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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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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Budget 2023: The Minister of Finance Wants to Hear from You!

“Finally, we pay tribute to the millions of South Africans, whose resilience and courage during these times of pandemic and economic hardship, is an inspiration to all of us who have the privilege to serve in the public sector.” (From the 2022 Budget Speech)

Finance Minister Enoch Godongwana has invited the public to share suggestions on the 2023 Budget he is expected to deliver on Wednesday 22 February 2023.

Go to National Treasury’s “Budget Tips for the Minister of Finance” page and fill out the online form.

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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