How and When to Save a Struggling Start-Up

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“Failure is simply the opportunity to begin again, this time more intelligently.”- (Henry Ford, founder of Ford Motor Company)

Data from StatsSA has shown that more than 1,500 businesses closed their doors for good in South Africa last year. This can come as no surprise to anyone who conducts business in South Africa at the moment, with spiralling costs, high interest rates and other tough market conditions that include frequent load shedding at short notice.

It is therefore highly likely that all business leaders will go through tough times and for those with start-ups they can often seem insurmountable. If your start-up is one of those failing businesses the first thing you need to do is determine if the company is worth the extra energy, investment and effort required to save it, and if the answer is yes, then take our steps below to ensure that happens.

Save or close?

The first step to deciding whether to save a company is to work out the root cause of the troubles. Often this will take a team of outsiders, but a conversation with us as your accountants should be the first step. We can help you quickly assess whether your troubles come from external issues such as competition, market conditions or new regulations, or whether they are from internal issues such as poor management, a high level of debt, bad hires or inadequate equipment.

Next you need to be brutally honest with yourself. What was it that made you enter the market? What made you unique? Are these things still true? Is your product obsolete? And is your business still capable of turning a profit? Assuming you believe profit is still achievable, then the next step is a full evaluation of the finances, from assets to debits and invoices outstanding, so you can find out just how bad things are.

From there, we can help you work out the costs of necessary adjustments. Do you need restructuring? New equipment? Or new staff? What will it cost to fix, and do you have the ability to go through the necessary changes? You will need to carefully consider all these steps. You have invested a lot of effort and emotion into this company, and making these decisions rationally can therefore be hard. Having brought advisors onboard, you now need to actually listen to what they have to say.

If you have completed all the steps before this and still want to go on, then ask yourself one final question. Are there alternatives? Is there anyone who would buy the company? A competitor who might consider a merger? And why would one of these options not be better than you keeping things going? It is important to consider all of these options, so that when you commit you know you are on the right path. If, after all of this, you are still determined to save the business, here is what you need to do:

  • Rank your challengesBeing in a start-up can be overwhelming. It’s likely you have more than one challenge that’s driving your company into distress, and you may not know where to begin. Your first step should be ranking your challenges. Which of your challenges are the most dire? Is debt getting on top of you each month? Is someone stealing from your inventory and causing you a loss? By ranking your difficulties, you can see which are the most urgent fixes and can tackle them in order, knowing that each tick on the list is a step closer to saving the company. Fixing everything, starts with fixing one thing.
  • Consolidate debtsDebt consolidation or restructuring can help your company save a great deal simply by lowering the interest payable each month. By consolidating debts into one loan or restructuring loans with different interest terms you can both pay them off quicker and save on the monthly expenses.
  • Find the fundingWhether your challenge is a lack of advertising, a glut of debt or broken equipment, the answer is often funding. Whether you need to sell a percentage of the business, withdraw money from your own savings, take a loan or beg for money from friends and family, addressing the lack of funding and attending to these challenges is a necessary step. We can help you determine the best way to use the funds you have to make the biggest impact.
  • Re-evaluate your business planTake a look at your business blueprint and particularly your projections for the future. Now, contrast it with the present state of affairs. Which projections did you get right, and which failed? Why? Has there been less demand than expected? Did your marketing team maybe direct their efforts at the wrong audience? What has your customer retention been like? Which expansion opportunities did you miss, and where did you stray from the original plan? Regardless of the root cause, it’s now time to sit down with the experts and brainstorm a solution or a substitute that can fix these issues.
  • Maximise your staffingIt’s an old and much-repeated adage for a reason, “A company’s best asset is its staff”. Take a look at your staffing and truly analyse whether the people involved are the right fit for their roles. Do they all have the training necessary to do their jobs to the best of their ability, and are they motivated to do so?

    Depending on the size of your staff it may help to meet with each employee, to ask them what they need and what they think is missing. Often employees may offer insights that can be missed at the top level. Making sure everyone is given the skills they need, feels valued and understands their role will be essential if you want to save your company.

    Just as important is making sure that those who are hired by your business are all offering value. If your company is struggling, then it is not the time to keep someone on who cannot perform or be retrained to fill a more beneficial role. Many roles these days can be outsourced to freelancers where you only pay for the work that is done. Carefully consider which roles may benefit from this.

  • Overhaul your sales techniques

    Many business leaders have underestimated the extent to which the sales process has changed over the past few years. There are a lot of new ways of engaging with customers and making new connections, and these should all be actively utilised if you want to be successful.

    From social media to remote selling and data-driven sales, there are new ways to get the most from your sales professionals. Customer Relationship Management (CRM) systems allow your staff to track and analyse customer behaviour, better targeting the client’s needs. If your competition is making the most of these sorts of strategies and you are not, then it’s time to rethink the way you close the deal.


Don’t give up

Turning around a business can be emotionally draining and thankless work. Now that you have done the evaluation and committed to fixing things, this is not the time to give up. Each time you tick off one of your list of challenges is a step closer to success, and as Steve Jobs always said, “I’m convinced that about half of what separates successful entrepreneurs from the non-successful ones is pure perseverance.”

Five Things You Need to do After the CIPC Hack

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“The Internet is a worldwide platform for sharing information. It is a community of common interests. No country is immune to such global challenges as cybercrime, hacking, and invasion of privacy” – (Lu Wei, the head of the General Office of the Central Leading Group for Internet Security and Informatization from August 2013 to June 2016)

On the 1st of March 2024, the CIPC admitted it had been hacked. The CIPC said in a statement that, “Our ICT technicians were alerted, due to extensive firewall and data protection systems in place at the CIPC, to a possible security compromise and as a result, certain CIPC systems were shut down immediately to mitigate any possible damage.”

While they referred to the incident as “an attempt” to hack their systems they also added, “Unfortunately, certain personal information of our clients and CIPC employees was unlawfully accessed and exposed.”

A few days later MyBroadband.co.za said they had been contacted by the hackers who allegedly proved they had access to the site since 2021 and the CIPC could be understating the damage done. Whether the claims made to MyBroadband are accurate or not, the possibility this hack has leaked private information from many or all of South Africa’s registered businesses and presumably given outside access to company registrations which potentially allows the hackers to make alterations to core business areas.

Together with a long-standing issue at SARS that periodically sees clients receiving an email or SMS stating, “unauthorised changes were made to your personal details on eFiling”, it is clear that South African businesses need to be aware of the risks of online attacks at key government organisations and more importantly, know what to do about them.

These are the main concerns:

Private information leaked

According to reports, the hackers may have gained access to the private credit card information used to make payments to the CIPC. MyBroadband quotes the alleged hackers as saying the CIPC was “processing and storing credit cards in the clear.” While most banks require access to an app as verification, the exposure of CVVs and expiry dates of cards is a risky proposition. When combined with other information stored on the site, such as the names, addresses and signatures of directors there is a real risk that company clients and contacts may be open to being scammed through fake profiles or other contacts generated by malicious third parties.

Access to Company registrations

If, as is alleged, hackers have gained unfettered access to the company registrations section and the login details for multiple clients, companies risk potential changes in their core information. Directors can be changed, addresses altered and critically, key documentation can be downloaded.

The latter is of great concern as these documents could allow a fraudster to open bank accounts in a company’s name. After that it becomes simple to contact clients saying that bank account details have changed, and even offer them the proof that they are speaking to legitimate company representatives. From there money could easily be siphoned into these phoney accounts and it may take weeks or even months to uncover.

What should you do?

With every company vulnerable it’s critical to take a number of steps immediately to mitigate the risk and potential damage.

  1. Check bank accounts and cardsMonitor your bank account and card transactions even more closely than before for any signs of suspicious activity. If any unusual activity does occur, report the incident to the bank immediately and consider cancelling any bank cards that may have been exposed on the CIPC website and ordering new ones.
  2. Warn your clients
    You may want to consider adding a warning to emails and client correspondence that asks them to treat any notices supposedly from your business of changes to bank account or personal details with caution due to the CIPC hack and SARS login leaks. The warning should carry the caveat that should they receive any bank detail change correspondence they should check with you directly before making alterations to payments.
  3. Change your usernames and passwords
    Change all login details. Assume your current passwords have been compromised and check whether you have used them on other sites as well. Even if this is not the case, it’s wise to change all your important passwords periodically, particularly those for bank accounts or other financial institutions.
  4. Warn your employees
    Alert all employees that any emails, calls or other communication from banks, insurers or fraud divisions should be treated as suspect. Instruct your employees to authenticate communications directly with those departments immediately (using contact details they know to be genuine) rather than give away any information to an unverified person. This is good practice anyway in light of surging cyberfraud generally, but the CIPC hack makes it essential.
  5. Remain vigilant

    We as your accountants are happy to help advise you on how to monitor the credit bureaus and banks to track any illegal accounts, which may be opened in your name and discover suspicious changes in the invoicing and payments. A client who usually pays regularly suddenly stopping is now cause for an immediate follow-up.

Don’t stop being cautious. These sorts of hacks can often come back to haunt a company months after they happen. Assume you will need to be careful for at least a year as the hackers work their way through their haul and try to make the most of it.

 

Your Tax Deadlines for April 2024

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  • 05 April – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 25 April – VAT manual submissions and payments
  • 29 April – Excise Duty payments
  • 30 April – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable.

Donating to a PBO? Check SARS’ New Requirements (and PBOs Note Your New 31 May Deadline)

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“[The new requirements] enable… a more efficient process to make deductions available to qualifying donor taxpayers and to help prevent section 18A claims abuse.” (SARS)

Public benefit organisations (PBOs) are engaged in public benefit activities for example religious institutions, day care centres, disaster relief organisations, health clinics, etc.

Many are dependent on donations and, to encourage the public’s generosity, a tax deduction for certain donations made by taxpayers is provided.

Qualifying PBOs (i.e. section 18A-approved organisations) may issue tax certificates – called section 18A receipts – to donors.    This tax certificate – or section 18A receipt issued by a section 18A-approved organisation – entitles you or your company to a deduction from taxable income for bona fide donations in cash or of property.

While approved section 18A institutions were previously required to keep records of all section 18A receipts issued, the requirements have changed, affecting both PBOs and their private and corporate donors.

PBOs: New requirements, and a 31 May 2024 deadline

Previously, the information that had to be provided by a PBO for a valid section 18A certificate was limited to the details of the PBO; details of the date, amount or nature of the donation; confirmation of how the donation would be used; and the name and address of the donor.

Last year, SARS issued further requirements for more detailed information to be included on all section 18A certificates issued from 1 March 2023. This includes the nature of the donor; the donor’s identification or registration number; donor trading name (if different from the registered name); donor income tax reference number; donor contact number and e-mail address; and a unique receipt number.

In addition, this year – like other third parties such as the banks, medical schemes and fund administrators required by law to send data to SARS – all PBOs are now also required to submit bi-annual reports – called an IT3(d) – to SARS. The first deadline for PBOs in this respect is 31 May 2024.

From this date, approved section 18A tax exempt institutions must submit data on section 18A tax deductible receipts issued, which includes information on the S18A approved tax exempt institution, donation information and donor information for the 2023/2024 year of assessment (i.e. S18A receipts data from 01 March 2023 to 28 February 2024) by submission of IT3(d) data via efiling.


Professional assistance is essential   

While it has always been best practice to check with your accountant first before making a donation and relying on the tax break, it is now more crucial than ever for companies and individuals to ensure that the PBO being supported, as well as the tax certificate – or section 18A receipt – issued to obtain a tax deduction, meet SARS’ new requirements. Also remember to check the limits: the amount of donations which may qualify for a tax deduction is limited to up to 10% of taxable income.

We can also help PBOs to ensure they can meet the new requirements and deadlines, to ensure compliance and that their donors can enjoy the tax breaks that will encourage generous giving.

Have Your Own Budget Shortfall? Here’s What to Do…

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“The cold, harsh reality is that we have to balance the budget.” (Michael Bloomberg, former New York City Mayor)

Budget shortfalls are not uncommon across the public and private sectors, especially in these economically challenging times. A budget shortfall is a significant concern for any individual or organisation and should be corrected promptly.

To address the R15 billion shortfall in National Budget 2024, the South African government earlier this year did not cut its spending, but rather indirectly raised individual taxes by not adjusting personal tax brackets, rebates and credits for inflation, as well as proposing above-inflation increases in sin taxes.

Of course, these strategies are not available to South African individuals and businesses, but nevertheless, as Michael Bloomberg, former Mayor of New York City reminded us: “The cold, harsh reality is that we have to balance the budget.”

This is because a budget shortfall – when financial obligations or liabilities exceed the amount of cash available – tends to impact negatively on business by, for example, necessitating spending cuts that could adversely affect critical operations, or by requiring an increase in debt to finance the shortfall.

On the other hand, maintaining a balanced budget ensures expenses do not exceed revenue, promoting financial stability and avoiding additional debt. By providing a clear demarcation of the available resources and financial capabilities, a balanced budget facilitates informed decisions, long-term planning and sustainable growth.

There are different types of budgets for various purposes, such as day-to-day operational budgets, cash flow budgets, long-term capital budgets, and master budgets combining various budget types for a comprehensive overview of the company’s overall financial health.

These budgets include elements such as revenue estimates; fixed, variable and one-time costs; cash flow projections; and profit projections. We are able to assist you with choosing the right approach for your business’ specific budgeting requirements.

Strategies for balancing your own business and personal budgets

If you are facing a budget shortfall, the tried and tested strategies below for balancing a budget may be helpful. While these approaches are business-orientated, each can be adapted to balance your personal budget too.

  1. Understand your shortfall

    Effective budget shortfall management begins with understanding the causes and consequences thereof. Do a thorough analysis before deciding which budget balancing strategies to implement.

    For example, a shortfall can be temporary, perhaps the result of a specific set of circumstances, or it can be persistent, which might indicate poor financial management.  Your accountant will also be able to assist in this respect.

  2. Spending cuts

    This is the basic strategy for addressing budget shortfalls. However, cost-saving opportunities are not always easily found.

    Some of the tactics to consider include, for example, cutting all non-essential expenses, across-the-board cuts, targeted cuts in specific areas, or even financial modelling or projections that calculate the combined impact of various approaches.

    Not all cost-cutting measures are the same and it is more effective to prioritise cost cutting initiatives based on potential impact and feasibility. Prioritising high-impact initiatives can deliver quick wins, building momentum for further spending cuts.

  3. Process optimisation

    Unnecessary expenses in a business are often the result of inefficient processes, bottlenecks or redundancy. Eliminating these will not only streamline operations but will also cut waste and unnecessary expenses.

    Process optimisation could involve re-organising workflows, automating processes, adopting lean management principles, or even outsourcing certain functions or utilising shared services.

  4. Increase revenue

    Depending on your business model, there are numerous strategies that may be considered to increase revenue, which could contribute to balancing the budget. These range from re-engaging your previous clients to upselling existing clients, to diversifying your products or services, bundling your offerings, or extending your geographic reach.

    You might also consider partnering with other businesses or organisations, or embracing new technology, such as e-commerce, for generating additional income.

  5. Short-term finance

    Debt may also be a short-term solution but be sure to understand the immediate and long-term consequences, given your current and projected financial situation.

    We can provide invaluable advice and assistance if you are considering this option.

  6. Monitor, adjust and communicate

    Your budgets should be monitored as an ongoing process, including regularly assessing their effectiveness, making necessary adjustments, and tracking progress.

Remember to involve your employees, suppliers and other stakeholders, who often have valuable insights into areas where budgets can be optimised. Communicate clearly about the financial situation and reasons for any budget adjustments, acknowledging the impact on the team and stakeholders, and providing opportunities for them to provide input and ideas to mitigate the impact on their activities.

Maintaining a balanced budget is crucial to financial stability and sustainable business growth. It empowers business owners and managers in understanding the company’s financial health, setting realistic goals, planning for contingencies, and capitalising on opportunities.

We can assist you to prepare a budget tailored specifically to your business, to monitor your team’s budget performance, and to make budget adjustments as required, setting your business up for both resilience and sustainable growth.

Your Tax Deadlines for March 2024

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  • 07 March – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 25 March – VAT manual submissions and payments
  • 27 March – Excise duty payments
  • 28 March – End of the 2023/24 Financial year, Value-Added Tax (VAT) electronic submissions and payments, & CIT Provisional payments where applicable.

Budget 2024: How It Affects You and Your Business

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“Our bigger challenge… is that our pie is not growing fast enough and this limits our ability to generate sufficient revenues to distribute among our priority areas.” (Finance Minister Enoch Godongwana – Budget 2024)

 

Finance Minister Enoch Godongwana’s third Budget Speech in an election year contained few surprises, but also little in the form of good news, especially for South Africa’s personal income tax payers.

The Minister quoted dismal local average expected real GDP growth of 0.6% for 2023, which is projected to reach 1.6% between 2024 and 2026. This poor economic performance is ascribed to the persistent constraints in electricity supply and freight, rail and ports, as well as a high sovereign credit risk.

And the result? A sharp drop in tax revenue collection for 2023/24 which, at R1.73 trillion, is R56.1 billion lower than estimated!

To make up the shortfall, Budget 2024 contains tax measures that will raise an additional R15 billion in 2024/2025, mainly through income tax raised by not adjusting personal tax brackets, rebates and medical tax credits for inflation, as well as above-inflation increases in alcohol and tobacco excise duties.

Other main proposals included no increase to the general fuel levy for 2024/25, a global tax on multinational companies in South Africa with an annual revenue exceeding €750 million and the R150 billion withdrawal from SA’s Gold and Foreign Exchange Contingency Reserve Account.

These announcements are briefly detailed below, along with some of the other announcements that will impact individuals and businesses.


Budget proposals that will impact you

  • Addressing the Budget shortfall, personal income tax brackets are not adjusted for inflation – so individuals who received a salary increase this year are likely to pay more tax as they could fall into a higher tax bracket.
  • No inflation adjustments to the tax rebates.
  • Medical tax credits per month are not increased by inflation.
  • A one-year extension in the R350 Social Relief of Distress (SRD) grant and increases ranging from R20 to R100 per month in other social grants.
  • Above-inflation increases in the excise duties on alcohol and increases of between 4.7 and 8.2% on tobacco products. This means that the duty on:
    • a 340ml can of beer increases by 14c,
    • a 750ml bottle of wine goes up by 28c,
    • a 750ml bottle of fortified wine goes up by 47c,
    • a 750ml bottle of spirits will increase by R5.53,
    • a 23g cigar goes up by R9.51,
    • a pack of 20 cigarettes, rises by 97c,
    • vaping products increase to R3.04 per millilitre.
  • Two-pot retirement reform to be implemented on 1 September 2024, allowing individuals access to a portion of their retirement savings before their retirement date.


Budget proposals that will impact your business

  • A global minimum corporate tax will be implemented from 1 January 2024, with multinational corporations with an annual revenue exceeding €750 million subject to an effective tax rate of at least 15%, regardless of where their profits are located. This will broaden the corporate tax base, enabling more tax revenue collection without increasing existing corporate taxes for local businesses. This new tax is expected to increase corporate tax collection by R8 billion in the 2026 tax year.
  • An increase in the limit for renewable energy projects that can qualify for the carbon offsets regime, from 15 megawatts to 30 megawatts.
  • An electrical and hydrogen-powered vehicle tax incentive introduced for manufacturers in 2026, enabling them to claim 150% of qualifying investment spending.
  • An increase in the carbon tax from R159 to R190 per tonne of CO2 equivalent from 1 January 2024.


Budget proposals that will impact all

  • The general fuel levy and the Road Accident Fund levy will not be increased this year, providing tax relief of R4 billion.
  • However, the carbon fuel levy will increase to 11c per litre for petrol and 14c per litre for diesel effective from 3 April 2024.
  • Plastic bag levy to increase to 32c per bag from 1 April 2024.
  • The R150 billion withdrawal from SA’s Gold and Foreign Exchange Contingency Reserve Account to pay down government debt.


How best to manage your taxes going forward? 

In addition to the announcements detailed above, other technical amendments proposed in the Budget 2024 may also require professional tax advice.

Furthermore, as tax collection remains government’s main source of income, you would be well-advised to rely on our expertise and advice as we determine the impact of the Budget 2024 announcements on your tax affairs.

Budget 2024: Your Tax Tables and Tax Calculator

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Budget 2024 effectively brought an increase in personal income tax by not adjusting the tables for tax rates, rebates and medical tax credits, while also implementing substantial increases in ‘sin’ taxes and introducing a proposed global tax on multinational companies.

This selection of official SARS Tax Tables and other useful resources will help clarify your tax position for the new tax year. Then follow the link to Fin 24’s Budget Calculator (just follow the four-step process) to perform your own calculation.

 

Individual taxpayers – tax tables unchanged

Source: SARS

 

 

Source: SARS

 

 

Source: SARS

 

Businesses – Corporate tax rates – extended

 

Sources: SARS’ Budget Tax Guide 2024; Budget Speech 2024

 

Sin taxes increased

 


Source: Budget 2024 People’s Guide

 

How much will you be paying in income, petrol and sin taxes?

 Use Fin 24’s four-step Budget Calculator here to find out the monthly and annual impact on your income tax, as well as what you will pay in future in terms of fuel and sin taxes, bearing in mind that the best way to fully understand the impact of the announcements in Budget 2024 on your own and your business affairs is to reach out to us for professional advice.

Things to Look for When Buying a Small Business

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“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”- (Warren Buffett, investor, businessman and philanthropist)

 

When buying a small business there are a number of things that need to be checked before pulling the trigger and signing the contract. Doing proper due diligence will ensure you don’t invest hard earned money on a lemon. Here are the five most important things to look out for.

  • Finances

    Carefully examining the finances of the company is vital and bringing an expert on board to do it for you will ensure you don’t miss those hidden details that could be signs of a faltering company. Let us examine your past financial statements and tax returns for you to discover trends and establish whether sales are on the way up or down.

    We will also look closely at the assets and liabilities of your company, review the status of any inventory, equipment, and physical assets and analyse your likely costing for maintenance, necessary upgrades and stock issues. This is all essential as buying a company and then finding yourself in an immediate cash flow crisis is the worst possible start to your hopeful new venture.

  • Intellectual Property

    Does the company you are buying depend on one invention or many? If so, have those inventions been patented, copyrighted or trademarked? And just who owns those things? It’s no good buying a business only to find you now owe the former owners for the rights to using their creations.

  • Customer opinions

    The first step is to examine the internet for reviews. Perhaps the previous owners have been rude and undermined any goodwill that should have arisen from an otherwise excellent concept? Maybe the much-vaunted invention isn’t quite as good as expected?

    Speak to key customers and ask them their opinion on a takeover. Does it bother them or will they stay on with the company when it has been sold? Does the goodwill of the business rest with the product and the business itself or is it personal to the current owners?

  • Employees

    Where possible conduct employee interviews to fully understand what they think of the company, how they believe it can be improved and whether they are planning on staying on if there is a new owner. The employees may be able to spot gaps or weaknesses you may not easily see, but more importantly may also reveal undiscovered areas for expansion.

    A full employee analysis will, with the help of your accountant, also help you determine just where there are gaps that need to be filled, what training still needs to be done, and most importantly, what all of that will cost.

  • Existing contracts

    Take a look at any long-term existing contracts. Anything from a rental agreement to a customer service contract could reveal problems. Are there any burdensome terms and conditions that you will be locked into? Is there a customer who has to be serviced at an impossible rate, or a landlord who is expecting ten years of rent before you can move your headquarters? What are the costs of exiting these contracts, and can you afford them if necessary?

 

Your Tax Deadlines for February 2024

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  • 07 February – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 23 February – Value-Added Tax (VAT) manual submissions and payments
  • 28 February – Excise Duty payments
  • 29 February – CIT Provisional Tax payments
  • 29 February – PIT Provisional Tax payments
  • 29 February – Value-Added Tax (VAT) electronic submissions and payments