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The Rise Of Artisan Entrepreneurs In South Africa – And What It Takes To Succeed

Steven Cohen, Head of Sage One International (Africa, Australia, Middle East and Asia), comments on the sudden increase in Artisan businesses in South Africa.

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Steven Cohen, Head of Sage One International (Africa, Australia, Middle East and Asia), comments on the sudden increase in Artisan businesses in South Africa considering the fact that nearly one in five beers consumed in the US today is a craft brand, or that specialist coffee shops sales in the US have tripled to nearly $50 billion since 2002.

Around the world – from the trendy east of London to the hipster capital of Montreal’s Mile End – the so-called ‘flat white economy’ continues to rise. It comprises the thousands upon thousands of artisan entrepreneurs selling craft beers, ethically sourced coffee and organic, gourmet foods to consumers who crave healthy, sustainable and authentic eating experiences.

Artisan entrepreneurs started their rise after the 2008 recession. Just consider the fact that nearly one in five beers consumed in the US today is a craft brand, or that specialist coffee shops sales in the US have tripled to nearly $50 billion since 2002. And the trend has been picked up in South Africa, with more and more Small & Medium Businesses across the country serving customers with locally sourced ‘farm to table’ food and handcrafted products.

When we were evaluating the 702/CapeTalk Small Business Awards with Sage One this year, it was interesting to see how many artisan entrepreneurs there were among the nominees.

Related: How To Start Your Own Artisan Business

Like their counterparts in North America and Europe, they are creating enormous economic opportunities for themselves while supporting local producers and giving consumers alternatives to big producers and retailers.

So how is this done?

munchingmongoose

Just think about how The Neighbourgoods market has revitalised its surrounding area in Braamfontein. This is one reason why we should support the rise of such businesses: They position themselves at the heart of the community. They support other small businesses and are effective job creators because of their focus on making high-quality goods with human care and love rather than mass producing products with machines.

The 702 winner this year, The Munching Mongoose, is a great example. This company scours South Africa to find the best local produce from small scale farmers and producers. Having secured high-quality produce, it delivers farm fresh milk, eggs, cheese, bread and an assortment of fruit and vegetables directly to its customers.

Other artisans nominated include Baseline, whose owners believe that bad coffee should not happen to good people and Las Paletas artisan lollies, which are made in small batches with fresh fruit, herbs, nuts and real dairy. What these businesses have in common is that they are founded by people with a passion for good food, environmental sustainability and healthy living.

Related: How To Launch Your Business Like You Mean It

Will you face challenges?

The Munching Mongoose has thrived, thanks to a receptive market, its exceptional customer service and the reach of the Internet. However, Brad Meiring, co-founder says that it hasn’t always been plain sailing.

“Logistics has been a big challenge for us as we operate a delivery service and many of the small scale producers we work with do not have great business systems in place. This makes reliably sourcing goods and receiving them at an expected time difficult,” he adds.

For Kyle Dods from My Place Gourmet Group, the big challenge is switching to paying VAT: “We’re now in a position where we have to add VAT, which in some cases adds an additional R10 to our product. These price increases in turn affects our customers.”

It is mandatory for a person to register for VAT if the taxable supplies made or to be made is, in excess of R1 million in any consecutive twelve-month period.

The artisan entrepreneurship space is challenging and having a passion for good food isn’t enough – you also need to be ready for long, hard hours spent pursuing your dream.

The most successful artisan businesses succeed by finding a niche, creating a personality for the business and building great customer relationships. They have a well thought out strategy about how to grow and scale a business that is based on the values of handcrafted care and the personal touch.

Related: What Should I Know About Dealing With Tax When It Comes To My Business?

Healthy margins

What’s more, it’s important to look at how you will earn a healthy margin off goods that will be more expensive to make or source than the mass-produced alternatives. How do you balance quality and price to ensure profitability? How do you keep people coming back, even if you’re not the cheapest supplier on the block? Traditional business disciplines such as tight inventory management, market research, hard-hitting sales and good customer relationship management are all key to success.

Artisan entrepreneurs are thriving and delivering great service to their customers, but clearly, we could be doing more to help them grow. Like most small businesses, they would benefit from less tax and regulatory red tape, better access to finance and more support from bigger businesses.

That said, advances such as online software and services, cheaper transportation and growing interest in locally produced goods all bode well for the future of South Africa’s artisan entrepreneurs.

At Sage we started small and have grown beyond what seemed imaginable and take pride in our customers being able to do the same. South Africa’s artisan businesses are on the same trajectory – far beyond simply selling goods in neighbourhood shops and flea markets – they are small business heroes who are helping to grow our country’s economy.

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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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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