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Mentoring Crucial To SMEs Job-Creation Role

By 2030, the NDP aims to have SMEs creating 90% of new employment opportunities. To achieve that target, support and mentoring of established SMEs may be more effective than financing massive numbers of new start-ups.

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The 2015 annual SME Insight Survey commissioned by the South African Institute of Chartered Accountants (SAICA) yielded a number of findings that the institute believes can assist policymakers in government, NGOs and business as they seek to encourage growth in the SME sector.

Small and medium enterprises (SMEs) have been prioritised by the National Development Plan (NDP) as engines of job creation, with a rapidly growing small business environment seen as the only viable solution to mass unemployment.

By 2030, the NDP aims to ensure that 90% of new jobs will have been created by SMEs. Last year’s survey attracted more than 1 300 responses from business owners, and SAICA have launched their 2016 version – designed to help policy makers create an enabling environment for SMEs to thrive and to create employment. SMEs are encouraged to give up 20 mins of their time and to participate [2016 SME Survey].

Related: Results Of SA’s Largest Start-up Survey

One of the findings highlighted in the 2015 SME Insight Survey Report is the number of entrepreneurs who start multiple businesses. Of those surveyed, 61% have started at least two companies, with more than a third starting three or more, and 3% starting ten or more.

Number of businesses SMEs started survey

The research also shows that the SMEs with the highest turnover are generally those that have been in business for five years or more, and that the number of staff an SME employs increases sharply with turnover. Two conclusions can be drawn from this information: Firstly, that once the entrepreneurial bug has bitten, SME owners have a tendency to start more businesses and provide more jobs.

Secondly, and most importantly for the purposes of job creation, SMEs can only become major drivers of employment over time, providing they see sustained growth in turnover.

Funding start-ups that fail within two years – and as many as 63% do – cannot be the primary way to turn SMEs into an urgent and effective solution for unemployment.

Support and mentoring of SMEs crucial

Business Partners Limited, the biggest private funder of SMEs in South Africa and one of the most successful of its type in the world, has long believed that one of the most effective forms of risk-mitigation when lending to SMEs is to ensure mentorship and support in areas of business that many entrepreneurs are initially unaware of.

SMEs need advice about setting up and managing systems in their businesses; including people management, VAT returns, sales, bookkeeping and cash-flow forecasting, because many entrepreneurs are unaware of where to find help in building these systems, they simply focus on production and neglect the other aspects of running a successful business. General knowledge and business skills mean the difference between survival and business failure. This is why young entrepreneurs should continually tap into older entrepreneurs’ knowledge and experience.

In 2015 government allocated a new budget of R3.5-billion to support and mentoring of SMEs through the Department of Small Business. However, it is clear that the majority of this funding is to be spent in support of micro-enterprises, which are typically one-person operations. Whether it is a doctor opening a solo practice or a merchant starting a spaza shop, the primary focus of the micro-business owner is to support themselves and their families, not to create jobs for others.

While mentoring and support for micro-businesses is of course important; they face the same challenges as larger firms, and need the same guidance if they are to survive and grow, they are not and will never be significant drivers of employment. Government has in 2016 announced its intention of raising a R10bn fund to finance SMMEs. Detail is still short but one hopes, for the sake of the unemployed that this funding will be aimed at growing and grooming the SMEs that have weathered the first two year storm, and are capable of growth and significant employment.

Related: EOH 702 Youth Job Creation Challenge

Established SMEs are better job-creation engines

The findings of the 2015 SME Insight Survey suggest that it would be more cost-effective for government, NGOs and private funders to focus more on mentoring and supporting existing SMEs, especially those that have cleared the “two-year failure rate” hurdle.

SAICA, for example, runs a project that offers mentoring and advice to SMEs on issues such as budgeting, bookkeeping and cash forecasting, provided by qualified Chartered Accountants (South Africa) [CAs(SA)] who have graduated and completed their training, but have not yet found full-time employment. This allows the CAs(SA) to gain more real-world business experience, while at the same time demonstrating to SME owners the value of consulting a CA(SA) for business advice or mentorship.

The survey findings, in conclusion, suggest that those who counsel SME funding as an investment in creating more employment opportunities will see the best return on that investment by channelling it into established SMEs. Providing mentoring and advice to these businesses will allow them to grow and thus increase their staff complements; a vital prerequisite if SMEs are going to help make a significant dent in unemployment by 2030.

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3 Stealthy Tax Hikes Payroll Managers And Employees Need To Take Note Of

By Rob Cooper, tax expert at Sage, and chairman of the Payroll Authors Group of South Africa

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“Dammed if you do and dammed if you don’t.” 

The adage summarises the difficult decisions government and the Finance Minister faced when balancing the country’s books, rescuing state-owned enterprises, and reviving the growth of our economy. Given the economic pressure that most taxpayers are facing, government ideally needed to achieve all of that without direct increases to personal income tax in the most recent Budget Speech.

Personal income tax has comprised at least a third of South Africa’s total tax revenue in recent tax years, despite growing unemployment. The 2019 Budget, presented in February, forecasts that personal income tax will account for nearly 39% of tax collected during the upcoming (2019/20) tax year. Given that we are in an election year and that the tax base is fragile, it’s not surprising that the Finance Minister and the National Treasury avoided direct increases to the statutory tax tables used to calculate PAYE for employees in the budget.

Nonetheless, government has made inflation work in its favour to impose some tax increases by stealth. Here are three ways government is raising more revenue without direct tax increases:

1. Bracket creep

The statutory tax tables used by payrolls and employers have not been changed for 2019/20, nor have the brackets been adjusted for inflation. This effectively amounts to an indirect tax increase that will yield a revenue saving of approximately R12.8 billion for government’s coffers.

It is not unusual for government to use ‘bracket creep’ to effectively raise more revenue. But unlike previous tax years, even low- and middle-income earners are not getting much relief. Rebates and the tax threshold are being increased by small amounts to allow some relief, but many people this year will feel the pain as inflationary salary increases push them into a higher tax bracket.

2. Medical aid credit not adjusted for inflation 

As proposed in the 2018 Budget, the Finance Minister did not apply an inflationary increase to the Medical Tax Credit, which allowed him to raise an extra R1 billion in revenue for the year. Surprisingly, these funds will be allocated to general tax revenue rather than ring-fenced for healthcare. In previous tax years, revenue generated from below-inflation increases on medical scheme credits was used to fund National Health Insurance (NHI) pilot projects.

There is still no clarity on how the NHI is going to be funded except for a general statement that the funding model is a problem for the National Treasury to solve, and that the principles of cross-subsidisation will apply. One wonders if any real progress will be made soon, given the fiscal constraints government faces.

3. Business travel deduction left untouched

The Budget leaves the per-kilometre cost rates used to determine tax deductions for business travel untouched. By not increasing travel rates to account for inflation, government effectively increases income tax collection at the cost of the taxpayer. This will be a blow for people who need to claim from their employers for business travel in their personal vehicles. This change has slipped through largely unnoticed and the budget does not provide numbers for the expected increase in tax revenue.

Closing words

Amid political turmoil and uncertainty, the Finance Minister presented a balanced budget for 2019/20 that offers hope for the future along with some tough love. With government taking steps to accelerate economic growth and improve revenue collection, we should hopefully see a steady improvement in government finances, which will translate into less pressure on the taxpayer in future years.

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SMEs: Staying On The Right Side Of The Taxman

Remaining SARS compliant can be a constant challenge for small- to medium-enterprises (SMEs), especially when they are trying to focus on growing their businesses and streamlining their operations.

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EasyBiz Managing Director, Gary Epstein, says submitting taxes can be a seamless process that does not have to take up more time than is necessary. “If business owners understand what is required of them and they put a few processes into place to deal with their tax submissions properly, their lives will be so much easier.”

What are the top three considerations for SMEs when submitting tax returns?

“Firstly,” says Epstein, “SARS returns must be accurate and submitted in terms of the relevant Act. Secondly, returns should be submitted and paid on time to avoid unnecessary penalties and interest, and thirdly, business owners must follow up on queries issued by SARS. “Do not ignore these queries, act on them as soon as possible”.

What are the major SARS submission deadlines for SMEs?

Epstein points out that small business owners need to adhere to various tax deadlines, each with their own particular dates for submission. “It is important that business owners diarise the dates (and set advance reminders for themselves) and/or enlist the services of an accountant or financial adviser to help them keep abreast of requirements.”

Value-added tax (VAT)

VAT payments need to be submitted in the VAT period allocated to the business, according to various categories and ending on the last day of a calendar month. This may mean making payments once a month, once every two months, once every six months or annually, depending on the category.

Provisional taxes

Provisional tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.

Employee taxes

In addition to submitting an annual reconciliation (EMP501) for the period 1 March to end of February for Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF), employee tax, in the form of an EMP201 return, needs to be submitted by the seventh of every month.

When can SMEs get extensions and is it worth it?

Epstein says SMEs can apply for various extensions, but these are subject to the Income Tax Act and Tax Administration Act.

“It is best for SMEs to consult their tax professionals to get advice regarding extensions for their businesses.”

What is SARS not flexible about?

SARS is not flexible when it comes to late returns and late payments.

“I cannot stress enough how important it is for SME owners to ensure their tax returns are submitted on time. In this way, they will avoid the inconvenience and expense of additional fines and interest,” notes Epstein.

What skills do SMEs need in their organisations to be able to submit to SARS efficiently?

Business owners often don’t have the time or expertise to deal with tax submissions throughout the year. If the business cannot afford to employ a full-time accountant or financial services expert, it would do well to outsource its tax requirements to a registered tax practitioner.

“I would recommend that even if they are not submitting the tax returns themselves, business owners should have a broad understanding of the tax regulations and what is expected of them. There is a lot of helpful information on the various Acts and tax requirements on SARS’ website,” says Epstein.

How does the right software help SMEs remain SARS compliant?

SME’s (and their accountants’) jobs can be made easier by using reliable accounting software to calculate accurate VAT reports. These reports are only as accurate as the data entered into them, which means care needs to be taken when inputting data into the accounting programme. Epstein says a good accounting software package must be reliable, easy to use and functional.

“SMEs need to check that the software has thorough reporting capabilities and can interface with other software solutions. Of course, it is also important to find out whether the software is locally supported by the vendor or not.”

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4 Dangers Of Business Under-insurance

A common short-term insurance peril that many SMEs face when submitting a claim following an insured event is the risk of being underinsured.

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Malesela Maupa, Head of Products and Insurer Relationships at FNB Insurance Brokers says, many small business owners mistakenly believe that by merely having a short-term insurance policy in place they are adequately protected against unforeseen events.

“This is technically correct provided that the business is covered for the full replacement value of the items insured. However, in circumstances where the sum insured does not cover the full replacement value or material loss of the item insured, the business is underinsured,” explains Maupa, as he unpacks the dangers of business underinsurance:

1. Financial loss

The most common risk is financial loss on the part of the business. If the business is underinsured or the indemnity period understated, the short-term insurance policy will only pay out the sum insured for the stated indemnity period as stated in the schedule, with the business owner having to provide for the shortfall. This often leads to cash flow challenges, impacting profit margins or rendering it difficult for the business to recover following the financial loss.

2. Reputational damage

Should an underinsured business not have sufficient funds to replace a key business activity or critical component following a loss, this may impact its ability to fulfil its contractual obligations, leading to a loss of business or market share, and irreparable reputational damage in the worst-case scenario.

3. Legal action

A small business also faces the risk of customers or clients taking legal action against it, should it fail to deliver on goods and services following a loss or be unable to honour its financial commitments that they committed to prior to the loss.

4. Survival of the business

A catastrophic event such as fire, which could result in the loss of stock or company equipment and documentation, could threaten the survival of a small business that is not yet fully established, if the business assets are not adequately insured.

Working with an experienced short-term insurance broker or insurer is essential when taking up short-term insurance to ensure that business contents are covered for their full replacement value.

Furthermore, depending on the nature of the business or item insured, the policy should be reviewed on a regular basis to avoid underinsurance as the value of items often change overtime due to fluctuations in economic activity. Where it’s necessary, evaluation certificates need to be kept up to date.

“Lastly, SMEs should ensure that the sum insured does not exceed the replacement value, which would lead to over insurance. Should a business submit a claim following a loss, the insurer would only pay out the replacement value, regardless of the higher sum insured,” concludes Maupa.

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