Spring in South Africa comes at a time when the festive season is around the corner and consumers are beginning to think about holidays.
For the small business owner, who also happens to be the financial manager and fulfil a number of other jobs in his business, spring is the time to get down to basics and prepare the business for the busy time ahead.
It is easy when getting involved with the many things that have to be done in a business to lose focus, says Ethel Nyembe, Head of Small Enterprise at Standard Bank. However, it pays once in a while to stop, check on the business and plan your way forward.
“The process of spring-cleaning a business is something that should be done at least once a year. It is a time to examine all aspects of the business- including finances- and to get things right for the rest of the trading year.”
“The place to begin is by examining your shelves and store rooms and reviewing your stock. This activity will lead you on to naturally examine the financial aspects of your business.”
Ideally, at least five activities should form part of a business spring-clean, says Nyembe. These are:
1. Checking and reviewing stock on hand
Stock lying on a shelf or in a storeroom is money that is being non-productive. Assess what sells well and increase the shelf space allocated to these items.
Take stock that has been accumulating dust, reduce prices (but still keep a healthy profit margin built-in) and have a sale. There is no better time to have a sale then during a new season.
Use the money you make to buy stock that sells quicker. You can also plan ahead and keep the focus year-round, by creating a sales sheet which helps you identify quickly what is selling and what is not and replenish stock accordingly.
2. Streamlining your purchasing
Adopting a ‘just in time’ approach to ordering stock means that you get in stock just in time to sell it. You then don’t have vast amounts of stock piled up waiting to be sold.
This means that precious capital is preserved, cash flow is maximised and money can be retained for buying items that sell easily.
3. Examining your payment systems
You can accelerate the cash flow in your business by making sure that you have all the options required to help your customers pay.
It costs money to accept cash, drive to a bank and manually pay it in to an account. The more point of sale options available for payments at your business, the better your service and collection of payments.
4. Spring-clean your financials
Things to consider when spring-cleaning your cash flow and financial management are:
- Checking your accounts. Where customers have accounts and have histories of being late payers, decide whether what they cost you in terms of delayed payment is worth it. Take steps to collect outstanding money and close accounts that haven’t been used for some time. Get bad payers off your books.
- Change payment terms and offer good customers discounts for early settlement of invoices. In these tough financial times, people and businesses are all trying to save money. Discounts help them and help you by boosting your collections, increase the health of your balance sheet and keep cash flow positive.
- Approach your suppliers for extended payment terms – for example: Ask for 60 days instead of 30 days. This can help stabilise your cash flow. If they insist on a 30-day cycle, ask for a discount for early payment.
- Look at the cycles your business goes through. If you have quiet periods during the year, consider applying for an overdraft that you can use to smooth out the trading bumps. It means that you don’t have sleepless nights and you can meet your financial obligations.
- Relook your operational costs. Examine everything from rentals, systems, phone, electricity and transport costs. Make cuts where you can, as these savings go straight to your bottom line.
5. Examine the costs of replacing and upgrading equipment and consider new finance models
Review your equipment needs and assess the service life you can still expect from these investments. You may find that some equipment is old and requires maintenance frequently or simply use too much power.
When equipment is too expensive to maintain and new and more efficient machines are needed, consider your options. You can:
- Purchase new equipment or vehicles outright.
- Buy through an instalment lease instead of having a major cash outflow from the business, this will allow you to regulate the time and costs of replacing new equipment.
- Opt for a lease instead. Although this may be slightly more expensive on a monthly basis, there are major advantages. Most office and other equipment include a maintenance agreement, so all service costs are covered in the lease. Maintenance therefore takes place regularly and equipment remains reliable. The contract can include an option to upgrade to more sophisticated machinery at certain times during the lease. This reduces operational costs and ensures you always have state-of-the-art equipment in your business. At the end of a lease, equipment is returned to the lessor, so you have no concerns about disposing of old equipment.
The above five activities form the core of activities designed to sharpen the focus of a business, however it is worth spending time examining everything about your business.
Pausing to check what your competitors are doing, how they are marketing their businesses, their products and pricing structures can also reap major benefits.
“A good spring-clean also allows you to get reacquainted with your business – something essential to small business owners who get caught up in everyday tasks and are unable to spend enough effort on developing strategies and plotting the way forward for their companies,” explains Nyembe.
Financial Literacy Key To Business Success – Especially In A Tough Economy
What can South African SMMEs do to position themselves for success in tough economic times? Arming their people with basic financial literacy is a good place to start argues UCT Graduate School of Business Associate Professor Mark Graham.
In times of economic hardship, good financial and management skills in a business can make all the difference. According to a recent article in Business Day, international investors are sniffing about South African SMMEs that have proven themselves to be well-run during this time of subdued economic growth – and are also attractively undervalued.
Strong balance sheets and stable management in an environment of slow growth economy with low liquidity adds up to some bargain long-term investment opportunities for international consortiums it seems. Among those who have been involved in investment or buyout offers in the past few months are Clover and Interwaste.
It seems self-evident to suggest that well-run businesses attract investment and success. But what actually makes a business – of any size – well-run in the first place?
There is obviously no short answer to this; good leadership, a clear strategy and a strong and motivated workforce all play their part, but one factor that is often overlooked is financial acumen – throughout the organisation. While the accountants and members in the finance team are expected to understand the numbers, this is not always a core competency required in other departments. Yet, having a good working knowledge of finance at every decision-making level, from new managers to members of the board, can be key.
Even if people don’t need to know a lot about finance in their day-to-day job, the more conversant they are on the subject, the better off they – and the business – will be, according to Richard Ruback, a professor at Harvard Business School and the co-author of the HBR Guide to Buying a Small Business. “If you can speak the language of money, you will be more successful,” he says simply.
Financial savvy will give the marketing manager the ability to demonstrate not only that something is a good idea/product or service, but that it makes financial sense too, for example. And it will make sure that the people in the HR team understand more clearly why reducing staff churn is a good idea not only for company culture but for the bottom line as well.
A knowledge of some basic financial decision-making tools (the all-important balance-sheet, for example) and an appreciation of the difference between profitability and cash flow will ensure that non-financial managers are more likely to effectively participate in business strategy and decision-making. Someone who understands the financial statements of a business understands the business in a way that is not otherwise possible. It’s like looking beneath the hood of a car and understanding how it all fits together and why the car can move forward – or not.
Such people can more confidently identify potential problems and inefficiencies before they impact the overall financial performance, because those warnings are almost invariably reflected in the financials first – and often at departmental level. Critically, they can also help identify financial irregularities, enabling them to call out and stop fraud and corruption in its tracks.
Equipping its people with financial skills is therefore a good strategy for a business looking to position itself for growth and investment. And it makes sense for individuals too – Joe Knight, a partner and senior consultant at the Business Literacy Institute in the US and the co-author of Financial Intelligence, says that an absence of financial savvy is “career-limiting.”
Let’s not ignore the fact that there are challenges however. Finance matters tend to scare a great many people. Traditionally, these areas of knowledge carry the stigma of being impenetrable, and financial literacy is not ideally developed at early levels. According to a study by the Financial Services Board, South Africa currently has a financial literacy rate of just 51%.
This means that roughly one out of every two people is likely to prefer to abdicate from financial decision-making – leaving it to the “numbers” people. But with some intervention and training it is possible to empower individuals to decode these mysteries and get to grips with the language of finance.
All things being equal, it’s not pure luck that allows some businesses to operate well and thrive while others fail. Well-run businesses are generally run by well-informed people. In short, decision-makers who don’t understand basic financial concepts and the language of finance simply don’t know what is going on.
While the SA government is currently talking up the need for foreign direct investment to rescue the country from the economic doldrums, there is much that ordinary businesses can do to position themselves for success. And ensuring that their people are adequately equipped to understand the nuances of business through the language of finance is perhaps a good place to start.
Trade Agreement Tips That Will Save You Costs
If you are looking to benefit from trade agreements, you need to keep the following advice in mind.
Trade benefits all parties involved. When a country has scarcity of certain resources or lack the capacity to satisfy their own needs, they have the opportunity to trade the resources which they produce in surplus, for the products they need or want.
When goods are transferred from one country to another, it stimulates the economy as products and money is switched between hands. Over the years, the competitive nature of moving goods from one country to the other, negotiating prices and opening new markets has caused certain agreements to immerge to promote trade between the member countries.
A trade agreement is an arrangement between two or more nations in order for goods to move more easily between borders with mutually beneficial tariffs imposed on imports. These agreements ensure that duty tax is removed or reduced on condition that the importer and exporter provide the correct documents. This is all the more reason for traders to familiarise themselves with the current trade agreements in place.
Tip1# Know Whether You Export To Or Import From A Country With A Trade Agreement
There are a few trade agreements that you need to be aware of which will significantly cut duty tax. The Southern Africa Development Community (SADC) Free Trade Agreement (FTA) is one of them. The fifteen SADC member states included in the agreement enjoy an impressive 85% free trade on goods.
Another trade agreement commonly used by South Africans is the South African Customs Union (SACU) which allows duty tax free movements of goods. This means zero duty tax is payable on trade between these countries. Trade agreements with European countries include the SADC-EU Economic Partnership Agreement (EPA) and the SACU European Free Trade Association (EFTA). We have prepared a list of all the trade agreements as well as the countries involved here.
Tip 2# Know Which Certificate Of Origin Is Necessary For The Specific Trade Agreement
Only traders who can prove that goods were produced or processed in a member country may benefit from these agreements. This is why importers and exporters need to submit paperwork attesting that the goods were made in the country listed as the beneficiary of the trade agreement. The proof provided is called a ’Certificate of Origin’.
A certificate of origin often abbreviated to C/O or CoO is a printed form or electronic document completed by the exporter and certified by a recognised issuing body, validating that the goods in a particular export shipment have been produced, manufactured or processed in a particular country.
The exporter has to submit proof that either a) the products were wholly obtained from that country; this means all components and manufacturing originated in that country, or b) that it is sufficiently processed in the country of origin.
In other words, although some components might have been imported, the product was sufficiently transformed, or value was added in such a way that the final item can be deemed as new or original. Furthermore, if a company was registered in one country and the manufacturing plant in another, the certificate of origin would be issued from the manufacturing plant’s country. There are various certificates of origins used for different countries. Read here for more details about the different documents required to ensure you benefit from lower duty tax.
#Tip 3: Ensure The Certificate Of Origin Is Completed In The Right Manner
These documents must be completed correctly. Most of the information provided has to come from the exporter. If the wrong information has been reported, it can influence the relationship between the importer and exporter negatively.
Common mistakes when filling out a Certificate of Origin may include:
- Identifying the wrong country of origin
- Using the wrong H.S. code
- Providing an incorrect or incomplete and rather ambiguous description of the goods
- Not including a description on how the cargo is packed or reporting a total weight that does not include packaging
- Exporting goods made from imported material and not sufficiently processed to be deemed as originating from the exporting country.
A lot of information can be misrepresented on the certificate of origin. For this reason, we recommend making use of companies specialising in trade administration to ease the stress and to ensure that all the t’s are crossed and i’s are dotted.
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QuickBooks gives you a set of business tools that’ll do all the hard work for you, making sure you get the time to do what really matters to you. “Because collecting receipts is so 80s, and who has time to chase payments?” says Danny.