GROWING YOUR BUSINESS AND ADAPTING TO CHANGE

B3Growing a business takes several important characteristics that require a dedicated leader driving it at the helm. These characteristics include vision, change and people. An effective leader will also engage others in the business to embrace and adapt to change as growth continues.

  1. Vision: First, plot the course for where the business should go in the short-term, and the long-term. This includes knowing who your customers are and what they are likely to demand. Without a clear vision, you will be steering your business in a random direction, which could completely miss your customers.
  1. Change: When it comes to growing any business, change is essential. Those that do not change and adapt to new ways of doing things will fall behind. Understand what needs to be put in place to grow the business. You might need to source better business operating systems to streamline this growth, or change a few internal business processes, or rethink how you calculate your hourly rates.
  1. People:  People are essential for the growth of any business. But not just any people, you need the right team in order to move your business forward and reach the vision you have in mind. However, you should understand that you will need to guide and coach the staff into changing their mindset and adapting to these growth changes.

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

ACCOUNTING TIPS FOR A SUCCESSFUL BUSINESS

B4Running a business has many challenges, from building clientele to employee relations. However, one of the biggest challenges a business may face is keeping abreast of important accounting practices. This is vitally important because without the proper practices in place, your entire business may be placed in jeopardy.

  1. Keeping records

The most important thing regarding your financial records is keeping everything in one place so you don’t have to worry about meeting a request, and it is also to keep everything simple. To make matters easier, you can try using online banking.

With online banking, you can track simple debits and credits to your account. However, when it comes time to accurately state how things were spent or earned, separate bookkeeping records should be kept. Perhaps you should consider investing in an easy accounting software, which you can use to track money coming in and out daily.

  1. Invoicing

Invoices are more than just prompts for your clients to make payments. They’re records of the terms of a transaction, and because of this, it’s critical that you enter information that is accurate and complete. It’s also important to understand what the difference is between invoices and receipts.

Reworking or adding to an invoice, creating multiple versions, or cancelling an inaccurate invoice will only confuse the accounting process and make matters difficult. Furthermore, accurate invoicing ensures that if your clients ask any questions regarding a payment, you will be prepared with a record of previously-agreed-upon terms under which you and your clients operate.

  1.  Collecting taxes

Taxes need to be taken out at the time of sale or at the time payroll is generated. Just like with receipts, the longer you go between a transaction and proper accounting, the more room for error there is and the more risk you expose your business to.

You need to collect (or apply) taxes as soon as a sale is made or immediately upon payroll generation. That will ensure that you don’t incur penalties for delayed tax payments. This will also help your accountant keep as much profit as possible.

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

THE IMPORTANCE OF HAVING A GOOD ACCOUNTING SYSTEM

B2If your business doesn’t have an effective accounting system in place, you run the risk of making serious errors in your finances. Furthermore, a good accounting system simply makes life easier and allows you to focus more on growing your business.

  • It helps you evaluate the performance of your business: A good accounting system gives you a thorough overview of the financial performance of your business. If you don’t have an accounting record, how will you know if your business is growing or shrinking? So, your account records help you know if your business is growing, stagnant or slowing down.
  • It helps you manage cash flow and meet deadlines: Cash flow management means knowing what you do with the cash that comes into the organisation. Your accounting system helps you know areas that need cash. For instance, cash may be needed to finance your debts, or make major renovations or order for new stocks, and it is your accounting system that will help you know this. In short, no business will growth further without a good cash management system. Also, your accounting books help you know when bills like your rent needs to be paid.
  • It’s needed for business goal setting: Your accounting system will help when setting new business goals for the week, month or year, as seeing the business performance for the last financial year will help you project and set goals for the New Year and plan ahead for the business.

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

WHEN IT COMES TO STRATEGY, THINK BIG

B2To create a strategic roadmap for your business you don’t need heaps of wonderful resources; you only need to give up your preconceived ideas about strategy. Sometimes the thing that holds a small business back the most is small thinking. If you believe that the size of your business is a disadvantage when it comes to strategic planning, simply because the big companies have all the financial resources and manpower to influence the market, then why start a business at all? Fortunately, money or size of personnel is not what counts when you create a strategic plan – common sense is.

Keep your enthusiasm in check

You don’t need to strategise constantly; rather make sure that you understand the market conditions and that you have attainable goals – don’t waste time on too much planning. You could also try using your company’s small size to out-manoeuvre larger, slower companies by addressing challenges and options and seizing opportunities over short but regular spaces of time.

Challenge assumptions

Believing in the status quo is not part of a successful entrepreneur’s strategy. The business climate is constantly changing with the help of the Internet, social media and other mobile devices. Many companies have landed on the business rubbish dump because they could not adapt to changing times. Question everything. Attempt playing devil’s advocate with your new ideas, then get your team together and devise plans to make the idea viable. Ignore preconceived notions about what can or cannot work – while some business principles are a given, very few business ideas are completely useless.

Avoid myopia

You can build a sales strategy based on the outcome you desire. Don’t miss out on good opportunities because you are too caught up in day-to-day activities to think outside the box and re-examine your progress. Change your perspective and get your team to think in more creative, profitable ways.

Jack (or Jane) be nimble, eager and bold

The market and the needs of customers keep changing, and it’s beyond your control. What you can control, however, is how you adjust to these changes and what new plans you create. Be bold in your new approach and keep an open mind as to the unconventional ways in which to grow.

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

INTEREST FREE LOANS WITH COMPANIES

A4bThe latest annual nation budget presented in Parliament proposed the dividends tax rate to be increased with almost immediate effect from 15% to 20%. The increased rate brings into renewed focus what anti-avoidance measures exist in the Income Tax Act[1] that seeks to ensure that the dividends tax is not avoided.

Most commonly, the dividends tax is levied on dividends paid by a company to individuals or trusts that are shareholders of that company. To the extent that the shareholder is a South African tax resident company, no dividends tax is levied on payments to such shareholders.[2] In other words, non-corporate shareholders (such as trusts or individuals) may want to structure their affairs in such a manner so as to avoid the dividends tax being levied, yet still have access to the cash and profit reserves contained in the company for their own use.

Getting access to these funds by way of a dividend declaration will give rise to such dividends being taxed (now) at 20%. An alternative scenario would be for the shareholder to rather borrow the cash from the company on interest free loan account. In this manner factually no dividend would be declared (and which would suffer dividends tax), no interest accrues to the company on the loan account created (and which would have been taxable in the company) and most importantly, the shareholder is able to access the cash of the company commercially. Moreover, since the shareholder is in a controlling position in relation to the company, it can ensure that the company will in future never call upon the loan to be repaid.

Treasury has for long been aware of the use of interest free loans to shareholders (or “connected persons”)[3] as a means first to avoid the erstwhile STC, and now the dividends tax. There exists anti-avoidance legislation; in place exactly to ensure that shareholders do not extract a company’s resources in the guise of something else (such as an interest free loan account) without incurring some tax cost as a result.

Section 64E(4) of the Income Tax Act provides that any loan provided by a company to a non-company tax resident that is:

  1. a connected person in relation to that company; or
  2. a connected person of the above person

“… will be deemed to have paid a dividend if that debt arises by virtue of any share held in that company by a person contemplated in subparagraph (i).” (own emphasis)

The amount of such a deemed dividend (that will be subject to dividends tax) is considered to be effectively equal to the amount of interest that would have been charged at prime less 2.5%, less so much of interest that has been actually charged on the loan account.

It is important to also appreciate that the interest free loan capital is not subject to tax, but which would also have amounted to a once-off tax only. By taxing the interest component not charged, the very real possibility exists for the deemed dividend to arise annually, and for as long as the loan remains in place on an interest free basis.

[1] 58 of 1962

[2] Section 64F(1)(a)

[3] Defined in section 1 of the Income Tax Act

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

FINANCIAL RISK MANAGEMENT FOR YOUR SMALL BUSINESS: DO YOU KNOW HOW TO DO IT?

A3_BIs it really necessary to be able to manage financial risk? The answer is a definite “Yes!” It can make the difference between having a successful business or being forced to close down the business. Make sure you give your business the best chance to survive and thrive by understanding and implementing financial risk management.

Financial risk management can be broken down into the following steps:

  1. Understand what financial risk is

A financial risk is any event or circumstance that can have a potentially negative impact on the finances of a business.

  1. Identify financial risks applicable to the business

Identify all the financial risks that you can think of which can have an impact on the business. Consider using brainstorming with employees and/or a SWOT analysis to help you identify as many potential risks as possible.

An example of a financial risk is that customers who buy on credit from your business will not be able to pay their outstanding accounts.

  1. Assess each financial risk separately

Estimate as well as you can with the available information how probable it is that each risk can affect the business and what the possible amounts of the damage (negative impact) could be if the risk should realise.

Taking the example of customers who will not be able to pay their outstanding accounts, the following matrix is handy to assess the probability and extent of the damage should the risk realise. Assume that the probability and potential damage of clients not being able to pay their outstanding accounts are high as indicated on the matrix with “X”.

Probability of damage occurring (clients not able to pay accounts)
High Medium Low
Estimated extent of damage Major damage e.g. R100 000 X
Medium damage e.g. R30 000
Minor damage e.g. R5 000

 

  1. Treat risks to limit negative impact on business

Select and treat those risks you have the most control over to focus your financial risk management efforts on. Control in this context will be the ability to minimise the chances and potential damage caused if the risk should realise.

Create and implement an action plan to reduce each of the selected risks to acceptable levels.

Consider using insurance to protect the business against external risks which the business does not have much control over e.g. natural disasters.

To continue with the example: the matrix shows that it is highly probable that clients won’t be able to pay their accounts, and the amount of the resulting bad debts can be major. There are measures that the business can implement to prevent, or at least decrease, the likelihood and the amount of damage due to bad debts. These are the measures that the business should focus on implementing to reduce the risk of bad debts occurring to acceptable levels. Preventive measures could include checking the credit record of customers before selling on credit to them and implementing a pre-approved credit limit per customer.

  1. Monitor the financial risk management plan

Review the financial risk management plan regularly to ensure that it stays up to date with the changing circumstances of the business and remains effective to decrease current financial risks.

Using the above example of potential bad debts, the regular inspection of the debtors’ age analysis might show an increase in long outstanding amounts which can indicate that the credit policy for clients needs to be reviewed and updated.

Proper financial risk management can greatly increase a business’ chances of being successful and profitable. If you would like to implement a financial risk management plan or suspect that the financial risk management plan currently in use might be outdated, do contact your accountant for professional assistance.

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE) 

Reference list:

THE PAIA MANUAL: HAVE YOU DONE YOURS?

A2_2_BIf your business is in the private sector and has not drawn up its PAIA manual yet, now is the time to start doing so as PAIA manuals for private bodies must be submitted to the South African Human Rights Commission (SAHRC) by 31 December 2015. Do you know who will be the Information Officer (it could be you!) and what information should be included in a PAIA manual? If not, read on to be enlightened.

Which person in an organisation is responsible for the PAIA manual?

The head of a private body is responsible for compiling and submitting the body’s PAIA manual to the SAHRC. In the case of a private company the CEO is the head of the company and normally the Information Officer responsible for the PAIA manual. An Information Officer can also be the person who performs the function equivalent to that of a CEO of a juristic person. The CEO or the person who performs the function equivalent to that of a CEO can also authorise any other person as the Information Officer.

What information should be included in a PAIA manual?

The information required to be included in a PAIA manual includes, but is not limited to, the following:

  •  The name and contact details of the head of the private body:
  •  Telephone number
  •  Fax number
  •  E-mail address
  •  Postal address
  •  Street address
  • A list of other legislation applicable to the organisation e.g. the Employment Equity Act 55 of 1998, the Income Tax Act 58 of 1962, etc;
  • Lists of records generated by the business in terms of other legislation applicable to the organisation, categorised per Act, for example, list the documents required to be kept by the organisation in terms of the Companies Act 61 of 1973 under a heading titled “Companies Act Records”. Some examples of documents to be listed in terms of the Companies Act are share registers, minutes of meetings of the Board of Directors, and the Memorandum and Articles of Association;
  • Which of the generated records is available automatically without being requested;
  • Which of the generated records is only available upon request;
  • Procedures to be followed and fees payable by a person requesting information; and
  • The procedures available to a person whose request for information has been refused.

The above information is merely a guideline and should not be seen as an exhaustive list.

It is important to keep in mind that different businesses will generate different types of records according to each business’ unique trading environment and information systems. There is no generic list of records applicable to all businesses. Care should thus be taken to include all of the relevant records in the PAIA manual.

How to submit a PAIA manual

No fees are payable when submitting a PAIA manual to the SAHRC.

After completion of the PAIA manual, the head of the organisation must initial each page of the manual and sign in full on the last page.

An original signed hard copy of the PAIA manual must be posted to the SAHRC’s PAIA unit. Signed PAIA manuals may be submitted via email, but an original signed hard copy must still be posted to the PAIA unit.

A note on requests for access to information in terms of the PAIA Act

Anyone and everyone cannot just request information from an organisation in terms of PAIA. A requestor must provide, amongst others, details like their identity, a postal address/fax number in South Africa, and the right which the requestor wants to exercise/protect with an explanation of how the requested information will assist in exercising/protecting that right. A private body has the right to refuse a request for information.

The drawing up of a PAIA manual can be of benefit to a business in more ways than one. While collecting the information to be included in the manual, shortcomings in certain systems or omitted reports which are required by law, for example, can be discovered. If not for the PAIA manual, the business would not have had the opportunity to discover and correct the shortcomings or omissions.

This article is a general information sheet and should not be used or relied upon 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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE) 

Reference List:

Documents published by the SAHRC on www.sahrc.org.za and accessed on 23 August 2015:

  •  Example of a manual for a private body
  •  Guidance notes: PAIA manuals
  •  Generic version of Section 51 manual for private bodies