Can you recession-proof your South African business?

Say what you want about the South African economy: it’s never boring. In eight years, it’s experienced two recessions, gone through six finance ministers, and received stark warnings from the International Monetary Fund. At 27%, unemployment is at its highest rate since 2003. In the last quarter, all sectors of the economy – with the notable exceptions of agriculture and mining – shrunk, as household spending fell by 2.3%.

Leadership is fraught, demand is down, and business conditions are less than favourable. But South Africa’s SMEs plug on, and the whole country is better for it. They’re the backbone of the economy, contributing billions in tax revenue and creating jobs for the country’s (sadly growing) unemployed. For their own sake, and the nation’s, they must continue to weather the storm. Finding ways to effectively manage their cash flow and finances will go some way towards helping them do this. Notably Xero’s 2016 State of SA Small Business report found that 39% consider this a major concern.

Of course, that may be more easily said than done. Can a small business be recession-proofed, or are they destined to blow along with economic headwinds?
Cloud and proud

Technology may provide a partial solution. It’s already essential for many of South Africa’s businesses, and it’s reasonable to expect that its importance will grow. Being able to automate tasks that might otherwise require extensive human labour, being able to centralise and consolidate payment information, being able to ensure maximum financial continuity – these things can make a considerable difference to a small enterprise, and in some cases, they already are.

Xero’s report suggested as much. It found that 55% of all entrepreneurs surveyed used smart devices and cloud apps to ease the process of running a business. Accounting software can indeed make cashflow management and other financial administration tasks far less complex. In a time of great uncertainty, the less complexity, the better. Cloud technology can provide real-time insight into the state of business finances. This allows entrepreneurs to easily make key decisions about where to allocate company funds. If more investment needs to go on new marketing campaigns, customer service initiatives, or software development, entrepreneurs can use cloud software to make strategic decisions with confidence.

Beyond the strategic level, it can also automate some of the more frustrating tasks such as chasing delinquent clients for payment. It can issue and pursue invoices with the simple click of a button. This ensures that human brainpower isn’t wasted on tasks that are better suited to machines.
Empowering entrepreneurs

Technology can help South Africa’s businesses survive and thrive in an uncertain economic landscape. But it’s only one piece of a much larger puzzle.

Policy will play a significant role in kickstarting South Africa’s eventual economic revival. The more the country embraces entrepreneurs and makes life easy for them, the sooner this revival can begin. Creating tax breaks and other incentives would be an excellent start – as would cutting through any unnecessary red tape that stops great ideas from becoming great businesses.

Until then, South Africa’s small businesses must navigate these choppy waters by themselves. However, if they cut costs, streamline processes, and adopt the right technology, they will stand a good chance of weathering the storm.

XERO

Five money-saving tax tips for small businesses

The 2017 tax season opened for individuals in South Africa on July 1st. Taxpayers need to start gathering all the supporting documents needed to submit tax returns accurately and on time. If you own a small business, nearly any purchase that helps generate income is tax deductible. While you need to be careful to ensure that these expenses are genuinely claimable, some of these are commonly overlooked and could save you money come tax time. Here are a few tax deductions that you shouldn’t forget, as well as some tips that could save you money in the long-term.

Home free

When you run a business out of your home, you can claim some of your electricity and water bills. You can also claim home-insurance premiums, provided the policy covers business use. The amount you can claim is often based on the floor space of your home office. You might also be able to deduct some of your rates and bond interest. However, be aware that this can create capital-gains tax implications when you sell the house.

Getting from A to B

Most business owners know petrol costs are tax deductible, but many neglect to claim tolls when they’re driving to a client site to undertake work. They can also forget to deduct the cost of train and bus tickets when they take public transport to a job. The simplest way to avoid this mistake is to get a business credit card and use it exclusively when paying for travel. If you travel via Uber, create a business profile in the app and track your work trips easily. If your business takes you into the air, remember you can claim the cost of membership fees for lounges.

Donations

Most South Africans contribute to worthy causes. Just make sure that when you do so it is to a reputable and registered organisation. This not only ensures that your money gets to where it is meant to be going, but also that you are then able to deduct a portion of these contributions against your normal income tax, provided you are issued with a donations certificate from the non-profit organisation you donated to.
Small business tax rates

Your small business could qualify for a far lower tax rate than the rates paid by most companies, if you meet the following criteria:

  • Your company’s gross income must not be more than R20m per year
  • The members/shareholders of your company must not have an interest or shareholding in another company (excluding listed companies and a few others)
  • You must not be a personal services company (as defined for tax purposes)
  • No more than 20% of your total receipts may come from investment income or personal services

And, if you are able to record yourself as a small business corporation (SBC) on your tax return, you will not only qualify for a much lower tax rate but also be entitled to accelerated depreciation rates on certain assets.

Use a registered (and reputable) accountant

Accountants should never charge you a percentage of the refund you get back – EVER! No accountant or tax practitioner should guarantee a refund. You are either due a refund or you are not. It is a simple matter of law and application. Submitting claims incorrectly, or claims which you may not be entitled to, may be approved initially by SARS and result in a nice refund. However, these stand every chance of being picked up as incorrect months (or years) later. This could lead to unnecessary and often severe penalties and interest.

Some may say filing a tax return is easy, and sometimes it is, but for a few hundred rand making sure it gets done correctly may be a better option. Particularly if you have a number of existing or potential claims like rental properties, investment income and/or other income.

If you prefer online support in completing your tax return why not try Tax Tim, a South African online tax assistant tool. Lastly always remember you are responsible for your tax return not your accountant. So make sure it gets filed and contains accurate and complete information.

Xero Blog – By Colin Timmis

Questions you should be asking your accountant

Many business owners rely on advice from friends or family and avoid using the services of a professional accountant whenever possible. This can be a costly mistake that entrepreneurs make all too often – make sure you’re not one of them! Your accountant can tip you off to potentially irreversible financial missteps and tax savings opportunities that you might not know exist. It’s highly unlikely that friends or family who are not closely involved in the day to day financials of your business could bring red flags like these to your attention as effectively as your accountant can. Whenever I’m with potential clients I ask them how often they phone up their accountants to ask questions and involve them in their decision making, the results may surprise you. Some say they speak with their accountant several times a week while others, perhaps once a month. Surprisingly there are some who admit to never calling their accountant, usually because they’re worried they might get a bill for their call. It is critically important to keep the lines of communication open so that you as a business owner, can unlock the potential added value of professional financial insight to your business.

When you invest in the services of a reputable accountant, it’s important to know what to ask and when – not only to be sure you’re getting your money’s worth, but also to ensure he or she helps you do what’s best for your business and your bottom line. Here are some important questions that we think you should be asking your accountant:

What is my business’s breakeven point?

This refers to the level of sales required to fully cover general business overheads, and it is the point where you start to move into profit. Depending on your business, you might break this down to a monthly, weekly or a daily breakeven point. Some of our clients have more detailed breakeven point calculations for different departments and product ranges. Whilst breakeven calculations may seem obvious to some, it can sometimes turn out to be more complex than you think. Some costs vary with sales volume, whereas others are fixed. Depending on your business, if your average transaction value is predictable, you will even be able to break this down further into units required to be sold. Knowing these numbers and regularly updating them with your accountant is crucial to determining your business’s pricing structure and profitability. Once you know your breakeven point you should have a strong estimate of how many products or hours of service you have to sell to cover your costs.

What drives my revenue?

If your accountant ever suggests to you that you need to increase your business’s sales, do you know where to start? What are the key drivers of your revenue? In many businesses, revenue can be broken down to this formula:

Number of Customers x Number of Transactions x Average Rand Sale = Revenue

It may or may not be this same formula for your particular business, you can ask your accountant where you should focus. Your accountant might tell you to concentrate on one or more of the following areas:

  • Generating new leads and enquiries
  • Converting leads into new customers
  • Retaining existing customers
  • Encourage existing customers to buy from you more frequently
  • Analysing your business’s pricing strategy
  • Look at ways of upselling

Knowing your business’s revenue drivers is crucial to help you focus your time and energy in the right areas to maximise your results. Sometimes it can be something as simple as a price increase to improve your margins or the launch of a new marketing campaign for a new product line.

Are my financial results good, bad or indifferent?

Your accountant will be able to take you through an analysis of your financial performance each year, pointing out key ratios such as gross profit percentage, days locked up in receivables and inventory. Provided there are good historical records of your data, you’ll be able to identify trends and assess which important indicators are stable, increasing or declining. Your accountant should also be able to provide insight as to why these trends might be happening in comparison to the ‘norm.’

You can then have a quality discussion with your accountant about what actions you might take to fix your weaknesses and, more importantly, build on your strengths.

How can you help me prepare for this year’s tax season?

The amount of time and level of expertise required for tax prep is often the number-one reason small businesses hire an accountant in the first place. You should ask your accountant at the beginning of each financial year which tax credits and deductions you should claim, whether there are any new tax laws you should take advantage of to maximize write-offs and whether your personal salary structure is tax efficient. You should also speak to your accountant about the upcoming tax season to ensure you have enough time to avoid the mad rush gathering your outstanding tax information. Clients who are well prepared for tax season significantly reduce the chances of unforeseen mishaps leading to under provision of tax penalties or late submission of returns.

Can you provide me with a fixed monthly fee which includes all the work you’ll do for us?

Almost always, the clients who speak to their accountant several times a week have a fixed monthly fee arrangement in place. When the barrier of ‘what might this cost’ is taken away, you are much more likely to call and talk with your accountant before you make an important decision. The vast majority of surveys confirm that business owners who regularly communicate with their accountants tend to be more successful. Having a fixed monthly fee also evens out the expense of annual accounting and tax fees having to be paid in two months of the year to twelve months, giving you more predictability for your cash flow.

At Dümmer and Neal Accountants we aim to add value to all of our clients through regular communication and genuine interest in the financial health of your business. If you’re not currently getting the advice your business needs, speak to one of our team to setup an obligation free consultation so we might change your mind about accounting.

Choosing the right accounting software for your business

The right accounting software can provide the backbone for establishing your business’s systems and processes which has a major influence on how efficiently your business operates. In recent years, we’ve observed a growing shift in the South African accounting software landscape from desktop based accounting software to cloud based software. The cloud platform, which makes data and software accessible online, anywhere, anytime, and from any device, is gradually replacing traditional on-premises accounting software. It seems inevitable that within the next five years, desktop accounting software will be a thing of the past and everyone will have migrated to ‘the cloud’.
The benefits of cloud based software have been a disruption to the entire accounting industry. Those accountants and bookkeepers that continue to utilise the older more manual methodology of accounting are likely to face increasing pressure from those who promote cloud accounting software packages as they are faster, offer increased levels of service and are ultimately cheaper than firms who use manual accounting methods. Some of the main benefits of cloud based accounting software over desktop based accounting software include:

  • Accessibility: multiple users can access the same data allowing for increased collaboration with your accountant and increased productivity.
  • Integration: with other popular third party cloud applications and accounting software.
  • Better backup: immediate access to upgrades, and faster bug fixes.
  • Security: more secure data storage.
  • Cost: paying for only the services required, on a monthly basis.

Of these benefits, it is the integration with quality third party software platforms that is particularly beneficial to small and medium-sized businesses. Cloud accounting allows for small and medium-sized businesses to pick and choose between various add on applications, some that are industry specific, to bring further efficiencies to the business. Applications covering workflow management, inventory, CRM, business intelligence, payroll, debit order management and debtor finance can all link with your cloud accounting software.
Choosing the right accounting software for your business doesn’t need to be a complex process. When choosing accounting software you should start by focussing on three important questions: What is your monthly budget for accounting software? Why does your business need accounting software? Which features does your business require in an accounting software package?

What is your monthly budget for accounting software?

Accounting software products vary in cost, depending on the features you choose. Most cloud accounting software providers use subscription models for different types of packages, and some offer free versions with basic functionalities or limits on the number of users and clients. The most popular packages available to the South African market range from around R205 per month to approximately R675 (US $50) per month, however, most providers offer a discount if you pay for a full years subscription fees upfront. Features that add to the costs include additional number of users, payroll services and advanced reporting capabilities.

Why does your business need accounting software?

To find the best accounting software for your business, the first step is to figure out the primary reasons for needing accounting software in the first place. For some small businesses, such as a property letting business, using spreadsheets or even handwritten ledgers will do. For most, however, the ease and efficiency of accounting software make it the better choice.

Here are some factors to consider:

  • You’re just starting out. Using accounting software right from the start sets your business up for success down the line. It’s far more beneficial to begin using accounting software from the first day than to implement one after months, or even years, of using spreadsheets or handwritten ledgers.
  • Your business is growing. If you plan to expand your business, or if your business is growing quickly, a manual accounting system becomes inefficient and complicated. If you use accounting software, it can save your growing business loads of time and money by automating processes and being highly scalable to your business’ size.
  • You want immediate, on-demand access. Accounting software is not just about the numbers. On the contrary, most packages give you an easily accessible database of both financial and customer information. You can even include all types of details about clients and vendors, such as contact information, purchase histories and credit terms.
  • You want to streamline your operations. By performing tasks ranging from payroll to day-to-day transactions, accounting software can integrate all parts of your operations and automatically input data from other systems, such as your enterprise resource planning (ERP) system, point-of-sale (POS) system, customer relationship management (CRM) system and other third-party solutions. Accounting software can also link your bank accounts and credit cards to automatically track expenses and update your books.
  • Your current system is too complicated. Not all accounting systems are made the same. For small businesses, some of the mainstream accounting systems are too complex and packed with unnecessary features. If the software you currently have is too complex, a solution made specifically for small businesses is a much better option.
  • You want to make sure you comply with all laws and regulations. Many accounting software programs do the legwork for you and can guide you to ensure compliance with taxes such as VAT. You can’t get that with spreadsheets or by doing everything by hand.

Which features does your business need in an accounting software package?

The best accounting software packages include a full suite of features for both accounts receivable and accounts payable as well as inventory and asset management. They sync with your business bank accounts to give you an up-to-date overview of the money flowing in and out of your business. They include features that help you move to a paperless system, such as the ability to attach images of receipts to expense reports and send invoices via email.

Whilst some cloud accounting packages only cater for invoicing and debtors management, we suggest that you choose a package that should be able to perform a minimum of the following basic tasks:

  • Creating invoices, with a minimum of two output options: email, print or convert to PDF
  • Customising invoices with your company’s logo and payment terms
  • Tracking business expenses
  • Bank connectivity for easy processing of cashbooks
  • Running a variety of financial reports
  • Additionally, the software should include free access for your accountant and should integrate with a payment processor so your customers can pay their invoices online in just a few clicks.

At Dümmer and Neal Accountants we specialise in matching accounting software solutions to a client’s industry and their unique business needs to help our clients better understand their business and ultimately help their business grow. If you’re having difficulties establishing which accounting software solution is best suited for your business, speak to one of our dedicated specialists today.

Extracts from this blog post were used from: http://www.businessnewsdaily.com/7542-choosing-accounting-software.html

6 tips to improve your cash flow

We’ve all heard the sayings that in the world of business, ‘cash is king’ or ‘revenue is vanity, profit is sanity and cash is reality’. As a business owner cash flow is one of your top priorities and, if not managed properly, has the potential to cause you a lot of stress and sleepless nights. Whilst your business may be anticipating profits in the next few months, if you don’t have enough cash coming in to cover your expenses during that time, you may be forced to borrow money to finance cash flow, meaning you won’t get a chance to realise those earnings. You can have a profitable business with a negative cash flow, which is one of the main reasons why businesses fail.
There’s a simple strategy for cash flow: collect your receivables as fast as possible and slow down your payables without jeopardizing your relationship with suppliers. That’s the simple version but if you’re serious about improving cash flow, here are six tips from Dümmer and Neal Accountants:

1. Partner with your bank
It is essential to have a good working relationship with your bank in order to maintain a positive cash flow for your business. A go-to business banker who fully understands your business can be a valuable ally when applying for new lines of credit. If your bank has a rewards program, consider using your business credit card to pay suppliers and make purchases. Learn about your card’s grace period, and take advantage of it – you may have up to 30 days after receiving your statement to make the payment. Having an emergency line of credit in place to cover short-term needs and emergencies such as an overdraft or access finance is a good way to manage your cash flow rather than trying to get a loan in a hurry.

2. Debtor finance
Entrepreneurs should investigate alternate sources of securing working capital and not limit business funding to conventional methods. One way is through debtor finance in the form of either factoring or invoice discounting. Factoring is when a business sells its debtors to a third party at a discounted price and the third party then becomes responsible for collecting monies owed by those debtors. Invoice discounting is a form of borrowing using the business accounts receivables as collateral for a loan. Businesses can now get instant access to invoice discounting via various service provider apps that integrate with your accounting package. These apps use algorithms to assess debtor accounts which can then be used as collateral for short term finance when required.

3. Evaluate payment terms
Regular communication between the business, customers and suppliers needs to be maintained to ensure favorable payment terms. If the average payable is 20 days and the average receivable is 45 days, this results in a 25 day period that the business needs to finance working capital. If the payment term gap gets too high, this could hinder the business as it finances working capital through costly debt. Maintaining good relationships with suppliers can also be used as leverage such as requesting a payment extension for a project where receivable terms might stretch past 30 days.

4. Speed up receipt of cash
Implementing strategies to shorten receivables will boost cash flow for any business. Send out invoices immediately after the delivery of goods or services rather than wait for a month-end billing cycle. Offer a small discount to customers who pay their bills early and charge a penalty to those who pay late. Set all non-regular customers on COD payment terms. Ask for up front deposits on jobs that require large cash outlays for equipment or from customers that you know are notoriously bad payers. Monitor your receivables on a weekly or bi-weekly basis and follow-up with late payers when appropriate.

5. Prepare a budget and cash flow forecast
Prepare a monthly budget and cash flow forecast to track actual cash in and out against projected cash in and out of the business. A forecast could be as simple as pen and paper for a start-up but most established businesses will want to put together a more formal cash flow projection such as a rolling 12-month forecast. After consistently mapping out a weekly cash flow the data starts becoming more predictable and easier to know when to expect surges in expenses ahead of peak sales seasons and where several payments might come due all at once. These tools will enable you to better control where the cash is going and prioritise future cash expenditures.

6. Work with your accountant
The services of an accountant can serve as an investment rather than an expense. Your accountant can review cash flow projections and results, help you anticipate and plan for cash flow problems and provide insights into areas that you may have overlooked. Many business owners simply do not understand the true financial position of their business. Some do not ensure accurate and timely financial reporting whilst others don’t understand the numbers put in front of them. Whilst you may consider it your accountants primary function to produce the numbers, they can also be an advisor to help you interpret your numbers and help you focus on the areas of your business that need improvement.

As a business owner, having timely and accurate monthly financials with the correct comparative data is essential to assessing both business performance and identifying new areas for growth. At Dümmer and Neal Accountants we see many small businesses needing a bookkeeper for a couple of days per month and a financial manager for one or two hours a month. We specialise in providing monthly support to business serving as bookkeeper, financial manager and tax consultant. Our solutions are individually tailored to suit you and your business needs with a focus on securing your numbers to grow your business. Get on board with us and we’ll guarantee an increase in the predictability of your monthly cash flow.