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Every January, individuals and businesses have an opportunity to take advantage of what is called the “Fresh Start Effect” – referring to research evidence that shows people are more likely to make positive changes at times that mark the start of a new time period and represent a new beginning, most notably the start of a new year.

With the right tools, businesses can maximise this Fresh Start Effect to begin the new year on a strong footing. Three business tools, in particular, are indispensable to achieve this: a business review; goals and a plan for the year – including a budget; and ways to measure progress in achieving goals and executing the plan in the months ahead. Fortunately, these tools are not expensive or difficult to use, and your accountant will be able to assist you to set your business up for great results in 2023.

1. A business review A comprehensive review of business operations is a simple but powerful business tool.

   It enables business owners and managers to analyse performance in achieving goals and meeting key performance indicators (KPIs), and to identify problems and spot trends timeously. Most importantly, an effective review will reveal what is working and what is not, so the team can celebrate successes and build on what is working, and also change what is not working to get better results.

   Some of the business areas that need to be reviewed may include:

   • Business plan, sales, marketing and branding strategies.
   • Total income to total expenses, cash flow statement and debtors’ reports, actual vs budget spend, and the balance sheet.
   • Internal resources including the company’s people and processes.
   • Client base, client processes and customer satisfaction.
   • Statutory and regulatory compliance.
   • Fees, contracts and costs.

   The best way to do a business review is to involve your entire team and to call in professional assistance for a clearer understanding, particularly of the financial aspects of the review.

2. Goals and a plan for 2023, including a budget The business review will provide invaluable information and insights, creating a baseline from which goals can be set for the next 12 months. This enables planning for the year ahead, incorporating the necessary changes to get better results, as well as enhancing or duplicating the processes already generating good results.

   Goalsetting, as well as planning and budgeting to achieve these goals, are great tools for establishing the direction of the business for the next year, focussing the team’s attention and efforts, and improving the chances of success.

   SMART goals are always the most effective – these are goals that are Specific, Measurable, Achievable, Relevant, and Time-Bound. That is because SMART goals are clear and quantifiable and can be broken down into a plan that details the specific steps or milestones to be completed – and the budgets within which to do so.

3. Measuring progress during the year ahead

   Measuring progress ensures both better management and greater motivation. What is measured can be managed, and progress on all business goals can be measured through, among others, regular and up-to-date financial reports, (KPIs) and project management tools.

   KPIs, for example, are like scorecards that track performance against business goals and can be an effective tool for keeping team members motivated during the year. Experts suggest that smaller businesses should start by measuring only a few KPIs in the crucial business areas of income; customers; employees; and processes; but your accountant will be able to provide invaluable advice for your specific business.

Similarly, there are different project management tools for various types of projects or management approaches. Benjamin Franklin’s advice may be helpful here: “The best investment is in the tools of one’s own trade.”

This January, take advantage of the “Fresh Start Effect,” by reaching out to your accountant for advice and assistance in using each of these business tools to set your business up for a great 2023.

• 7 December Monthly Pay-As-You-Earn (PAYE) submissions and payments
• 23 December Value-Added Tax (VAT) manual submissions and payments
• 29 December Excise Duty payments
• 30 December End of the 3^rd Financial Quarter
• 30 December Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable

It is imperative that businesses increase their fees, rates or product prices annually by at least the rate of inflation, just to keep pace with the ongoing increases in the cost of materials and production.

Inflation is the increase in the cost of goods and services in an economy. It ensures that, year after year, a business pays more and more for the same goods or services it uses in the production of its income. The higher the inflation rate, the higher the increase in your costs each year.

Without related annual price increases on goods or services provided by your business, the inflationary increases in the costs of production will result in lower profits, reduced product or service quality, or even market perceptions that your goods or services are cheap. In addition, the compounding impact of not increasing prices means your business falls progressively further behind in its ability to generate the appropriate and needed levels of profits.

Why do businesses neglect price increases?

There are many reasons why businesses do not increase their rates annually. Some may simply not have the business skills to set or maintain correct pricing. Many business owners are concerned that in a highly competitive market, a price increase will result in lost customers – a fear that was particularly heightened during the COVID years. Most businesses may simply not know how to increase their prices, especially if they have not done so for a few years, and then a substantial increase is required just to return to previous levels of profitability.

Why increases are crucial

In South Africa, the inflation rate is currently at a 13-year high of 7.5% – almost double the average inflation rate of 4.5% in 2021. This means that the cost of producing goods and services has increased by 12% over just two years, and without a related increase in sales prices, your business profits are being eroded at an alarming rate and with every sale.

Conversely, increasing prices correctly can have a substantial impact on a company’s profitability. Studies quoted in The Harvard Business Review found that improvements in price typically have three to four times the effect on profitability as proportionate increases in volume. In fact, it was noted that a 1% improvement in price, assuming no loss of volume, increases operating profit by 11.1%.

Top tips for implementing price increases

• Speak to your accountant about the impact of various price increases on your company’s income, profitability and tax liabilities.
• Remember to discuss the potential impact of price increases with all staff, from the production team to marketing, sales and the accounts teams.
• An easy place to start raising prices is to issue quotes for new business at the higher prices.
• Include an annual price increase clause in all new client contracts and in contracts that are being renewed.
• For existing clients, ensure that any price increase is communicated clearly, accurately and well in advance.
• Link the price increase to improving or at least maintaining the value your clients perceive, for example, the use of co-friendly materials, unique expertise in an industry or high-quality products.
• When implementing a price increase, consider adding extra value to a client, such as a free consultation, free deliveries or improved packaging or wrapping.
• Once a price increase has been finalised, update all relevant sales documents, website pages, POS systems and the like.

SARS has wide powers when it comes to the collection of tax debts and just one of these is the power to collect money owed by taxpayers from third parties who hold money for those taxpayers, such as a bank. This means that SARS can indeed take outstanding tax amounts from a personal or business bank account without your consent, by instructing the bank to pay the amount outstanding over to SARS through a process called Third Party Appointment (TPA). The same instruction can be issued by SARS to other third parties that hold money on behalf of a taxpayer, such as an employer, a customer, an insurance company, or an attorney.

Given the  significant negative implications this could have for a taxpayer, whether an individual or a company, there are certain procedures SARS must follow before it can collect tax debt via a third party appointment or another collection method, and individual and business taxpayers are well advised to understand how a tax debt can arise without their knowledge, and how to prevent SARS from collecting such tax debt from their bank accounts without their consent.

What is a tax debt? 

While filing correct returns and making payments on time will protect taxpayers from tax debts, penalties and interest, taxpayers may not be able to meet these requirements on time for a range of reasons.

As such, administrative penalties on late or non-submission of tax returns, failure to submit tax returns, the submission of returns without payment, or partial payment of a tax liability can all result in a tax debt, which can also arise from a SARS assessment, or from an audit.

How can a tax debt be collected? 

SARS’ powers to collect tax debt are extensive, and include:

• Recovering tax debt through third parties who hold money on taxpayers’ behalf, such as banks, employers, customers, insurance companies or attorneys. If such a third party fails to adhere to the appointment, the third party can be held personally liable to SARS and may be convicted of a criminal offence.
• Issuing a judgement and having a taxpayer blacklisted.
• Obtaining a preservation order in respect of taxpayer assets.
• Attaching and selling taxpayer assets.
• Bringing sequestration or liquidation proceedings against a taxpayer.
• Holding directors, members or related parties liable for the company’s tax debt.

When can SARS collect tax debt? 

If you cannot pay a tax debt to SARS and do not follow the correct procedures, SARS is legally allowed to exercise its powers of collection as detailed above, even if you are disputing the debt!

Fortunately, SARS must also follow the correct procedures. These include that the taxpayer must have received an assessment from SARS detailing how much is due and by when, as well as a final demand for payment that states available debt relief mechanisms contained in the Tax Administration Act (TAA); and recovery steps that SARS may take if the tax debt is not paid.

Only 10 business days after delivery of the final demand, if no response has been received from the taxpayer, can a senior SARS official authorise a third party to collect the tax debt.

If SARS does not follow these steps detailed in the TAA, collection proceedings may be regarded as illegal and in contravention of the TAA and the taxpayer will have recourse against SARS via its Complaint Management Office (CMO), the Tax Ombud or legal action.

But, of course, prevention is far better than cure.

How to prevent SARS from taking money from your account 

• Keep tax affairs up to date – SARS says that when deciding the most appropriate way to deal with outstanding tax obligations, it will give considerable weight to the tax debtors’ individual circumstances and compliance history of, for example, lodging correct returns and documents, and paying taxes on time.
• Update your details with SARS – SARS is required to inform taxpayers of assessments, notifications or communications issued by also sending a message to a taxpayer’s last known number or email address. This makes it crucial to keep your contact details updated at SARS to ensure you receive these communications timeously. Many taxpayers miss pertinent notifications and letters of demand because they did not receive notifications or discovered these too late in an unattended mailbox.
• Proactively monitor for unexpected tax liabilities – A tax debt can arise for many reasons as explained earlier and can also be due to errors or omissions made by the taxpayer, a tax practitioner, or even SARS itself, or could be caused by missed communications or incorrect payment allocations. For this reason, individuals and businesses should check their compliance status with SARS and obtain a statement of account on the various taxes payable from their accountant, both proactively and on a regular basis, and certainly every time an email or SMS is received from SARS.
• React professionally and swiftly to communications – All communications from SARS should be prioritised for immediate action, particularly those informing a taxpayer of a tax liability or demanding payment, even in the case of an obvious mistake. Whether the tax debt is disputed or not, SARS must be engaged legally, and it is crucial that the correct procedures are followed.
• Understand the options – There are, fortunately, ways to make arrangements with SARS to settle a tax debt and to avoid the debt collection process that can include money being taken from your bank account.

  For example, taxpayers who can prove serious financial hardship can apply to SARS for a reduction of the amount within 5 business days of receiving the final demand or extend the period over which the amount must be paid. If the debt is to be disputed, taxpayers can apply for a suspension of payment. Where the tax debt is not disputed, but cannot be settled immediately, taxpayers can either apply for a payment arrangement over time; or can request a debt compromise.

• Beware the “pay-now-argue-later” principle – Objecting to a tax debt does not suspend the obligation to pay it. The only way to prevent SARS’ collection process from continuing when formally lodging an objection is to also formally request a suspension of payment. SARS collection procedures are suspended between the dates that SARS receives the request until 10 business days after SARS’s decision to grant the Suspension of Payment request. However, interest will accrue on the unpaid debt. If SARS denies the Suspension of Payment request, the taxpayer can apply to SARS for a payment plan.

In all these instances, professional assistance is strongly recommended.

At some point it’s more likely than not that your small business will require a business loan. A 2021 study done by Fundera (a US financial resource business that sources financing for small businesses) suggested that 56% of all small businesses will need a loan to expand operations, pursue new business or acquire business assets. The same study found that 29% of small businesses fail simply because they run out of capital.

Knowing that you need additional funding is not the same as acquiring it though. Other than angel investors there are two principal ways in which a company gains the financing it needs when cash flow is in short supply: a small business loan or a line of credit. But what are these? What are the differences? And how do you decide which you need for your business?

An overview

Essentially, small business loans and lines of credit are similar. They are both ways that businesses can borrow money from lenders and approval is determined based on past financial behaviour, the borrower’s credit history and their established relationship with that lender.

A traditional loan is a non-revolving credit limit, which means the borrower will be paid out funds once and will then be required to pay the money back, with interest, at a set rate and over a set period. A loan can be granted either “secured” or “unsecured”, meaning it is either backed by collateral or not, and the interest rate charged will depend on the risk to the lending institution, with lower rates available to those with collateral. With a loan, interest accrues immediately upon pay out either in cash to the company, or through payments to other firms where assets are purchased. Examples of loans that may impact a business include car loans, property financing, debt consolidation and commercial loans, which allow companies to hire extra staff, or continue day-to-day operations.

A line of credit is different in that it offers the borrower a maximum amount that they can withdraw at any given stage and payments are made back based on the amount withdrawn and the interest accrued. Provided the borrower keeps up with the terms of the arrangement, this amount is available indefinitely and can be topped up and withdrawn at will. Generally, the interest rates on a line of credit are higher, and the amounts smaller than those offered for a small business loan. Interest only accrues when the line of credit is being used. Should it be fully paid up, then nothing is owed.

Which is right for your business?

Determining which of these loan types is best for your business will require you to look at a few factors.

• How much money do you need?

  If the cash injection needed is large or you need to make significant equipment, vehicle or property purchases then a loan will almost always be the correct solution. With lower interest rates and set monthly fees that are easier to account for in a monthly budget, a loan will help you secure what you need, while also keeping costs as low as possible.

  Credit lines are better when the amounts needed may be smaller, but more frequent. It is therefore vital for you to know exactly what money you need, and what you intend to use it for before you approach the lender.

• How do you plan to use that money?

  As one-off payments or cash injections, loans don’t allow a lot of space for adjustment after they are issued and rarely offer any form of protection in difficult conditions.

  A line of credit can, however, give you access to extra working capital with no restrictions. Having a line of credit ready to go when needed is a good way to ensure small, unforeseen problems can be negotiated. Late payment by a critical client shouldn’t mean you can’t pay your bills on time.

• What kind of flexibility do you need?

  Lines of credit offer a great deal of flexibility for you assuming you’re not sure how much money you will need, or if you expect your expenses to be spread out over an extended period. A line of credit also offers options when it comes to monthly payments, as, provided you meet the minimum payment, you can pay back as much or as little as you can afford.

  Loans, however, provide the better option when flexibility is not an issue, and your main aim is to limit the amount of debt you take on.

Before applying for any business credit, it’s advisable to speak to your accountant to evaluate just what needs to be accounted for in the financing and what you can reasonably expect to pay back each month. Knowing exactly which potential costs are going to be vital to assist your company’s growth, and which are nice-to-haves, will enable you to make the right decisions when it comes time to choose what kind of financing you are looking for.