Monthly Archives: September 2017

5 Common small business money mistakes

Of all the roles, a small business owner takes on, often the most challenging is managing the business’s finances. You can improve your chances for success – and your profitability – by being aware of and steering clear of these common small business money mistakes. 

  1. Insufficient Cash

Insufficient cash is one of the leading causes of business failure. Startups often overestimate how quickly they’ll start making money, and underestimate all the expenses they’ll incur. But startups aren’t the only businesses prone to failure due to insufficient cash. Once you have a steady flow of business you can run into cash problems in a couple of ways. One is a failure to realize the difference between cash flow and sales. You can have plenty of sales on record, but unless you get paid in advance for those sales, you’ll have expenses to pay before you collect from your customers.

  1. Waiting Too Long to Seek Credit

The worst time to look for a business loan or line of credit is when you most need it. If your business is paying its bills late and is on the brink of failing, finding funding will be difficult or impossible. The time to seek funding is when your business looks solid enough to convince a lender you will be able to repay what you borrow.  

  1. Mixing Business and Personal Funds

Whether you are starting a new business, or you’re running an established business, mixing personal and business funds is a recipe for disaster. Assuming you are the sole owner and you buy business supplies with your personal credit card or use a business check to pay for a personal purchase, you’re going to have difficulty keeping track of how much money the business is actually making or losing throughout the year.

If there are times when you have to use personal funds for your business – or vice versa – the correct way to handle the situation is to make a formal transaction and document it. If you have business partners, get them to sign off on the transaction, too.

  1. Not Staying on Top of Record keeping

As a business owner, your focus is usually on winning business and making sure the customers get it in a timely fashion. Along the way there are so many things to do that it’s easy to let recordkeeping fall by the wayside. Receipts for inventory or other purchases get shoved in a folder, envelope, drawer, or the proverbial shoebox, until such time as you “get around” to recording them. Invoices for items you’ve purchased on credit maybe wind up in your inbox – with dozens of other pieces of paper.

Records for business travel may wind up on the back of a receipt or napkin, or stuck in a note on your smart phone. Receipts from people who still pay you wind up in the same folder or drawer, and credit card payments show up in your bank account based on the credit card used to make the purchase, with no convenient way of matching any one day’s credit card receipts to specific purchases made. 

  1. Under Pricing

Determining the right price to charge for products or services is seldom an easy decision. Charge too much, and you could lose sales to a competitor. Charge too little, and you won’t make much profit – or worse, you’ll lose money.

Small businesses – particularly those just starting out – often charge too little. Sometimes they rationalise that the low price is a way of “getting their foot in the door.” Sometimes the price is low because a new business owner isn’t taking into account the cost of his or her own labour, or hasn’t accurately determined all of the costs that have to be considered in setting prices. If you’re just starting out, remember to account for all your costs in figuring out what to charge, and check to see what competitors are charging for what you sell.

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.  Errors and omissions excepted (E&OE)

References:

Attard, Janet. “5 Common Small Business Money Mistakes”. Business Know-How. N.p., 2017. Web. 29 June 2017.

Treasury moves to close CGT avoidance loophole through share buybacks

Where one company previously sought to dispose of its shares in another company, it was able to do so without incurring an exposure for capital gains tax (“CGT”) or dividends tax, if that disposal were structured as an issue of shares by the target company to the “purchaser”, followed by a corresponding buyback of shares by the target company from the “seller”. For example: Company A holds 50% of the shares in Company X (which stake is worth R500,000). A had acquired the 50% interest for R50. B approached A with an offer to purchase the 50% for R500,000. A straight sale of the 50% would give rise to a tax effect of little less than R112,000 for A (being R499,950 x 80% x 28%). To ensure that the aforementioned tax charge does not arise, A agrees with B that the effective transfer of the 50% interest will be structured by B subscribing for shares in X for R500,000. B will now have effectively acquired a 33% interest in X. X will utilise that R500,000 to buy back the shares that are already in issue to A. When A’s shares are cancelled therefore, it will have received the R500,000 contributed by B, while B will have 50% in X by virtue of A’s interest being cancelled. From a tax perspective, the buyback of shares is treated as a dividend, which is both income tax and dividends tax exempt for A. The result: A effectively disposed of its shares in X for R500,000 without incurring any attendant tax cost.

The use of linked share issue and buyback transactions to avoid CGT has been on SARS’ radar for quite some time already, yet without any meaningful remedy to counter such (we would argue, legitimate avoidance) transactions. Where such transactions were in excess of R10 million, those transaction had to be reported to SARS though in terms of section 35(2) of the Tax Administration Act, 28 of 2011.

National Treasury has now moved to close this “loophole” through the proposed introduction of paragraph 43A in the Eighth Schedule to the Income Tax Act, 58 of 1962. The proposed amendments to paragraph 43A are contained in the draft Taxation Laws Amendment Bill, and if accepted by Parliament in its current form, will become operational with effect from 19 July 2017 (being the date of publication of the draft Bill).

In terms of the proposed amendments, tax exempt dividends declared to shareholders (which could hold as little as 20% in the declaring company with the dividends being declared either 18 months prior to the disposal of those shares, or in anticipation of their disposal) will be treated as a capital gain in the hands of the shareholder and taxed accordingly when the shares held are disposed of. In our example above therefore, the share buyback of R500,000 will be taxed as a capital gain.

As noted above, the current draft legislation has not yet been enacted, and we will closely monitor developments to consider implications of the final version of the legislation ultimately introduced.

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.  Errors and omissions excepted (E&OE)

Three financial tips for small business entrepreneurs

Here are three things which small business owners should consider implementing to improve their chances for long-term success.

  1. Do Not aim to match or beat prices offered by competitors 

Price may win among big retailers that include, as well as countless other larger businesses in a variety of categories – but smaller businesses know all too well they typically can’t compete in this big-box space when it comes to money. Instead? This is where smaller businesses have the chance to thrive in offering other experiences that stand-out from prices alone. Of course, price will factor into the overall impression any business leaves on consumers, but when combined with other experiences price can often become overlooked thanks to the many other factors that can outshine it.

  1. Create a loyalty program that encourages repeat customers 

Big or small, businesses gain the opportunity for increased customer retention and more frequent spending when loyalty programs are offered. You can create one that is digital, mobile, or even old-fashioned by using paper and a hole puncher, but the idea is that you create one that makes sense for your business and your customers.

Another tip to help your loyalty program thrive? Give it extra TLC so that it stands out among your other marketing efforts, including your business newsletters, via social media and of course, whenever you’re tending to customers and during any customer communication. Aim to have it stand out as a well-respected perk to customers experiencing your business.

  1. Have a lean start-up

Big companies like Starbucks test new concepts on smaller markets before launching their products worldwide. Small companies can learn from this approach. Develop a prototype to get the product out, launch it in smaller markets, test it, get feedback, pivot, and then refine it. By using this cost-effective process, you’ll have a refined product or service designed to the taste and needs of potential clients because they told you what they liked and wanted along the way.

As the economy continues to improve, small businesses will have more opportunities to expand and grow. By taking advantage of opportunities that exist now, you’ll improve your chances of success. 

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.  Errors and omissions excepted (E&OE)

References:

Glassman, Barry. “The Best Financial Advice For Small Business Owners Now”. Forbes.com. N.p., 2014. Web. 29 June 2017.

Leinbach-Reyhle, Nicole. “3 Small Business Tips Uniquely Aimed At Entrepreneurs”. Forbes.com. N.p., 2016. Web. 29 June 2017.

MSI Global Alliance appoints new accounting members in South Korea and Australia

MSI Global Alliance, one of the world’s leading international associations of independent legal and accounting firms, is delighted to announce the appointment of two new accounting members SEJUNG LLC in South Korea and Oreon Partners in Australia.

Headquartered in Seoul, with two further branches in Suwon and Daejeon, SEJUNG LLC is a leading CPA firm which provides comprehensive accounting and tax services as well as audit, assurance and financial advisory services. The firm’s team of 19 partners and over 30 professionals serves national and international clients from a wide range of industries and has particular expertise in advising foreign investment companies in Korea.

Sean Kang, managing partner of SEJUNG LLC, comments, ”It is my pleasure to join MSI, a great international accounting & legal association. Like other countries, Korea’s accounting market is very competitive and I would like to secure our competitive strength and pursue our business expansion through our membership with MSI.”

Accounting firm Oreon Partners, based in Adelaide (South Australia), joins MSI with five partners and 32 professionals. The firm provides accounting, taxation and financial planning services to businesses and private individuals. Oreon Partners prides itself on personalised advice and service as well as its advantageous use of technology to help achieve clients’ goals.

Ben Reynolds, partner at Oreon Partners, comments, “We are excited to be joining MSI Global Alliance and look forward to the opportunities that being a member of one of the world’s leading accounting and legal associations will bring to both our business and to our clients.”

The appointment of Oreon Partners adds to MSI’s representation in Australia and New Zealand, which now brings together 16 leading independent legal and accounting firms that provide specialist services to local and overseas businesses.

Tim Wilson, chief executive of MSI, comments, “I am very pleased that we have two strong firms joining our group in Asia Pacific. I know they will make a great contribution to our Asian and Australian representation and I welcome them to MSI very warmly.”

For further information please 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 one of the world’s leading international associations of independent legal and accounting firms with over 250 carefully selected member firms in more than 100 countries. MSI was formed in 1990 in response to the growing need for cross-border co-operation between professional services firms.

MSI members worldwide work closely together to provide integrated, multidisciplinary services to meet each client’s legal and regulatory obligations and growth ambitions. MSI is ranked among the Top 20 international accounting and legal networks, associations & alliances.

Visit our website: www.msiglobal.org