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“It is equally important to know if we have a happy and engaged workforce as it is to have a profitable bottom line.” (Vern Dosch, Wired Differently)

Managing any workforce, but particularly a large one across many units, sometimes in multiple countries, is far from easy. From your staffing levels and scheduling to making sure your labour costs are within budget and your forecasts are accurate, there are a number of elements involved in ensuring your workforce management is streamlined. There are however fewer areas of a business which are more important to get right if you hope to keep your workforce happy and ensure profitability. Here are 5 tips for efficiently managing your employees.

1. Streamline SchedulingEven if you have managed to hire a top team they can’t operate at their best if they aren’t in the right place at the right time. Scheduling where an employee should be, and when, is critical if processes are to be streamlined, costs reduced, and service maintained at the highest levels. Just as bad rotas will cost you money, a good schedule will empower employees and deliver business intelligence. This is not an area in which one should skimp on using technology and it is highly recommended that any modern company invest in good scheduling software.

   Although you might be used to spreadsheet scheduling, modern employee scheduling software can save you time, and ultimately money, in your day-to-day operations. These tools allow managers to create schedules with intuitive drag-and-drop interfaces, send push notifications to employees, and update schedules in real time. By creating stability, it also delivers a more pleasant experience for managers and employees alike, which keeps morale high and work moving smoothly.

   Further, two-way communication is key. You should not be afraid to engage your staff on scheduling difficulties. Often, being on the floor can give them insights into just where things are bottlenecking. You may also be surprised at how willing staff can be to assist when there is a problem. Simply communicating the business needs to staff and encouraging their input into scheduling preferences can help identify and cover the gaps you are facing. It is also empowering for them.

2. Codify your company policiesRules are necessary for the functioning of any business or organisation, but having rules that aren’t written down and made abundantly clear may ironically make it difficult to maintain order and can lead to employees claiming they have been treated unfairly or even discriminated against.

   To avoid these issues, it’s crucial that you clearly put all your policies and procedures in writing along with the related consequences for breaking them. This will ensure there aren’t any misunderstandings within your team, and new employees will immediately know what they’re getting themselves into. The stability and clarity brought about by doing this will also take pressure off employees who may feel additional stress if the boundaries are not clearly demarcated.

3. Pay employees fairly and timeouslyNothing leads to more unhappiness in a business than poor pay or delayed salaries. Whether an employee is full-time or freelance it’s extremely important to make paying them a priority if you want to keep them happy and working at the best of their abilities. Being casual with when you pay your employees will only lead to resentment and underpaying them in terms of your industry will only see you experiencing high employee turnover.

   Many companies with payroll issues experience them simply because the people responsible are not experienced, or don’t have the correct tools at hand. Delays can be caused when commissions are miscalculated, tax deductions are incorrect, or hours are input erroneously. The best solution is to bring on a trained and certified accountant or bookkeeper to handle these issues and to give them the right software to ensure the job is done correctly and accurately – your employees can’t focus if they are worried their bills won’t be paid.

   Interestingly, recent studies have shown that what an employee earns is not as important for happiness as the benefits they get with that salary. For full-time employees, their salary is only part of their total compensation. The rest is what’s referred to as the benefits package, which typically includes health insurance, paid time off, and sometimes education opportunities. A recent survey conducted by The Harris Poll for the American Institute of CPAs (AICPA), found that 80 percent of respondents would choose a job with benefits over an identical job with 30 percent more salary but no benefits.

   If you want to attract top talent and retain your employees, it’s important to put together a benefits package that will bring candidates to your business over your competitors’. In fact, it’s so important that the Willis Towers Watson survey reported that more than two-thirds of employers surveyed (69%) “plan to differentiate and customise their benefit programs over the next two years.”

4. Better ForecastingGreat forecasting is one of the key ingredients in your recipe for better workforce planning and management. You already know what your staffing levels should be based upon historic customer demand, but being able to accurately know what they will be in future is even more useful.  Building up accurate forecasts will help you to understand when your peak times of business will be, and whether the company will need more staff in future. Having staff trained and on hand to help when demand increases will mean you are better equipped to keep client service at the proper levels, and that your workforce is not overworked and unhappy. Plus, knowing you may experience a downturn can save money on future retrenchments by not hiring in the first place.

   Forecasting for workforce management should look at the number of sales broken down per hour and per employee, the percentage of salary cost compared to sales, your payroll costs and other more nuanced data such as your absence percentage, which encompasses sick leave and holidays, as well as the amount of time it takes to train staff, how large your on-call freelance staff contingent is, and how many part-time workers you have that could be bumped up to full time in a crisis.

   When you balance your planned costs against your results, you create the most profitable resource plan. Better forecasting goes hand in hand with smarter scheduling and gives you the data you need to make sure you always have the right people in the right place at the right time.

5. Stronger Communication
   
   Communicating with your employees is going to be the best way to ensure your company runs smoothly. Good WFM requires that all expectations, deadlines, and work requirements are adequately and clearly explained to avoid confusion and missed opportunities. With an increasing number of staff working remotely this has never been more important.
   
   A 2020 report on “The State of the Deskless Workforce” shows that 80% of the remote workforce are contacted by their employer outside of work hours. The report also found the majority of global workers were contacted by their employer via SMS, instant messenger or phone call, which is an easy form of contact, but disrupts employees’ personal lives and makes it harder for them to achieve a work life balance.

   Ultimately, it’s important to find a solution that works for you and your teams that allows you to effectively communicate requirements without crossing boundaries and causing friction. Many large corporates have turned to Zoom, or Teams for meeting purposes as email chains can cause information to become lost. Don’t be afraid to set up a work WhatsApp group or a Slack channel but undertake not to use them out of office hours.

“The implied policy rate path of the Quarterly Projection Model indicates an increase of 25 basis points in the fourth quarter of 2021 and further increases in each quarter of 2022, 2023 and 2024.” (Lesetja Kganyago, SARB Governor)

After cutting interest rates by 275 basis points to record lows in response to the economic crisis brought about by the COVID-19 lockdowns, the South African Reserve Bank (SARB) recently announced the first interest rate hike in three years. The vote was split 3-2, indicating conflicting sentiments within SARB as it looks to address inflation fears while supporting a recovery.

At its November 2021 Monetary Policy Committee (MPC) meeting, the SARB hiked its main repo rate from a record low of 3.50% by 25 basis points to 3.75%, citing growing concerns about upside inflation risks.

The repo rate hike came earlier than many economists had expected, and certainly earlier than consumers and business had anticipated.

It also signals a turn in the interest rate cycle, with further increases forecast by SARB for each quarter over the next three years. While such a normalisation in rates is to be expected, its early arrival and likely extent surprised many.

Some economists estimate hikes of 150 basis points over the next two years, with others expecting around 250 basis points within the next 18 months! It is generally expected that increases will continue until pre-pandemic levels are reached at around 6.5%.

Of course, when interest rates are changed, it has a ripple effect throughout the broader economy. This is because low rates make it more affordable to borrow money, which encourages consumer and business spending and investment, and can also boost asset prices. Rising interest rates have the opposite effect.

It is important for business owners to understand how interest rate increases can affect and influence how their companies operate and perform, because of course businesses generally depend on a healthy economic environment to thrive.

Smaller businesses in particular feel the effects of changing interest rates more keenly because they have lower cash reserves and are generally more vulnerable to economic shocks.

However, if you understand the impact of interest rates on your business, you can adjust to interest rate changes to protect yourself from negative effects.

Let’s start off then by analysing the possible impact of higher interest rates on your business –

What might the impact be on your business?

When interest rates are low, consumers tend to borrow more money, and also to spend more on products and services, because they have more disposable income.

As interest rates rise, consumers with debts ranging from home loans to vehicle finance to credit cards and personal loans will pay more interest to all those creditors. In South Africa, where the debt repayment to income ratio is as high as 66.7% (2021: Q2) when interest rates are at historic lows, interest rate increases can be problematic.

An increase in interest rates typically impacts consumer spending habits negatively, because with their debt costs increasing across their credit lines, they have less disposable income to spend on products and services.

The impact of a change in interest rates on customers varies from business to business. In a rising rate environment, consumer-driven businesses often see a reduction in sales. Companies that make luxury goods are hit hardest when interest rates rise because most customers first cut back on non-essentials when their disposable income decreases.

• • The impact on your cash flow
    • This impact on consumer spending and the resultant reduction in sales is likely to affect cash flow in businesses across the board as their customers simply have less to spend.
    • In addition, just like consumers, nearly every business has outstanding loans, and when interest rates rise, those loans also become more expensive – both immediately and over the longer term.
    • Typically, these loans are longer term debts that will take years to pay off, so any increase in the interest rate on those loans means carrying the debt for longer and paying far more.
    • Higher credit costs will also impact a company’s cash flow, compounding the effect of reduced consumer spending.
  • What about your access to credit? 
    • Higher interest rates make it more difficult – and more expensive – to take out new loans to cover unexpected expenses or to fund the expansion of a business.
    • Higher loan repayments on existing debt will also reduce business profitability, which can make securing new loans even more difficult.
    • This can curtail the growth of a company for months or even years.
  • The impact on your business planning
    • Reduced sales, constrained cash flow, and the cost and difficulty of obtaining credit caused by rising interest rates must impact your business planning.
    • Of course, with changing interest rates it is more difficult to ascertain the cost of future borrowing and the cost of existing business loans on a variable rate, which makes it harder to plan your company’s finances. Nevertheless, the expertise of a professional can assist in adjusting your business planning.
    • In addition, projects which were viable during low-interest rate periods may no longer be viable due to the cost of – and constrained access to – loans, as well as reduced cashflow and consumer demand. Companies might decide not to start new projects or expansions during periods as interest rates rise, which hampers business growth.

How to buffer your business

• • Consider the impact on your customers and how your business can offer more value for money as their disposal incomes tighten.
  • It is important to factor in the effect of interest rate increases on budgets and cashflow, both immediately and over the next three years.
  • Review your business loans and other borrowing to ascertain affordability as interest rates increase using a business loan rate calculator.
  • Consider refinancing some of the business loans while interest rates are still low to help stabilise the debt load.
  • Consider locking in the lower interest rates now to ensure loans will cost less as the interest rates increase over the next three years.

Re-evaluate projects or expansions planned for the next few years and the impact of interest rates increases on the viability of these plans.

• 2 December – Extended filing season deadline for non-provisional individual taxpayers (originally 23 November 2021)
• 7 December – Monthly Pay-As-You-Earn (PAYE) submissions and payments
• 24 December – Value-Added Tax (VAT) manual submissions and payments
• 30 December – Excise Duty payments
• 31 December – Corporate Income Tax (CIT) Provisional Tax payments where applicable
• 31 December – Value-Added Tax (VAT) electronic submissions and payments.

“Think of giving not as a duty but as a privilege.” (John D. Rockefeller Jr.)

Christmas is a time for giving, and in our local business environment, as well as in many other markets around the world, it may even be unofficially expected of companies to give generously to their employees, to their clients and suppliers, and to the communities in which they operate. Many companies give generously in these ways, but may not be aware of the tax implications of their generosity.

In this article, we briefly look at some of the tax implications of various forms of giving, to emphasise that before any corporate giving decisions are made, companies should seek professional advice about the tax implications.

Giving to employees

• Company Christmas party: For many employees the annual office Christmas party or lunch is a highlight: a great meal, free drinks and the opportunity to mingle socially with colleagues. Although the costs of such an event would have to be carefully considered, this would be a tax-deductible expense, regarded as a non-taxable occasional meal.
• Gifts: Whether you are considering gift vouchers, physical presents or intangible gifts, there is no minimum value below which employer-provided gifts are tax free. If it can be regarded as an asset, it will be seen by SARS as a taxable benefit in the hands of the employee.

  Some examples include gift vouchers, prizes or awards; physical items such as a mobile device; and intangible gifts such as flights or accommodation. This applies whether the gift is given to an employee or an employee’s family member, such as a spouse or child. The cost to the employer of any such gift must be reflected as a taxable fringe benefit on the employee’s payslip, and PAYE must be calculated and deducted.

  There are some exceptions. For example, in the case of a long service award (15 years or more), the first R5 000 of the cost of such a gift is not taxable, but any amount in excess thereof is taxable as described above. Other possible exceptions include where the employer incurs no cost in conferring the gifts, or where the gifts are utilised by the employees for business purposes. However, even these simplified scenarios are subject to complex considerations and should first be discussed with a professional.

• Bonuses: When considering giving annual bonusses or “13^th cheques”, remember that a bonus is taxed at the same rate as other remuneration. This means that the amount of the bonus will be added to an employee’s annual salary to determine the rate of tax payable for the year. However, the bonus amount might push some employees into a higher tax bracket, significantly eroding the amount of the bonus the employee receives after tax. Be sure to get professional advice on structuring bonuses to be tax efficient.

Giving to clients/suppliers

• Christmas functions: Where clients or suppliers are entertained at a Christmas function, expenses such as meals, venue hire and live entertainment can be claimed as a tax deduction. However, this is only allowed where the taxpayer can prove that expenses were incurred in pursuit of business. It will be necessary to keep a comprehensive schedule of the entertainment expenses along with the date, the venue, the company and people entertained, and the purposes of that entertainment (for example prospecting for a new client) to prove to SARS that the expenses were genuinely business-related.

  In the past, this deduction was prone to abuse. Consequently, a claim for entertainment expenses is likely to be flagged for investigation by SARS, and taxpayers should not risk this unless they have verified their tax position with a specialist and are certain they are able to prove the expenses claimed are again, genuinely business-related.In addition, input VAT cannot be claimed on entertainment expenses, including but certainly not limited to business lunches and dinners; annual functions; and expenses incurred for entertaining clients at restaurants, bars and night clubs.

• Gifts: Many companies show their appreciation and build relationships with clients and suppliers with corporate gifts that can range from bottles of wine to keyrings. These expenses could be tax deductible as marketing expenses or as cost of sales expenses, but the onus will rest on the taxpayer to prove that these expenses were incurred in the production of income.

Giving to charities

• Donations: Before making a donation, consider that there may be donations tax implications. A company will not incur donations tax for the first R10,000 per annum in donations. However, any amounts over this limit are taxed at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. Furthermore, any donations made to a registered PBO (Public Benefit Organisation) are not subject to donations tax, even for amounts over the limits set out above. The PBO must have been approved by SARS – have a professional check.

  The deduction may, however, not exceed 10% of the donor’s taxable income during any year of assessment. Should the company (donor) have given more than 10% of taxable income in one year, the excess over 10% can be carried over to the next year.

  Staff can also get tax relief on their PAYE through “payroll giving” whereby the employer donates on their behalf up to 5% of remuneration to qualifying section 18A PBOs. The donation relief will be reflected on the employee’s IRP5 at the end of the year.

  Ask for professional advice to structure your company’s donations in the most appropriate and tax-efficient manner. You may also require assistance to declare and pay donations tax, as it does not form part of the business’ normal tax returns. Following a donation, you will need to submit a donor declaration (IT144 form) and pay any donations tax owing by the end of the month following the month during which the donation was made.

“As much as you might love running your business, you must have an end-goal in the plan. At the very least, an exit strategy keeps you from turning your business into a glorified job – working from home, but with longer hours.” (Kevin J. Donaldson)

A new year beckons, and you may be thinking that it will soon be time to sell your business. Perhaps you are nearing the age of retirement, or want to move on to a new endeavour? Whatever your reason, your business could well be your most valuable personal asset, and something you have invested in for years, if not decades. The prospect of selling can therefore feel overwhelming, and clearly you want to receive a fair price for the asset you’ve worked so hard to create.

Selling your business is therefore likely to be not only a busy period, but an emotional one too and you’ll need to engage in extensive preparation if you want to come out satisfied at the other end.

These tips will help you to prepare for a business sale and get the price you deserve for your company. 

1. Have a reason why it is for saleAnyone who is going to buy your business will want to know the reason why it is for sale. Your reason should be clearly thought out and easily explained to avoid spooking potential buyers. Simply saying “It’s time for me to move on” will not build anyone’s confidence. The aim here isn’t to obfuscate your reasons; honesty will always be appreciated.

   A serious buyer will spend time doing their due diligence investigation and so know a fair amount about your business, its reputation and sustainability. So remember that whilst your books are likely to tell them more about the health of your business than your words, your words will give them an idea of what the reputation of the business might be and just what they are likely to be dealing with when it comes time to deal with existing clients and suppliers. Common reasons for exiting a business include retirement, partnership disputes, illness or death, feeling overworked or even plain old boredom. When explaining why you are exiting there is an opportunity to add in some of the strengths of the business. “I am feeling overworked”, becomes a lot stronger from a sales perspective when it’s backed up by, “We have so many orders” or “We have a reputation for never letting our customers down”.

2. Give yourself timeSelling a business takes time and should not be done in a hurry. Trying to sell in a hurry can only mean the correct things are not in place, and buyers will sense your urgency. In general, you should give yourself at least one year to sell a business and preferably two.
3. Get your finances in orderA company with clear, legible finances is also going to sell much quicker than one with a drawer full of receipts and a box of demands from SARS. It is essential at this stage to liaise with your accountant to ensure that all financial records are in place, fully up to date and that any outstanding issues are cleared up.

   The more organised and accurate your accounting records are, the easier it is for a potential buyer to assess your company’s value. A potential buyer needs a clear picture of your financial condition, and that includes accurate financial statements for the past several financial years. When someone buys your firm, they may need to integrate your accounting data into their systems, and your accounting transactions must follow industry standards.

   A company’s finances tell potential buyers a lot about a business and very few will take the plunge if things aren’t organised and transparent. For example, a purchaser can review your interest expense to determine if the expense is increasing as a percentage of sales. If interest expense climbs say 5% to 8% of sales, your firm’s total debt is also increasing.

   There is a second, even more important reason your finances need to be accurate, and this is that you will need them to determine the value of your company. It is impossible to sell something if you don’t know what it is worth, and just how much value there is in it. Knowing your bottom-line price will be important come time for negotiations.

   A vital consideration in determining the price is future prospects and profitability. The final purchase price will not be simply based on net asset value but also on likely future profits giving a potential return on investment (the purchase price). There is no substitute for professional advice here! 

   Also, be clear in your mind how you expect the payment to be made – a lump sum, an earn-out over so many years based on the projected profits being realised. A note here – most sale agreements have clawback clauses if the future profits do not materialise. You will need sound advice on what is in the agreement in this and other considerations.

4. Succession PlanningMaking sure your business can thrive after you have left will make it a far more attractive proposition for a potential buyer. Hopefully you have always had a succession plan in place in the event that something happens to you, but if you don’t it’s time to get to work.

   A succession plan may require you to train and mentor a successor, and to put legal documents in place (be sure to incorporate some flexibility in case a buyer has other ideas!). Both of these tasks are time consuming. If you plan on selling the business on to the employees then an Employee Stock Ownership Plan (ESOP) will need to be developed and, employees funding the ESOP will need a number of years to accumulate the funds to buy out the owner.

   For each of these reasons, you should plan for succession as soon as possible. Putting a detailed plan in place can help you avoid a forced sale. A forced sale occurs when the owner is under pressure to sell the business, or the owner’s heirs are trying to sell the company. The seller does not have any bargaining power and will likely receive far less for the business when the sale is finalised.

   Finally, in this regard: Consider your reaction and plans should the buyer ask you to stay on for a term or two while they prepare their own successors to take over from you.

5. Increase the value of your businessWhile it may be tempting to take your foot off the gas pedal as you prepare for a sale, this is exactly what you shouldn’t be doing. Businesses whose performance noticeably declines before all the documents are signed only give the impression that the owner is the only thing that matters, and this will give prospective buyers all the excuse they need to make a lowball offer.

   On the contrary now is the perfect time to perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Write down the key issues in each of those four areas. Get input from your staff, share your SWOT analysis with your team and ask them for feedback. Once you perform this analysis, you can start focusing on business improvements.

   The aim is to make sure that the year before you sell is a record breaker. Imagine you are starting all over again and spend this year getting the word out about your business, building clientele, cementing long term contracts and relationships and cutting back on costs. So ideally start planning to maximise value at least a year before you sell!

   Make sure that you account for every cost you incur to operate your business and if there are areas of the company that are not profitable, consider closing them. Now is not the time to be keeping your pet projects alive. Having a great year, cleaning out the business chaff and showing investors that the company has a strong future will undoubtedly provide a huge boost to your sales price.

6. Identify target buyersAs already indicated, selling a business takes time. You can speed up this process if you identify potential buyers and understand exactly why they might be eager to put in an offer. There are generally two types of reasons for buyers to take on a new going concern: financial and strategic.

   Financial buyers treat the purchase as an investment, looking at the potential returns they can achieve. Their aim is to make an acceptable return on their investment and then flip the business either to another buyer or through an IPO. Financial buyers will consider the company’s track record based on a history of strong financial statements, and potential for solid growth. They won’t necessarily worry about flaws in the business as they will see these as opportunities to quickly increase the value before selling it off, but they will haggle every cent on the sales price to ensure the most profit for themselves.

   Strategic buyers look for purchases that will fit into their own long-term business strategy. They may, for example, be competitors who are looking to expand vertically (to different parts of the supply chain) or companies that need to expand horizontally to a new industry to diversify their portfolio. Strategic buyers are typically larger and willing to pay more for the purchase, since they can immediately take advantage of economies of scale.

7. Bring a good team on board
   
   The final step before actually putting the business up for sale is bringing in a strong team of experts. At the very least you will need an accountant to handle any financial questions the buyer may have and to advise you on choosing a lawyer to attend to the contractual side.

   Seek advice also on whether you should employ the services of a specialist broker to help oversee and facilitate the sale. Negotiating a sale yourself allows you to save money and avoid paying a broker’s commission, so it may be the best route to take when the sale is to a trusted family member or current employee, but still bounce that off your accountant first.

   In other circumstances, getting a broker on board can help things run more smoothly as the broker will help free up your time to keep the business up and running, will help keep the sale quiet and get the highest price, because brokers are incentivised to maximize their commission.

   At the end of the day, having the right people working toward your sale means that at the very least they will pay for themselves, and more often than not they will increase your profit.