Monthly Archives: August 2014

Provisional tax: Did you know?

A1Provisional tax payments is not a separate tax but pre-payments of income tax for a specific tax year. These pre-payments ensure that the tax load is spread over the tax year and can avoid a nasty surprise when SARS calculates (assesses) the final income tax liability for that specific tax year.

  • There are three provisional tax deadlines:
    –  Submission of the first provisional tax return (IRP6) is compulsory for provisional taxpayers even if no provisional tax is payable. Submission of the first IRP6 and payment of provisional tax (if applicable) is due within 6 months of the start of the tax year.
    –  Submission of the second provisional tax return (IRP6) is also compulsory for provisional taxpayers even if no provisional tax is due. Submission of the second IRP6 and payment of provisional tax (if applicable) is due within 12 months after the start of the tax year.
    –  Submission and payment (if applicable) for the third provisional tax return (IRP6) is voluntary. The due date for the third IRP6 depends on the date on which the tax year ends.
  • SARS provides guidelines to assist taxpayers in estimating the amount of provisional tax due.
  • If provisional tax was overpaid, the excess amount will be refunded to the taxpayer with interest. However, SARS will do the refund only after the final income tax liability for that tax year has been calculated (assessed) by SARS and the amount of the final income tax liability is less than the sum of the provisional tax payments for the relevant tax year.
  • Underpayment of provisional tax will result in the imposition of (avoidable) penalties and interest by SARS.

If you need professional assistance with the calculations, submission or payment of any of the above returns or would like more information on the penalties and interest that can be imposed if you miss one or more of the above deadlines, please do not hesitate to contact any SARS office.

This article is a general information sheet and 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 financial adviser for specific and detailed advice. 

References:

Estate planning for young adults

A2It is very important for you to plan your estate, which could include a living will, a last will and a living trust. This can help families prepare for difficult times when you are no longer around to assist or advise them.

Our lives get busier and more complicated by the day, so estate planning for young and old becomes increasingly important. Young people should consider preparing certain estate planning documents, and in particular financial powers of attorney and living wills.

At the age of 18 a young man or woman officially becomes an adult in the eyes of the world. This means that you are entitled to make important financial, legal or health decisions about your lives. But what if something happens and you are unable to make these decisions at a critical time? Such situations can range from a small inconvenience to a life-threatening crisis, but if your estate is in order, it can speak on your behalf. Consider the following: 

Financial power of attorney

A financial power of attorney allows you to appoint someone you trust, like another family member, to make financial decisions on your behalf. This document can be activated when you are incapacitated or right after it has been signed, and it will remain effective until you can resume charge of your own decisions again.

A financial durable power of attorney will allow the appointed person to handle important legal and financial matters on behalf of the grantor. In the case of a business or financial situation which involves the young adult, such as a passport or car registration renewal, it is convenient for the power of attorney to act on his/her behalf if they cannot tend to the problem. This arrangement may come in very handy when there is a legal situation which requires quick action and the young adult is unable to attend. Families with a disabled family member can also benefit from the security of a power of attorney. 

Living will

A living will enables you to state specific medical wishes if you are alive, but unable to communicate them. Artificial life support in the case of a coma or terminal illness is an issue often discussed in such a document. Preferences regarding administering of pain medication, artificial nutrition and other treatments can be dictated in this document.

The Terry Shaivo case shows what can happen if this document is not in place. The legal battle between her husband, family and state of Florida lasted for years before she was granted her wish and taken off life support. 

Health care power of attorney

With this type of power of attorney, you give someone else the power to make health decisions on your behalf. These decisions regarding serious health and emotional crises will be made based on instructions which you have given to your power of attorney beforehand. Sometimes a living will is combined with a health care power of attorney, because both of these can be revoked, i.e. it can be cancelled at any time by destroying it, communicating your wishes to your doctor, writing a letter regarding the cancellation or by creating a new living will and health care power of attorney, indicating that the new will revokes all the previous ones. 

Start the conversation

Every family’s legal needs are different, so perhaps you should take the first step in being prepared for the worst. Remember that every time your family composition changes, like when a child is born, you need to adapt your will to include them. Start the process and be prepared.

This article is a general information sheet and 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 financial adviser for specific and detailed advice. 

Red flags (Part 2): Non-financial reasons why small businesses fail

A3Small businesses usually fail due to a combination of financial and non-financial reasons. The good news is that these risks can be addressed before they become a threat to the survival of the business. This article will discuss a number of non-financial risk factors that could lead to small business failure if not addressed in time.

  • Lack of planning 

Business plan:

Few small businesses have business plans or if there is  one, it often ends up forgotten in a bottom drawer. To be of any real value, a business plan needs to be flexible and reviewed occasionally to determine if the business is still moving in the direction that the owner originally planned or if a change in direction is required.

Succession plan:

An up-to-date succession plan is vital to ensure that the business can continue if something unexpected happens e.g. losing a key employee.

  • Marketing considerations 

Target market:

It is crucial to define a target market to ensure that advertising is done through the right channels to reach the target market. The owner/management must stay in touch with changes in the needs and wants of their target market. Every now and then the business should re-assess whether the demand for their product or service is growing, declining or stagnating, and whether their target market has perhaps changed. 

Customer base:

The risk of having one big customer is that losing them might mean closing down the business. Having a large base of small customers in addition to one big customer is much safer. 

Focus on products:

Effort should be focused on marketing the most profitable products or services. This means information on how much profit is made on each transaction should be available. 

Advertising channels:

Today every business probably should have a website and use the same social media platforms e.g. Twitter or Facebook, that their target market uses. If not, you will lose clients to your competition who does make use of these resources. 

Overgeneralisation:

One business can’t be/do everything for every customer. Spreading yourself too thin can diminish the quality of service delivery.

  • Inadequate management skills and experience

Lack of management skills, experience and knowledge of the business sector in which a business operates is a major cause of small business failure. If not addressed in time, poor communication skills and lack of adequate procedures and systems will be a factor that increases the chances of business failure.

  • Unexpected and uncontrolled growth

A growing business can expand beyond the management resources and skills available in the business. If a current employee’s ability to manage and plan becomes insufficient due to the growth of your business, re-training the employee so that he/she is able to meet the changing demands of their work, or appointing a more qualified person should be considered.

  • Incompetent personnel and poor service delivery

Repeat and referral business is where the big money lies. Customers who had a bad experience in dealing with your business, will probably not return and tell other potential customers about their negative experience.

Develop strict guidelines when hiring personnel and put new and old personnel through intensive training to ensure quality service delivery from each employee. The success of a business depends to a large extent on the owner’s attitude, ability to be objective and willingness to bring in help when needed.

If the above content raised any concerns you wish to discuss or need professional guidance on, please do not hesitate to contact any accounting office.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial advisor for specific and detailed advice. 

Reference List:

Financial ratios: What do they mean? (Part 1)

A4The purpose of calculating ratios is to get a bird’s eyeview of the financial situation of a business by analysing the relationships between different amounts on the financial statements. The major advantages of using ratio analysis is that it simplifies the information in the financial statements and allows you to compare the ratio results over time in a specific business, or between different businesses.

Some limitations of ratio analysis are the following:

  • There are no specific standards for what ideal ratios should be, so different people may interpret the same ratio in different ways.
  • Single ratios do not necessarily paint an accurate picture. Just like the meaning of a word can differ depending on the context of a sentence, a ratio must be interpreted in the context of the background of the business and the industry in which it operates.

Set out in the tables below are a number of financial ratios with their formulas and a brief explanation of what each ratio measures. 

Liquidity ratios (short term solvency ratios)

The liquidity ratios measure a business’s ability to pay off its current/short term liabilities i.e. the liabilities which will become due in the next 12 months.

Ratio name Ratio formula What it measures
Current ratio Current assets / Current liabilities Can the business pay their debts due in the next 12 months from the assets they expect to turn into cash within those 12 months?Generally a ratio of 1 or higher than 1 is considered acceptable.
Quick ratio (Acid test) (Current assets – Stock) / Current Liabilities Can the business pay their debts due in the next 12 months from the cash and short term investments they have? Stock is excluded from the ratio as it must still be converted to a liquid asset (debtor/cash).Generally a ratio of 1 or higher than 1 is considered acceptable.

Efficiency ratios

Efficiency ratios show how efficient a business is in using its investment in current assets to make a profit.

Ratio name Ratio formula What it measures
Debtor days (A) Average trade debtors* / Sales x 365 Average number of credit days clients take to pay their accounts.If the number of days are high, especially higher than the industry average, it can indicate problems with debt collection.
Stock days (B) Cost of sales / Average stock** Average number of days it took from receiving stock to selling the stock.If the stock days are higher than the average stock days for the industry, it can indicate poor stock management, for example, having too much money tied up in stock.
Creditor days (C) ((Trade creditors + accruals) / (Cost of sales + other purchases)) x 365 Average number of days it takes from purchasing from a supplier until paying their account.If the creditor days are very short, it may indicate that the business is not taking full advantage of trade credit available to it.
Cash conversion cycle (CCC) Debtor days + Stock days – Creditor daysOR

(A) + (B) – (C)

How fast a business turns stock into sales (debtors), then turn those sales (debtors) into cash by collecting what the debtors owe them, and then pay its suppliers for goods and services bought from them.The shorter the CCC, the better. This will mean:

–          Better liquidity,

–          Smaller need to borrow money,

–          Money available to make use of discount terms for cash payments to creditors,

–          Better capacity to fund expansion of the business.

*Average trade debtors = (Debtors’ opening balance + Debtors’ closing balance)/2

**Average stock = (Stock opening balance + Stock closing balance)/2

If you need professional assistance with the above calculations, submission or payment of any of your provisional tax returns, please do not hesitate to contact our office. Our staff are friendly and knowledgeable and are looking forward to the opportunity to assist you. 

This article is a general information sheet and 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 financial adviser for specific and detailed advice. 

Reference List: