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Small & Medium Businesses Should Be Saving Money For A Bad Day – Here’s how

Here are a few ideas about how you can shave down some costs to create savings that you can bank for that rainy day.

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Every Small & Medium Business should be aiming to have some savings in the bank as a buffer for difficult months when sales are slow or debtors miss payments. If your business has some cash in reserve, you’ll be able to fund your growth in the future, avoid taking loans at punitive interest rates and meet your creditors’ payment deadlines.

Today is World Savings Day, an event created to increase the public’s awareness of the importance of savings for modern economies.

Anton van Heerden, Executive Vice-President, Africa & Middle East at Sage gives you a few ideas about how you can shave down some costs to create savings that you can bank for that rainy day:

Too much cash is just as bad as too little

As an entrepreneur you’ll hear a number of opinions about how much cash you should have on hand — for example, many people will advise you to have enough to cover six months of operating expenses. But this will vary between businesses, according to their cash flow, maturity, burn rate and other factors. If you are not a financial person, ask an accountant for advice.

Related: The Correlation Between Cash Flow Challenges And Risk

Bear in mind that in an ideal world you want to strike a balance between the risk of running out of cash and the danger of having too much dormant cash in your bank account.

With today’s relatively low interest rates, it might be better to invest excessive money in productive capacity for your business or to pay it out to shareholders and owners than to leave it lying in your bank account unless of course, you have a financial advisor that handles the business’s money.

Having excess money and no plan for it can lead to unnecessary spending which can be dangerous especially if your business has just started out and the future of the business is still uncertain.

Use free and affordable cloud applications

Rather than spending your cash on servers and expensive software licences, rather sign up for online software subscriptions. Companies such as Microsoft and Google offer affordable, cloud-based email and productivity software, allowing you to pay a modest subscription rather than paying upfront.

In some cases, you might want to make do with free options such as Dropbox or Google Drive until you have enough savings to invest in long term software.

Related: 10 Expert Tips On Managing Cash Flow As A New Business

Embrace the gig economy

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One of the biggest costs and risks for small businesses is absorbing too many employees too early. Today, you can source reliable freelancers for many of the tasks you need to do in your business – saving you money because you can tap the skills you need on demand. Why not hire freelance marketing consultants, graphic designers, digital marketers or writers when you need them rather than a full-time marketing manager?

Ask your friends to help if they have the skills — they might be more willing to do barter deals or agree to flexible payment terms compared to strangers. For example, if you run a restaurant, you could host your lawyer friend’s year-end partner in exchange for some informal legal advice.

Another way to ensure your business stays afloat without hiring someone is to outsource your daily tasks such as HR and payroll – this will allow for the smooth running of your business while getting the daily admin done with ease.

Ditch the plush offices

If you’re running a smaller business and have only one or two employees, have a good look at your office costs. Is it really worth having an expensive base in the CBD if you and your team spend most of your time at client sites or if you do most of your work on a computer? Today’s technology makes it easy to work wherever you are, including a home office.

The future is mobile and even for us, we believe in giving business owners the power to control businesses from the palm of your hand allowing for easy access and mobile working. There are many co-location and virtual office spaces that you can use for a modest fee for the times you want the buzz of an office or need to host a meeting. The savings can amount to a hefty amount each month.

Hire interns

One good way to save on your salary bills is to make tactical use of interns who are fresh from school and university. They are eager to learn and to strengthen their CVs, so hiring them can be a win-win. You’re helping them earn valuable experience while reducing your business costs. Don’t expect them to work for free – pay them at least enough to cover living and working costs such as transport and accommodation.

You will need to give them plenty of support and choose carefully what you delegate to them. An intern programme can be a great way of identifying potential future hires for your business. Also, keep an eye on the Employment Tax Incentive (ETI), currently scheduled to end on 31 December 2016. If government chooses to renew it, you might benefit from tax breaks for hiring young people.

Related: Employing Your Cash: Your Secret Employee

Utilities

In the current state of the country, it is imperative that Small & Medium Business owners gear up for the tough times ahead. Matters affecting the nation such as an electricity crises and water restrictions will take massive strain on businesses.

Be prepared with small tasks such as keeping your data backed up, installing the latest software and investing in generators can save time and money during power outages when they happen.

Water restrictions have now become the norm and we, as a country need to accept this as a way of life. To ease the frustration and still be comfortable, some of the things that businesses can do to save water are installing water efficient fittings, detecting and fixing leaks as and when you see them.

A more affordable option to saving water is installing a greywater system to water gardens. Some of the options out there are more costly but will be worth the investment of saving over time.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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What Franchises Need To Lookout For From Budget Speech

Franchise business owners are waiting with bated breath for the outcome of the 2019 National Budget Speech to be delivered by Minister of Finance, Tito Mboweni, as they seek more opportunities to increase their contribution to GDP.

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Morne Cronje, FNB Head of Franchising, says the Budget Speech is an important economic indicator that franchises can use to gain insight on the government’s plans on spending and economic growth for the year ahead.

He highlights potential National Budget Speech outcomes that could boost confidence of franchises:

Relief

Any form of relief that is likely to bring positive change, rebuild confidence and address some of the key challenges impacting consumers will be welcome by franchises.

Cronje says consumer spending contributes a significant portion to the profit margins of franchises especially in the food sector.

Economic growth

Rating agencies are keeping a close watch on South Africa’s performance and prospects for growth, which will impact our Sovereign ratings for the rest of the year.

Measures that the government puts in place to promote economic growth this year will be of interest to franchises.

Regulation

Franchise owners will be looking to benefit from regulatory changes that aim to improve growth, operating environment and enhance participation in all facets of the formal economy.

Tax

Based on the Mid-Term Budget Review in October 2018, there’s likely to be no major shake up from a business tax perspective. The anticipated relief in tax will go a long way to boost the profit margins of franchisees.

Infrastructure investment

Spending on infrastructure creates vast opportunities for franchise business owners, as well as job creation in the country. The government has signalled an intention to partner with the private sector to develop an infrastructure fund to increase investment in public infrastructure.

“Franchises that operate in South Africa should prioritise the National Budget Speech as key decisions announced by the minister have a direct impact on their growth,” concludes Cronje.

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5 Businesses You Should Start in 2019

Here’s the lowdown on consumer and technology opportunities in 2019 and beyond.

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Savvy entrepreneurs should keep a close watch on consumer and technology trends in 2019. This, according to Silvertree Internet Holdings Co-founder and MD, Manuel Koser. Having invested in and grown a number of highly successful South African brands (among them Faithful-to-Nature.co.za, UCOOK.co.za, Pricecheck.co.za, CompareGuru.co.za, Petheaven.co.za, Cybercellar.com, and CarZar.co.za). Silvertree’s management team sees several business opportunities set to grow exponentially over the coming decade.

Here’s the lowdown on consumer and technology opportunities in 2019 and beyond.

1. Indigenous and ethical: Personal and home care products

2019 Sees growing potential for personal care products – ‘Those with local and indigenous ingredients, ethical sourcing which is kind to nature and the body,’ Koser explains. ‘There is a lot of room to play in the African haircare market particularly, as it’s often overlooked by the major FMCG companies.’

The Silvertree MD also sees increasing room for innovative natural home cleaners as consumers become increasingly environmentally conscious. ‘Until now, it was all about the well-known cleaning products the major chemical manufacturers put on the shelves. Now, there’s increasing space for new, exciting entrants.’

2. New beverages

‘Locally-sourced ingredients and an earth-first mindset will also play an increasing role in the consumer beverage market. Add to this the fact that major soft drink manufacturers will struggle to produce drinks for increasingly health-conscious consumers. They’re often just not quick enough to adjust to changing consumer tastes – particularly the tastes of millennials. Think less about a standard fizzy drink, but rather one that’s kind to the body, with natural ingredients. Non-alcoholic: water plus, say, cucumber, or another indigenous ingredient. The market for this will grow.’

3. Ethical snacking

Plant-based, vegan, ancient grains, ethical, protein-rich snacks – these are just some of the trends Koser sees dominating in the snack segment in 2019 and beyond. It’s about unique, tasty, functional foods that cater to the modern, time-starved consumer, Koser explains.

4. Buy, sell and compare online

In the technology space, marketplaces, e-commerce sites and classifieds will all gain momentum in 2019 and beyond. This encompasses aggregators as well as more unusual online businesses, which are increasingly able to find and reach consumers interested in niche products and services.

‘Consider an online ice-cream business. Once, something like that would have been unthinkable,’ Koser explains. ‘But as consumers demand greater choice, room for niche products like this grows.’

Yet, dabble online and seamless execution and delivery become make-or-break factors. ‘Many South African consumers use services such as Google, Amazon, Uber and Spotify daily – world-class products that function on a global scale. You can call an Uber and wait for just two minutes before getting a ride,’ Koser explains. ‘It’s quick and totally seamless. Consumers have come to expect that level of service across the board. Aligned to this is the fact that the millennial wave is currently hitting Cape Town right now, and Joburg secondarily, meaning a number of opportunities are opening up. Go after products and services in the right space and consumers will follow.’

5. Reinvent the wheel – and make it better

The final type of business entrepreneurs should keep an eye on is those that currently have low Net Promoter Scores. ‘This means that very few people like them, or the services they provide are of very poor quality,’ Koser explains. ‘Think of postal service providers or telecoms companies. With any monopolistic or oligopolistic structures, the service is often terrible because the heavyweights hold so much power. There’s a huge gap here.’

An allied approach for entrepreneurs is to assess opportunities for automation, or cutting out the middleman with technology. ‘Once, many markets – such as real estate were opaque, meaning you needed a middleman to help you transact. However, as the capabilities of technology have grown, markets have become far more transparent – making it easier for buyers to match with sellers safely. Today, a lot of this is easy to automate services – think about connecting a homeowner to a prospective renter through a digital solution where renters can be qualified, for example, in terms of their finances, personal information and criminal records. Quick and simple. And no middleman.’

The biggest opportunities here centre around where consumers spend the greatest amounts of time and money, Koser notes. ‘Housing and rent are always major costs. In terms of where consumers spend their time, on the other hand, much of it is, on a mobile phone, or PC.’

However, entrepreneurial success is never down to any one magic formula, Koser emphasises. Nor does Silvertree invest in prospective entrepreneurs solely on the basis of the product or service they offer. ‘It’s about passion, perseverance and tenacity as much as it is about the quality of the product.’

Silvertree Internet Holdings is an investment growth partner who aims to understand, grow and scale business, consumer and digital brands to unlock the brands’ exponential growth.

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What To Watch For In Tito Mboweni’s First Budget Speech

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

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Finance Minister, Tito Mboweni, delivers his first Budget Speech on 20 February at a difficult time for the South African economy. Even though President Cyril Ramaphosa has done much to restore business confidence in his first year in office, GDP growth remains weak, government finances are in relatively poor shape, and renewed load shedding is hurting business confidence.

Judging from his Medium-Term Budget Policy Statement in October last year, I expect Minister Mboweni — backed by the team in the National Treasury—to deliver a relatively cautious budget. Much of the focus will be on refinancing the state-owned enterprises and putting them back on to a sustainable footing.

We probably won’t see much in the way of radical thinking since the room for manoeuvre is so limited. Click each header below for an indepth video on the upcoming topics.

National Health Insurance (NHI)

Renewal of the country’s public healthcare system with a mandatory health insurance fund and free healthcare at the point of need has been the ANC government’s policy for years, but progress has been slow to date. There isn’t much money in the country’s coffers to fund something as ambitious as NHI, yet the government will want to show that it is advancing the concept ahead of the elections.

With an NHI bill to be tabled in Parliament soon, we could learn more about how NHI will be funded in this year’s Budget Speech — it’s still not clear whether we will pay for it through payroll taxes, VAT increases or other fundraising measures. As an initial step, we could see medical aid tax credits reduced (or at least not adjusted for inflation) to free up some funding for the NHI.

The Employment Tax Incentive (ETI)

The ETI Act came into effect on 1 January 2014; as a fan of this incentive, I was delighted that President Ramaphosa announced that it will be extended for 10 years another decade in his state of the nation address. However, I have also long argued that the scheme is not performing to its true potential because it is so complex for payroll managers to administer.

The introduction of the national minimum wage adds even more complexity— until and unless the ETI Act is amended, SARS is of the opinion that the National Minimum Wage will not qualify as a “wage regulating measure”. I hope the Budget Speech will announce steps to align the ETI with the national minimum wage and take other measures to simplify administration.

Tax hikes

I don’t expect any major increases to corporate or personal income tax this year since the taxpayer doesn’t have much more to give. I think the top 45% rate will remain unchanged, while tax bracket creep relief (to compensate for inflation) will be limited to lower income earners. It seems unlikely that the Minister will increase VAT again this year, given last year’s increase.

That means the Minister is likely to look at ‘moral’ taxes (sin and sugar taxes) to raise more money; we can expect another steep increase in the fuel levy. Perhaps we’ll also hear about efforts to improve SARS’ revenue collection after several years of under-performance. The agency seems ripe for a turnaround strategy, with high-powered team looking for a permanent chief to take the reins at SARS.

Follow us on @SageGroupZA on 20 February 2019 for LIVE expert insights from the annual Budget Speech.

For more information about Sage’s annual tax seminars, please visit: https://get.sage.com/PRL_19Q1_C4L_ZA_EVCU_NPS_AnnualPayrollTaxSeminar2019

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