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The Domino Effect: A spiralling disease of South African businesses escalating culture of non-payment with little or no repercussion

Despite what government says about entrepreneurial spirit being the backbone of the South African economy, a system has been allowed to develop that facilitates an inordinately high level of non-payment. Liberal legislation, dysfunctional courts and the tardiness of certain provincial departments in paying their own suppliers has created an environment where defaulters run rampant and the good guys go down.

Kevin Bloom

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One Way Sign

“How did I get here?”

On the list of questions a business owner asks himself when the sheriff arrives to shut down his premises, this has got to be number one.

It’s a question that’s usually asked head in hands, heart rate up near 170 beats per minute, mouth bone dry. It echoes in the brain, mocking and taunting, until it splinters off into the next set of questions.

What will I tell my wife? How will I pay the kids’ school fees? Who’ll help me start again?

Thing is, loaded as it is with so much emotional weight, “How did I get here?” is a question that’s impossible to answer with any real clarity until at least six months after a business has been liquidated. When the truth finally reveals itself, it’s often a combination of inefficient management, difficult market conditions and under-trained staff that’s identified as the source of the bankruptcy. Sometimes a poor choice of business partner is the reason; sometimes it’s just plain bad luck. But if six months down the line the only legitimate explanation for the business going bust is that too many clients decided they could get away without paying…well, that’s a particularly bitter pill to swallow.

Unfortunately, an increasing number of bankrupt South Africans seem to be arriving at just this realisation. Because if you were (or still are) a local business owner, chances are the following scenario is frighteningly familiar:

Your services are supplied to a customer, who’s apparently satisfied. He receives your invoice and no complaints are lodged. Thirty days come and go. At 45 days you put in a gentle phone call, reminding him that the account needs to be settled. He reports a cash flow problem, says he’s waiting for a major payment himself. He asks if he can make the deposit at the end of the month. You understand his dilemma all too well, so you agree. But sixty days come and he starts avoiding your calls. You leave messages, resend invoices. Nothing. Off goes the letter of demand. At 180 days you accept that the guy just isn’t going to pay.

Your next step is to call the lawyers. The case is postponed twice, and then the clerk in the magistrate’s court says that the file has gone missing. You settle the lawyers and cut your losses. You’re a bit nervous about calling in a debt collector, but you do it anyway. Still, as rough and intimidating as he is, the debt collector can’t help. It’s now 18 months later, and your customer’s gone under. That week is the first time in your business career that you extend payment to one of your own suppliers beyond ninety days.

The domino effect of non-payment, as described above, is as inevitable as it is disastrous. Peter doesn’t pay Paul so Paul doesn’t pay Patrick; businesses start shutting down and the economic growth rate slows. Ideally, it’s the function of government to prevent such an outcome – heavy fines for breach of company law and the incarceration of repeat offenders are typical measures a government may take. But what happens when the government itself appears to be short-changing suppliers?

Earlier this year, the John Robbie show on Talk Radio 702 exposed the fact that a number of suppliers to certain Gauteng public enterprises were not being paid for services rendered. It was alleged on the show that the Gauteng Shared Services Centre (GSSC), the department that handles accounts for the province, has a payment backlog running into the hundreds of millions. The GSSC, given the right of reply, refuted the allegations – they accused suppliers of trying to defraud the department by delivering more goods than the provincial government had ordered. In an attempt to unravel the confusion, Entrepreneur magazine managed to persuade one of the callers on Robbie’s show to go on record again.

The caller, Reg Jagger, is a director at Viking Medical, a company that supplies medical goods to three Gauteng hospitals – Joburg Gen, Pretoria Academic and Garankuwa. In this capacity, Jagger tells Entrepreneur, he has been dealing with the three public hospitals for twenty years. It was only when the province’s payment system became centralised, he alleges, that his difficulties arose. “For the last five to six years their accounts have been falling further and further into arrears. It’s a constant situation of two or three payments being missed and then falling off the edge.”

He provides an example. If he invoices for R500 000 per month, he says, the most he can expect to receive is R450 000 over three months. The remaining R50 000 becomes a “query” that’s never dealt with.“I have a credit lady who’s on their backs every two weeks. They keep on asking us to supply proof of delivery and invoicing, and when we do they keep on losing it and asking for it again. So now we leave it all in a central file where we can just photocopy and redeliver.”

Asked if the staff at the GSSC seems keen on helping, Jagger chuckles. “They say they’ll do everything they can, and I think the will is there. But the people in that office are way out of their depth. There’s not nearly enough training.”

In total, Jagger says, according to a survey conducted by SAMED – the body that represents the South African medical device industry – companies like his are out about R100 million. As for Viking Medical itself, the outstanding amount is R3,5 million. “We are fairly fortunate that it doesn’t affect us badly. We’re a very conservative company and we’ve reinvested in ourselves. But I think for small players it’s catastrophic. We’ve had one or two companies fold on us because of this.”

Whatever the merits of the GSSC’s counter-allegations, it’s apparent that on a national level the South African government doesn’t view non-payment in an exceptionally harsh light. A recent edition of Entrepreneur magazine sought the advice of Lindie Engelbrecht, CEO of the Institute of Directors, on certain clauses in the New Companies Act, which was signed into law on 8 April 2009. Asked what the Act says about bad payers, Engelbrecht responded that “once a company is in business rescue, [its] creditors have to continue supplying the company as long as it is on better terms than before business rescue [was] implemented.” Meaning that if you’re an existing supplier to a company, you have to continue doing business with that company regardless of non-payment.

It could be termed “supplier loyalty”, and the point is to give a customer in financial straits enough time to recover. But many local business owners are not fans of what they consider an overly liberal – and, on the grassroots levels, downright dysfunctional – set of legal parameters. One such person is the managing director of a medium-sized media company based in Johannesburg, who agreed to be interviewed for this article on condition of anonymity – let’s call him Burt Baker, and his company Playa Media. Baker has written off R500 000 to bad debt in the current financial year, he says, and in the previous year his write-off was R425 000. He explains the situation in an incredulous tone.

“Logic tells you that if company X owes, say, R900 000, what you do is you sue them and you get your money back. But it doesn’t work like that. What happens is something else entirely. If you’re lucky, you’ll get some money back only 50% of the time.”

Baker’s operational manager, a young woman with a solid background in legal and administrative affairs says that they’ve recouped around R60 000 only of the R925 000 through the legal system but that lawyers’ fees have amounted to over R80 000, a net loss of R20 000. The key issue, it appears, is with the magistrate’s court. “Files go missing,” she says, echoing the hypothetical scenario above. “There are postponements and more postponements.” Of course the condition of the magistrate’s court in South Africa is a matter of public record.

Trainee reporters from the Investigative Journalism Workshop at Wits University, for example, discovered that at the new premises of the Randburg Magistrates’ Court, which was opened in 2005 at a cost of R53 million, courts 11 and 18 were filled to the brim with boxes containing files from prior to 2000. Clerks told the journalists that there’s no archiving system to speak of, that anyone can come in and rifle through the documents, and that hundreds of files are impossible to find.

For Baker, the equation is simple. “If you don’t get your money immediately, the people who owe you will disappear.” What he’s suggesting is that it’s likely the debtors will eventually go into liquidation, which is when you can kiss all hope goodbye. And while on a certain level this is an inevitable fact of business life, it’s only recently that Baker – who’s been at the helm of his company for almost two decades – has noticed things deteriorating. “It seems that in the last two years the amount of defaulting has rocketed beyond previous levels. It preceded the global downturn, which means it’s a specifically South African problem.”

Baker terms the problem our “local culture of non-payment”. It’s a culture endorsed by government, he avers, because there is no system in place for punishing offenders. “In Sweden, it’s illegal to stretch payment beyond thirty days. Here you have big businesses, some of the country’s top brands, putting immense pressure on small to medium-sized enterprises that simply don’t have the cash flow to sustain terms of sixty or 120 days. You also have small to medium-sized companies who stretch their own payment terms to suppliers past 180 and even 240 days, and then go under.”

It’s got to the stage that Baker now ignores any debt under R10 000. His ops manager spends at least three hours of her working day on the matter, he says, time that could be better spent driving new projects and streamlining internal processes. “But she’s gotten so good at overseeing the debtor’s list,” Baker adds, “that she’s reduced the bad debt by around R800 000.”

As for the R500 000 in current debt still on the books, a number that represents 12,5% of a specific industry’s spend with his company, Baker is not optimistic that much of it can be recovered through the courts. To go the debt collector route now would be to prejudice his company’s position – the respondents would be able to convince magistrates that they’d been bullied. Nevertheless, in January this year Baker decided that the time had come to retain the services of a debt collection agency on all debts that hadn’t yet been referred to the lawyers.

It’s not a decision he took lightly. “The problem is the aggression levels,” he says. “In a place like Gauteng, physical harm invites retaliation. You should see the size of these guys. We’ve asked them to please not lay a hand on anyone.”

Ultimately, it seems that South African entrepreneurs have to work out for themselves how to navigate these contradictions. There are challenges in the local business environment that are very tough to comprehend, unanswerable questions abound. Chief amongst the latter: If government genuinely believes that the success of small enterprise is central to the growth of the economy, why have they allowed a system to develop that facilitates such a high rate of non-payment?

Why is there no national register of perpetual defaulters? Why does new legislation appear to make it easier for bad payers instead of more difficult? Why shouldn’t Burt Baker have more faith in the magistrate’s court? Why must Reg Jagger resign himself to the fact that a fixed percentage of his invoices to provincial government will never get paid? Perhaps the only answer is not to ask; to concentrate rather on the things within the business that can be done to reduce debt. “If six months down the line the only legitimate explanation for the business going bust is that too many clients decided they could get away without paying… well, that’s a particularly bitter pill to swallow.”

Kevin Bloom, an award-winning South African journalist, is currently a writing fellow at the Wits Institute of Social and Economic Research (WISER). His first book, Ways of Staying, a narrative non-fiction journey through selected concerns of contemporary South African life, was released by Picador Africa in May 2009.

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Business Landscape

Load Shedding – How To Stay Productive

We’ve all already had massive interruptions from load shedding and it’s not going away anytime soon so, instead of being caught out each time and losing productivity, let’s stay steps ahead of the outages and make sure that our productivity stays where it should be…

Warrick Kernes

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They say that prevention is better than cure and with load shedding the best cure is to have a generator, backup power inverter or UPS (Uninterrupted Power Supply) set up to kick in when the lights go out. If you don’t have this in place then you will want to understand when you will be affected and how to minimise the impact of this on your work.

The first step is to know when your area is scheduled for load shedding. You can find out by downloading the free app called Loadshedding Notifier which tells you when Eskom has scheduled areas to be turned off. We’ve already seen that the lights don’t always go out when they are scheduled to do so but it’s better to be prepared than to be caught in the dark.

Many entrepreneurs rely on their normal routine to drive their productivity but once you know that your routine is going to be interrupted then it’s time to re-plan your day. You could plan to get up earlier to avoid traffic or to start work super early so that you get through your priority work before the power goes off.

Arrange your to-do list so that you can get through the highest priority and income producing activities first and then you can get around to the rest of your work. Prioritising your daily actions becomes even more crucial when you have limited time. You can also plan priority work for when the power is out; just imagine how many sales calls you can make when not being interrupted by emails.

If you work from home check if the neighbouring suburbs will have power so you can go work at one of the cafes. Most cafes have free wifi but it can be slow and these networks aren’t always secured so it’s preferable to have your own 3G dongle so that you don’t rely on others for internet.

A few more load shedding quick tips:

  • Work in the cloud so that all your work is backed up automatically and not lost if you suddenly lose power.
  • Unplug devices when the power is out to avoid damage from potential surges when power is restored.
  • Keep your electronics charged up such as; headphones, cell phone, laptop battery, powerbank, 3G dongle.

If your computer battery dies or you run out of things to do then create a list of work that you and your team can do which doesn’t require computers or internet. An impromptu team building lunch or a good old brain storming session could prove incredibly valuable or if your team isn’t up for that then the storeroom could probably use a clean.

If all else fails don’t panic as you can always just go for a walk, meditate, spend time with the kids or go to the gym to clear your mind.

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Business Landscape

4 Tips To Create A Great Conference / Workshop / Event In 2019

Being able to host a great workshop or event is an essential skill for anyone in creative and innovative businesses. Your event will have a major impact – that is guaranteed. However, whether it is a positive or negative impact depends on the how well the event was put together and executed.

Revel Africa

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Your business is fantastic. You work with amazing people, and your industry is dynamic and evolving. There are so many exciting ways available to you to share your good stories: social media, podcasts, videos, live streaming, emails. But the trend we’re seeing of more workshops and conferences is the most exciting, and effective. Why? Because people still do business with people, and face-to-face still has more impact than anything digital.

Being able to host a great workshop or event is an essential skill for anyone in creative and innovative businesses. Your event will have a major impact – that is guaranteed. However, whether it is a positive or negative impact depends on the how well the event was put together and executed.

Here are 4 top tips to create and host amazing events this year

1. Purpose

Identify the purpose of the event. Is it to train clients or future clients on the latest trends in your industry in a bid to position yourself as the subject matter expert? Is it to bring a large multi-campus business together into one space to unite them and refocus and energise them? Is it to bring creative minds together to solve a problem? Answer these questions and you will know if you need a small, vibrant workshop, a large, slick event, or a creative team-building conference.

Plus, having a really clear understanding of why you’re doing this event is the best way to deal with the stress of putting it all together. Anchor yourself to the core reason behind the event, and it will not only propel you forward through the process, but will also make a lot of the decisions easier to make as you go.

2. Prepare

If you are going to host an event, then embrace the reality of late nights, money stress, volatile emotions and extended periods when your nearest and dearest, your social life and your free time take a back seat. There’s no nice way of saying it – an event is a huge responsibility and one that will take up a lot of your time.

The best advice we can give you is to find an event planner straight off to help you put your best foot forward at your event and deliver on your vision for the event. That way, once they’ve done all the heavy lifting, all you have to do is arrive on the day of the event looking fresh, fabulous, and stress-free and allow yourself to revel in its success. Your event planner would have handled everything for you, from haggling with suppliers, to sourcing the best locations at great prices, and should even handle the headache of RSVPs. In the Western Cape and Gauteng we highly recommend Revel Africa for bespoke events and innovative ideas that fit your budget.

Whether you use an event planner or not, you will need to think these through.

  • Decide on a theme – A theme helps to unify your ideas, source expert speakers, and market to the right people. Pick something simple, catchy and on topic. You can even go so far as creating a mission statement for the event to keep your efforts focused, such as, “We care a whole lot about this topic / industry / situation and we couldn’t find a conference that matched what we want and need. Our goal is to bring something that is welcoming and inspiring, where the talks are fresh, and the snacks are even fresher. We’d love you to join us and celebrate the people (including you!) who make this industry great.”
  • Prepare a budget and make bookings – Knowing what your budget is will help you set the price for delegates if it is not an in-house event. Here are the most common items you need to budget for, and book:
    • Venue – Once you’ve found a venue within the price and date range that you had in mind, you can fix the date for the event.
    • Transportation – For out-of-town delegates.
    • Catering – Events can rise and fall on the quality of the food provided. Shop around for this one and request taste-tests.
    • Speaker – Start thinking about speakers very early on, as all the good ones get snapped up fairly far in advance, so if you want your top choices, secure them as soon as possible. For interactive staff sales training we recommend Mark Berger, and for your MC / Inspiration needs, we recommend Warrior Ric.
    • Activities – Think of icebreakers and activities to get people out of observation mode and into participation mode.
    • Marketing – If this event is for external delegates, invest in a good marketing agency for social media, printed marketing collateral, banners, brochures, website updates, and paid media.
    • Team members – Select, and brief the team that will help you with this event.
    • Invitations – Once you have a date, venue, and keynote speakers, you can send out your invitation. Managing RSVPs and payment effectively is critical. Quicket can be a useful payment portal for events.
  • Daily emails: Once the conference has started, send out a daily email outlining the itinerary for that day. Keynote speakers and times, social events, meal plans, highlighted sessions, even the daily weather report can all help the attendee feel more prepared and connected when they reach the event. You can use Mailchimp or any other of the great bulk mailer platforms available.
  • FAQ: An FAQ is great for questions that come up again and again. The answers can be published on an event FAQ page on your website and the link sent in the daily mails. Questions like:
    • Are sessions be recorded? When will they be available?
    • Is parking available?
    • What’s the Wi-Fi password?

3. Productivity

Be mindful of who is attending the session and whether or not the session’s content is suitable to them. A talk that is too basic, too advanced, too demographically narrow, or too far off-topic for the conference – no matter how famous the speaker is – will bring the session’s productivity to a grinding halt.

Another great thing to consider is self-directed co-ordination as a great way to meet new people or to connect with people you’ve known for a long time. Using a Twitter hashtag, a Slack team, a Telegram group, are a great communication channel for the event to ensure attendees easily find information about how to network with each other. If your event is more technical, you could also create a wiki during the event to enable sub-communities to self-organise on the day and share content.

When it comes to how productive the sessions are, as the event planner it might be tempting to participate in the day’s events. However, as a facilitator your role is to remain objective and observe. You can’t facilitate and participate at the same time. Keep scanning the room to sense the mood and energy; keep discussions on track by asking great questions; constantly keep the end goal in mind. Typically, a good facilitator or event planner is often invisible on the day of the event.

4. Participation

There are many creative ways to structure the day’s proceedings to facilitate maximum participation.

  1. Campfire sessions – These start like a traditional presentation, with a speaker at the front of the room presenting an idea to a group of people. However, after 15 or 20 minutes, the presenter becomes the facilitator and shifts the focus of discussion to the audience, inviting comments, insights and questions from those around the room. Campfire sessions allow attendees to drive their own learning and share experiences with others, which also assists with networking.
  2. Birds of a Feather (BOF) – BOF groups are small, informal gatherings of people with a common interest or area of expertise who join up to work together, typically over lunch or during the morning coffee break. You can suggest BOF groups for attendees to join or they can create their own. Sessions don’t have a pre-planned agenda and are aimed at encouraging discussion and networking.
  3. Lightning Talks – As the name suggests, lightning talks give speakers no more than 10 minutes to make their presentation. Because speakers don’t have time to waffle, the presentations are to the point, which keeps audiences focused and energised. A window of between 30 to 60 minutes is usually given to lightning talks, which can allow for up to 12 speakers to be heard.
  4. Silent Disco Talks – This is where many speakers present at once within the same room, while delegates – wearing wireless headphones with channels that they can switch between – choose who they want to listen to. Delegates enjoy bite-sized pieces of information and are always tuned in to something that interests them.
  5. World Café – This simple, effective, and flexible format is ideal for hosting large group discussions. Start the first round of discussion with groups of four to six people sitting around a table, and present each group with a question. After 15 minutes, each member of the group moves to a different table. Once all rounds have been completed, key points from each table are presented to the whole group for a final collective discussion.
  6. Storytelling – This is where speakers tell real-life stories that help illustrate or enhance themes in the conference. The story should contain a beginning, a middle and an end, with characters and plots, like adversity and triumph. Stories should be 15 minutes long, with 10 minutes provided for Q&A afterwards.

Here’s to hosting many great workshops and events this year.

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Business Landscape

What Is Business Insurance And Why Does Your Business Need It?

Your business asset insurance cost will go up if you add on more items, but this is common with all insurances. Not sure why you need it? Find out more information below.

Amy Galbraith

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You need to protect your business against all eventualities. This means that you need to have the ability to pay for any physical or legal damages that might occur, such as a client claiming that they were injured while on your property or an asset being stolen from your property. And business insurance in South Africa is a necessity if you want to apply for business finance, as the bank will need to see that your assets are insured.

You might be wondering now, as a business owner, “What is business asset insurance?” It’s insurance which insures your assets, such as vehicles, electronic equipment, and your business premises. You can also opt to have business car insurance if you have a company car that is used by your employees. Your business asset insurance cost will go up if you add on more items, but this is common with all insurances. Not sure why you need it? Find out more information below.

It protects your assets

Whether you are a small business just setting up or an established company, you likely have assets that are important to keep your business functioning. This could be a business vehicle that you use to transport goods to clients or computers that are vital to your employees.

If you do not insure these assets, you will need to pay for repairing and replacing that might need to happen out of your own funds. And this can become extremely expensive, depending on what has been damaged, lost or stolen. Another reason why you need business asset insurance is that there might be a natural disaster or “act of God” that occurs, such as a fire or flood, which could damage your equipment, meaning that it needs to be replaced.

It protects you from legal issues

Some of the problems that businesses face include legal issues, which can become costly and tiresome. These issues can be handled easily and efficiently if your business insurance to help pay for legal fees and settlement fees with the client or employee who is issuing the complaint.

In the case of being sued or taken to court, it is useful to have a business insurance offering available to help you. If you do not have this type of insurance, you will soon see that legal costs can become exorbitant. Legal issues can also reflect negatively on your company in the eyes of other clients or employees, but having business insurance can help to clear up any problems effectively and without any drama.

Your business will not shut down due to incidents

If your business vehicle is stolen or if the equipment is damaged, this could lead to your business closing for a period while you try to recoup your loss of money. This could lead to you losing even more money which could be highly detrimental to the success of your business.

Your insurance company will be able to compensate you the lost funds, granted that the issue is covered by the insurance cover you have in place. This will allow you to stay open despite the fact that you are experiencing difficulties due to equipment not working or other problems. You could even opt for emergency assistance if there is a natural disaster which will keep you, your employees and even your property safe from damage.

Your employees will be protected

Your employees are the backbone of your company. And, as such, you should have protection in place for them. You should have workers’ compensation coverage in place so that should your company lose money or be unable to pay your staff, their needs will still be covered.

And business insurance will protect them from any possible lawsuits that could be lodged against them by clients or customers. It can become highly expensive to pay for these out of your own pocket. Protecting your employees protects your business, so be sure to invest in insurance which offers workers’ compensation as well as disability cover to protect your employees.

Think smart for your future

Having business asset insurance and business insurance is important to both small businesses and large corporations. This is because your assets will be protected from theft and damage, which can be costly to replace and repair. You will also be able to weather any legal storm that might come your way, as well as being able to protect your employees and their welfare.

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