Monthly Archives: June 2015

Budgets: Are they worth the effort?

A7A lot of small businesses are managed by the owner, especially in the early years of a business’s existence. As the owner is intimately involved in the day to day operations of the business, it is easy to keep control of expenses. As a business grows, however, it may become necessary to appoint employees to assist the owner in running the business.

It is inevitable that a time will come where the owner will have to delegate certain financial powers to employees and trust them to spend the business’s money wisely. This is where a budget and the budgeting process can be of immense value.

To put it simply, a budget is a financial plan for a certain period in the future based on a combination of the current financial position and a projection of expected income and expenses for said period. Combining a business’s income, expenses and financial goals into one overall plan will give a clear picture of where the business is at in financial terms and how to proceed to reach those goals.

Drawing up a budget requires that the owner and/or management think about goals for the business and how to finance them. If there is more than one goal, the goals will have to be prioritised to determine which goal(s) the focus will be on for the period of the budget.

A thorough budget should ensure that the business have sufficient capital available when needed for large expenditure items like replacing expensive equipment or taking on new business ventures. Including the financial implications of future growth and expansion in the budget will ensure that the business has capital on hand to allow it to make quick decisions about opportunities for expanding operations.

Budgeting can help you to determine in advance when you will need money and how much, thus preventing crises due to a shortage of funds. It is especially important for businesses with seasonal business cycles to have a safety net for the months when business will be slow.

A budget acts as a guide to help employees understand what the owner’s priorities for the business are. Typically a budget will set targets for expenses and income for each department or cost centre. It is, however, important that the targets are realistic and achievable, and that each manager knows what the owner’s expectations are for the period of the budget.

During the process of drawing up a budget each expense item is put under the microscope. It is the ideal opportunity to determine which expenses are essential and which ones can be eliminated.

A budget can assist management in controlling expenditure by establishing boundaries in order to eliminate spending that is not in line with the business’s plans for the future. Limiting spending on expenses which are not part of the plan ensures that money is allocated to the important areas.

Using a budget enables the owner and management to measure their actual progress and performance against the budget. If they see that they are deviating from budgeted figures they can take appropriate action or, if the budget was unrealistic, the budget might have to be adjusted. A budget is a flexible tool and needs to be adjusted if it does not work or if the circumstances on which the budget is based, changes.

As market conditions, technology and employment requirements change all the time, a budget will have to be reviewed regularly to be of any real value.

Knowledge is power and drawing up a budget will give the owner detailed knowledge of the current position, potential destinations and possible ways to finance the journey from where the business is now to where it can go. To answer the question posed in the heading of this article, whether budgets are worth the effort needed to draw them up, the answer would be a resounding “Yes”!

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

The link between CGT and Income Tax

A7The name “Capital Gains Tax” (CGT) can create the impression that CGT stands on its own as a seperate tax from the rest of the taxes but this is not the case. CGT forms part of the Income Tax system and capital gains and capital losses must be declared in the annual Income Tax return of a taxpayer.

If a taxpayer is not registered for Income Tax

If a natural person is not registered for Income Tax and his/her taxable income consists only of a taxable capital gain or a deductible capital loss, the amount of which is more than R30 000, the person will have to register as a taxpayer with SARS. In addition, the new taxpayer will have to submit an Income Tax return for that tax year.

If a taxpayer is already registered for Income Tax, they don’t have to register for CGT seperately as CGT forms part of Income Tax.

Tax treatment of capital gains in three steps

The first step is to calculate the capital gain according to the provisions of the CGT Act. A discussion of the formulas to calculate the amount of capital gains and capital losses fall outside the scope of this article.

The second step is to reduce the capital gain with any exclusions which might be applicable. Please contact your tax advisor to find out if you qualify for any CGT exclusions.

Step three will be to include the taxable amount of the capital gain in the taxable income of the taxpayer. There are different inclusion rates for the following categories of taxpayers:

  • For natural persons, deceased or insolvent estates, and special trusts the taxable inclusion rate is 33,3%. In other words, 33,3% of the capital gain will be added to the taxable income of the taxpayer and the taxpayer will have to pay more income tax.
  • Companies, close corporations and trusts (excluding special trusts) have a taxable inclusion rate of 66,6%. This means that 66,6% of the capital gain will be added to the taxable income and taxed at the normal income tax rate of the taxpayer.

As a taxable capital gain will be added to the taxable income of a taxpayer, it will have an effect on certain deductions in the income tax calculation while other deductions will not be affected.

The following tax deductions for individual taxpayers will not be affected by the inclusion of a taxable capital gain in the taxable income of the taxpayer:

  • Pension fund contributions
  • Retirement annuity fund contributions

Tax deductions that will be affected by the inclusion of a taxable capital gain in an income tax calculation are the following:

  • Medical expenses (only applicable to individual taxpayers)

If a taxpayer’s medical deduction is subject to the 7,5% of taxable income-limitation, the deductible amount for medical expenses will become smaller if a taxable capital gain is included in the taxable income.

  • Section 18(A) donations

A taxpayer can include the taxable capital gain in taxable income before calculating the 10%-limit for the tax deduction of Section 18(A) donations. The allowable tax deduction of these donations will then increase by 10% of the amount of the taxable capital gain.

Tax treatment of capital losses

Capital losses may not be deducted from taxable income but must be set off against current or future capital gains. If there is insufficient capital gains to offset the full capital loss in the current tax year, the unclaimed balance of the capital loss is carried forward to the next tax year(s) until it has been fully offset against future capital gains.

As a capital gain/loss can have a material effect on a taxpayer’s liability for Income Tax, it is crucial to calculate these amounts accurately and take advantage of all the exclusions that might be applicable to the taxpayer. For further assistance regarding any aspect of capital gains/losses, please contact your tax advisor.

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This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

 

Financial risk management for your small business: Do you know how to do it?

A9Is it really necessary to be able to manage financial risk? The answer is a definite “Yes!” It can make the difference between having a successful business or being forced to close down the business. Make sure you give your business the best chance to survive and thrive by understanding and implementing financial risk management.

Financial risk management can be broken down into the following steps:

1. Understand what financial risk is

A financial risk is any event or circumstance that can have a potentially negative impact on the finances of a business.

2. Identify financial risks applicable to the business

Identify all the financial risks that you can think of which can have an impact on the business. Consider using brainstorming with employees and/or a SWOT analysis to help you identify as many potential risks as possible.

An example of a financial risk is that customers who buy on credit from your business will not be able to pay their outstanding accounts.

3. Assess each financial risk separately

Estimate as well as you can with the available information how probable it is that each risk can affect the business and what the possible amounts of the damage (negative impact) could be if the risk should realise.

Taking the example of customers who will not be able to pay their outstanding accounts, the following matrix is handy to assess the probability and extent of the damage should the risk realise. Assume that the probability and potential damage of clients not being able to pay their outstanding accounts are high as indicated on the matrix with “X”.

Probability of damage occurring (clients not able to pay accounts)
High Medium Low
Estimated extent of damage Major damage e.g. R100 000 X
Medium damage e.g. R30 000
Minor damage e.g. R5 000

4. Treat risks to limit negative impact on business

Select and treat those risks you have the most control over to focus your financial risk management efforts on. Control in this context will be the ability to minimise the chances and potential damage caused if the risk should realise.

Create and implement an action plan to reduce each of the selected risks to acceptable levels.

Consider using insurance to protect the business against external risks which the business does not have much control over e.g. natural disasters.

To continue with the example: the matrix shows that it is highly probable that clients won’t be able to pay their accounts, and the amount of the resulting bad debts can be major. There are measures that the business can implement to prevent, or at least decrease, the likelihood and the amount of damage due to bad debts. These are the measures that the business should focus on implementing to reduce the risk of bad debts occurring to acceptable levels. Preventive measures could include checking the credit record of customers before selling on credit to them and implementing a pre-approved credit limit per customer.

5. Monitor the financial risk management plan

Review the financial risk management plan regularly to ensure that it stays up to date with the changing circumstances of the business and remains effective to decrease current financial risks.

Using the above example of potential bad debts, the regular inspection of the debtors’ age analysis might show an increase in long outstanding amounts which can indicate that the credit policy for clients needs to be reviewed and updated.

Proper financial risk management can greatly increase a business’ chances of being successful and profitable. If you would like to implement a financial risk management plan or suspect that the financial risk management plan currently in use might be outdated, do contact your accountant for professional assistance.

Reference list:

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

 

Random act of kindness, by the 2nd years


RAK (1)
The first years of 2015 carried out a random act of kindness earlier this year and presented it at the first quarterly apple awards this year. They challenged us, the 2nd years, to do the same. We were tasked with finding a way to show kindness to the less fortunate. We identified a hospice situated in the National Hospital called Sunflower Hospice which houses and cares for children from 12 years and below who are ill. The hospice currently gives palliative care to 15 children with different ailments, the most common illnesses being HIV/AIDS, Tuberculosis, Cancer and mental illnesses. The hospice receives no government funding and relies solely on donations from the general public.

As the second years, we each contributed money and used that money to buy snacks for the children and we baked cupcakes for them as well. We went to visit them on a Friday afternoon and decided to brighten up their day with treats and balloons. The children thoroughly enjoyed themselves with us and they enjoyed taking pictures with us and playing with us. They also sang a few songs for us that their caregivers had taught them. This experience was very emotional and touching to all of us as we saw what it means to give of yourself and your time truly. We then decided to extend our random act of kindness to the rest of Newtons to help collect basic food supplies for the hospice. We sent out a list of the main supplies that the hospice needs to all staff members and placed a box in Thelma’s office where anyone can drop off any items that they wish to contribute to the hospice. To help with collecting more supplies we held a soup sale and the profits made were used for the hospice.

Thank you to all the second years for taking the time to be a part of this, for their kindness, compassion, empathy and most of all willingness to be a part of something bigger than ourselves.

Written by: Siseko

MSI Global Alliance expands into Georgia

A1MSI Global Alliance, a leading international association of independent legal and accounting firms, is delighted to announce the appointment of Georgian accounting firm FINANCIAL OFFICE.

Financial Office provides comprehensive accounting and tax services as well as audit and consulting services through its two partners and 12 professional staff.

Tim Wilson, chief executive at MSI Global Alliance, commented: “We are pleased to welcome Financial Office to MSI. They are a young firm with some great international ambitions.  I know they will be a great addition to MSI’s presence in Eastern Europe.”

Mikheil Merabishvili, managing partner at Financial Office, said: “We are very delighted to join MSI Global Alliance. Choosing the right association and a trusted partner in the global market is very important. MSI offers us great networking possibilities, international reach and vast experience which enables us to offer our clients reliable and responsive services wherever they are.”

Financial Office was established in 2011 and is based in Georgia’s capital Tbilisi.

For further information contact: 

MSI Global Alliance
Pauline Rottstock, Marketing and Business Development Manager
Tel: +44 20 7583 7000
Email: prottstock@msiglobal.org      

About MSI Global Alliance

MSI is an international association of independent legal and accounting firms. With 240 carefully selected member firms in more than 100 countries, MSI is one of the world’s leading associations. MSI was formed in 1990 in response to the growing need for cross-border co-operation between professional services firms.

In 2013, MSI Global Alliance was awarded “Association of the Year” by the International Accounting Bulletin, the leading authority of the global accounting industry which regularly analyses firm performance and best practices. For more information on MSI and its member firms, please visit www.msiglobal.org

 

 

CTA 2015 Coffee Break

Newtons was asked to sponsor a coffee break for the 2015 CTA class at the Free State University. Thanks to our awesome staff Doreen Banyane, Tanya Spangenberg, Jason Rothman, Sane van der Watt, Siseko Tose and Nadia Tarr; the event went off well. The idea behind this, is to interact with the students and give them an idea of what work life in an audit firm is all about.

SANBS Blood drive

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Thank you to the following staff for donating blood – Thembakazi Kojana, Joelene van der Westhuizen, Refiloe Makhetha, Wayne Beelders, Janeske du Toit, Thelma Crossman, Nico Shannon, Helensha Cilliers, Duminque van Niekerk, Ntsane Rantekoa, Siseko Tose.