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Unlock Compliance with Ease: Navigate South Africa’s New Beneficial Ownership Laws with Our Expert Help!

August 23, 2023August 23, 2023Beneficial Ownership, Business exit, Business Owner, Closing off a business, Company registration, deregister a business, Small BusinessLeave a comment

From 1 April 2023, South African businesses must disclose their beneficial owners to the CIPC in line with the Companies Act. Furthermore, SARS necessitates companies to report shareholders who possess an interest of 5% or more in their tax declarations.

Why the Change?:

This mandate compels companies to maintain and submit beneficial ownership records to the CIPC. Its primary aim is to curb money laundering, financial frauds, and reputation tarnishing activities. Moreover, it aids South Africa’s objective of getting delisted from the Grey-list.

Entities Obliged to Disclose:

Beneficial ownership must be reported by:

Private Companies
Close Corporations (CC)
Non-Profit Companies (NPC)
State-Owned Companies (SOC)

Specifically:

Trust shareholders equate the beneficiaries as beneficial owners.
In a CC, beneficial owners are the members.
NPCs with members recognize the members as beneficial owners, whereas NPCs without members consider the directors.
For SOCs with a minister as a shareholder, the minister becomes the beneficial owner.

Entities Exempted:

The following aren’t obligated to disclose beneficial ownership:

Public Companies
Primary Co-Operatives (co-op)
Personal Liability Companies

Notably:

Public companies are already overseen by entities like the Johannesburg Stock Exchange (JSE) and thus don’t need to submit again.
Present amendments exclude primary co-operatives from the mandate.
No specific directions have been issued yet for personal liability companies regarding this disclosure.

Who Can Submit?:

Individuals authorized by the company can file the beneficial ownership details.

Deadline Reminder:

Submissions to the CIPC are due by 1 October 2023, which marks 6 months post the inception of the General Laws Amendment Act. If you’re yet to adhere, this provides a month’s time frame to align.

Submission Process:

Filing can be accomplished through the bizportal. Alternatively, using our professional services can streamline the process for you.

Mandatory Documents:

When filing to CIPC, ensure you have the following, which we can generate for you:

Mandate to Lodge Beneficial Ownership
Register of Beneficial Owners
Register of Shareholders (or Members if it’s a CC or an NPC with members)
Verified/Certified ID documents of beneficial owners

Once processed and complemented by essential documents, the CIPC will provide a certificate as an acknowledgment of receipt.

Don’t navigate these new regulations alone! Let our experts guide you seamlessly through every step, ensuring full compliance without the stress. Act now for peace of mind tomorrow. Contact us today and stay ahead of the curve

How to close a business in South Africa

June 24, 2021August 10, 2023Closing off a business, Company registration, Compromise, deregister a business, I cant pay SARS, Owing sars, SARS completion letter, Small Business, Small Businesses, Tax, tax registration, tax return, VAT registration, Why do businesses fail6 Comments

Who should be reading this article?

Anyone whose business is no longer trading and wishes to wind it down
Anyone who wants to liquidate their business
Anyone who has lost interest in their registered business and now wishes to discontinue it

KEY TAKE AWAY POINTS:

Pay all outstanding creditors
Collect from all debtors if any
Cancel all contracts (ensuring that all the conditions and terms of doing so are understood and taken care off)
Inform all employees and customers of the intention to close down the business
Sell your business assets (including the cars) and stock (if any) or write off any assets or inventory no longer – S basically liquidate the business
The last step would be to distribute any cash or assets that remain in the business
Deregistering at the CIPC
Deregistering with SARS (all tax numbers)

Why may you consider closing a business off?

There are many reasons for this. But, you may consider closing off your business because of any of the following reasons (not limited to this list:)

The business was negatively affected by COVID and there is no possibility of the business doing well again in the future
The business has become unprofitable and it no longer makes sense to continue operating
Your focus or passion has changed and you would like to focus on something else
The project for which the business was designed has ended and will not be resuming again in the future
The most profitable clients of the business have left and you do not see the business attracting any new clients
Changes in technology that drive your product or business out of the market
You no longer have the cash flow or working capital to keep the business going

If you are considering closing down your business, the following steps and considerations are important:

1. Have an exit strategy:

Truly speaking, this should happen before there is a need to close down a business. This is because we will all exit from our business one way or the other. Some of the exit reasons are what we have already highlighted above. But, it could also be due to health reasons, death, new investors, a merger or sale of the business or part of the business. Whatever the reason, every business should have an exit and succession plan in place.

Your goal here is to formulate a plan of how you will close down the business or exit from the business. Without a plan, things usually go wrong and you may be caught unaware along the way.

2. Notify your employees:

After your customers, your employees are an important asset to the business. Besides, they have families to feed and lives to live. Leaving it until late may place an unnecessary mental burden on them and leave them with little time to look for alternative employment. As an alternative, use your relationships to find then alternative employment.

But, the important point here is to keep the employees in the loop, not in the dark, about what is going on. Also, decide on who will handle the communications with the employees. It is also important to decide and communicate their terminal benefits and how these will be paid.

3. Notify your clients

It is important to notify your clients in time so that they have time to look for alternative suppliers. Also, you may need to collect anything that they still owe you. It is important that you decide how you will collect and how they will be notified.

4. Collect your outstanding debts

Plan your business closure around your existing collection policies and avoid giving new credit lines to existing or new clients.

You also want to collect any outstanding debts before you close the business because it may become difficult to get payments once you have already closed off the business. Some businesses’ financial policies do not allow payments to individuals.

Avoid announcing that you want to close off your business before you collect outstanding debts because some clients may just stall on payments hoping it will all go away.

You can offer settlement discounts to encourage customers to settle their accounts. An alternative is selling these accounts to a collecting agency.

5. Notify your creditors and pay outstanding debts

Inform your creditors of your decision to close and ensure you have a plan to handle the outstanding debts.

SARS may be one of those creditors. Ensure that you have filed all your returns and that every return is paid for. If you are unable to pay them, there are processes you can follow to ask for a compromise or a repayment plan (Click here to read more about compromises and repayment plans here.)

There may be specific laws on how you may pay your creditors. Ensure you are familiar with these and follow them in settling your creditors. If you are not sure, enlist the services of a lawyer.

6. Sell your business and operating assets

If you can, package some of the cash-generating units that are still functional and profitable and sell these to interested parties. If this is not possible, you may want to sell the assets in the business including all the inventory, vehicles and other operating assets you may still have if there is a market available for them.

7. Deregister the business

Once you are satisfied that all processes are complete, it is now time to deregister your business with the CIPC. This is to inform the CIPC that your business is no longer in existence.

After this is done, inform SARS that you have deregistered the business. Also, apply to have all tax types (numbers) deregistered. This is to clear you of future tax compliance burden since your business is no longer in existence.

You may contact us if you need help with:

Company registrations
Tax and VAT registrations
Closing off your business
Accounting and Tax
Business mentorship and advisor

Timely Financial Reporting/Financial Statements preparation

June 4, 2021June 4, 2021Business Owner, Cloud Accounting, Credit notes templates, Financial reporting, financial statements, Financial statements preparation, management reporting, Small Business, Small Businesses, Why do businesses failLeave a comment

Financial statements are intended to meet the needs of decision-makers as well as providing useful information to shareholders. As a result, the timely preparation of these reports is essential. Financial statements must be available in time to inform decision-making. Therefore, it is important that financial reports/financial statements should be published as soon as possible after the end of the reporting period.

However, we should note here that timely financial reporting should not be reduced to a well-managed busy financial statement drafting season. Rather, it requires careful, yearlong planning and monitoring. Of course, the need for timeliness has to be balanced against the need for reliability, which in addition to timeliness is also an essential characteristic of financial statements.

Requirement of the Companies Act:

In terms of the Companies Act, Section 30, Companies are required to produce annual financial statements within 6 months of their financial year-end or within any shorter period as may be appropriate to provide the required notice of an annual general meeting in terms of section 61(7). For example, if one’s year-end of Feb 2018, they should have a set of financial statements by end of August 2018.

Recommendations:

I would like to make the following recommendations about ways to improve the timeliness and reliability of financial reports. These recommendations are based on my personal experiences and cannot be viewed as an exhaustive list.

Do not leave it until the last time:

It is never a good idea to start the preparation of your financial statements late on in the year. As mentioned in my introduction, the process requires careful yearlong planning and monitoring. Start with clients whose books are updated and are in order on a monthly basis. For me, these are the client I have monthly management meeting with and at each management meeting, we ensure that the accounts for that month are in order. Once we close off the accounts, we do not come back to these to make any changes. You will find that by the year-end, there is little left to do to produce the financial statements because all books are in order. For me, I find that this process ensures the ongoing completeness and accuracy of financial data.

Team collaborations:

Reid Hoffman once said, “No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team.” I cannot stress enough the importance of working as a team and ensuring that the communications among the team are good and maintained. In my firm, as an example, we have three teams that work closely together to produce financial statements; the tax team, the financial statements drafting team and the financial management team. The financial management team is responsible for day-to-day accounting and the production of the Trial balance. The tax team helps with all complex tax matters. The drafting team takes the Trial balances and produces the financial statements. What makes the teamwork together well is communication, each member communicating whatever changes or processes that take place at any stage of the process. The biggest advantage of all this is that the reliability of the financial statements is greatly improved. The application of tax and financial reporting laws is also improved.

Systems and processes:

I also find that it helps to have proper systems and processes in place for the production of financial statements. Companies should have a financial system that they use to draft financial statements. These should be able to produce financial statements acceptable for submission with SARS and the CIPC. Also, there should be a well-defined process for the production of financial statements. It could be a well-defined checklist, which has all elements that must be checked before a trial balance is imported into the financial statements software. The presence of such a process will also go a long way in producing a reliable set of financial statements.

Closing and financial statement preparation processing:

The annual closing process. To avoid delays, aim to have your annual close within a month from the end of the financial period. Communicate these deadlines to all people involved in the process so that everyone is aware of the deadlines and the deliverables that each should meet.

Unforeseen circumstances. The financial report preparation process may identify items that could affect the amounts reported in the financial statements, such as legal disputes, contractual obligations e.t.c. In most cases, a reasonable amount of time may be needed to resolve such items. To avoid delays, it may be better to proceed with the issuance of the financial statements based upon reasonable estimates, rather than to delay their issuance.

Planning:

There is that old saying that says if you fail to plan, you plan to fail. It is important to carefully when for when the production of financial statements should start, and by whom the financial statements should be prepared. As mentioned earlier, do not leave the drafting to the busy drafting periods. After the year ends, aim to have at least one set of financial statements done per week. Start with those where not too much cleaning is required going to those where late adjustments and more cleaning is done. Also, you may want to aim to submit these financial statements by the time the tax season opens in July. So, plan in a way that will make this possible.

Are you looking for help with your financial statements, reporting or management reporting? Click here to contact us

Are you ready to exit from your business?

June 4, 2021Business exit, Business Owner, Small Business, Small Businesses, Why do businesses failLeave a comment

Some people go into business with the aim of building a good business then sell it. Others spend years building their businesses so that they may leave something for their children. Whatever the intention, it is clear that at some point one will exit their business.

Even though the idea of you exiting your business sounds inconceivable, you must remember that you will not run your business forever. As an example, the people that started Coca Cola are not the same people running it today. Therefore, you and your business must be exit and investor-ready at every stage of your business. You must have an exit plan. The exit will happen in a different form, whether you are prepared for it or not.

Your exit from your business may happen in any of the following ways:

Retirement
The passing of your business to your children
Selling
Health issues limiting the ability to run the business
Death
Lack of interest in the business and a desire to start a new venture
Exit an unprofitable business

Every business must have an exit plan:

Unplanned exits may be disastrous. Imagine trying to sell a business whose tax affairs or books are not in order. Also, investors are looking for a well-run company. They want to know that their money will not go down the drain.
A good plan will ensure that you exit at the right time. Remember, just because you are ready to exit does not mean your business is ready. Life has its own dictates on when or how you will exit our businesses. When life circumstances dictate an unprepared exit, it rarely goes smoothly.

Do you know how much your business is worth?

Any exit plan should start with a professional valuation. A professional valuation is critical to ascertain the accurate value of your business. If you are to approach a buyer and you do not know how much your business is worth, where are you going to start the negotiations for a price?

Proper due diligence will also be needed. This will help you to review your business from the perspective of a potential buyer. It will help you identify any gaps in the key drivers of your business and identifying ways of closing these gaps in order to have a proper exit and investor-ready business.

Good due diligence will also enable business owners to determine the key value drivers of the business and identify the areas that will impact its sale value. Once you have a proper plan, a value for your business and well-executed due diligence for your business, it will be easier to identify and approach potential buyers.

Some of the actions that are important in developing an exit strategy:

Do not allow the business to heavily rely on you and your skills set. When you get sick or die, the business takes sick leave or dies with you.
Therefore, develop key employees who can run the business on a day-to-day basis without your involvement.
Develop an operating manual of how you do what you do. Define each key process and quality control checks. This is important because business goes on even when you or your key employees are not around.
In addition to the operating manual, have a library or knowledge base. This will ensure that important information/knowledge is shared among everyone in your business. Also, you will most likely find yourself in a unique situation from time to time. Adding your experiences of the case and how you dealt with it will ensure that you do not waste time dealing with a similar issue in the future.
Have a dashboard that shows you the key performance indicators and what the trends of those indicators are.
Have a compensation system in place that rewards managers who help improve key performance indicators of your company and who come up with innovative ideas to improve your business and customer experience.
Have a data room for your business. A data room is a place where you store all important documents and information about your business. Your data room may include but not limited to:
- Latest financial signed financial statements
- Share certificates and share register
- Memorandum of incorporation (MOI)
- Company registration documents
- Your latest up to date Tax clearance (what is now known as Tax Compliance certificate)
- Operating Manual and knowledge base
- Shareholder Agreements
- Board members and advisors
- Licences and permits and other Intellectual properties
- Strategy and KPI targets
- Pressroom
- Internal controls
- Risk profiles and risk management
- Organisational structure
- CVs of key management
- Summaries of key employment agreements and benefit plans
- Copy of IDs for senior management
- Material contracts

Be aware of the tax consequences

If you will be selling beware of the tax consequences. Whether you sell the operating assets in the business or the business as a whole, the transaction will attract Capital Gains Tax (CGT). Therefore, a well-thought tax plan is an important part of the overall exit plan. If you do not have a dedicated tax team within your business, get the services of a professional Tax Advisor/Practitioner.

Succession after death or retirement:

Strategic planning for a business needs to include a proper succession plan. Succession planning may not be high on your agenda but retirement and death are certain. In a small/family business succession planning is even more important to effectively conclude the transfer of ownership or management from one party to another:

The first step is to draw up a shareholders agreement. The agreement should specify the rights and privileges of a shareholder if they wish to sell/exit. It should be agreed if the existing shareholders have the first preference to buy. The agreement should specify the terms and conditions of the sale and purchase by existing shareholders if existing shareholders are to takeover.
The second step is to take a policy to cover for the key shareholders. This should step in when the key shareholders die or get disabled/or are permanently incapacitated. To avoid complication in these situations a business may consider key-man insurance against these shareholders. This provides a pay-out to the business in the event of death or permanent incapacity of the insured individual which can be used to headhunt a new manager or to provide funding to the shareholders if they decide to dissolve the business. The reason this coverage is important is that the death of a key person in a small company often causes the immediate death of that company too.

How key-man insurance works:

A company buys a life insurance policy on the key personnel, pays the premiums and is the beneficiary of the policy.
If that person unexpectedly dies or is permanently incapacitated, the company receives the insurance payoff.
The company can then use the insurance pay-out for expenses until it can find a replacement person, or, if necessary, pay off debts etc.

How to avoid or reduce the risk of a SARS audit

June 4, 2021SARS, SARS completion letter, SARS debt, SARS verification letter, Small Business, Small Businesses, Tax, Tax returns, VAT, XeroLeave a comment

By now we all know that SARS is looking to raise more tax revenue to make up for revenue collection shortfalls. This means SARS may and will do all they can to increase revenue collections.

It will not be surprising to find that SARS audit teams will target taxpayers in order to raise additional income. Besides, their systems are designed to pick up “discrepancies” on a taxpayers’ return and these can easily trigger an audit. So do not be surprised if, a few days after submitting, you get a notification from SARS saying you’ve been selected to submit your supporting documentation for inspection or even that you have been selected for a full audit.

At Eva Financial Solutions, we have a team of dedicated and diligent tax practitioners working around the clock to ensure that you do not pay a single cent more that what you should legally pay over to SARS. We have designed our internal processes, checks and balances to ensure that, even if the audit comes, our clients can avoid an audit or the process goes smoothly without causing them unnecessary emotional stress.

Here are a few tips:

Always ensure that your tax affairs are up to date and that you have filed all tax returns as they fall due.
SARS has now made it easy to check your tax compliance status online. You should always check that your tax status is green (compliant). Once you have picked up that you are not compliant seek to address the issues sooner rather than later or consult your tax practitioner for help.
You should always come clean with the taxman before being audited. Once the audit has started, you are prevented from claiming the relief under section 227 of the TAA for coming clean.
Before you submit your return, ensure that you have all supporting documents for every income and deductions on your return. If you kept a personal data room, by the time your return is due you would have gathered all the necessary supporting documents for your tax return (Medical aid, Travel logbooks, Interest and Dividends certificates etc.). Be warned, do not convince yourself that if you ignore SARS’ requests for documents long enough, it will just go away. Always have your house in order.
If you own and run a business as a sole proprietor or have a rental property, ensure that you do not include and deduct your personal expenses.
Chances are that an ordinary taxpayer will struggle to interpret various tax laws or will misinterpret certain SARS requests or requirements. Therefore, always use the services of a reputable tax practitioner or accounting firm. Eva Financial Solutions can assist you in this regard, contact them if you cannot get your own personal tax practitioner.
After submitting your return log into (or at least ask your tax practitioner to do so) SARS at least a few more time to check if SARS hasn’t issued any sneaky notifications that require your attention. If your email address and not that of your tax practitioner is linked to your profile, alert your tax practitioner if and when you receive any kind of notification from SARS.

When it comes to VAT, these tips might be helpful:

When you get VAT registered ensure that you have sent your VAT number to all your suppliers so that they may update their databases and add your VAT numbers onto your invoices.
Insist on getting a valid tax invoice from all your suppliers. When you receive a tax invoice, check that it meets all the requirements of a valid tax invoice
Check that the new VAT rate of 15%, and that the total price (including VAT) is correctly calculated before accepting the invoice/quote.
Before you submit your VAT return:
- Check that you have claimed only where you are supposed to claim VAT (for example, you may not claim on motor car (passenger vehicle) rental or entertainment expenses as defined and other zero-rated or tax-exempt supplies.
- Check that you have applied the correct tax types/rates to each transaction, for example, Zero-rated sales cannot be classified as tax-exempt. Ensure that each tax type is correctly populated on the VAT201 return.
- Check that you have declared all standard rated sales (Sales VAT at 15%) that you should have declared and have done so using the correct VAT tax rate.
- Perform turnover VAT reconciliation at each VAT return submission. This will always ensure that your income statement turnover matches your VAT return submission. This will also reduce the risk of an IT14SD and the time it may have to take you if you did this only because SARS asked you to do an IT14SD. Remember, SARS systems are designed to pick up discrepancies between your VAT return submissions and your annual income tax return turnover.
- Before you hit submit, ensure that the VAT201 is correctly populated and the amounts contained are correct and matches your now correct VAT reports. Remember, once submitted you can only increase not reduce the amount payable.
- Take care that cash register slips and tax invoices issued from 1 April 2018 reflect the correct VAT rate. This will generally be 15% unless a specific time of supply rule or a rate specific rule applies.
- VAT vendors issuing debit or credit notes from 1 April 2018 must ascertain that the correct VAT rate is reflected and applied when determining the VAT amount. Debit or credit notes will generally reflect the old VAT rate of 14% where it relates to supplies of goods or services before 1 April 2018, subject to certain exceptions. Similarly, debit or credit notes relating to supplies made after 1 April 2018 must reflect the new rate of 15%.
- If your accounting systems allow, ensure that you immediately lock the submitted periods so that no further changes are effected to a closed VAT period.

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Owing SARS, what are your options?

June 4, 2021November 1, 2021Compromise, I cant pay SARS, Owing sars, repayment arrangement, SARS completion letter, SARS debt, SARS verification letter, Small Business, Tax, Tax returns, VAT2 Comments

If you follow my posts, you would have come across one of my articles that dealt with the approach SARS has taken to deal with the non-submission of a tax return. This is a follow up to this article.

So now you read that SARS will prosecute you for non-submission and charge you an R5 600 fine if convicted (of course, you will be convicted because there is overwhelming evidence against you/your company that you did not submit a few tax/vat returns.) You then went on to submit all your outstanding returns but you now owe SARS large sums of money.

Taxpayers are required to be fully compliant in all their tax matters by submitting and paying their taxes on time. If taxpayers are not compliant or have outstanding tax debt the SARS Debt Management department is committed to assisting businesses and individuals to become fully compliant. There are a few avenues that SARS uses to assist in this regard.

How much do I owe?

If you are not 100% certain how much you owe SARS, you will need to contact their call centre to enquire about your outstanding balances. If you stay not far away from a SARS branch, a visit to the SARS branch would not kill you. When you visit, just ensure you have all your particulars with you to avoid being turned away. Lastly, if you were registered for e-filing, run a statement of account to see how much you owe SARS. Your next step is to make the outstanding payment to SARS. Contact SARS or your tax practitioner to help you load a payment that can then be released from your bank account.

What if I can’t pay the outstanding amount now?

Every taxpayer must be aware that it is best practice to always file a tax return on time in order to avoid penalties and interest. But, if you are currently unable to pay your taxes, please contact SARS without delay. The following options may be available to you:

Payment arrangements:

Under certain circumstances, SARS can reach an agreement with a taxpayer to defer a tax debt for later payment or for payment by instalments. A deferred payment arrangement is s when a taxpayer can not settle the full amount owing to SARS immediately and want to apply for a payment plan to settle the debt. Under this option:

SARS has the option to decline the request.
Interest will accrue on any unpaid debt.
If you don’t adhere to the conditions of the payment arrangement the payment agreement will be terminated and normal collection proceedings will resume.
The taxpayer must suffer from a deficiency of assets or liquidity, which is reasonably certain to be remedied in the future.
Notwithstanding this deficiency, the taxpayer must anticipate that there will be income or other receipts which can be used to satisfy the tax debt.
At the time of concluding the agreement, the prospects of collecting the tax debt must be poor or uneconomical, but likely to improve in the future.
Moreover, the deferral should not prejudice the collection of the tax debt

2. Compromise agreement:

In certain circumstances, a compromise may be requested on taxpayers’ outstanding tax debt. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions as may be imposed by SARS.

A compromise cannot be considered if the taxpayer disputes the debt. Therefore while a matter is under objection or appeal, a compromise cannot be considered. If the taxpayer wants to compromise he has to withdraw his objection or appeal.

What if you do not agree with the debt?

If you are not in agreement with your tax debt, you may lodge a dispute. To lodge a dispute please go to objections and appeals. Even though you are disputing the tax debt you remain under obligation to pay the debt whilst your dispute is being handled.

Why you should consult Eva Financial Solutions if you need a debt arrangement or compromise

We deliver on our promise
Compromise solutions are difficult to obtain
For this reason, it is important that it is handled by qualified and dedicated tax practitioners.
We have a team of experts who will always work to get the best result.
Click here to contact us

6 Key factors to consider when choosing an accounting software or a business App

June 4, 2021Business Owner, Cloud Accounting, Finance Apps, Small Business, Small Businesses, Xero4 Comments

It goes without saying, there are thousands of software and Business Apps available on the market and on the internet. Additionally, each accounting software may also come with a thousand business apps on their various app marketplace. So, one has to choose carefully before adopting a piece of software. Not everything that looks cool works for every business. Some factors to consider.

Does my business need this?

Before adopting a system or business App, one needs to do a needs or systems analysis. This is where critical questions are asked before buying or implementing a system or App. Think about what problem your business is actually trying to solve. Is it an inventory management problem? It is that your business has no way of keeping track of cash in versus cash out, what sort of reports do you expect or actually need to run, what is the volume of data that should be handled by this system, can this system or app handle such volume of data, etc. Once a systems or needs analysis is performed you can then look at other factors.

Can this system or App integrate with our key software?

Some Apps or systems may look cool and all functions work perfectly fine. However, there may be a problem in integrations with your primary compliance software. Some may require you to run a report then process a manual journal into your primary software because there is no integration with your primary software. This, in turn, may lead to human errors such as incorrect journals being processed or whoever processed them not remembering why they processed such journal in the first place. A system or App that integrates with your primary system and auto-sync would be a preferred choice over one that does not. You do not want to spend a lot of money on a business App or system only to find out that you need to spend more to find another App that will help with the integration. A system or App that integrates with your primary system will have lots of advantages such as improved efficiency as there is a degree of automation in as far as communication between the two is concerned. Also, you will not need to manually and separately update each software as what happens in one will be updated in the other software or App.

How long will it take to set up the system?

Often how long it takes to set up a system or App depends is a function of when in the financial year the implementation is done. It is often easier to implement a system or App at the beginning of a financial year than in the middle of a financial year. Implementation of a new system or App may mean moving data from the old system to the new system. This may time and errors may happen. It is important to do proper research before implementing a system. Even better, seek the help of a system specialist or ask the system vendor to help you with setting up the system.

Is there training required?

Often businesses make the mistake of implementing a system that no one in their organisations knows anything about. After implementation, the staff is left out to figure out things on their own. This is not the right approach. The correct approach is to provide sufficient training before the system is fully rolled out to all staff members. This is to make sure that your staff knows the system well before they can actually start to use it and to use it to interact with your customers. Where possible, do a parallel run of the new system with the old one so that there is enough time to train staff and to iron out any teething issues with the new system. Also, it is important to establish who in the team will be the new system champion. A system or business App champion will be your go-to person when there are issues with the new system or App. If this is not possible, make sure you have the system or App vendor contact details or help desk at hand for when you need help with the system or App.

Get the basics right:

You also need to get the basics right. By basics, we are referring to the operational things like who does what and who does what when, who has access to the system, who has admin and basic user rights, are the system or App user rights set up correctly, etc. The last thing you want is having the wrong people having access to information that they should not have access to. This may include such things as, who should see a certain report or certain client information.

Multi-currency:

Lastly, consider if the new system has a multi-currency functionality. This is critical especially if your business invoices or buys/trades in a variety of currencies. You want your system or App to be able to convert to your base currency without having to do it manually in a spreadsheet or otherwise.

In conclusion:

Not everything that looks cool works for every business. In order to implement the best and right system/App or tools, you need more than just the standard system specifications. Perform detailed systems/need analysis to determine the needs of your entity and whether the system or App you are considering is the best fit.

Do you need cloud-based solutions for your business? Click here to contact us

How to pay for your house (bond) quicker

June 4, 2021Bond, Mortgage, rental income, Savings, Small Business, Small Businesses, Tax, Tax returnsLeave a comment

Do you want to know how to get fewer years to pay off your first property or how to pay for it quicker? Let’s look at a few ways through which you can do this, pay off your mortgage quicker. For this article, we will assume the property you want will cost R1000 000. We will also assume the repayment term to be 20 years straight without any reduction tactics.

Raise a deposit:

This is the most important first step. Saving for a deposit will work in your favour because it can serve as an indication to the bank that you are a good personal finance manager. It also reduces your credit risk and exposure and makes it easier for banks to fund your first house.

Lets’s look at what the numbers will look like without a deposit:

Your monthly instalment will be R7752 over 20 years
This means, at the current interest rates, your total interest will be R860 480 by the time you finish paying for this bond in 2040.

Who covers the bond and transfer costs:

Another issue to consider here is that your first property will have transfer and bond registration fees. If you do not have a deposit, assuming your first property is R1 million, then you are looking at an additional cost of R55 712 in both transfer and bond costs. If you do not have any cash savings to cover this, you are more likely going to ask the bank to cover this as well. How does this change the numbers?

Your initial capital outlay increases from R1 million to R1 055 712
Your monthly instalment increases to R8 200
Your total interest over the 20 years increases to R910 288

2. What if you raised a deposit?

Lets’ assume you can raise a 10% deposit, that is R100 000 of the purchase price. Without complicating the maths with bond and transfer fees, you have already managed to reduce your loan amount to R900 000:

Your instalment falls from R7 752 to R6 977 monthly
You have also now managed to reduce your total interest over the 20 years to R774 480

So, you can already see how the deposit can help you to be able to qualify for a home loan more than when you did not have a deposit.

3. Negotiate the price:

You can also negotiate the price or buy directly from the seller without having to go through an agent. From personal experiences, I have noticed that most agents will increase the selling price by between 6 and 10% of what the seller is asking for. So, when you put your offer, assuming you will be the first one and the seller accepts, put an offer that is between 6 and 10% lower than what the agents told you the house is worth.

The reason for this is because the agents are not your friends. They are in the business of making money through commission and they might want the owner to still get what your actual offer would have been after the agent’s commission.

Assuming the same examples as above, and assuming you have been able to negotiate the price by 10%, this is what the numbers would look like:

Your purchase price is now R900 000.
Because you raised a deposit of R100 000, your initial loan amount is R800 000
Your monthly instalment falls to R6 202 as compared to the original R7 752
Your interest is now R688 480. What a saving on interest!

4. Negotiate the interest rate:

In the book “Is your thinking keeping you poor,” Douglas Krugger talks about the concept of being able to represent your interest. One example he gives is that of an employer and employee. He asks whether we negotiate employment contracts with employers before we start working. If we do not, he urges us to do so because a contract is just a document that documents the interests of two parties. It is in our best interests to negotiate the terms of the contract that represents our interest.

The same concept should apply to negotiate for interest with the bank. The interest rate you see on those papers is in the banks’ best interests. What is your best interest? It is in your best interest to negotiate a better interest rate with your bank. I negotiate a minus 0.5% on my first house. I am sure you can do the same.

If this sounds like a huge mountain for you to climb, apply to a few banks and use the results of your application for negotiating with the banks to get the best interest rate you can get.

5. Pay extra if you can:

In this article, I referred to some advice I received from my property mentor, let me repeat it here for the benefit of those that have not seen this article yet:

If you have a high-value vehicle, sell it and put the money into your bond.
If you pick up even a ten-cent coin, put it into your bond.
Pay your bond as quickly as possible and get onto your next property, preferably within 5 years.
If you are renting out your property, make it unique and different from other properties in your location so that you always have tenants and tenants who are willing to pay for whatever you ask for.

Why is this so? Interest on your bond is calculated daily. So, whatever you put into your bond works in your favour by reducing the interest. If you can, and because interest rates are low right now, pay more into your bond as much as you can.

6. Are you self employed?

If you are self-employed, you might have already noticed that it is more difficult for you to qualify for a bond than it is for your employees. My advice for you is this simple, take a salary(have a payslip for it) from your company/business consistently and make sure this salary lands in your account on the same day every month. Secondly, your business and you are two different people. Do not treat your business as your second personal bank account.

7. Emergency fund:

The pandemic has reminded us how important emergency funds or excess funds in our bond accounts are. Most of us had to negotiate for a payment holiday because we did not have an emergency fund or any funds available in our bond accounts. What was the effect of this? Had it not been for the reduction in the interest rates, loan balances and instalments increased. This also implied more interest until the end of the bond because interest rates will not remain this low forever.

Let’s get talking:

What have you found a challenge when it comes to qualifying for a bond?
What other tactics have you used to pay off your bond quicker?

Drop a comment in the comment section. I reply to all comments. And even better, others can also cheap in and help. We are all about sharing ideas that can make us grow together.

Why accountants should see themselves as doctors to their clients

June 4, 2021June 4, 2021Business Owner, Small Business, Small BusinessesLeave a comment

Imagine your business takes a visit to the doctor. Now imagine this doctor is an accountant, your business advisor or mentor. How would the visit go and what should you get out of that visit?

I have not been to a doctor in a very long time. But, I do remember, from a few visits that I have had, what the visit was like and what we chatted about with my doctor. The last time I went there, the visit took the following steps:

1. Familiarity:

The first thing my doctor did was greet me and made me feel welcome. We also chatted about a few personal things that we had talked about on my last visit. What also made me feel good was that he remembered what we last spoke about and he also remembered and knew my name.

Accountants, before you start a meeting with your client, take some time to talk with them on a human level. This is important because it shows that you do not just care about the money that you are getting out of the relationship but also about the welfare and wellbeing of your clients. Remembering their names and what you last spoke about may also be a sign that you value them and their businesses.

2. Symptoms:

The next phase of my visit involved me as the patient having to present my complaints or symptoms to the doctor. This was my turn to chat about what I thought was wrong with me. At this stage the doctor was quiet, just taking notes as I spoke.

As accountants, we often want to jump to provide solutions. Maybe this how we were trained. Maybe it is because we know a client who came to us with a similar business and we immediately assume they have the same problems.

But this approach is wrong. You need to take time to listen to what challenges your client faces before jumping into solutions. If you jump into solutions, you may provide the wrong prescription that will not work.

Also, very important, do not interrupt your client when they speak to you about their “symptoms.” If you have a question, write it down and only come back to it when they have finished talking. Similarly, if you think of a solution while they speak, hold off your excitement to provide a solution. It may be too early or maybe a wrong solution altogether.

3. Diagnosis:

The discussion about my symptoms was followed by an in-depth diagnosis. The diagnostic procedure involved the process of the doctor obtaining further information about my symptoms, previous state of health, living conditions, and so forth.

Satisfied that he had understood my situation, I was made to lie down on his surgery bed for further examination. I do not know what this process is called but, I would imagine it was a process to check if my body system was functioning properly. At one of the visits, he even drew a sample of blood, which was sent for further examination.

How does this work for accountants?

After, your client has given you a series of “symptoms” you need to ask further questions that make you understand their business and/or situation better. Take this process as though you are looking at a tree and then going into each branch to analyse why this branch has no leaves, if it needs pruning, if it needs additional care or if it needs to be cut down altogether. Just bear in mind that you are still not providing a solution at this stage. You may need to take some of the branches away for further examination at your laboratory (your office for you and your teammates.) The process may also involve having to look at their systems and process to further understand the challenge at hand.

4. Prescription:

The next step involved the doctor handing me a few tablets and medicines, some of which I had to take right in his office. But, of course, he first had to find out if I have any allergies and if I had tried or was on any other medication. I also had to get a prescription to get more tablets at the pharmacy.

Accountants should only be providing proposed solutions after they have understood the clients business and their challenges. I say proposed solutions because businesses do change every day and you also do not want to tell your clients how to run their businesses. They came to you to get insights. They are still the directors/shareholders responsible for making decisions in the business.

Have you noticed that I have not spoken about the prescription that has to be taken to the pharmacy yet? I want to combine this with my next point.

But, before we get there, please remember to find out if your client has tried or tested any process or solution before jumping to providing a solution that they may have tried and has not worked or that their business is ‘allergic’ to.

5. Specialist:

There are certain things that my doctor may not be able to do because he is not trained to do those things. As a result, sometimes he may have to refer me to a specialist that deals with those specific issues. For example, at one stage he had to refer me to an ear specialist for further examination.

Accountants should not pretend to know everything and try to provide a solution for something that is outside their skill set. There is no shame in referring your client to a specialist as long as you maintain and manage the relationship and project. I call this the contractor model.

There are some projects you just have to outsource because you are not a specialist in these. Your client will still respect you for this.

Oh, the prescription! This is the same as giving your client “homework.” For example, this could be where you tell them how they should and implement a new process. Giving a “prescription” is good, but always follow this up to ensure that it is being implemented as intended. And hopefully, your fees cover this as well.

6. The past:

Have you noticed how much time my doctor spent on past events? Not much. The majority of his time was spent on the present (how I feel and why) and the future (getting me better and back to health.)

There is little value in historical financial information. Accountants should be focusing more on the future projections, cash flows, plans and strategy for the business. The focus should be on helping your client to grow their business, not punishing them for past mistakes like “you have not allocated this expense item correctly.”

7. Duration:

My visit to the doctor was something in the region of 16 mins. But, so much was done in that 16 minutes.

I am not prescribing time for meetings, but I am encouraging accountants to be prepared as much as they can. There is nothing as embarrassing as inviting a client to a meeting only to appear unprepared and arranging for another meeting. Ensure that the agenda is clear before the meeting starts.

Value is not in how long your meeting with a client lasts. In fact, as one of my clients put it, “The shorter the meeting, the more prepared you were.”

What did you wish your accountant knew that would help you get a better service? Please comment below

Why do Small businesses fail?

June 4, 2021June 4, 2021Business Owner, Small Business, Small Businesses, Why do businesses fail2 Comments

According to statics, 50% of small businesses fail within 24 months of launch. According to research and report by the UWC, between 70% and 80% of small businesses fail with 5 years. This is a significant number of small business that fails. The consequences of this to the economy and unemployment are significant. But what exactly closes doors for small businesses?

Lack of planning:

Most businesses are brought into existence for survival. The business owners simply register a company and hope everything will just be fine. There is no detailed plan on how the business is going to be run. There are no well defined short-term and long-term goals. As a result, there is no understanding of costs, responsibilities, markets, funding needs and other requirements of the business. Before long, the owners of the business run out of steam and find themselves back to the drawing board. Therefore, it is critical for business owners to have a clearly defined plan for their business. Also, a business data room that contains all critical information about the business is essential. This will come in handy when talking to investors or when seeking funding.

One-person show:

In small businesses, often the owner is the go-to person. They are the main source of contact for everything to do with the business. They deal with customers, suppliers, employees, production, admin, dealing shareholders and putting out fires in general. This leaves them with little time to run the important aspects of the business. They have no time allocated for growing the business and attending to strategic issues relating to the business. This is why it is important for business owners to identify, early on in the business, aspects of their businesses that they can hand over or delegate to their assistants or other people in the business. This will, in turn, free up their time to focus on what matters.

According to the UWC report, personal initiative and goal setting are consistently related to business success. In other words, a business owner who is always reacting instead of proactively dealing with issues is more likely to fail than one who proactively deals with issues.

Failure to separate personal and business accounts:

You often hear people say, “This is my business. This is my money. Why can’t I get the money out?” We have dealt with one such business before. The owner had a gambling problem. As a result, he spent over a million rands over two years in gambling. None of the winnings would come back to the business and no taxes would be paid over to the authorities for the business. While this business is still there, it consistently had cash flow problems and may not be around for a very long time.

Using a company account as a personal account will no doubt cause a lot of confusion. Business owners will struggle to keep track of their costs and will find it difficult to measure their profitability. Secondly, they will create significant loans accounts in the business, which will be difficult to clear.

As a general rule, business owners should decide on how much they need to survive on a monthly basis and pay themselves a salary from the business, obviously taking into account the cash flow and tax implications of doing so. Secondly, one should not owe the business unless they have a solid plan of paying or reducing this loan in the future.

Lack of proper records and financial systems:

Many small businesses lack proper financial records and systems and technology. This could be related to the fear of the cost or fear of the unknown when it comes to technology. But, many businesses that have adopted cloud accounting and other technologies have achieved efficiencies in a number of areas of their business. This is so because they no longer spend a lot of time on manual processes. Having data in real-time has also improved the way and quality of decision making in many small businesses. For many small businesses, technology should not be seen as a threat but as an ally. Small business should, therefore, be proactively looking for technology solutions before the lack of it throws them out of business.

Late payments by larger businesses:

According to Moneyweb, Kenya is considering making late payment of suppliers a criminal offence. This shows you how big this problem is. In South Africa, many government departments are known for paying way too late. In the Western Cape, the City of Cape Town is in a legal battle with a water supplier they asked to build a desalination plant in the Water Front. The company built the plant with over R37 million of their money, but to date, only about R4 million has been paid.

For any business, cash flow is anything. Small businesses also need to pay their suppliers who may in themselves also be small businesses. So, a call on large companies to pay their suppliers in time should become even louder than it is currently. Government departments should also look at how they can process supplier payments quicker. We also hope the new dawn that is sweeping through the country will also deal with officials who ask for kicks backs from these small businesses.

Passion is not expertise:

Passion is not a substitute for experience. In fact, experience is a bad teacher. Often one only learns from it after a mistake is already made. So, it is important for small business owners to stay ahead of their game by attending managerial, business management, finance and tax training. Do not wait until it is too late for you to learn. Have an interest in your numbers and finances as much as you do in your money and bank balance.

Poor management:

Ever heard people say, “People do not leave jobs, they leave managers?” When hiring managers, one needs to get someone who has a passion for developing and listening to people. When this is not the case, staff turnover becomes too high, so do the costs of hiring and training new staff members.

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