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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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Entrepreneur Today

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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Entrepreneur Today

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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