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Important Financial Planning for a Business Owner

It is important that all the personal financial affairs of a business owner are in order, just as important as this is for the business.

Gerald Mwandiambira

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For most business owners and entrepreneurs starting out, there is no separation between one’s personal life and the business. This means that until the business has grown, the financial planning requirements of an entrepreneur are unique and must take into account all the opportunities and circumstances that may arise.

Related: 6 Steps Of Financial Planning

Business Investment Risk

In many instances, an entrepreneur invests all their disposable assets to starting a business. The main problem is that there is a high business failure rate and unique challenges affect a new business.

It is therefore prudent for an entrepreneur to try and spread some of the risk by not putting every asset owned into the business. Although this temptation is great, especially as every business owner does not expect to fail, entrepreneurs must avoid literally putting all their eggs in one basket.

How to spread the Risk

Investment Plan: Most business owners start off with a detailed business plan for their business but do not take into consideration that they need a detailed personal investment plan. A personal investment plan is similar to a personal cash flow statement but tracks your personal finances in the future taking into account money that will be available to get through the rough times.

In this personal investment plan, it is important to avoid using “expected future income” from the business, by ignoring this income, one can be certain to survive. Another reason to avoid income from the business, means you do not put pressure on the business to fund a lifestyle.

Cash Cushion: A business owner must strive to have a six month cash cushion, this is an amount of cash sufficient to fund a lifestyle. This amount becomes even more important when the business owner has a family or dependents. As an entrepreneur, it is important to have their support and this cash assures them that you are in control. Without the support of loved ones, a business has a higher risk of failure.

Dealing with Debt

Most start-up businesses depend on some debt when an entrepreneur does not have enough equity to fund operations.

When starting a business, the amount of debt needed is calculated in your business plan. Since a business plan is so important, it is essential for the entrepreneur to invest in getting a professional to assist at this stage.

The amount of effort and detail in a business plan often can influence success or failure. The business plan must also take into account the financial needs of the owner when the business enters into a profit. It is important that many start-ups may take several months before reaching break-even point.

Tax & Estate Planning

For small business owners, tax planning is very important as the finances of the business and the finances are intricately tied together. Therefore, it is important to employ the services of a CFP Professional in the tax affairs of an entrepreneur.

Just there is an array of tax liabilities as a business owners, there are also many deductions, rebates and allowances that may accrue to a business owner with a professional tax planner. Tax planning is a means of ensuring savings and benefits for your business and personal life and when left to a professional counsellor, should not dominate the life of an entrepreneur.

Estate Planning is a type of tax planning to reduce tax liability at death. Without estate planning, it is unlikely that a business owner can pass the business on to a spouse or the next generation. Often, estate planning for business owners is included when considering business assurance.

Business Assurance and Insurancefinancial-management_business-insurance

We have previously discussed business assurance at length. This involves risks around succession planning, death or illness of a key individual in the business and other losses of the income to the entrepreneur and the business. Hand in with the business assurance is the need to have adequate insurance cover for the business building and assets.

Equally important, home and car insurance of the business owner is just as important. A major personal loss due to theft, fire or accidental damage can affect a business negatively.

Related: Peace-of-Mind Financial Planning

Consult a Professional

To understand, and for expert advice on business assurance, please consult your financial planner. If you do not have a competent financial planner already, you should consider interviewing prospective financial planners and conducting background checks with their references. You will also need to confirm their accreditation with the relevant professional body.

To verify if a financial planner is a CFP® designation or to find a CFP® professional near you, visit www.fpi.co.za or call 086 1000 374 / 011 470 6000.

Gerald is the acting CEO for the South African Savings Institute. He is a CFP Professional postgraduate, Financial Planning Law graduate and an Economics graduate. He has experience in banking, stockbroking, insurance and investments. He also has experience as a financial analyst and strategic planner. Gerald is a specialist in the technical analysis of all financial markets and has extensive experience in dealing with high net worth, institutional clients and the broader mass market. Gerald is the recipient of the Financial Planning Institute of Southern Africa Media 2014 Award, for his work in promoting financial planning in the media.

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Making Money Online: 10 South African Entrepreneurs Doing It

You don’t need an eight-to-five job or stacks of capital as the launch-pad to start a business and create your own source of income. Here are 10 entrepreneurs who’ve found some unconventional ways of making money online using common platforms.

Diana Albertyn

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Fintech And Small Business Success: 5 Tips For SA’s Fintech Start-ups

Let’s look at what the future holds and how small businesses can benefit.

Colin Timmis

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Around the world, the fintech revolution is disrupting our relationship with money, both in our personal and business lives. This global market is expected to be worth $10,499m by the end of 2018 – and digital payments account for much of this growth. This means it’s an exciting time for small businesses looking to get ahead. Whether they’re fintech developers, users or both, these businesses are putting new technologies to work and benefitting hugely.

South Africa’s small business community, like elsewhere, is embracing fintech with enthusiasm. To make the most of  this energy, new incubators and accelerators are setting up shop across the country. Cape Town, for example, hosted its first ‘Startupbootcamp’ which focused on creating scalable technology solutions for financial services and related industries. At Xero, we recently launched a virtual hackathon to enable South Africa’s technology entrepreneurs to compete with other forward-thinking developers on a global scale.

Against an energetic business landscape, fintech presents an attractive market for SA’s budding entrepreneurs. In today’s competitive business environment, new technologies are key to meeting your target audience’s needs and expectations.

So, how can entrepreneurs take advantage of what fintech promises? Let’s look at what the future holds and how small businesses can benefit.

Think smart, grow fast

The range of available fintech solutions and tools is vast. However, new technologies alone are not enough to get your business off the ground – and keep it there. Here are five tried and tested tips for small business owners to keep in mind at all times.

Related: Fintech: Fusing Finance And Technology

1. Have an idea

Entrepreneurs first need an idea, then a plan supported by realistic goals. Your idea has to be good: ask yourself what you’re going to sell, and why. Once inspiration has struck, subject your idea to some hard scrutiny. Chances are someone else is already doing something similar – which is fine if you can do it better.

2. Build a plan

Your business plan is your map. It will help you launch your idea with structure and thought, and guide your company’s progression. You don’t need to stick to your plan like glue: Flexibility is certainly a virtue. A new twist or turn – as long as it’s on the right track – could take the business forward faster.

3. Be flexible

Of course, if something isn’t working then don’t be afraid to abandon it and move on. Fear of failure often results in entrepreneurs throwing good money after bad. Know when to scrap an idea, take what you’ve learnt and focus on something new. Remember, there’s no point crying over sunk costs.

4. Stay alert

When it comes to new ideas, look at what’s old and needs refreshing. Keep a constant eye out for ways to disrupt the status quo and offer people a better way of getting what they need. Even if your business is running smoothly and doing well, if you don’t stay alert, you could lose out on some low-hanging fruit to a competitor.

5. Use technology

Startups are typically constrained by limited resources – namely time, money and labour. A solid plan will help allocate your resources effectively. Fintech solutions can provide a strong backbone that helps you enhance your capacity, manage your cash flow better and improve productivity.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

The future of fintech in SA

South Africa is fertile ground for fintech. A lack of legacy infrastructure – particularly in outer lying areas – has created a large underbanked rural population hungry for financial services. What’s more, a growing urban middle class is demanding more sophisticated solutions to outdated forms of payment processing.

Fortunately, these demands are not falling on deaf ears. The local tech community is part of a dynamic development ecosystem that is working hard to innovate tools that provide greater financial access. With a clear gap in the market and an eager target audience, the future for fintech developers and users in SA is looking stronger than ever before.

Regardless of what your business offers, where it is based, it’s size or age, it’s time to join the fintech revolution. By embracing relevant solutions, your business will become more agile, efficient, responsive and ultimately, more successful.

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Loan Scams: How To Protect Yourself From Loan Scams

My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

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The current economic situation we’re experiencing in South Africa has created a strong appetite for credit. Often consumers need to borrow money out of desperation just to help them survive. It is here where scam artists and unscrupulous marketers prey on the public, signing them up for services they do not need, with monthly debit orders adding to their woes.

It’s a tactic that we’re seeing more of these days: A company advertises that they can help you secure a loan, even if you’re blacklisted. They charge you for this ‘service’ and at the same time sign you up for a bundle of monthly paid-for add-ons, hidden away in the Terms and Conditions (T&Cs).

They are doing this despite the fact that it is illegal to advertise loans to those who are blacklisted (according to the National Credit Act), and that a company cannot charge to facilitate a loan (according to National Credit Regulator [NCR]). To make matters worse, in 99% of cases, the applicant is turned down, and now has to continue paying for services that they were unaware of signing up for in the first place.

Related: The Definitive List Of South African Business Incubators For Start-Ups

This is criminal behaviour, but for some reason it does not get acted on by relevant authorities (such as the NCR) which should be protecting consumers. With an estimated one million South Africans being preyed upon like this annually, those who are tasked with watching over the consumer should not shake this responsibility. That’s not to say the marketing industry is blameless – far from it, but without a regulatory body, there’s very little to be done to act on these rogue companies. Even Google benefits from these loan scammers – just type in “bad credit loans” and see how many ads pop into the paid search results.

My advice would be for consumers to be vigilant in managing their financial affairs, especially when it comes to “too good to be believed” offers. Here are some pointers to help consumers protect themselves:

  • Never give your bank details to an unknown brand or marketing company that is not your own bank or insurance company.
  • ALWAYS read the Terms and Conditions before signing up for anything. Most of these scams work because the extras you sign up for are buried in the T&Cs, making them part of the contract.
  • Never agree to pay someone to find you a loan. The service provider is conducting an illegal act, since they cannot charge consumers for loan finding services according to the NCR.
  • As difficult as it can be, do not apply for loans if you are blacklisted as there is little chance you will qualify. These scams are run by people who feed off/take advantage of people’s desperation, so rather speak to your bank to get advice about your situation.
  • Sites such as Hellopeter are a great resource to check if companies are offering fraudulent services. It will only take a few minutes, but could save you years of problems.

As for what to do if you have fallen victim to these scams, complain in writing to the Credit Ombudsman (ombud@creditombud.org.za) as soon as possible. At this stage, we’ve lost faith in the NCR or the Consumer Protection Act stopping these types of scams. Rather get in touch with Carte Blanche, your local or national newspaper, and note it on Twitter and Facebook. My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

Related: Seed Capital Funding For South African Start-Up Businesses

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