compared to traditional insurance.

Disadvantages of using microinsurance

  • Many microinsurance schemes are said to have relatively poor viability and sustainability, so products require more scrutiny in order to be considered safe.
  • SMEs need to be aware of the cap of R100 000 maximum payout in the life and funeral insurance category and the R300 000 cap in the non-life category.
  • Products are usually not comprehensive in the non-life category.

Seek professional assistance to find the best microinsurance options available in order to avoid being trapped by the fine print.

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The Top 5 Leadership Skills Every Entrepreneur Needs

“The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.”

John Maxwell

To be a good leader in the small business environment a person needs to possess a variety of skills, understand themselves and recognise areas where there is room for improvement. The leader’s abilities will be the main driver for growing the business. An effective leader is required to not only guide a company from a financial perspective, but also to build a team that is accountable and designed to get results. On the surface this sounds like a simple statement, but here are the five main skills that it takes to develop that end goal.

1. Motivation

Leadership is not just about charting the right business course. At the end of the day, profit and loss will be determined by the strength of the team working in the company and by how motivated they are to do their very best. 

A recent study conducted by Dr Kou Murayama at the University of Reading found that when people are motivated, they learn better and remember more of what they have learned.

Great business leaders are capable of establishing a positive culture in their organisation, and to do that they need to lead from the front. A true leader needs to exemplify the values they want to instil in their employees and motivates their team through their passion and accountability. That said, a leader cannot believe that they alone will be able to inspire their employees to greatness and they should not diminish the value of rewards in motivation. Simply adequately rewarding your team with good salaries and other non-monetary bonuses and offers can inspire them to do better work. 

According to recent findings in a cognitive neuroscientific study by Adcock, Thangavel, Whitfield-Gabrielli, Knutson & Gabrieli, rewards enhance learning, focus and enthusiasm due to the modulation of hippocampal function by the reward network in the brain.

Motivation then is a blend of the character of the leader, the culture within the company and the rewards being offered in return for effective and productive employees. A good leader needs to take all that into account to get the most from their team.

According to Kara Kelly, Executive Director of CompleteContents.com, “Leadership is not about who is in charge. It’s about making sure your team stays focused on the goals, keeping them motivated and helping them be the best they can be to achieve those goals. This is especially true when the risks are high and the consequences matter.”

2. Communication

Good, honest communication with both employees and clients is one of the key pillars to small business success. The leader is the one primarily responsible for developing a good communication system and culture within the organisation and for ensuring employees are able to effectively communicate the necessary information, opportunities and problems they perceive to the right people, quickly and easily. Forbes reports that one of the simplest ways new businesses collapse is through either a lack of communication or through too high a complexity level of communication. 

Employees should feel empowered to communicate directly with those in charge if they perceive problems or notice opportunities and should be rewarded for doing so, and feedback to both employees and clients should be frequent and simple. 

A bad communication system is one that generates numerous, complex reports that have to travel through a chain of command before it reaches the right person. Leaders should focus on being accessible, communicating more simply and more often to ensure all parties are fully aware of what needs to happen, and the details associated with it. Your lowest level employees and clients don’t need 60 page reports filled with complex graphs and algorithms explaining what you are going to do– a quick message to outline targets and how they will be achieved, by which deadline is far more effective.

3. Passion

The best leaders are absolutely passionate about what they do and their company as it’s impossible to become successful at something that one does not care about. Before starting an endeavour a business leader needs to seriously ask themselves if what they are doing is something they are passionate about. The early years of a business are filled with grind, difficulty and setbacks and tackling all this without passion for what you are doing is close to impossible. 

Passion for a business also has numerous other positive side effects for it such as drawing the right consumers, building networks with similarly minded individuals, and creating authenticity that your audience (suppliers, customers and employees) will identify with. 

But obviously not all businesses are born out of passion for the product. Not many plumbers for example will say that the one thing they always wanted to do when they left school was work with pipes and bathroom fittings! These leaders find their passion in other places and inspire themselves by perhaps knowing that they are providing necessary and helpful services to people in need, that they are doing good, providing for their families or giving themselves, and their employees, the kind of lifestyles they all really want. Finding genuine passion for your business, from whichever source, will ultimately be one of the biggest factors in also discovering success. 

4. Interview Skills

In the early days of a business being able to find and recruit true talent can make or break a company. An entrepreneur needs to be their own Human Resources department and discovering and nurturing true talent is therefore absolutely essential. Finding the right candidates begins when determining what kind of candidate is truly needed in the company. All too many job adverts claim to want someone who is a “copywriter, graphic designer and SEO specialist, who dabbles in social media and has three years agency marketing experience”. These adverts show a clear lack of leadership in the company, because unicorns with that kind of diverse experience are extremely rare, and clearly the roles the company really needs filled have not been considered carefully enough. 

Defining exactly what it is a company needs will allow the entrepreneur to advertise the position effectively, remunerate fairly and therefore attract the right kind of person into the role.

After attracting the right candidates to an interview, the intelligent small business employer will then focus on a few key things at the interview stage. Interviews should focus on “behaviour based interviewing” or interviews that focus on examples of past behaviour and achievements. What the interviewer is looking for is someone who can effectively work and deliver unsupervised as they won’t have the capacity to watch over that employee 24/7. A good trick is to send in someone you trust to have a casual chat with the employee while they are waiting for their interview, or when you need to “step out” for a few minutes. This employee will be more likely to get a sense for how the person really is and determine if there is good chemistry.

Understanding a potential hire’s motivations for taking a job is also critical. You need to know this person is as passionate as you are about making your company work and isn’t just in it for the money or, looking to fill a short-term role. In the end, you want to ensure whoever you hire will be there a few years to limit the necessary training and wasted time and expense employee churn can create.

5. Education and personal development

People who choose to go into business for themselves usually do so for a number of reasons that range from years spent in an industry, to having a good idea, or simply wanting to try something new. Whatever the reasons it’s safe to say that the skills they have at the start of the business are usually not the ones they are going to need in the future as the company grows and expands. A crucial aspect of building a successful business is in the entrepreneur making sure that they are as qualified as possible to meet the upcoming challenges of the company and planning ahead so they aren’t caught off guard.

It is therefore essential that any business leader, but particularly those in start-ups, continue to educate themselves on their industry and in business. The more skills a leader has, and the more they understand their company, legislation affecting their industry, new developments and the competition, the more chance they have of making it to the end game. The answer is simple, never stop learning, and encourage a culture in which this is true of each employee in your business. 

As John F. Kennedy said, “Leadership and learning are indispensable to each other.”

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Home Office Expenses: To Claim or Not to Claim?

We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes”

Edward Kieswetter – SARS Commissioner

“All employers should allow their employees to work from home unless it is absolutely necessary for them to perform work on-site” was among the government’s directives issued on 28 June, when South Africa was placed under an adjusted Alert Level 4 lockdown in response to the third wave of Covid-19 infections in the country. 

While working from home has certainly become a more familiar feature of the employment landscape and is predicted to remain so long after all lockdown restrictions are lifted, it has been some time since employees were actually compelled to work from home wherever possible. 

This, along with the opening of the 2021 tax season on 1 July, refocussed attention on the issue of home office expenses and how these should be treated for an optimal tax outcome for employees and employers. 

Just days later after the lockdown commenced, SARS announced that it had published an update on its website in relation to home office expenses to provide “additional clarity for individual taxpayers who may be considering submitting claims for home office expenses in their income tax returns that can now be filed for the 2021 tax year” from 1 March 2020 to 28 February 2021. 

What has changed? 

SARS notes that expenses in maintaining a home office have been a controversial issue since the 1968 judgment KBI v Van der Walt. The legislative provision relating to home office expenditure that a taxpayer may claim, section 23(b) of the Income Tax Act, has therefore been periodically amended since 1990.  

However, since March 2020, things have changes drastically due to Covid-19, and more employees have been compelled to spend more time than ever before working from home. It is in any case likely to be a permanent feature of the employment landscape in the future. Employees have been accommodating this shift by setting up home offices and bearing certain expenses to create and maintain a proper working environment at home.

Despite the substantial change in the employment landscape, SARS emphasized in their media statement that “there have been no changes to the legislation in relation to a ‘home office’… the legal requirements remain the same as before the Covid-19 pandemic.” 

However, in May, SARS also issued a 17-page draft Interpretation Note 28 (IN28) on what taxpayers who are “in employment or holding an office” can deduct for home office expenses, providing various examples of when expenses will not be permitted. These include, for example, working at a dining room table instead of in a dedicated room; or also using the home office space for purposes other than working.   

Media comments have suggested that the draft interpretations are narrow, excluding most employees from claiming a tax deduction; do not adequately address tax implications arising from the increase in home office use due to Covid-19; and do not align with National Treasury’s intention, expressed in the February Budget Review, to investigate current travel and home office allowances for “efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives”.

While the Draft Interpretation is under discussion, SARS says that the legal requirements set out in the Income Tax Act remain the same as before the Covid-19 pandemic. 

6 questions to determine if you are eligible to claim home office expenses 

SARS’ “Home Offices Expenses Questionnaire” here says that answering ‘Yes’ to all 6 questions below confirms eligibility to claim home office expenses. 

  1. Did you receive remuneration for duties performed mainly (more than 50%) in part of your private premises occupied for purposes of that remuneration?
  2. Do you have a dedicated room in your premises?
  3. Is this room specifically equipped for the purpose of that remuneration?
  4. Is this room regularly used for purposes of performing the duties in relation to that remuneration? 
  5. Is this room exclusively used for purposes of performing the duties in relation to that remuneration?
  6. Did you incur home office expenditure relating to your domestic premises?

Just please read the “Pitfalls” section below before making any decisions!

What can and cannot be claimed? 

For a home office expense to be deductible, the requirements of the Income Tax Act must be met and its prohibitions must not apply. 

Typically, home office expenditure includes rental of the premises; cost of repairs to the premises; and expenses in connection with the premises.

This means that taxpayers may deduct rental or bond interest on the home and home repairs; municipal rates, electricity and water; wear and tear on office equipment considering differing depreciation rates on computer equipment and office furniture.

In terms of the rental or bond, as well as the municipal rates and utilities, an apportionment of the costs must be made when claiming. This is typically calculated on a pro-rated basis of floor space i.e. square metre basis of the home office in relation to the total area of the home. 

Employees may also incur numerous costs in running a home office such as telephones and cell phones, Internet connectivity, equipment repairs, stationery, and cleaning.  

Beware the pitfalls 

  1. The specific wording, narrow interpretations and possible changes to home office expenses could place taxpayers at risk. For example, to claim home office expenses, the home office must be a room “dedicated” to work where duties are performed “mainly’ or “more than 50% of the time”, and it must also be “specifically equipped” and “regularly” and “exclusively” used for work. Wording such as this, along with possible changes and the narrow interpretations suggested in the most recent draft Interpretation Note (IN28) should prompt employers and employees to take professional advice before deciding to claim a tax deduction in respect of home office expenses.    
  1. The burden of proof lies with you as taxpayer. Employees should be provided with written confirmation regarding the specific timeframe they are required to work from home. In addition, employees should keep a running spreadsheet of hours and days worked at home covering the entire tax year, or consider other solutions such as keyboard tracking software, stealth monitoring or mobile time clocking solutions.
  1. Home office expenses must be linked to employment use and must be verifiable. Be sure to retain invoices and statements of all home office expenses. Where expenses are not specified as deductible in the Income Tax Act, opting for reimbursement by your employer may be a more efficient solution.
  2. The possible impact on capital gains tax. SARS warns that where the home office is on taxpayer-owned property, formally defining part of a primary residence as a home office will ‘most likely have an adverse impact on a future capital gains determination’. This is because the home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence. Careful consideration should therefore be given before a claim for home office expenses is made and it is essential to get professional advice on this aspect.
  1. Increased risk of being audited. SARS warns that while all claims for home office expenses may be subject to further verification or audit, there is a high likelihood that a taxpayer who claims home office expenses for the first time will be selected for verification or audit.

Cost vs Benefit Analysis 

Given all the potential pitfalls, it is important for employers and employees to consider whether the cost, risk and administration involved in claiming home office expenses are worth the benefit received in terms of the total tax deduction.

Other options should also be explored to ensure the optimal tax outcome for employers and employees. For example, should the employer provide the employee with an allowance per month to cover home office expenses, such an allowance will be taxed as part of their remuneration. Where the employer reimburses such expenses, however, it would not be taxable in the employee’s hands. Similarly, if the employer reimburses expenses for the purchase of home office equipment, such equipment is then the property of the employer and would also not be taxable in the employee’s hands. Employers should consider a reimbursement policy to clarify the treatment and maximum reimbursement amounts and are strongly advised to obtain advice from their accountant when making these decisions. 

SARS itself notes that taxpayers may find that working from home resulted in savings on expenses they would otherwise have incurred, like transport, wear and tear on vehicles and so forth. These savings, together with the loss of part of the capital gains exclusion, may outweigh the benefit of a claim for home office expenses.

“We understand that many employers, and employees alike, are grappling with establishing a new normal,” says SARS Commissioner Edward Kieswetter. “We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes. It may be more prudent to wait and establish a more sustainable rhythm before making the decision” (Emphasis supplied).

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6 Tips on Surviving the Failure of a Big Client

“Generosity is a virtue, but unlimited generosity is a fast route to bankruptcy”

Bret Stephens

Healthy cash flow is what keeps a company afloat. The ability to pay suppliers and staff, without risking the future of the business, entirely independently of expected new payments, is vital for any enterprise to keep going.

In this era of regular redundancies and corporate collapses, managing your cash flow is the most important aspect of managing your business. Key clients and customers getting into difficulties and potentially failing puts serious strain on your own company’s ability to stay afloat. The six tips below should help you stay solvent even if your biggest clients bow out.

1. Secure the debt upfront

Firstly, to talk “prevention rather than cure” for a moment, seek advice on taking some form of security for your debt (a cession of the client’s debtors perhaps) upfront. As we shall see below, being a “secured creditor” gives you a much better chance of at least partial recovery in the event of liquidation than being a “concurrent creditor”.

2. Request upfront payments as standard

Still talking prevention, requesting payment up front can often feel like a rude or difficult thing to do. You may fear offending clients by implying they will not pay, or you don’t want to scare new business away by asking them to trust you to deliver. At the end of the day upfront payment is about trust; and asking for someone to pay you before you deliver may feel wrong. It does, however, have many advantages.

Apart from ensuring you will not be taken for a ride by fraudulent clients, asking for payment up front also protects against failure of those clients. The worst situation you can find yourself in is one in which you have done work, and now owe your own suppliers, only for the payment not to come through. Asking for money up front means this will never happen and questions around scaring off clients are generally unfounded. Of course, your own suppliers may already be asking you for upfront payment, especially in the current environment.

If a client has decided to work with you, they have likely done their research and are already trusting you to deliver within certain time frames and deadlines that they themselves need to meet. Generally there is also an understanding that costs will be incurred by you to meet their requirements. Asking for upfront payment is therefore a relatively small pain point in this transaction and upfront payments are therefore common in trade businesses, or creative enterprises where payments may need to be made in order to start a job. 

If you still feel uncomfortable asking for the money up front, at least ask for a deposit and progress payments.  Be prepared to pause work on projects if payments are late before you incur additional expenses.

Particularly if it is your standard policy, you need not feel you are discriminating against any one client. In the long run your cash flow will be healthier for it.

3. Win new clients

The first, and most important, thing to do to protect your company from going under when a client fails, is to have as many clients as possible. Diversifying your client base means you are not as dependent on that one client who may be struggling. It sounds like obvious advice, but there are business owners who, once that one big client is secured, sit back on their haunches and live the easy life servicing that goose that lays the golden eggs.

It is important then to never stop marketing, or hustling for new business, and this is particularly important when that one big client goes under. One person’s misfortune is another’s gain, and your client’s failure is going to have a ripple effect through their industry. Somewhere, one of their competitors may find some space to grow. By marketing yourself and your products/services you may find your business in the perfect position to pick up that work when they start expanding.

So while it’s important to focus on the clients you have now, it’s also important to start planning as early as possible for a future without one or more of them. If you landed one big client, the chances are you can land another.

4. It’s time to become strict

No matter how long you have been dealing with a client, the second you suspect they may be struggling financially it’s time to alter the terms of your arrangement. Protecting your business needs to be your number one priority. If you had the client on a 90 day payment plan, move that to 30. Stop paying for things on their behalf and secure payments wherever possible up front. Suspend projects until payments are received. If your product or service is key to their operations they will find a way to pay in advance, and if it’s not, well your payments would have been first on the chopping block anyway. There is absolutely no sense continuing work and spending good money chasing bad.

5. Negotiate early and be willing to sacrifice

As soon as a client indicates that they are in financial distress it’s time to look at your books and decide just how much of what they owe you is essential and how much you could reasonably lose. Then negotiate as below, because when a company goes into liquidation there are three types of creditors and which kind you are will determine just how likely you are to get all or a portion of your money back during the winding-up process.

Preferent creditors include employees of the company, who are owed wages, and of course the tax authorities. 

Secured creditors are those that have liens/security on the debtor’s property (such as the bank that loaned the company money to buy a factory taking a cession of debtors). 

Unsecured (“concurrent”) creditors include those that provided the company goods or services, such as suppliers and contractors, without taking any security. Unsecured creditors will be the last to get paid in any bankruptcy process and are therefore most likely to lose everything. Getting at least some of that back before the process begins is therefore the best you can hope for.

Once you become aware of a client’s financial difficulties, making them an attractive offer may help get something into your accounts. A good offer would be to ask for a 30% payment now with an offer to extend payment on the rest to a later date. An alternative would be to ask for 50% payment now in return for wiping out the remainder of the debt. The earlier in the process you do this, the more likely you are to get something back and don’t be afraid to be pushy. Keep lines of communication open and send frequent reminders. Most people feel bad about letting down their vendors and making sure you are front of mind will also encourage them to pay you out first.

A client’s financial difficulties could also result in their going into business rescue. This will mean that no payments may be demanded by creditors until (if) they trade out of business rescue back into health. So being aware of how your customers are doing is essential. This also applies to your suppliers as the failure of a key supplier may be a real problem for your business.

6. Do a Cost-Benefit analysis

When your client has actually gone into business rescue or liquidation it’s time for you to decide whether you are going to pursue your claim. This can be an expensive and time consuming process and the amount of debt involved will need to be measured against the costs and time chasing it. 

In a practical sense, you need to look at the value of the client company, how many assets they have and what chance there is that there may actually be any money to recover. Then look at how much time and money you can spend chasing that money. Again beware of spending good money chasing after bad.

To be in line for some payment in a liquidation, you will need to submit your claims with proof at the first meeting of creditors which will be scheduled by the liquidator, which sounds like an easy decision to make. You must be careful, however, because if there are not enough assets in the company to satisfy the cost of liquidation, anybody who proves a claim at a meeting of the creditors may be called upon to contribute to the costs of liquidation. Check first with the liquidator and find out if there is a danger of a contribution being levied on concurrent creditors.

Only go as far along in the process as you are willing to, based on costs, efforts and the money you reasonably expect to recover. There is little sense spending good money to chase bad. Often your time will be better spent looking for a new client. 

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How 67 Minutes on Mandela Day Can Change Our World and Benefit Your Business

“What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead”

Nelson Mandela  

Nelson Mandela, our former president and world-renowned human rights champion, was born on 18 July. Fondly known as Madiba or Tata, his life was an inspiration to the world and he received more than 250 public honours, including the Nobel Peace Prize.

Why Mandela Day and why 67 minutes?

 In recognition of his immense contributions, 18 July was declared Nelson Mandela International Day by unanimous decision of the UN General Assembly in 2009. It is more than a celebration of his life and legacy; it is a global movement to honour his life’s work and to change the world for the better.

On his 90th birthday, Madiba said: “It is time for new hands to lift the burdens. It is in your hands to make of our world a better one for all.” 

This call-to-action started a worldwide movement for social change, led by the Nelson Mandela Foundation which said: “Nelson Mandela has been making an imprint on the world for 67 years, beginning in 1942 when he first started to campaign for the human rights of every South African. By dedicating 67 minutes of their time – one for every year of Mandela’s service – people can give back to the world around them and make a contribution to global humanitarianism.” 

No matter how small your action, Mandela Day is about changing the world for the better, and celebrating the idea that each individual has the power to transform the world, the ability to make an impact.

Top tips for making an impactful contribution 

  • Align your company’s contribution with your vision and mission
  • Focus your contribution around your product or service or expertise
  • Make it a long-term commitment with an authentic contribution that will have a lasting impact
  • Focus on your company’s immediate community 
  • Include your staff from the start 
  • Collaborate – invite your suppliers, clients and even competitors to participate in your 67 minutes initiative
  • Advertise and market your 67 minutes initiatives – on your website, in the local newspapers and on social media using the hashtag #MandelaDay. 

Ideas for Your 67 minutes 

Madiba himself believed that education is what makes the greatest impact. He said: “Education is the most powerful weapon which you can use to change the world.” 

For many companies, offering scholarships, internships, apprenticeships and mentorships is an excellent way to help change the world while reaping many benefits, including tax incentives and access to well-trained future employees. 

Businesses can also simply contribute to the official Mandela Day Each1Feed1 campaign or join in a community initiative.


Companies can also link into the Mandela Day Global Network, a community of organisations, government, corporates and individuals that partner with the Nelson Mandela Foundation to drive Mandela Day and pursue its objectives. It is a base for the strategic partnerships of organisations with common goals aimed at globally coordinating efforts, sharing information and linking the needs to resources.

There are so many ideas…

  • Dedicate 67 minutes to brainstorm and plan your company’s formalised contribution going forward
  • Give your staff 67 minutes of paid time off work to support a charity or organisation of their own choosing 
  • Spend 67 minutes as a team painting, cleaning and maintaining a school, clinic or library
  • Take 67 minutes to clean up the street or the local park, or volunteer to help out at a soup kitchen or animal shelter
  • Kick-off a project to plant 67 trees or a community garden over the coming year
  • Host a fundraiser such as a breakfast, fun walk or even a golf day to raise funds for a local cause
  • Donate your 67 units of your products, service or expertise to a start-up company or a local charity organisation
  • Pledge to donate R67 for each R50 raised for a cause by employees, clients and suppliers 
  • Donate 67 blankets, food parcels, rugby or football kits, bicycles or computers to a school, church or a local organisation
  • Make company resources, such as delivery vehicles or computers, available to organisations when not in use (e.g. over a weekend)
  • Host a party for emergency workers and volunteers, or treat a group of underprivileged kids or the elderly to a fun day.

What are the benefits to your business? 

Social contributions improve not only the lives of the project’s beneficiaries but also of those who are involved –

  • Creates an opportunity to link your business to a cause aligned with your corporate identity and business strategy 
  • Improved brand recognition through association and positive media coverage
  • Placing your company in a positive spotlight improves corporate reputation and creates a competitive edge with regard to attracting and retaining investors, clients, suppliers and employees
  • Increased customer loyalty: consumers are attracted to companies that contribute to a greater cause, as it allows them to feel they are making an indirect impact just by supporting your company and brand
  • Higher employee satisfaction: a common cause for the greater good is an excellent way to bring employees together to make a difference as a team.

Download resources for businesses, schools, organisations and individuals, or a full Mandela Day toolkit, at https://www.mandeladay.com/  or visit  the Nelson Mandela Foundation for more information.

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4 Ways to Measure Your Company’s Performance, Beyond Profit

“Even if you are on the right track, you’ll get run over if you just sit there”

Will Rogers

In the hostile business environment in which we find ourselves, every small advantage could be the difference between success and failure. While traditionally companies and their shareholders have looked at profit and the cold hard numbers for determining the current and future success of a business, there are many other non-financial measures, which can give as clear a picture as to just how strong a company is. These non-financial measures can provide clarity and context for the financial KPIs (key performance indicators), while at the same time offering a way to see whether your business is living up to its mission statement and vision in a way that the numbers cannot. 

If looked at carefully these measures can help illuminate your business’ strengths and weaknesses, while also pointing to areas which may be affecting business performance. 

Here then are four significant non-financial performance measures every business owner should be analysing.

1. Efficiency and Delivery

The profit margin may look good, but what it cannot do is tell you just how hard you are working for that profit, or where things can be improved. How you choose to examine your company’s efficiency and delivery will depend strongly on exactly what service you are offering. For those in manufacturing an excellent statistic to look at is the “Product Defect Percentage”, which can be worked out by dividing The Number of Defective Units in a Given Period by The Total Number of Units Produced in the Same Period. This combined with a general Efficiency measure, which in the manufacturing industry can be measured by analysing how many units are produced every hour and the plant’s uptime percentage, can give you a very clear idea of inefficiencies in the system.

Deadline-driven companies and those in the transport or logistics industries may want to look more closely at their “On-time Rate”, being the percentage of time products were delivered on time as scheduled. Dividing the Number of On-Time Units in a Given Period by The Total Number of Units Shipped in a Given Period will give you your “On-Time Rate”.

Customer support tickets are also a wealth of information. How many new tickets are opened, how quickly they are closed and how many go unanswered are all valuable when calculating customer satisfaction as well as flaws in your processes.

2. Customer retention and conversion rates

Your customer is obviously the backbone of your business. Keeping them happy will result in success, and likewise their dissatisfaction can result in bankruptcy. Tracking the pure numbers of clients that you have, and their loyalty will give you a good indication for the coming year. Did you gain new clients, and did your old ones stay with you? Answering no to either of these questions highlights problems. If you are getting in lots of new clients, but not managing to keep them then you need to look at costs, quality and service levels, because your PR and marketing are clearly working. Alternatively if you have a core of very loyal customers, but are struggling to find new work, then what is needed is additional budget on getting your name out there.

Using the formula, Customers Lost in a Given Period divided by the Number of Customers at the Start of a Period, will give you your Customer Retention Rate.

Further to this is just how successful your team is at closing a sale once that customer is through your door. Are you making sales, or winning pitches? Just how regularly? The formula for working out your conversion rate is: Interactions with Completed Transactions divided by Total Sales Interactions. If this is going up then your sales team is working optimally, but a declining conversion rate may hint at the need for morale boosts within the sales team, or even additional training. 

3. The power of promotion

Every business owner will know that the word of mouth and customer recommendations are the single best way to increase business and yet very few entrepreneurs or new businesses will track this statistic. It requires a little work but setting up a “net promoter score” survey is a good way to gain feedback from your customers or clients.

There are principally two kinds of net promoter score surveys, ones that focus on a customer’s loyalty to the brand, known as a “relationship survey” and ones that want to analyse a customer’s experience at a specific event known as a “transactional survey”. While the latter will allow you to drill down into the details of each customer contact point, it is the former which will give you a stronger overall impression of the reputation of your brand. 

This survey should be a maximum of 4 or 5 questions to avoid fatigue and increase responses. These questions should all focus on whether people enjoy interacting with the brand, where their problems may be, and a final question can ask how likely they are to recommend the company with a score out of 10. 

The likelihood that customers will recommend a brand to others can be worked out by assigning people who score the company a nine and higher as promoters and those who score it six or lower as detractors. Then take the Number of Promoters and minus the Number of Detractors to find your Net Promoter Score.

Don’t forget to leave a comment box at the bottom of your survey and ask whether the customer wants to be contacted. People may have additional insights that your survey doesn’t cover.  

4. Maximising your workforce

Staying ahead in business depends on your employees and getting the most out of each person’s skills will greatly benefit your bottom line. Retaining good staff is an important part of the business as in the long term having experienced and knowledgeable employees will make everything else work more smoothly at the company.

High performers need to be identified and retained. A good business owner is always aware of the company’s “High Performer Turn Over Rate”. This statistic reveals the company’s ability to firstly attract, but also more importantly retain, good employees. Your High Performer Turnover Rate can be calculated by dividing the Number of High Performers Who Departed in Past Year by The Number of High Performers Identified.

If you find your company is leaking high performers and the turnover rate is higher than you would like, it would be wise to work out just why this is happening. Your company’s “Salary Competitiveness Ratio” will give you an idea of whether people are leaving for money. You work it out, by taking your Average Company Salary and dividing it by the Average Salary Offered by Competitors. 

If it’s not your salary offering, then perhaps chances for advancement have been stifled? High performers tend to be ambitious. Looking at the “Internal Promotion Rate” gives a great indication of whether staff are being allowed to grow and develop at a reasonable rate. It can be calculated by dividing the Number of Promoted Individuals by the Total Number of Employees.

No matter what you do, people will leave, so getting high performers into the company is always important. Looking carefully at the efficiency of your hiring process with regard to time and cost to recruit new employees, will also show whether your HR systems could use an improvement. Remember, every month a position is vacant means your company is running sub-optimally and losing out on profit.

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Youth Day: Why Our Young People Are So Important to Your Business

“If [business is] not listening to the youth, they are not listening to their future competitors, employees, or customers”

Wadia Ait Hamza, head of Global Shapers at the World Economic Forum

Youth Day commemorates and celebrates the impact the youth of a country can have on the future – the Soweto Uprising on 16 June 1976 changed the course of history. 

The size of its young population is Africa’s huge asset and a strong competitive advantage, according to The African Development Bank: a large youth population, bigger than on any other continent, which is also growing rapidly, while populations in the rest of the world are ageing and contracting. 

Current estimates are that the number of youths in Africa will double to 850 million by 2050. They form part of the 1.8 billion global youth who, according to Deloitte, are between the ages of 15 and 29, accounting for more than 25% of the total world population. These are the future taxpayers, voters and leaders, as well as workers and consumers.  

The many reasons why these young people are crucial to the future of companies are briefly highlighted below, along with the ways in which your business can benefit directly from initiatives that encourage and incentivise youth employment and training.

The tax base of tomorrow

As Nelson Mandela reminded us: “Our children are the rock on which our future will be built, our greatest asset as a nation. They will be… the creators of our national wealth who care for and protect our people.” 

These future taxpayers are crucial in South Africa, with its very narrow tax base. A handful of taxpayers – just 3 million according to available data – paid 97% of total personal income tax collected in the past tax year, funding everything from hospitals and schools to roads and social grants for a population of 56 million! Tax on companies’ profits is only the third largest contributor (after VAT) – and its contribution decreased to just 16.6% by February 2019, compared to nearly 27% a decade ago. In addition, tax revenue growth has slowed, despite the increase in VAT to 15% and the marginal income tax rate to 45%, and despite the introduction of new taxes such as sugar tax and environmental levies. 

SARS has also highlighted the high youth unemployment rate in South Africa as “a serious threat to the tax base and the overall integrity of the tax system” in its annual performance plan for 2021/2022. According to Statistics South Africa’s unemployment numbers, the official unemployment rate for young people aged 15–24 years was 63.2% in Q4 of 2020.

It is in the interests of all South Africans to invest in our youth, given that the only alternative to widening our country’s future tax base is higher taxes on the few individuals and companies who are already carrying the tax burden of an entire nation. 

The market of tomorrow

The youth of today will be tomorrow’s consumer market – and in this respect, Africa is the place to be. Changing demographics and improving business environments across Africa are just two of the factors contributing to rising household consumption, which is predicted to reach $2.5 trillion by 2030.

This is according to The Brookings Institution, which also notes that Africa’s emerging economies will take the lead in consumer market growth, with one in five of the world’s consumers living in Africa by the end of the next decade, and more and more of these people falling into the category of affluent or middle-class.  

Knowing that today’s youth will be the consumer market of tomorrow creates an opportunity for companies to positively brand and position themselves in the minds of tomorrow’s consumers, even if only in their immediate community. 

How can your business connect with the young people who tomorrow will be your customers? Can your business sponsor a sports event or an academic prize at a local school? Perhaps you can provide opportunities for school tours of your facilities?  

The workforce of tomorrow

The youth of today are also the workers and employees of tomorrow. The African Development Bank estimates that more than 12 million youth enter the labour market across the continent every year. 

There are many benefits to employing young people in both the short-term and the longer-term. 

As Deloitte suggests in their recent publication Preparing tomorrow’s workforce for the Fourth Industrial Revolution, now is the time for the business community to reposition itself as a driving force for change – investing in new ideas and alternative approaches to skilling youth for the future of work, such as retraining; technical, vocational, education and training (TVET); career and technical education (CTE); as well as internships, apprenticeships and artisanships for on-the-job skills training.

Take advantage of the tax incentives

Fortunately, there are also incentives for businesses to promote youth training and employment. The employee tax incentive (ETI) is a SARS incentive to employ young South Africans valid until February 2029. In short, employers can claim a deduction from PAYE for qualifying employees: those who are younger than 29 and earn less than R6,500 a month. It is for a maximum of 24 months per qualifying employee and is not subject to broad-based black economic empowerment criteria. 

Think of asking your accountant for assistance – the requirements to claim ETI can be complex and the claims can differ month to month and from one employee to the next, as various criteria and formulas determine the amount businesses can claim. There are also a number of “ETI Schemes” being marketed at the moment and if you are offered one, ask your accountant for advice before committing to anything.

Another example is the “section 12H Learnership Agreement tax allowance” providing an additional tax deduction, currently until March 2022, to employers with learnership agreements registered with a Skills Education Training Authority (SETA). It comprises both an annual and a completion allowance. It can be implemented internally or through programs such as the NEASA (National Employers Association of South Africa) Youth Program, with qualified TVET interns available for 18 months, funded by FASSET, the Finance and Accounting SETA. With regard to the NEASA Youth Program, students receive a monthly stipend and travel allowance, while employers can access additional entry-level labour at minimal cost (R2,575 excluding VAT per month) without having to commit to employment thereafter.

The leaders of tomorrow 

It was also Nelson Mandela who said: “The youth of today are the leaders of tomorrow.” 

Businesses that will operate in the environment created by these future leaders have a vested interest in their development.  

As the World Economic Forum points out, cultivating non-traditional talents such as soft skills, critical thinking and empathy is increasingly important, as is teaching young people to be entrepreneurial thinkers.

Forward-thinking companies could, for example, offer mentorship to promising young leaders, invest in established leadership development programmes, host conferences or learning events, or provide bursaries to impact positively the young people who will be tomorrow’s leaders.

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How SMMEs Can Benefit Financially from the Fourth Industrial Revolution

Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000”

Pierre Nanterme, CEO of Accenture

With the increased buzz around 4IR (the Fourth Industrial Revolution) in the last year particularly, due to lockdowns and “isolated industrialization”, it’s befitting to zoom-in the lens on how SMMEs (Small, Medium and Micro Enterprises) can better embrace and utilise the new operational technologies migration to their advantage. 

Words like Big Data, Internet of Things, Block Chain, Machine Learning, etc tie into 4IR and are some of the buzzwords heard with which we are becoming familiar. Since the lockdowns, companies are being forced to embrace, adapt and adopt these changes more than ever.  But just how far along is the implementation of these technology advancements and how much do they impact SMMEs today? Most importantly, how can your business benefit from these advancements?

The South African Context

President Cyril Ramaphosa has already announced that the government set up what is called “The Presidential Commission on the Fourth Industrial Revolution”. It is a 31-member commission spearheaded by communication minister Stella Ndabeni-Abrahams. It states that it wants SMMEs to benefit from digital migration, as much as financially possible. 

Within the preambles and descriptions of the mandate of the commission itself, the state announced that the project was meant to “make recommendations on interventions to enable entrepreneurship and SMMEs to take advantage of the 4IR.”

Adapt or Die

Stevens Maleka, currently responsible for Strategic Planning & Monitoring at the Department of Communications and Digital Technologies, points out that the nation is at a point where companies have to either swim or sink, because industries have already picked the 4IR direction. He states that there are business opportunities in the transition, as much as there are cost implications – the secret to effectiveness lies somewhere in the median. 

“It is important to note that the scale of investment in the 4IR should have a significant return in the form of economic development and this could lead to the increased investment   in   high   growth   technologies/companies, increased   expenditure   in technologies e.g. tablets, smart watches, and increase   in   exports   of technological services and products to other African countries” he said.

4IR presents business opportunities for SMMEs on the “supply side”

The South African government, through the Presidency’s National Planning Commission, acknowledges that “Although the South African telecommunications market continues to be one of the most developed and advanced on the African continent, there are still gaps on the supply side (encompassing both infrastructural and regulatory issues) that constrain the creation of the affordable backbone and services required to develop a digital economy. To deal with supply-side gaps, ICASA must create a fair, competitive environment for multiple players in the market by publishing the findings of its market review and applying the necessary pro-competitive remedies, in particular with regard to entities enjoying significant market power.”

This in itself presents appealing opportunities for SMMEs as the South African government leans more towards tendering in the public service space.

Impact of 4IR on SMME Staff Complements

4IR has been identified as a potential reason for workforces being drastically reduced. However the pinch is only measured by the size of the business and the nature of the actual enterprise – thus far.

The Small Enterprise Development Agency (SEDA) seems somewhat ambivalent when it comes to the technological impact of the functional switch on workforce within our context, due to the size and gender spread thereof. 

It states that “In Sub-Saharan Africa, it is reported that most youth-owned SMMEs have no employees (57.3%), while hardly any (1.5%) have more than six employees and none have more than 20 employees. Interestingly, there is also a gender difference within SMMEs owned by youth. In rural areas, SMMEs owned by youth have slightly lower labour productivity compared to the older age categories; and most youth-run businesses have no employees while hardly any have more than six employees.”

Each SMME’s individual case depends on the factors tabled above, and a blanket approach is not always applicable.

Ask us for tailored advice on how your business can benefit from these developments.

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POPIA and Your Business: A Practical 5-Step Action Plan to Implement Now?

“By failing to prepare you are preparing to fail”

Benjamin Franklin

The media is awash with warnings about the dangers of not complying with POPIA (the Protection of Personal Information Act) by 1 July 2021, and indeed the risks of non-compliance are substantial.

The clock is ticking …. if anyone in your business needs to be motivated to take this seriously, refer them to the Countdown Clock on the Information Regulator’s website.

Although you still have until the end of June 2021 to become fully compliant, there are major benefits to understanding POPIA and starting the compliance process now – before it becomes compulsory. The penalties for getting it wrong are sizeable, “preparation makes perfect”, you are giving yourself time to get it right, and for many businesses there is also good marketing potential in being able to tell your customers and clients that you are already addressing the situation.

Five practical steps to start with…

Before we start on your action plan, get to grips with the fact that you will almost certainly have to comply fully with POPIA. As soon as you in any way “process” (collect, use, manage, store, share, destroy and the like) any personal information relating to a “data subject” (customers, members, employees and so on), you are a “responsible party”. Very few businesses will fall outside that net. Equally you are unlikely to fall under exemptions like that applying to information processed “in the course of a purely personal or household activity”. Get going with these steps –

1. Information Officer:

Identify an “Information Officer” who will be responsible (and liable) for all compliance duties, working with the Regulator, establishing procedures, and training your team in awareness and compliance. You are automatically your business’ Information Officer if you are its “Head” i.e. a sole trader, any partner in a partnership, or (in respect of a “juristic person” such as a company) the CEO, MD or “equivalent officer”. You, your partnership or your company can “duly authorise” another person in the business (management level or above) to act as Information Officer and you can designate one or more employees (again management level or above) as “Deputy Information Officers”. You will need to register both Information Officers and Deputy Information Officers with the Regulator, which (at date of writing) says that it will have an online registration portal available by 1 May 2021 – otherwise download the manual Registration Form here

2. Assess what personal information you hold, how you hold it, and why:

Figure out what personal information you currently hold, how you hold it, and why you hold it. To collect and “process” such information lawfully you need to be able to show that you are acting lawfully, reasonably in a manner that doesn’t infringe the data subject’s privacy, and safely. 

You must show that “given the purpose for which it is processed, it is adequate, relevant and not excessive”, data can only be collected for a specific purpose related to your business activities and can only be retained so long as you legitimately need to or are allowed to keep it. 

There’s a lot more detail in POPIA, but you get the picture – you cannot collect or hold personal information without good and lawful cause.

3. Check security measures, know what to do about breaches:

You must “secure the integrity and confidentiality of personal information in [your] possession or under [your] control by taking appropriate, reasonable technical and organisational measures to prevent … loss of, damage to or unauthorised destruction of personal information … and unlawful access to or processing of personal information.” You are going to have big problems if there is any form of breach from a risk that is “reasonably foreseeable” unless you can prove that you took steps to “establish and maintain appropriate safeguards” against those risks. Bear in mind that whilst cyber-attacks tend to get the most media time, there are also other risks out there – brainstorm with your team all possible vulnerabilities and patch them.  

Any actual or suspected breaches (called “security compromises” in POPIA) must be reported “as soon as reasonably possible” to both the Information Regulator and the data subject/s involved.

If third parties (“operators”) hold or process any personal information for you, they must act with your authority, treat the information as confidential, and have in place all the above security measures.

4. Check if you do any direct marketing:

Most businesses don’t think of themselves as doing any “direct marketing”, but the definition is wide and includes “any approach” to a data subject “for the direct or indirect purpose of … promoting or offering to supply, in the ordinary course of business, any goods or services to the data subject…”. So for example just emailing or WhatsApping your customers about a new product or a special offer will put you firmly into that net.

If your approach is by means of “any form of electronic communication, including automatic calling machines, facsimile machines, SMSs or e-mail”, you must observe strict limits. Whilst you can as a general proposition market existing customers in respect of “similar products or services” (there are limits and recipients must be able to “opt-out” at any stage), potential new customers can only be marketed with their consent, i.e. on an “opt-in” basis. 

5. Get a start on procedures and training:

Cover how you will collect the data, process it, store it, for how long, for what purpose/s and so on. What consent forms do you need and when/how are they to be completed and stored? 

You are much less likely to have a POPIA problem if everyone in your business (and most importantly you!) understands what your procedures are and implements them as a matter of course. Make sure that no functions “fall between two stools” – assign individual compliance tasks to named staff members and make sure everyone understands who is to do what.

This is a complex topic and there is no substitute for tailored professional advice. What is set out above is of necessity no more than a simplified summary of a few practical highlights.

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Where does Fairness Belong in Your Business and Why Should You Care?

Many decisions are made on the basis of careful research and considerations about a variety of issues. Not all these deliberations will necessarily turn out to be correct. That in itself does not place question marks over the leadership’s execution of its responsibilities in terms of the Companies Act to act with due care, skill and diligence or the King IV Report Principle 1 that they should lead ethically and effectively.

Trust

An entity, which has been run and managed in such a way as to build a reputation for ethics, integrity and reliability, will likely have a growing group of loyal customers and other stakeholders, based on trust. 


The size of the entity concerned has no bearing on whether or not it is trusted. That is based entirely on the entity’s consistent, trust-centred behaviour towards all its stakeholders. 

What if things go wrong?

There will be times when a decision turns out to be wrong resulting in a service or product not being delivered on time or otherwise being deficient. The reasons may be beyond the control of management. However, such an event may have the potential to negatively impact stakeholders’ trust.

The cause may be the result of a strategic decision by management to change the nature or make-up of a service or product. For example, by reducing the size or contents of a product without any communication to consumers so as to increase profit margins or to avoid a price increase. This, of course, is a completely different proposition as it is inherently dishonest and lacking in transparency and integrity, questioning the moral mindset of management. Another example would be price-fixing and collusion. Some years ago this was evident in the construction and food processing industries. 

A third example could be a deliberate decision to undertake activities without recognising the potential of damage to the environment; getting environmentalists, conservationists (some of whom may be customers) up in arms, and let’s not forget the reach and impact of social media.

What are the consequences?

In all examples there is a real likelihood of a loss of trust resulting in customers abandoning the entity. In the second set of examples, where there is real or perceived dishonest behaviour on the part of management there are likely to be fines/penalties (which there were in the cases of the construction and food processing industries). However, the real damage may well be the loss of trust – which for a smaller business could be fatal.

In the former case where the problem arose through a situation that was either not anticipated or due to a change of circumstances, the loss of trust is still possible but appropriate remedial action may avoid the destruction of trust.

Finally, in the last example, how the entity responds to the situation will determine the long-term consequences.

Can fairness make a difference? 

Having said that, where an entity responds by treating customers fairly, putting right the problem as a matter of moral rectitude, trust is likely to be retained and may even be enhanced. This, of course, requires swift and transparent communication so that stakeholders are aware of the circumstances of both the issue and the entity’s response to it. 

Consider the Autumn 1982 response of Johnson & Johnson to the deaths of seven people in Chicago who had taken its market leading, over-the-counter painkiller, Tylenol. 

Throughout the crisis thousands of stories ran in U.S. newspapers together with hundreds of hours of national and local television coverage. A major potential trust breakdown for Johnson & Johnson, bearing in mind that Tylenol was the market leading paracetamol in the US and a substantial contributor to J&J’s revenue and profits. After the crisis, J&J said that over 90 percent of the American population had heard the story within the first week of the crisis.

J&J, however, did not have a crisis management plan, unthinkable today, or is it? Do you have anything like it?

So the company’s Chairman, James Burke, went back to the company’s founding credo. This saw the business as having a moral responsibility to society beyond sales and profit. He formed a seven-member strategy team with two tasks: how do we protect people and how do we save this product and our reputation?

First of all they alerted consumers via all available channels of communication not to consume any type of Tylenol product. They halted production and advertising and ordered a nationwide withdrawal of the product. This cost the company millions of dollars, however, it received credit for putting public safety above profit.

The cornerstone of J&J’s recovery, in priority order, was: People, Environment, Property and only then Finance. They restored trust by behaving fairly to the most important people, their stakeholders. J&J’s Tylenol, accordingly, ultimately re-gained its market share.  

This is an example where fairness retained trust. There is even the possibility, as occurred in this case, of the enhancement of trust when, after the event, it is seen that the promise of fairness has been honoured in full. 

Trustworthy fairness

So, all in all, treating all stakeholders fairly is a moral approach to business which enhances relationships. Even in personal relationships, responding with fairness when trust is at risk, can save the relationship. 

An investment in fairness as a matter of corporate value is as essential and generates as good returns as fundamental trustworthy behaviour. 

In conclusion, it is clear to me that Trust and fairness in the workplace are connected as they are in all of life. Trust defines how we as humans relate to one to another, while fairness is a practical mechanism for maximising the benefits of trust. The two work together, and we need them both to operate consistently at the heart of workplace activity. In other words, ‘Trustworthy Fairness’ provides a foundation for building meaningful and productive workplace life (Jonathan Rens).

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Leadership, Ethics and Governance: The Benefits for Your Business

The European (and South African) authorities (refer to governance codes below) opted for a principles-based approach. However, governance cannot be truly effective without the integrity of purpose and actions which drive the ‘tone from the top’ leading to a strong moral compass founded on ethically-based values.

The governance imperative

Corporate Governance has been a topic of ongoing conversation and even legislation since the early 1990’s. However, in spite of a number of outstanding codes and reports (such as the Cadbury Report, the four King Codes and Reports, the Combined Code and many more around the world), together with the various legislative responses (such as Sarbanes Oxley in the USA), business failures continue. 

Where were the directors of these failed businesses and what were they looking at and asking of management when considering their approval of the financial statements year after year?

Ethics and moral duties

Each director is a steward of the company and should demonstrate: 

  • Conscience – intellectual honesty and independence of mind,
  • Inclusivity – legitimate interests and expectations of stakeholders,
  • Competence – knowledge and skills
  • Commitment – diligence, and 
  • Courage – to take the appropriate risks and to act with integrity.

There is evidence that suggests that companies displaying consistent ethical values and behaviours based on solid and sustainable moral values driven throughout the organisation where all are aligned to the ‘tone from the top’ deliver better and more sustainable returns.

The ethical and moral imperative

Key questions:

  • Is it a reasonable presumption that all know and fully understand the meaning and impact of ethical behaviour, moral values and what drives them?
  • Do the directors live out their stated ethical and moral values – the tone from the top?
  • What are the views of management and the workforce of the leadership’s (director’s) ethical and moral values and the example set?
  • Is it reasonable to assume that management knows how to embed these values throughout the organisation?
  • How do directors measure the ethical and moral climate of their organisation?
  • Does the ethical and moral climate of the organisation align with those espoused by the directors?

What is understood by ethics and morals – is there a universal standard, a universal moral compass?    

In the Glossary of terms in the King IV report the term Ethics is defined as follows:

“Considering what is good and right for the self and the other, and can be expressed in terms of the golden rule, namely to treat others as you would like to be treated yourself. In the context of organisations, ethics refers to ethical values applied to decision-making, conduct, and the relationship between the organisation, its stakeholders and the broader society”.

However, what is understood by ethical values, behaviours and integrity? Can one assert that there is a set of Universal Principles? Consider the following:

Universal Principles 

Noted anthropologist Donald E Brown found in his research that the moral codes of all cultures include recognition of responsibility, reciprocity, and ability to empathise. Other studies have confirmed his findings. The major world religions preach common values: commitment to something greater than self, responsibility, respect, and caring for others. Genuine behaviour norms in different cultures may distract us from what we have in common with all people – a universal moral compass.  

Stephen Covey suggests more evidence of universal principles: “From my experience in working with different people and cultures, I find that if certain conditions are present when people are challenged to develop a value system; they will identify essentially the same values. Each culture may express those values differently, but the underlying moral sense is always the same.” 

What are these universal moral values?

The authors of Moral Intelligence (Doug Lennick and Fred Kiel, Ph. D) suggest the following from their research:

  • Integrity
  • Responsibility
  • Compassion
  • Forgiveness and reconciliation

While the first two seem self-explanatory, what about the last two? 

Compassion shown to an employee in distress may lead not only to a swifter recovery and return to full operational ability but also to a substantial gain in loyalty from employees – and not just to the employee concerned. 

Forgiveness and reconciliation: Is not business the enterprise of risk?  If employees and management are too fearful of making mistakes, how much business risk are they likely to take?

Finally, an organisation that demonstrates these ‘universal values’ from the top through management in alignment with actual behaviour will achieve, through its workforce, greater returns than might otherwise be the case.

So, these ‘soft’ practices have the potential of leading to hard bottom line results.

Ethics and moral values – are they worth it?

It has been suggested that companies with recognised good governance are valued at a premium over those with poor governance records. The same applies to companies with sound ethical records. Ethical companies attract and retain talent.

The Proposition

  • Enhanced governance through demonstrated ethical behaviour
  • What are your values and ethics?
  • Does your behaviour reflect them?
  • How do your board colleagues and your first line reports perceive your values, ethics, and integrity?
  • What is your staff’s perception?
  • How do you go about ensuring the values are embedded throughout the organisation to achieve alignment?
  • Starts at the top
  • Safety for those really tough and necessary conversations
  • Ethics led performance
  • Behavioural change and feedback
  • Strong business case
  • Is your top team up for the challenge?
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SMME Owners: Your Training and Education Will Boost Your Business

 “An investment in knowledge pays the best interest,” 

– Benjamin Franklin, American politician and inventor

Most SMMEs (Small, Medium and Micro Enterprises) in South Africa fold in the first two years of doing business. Reports suggest that the lack of education and training are some of the primary reasons for the low level of entrepreneurial activities and the high failure rate of SMMEs. To add salt to the wound, the overall quality of entrepreneurship in South Africa is recorded as lower than average. 

Here are some of the visible results of the impact of, and lack of, education and training for SMME managers along with some corrective recommendations:

1. Quality of SA’s entrepreneurial activity below global average

South Africa’s entrepreneurial activity is rated at 5.1%, which is below the Global Economic Monitor (GEM) average of 6.4% and the average of 6.7% for efficiency-driven economies. (In 2019, South Africa ranked 49th out of 54 economies on GEM’s National Entrepreneurship Context Index, ahead of only Croatia, Guatemala, Paraguay, Puerto Rico and Iran. This index provides a single composite number that can express the average state and quality of the entrepreneurial ecosystem in a country and be compared to those of other economies.)

According to existing research on the subject, “This and other figures show a lower than average level of entrepreneurial activity in South Africa and present challenges to all role players (government, the private sector and educators) for getting programmes that encourage entrepreneurship off the ground, so that this gap can be decreased”.

2. Quality education linked to managerial confidence

In 2019, Ahmad Al-Tit, Associate Professor of Business Administration at Qassim University reported aspects such as the “business owner’s age, educational attainment, management skills, training, business size, and general business experience”, as elements impacting the success of a business. 

“From these factors, the attainment of good quality education, general age, and business experience is believed to result in higher managerial confidence and quickens the procedure of obtaining adequate business finance,” he further stated.

3. Academic recommendation to solving the problem

Considering the importance of SMMEs to the economy, the responsibility to educate entrepreneurs is spread among several stakeholders.

Based on the findings of research published by the University of Fort Hare, the following recommendations are suggested to the stakeholders: 

  • Government Agencies: “It is also suggested that government agencies work hand in hand with the banks to ease access to finance (training programmes) by SMMEs”.
  • Government: “It is recommended that the government explore other strategies to compliment entrepreneurship education that will help create independent entrepreneurs instead of educated beggars.”
  • SMME Owners and Managers: “SMME operators need to take advantage of entrepreneurship education programmes that are offered by institutions of higher learning and government agencies if they really want to improve the performance and survival chances of their businesses”.
  • Institutions of Higher Learning: “They need to play a critical role in providing entrepreneurship education, for they have the expertise and resources to do so”.
  • Banks: “It is recommended that banks provide financial resources to SMME operators who show potential for success”.

Consider additional education and training for SMMEs offered by the Institute of Directors South Africa (IoDSA) to improve your understanding of good governance requirements. These will improve your likelihood of success and the attractiveness of your business while reducing the potential of regulatory risk.

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Raising Small Business Finance in 2021: 5 Common Mistakes with a High Impact

“Designing a presentation without an audience in mind is like writing a love letter and addressing it ‘to whom it may concern”

– Ken Haemer

In these challenging times, raising finance could very well be a matter of business survival, so knowing how to pitch to potential investors is a critical skill you should not neglect. 

When you started your business you probably did so because your life experience allowed you to see a gap in the market or the opportunity to make the most of your skillset in a new way. You almost certainly did not go into it because your skill was presentations and pitching for investment. This is a common scenario in the world of small business and it leads to many great ideas being forgotten, or going without investment, simply because the new owner did not know where, how and when to sell the idea to those who could help with necessary funding. Here are five common mistakes that people make when arriving to pitch for investment.

  1. Pitching to the wrong investor

One of the first things you should do when seeking finance is your research into just who is invested in the field, and who might be keen to take on a company of that kind. Not all investors are eager to diversify into all industries, and finding someone who understands your industry and further, wants to invest in it, is key if you want to find a business partner.

Once a connection is made or a name is mentioned, it is important to do your research into just who the potential investor is, what they are currently invested in, and what they are interested in. Showing awareness of who the investor is and what they like to invest in, will also help at the pitch level, because it will show them that you are the kind of person who does their due diligence as well as make conversation easier. 

  1. Not refining your pitch deck

Many entrepreneurs want to get funding as quickly as possible. They construct a pitch and approach the people they think are ideal investors without properly refining the deck and ensuring they can answer all necessary questions. The first step when creating a good pitch is to look at other successful pitches to see what information they included and how you can best present your business.

Once you have constructed a best effort it’s time to start reaching out, but don’t head for the office of your favourite investors just yet. Getting a pitch right takes practice and getting in front of a few people who you suspect may not invest will help you to get your pitch just right by revealing the kinds of questions an investor may ask. When turning you down these non-ideal investors may also give you advice on your business, which will help strengthen the pitch for next time.

At the end of the day, you need to be able to provide short, clear answers to every question and getting the pitch and your presentation right will ensure that this happens. You can’t simply tell an investor that you will get back to them with answers as this provides a bad impression.

  1. Over-valuing your business

Going into a meeting it’s very important that a business owner not over value their business or its position in the market. Investors have been around and they will have a rough idea ahead of the meeting as to just what they think your business may be worth. Overselling it, or promising impossible returns simply makes it look like you don’t know what you are doing. 

Entrepreneurs should further avoid making projections for growth that are unlikely. Telling an investor you will make 500% profit gains in a year with only 40% expense increases, only serves to tell them you are speaking about pie in the sky. 

This is the same for your competitive landscape analysis. This part of your presentation is critical and you should not be going into a meeting saying that you have no competition – all that means to an investor is that you have not researched the field properly. If it’s true that your product is unique you need to present the information on how the industry deals with the problem you are solving now, which companies offer the alternative solutions and why yours is better. Do not just say you are unique. 

  1. Not understanding the risks

Any experienced investor is going to want to understand the risks of investing with you, and will want to see that you see them too and have planned for them. Inevitably any business has risks attached and if you understand yours, you instantly become a more bankable proposition. 

Questions you should be able to answer might include: What are the principal risks to the business? Does the business have any legal risks? Do you envisage any technology risks in future? Are there any upcoming regulations which may impact upon your company? And are there any product liability risks attached? Just what are you doing to mitigate all of these risks?

  1. Not accurately explaining the benefits of your business

At the end of the day your business’s benefits and unique selling points are going to be what makes it successful. But a business is more than just its product or unique idea. It’s a wonderful idea to have a video or demo model of your product or your company, but if that’s all you have you will not succeed in attracting investors. 

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The Department of Small Business Development’s Lifelines to Suffocating SMMEs

It’s been said that government doesn’t create jobs, business does. For the most part, this is true. But government creates the environment in which businesses can excel and expand”

Christine Gregoire, American politician and lawyer

There are several resources that the government, under the guidance of the Department of Small Business Development (DSBD), has made available to SMMEs with the objective of assisting them to keep afloat and competitive in this current climate. The programmes below are but a select few.

The department until recently had a COVID-19 Debt Relief Finance Scheme, which unfortunately ceased to exist a couple of months ago. The fund had re-prioritised just over half a billion Rand to assist small businesses during the lockdown stranglehold. 

However, the DSBD still has these resources to assist SMMES: 

  • The SMME Business Growth Resilience Facility

In sport, experts always say “the best form of defense is offense”. The same sentiment applies in business. 

This resource was set up with the objective of assisting SMMEs in taking advantage of supply opportunities resulting from the COVID-19 pandemic and the shortage of goods in the local market. This includes the likes of PPEs and other COVID-19 fighting measures. This is a “counter attacking” resource that aims to assist small businesses respond to the COVID-19 pandemic, and is a programme that helps cushion them while leaning against the ropes as a result of COVID-19

According to the department, to qualify:

  • The business must have been registered with CIPC by at least 28 February 2020. 
  • It must be 100% owned by South African Citizens, 

Its staff compliment must be 70% South Africans; among several other qualifying considerations.

  • The SheTradesZA Hub

Together with the DSBD and the Small Enterprise Development Agency (SEDA), the ITC SheTrades has set up a Hub in South Africa, in order to help South African women entrepreneurs, increase their international competitiveness and connect to national, regional and global markets through the SheTradesZA Hub.

The primary objective of the Hub is to connect at least 50 000 women owned businesses to markets by 2023. This is part of South Africa’s contribution to ITC’s goal of connecting three million women owned businesses to markets by 2021.

  • The Black Business Supplier Development Programme (BBSDP)

The BBSDP is essentially cost-sharing grants offered to black-owned SMMEs with the aim of sustainably stimulating their competitiveness and creating employment.

The objective is to fast-track and stimulate existing SMMEs that exhibit good potential for growth and to grow black-owned enterprises by fostering linkages between black SMMEs and corporate and public sector enterprises, among other objectives.

This programme provides grants of up to R1 million to small businesses that meet the selection criteria.

  • Research and access to information

The DSBD has placed various research findings on small businesses, for the benefit of entrepreneurs, on its website. These are expertly done reports on interesting topics like comparisons on the performance and trends of South African SMMEs based on legislation against their peers from other parts of the world. For that report, please click on this link and for the general research resources, please click here.

Ask us at Emma Pardoe Chartered Accountant how you can take advantage of these resources to give your business an edge.

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3 Survival Tips for Your Small Business In 2021: Little Things with A High Impact

“If we believe that tomorrow will be better, we can bear a hardship today”

Thích Nhất Hạnh

According to a press release issued this year by the World Bank, the pandemic has taken “a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period”.

World Bank Group President, David Malpass, explained that while the collapse in global economic activity in 2020 due to the onset of the pandemic, is estimated to have been slightly less severe than previously projected in advanced economies overall, for most emerging market and developing economies, the impact was more acute than expected.

“Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed”, added Vice President and World Bank Group Chief Economist, Carmen Reinhart.

It is under these circumstances that businesses are battling to keep their heads above water. Here are four simple things you can do to help your business survive in 2021.

1) Delve into your budget

Now more than ever the small business owner needs to understand their company and the way that company spends money. A budget is a roadmap for small businesses, and in the day-to-day running of a start-up or small enterprise it can often be neglected in favour of making payments if and when they seem necessary. 

If you don’t have a budget, make one, and if you have one, take a fresh look at it. Understand what the costs are and where the money is coming from. Know what expenses are coming up down the line – are there licences or new machines you need to own or lease? Do the staff expect a bonus at a specific time of year? Do you need extra at year end for a marketing campaign? Where and how you spend money will show you what’s important to your business and where the fat can be cut. Trimming small amounts from dead areas and focusing that money on the places that deliver returns can make a dramatic difference to the bottom line.

Riley Panko, in a report on budgeting, said, “Businesses of all sizes should create a budget if they don’t want to risk the financial health of their organisation…Businesses may create more challenges for themselves by skipping a budget. This is because budgeting helps small businesses focus.”

Knowing what your long and short terms needs are will help you plan, and streamline your business, which in turn will help you survive 2021. 

2) Focus on your core customers, and ditch your “barnacle clients”

In good times it is a good idea to expand your outlook and try to capture new markets for your products. You have the time to focus on those “barnacle clients” who eat up your time and don’t necessarily deliver the same return for time invested. But in tough times, it’s wise to return to key principles and focus on those clients and markets you know work. 

Barnacle clients are, according to Joe Woodward, those clients who, “Whine about fees; complain about work quality even when you know it was well done; don’t supply needed information on a timely basis; and aren’t teachable”. Woodward suggests those clients should be jettisoned from a business as they only serve to drag a business down in choppy waters when the company needs to be running as sleekly and efficiently as possible. 

“Those kinds of clients should be fired,” he says. “It’s a scary thing, but I have never had anything but a net gain from firing a client.”

At the same time the business owner needs to put the energy that was going into barnacle clients into those who offer returns. Go back to the best clients that you haven’t spoken to in a while, touch base with friends, networks and contacts who you know could benefit from your business, and, in this way, reinvigorate your client base.

Advertising too should start to focus on your core client demographic. Don’t know what that is? Then it’s time to start going through the data. Start with internal data on past customers, and focus on creating a customer profile. This includes basic demographic information, but also try to map your customer on a deeper level. What are their values? What are their spending attitudes? What makes them excited and what makes them tick?

All of this will give you a comprehensive picture of what your core customer demographic looks like. While you may want to market as widely as possible to capture as many customers as possible, this focused kind of marketing will be much more effective, especially for small businesses. 

3) Advertise concisely

Repeated studies are finding that people are increasingly jaded, easily distracted and unwilling to engage with advertising – particularly on social media, an important area for the small business. This does not, however, mean that you should stop advertising. On the contrary, social media is still one of the most important tools that a modern business owner can utilise with 52% of new brand discovery happening on public social media feeds. The trick is to be clear, and concise. 

According to stats from Instagram, 60% of users report that they have discovered a product on another person’s profile, but this never happens with overly long posts or wordy descriptions. Gone are the days when people would watch a full YouTube advert. If your brand message isn’t in place before the skip button can be pushed, you should consider the money wasted. And the rules of social media should be applied across the board to all other types of marketing be they newsletters, emails or even phone calls.

Luke Lintz from social media agency Highkey suggests business advertising should:

  • Lead with the product or service,
  • Make the offer personal to the customer, 
  • Use only a few key statistics to support the claim
  • Emphasise return on investment
  • Stay away from “used car” sales language like “Don’t miss out”.

“The key is personalised honest communication that doesn’t eat up the client’s time,” he explains.

Repeated studies also show that getting staff to personally reach out to potential clients works much better than generic adverts.

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Independent Non-Executive Directors: A Value-Add for Your SME?

Many small and medium-sized enterprises (SMEs) are owned and managed by the founder(s), sometimes with the involvement of family members, and in the early stages of the life of a small or medium-sized company there would seem to be little reason or motivation to appoint independent non-executive directors to the board. However, as an entity grows in size, complexity and, hopefully, market share, there may well be a need for, and advantage in, having diversity and independence of thought in the direction of the company. 

All members of the board, whether executive, non-executive or independent non-executive have a legal duty to act with independence of mind in the best interests of the organisation.

Firstly, what exactly is an “independent non-executive director”?

The Companies Act and King IV define a director as “a member of the board of a company, as contemplated in section 66”. There is no definition in the Act of ‘Independent’ or ‘non-executive’. Accordingly, all directors have the same responsibilities.

King IV, however, explains independence as follows: “When used as the measure by which to judge the appearance of independence, or to categorise a non-executive member of the governing body or its committees as independent, it means the absence of an interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making”. 

Why appoint independent non-executives?

  • Appointing independent non-executive directors does not, in itself, ensure the entity’s governance is enhanced. 
  • However, establishing a well-balanced governing body is a meaningful step towards good governance. The King IV code states: “The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively”.
  • Bringing in additional skills, experience and thought to the leadership of the entity has the potential of enhancing the ability of the board, recognising and dealing with risks and opportunities, and even lifting quality and effectiveness of the deliberations in the board.
  • Non-executive or independent non-executive directors are charged with maintaining an arms-length relationship with management, exhibiting professional scepticism and bringing independent judgment to bear on issues of strategy, risk management, performance and resources including key appointments and standards of conduct. Non-executive directors may not have any operational capacity within the entity; no employment relationship; not be a major supplier or major customer and should not be rewarded on the basis of the entity’s performance.
  • An entity recognised for its strong ethical and effective governance will likely attract more business as a trusted partner. After all, while a company requires a licence from CIPC (Companies Intellectual Property Commission) to commence business, it also needs a Social License to Operate!

What should the independent non-executive director bring to an SME?

  • Someone, as mentioned above, who will bring specific skills and a range of business experience of relevance to the entity. While it may be helpful to have experience in the entity’s particular industry, diversity of experience in other sectors such as, for example, the financial sector, could add value.
  • Clearly, an understanding of the business and the industry is essential in order to make a positive contribution. A non-executive director is expected to make a creative contribution to the board by providing objective and constructive challenge and advice.
  • Owners and management of an SME should not seek to appoint independent non-executives who will simply reflect management’s views, but accept that honest, respectful and robust challenge should be expected and encouraged.

What qualities should you seek in an independent non-executive director?

Clearly, an independent non-executive director should exhibit appropriate behaviour, have a strong ethical stance with absolute integrity; a disciplined and dedicated approach to the role together with a good understanding of the requirements of good governance, controls and risk and opportunity management.

A knowledge and understanding of the regulatory environment of the entity together with the key players and risks in the supply chain and customer base (the entity’s market) is an added advantage.

What should you offer a new appointee to your board?

Any new independent non-executive should insist on an induction programme together with appropriate Directors’ and Officers’ indemnity cover. 

Realistically, most SMEs may not be able to offer competitive fees, compared to large or listed companies. Both the Institute of Directors in South Africa and PricewaterhouseCoopers issue useful annual guides to directors’ fees. SMEs should consider making use of this resource in determining the level of fees they are able to afford. 

Furthermore they need to consider how the fees are determined i.e. per meeting attended; a retainer regardless of meeting attendance or a combination of both – retainer plus per meeting attended. The SME should also undertake annual director’s performance evaluation.

A non-executive and independent non-executive director needs to balance the contribution they can make in considering an appointment where the fees are, perhaps, not quite at the level they expect. Serving on NPO (Non-Profit Organisation) and SME boards is an opportunity to ‘put back’ their experience and skills. They should consider the responsibility and risks they undertake against the potential contribution they can make to these essential sectors of the economy.

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The Benefits of Outsourcing to the Experts

With the uncertainty of how long the COVID-19 pandemic will continue and the current state of the South African economy as a result, many business owners are having to re-evaluate their costs and ask themselves how they can save money. One obvious way many business owners consider is bringing more skills inhouse, whether it be assigning more tasks to existing staff or to hire a new employee, but while the figures may be more appealing on paper, not outsourcing and leaving the experts does come at a cost.

No matter the size of your business, contracting out operational tasks such as your accounting and tax functions provides a multitude of benefits. Below we discuss the importance of outsourcing to the experts:

1.      It provides continuity

Outsourcing skills provides continuity to your business as sick leave, annual leave, family responsibility leave or resignation does not affect your service being delivered. Instead there is always a team available to work on your requests 24/7. 

2.      Increased efficiency & access to skills

When you outsource your business needs to an outsourcing partner like Emma Pardoe Chartered Accountant (SA), we bring years of experience and expertise. This allows us to do the job better as we have the knowledge and understanding of this field which ultimately leads to an increase in productivity and efficiency in the process. We are also able to ensure that tax deadlines are never missed.

3.      You can focus on your business

Hiring staff, training and managing new employees in a new department takes time that could be used to focus on the building and development of your business. Outsourcing allows you to prioritise your business while we handle the more difficult and complex checks and balances of your taxes and accounting affairs.

4.      Faster & Better Service

By outsourcing to experts, you are guaranteed faster and better services as a team is able to focus on your business needs. We are able to use our combined knowledge and experience to assist you as quickly and efficiently as possible, ensuring that your tax and accounting matters are up to date, correct and compliant. You also have access to qualified professionals to ask all your accounting and taxation queries. This also ensures that the integration between your annual financial statements and taxation calculations gets assessed by qualified experiences managers where the best taxation option is put forward. As we are the experts and you are contracting out to us, we take full accountability for the work performed which is in your benefit as well.

When considering how outsourcing can help you grow, don’t limit yourself to looking at the cost of outsourcing versus handling a task with your current staff or new employees. Instead focus on the value an outsourced contractor’s expertise adds to your company, as the benefits are more than their money’s worth. Whether you are a sole proprietor or a director of a company, businesses of every size can use outsourcing to ensure their company is run more efficiently. 

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What Should You Do If a Creditor Tries to Liquidate Your Business?

Due to the recession, there are a rising number of local companies in financial distress and facing threats or applications from creditors to liquidate their businesses.

The latest Statistics South Africa (StatsSA) figures released in November show that the total number of liquidations increased by 33.2% in the three months ended October 2020 compared with the three months ended October 2019.

Werksmans Attorneys head of insolvency, business rescue and restructuring Dr Eric Levenstein said during an interview that a company in distress faced with the possibility of liquidation needed to get advice as soon as possible.

Get professional advice as soon as possible

“My advice is do not wait if your company is struggling, or your creditors are applying pressure, go get professional advice. If you leave it too late, then your company faces one option – liquidation,” Levenstein added.

He said it was vital for small business owners to confront the situation and take drastic action to fix their battling company and ensure it survived.

Shepstone & Wylie Attorneys head of litigation Andrew Donnelly has specialist knowledge about insolvency, business restructuring and business rescue.

He said during an interview that when the owners of a small company faced a court application from a creditor to liquidate their business for alleged unpaid debts, they must first check its legality and determine if the creditor’s claims for outstanding debt were valid.

If there was a dispute about the validity of the application, then the company owners should oppose the liquidation, he added.

Stephan Venter is a Cliffe Dekker Hofmeyr lawyer who focuses on insolvency, corporate recovery, and business rescue.

He said during an interview that when reviewing a liquidation application, it was important for small business owners to determine whether their companies were commercially insolvent, since this was what a court would focus on when deciding whether or not the court should order the company liquidated.

To answer this question, the owners must consider if the company could pay its debts as and when they became due and payable, he added.

“It is expensive to go to court, so a creditor will normally only apply to the court for a company’s liquidation once they have exhausted all other informal options, and if there is a reasonable prospect to recover amounts owing to them once the company is liquidated,” Venter said.

Levenstein said that what often happened was that the board of directors anticipated the possibility of a liquidation application because of their creditors getting aggressive about unpaid bills.

“The directors then file for business rescue by a board resolution, and that puts a stop to the liquidation application for the time being. It is a defensive strategy. It doesn’t mean that the business rescue will be successful, but at least there is an opportunity to talk to your creditors. To set aside the business rescue, a creditor would have to apply to the court,” he added.

Donnelly said that only companies and close corporations could apply for business rescue. If there was already a pending application for liquidation, then the company must apply to the court for an order allowing for business rescue, he added. Donnelly said that when the owners of a distressed company applied to the court to have their company placed into business rescue, they must have a plan to save the business. The business rescue plan would require the approval from creditors holding 75 per cent of the value of the claims, Donnelly said.

“If there is no plan, then liquidation may be the only option,” he added.

Many well-known companies have gone into business rescue

Well-known local companies that have recently gone into business rescue include Comair, Edcon, Phumelela Gaming and Leisure, SAA and SA Express.

If a creditor brought a justified liquidation application and the company was insolvent with no hope of rescue, then the courts would approve the winding up, Donnelly said.

Small owner-managed or family businesses often look at their companies emotionally, and they try to save their businesses at all costs regardless of the facts.

“The best course of action often would be to make the hard decision and close the business,” he added.

Donnelly cautioned that while creditors might use the threat of liquidation to aid the payment of their debts, they had to have rational grounds for a liquidation application.

Levenstein said that tactically a creditor wanting payment could threaten the company that owed money with liquidation.

“Creditors that are owed money would apply pressure and to ensure the repayment of outstanding debt,” he added.

Creditors see liquidation as a quick way to get their money

Creditors seeking payment for their debts were increasingly applying for liquidation rather than business rescue as they saw liquidation as a quicker way to get their debts settled, Donnelly said.

“The problem with business rescue is that it can drag on. Creditors find that very frustrating because the company continues trading, but legislation prevents them from enforcing their claims,” Donnelly said.

Larger companies have a better chance of surviving than small to medium companies because business rescue was expensive, Levenstein said. It was important for company directors to consider whether they were incurring needless debt that they could not afford to pay back, he said.

In such a situation, the company directors could face accusations of reckless trading and be sued in their personal capacities, he added. Donnelly said that before a company went into business rescue, the first person the company’s directors should talk to was their banker.

If the banker heard about a business rescue of a small company through the grapevine, he or she would get a nasty surprise and go into a defensive mode where they would focus on debt recovery rather than trying to help the distressed company, he added.

Communication with a company’s bankers was even more important if the company was likely to need post-commencement finance from their bank to stay afloat, Donnelly said.

Other options for distressed businesses

A company facing the possibility of liquidation has several options other than a business rescue or a court-sanctioned liquidation.

The first was to negotiate an informal repayment plan with the creditor bringing the liquidation application, Donnelly said.

The second option was for a distressed business to pursue an informal restructuring, Levenstein said.

An informal restructuring takes place when a company changes the structure of the company, exits from non-performing entities, sells off assets, reduces staff, and cuts costs to make the company more efficient, Venter said.

“The most important thing is to have a good relationship with your creditors when proceeding with informal restructuring options,” he added.

Levenstein said that the dangers of an informal restructuring were that all of the company’s creditors needed to agree to it.

“You cannot have one creditor disagree, and then the company pays the other creditors because then you prefer certain creditors ahead of other creditors, which the law does not allow,” he said.

“The other problem is that one of those creditors could apply to the court for the company’s winding up with liquidation. This situation would come amid the company’s admission that it cannot pay its creditors and so this could invite a liquidation. So informal restructuring can work, but the problem is that there is no moratorium on creditor claims like in business rescue,” Levenstein added.

The third option for a company in distress was to pursue a voluntary liquidation, which Donnelly pointed out could offer big cost savings when compared with a court-sanctioned liquidation.

Voluntary liquidations are much more prevalent than compulsory applications as StatsSA figures show that during the ten months ending October this year, there were 162 compulsory liquidations compared to 1,448 voluntary liquidations.

Venter said that a voluntary liquidation could involve the sale of the assets and wind-down of a distressed company by an appointed liquidator.

If a company filed a special resolution with the Companies and Intellectual Property Commission in line with the relevant sections of the Companies Act, then the company would be placed under voluntary liquidation, he added.

The owners of a company could place it under voluntary liquidation even though its creditors do not agree or support the initiative, Venter said. 

A fourth option is for the company directors to enter into a compromise with all of its creditors or a class of its creditors in terms of Section 155 of the Companies Act.

Venter said that a compromise was where a company comes to an arrangement with its creditors, for instance, to reduce the debt it owed them or to pay the amount owed to the creditors over an extended period. A compromise aimed to allow a company to improve its financial position, he added.

“If seventy-five per cent of the creditors in value approve the compromise, the court sanctions it and then it becomes binding on all existing shareholders. Properly used a compromise can be a very effective way of saving and restructuring a struggling company,” Donnelly said.

But Levenstein said that the problem with Section 155 was that there was no moratorium against creditor claims.

Once the court approved the liquidation application, then the Master of the High Court would select a liquidator, Levenstein said.

Liquidation was the end of the company because the liquidator would shut it down, sell all the assets and the creditors would get a final liquidation dividend, he added.

Donnelly said that liquidation would tarnish the reputations of the owners of a business and could impair their ability to win the support of clients, investors, and financial institutions for other business ventures in the future.

However, a factor of liquidation was that the liquidator could probe any allegations of mismanagement by the company’s directors, he added.

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Five Mistakes to Avoid When Investing Offshore

An investment in knowledge pays the best interest”

Benjamin Franklin

It can be tempting to look at South Africa and the bad news that seems to hit us like freight trains one after another, and immediately consider moving all your money offshore. There is however far more to consider than simply your gut feel, and predictions of woe as investing offshore comes with a lot of difficulties and more than a few unique problems. 

Here we look at some of the most common errors people make, to steer you clear of losing your investments. 

1. A bank account is not an investment

Perhaps the largest mistake that new offshore investors make is panicking. In their emotional state they open an offshore bank account and start moving money overseas, but this is a mistake. 

Bank accounts, particularly in Europe, often pay less than 1% interest and any money that is sitting in one is certainly not even keeping up with South African inflation. As with local investments offshore investors should be looking to craft a diverse portfolio that includes quality global equities to ensure they aren’t just throwing money away.

2. Understand the market

Before leaping into an offshore investment, it’s important to have a clear picture of the currencies, returns, fees and taxes associated with the different options, and the respective risks that might need to be managed from the outset.

In many jurisdictions fees can end up being a significant player in the profitability of the investment, to the point where they may result in an ongoing shrinkage of offshore assets. This is particularly true if an investment is held in the name of a company, trust or pension, where director or trustee fees will usually be charged on top of the advisory fees.

On top of this, investors in many European countries often pay significantly more in fees for absolutely no added benefits, compared to local investors. 

3. Rental properties aren’t simple

Many people consider buying a rental property in a foreign country the ideal investment, especially if they are considering emigrating there at some stage. A number of countries also offer passports to investors provided they purchase property in those countries, which can also lead to this kind of investment.

There are, however, a number of ways that a rental property can end up becoming a money sinkhole instead of offering the expected stable returns. 

International property investors should not simply buy into whichever development the internet or sales agents are suggesting. Do your homework and fully understand the laws, taxes and unique conditions around the country, city and suburb you hope to invest in. Even if the property you are about to buy seems like a good deal, if it is in an area where there is too much rental housing and you struggle to find a tenant, it will end up costing you a small fortune instead. 

Investors need to also make sure they do their research on the companies they are working with to ensure they are not uncertified or unscrupulous. Fortunately for investors there is the Association of International Property Professionals (AIPP), an international body that is committed to regulating the industry. If you partner with an AIPP member, you are assured that they have been vetted and approved. 

Arranging finance in a foreign country is possible, but again comes with a need for caution. What is the track record of the company offering the finance and just what are the terms they are offering in their contracts? Laws in other countries may not be the same when it comes to finance, and there may not be the same protections that are on offer in SA relating to allowable interest rates and what happens in the event of a default. 

Applicable laws need to be checked regarding tenancy too. Are there protections in place if your tenant does not pay the rent? What happens if someone refuses to move out or damages the property? The best solution is to team up with a reputable letting agent who knows the laws, and who has your best interests at heart to ensure you don’t fall foul of some trick of local law. Of course, using an agent results in additional costs, but in the scheme of things this is likely to be money well spent.

In short, research and research again. This is not something to rush into because you saw a flashy Power-point presentation.

4. Double Taxation

With the laws around taxation of foreign income recently changing there is a lot of uncertainty, and numerous rumours have arisen as to just when tax is applicable, whether disclosure is necessary and just how much is due. The basic rule is that South African tax residents are subject to tax on their worldwide income regardless of where that income derives or whether it has already been subject to tax in the country where it was earned.

It gets more complicated though, because the South African government has numerous Double Tax Agreements (DTA) with various countries, which seek to prevent double taxation. These are not always helpful however as they don’t always protect the investor from paying two sets of taxes.

The DTA signed with the UK for example clearly outlines in Article 6(1) and 6(3) that where a South African receives rental income from letting immovable property in the UK, such income may be taxed by the UK. It does not however say that South Africa is then not allowed to also tax the income. Article 21 tries to provide protection from double taxation, but there are numerous limitations.

This is then further complicated by the fact that there are some domestic laws which seek to help prevent double taxation in some circumstances, but these laws don’t always apply and come with onerous documentary requirements. Basically, consult an accountant to go through the particulars of your case to determine if any tax is owed and what to do about previously undisclosed income to avoid falling foul of the law.

5. Waiting for the right time to invest

Perhaps the simplest error to correct is the one where, having already decided to invest offshore, the investor decides to hold onto their money, waiting for the right time to jump into the foreign market.

It may seem wise to wait for the Rand to strengthen or the global equity markets to offer up some value, but this is advised against. Commonly, when people are waiting to move funds, they place large sums of money in money market funds, sometimes for years, looking for the right time to jump in, all the while accruing local income taxes at the marginal rate. This more than undoes all the good that a small strengthening of the Rand could present.

If you are going to do it, there is no better time than the present.

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Companies: How to Manage Your Greater Tax Risk in 2021

If you think compliance is expensive – try non-compliance.”

Paul McNulty, former US Deputy Attorney General

The extent of corporate taxes – from income tax, employment taxes and value added tax (VAT) to dividend taxes, capital gains taxes, transaction taxes and other indirect taxes – along with the operational aspects such as data and reporting systems and related technicalities, guarantee complexity and time-consuming processes for companies, which in turn increases compliance costs.   

This also compounds other tax risks such as under-estimation; underpayments; overpayments; not applying the correct tax savings and incentives; tax penalties – such as the 10% late payment penalty; the inability to meet tax obligations; and assessments and audits.  

Compliance costs are another growing tax risk. Studies suggest that companies spend hundreds of hours and tens of thousands of Rands each year on internal tax compliance costs such as labour or time devoted to tax activities and incidental compliance expenses, and on external tax compliance costs like tax practitioners’ fees. 

In addition, tax issues can place a company’s reputation and brand at risk. An example would be a company losing a tender on a large contract because it was unable to provide a tax clearance certificate, perhaps due to a technical or minor non-compliance issue. Companies also face the risk that a tax issue could attract negative attention from the media, civil society or competitors, as growing numbers of stakeholders ranging from customers to potential investors increasingly support only companies perceived to be contributing their fair share to the country and community in which it operates.

Why tax risk management will be even more critical in 2021

All these tax risks will be amplified in 2021 for a number of reasons, including increased tax liabilities; intensified taxpayer scrutiny; and the further entrenchment of SARS’ powers. 

In the 2020 Medium-Term Budget Policy Statement, Finance Minister Tito Mboweni announced government-projected tax increases of R5 billion in 2021/22; R10 billion in 2022/23; R10 billion in 2023/24; and R15 billion in 2024/25. Companies need to factor these tax increases into their future planning and budgeting. 

Taxpayers will also find themselves under greater scrutiny and likely to be subject to more punitive measures in 2021. Human errors and simple mistakes, which are not uncommon given the complex processes and strict deadlines involved, stand now to be harshly punished even if unintentional. The Tax Administration Laws Amendment Bill, 2020 (awaiting Presidential signature to become law) provides that for certain tax crimes you can be convicted if you acted either “wilfully or negligently”, where previously proof of wilfulness (intention) was required. This means that a court could find a taxpayer guilty of an offence without proof of wilfulness, so that even inadvertent errors could be penalised with a maximum penalty of up to two years’ imprisonment.  

Along the same lines, companies can also expect an increase in the number of tax audits, as well as more detailed, expensive, and time-consuming investigations and audits. These are likely to focus on SMMEs, business owners, trusts and high net worth individuals. Furthermore, SARS’ already extensive powers – including asset forfeiture powers – continue to be entrenched. Just two examples from recent court rulings illustrate: the Gauteng High Court confirmed a taxpayer’s obligation to be vigilant when filing a tax return and liability for appropriate penalties when falling short of this duty, while a North High Court judgement set an important precedent by re-affirming SARS’ right to liquidate a taxpayer to recover debt where an assessment is under appeal. 

How to manage your tax risk 

  • Plan for tax compliance 

A well-defined tax strategy, aligned with your overall business strategy and the specific tax challenges facing your business, is important. As the business grows, a re-assessment of the corporate vehicle or tax structure may be required.  

Detailed planning is also required for the tax year ahead, providing ample time for processes required for proper record-keeping to ensure tax returns are complete and accurate, and that the numerous tax deadlines can be met. 

Planning should also incorporate identifying and implementing relevant tax relief and incentives and assistance. Just one example is turnover tax that provides administrative relief for micro businesses by replacing Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for businesses with a qualifying annual turnover of R1 million or less.

  • Budget for tax compliance 

Proper budgeting is required to ensure all the various tax liabilities can be met before or on the stipulated deadlines, while also factoring in the effect of the annual tax increases announced in the latest Medium-Term Budget Policy. 

Companies also need to budget for compliance costs including the internal cost of labour or time devoted to tax activities, incidental expenses, and the resources, systems and continuous upskilling required to meet ever-changing tax obligations. The budget should also provide for external costs such as tax practitioners’ fees; external reviews of the tax function; and even tax risk insurance to cover the cost of immediate expert assistance and support from a team of tax professionals in the case of a SARS’ tax audit.  
 

  • Call on expert professional services  

Given the increase in compliance complexity and costs, the expertise of accounting officers and auditors is vital in determining the taxable income and the amount of tax to be paid. 

Advice from a tax professional can ensure an appropriate tax strategy is formulated to proactively manage your tax risk in the long-term, saving time and money and avoiding expensive tax mistakes, while keeping in line with the ever-changing tax obligations.  

Be sure to choose a specialist who is appropriately qualified and experienced, as well as a member of a professional controlling body that enforces strict standards, such as SAICA (South African Institute of Chartered Accountants).

Benefits of professional tax risk management 

Failure to manage tax risk effectively will negatively impact on an organisation’s profitability. However, beyond managing tax liability, there are further benefits to managing a business’ tax risks. One of these is more accurate records resulting from tax compliance obligations. This improves the availability of up-to-date information and insight into the financial position of the business and its profitability – enabling accurate, timeous financial management which is crucial to business success. In addition, tax compliance has become both a corporate governance and a reputational issue and can create both shareholder value and stakeholder trust. These benefits, along with tightly managed tax liabilities, will certainly assist companies as they build back after the economic upheaval of 2020.

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Employees Working Abroad: How to Avoid Double Tax

“Every advantage has its tax.”

Ralph Waldo Emerson

The purpose of the foreign remuneration exemption, which was introduced in 2000, is to provide relief from any possible double tax that may arise where both South Africa and the foreign country taxes the same income derived from employment, according to a SAICA article on the topic, written by Piet Nel (Project Director: Tax Professional Development). 


Requirements to qualify for the exemption 

  • The employee must be a resident of South Africa, for tax purposes.
  • The employee must have been physically absent from South Africa and worked outside South Africa for a period or periods exceeding 183 full days in aggregate during any period of 12 months.
  • The employee must have been physically absent from South Africa and worked outside South Africa for a continuous period exceeding 60 full days during that period of 12 months.


However, due to recent legislative changes and COVID-19 travel restrictions, many employees who work on foreign assignments or abroad may not qualify for the exemption for the 1 March 2020 to 28 February 2021 assessment period, and face paying double tax. 


Important changes to the exemption

  • A new R1.25 million threshold applies for this 1 March 2020 – 28 February 2021 tax period, where previously, there was a full exemption for qualifying foreign sourced remuneration. The individual will, unless the foreign country doesn’t impose a tax on remuneration, be liable for a double tax to the extent that the remuneration exceeds R1.25 million, explains Nel. 
  • Furthermore, since March 2020, employers must withhold employees’ tax if the taxpayer is employed by a South African resident employer, registered as such with SARS. If not, the first provisional tax was payable on 31 August 2020 and the second payment is due on 26 February 2021.
  • COVID-19 travel restrictions around the world prevented many employees from traveling to work outside South Africa to meet the 183-day requirement, and therefore they cannot qualify for the exemption. Although some international travel became possible after 31 May, many workers remain unable to travel internationally. SARS and National Treasury recently proposed some relief through reducing the required number of days abroad by the 66 days of COVID-19 alert levels 5 and 4 (27 March 2020 – 31 May 2020) in South Africa. This would reduce the required number of days abroad from 183 to 117 in any 12-month period, for years of assessment ending from 29 February 2020 to 28 February 2021. The current requirement of 60 continuous days abroad would remain unchanged.

How companies can assist their employees 

Given that the proposed revised rules have been announced so late and that COVID-19 remains a threat to international travel – affecting employees’ ability to accumulate even the proposed reduced number of days working abroad (117) – companies need to assist their employees to plan for their foreign remuneration tax liability. 

1. Keep updated with ongoing changes 

The proposed amendment of the required number of days abroad is only expected to be finalised and approved later this year. In the meantime, South Africa has announced that all international travel can resume subject to stringent health protocols.

While this is great news, it comes at a time when a second wave of COVID-19 has sent much of Europe back into lockdown, and when South Africa is witnessing a resurgence in the number of COVID-19 cases in certain areas, which has prompted government to announce the implementation of a resurgence plan. Widespread concerns remain regarding a future return to a harder lockdown alert level, which may see travel restrictions being implemented again.  

2. Consider the individual impact 

Nel explains that the stipulated period of 12 months is not a year of assessment, but any period of 12 months starting or ending during the year of assessment. It is also not a requirement of the relevant section of the Income Tax Act that the 12-month cycles run consecutively. 

As a result, whether an employee qualifies for the exemption will depend on when their specific 12-month cycle starts, as well as how much time was spent outside South Africa before and after the lockdown. There may also be double tax agreements in place with specific countries that could affect an employee’s tax position. 

Cross-border employees, unable to work during the lockdown, should prudently consider when their new 12-month cycle should start. Those who continued earning remuneration from foreign employers while working remotely from South Africa will see their full income taxed in South Africa.  

It is possible to get credit for foreign tax to provide relief where a double tax arises. The Income Tax Act allows for foreign tax credits to be granted where the same amount was subject to tax, or partially so, in South Africa and in another country, but only on assessment, says Nel. 

In some instances, obtaining a tax directive may also be necessary. The law relevant to employees’ tax (PAYE) doesn’t allow for the foreign remuneration exemption to be taken into account by the employer on a monthly basis. SARS indicated that an employer “may at his or her discretion, under paragraph 10 of the Fourth Schedule, apply for a directive from SARS to vary the basis on which employees’ tax is withheld monthly in the Republic” and that the “potential foreign tax credit is taken into account to determine the employees’ tax that has to be withheld for payroll purposes.”

As Nel points out, there are also other practical implications to consider. Some benefits, which may be exempt from tax in the foreign jurisdiction, may not qualify for an exemption in South Africa. Examples of such benefits include free accommodation provided by the employer, security and travel services. It is also not clear how allowances, such as travel allowances, should be treated. Whilst SARS updated its practice generally prevailing in this respect, these issues are not clarified. 

3. Professional tax assistance  

In light of the ongoing changes in legislation and circumstances, and the need to consider each employee individually while taking into account the myriad factors that apply to the foreign earnings exemption, South African employers are well advised to obtain professional assistance in order to prudently assess their – and their employees’ – current tax positions and how the recent changes in respect of the foreign remuneration exemption will affect their tax liability. 

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Read more about the article 6 Tips for Getting the Most from Your Tax-Free Savings Account
Piggy bank and tax concept

6 Tips for Getting the Most from Your Tax-Free Savings Account

“He said that there was death and taxes, and taxes was worse, because at least death didn’t happen to you every year.”

Terry Pratchett, Reaper Man

Tax-free savings accounts (TFSAs) have been around for just over five years, and yet many people still do not know about them, are unfamiliar with the benefits or don’t know how to take maximum advantage of this unique investment opportunity.

Amidst the chaos of early COVID-19 and lockdown many may not have noticed that as of 1 March 2020, the annual limit in these types of investments was increased from R33 000 to R36 000 a year with the overall lifetime limit standing at R500 000. The National Treasury introduced these investments to encourage South Africans to save and as a result there are no taxes payable on interest or dividends received, and no capital gains tax (CGT) on funds withdrawn.

Clearly with such an attractive offer a TFSA must be a part of every person’s future investment strategy, regardless of their income level. So just how does one take maximum advantage of these accounts and stand to gain the most future benefit?

1. Long term investment

The real power of a TFSA is in the long-term compounding of the investments. Due to the fact that a TFSA contribution is not immediately tax deductible (as for example a retirement contribution is) the benefits only kick in later when the interest that is being achieved starts overtaking the amount that would have been saved on taxes through other contributions.

Director of advisory services at Investec Asset Management, Jaco van Tonder says, “From a tax benefit perspective, it appears to not make sense for an investor to utilise a TFSA for an investment horizon of less than five years. This picture changes dramatically though after ten years due to the well-known compounding effect of long-term investment returns”.

This is an important aspect for investors to consider, especially as money in a TFSA can be accessed and withdrawn at any time. While that seems attractive there is a further large catch in that once the money has been withdrawn, returning it to the account will be regarded as part of your annual contribution. What this means is that if you have invested R12 000 in the account this year, then withdraw R3000, and return it a month later, the tax man will view this as you having already invested R15 000 in that account.

2. Saving for retirement

Due to the long-term nature of a TFSA, they are commonly used as a way to save for retirement, alongside, and sometimes as an alternative to, a Retirement Annuity (RA). 

While the income tax benefits of investing in an RA still makes them an extremely attractive proposition, a TFSA has a number of other benefits, which those investing in an RA should consider. Firstly, investors can withdraw from a TFSA at any time, and there is no tax on those withdrawals, while RAs are only accessible at retirement (under normal circumstances), and, when you access them, you need to buy an annuity with at least a part (currently two-thirds) of the accumulated value. 

Further, there are absolutely no restrictions on asset allocation in the TFSA, whereas restrictions apply to RAs in terms of Regulation 28 of the Pension Funds Act, meaning the investor may have more choice as to how aggressive they want to be with that investment. 

There are however some complicated considerations which need to be taken into account, and it’s not as simple as cashing in the one to buy the other. In order to protect them from creditors, RA’s are excluded from a deceased person’s estate, and the investor is often encouraged to nominate a beneficiary to whom the benefits will accrue after death. The nomination process for a beneficiary may come with caveats, and instances where pay-outs may not happen, but even if the pay-out is set to be made, this can involve another level of administration and difficulty for the beneficiaries who may not want to deal with two separate companies to wrap up their loved one’s estate. There are, however, often tax benefits to doing so at that stage. 

The issues around which is the superior investment between an RA and a TFSA will therefore ultimately come down to your unique situation, and investment strategy, and it is highly recommended that you speak to your accountant before making the leap.

3. Saving for an education

Despite the powerful points in tip two, one need not necessarily consider a TFSA as only being an alternative to an RA. There are many other investment choices someone may need to make and one of the most important is education. If you intend on sending your children to University one day you might be thinking about starting a fund to pay for the fees. If you do not already have a TFSA think twice and examine all options closely. 

Due to the long-term nature of education savings, a TFSA is the perfect tax-sheltered way to save for your children’s education. With regular education funds, part of the withdrawal may be subject to taxation, but when it comes time to finally cash in the TFSA there are no taxes payable at all and given the long term nature of the investment a TFSA could be the ideal investment tool. 

As an example, if you invest just R620 a month in a TFSA at the relatively common interest rate of 6% for a period of 10 years, you could build up almost R100 000 during this time. This sort of payment is exactly what is needed when it comes time for your child to move from school to an institution of higher learning.

4. Invest your lump sum as soon as possible 

Many people wait until the end of the year to put whatever savings they have left into their TFSA as a lump sum. Sometimes they use their end of year bonuses for this same benefit. Investment strategists suggest that it is wiser to either increase your monthly contribution to as close to R3000 a month as you can, or to pay the lump sum at the beginning of the year. What this does, is allow you to enjoy a full year of tax-free growth, which can add up dramatically over the lifetime of the investment.

A R36 000 lump sum investment on 1 March can grow by R3 600 over the year (assuming a balanced fund investment with CPI+4% return). Tax on interest, dividends, and capital gains in such a portfolio would amount to roughly R600. By rather allowing this lump sum to grow in the TFSA from day one, the investor gets to keep and further grow this R600. Compounded over time this relatively small amount can grow to make a significant difference.

5. Invest in growth assets

Like other funds, TFSAs come in many shapes and sizes. SARS currently says the following kinds of accounts can qualify as Tax free investments: Fixed deposits; Unit trusts (collective investment schemes); Retail savings bonds; Certain endowment policies issued by long-term insurers; Linked investment products and Exchange traded funds (ETFs) that are classified as collective investment schemes.

In order to take the maximum benefit from your TFSA you should ensure that there are as many growth assets included as possible to maximise your long-term growth. Remember, no limits apply as to your asset allocation and as such you are free to make bold choices.

6. Don’t over-contribute

Seeing all of the above, and realising the benefit of a TFSA, one may be tempted to invest more money into TFSAs than is legally mandated. Don’t. The annual contribution limit of R36 000 per individual is strictly enforced, and any contributions in excess of this annual limit can be subject to penalty tax of 40% of the excess. There is no limit to the number of TFSAs you can have, but it is important to manage them closely to ensure that you don’t exceed your annual contribution limit. This R36 000 applies to the sum of all contributions to all your TFSAs so be very careful not to accidentally stray over the line. 

While powerful, a TFSA is not a one-size-fits-all investment opportunity. Investors need to carefully evaluate their different life situations and investment strategies with reference to long-term returns and volatility measures and see how they stack up. There is little doubt that the TFSA should form some part of an overall investment portfolio, but what that role is, needs to be tailored to the individual. 

Speak to us at Emma Pardoe Chartered Accountant to evaluate your personal circumstances and see just how you can take maximum benefit from a tax-free investment. 

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Accounting Tips For SMMEs And Rocketing Tax

“The avoidance of taxes is the only intellectual pursuit that carries any reward”

John Maynard Keynes

While there are diverse reasons why SMMEs ultimately fail, financial mismanagement and poor performance are two of the most often-cited explanations.


Being that the increases are projected to be an ongoing imposition over the next five years at least, here are some expert accounting tips for SMMEs on how to best manage future projections and targets in our volatile local tax environment.

A financial forecast as a tool, allows businesses to plan their finances for the future – with the consideration of their present and past performances. This implement should be mindful of the looming tax increments within the South African context, if it is to be effective in steering the company to a state of readiness and efficiency, particularly during the ongoing COVID-19 pandemic.

 1.   Appropriate and timeous management of the tax predicament

SMMEs are advised to manage their expectations within our rocketing tax context, in order to prepare themselves in dealing with their future successes and failures. Understanding the context, timing, various tax implications and what is projected at company level is vital in preparing for the inevitable pinch on the pocket.
 

The COVID-19 trial hasn’t come at the best of times for our government as it can’t afford to be as giving as others around the globe. There are governments that have given deferrals on payroll taxes, VAT and corporate income tax as a collective package. In South Africa, tax compliant businesses have been allowed to defer 20% of their employees’ tax liabilities and a portion of their provisional corporate tax payments – ask your accountant for details.

2.    Pick the right forecasting model for your business

Picking between the right qualitative and quantitative forecasting approach should be determined by the core data of the company being dealt with. The projected tax increments should be factored in, as the overall objective is to forecast profitability and not just actual sales. For example, in the Qualitative Model, there is Trend Projection, where the accountant looks at the trajectory of what is happening at that point in time, while following the trend in the publicised increases.  
 

3.  Adaptability and reducing costs where applicable

According to Johnny Yong, who is technical manager with the International Federation of Accountants’ (IFAC) Global Accountancy Professional Support (GAPS), and Robyn Erskine, who is partner at Brooke Bird in Australia, SMEs should evolve with the times.
 

“Death and taxes are the two constants in life. It is therefore not surprising for SMEs to be asking this question. In other instances, the corporate vehicle or tax structure may need to evolve as the business grows. [Accountants] can discuss this with their clients – at a certain point of the SME’s evolution. Preparation (for the entrepreneur) is important to ensure long term success of the business,” they penned for the IFAC website.
 

4.  Charitable contributions as a means of getting tax breaks

This is a tool that can be achieved through manoeuvring and strategy. The South African treasury has announced tax breaks which might help soften the tax pinch.
 

The tax-deductible limit for donations (currently 10% of taxable income) will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/21 tax year.

The bona fide donations have to be made to an approved organisation, agency, institution, or department of government listed in section 18A (1) of the Income Tax Act and there must be a receipt to prove the donation. Make sure of course that you can afford the cash outflows involved.


 5.  Planning accordingly and compliance

The benefits of forecasting can never be overstated. The thoroughness of forecasting gives the organization insight into the possible future performance of the business and how to prepare. 


A specific benefit is that forecasting can lead to better accuracy in budgeting. This includes accounting for future tax spend. The complete forecast can serve as a framework for developing new strategies. 

Don’t be left scrambling for cover at the last hour, ask us at Emma Pardoe Chartered Accountant (SA) for help with this – don’t let high taxes kill your business!

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SMMEs: Preparing for the Second Wave

Forewarned is forearmed.

Samuel Shellabarger, Prince of Foxes

The daily covid-19 infection rate has decreased considerably over the last month or so. South Africans have found a way to live with the risk of infections and have in the recent past become generally more active. This has increased the fear that there might be a second wave of high Covid-19 infection and mortality rate. Western Cape government, for example, has warned a resurgence is highly probable considering the second wave of mass infections sweeping across internationally.

Explaining why it is still important to be cautious against Covid-19 for the next few months, the National Institute for Communicable Diseases (NICD) warns that “Coronavirus is not going away any time soon”.

“We are seeing second waves in European countries three to four months after their first wave. We don’t know if this will happen in South Africa, but it is possible, and even likely. Also, we know that once you get Coronavirus you are not immune from it for life, and you could become re-infected in the future,” it says in a statement on its website.

SMMEs, like the citizens, have to protect themselves from the possible re-emergence of high numbers of infections, which have crippled a considerable number of them earlier this year.

Based on advice from a collective of experts, here are some tips for SMMEs looking to prepare for the possible second wave of high Covid-19 infection rates:

General working conditions and workplace policies have to be reviewed

According to the Centres of Disease Control and Prevention in the US, the working conditions and policies must be reviewed in order to best assist companies in protecting themselves against the full blow of the virus. Companies are advised to “examine” working conditions and policies in order to protect employees, and ultimately themselves.

“When possible, use flexible worksites (e.g. telework) and flexible work hours (e.g. staggered shifts) to help establish policies and practices for social distancing (maintaining distance of approximately 6 feet or 2 meters) between employees and others, especially if social distancing is recommended by state and local health authorities,” said the organisation.

Consider remote working more as an option than a forced situation.

On the local front, Accelerate CEO, Ryan Ravens, recently spoke on a survey conducted on remote working due to Covid-19.

Inventory and stock

He told radio station Cape Talk, that “increasingly, it (remote working) works better for companies as well as employees. I think there has always been a resistance by our very traditional corporates because they felt employees would not be as efficient and/or wouldn’t deliver more, but I think that notation has been turned on its head. Employees have actually showed up and shown that they can work far better when working from home.”

Consider stocking up on supplies and raw material reasonably, knowing that replenishing them can’t be guaranteed ahead should the stricter lockdown regulations be reimplemented by government. The stockpiling process should be ideal to each business, considering aspects like expiration dates in certain goods, for example, and access to market. Careful management of the inventory is necessary.

Insurance

The importance of having quality insurance in general can never be overstated, and the same thinking prevails in business. Policyholders are encouraged to relook at the fine print of their business insurance policies to refresh their memories and for better understanding, bearing in mind the unusual circumstances the world is operating in. Insurers on the other hand are encouraged to “pick-up the pace”. However, the global scourge is seen as a challenge that should motivate insurers to put customer-care first.

A jointly authored blog by Price Waterhouse Cooper’s global insurance advisory leader, Abhijit Mukhopadhyay, and leading practitioner in “customer experience”, John Jones, expounds on this narrative. The two expert authors express that “Policyholders will want to know their claims will be paid. But it doesn’t always work out that way — especially with a pandemic, which is not generally covered by insurance (except possibly through costly business continuity insurance). Customers are bound to be confused and anxious, and they need to feel that their questions and concerns are addressed with honesty and empathy.

Understand the seasonal cycle of business

Businesses prepare and operate with attention to their annual business cycles. They are advised to prepare knowing that the unidentified length of the possible viral resurgence might overlap their business season, i.e. quarters and other periodic demarcations of business. 

Minimise spending

SMMEs are advised to minimise spending in order to have as much in the piggy bank as possible. Reserves will be critical in a period where there is minimal income. Careful budgeting could be the possible rabbit out of a hat for successful businesses during the dreaded possible re-emergence of stricter lockdown restrictions.             

Get familiar with the government’s Covid-19 Relief Fund for SMMEs

This could be critical for SMMEs. Understanding the qualification process and benefits described by the Department of Small Business Development (DBSD) can be the determining factor between relief aided continuity and capitulation. The current amount given to businesses that qualified for the Covid-19 Relief has eclipsed R500 000, according to the department.

The department supposedly updates information related to the relief fund on its website for entrepreneurs to peruse, according to the set business classifications of the SMMEs.

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The Feasibility of a Freelancing Business in Uncertain Times

Business start-up planning has been extensively covered over the past twenty years and longer, and without understating its importance or re-inventing the wheel, perhaps it has been overplayed. Much training is available on the Internet, including templates and guidelines provided by banks and the SA Department of Trade and Industry. To start a freelancing business can be a challenge – and then some. Thus, following a business plan infrastructure with the use of a project planning tool is the best route to follow.

Why perform a feasibility study?

The feasibility study is a vitally important step in the well-known business planning process, not only pre start-up. In fact, it is the most important step because, if the business idea is not feasible, there is no point continuing with it. There are often more reasons for the business to fail than to succeed. Many renowned business analysts believe that only one in forty new businesses succeed and materialise in accordance with their original plan. Another good time for doing a feasibility study is when a business needs to be restructured to increase profitability, improve production, reduce production costs and overheads, increase sales/services income, expand the market reach, and many other valid reasons.

In the normal scheme of business planning, one deals with deciding on what type of business entity one wants to set up such as a Sole Trader, a Partnership, a Private Company, a Close Corporation, and then the drafting of various reports are needed in order to gauge the feasibility and to make the right decisions going forward.

What information do you need to prepare a fe