This episode of Dragons’ Den was all about a good investor/investee fit. How do you best present your business idea – and have you chosen the right investors to pitch it to?
When pitching your business to potential investors, there are three things to bear in mind:
- What is the value of your pitch?
- Do you have a value proposition?
- Do your numbers work?
This week we saw a variety of investors pitching diverse businesses ranging from a word game to an online funeral planning service. But most of them had one thing in common – they failed to tick all of these boxes.
Clever idea not enough
The first entrepreneur before the Dragons was Crystal Rose. She was hoping that they would invest £80 000 in her Scrabble television show, which will be supported by a board game and mobile phone apps. After an entertaining demonstration of how the game would work, Crystal went on to explain her idea to the Dragons. However, not clearly enough, as the Dragons felt that they didn’t have sufficient knowledge of the television industry to add value to her venture.
Despite Crystal having done her homework and having previous experience in the industry, none of the Dragons wanted to invest in something they knew nothing about.
- The lesson: Unlike a bank, investors don’t just offer money in return for interest, they usually want to have a say in the business, so it’s important to choose investors who have some experience in your chosen industry so that you can benefit from their business acumen.
Your idea has to be viable
When pitching your business idea to investors you need to be able to show that it is a viable proposition that will provide them with a return on their investment. Brothers Tony and Sid Heath wanted £50 000 for their idea for a gadget that would override the automatic cut-off often installed in showers at camping sites and gyms.
However, they failed to show how the idea would provide a return and the Dragons were dubious about the viability of the gadget, bearing in mind that the cut-off system is aimed at water-saving.
Rebecca Jane’s idea for a public relations firm with a difference fell into the same trap. While the basis for PR should be relationships, her business model didn’t emphasis relationships and the Dragons felt that she was taking a shotgun approach to publicity, one that wouldn’t succeed in the long run. She, too, left empty-handed.
Passion and enthusiasm can sway investors
22-year-old student Harrison Woods wanted £60 000 for a 20% stake in his parking bay letting agency. He also sells barriers that prevent people from parking illegally.
The Dragons pointed out that in order to succeed, a business had to meet one of three criteria:
- It has to have a key differentiator
- It has to be a new idea
- It has to have first-mover advantage.
Harrison’s business idea met none of these criteria, however the Dragons liked his enthusiasm as well as the fact that his persistence had seen him sell an impressive number of parking bay barriers. As a result they invested in his business, albeit for a far greater stake than he initially offered.
- The lesson: It’s not always about the business. Sometimes an investor will take a chance on you, as the entrepreneur, as was clearly the case with Harrison. The Dragon’s saw potential in the young entrepreneur, and wanted to be a part of his journey. Passion and a willingness to work, and take advice, will go a long way.
It’s not just about the money
Harrison’s pitch also proved that sometimes you need to be prepared to give up a far bigger stake than you initially wanted in exchange for the investment and wisdom that the investor can bring. A lesson hard learnt by gardening duo Michael and Joe Smith, who had a brilliant business concept but proved so hard headed that the Dragons decided not to invest in the business.
Investors need to know that you will take their advice on board and implement it to grow your business and they questioned Michael and Joe’s ability – and willingness – to do this, as the duo were unable to even negotiate a stake in their business with the Dragons. Investors want an open-minded and willing business partner and unfortunately these two proved to be neither.
Know your numbers
Final Fling businesswoman Barbara Charmers presented a quirky funeral planning website business idea. While the idea ticked all of the three criteria for a successful business, Barbara’s poor grasp over her numbers (and the belief she could turn a 75% profit in year one) proved to be her undoing, and she left without an investor.
Know your Dragons
When choosing an investor for your business it’s always a good idea to understand their mandate – who they are and what their area of expertise is. As this episode has clearly shown, investors can only add value to industries that they are familiar with. Here is an overview of this season’s Dragons:
- Peter Jones – telecommunications giant
- Theo Paphitis – retail magnate
- Duncan Bannatyne – hotel and health club owner
- Hilary Devey – Queen of logistics
- Deborah Meaden – leisure industry expert.
Are you an entrepreneur with a viable new idea and an investor-ready business? Could you handle the heat in the Dragons’ Den? Enter BBC Entertainment and Entrepreneur Magazine’s exclusive Dragons’ Den Series 10 competition and you could win a business makeover worth R140 000 with business guru Pavlo Phitidis and Aurik Business Accelerator.
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
“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.
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.
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.
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 tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.
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.”
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.
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.