Archive for year: 2021

There are several resources that the government, under the guidance of the Department of Small Business Development (DSBD), has made available to SMMEs with the objective of assisting them to keep afloat and competitive in this current climate. The programmes below are but a select few.

The department until recently had a COVID-19 Debt Relief Finance Scheme, which unfortunately ceased to exist a couple of months ago. The fund had re-prioritised just over half a billion Rand to assist small businesses during the lockdown stranglehold.

However, the DSBD still has these resources to assist SMMES:

• The SMME Business Growth Resilience Facility

  In sport, experts always say “the best form of defense is offense”. The same sentiment applies in business.

  This resource was set up with the objective of assisting SMMEs in taking advantage of supply opportunities resulting from the COVID-19 pandemic and the shortage of goods in the local market. This includes the likes of PPEs and other COVID-19 fighting measures. This is a “counter attacking” resource that aims to assist small businesses respond to the COVID-19 pandemic, and is a programme that helps cushion them while leaning against the ropes as a result of COVID-19.

  According to the department, to qualify:

  • The business must have been registered with CIPC by at least 28 February 2020.
  • It must be 100% owned by South African Citizens,
  • Its staff compliment must be 70% South Africans; among several other qualifying considerations.

• The SheTradesZA Hub

  Together with the DSBD and the Small Enterprise Development Agency (SEDA), the ITC SheTrades has set up a Hub in South Africa, in order to help South African women entrepreneurs, increase their international competitiveness and connect to national, regional and global markets through the SheTradesZA Hub.

  The primary objective of the Hub is to connect at least 50 000 women owned businesses to markets by 2023. This is part of South Africa’s contribution to ITC’s goal of connecting three million women owned businesses to markets by 2021.

• The Black Business Supplier Development Programme (BBSDP)

  The BBSDP is essentially cost-sharing grants offered to black-owned SMMEs with the aim of sustainably stimulating their competitiveness and creating employment.

  The objective is to fast-track and stimulate existing SMMEs that exhibit good potential for growth and to grow black-owned enterprises by fostering linkages between black SMMEs and corporate and public sector enterprises, among other objectives.

  This programme provides grants of up to R1 million to small businesses that meet the selection criteria.

• Research and access to information

  The DSBD has placed various research findings on small businesses, for the benefit of entrepreneurs, on its website. These are expertly done reports on interesting topics like comparisons on the performance and trends of South African SMMEs based on legislation against their peers from other parts of the world. For that report, please click on this link and for the general research resources, please click here.

Ask your accountant how you can take advantage of these resources to give your business an edge.

According to a press release issued this year by the World Bank, the pandemic has taken “a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period”.

World Bank Group President, David Malpass, explained that while the collapse in global economic activity in 2020 due to the onset of the pandemic, is estimated to have been slightly less severe than previously projected in advanced economies overall, for most emerging market and developing economies, the impact was more acute than expected.

“Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed”, added Vice President and World Bank Group Chief Economist, Carmen Reinhart.

It is under these circumstances that businesses are battling to keep their heads above water. Here are four simple things you can do to help your business survive in 2021.

1)  Delve into your budget

Now more than ever the small business owner needs to understand their company and the way that company spends money. A budget is a roadmap for small businesses, and in the day-to-day running of a start-up or small enterprise it can often be neglected in favour of making payments if and when they seem necessary.

If you don’t have a budget, make one, and if you have one, take a fresh look at it. Understand what the costs are and where the money is coming from. Know what expenses are coming up down the line – are there licences or new machines you need to own or lease? Do the staff expect a bonus at a specific time of year? Do you need extra at year end for a marketing campaign? Where and how you spend money will show you what’s important to your business and where the fat can be cut. Trimming small amounts from dead areas and focusing that money on the places that deliver returns can make a dramatic difference to the bottom line.

Riley Panko, in a report on budgeting, said, “Businesses of all sizes should create a budget if they don’t want to risk the financial health of their organisation…Businesses may create more challenges for themselves by skipping a budget. This is because budgeting helps small businesses focus.”

Knowing what your long and short terms needs are will help you plan, and streamline your business, which in turn will help you survive 2021.

2) Focus on your core customers, and ditch your “barnacle clients”

In good times it is a good idea to expand your outlook and try to capture new markets for your products. You have the time to focus on those “barnacle clients” who eat up your time and don’t necessarily deliver the same return for time invested. But in tough times, it’s wise to return to key principles and focus on those clients and markets you know work.

Barnacle clients are, according to Joe Woodward, those clients who, “Whine about fees; complain about work quality even when you know it was well done; don’t supply needed information on a timely basis; and aren’t teachable”. Woodward suggests those clients should be jettisoned from a business as they only serve to drag a business down in choppy waters when the company needs to be running as sleekly and efficiently as possible.

“Those kinds of clients should be fired,” he says. “It’s a scary thing, but I have never had anything but a net gain from firing a client.”

At the same time the business owner needs to put the energy that was going into barnacle clients into those who offer returns. Go back to the best clients that you haven’t spoken to in a while, touch base with friends, networks and contacts who you know could benefit from your business, and, in this way, reinvigorate your client base.

Advertising too should start to focus on your core client demographic. Don’t know what that is? Then it’s time to start going through the data. Start with internal data on past customers, and focus on creating a customer profile. This includes basic demographic information, but also try to map your customer on a deeper level. What are their values? What are their spending attitudes? What makes them excited and what makes them tick?

All of this will give you a comprehensive picture of what your core customer demographic looks like. While you may want to market as widely as possible to capture as many customers as possible, this focused kind of marketing will be much more effective, especially for small businesses.

3) Advertise concisely

Repeated studies are finding that people are increasingly jaded, easily distracted and unwilling to engage with advertising – particularly on social media, an important area for the small business. This does not, however, mean that you should stop advertising. On the contrary, social media is still one of the most important tools that a modern business owner can utilise with 52% of new brand discovery happening on public social media feeds. The trick is to be clear, and concise.

According to stats from Instagram, 60% of users report that they have discovered a product on another person’s profile, but this never happens with overly long posts or wordy descriptions. Gone are the days when people would watch a full YouTube advert. If your brand message isn’t in place before the skip button can be pushed, you should consider the money wasted. And the rules of social media should be applied across the board to all other types of marketing be they newsletters, emails or even phone calls.

Luke Lintz from social media agency Highkey suggests business advertising should:

• Lead with the product or service,
• Make the offer personal to the customer,
• Use only a few key statistics to support the claim
• Emphasise return on investment
• Stay away from “used car” sales language like “Don’t miss out”.

“The key is personalised honest communication that doesn’t eat up the client’s time,” he explains.

Repeated studies also show that getting staff to personally reach out to potential clients works much better than generic adverts.

The extent of corporate taxes – from income tax, employment taxes and value added tax (VAT) to dividend taxes, capital gains taxes, transaction taxes and other indirect taxes – along with the operational aspects such as data and reporting systems and related technicalities, guarantee complexity and time-consuming processes for companies, which in turn increases compliance costs.

This also compounds other tax risks such as under-estimation; underpayments; overpayments; not applying the correct tax savings and incentives; tax penalties – such as the 10% late payment penalty; the inability to meet tax obligations; and assessments and audits.

Compliance costs are another growing tax risk. Studies suggest that companies spend hundreds of hours and tens of thousands of Rands each year on internal tax compliance costs such as labour or time devoted to tax activities and incidental compliance expenses, and on external tax compliance costs like tax practitioners’ fees.

In addition, tax issues can place a company’s reputation and brand at risk. An example would be a company losing a tender on a large contract because it was unable to provide a tax clearance certificate, perhaps due to a technical or minor non-compliance issue. Companies also face the risk that a tax issue could attract negative attention from the media, civil society or competitors, as growing numbers of stakeholders ranging from customers to potential investors increasingly support only companies perceived to be contributing their fair share to the country and community in which it operates.

Why tax risk management will be even more critical in 2021

All these tax risks will be amplified in 2021 for a number of reasons, including increased tax liabilities; intensified taxpayer scrutiny; and the further entrenchment of SARS’ powers.

In the 2020 Medium-Term Budget Policy Statement, Finance Minister Tito Mboweni announced government-projected tax increases of R5 billion in 2021/22; R10 billion in 2022/23; R10 billion in 2023/24; and R15 billion in 2024/25. Companies need to factor these tax increases into their future planning and budgeting.

Taxpayers will also find themselves under greater scrutiny and likely to be subject to more punitive measures in 2021. Human errors and simple mistakes, which are not uncommon given the complex processes and strict deadlines involved, stand now to be harshly punished even if unintentional. The Tax Administration Laws Amendment Bill, 2020 (awaiting Presidential signature to become law) provides that for certain tax crimes you can be convicted if you acted either “wilfully or negligently”, where previously proof of wilfulness (intention) was required. This means that a court could find a taxpayer guilty of an offence without proof of wilfulness, so that even inadvertent errors could be penalised with a maximum penalty of up to two years’ imprisonment.

Along the same lines, companies can also expect an increase in the number of tax audits, as well as more detailed, expensive, and time-consuming investigations and audits. These are likely to focus on SMMEs, business owners, trusts and high net worth individuals.

Furthermore, SARS’ already extensive powers – including asset forfeiture powers – continue to be entrenched. Just two examples from recent court rulings illustrate: the Gauteng High Court confirmed a taxpayer’s obligation to be vigilant when filing a tax return and liability for appropriate penalties when falling short of this duty, while a North High Court judgement set an important precedent by re-affirming SARS’ right to liquidate a taxpayer to recover debt where an assessment is under appeal.

How to manage your tax risk 

• Plan for tax compliance
  
  A well-defined tax strategy, aligned with your overall business strategy and the specific tax challenges facing your business, is important. As the business grows, a re-assessment of the corporate vehicle or tax structure may be required.

  Detailed planning is also required for the tax year ahead, providing ample time for processes required for proper record-keeping to ensure tax returns are complete and accurate, and that the numerous tax deadlines can be met.

  Planning should also incorporate identifying and implementing relevant tax relief and incentives and assistance. Just one example is turnover tax that provides administrative relief for micro businesses by replacing Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for businesses with a qualifying annual turnover of R1 million or less.

• Budget for tax compliance
  
  Proper budgeting is required to ensure all the various tax liabilities can be met before or on the stipulated deadlines, while also factoring in the effect of the annual tax increases announced in the latest Medium-Term Budget Policy.

  Companies also need to budget for compliance costs including the internal cost of labour or time devoted to tax activities, incidental expenses, and the resources, systems and continuous upskilling required to meet ever-changing tax obligations. The budget should also provide for external costs such as tax practitioners’ fees; external reviews of the tax function; and even tax risk insurance to cover the cost of immediate expert assistance and support from a team of tax professionals in the case of a SARS’ tax audit.

• Call on expert professional services  

  Given the increase in compliance complexity and costs, the expertise of accounting officers and auditors is vital in determining the taxable income and the amount of tax to be paid.

  Advice from a tax professional can ensure an appropriate tax strategy is formulated to proactively manage your tax risk in the long-term, saving time and money and avoiding expensive tax mistakes, while keeping in line with the ever-changing tax obligations.

  Be sure to choose a specialist who is appropriately qualified and experienced, as well as a member of a professional controlling body that enforces strict standards, such as SAICA (South African Institute of Chartered Accountants).

Benefits of professional tax risk management

Failure to manage tax risk effectively will negatively impact on an organisation’s profitability. However, beyond managing tax liability, there are further benefits to managing a business’ tax risks.

One of these is more accurate records resulting from tax compliance obligations. This improves the availability of up-to-date information and insight into the financial position of the business and its profitability – enabling accurate, timeous financial management which is crucial to business success. In addition, tax compliance has become both a corporate governance and a reputational issue and can create both shareholder value and stakeholder trust. These benefits, along with tightly managed tax liabilities, will certainly assist companies as they build back after the economic upheaval of 2020.