Description
Abstract explain a practical guide for small business owners.
The
money
issue
Securing ?nance
Managing ?nance
A practical guide for
small business owners
issue three September 2005
1 23
Turn yourself into an expert
Why small business owners
have to be ?nancial
managers
02
28
As easy as 1, 2, 3 …?
Accounting basics; the double-entry
rule of thumb; making your money
count; tools to build a budget
18
Wind beneath your business wings
The ups and downs of angel investors; local options;
Raymond Ackerman – a South African success story
04
Banking on credit
Must-haves for bank ?nancing; vital
info checklist; equity vs loan capital;
why banks decline loans
12
Creative ?nancing
Where else to ?nd capital; the cost of
forex; talking terms; BEE funding
16
Getting to know you
Improving your relationship with your
bank; helping the bank to understand
your business
20
Kick-start your business
Buying a going concern; franchising
vs growth; put yourself in the seller’s
shoes; valuing a business
24
Cleaning up your credit
Dealing with bad debt; bankruptcy – a
last resort; avoiding debt stress
26
Put your bank to work
Banking online; connectivity basics;
balancing the costs of connectivity
32
The taxman and you
Choosing a tax professional; registering
for VAT; VAT basics; typical tax mistakes;
travel allowance checklist; eFiling
38
Analysing your vital statistics
Using statistics to reach your goals;
useful tools; identifying trends;
business issues
42
Smart relationships
Choosing the right ISP; paying by cell
phone; using the Internet as a business
tool; online ?nancial management
46
Financial glossary of terms
PLUS where to learn more – must-see
websites and useful contacts
01
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guide for small business owners
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“Finance, schminance …”
… heard it all before? Securing ?nance and managing
it wisely are two of the toughest challenges facing small
business owners in South Africa. Are you reaching for the
headache pills already? Then read on.
If approaching the bank for a loan or any kind of ?nance leaves you cold, there are some simple
solutions to ensuring that the buck doesn’t stop here.
This Small Capital handbook is the third in a series of practical guides that provides essential advice
and need-to-know info for small business owners in South Africa.
This issue explores why strong ?nancial management is key to securing your business’s future. It
covers everything from ?nding bank ?nance, tackling investors and approaching government, to
managing debt, credit and ?nancial relationships with banks, suppliers and customers – just what
you need to avoid that ?nancial hangover.
Turn yourself into an expert
You run a business that is in the business of making money
– but are you managing your own ?nances properly?
Sound ?nancial management is part of every-
thing that you do. Whether it be sales, produc-
tion or personnel, good ?nancial management
helps you to deal with each of these functions
ef?ciently.
All your activities have a ?nancial implication
– directly or indirectly – and good organisation
is a must if you want your business to be pro?ta-
ble. You need to know exactly how your business
is doing and how successful you want it to be.
Having good systems that you can manage
easily and effectively help you to cope with
unexpected demands and deal with the everyday
running of your business in a planned manner.
But it is not just about bookkeeping. Proper
?nancial systems enable you to:
• Keep track of how your business is doing.
• Manage cash ?ow, work?ow and meet
deadlines.
• Monitor how well things are being done and
establish levels of customer satisfaction.
• Improve your ability to do things right the ?rst
time.
Legislative issues are a major challenge for small
business owners in South Africa, and proper
systems help to ensure that the basics are taken
care of so that you can get on with the business
of doing business.
For example, you need to develop a good tax
and Unemployment Insurance Fund (UIF) system
to manage the daily running of your business
and to enable you to retrieve information as
quickly as possible. If SARS requires information
on your employees you have to be able to ?nd
and provide the correct PAYE and UIF informa-
tion (as well as your own) almost immediately.
Not keeping the necessary employee records, or
not being able to access them easily enough,
can have harmful rami?cations for your business.
In a nutshell, ?nancial management helps you
2
Financial manager
vs bookkeeper
A ?nancial manager is concerned with
planning, policies, controls and procedures,
while a bookkeeper records normal
business transactions in accordance
with the instructions established by an
accountant. The accountant may help
to select and train the bookkeeper as
well as provide technical supervision.
The accountant normally reports to the
?nancial manager, but in the case of a
small business, the same person might ?ll
both roles. The ?nancial manager could be
the business owner or an outside expert,
depending on the size of the business, its
?nancial complexity and the capabilities of
the owner.
In many instances, the small business
owner handles day-to-day ?nancial
management and uses an accountant
a few times a year to deal with more
specialised tasks such as preparing
year-end statements and expanding the
business. Most of?ce software systems
include ?nancial management tools that
are ideal for small business owners. For
example, Excel spreadsheets can be used to
prepare sales forecasts, income statements
and cash ?ow projections. For more
information on ?nancial and accounting
templates visithttp://of?ce.microsoft.com.
to obtain the ?nancial statements you need to
measure your company’s success, meet govern-
ment requirements and gather facts for making
sound management decisions.
It also allows you to analyse how pro?table
certain activities are, so that you can take advan-
tage of those that make more money for your
business, and eliminate those that don’t.
As a small business owner, your
responsibilities include keeping records,
preparing budgets and forecasts, cost
accounting, exercising internal controls,
preparing government reports (where
applicable), obtaining and monitoring
insurance and data processing.
Other important functions include
analysing data and determining how
your company is performing, making
recommendations about whether
to expand or downsize, as well as
coordinating your personal ?nancial and
tax goals with those of the business.
• Handle company ?nances with the aim
of maximising pro?ts while maintaining
liquidity and ?nancial stability, with or
without increased sales.
• Protect company assets from employees
and outsiders.
• Plan ?nancially to achieve company and
personal goals, including non-?nancial
company goals (such as having the best
premises you can afford or offering the best
quality products) and owner goals such as
security, retirement, or leisure activities.
• Prepare ?nancially for unknown
developments such as new technology,
competition and customer needs, changes
in the economy and legislation. This also
includes planning for the continued life of
the company.
3
Your money management systems should enable you to:
What does a
?nancial manager do?
It is said that you need money to make money,
and many small business owners in South Africa
?nd themselves in this Catch 22 situation when
applying for ?nance. It can be a slow, frustrating
and sometimes disappointing process.
There are four main reasons why South African
banks are wary of granting loans to small busi-
ness owners.
These include:
1. Your contribution (or capital injection) into
the business speaks volumes. If you have
contributed little or no equity to the business,
banks will be wary of granting you a loan.
Remember that banks don’t ?nance business-
es, they ?nance operating assets and working
capital. So if your business is under-capitalised
it may be dif?cult for you to raise a bank loan.
2. Your small business may not have a structured
balance sheet as many SMEs typically do not
keep accurate books.
3. Your business might not have a strong cash
?ow. The bank must be satis?ed that you will
be able to repay the loan, but this can prove
dif?cult if your cash ?ow is strained.
4. You may lack the necessary business manage-
ment skills to run a small business.
Having an existing relationship with the bank
will certainly help in your efforts to secure a
business loan. For example, at Standard Bank
the turnaround time for loan requests is much
quicker if you have an existing current account
that is well conducted.
Turnaround times on loan agreements differ
depending on the type of application and the
extent to which the bank is provided with the
required information upfront. Standard Bank’s
4
Are you banking on credit?
Your business is up and running and in need of a cash
injection, so you’ve decided to approach your bank for a loan.
But getting it might not be that easy …
Who can help?
• Business consultants situated in
Standard Bank branches across the
country.
• Standard Bank website:
www.standardbank.co.za.
• Visit the BRAIN website at
www.brain.org.za for a list of other
?nancial institutions and what they
offer small business owners, or call
BRAIN on 0860 103 703.
usual turnaround time for a small, simple
request from an existing customer, is 48 hours.
However, in general, a request for an application
for a new customer, where ?nancial statements
need to be assessed, may take longer.
If you apply for a more involved, less straight-
forward loan, such as Khula credit, the process
can take up to three or four weeks. For more
information on Khula see page 14.
Some banks have specialised business managers
who are speci?cally trained to provide assistance
and process ?nance applications for small busi-
ness customers.
For more information, visit your local Standard
Bank branch or call the helpline for business
banking customers on 0860 012 345.
5
Must-haves for bank ?nance
Constraints
facing SMEs
The unfortunate reality is that there are
many constraints facing small business
owners who need ?nance. The main
problem is that as talented as you might
be in a particular ?eld, you might not have
all of the competencies needed to ensure
the viability of a small business. There is
greater potential for such a business to fail,
which is why banks are often reluctant to
approve a loan application.
This is exacerbated when:
• The application shows a lack of
feasibility or pre-screening.
• The business plan is poor – possibly
as a result of being drawn up by a
consultant, with little input from the
owner.
• The proposed business plan is based
on unsustainable margins.
In general, banks prefer to offer asset
?nance rather than a general business
loan, because they can use the asset itself
as part of the collateral. If you fail to pay
back the money, they can take back the
asset, and in this way their risk is reduced.
You need collateral – Before lending you
money most banks will ask for collateral or
security. Collateral is any asset that you own
and promise to hand over to the lender if you
cannot pay them back. This includes a house,
a building, investments, savings or any other
asset. Unfortunately, the smaller your business,
the more collateral the bank may demand,
as you are perceived as being a high risk.
The irony is that the smaller you are, the less
collateral you are likely to have.
Be patient – One of the most frustrating
things about applying for ?nance is that
there can be long delays in processing your
application and granting a loan. Ensure that
you provide all the necessary documentation to
reduce the time taken.
Clean up your credit record – If you have a
bad credit record, even if it dates back years,
it works against you when you apply for
assistance from a bank. Before you even apply
for a loan do everything you possibly can to
settle your old debt and clear your name. Be
totally open and upfront about it with your
bank. See page 24 for tips.
Be ?exible – The four main banks in South
Africa all have special divisions for small
businesses. Even though banks regard lending
to small businesses as risky, they are required
by the Financial Sector Charter to promote this
sector.
6
The documents required for loan applications vary according to the type of business that you run, and compiling these can be a job
in itself. That’s why, when you walk into a bank, you should be prepared for any eventuality. Use this checklist to ensure that you
have everything you need for the bank to process your loan application quickly and ef?ciently.
Sole proprietors
and sureties
Close corporations Companies Trusts Partnerships
Copy of ID document Registered founding
statement (form CK1)
or amended founding
statement (CK2)
Certi?cate of
incorporation
Trust deed Partnership
agreement (if it
applies)
Proof of income Annual founding
statements/
management
accounts*
Certi?cate to
commence business
Letter of authority Annual ?nancial
statements/
management
accounts*
Signed statement of
assets and liabilities
12-month cash ?ow
forecast
Certi?cate of change
of name (if it applies)
Annual ?nancial
statements/
management
accounts*
12-month cash ?ow
forecast
12-month cash ?ow
forecast
Memorandum and
articles of association
12-month cash ?ow
forecast
Copy of ID
documents
Annual audited
?nancial statements/
management
accounts*
Copy of ID
documents
List of directors/
shareholders
12-month cash ?ow
forecast
Copy of ID
documents
* If company is older than six months.
ID
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Save time – and money
7
Some South African banks use the behavioural
scorecard method to work out how much they
are prepared to lend you.
This system calculates your credit rating by
analysing patterns of behaviour in how you have
conducted your account. For example, if you
have issued a cheque without the funds to cover
it, this will work against you in your scorecard
rating. If you ?rst informed the bank that this
might happen, it could work in your favour.
Whether you are a ?rst-time loan applicant who
has no history with the bank, or an existing cus-
tomer whose requested amount exceeds what
the bank would normally be willing to grant, the
type of information required for the application
are more or less the same.
You will need to supply:
? Your business address, telephone and fax
numbers and email details.
? Income tax and VAT numbers.
? Annual turnover ?gure.
? Two trade references.
? Description of your business, including
product or service offered, customer and
competitor information, how you get your
product/service to your customers, etc.
? Type of business entity, eg, sole proprietor or
close corporation.
? Details of existing bank accounts or credit
with the institution.
Use the table opposite as a checklist for addi-
tional documents needed.
Check list of
vital info and documents
It takes patience (and paperwork!) to apply for a loan, and it
helps to be prepared and well organised when compiling the
essential documents.
Reading the small print
Once a loan is granted, the terms and
conditions of the agreement are con?rmed
in writing and a letter of grant or offer is
signed. The letter of grant includes:
• The size of the loan.
• Its intended use.
• Collateral details.
• Details of the principal debt.
• Instalment details.
• Fees and interest.
• General terms and conditions.
If you feel that you are drowning in
legalese when reading these agreements,
you’re not alone. Ask your business
banking consultant what the small print
means. Banks and their staff are required
by the Financial Advisory Intermediary
Services (FAIS) Act to help customers
understand the documents they are signing
and what the possible implications are.
Don’t be afraid to ask.
8
Show me the money …
There are several ?nance options available to entrepreneurs
who want to grow a small business into a bigger one. And
choosing the right type of ?nance could determine whether
you sink or swim.
Most businesses usually use a combination
of loan and equity capital to balance the
pros and cons of each.
Loan capital allows you to pay the money
back over a period of time and keep
control of your business. However, because
you have to start repaying the loan
immediately, it is worth keeping the loan
amount (and therefore the repayments) as
low as possible.
Equity gives the other party some control
over how the business is run while also
reducing your risk. Even if your business
does not succeed, you will only be liable
for a percentage of what is owed.
Banks are more likely to grant loans
to business owners who have already
invested some of their own money, as
this demonstrates their commitment and
con?dence.
Loan vs own
There are two main sources of ?nance open to
small business owners: loan capital and equity.
Equity is money invested in the business from
either your savings or your family and friends.
Formal equity may come from public or private
venture capitalists, business partners or public
stock companies.
Equity
Equity ?nance is the capital granted by a person
or institution that takes a share of your company
in return for its money. This is normally used for
small businesses that have good prospects for
fast growth and above-average returns.
To attract equity ?nance your business needs to
have a good track record or a competitive prod-
uct or service. You are also required to have the
experience and ability to run your own business.
Investors will want to see growth potential and
have a good idea of what the return on their
investment will be.
There are disadvantages to ?nancing a small
business with equity. Firstly, you have to share
ownership with the investor. Secondly, it can
prove costly, as you also have to share the
pro?ts.
Loan capital
Loan capital is money that you borrow from
personal contacts, banks or credit lenders,
usually in the form of personal loans, business
loans, credit cards or other lines of credit. The
main disadvantage of loan capital is that the
9
repayments negatively affect your cash ?ow
each month. Therefore, banks will usually advise
you to apply only for the amount of ?nance that
is actually needed and to focus on appropriate
capitalisation in terms of the life cycle and needs
of the business.
Any debt is risky – if you cannot cover the
monthly repayments, the ?nancier can take legal
action against you.
Personal loans – There are many lending insti-
tutions that offer personal loan products, all with
their own terms and conditions. Shop around
and get a number of quotes to ensure that you
?nd the best interest rate and lowest monthly
repayments. Visit www.FasterInfo.com for links
to some of the country’s most trustworthy – and
cost effective – lenders.
Business loans – These are the most likely
sources of credit for SMEs. Banks require a busi-
ness plan and cash ?ow projections in order to
evaluate the viability of the business for which
you require the loan.
Credit cards – These come in useful when
businesses wish to procure goods online, or
need to pay immediately for goods and services
and do not want to carry cash. They also provide
a transaction history for your business. Credit
terms vary and most banks offer similar options
for paying the whole amount back at the end
of the month or making regular payments over
a set period, based on a percentage of the total
borrowed. Standard Bank offers a second credit
card for which no annual card fee is charged, as
well as a garage card that can be linked to the
credit card.
Private equity is capital that is put into
a new or growing business in return for
part-ownership of the business and a
share of the pro?ts. Typically, a private
equity or venture capital investor does
not want permanent ownership of
your business. They want to “exit” your
business within ?ve to seven years by
selling the shares you gave them at a
good pro?t.
Advantages Disadvantages
You don’t need to pay any interest as you
would with a loan.
Your business will be expected to generate
substantial pro?ts so that equity partners
earn good dividends on a regular basis.
Your private equity partners could bring new
networks, useful contacts and management
expertise to the business.
You will be required to regularly generate
detailed information on your business’s
performance and prospects.
The involvement of private equity in your
business usually makes it easier to get other
forms of ?nance, should you need it.
The cost of complying with ?nancial
regulations can be high.
It focuses your business’s objectives and
ensures structure, discipline and a stable
base for strategic decision-making.
It requires you to give up a share of the
business and share decision-making and
pro?ts.
The capital injected strengthens your
balance sheet and reduces gearing (the
proportion of debt relative to equity).
The demand for high returns may introduce
the danger of short-term thinking.
Private equity – heads or tails?
Another avenue
for ?nance
Collateral – or the lack thereof – is viewed as a
barrier to ?nance, and with good reason. Banks
have a responsibility to protect depositors’ funds
and any entrepreneur applying for a loan opens
the bank to risk. Collateral provides security
should a loan not be repaid.
There are two kinds of collateral: traditional and
non-traditional. Most banks prefer traditional
collateral, which includes assets such as property,
?xed deposits, shares or supported guarantees.
Collateral “free” loans
Khula credit indemnity supports most SMEs
that cannot provide collateral, as long as the
business owner meets certain criteria. You will
qualify for a Khula loan if:
• You are the full-time manager of the business.
• You are a South African citizen.
• You make a 10% owner contribution.
See page 14 for more information.
Historically, non-traditional collateral has been
denied to small business owners. This includes
the accumulation of wealth and/or assets.
However, in the current business climate, new
opportunities are opening up, especially for
black-empowered businesses.
10
Collateral clari?ed
To qualify for bank ?nance SMEs are usually
assessed using four main categories:
MANAGEMENT
? Pro?le of entrepreneur: This demonstrates
your background, quali?cations and expertise.
? Management, ?nancial and marketing skills:
How you will bring in new business.
? Technical quali?cations: These give the bank
an idea of your technical expertise.
FINANCIAL
? Owner’s contribution: The more you put in,
the better your chances.
? Realistic projections: These indicate the
likelihood of business success.
? Debt carrying capacity: How much you can
realistically borrow and pay back.
? Assets: These can be used as collateral.
SECURITY
? Tangible collateral: Property or investments.
? Intangible collateral: Suretyships, eg, by
member/s of the CC.
? Personal assets: You can use these to act as
security for a loan.
? Cash ?ow: The stronger your cash ?ow, the
less risky your business looks.
ENVIRONMENTAL
? Industry risk: Is there a risk of pollution in the
area where your business is based?
? Location: Is it convenient for your customers?
? Competition: Where are your competitors
and how saturated is the market?
? Entry barriers: Includes legislation around
franchising, issues relating to how long it
will take to build up your reputation and the
costs of entering the market.
How will you measure up?
Other types of loans
Most local banks offer other types of funding
that include:
• Secured ?nance – in the form of asset ?nance,
Khula guarantees and other traditional bank-
ing products.
• Unsecured ?nance – offered to the borrower
in absence of security on a loan, for example
in the form of an overdraft. This type of loan
carries a higher price as the bank needs to
cover itself for possible losses in the future.
• Mezzanine ?nance – this may take the form
of convertible debt, senior subordinated debt
or preferred equity. Mezzanine debt is actually
closer to equity than debt, in that you relin-
quish some ownership of the business and
forfeit possible future pro?t. Because mez-
zanine ?nance is not classi?ed as pure debt or
pure equity ?nancing, it is dif?cult to classify.
If you become insolvent, the repayment of
mezzanine debt is secondary to that of an
overdraft or other primary debt.
Other forms of credit
There are various credit mechanisms in place to
give SMEs access to ?nance – one of which is
contract ?nance. A small business might be
awarded a contract to do a particular job, but
might not be able to access the ?nance needed
to start the work. Contract ?nancing, as supplied
by Standard Bank, is when the bank enters into
a cash ?ow lending agreement off the back of a
?rm contract. A specialist team reviews the con-
tracting environment and assesses applications
on an individual basis. As the business performs
on the contract, so the bank pays regulated
amounts into a controlled account.
The bank will also negotiate elements of the
contracting environment to facilitate greater
access for BEE suppliers and enhance their
sustainability.
Leveraged ?nance provides empowerment
?nance to SMEs in the form of acquisition and
expansion capital. When supplied by Standard
Bank, this takes the form of structured deals
normally ranging from R1 million to R25 million.
This funding also includes advice on identifying
a BEE partner, legal documentation to facilitate
a transaction and advice on suitable tax-ef?cient
funding structures, such as the formation of a
new company or a preference share structure.
For information on leveraged ?nance and
other business banking solutions visit
www.standardbank.co.za, call 0860 012 345
or visit your local Standard Bank branch.
11
Reasons why
banks decline loans
• Business is unsound, risk is too high, or
the bank cannot determine the level of
risk.
• Insuf?cient security.
• Lack of owner commitment.
• Business plan does not provide adequate
information.
• Purpose of loan not justi?ed.
• Poor character or lack of suitability of
owner.
• Passive investment – for example if you
want to apply for a loan with the bank
and your grandmother signs surety, she
has a passive interest. Banks will regard
it as reckless to risk the livelihood of
your grandmother if the business does
not work out.
Talking terms
12
There are a number of ?nancial sources available
to you over and above the traditional ones. Start
by taking a closer look at your business itself.
Customer/supplier assistance
Approaching your customers and/or suppliers
for help can generate a healthy cash ?ow in the
short term. If you have an exemplary business
record you may ?nd that one or two of your big-
ger customers are prepared to pay on invoice or
even in advance. After all, it is in their interest to
ensure that a reliable and trusted source of sup-
ply remains viable.
Likewise, your record could see your suppliers
allocating goods to you “on consignment”,
which means that you won’t have to pay for
them until they are sold.
Inventory ?nancing
This is a way of borrowing cash by using your
inventory as security. Manufacturers of consumer
products, which tend to form a large portion
of their assets, often make use of inventory
?nancing.
Inventory is typically made up of merchandise,
raw materials and ?nished and un?nished
products that have not yet been sold. These
are considered liquid assets since they can
be converted into cash quite easily. There are
various means of valuing these assets, but to be
Who says ?nancing your
business is not creative?
There may be some good reasons why you don’t want to use
a bank as a source of funds, and there are other ways of going
about it. How you do this depends on how much you need,
and it pays to be a little creative.
New and small businesses are not really
in a position to be generous with credit.
For example, if you import products (such
as the jewellery company mentioned in
the case study opposite) you need cash on
hand to pay duties and taxes on products
when they come through customs.
The ideal way to keep customers happy
without getting too deep into the debt
trap is to charge a deposit upfront (eg,
50%) with the balance due on delivery.
Most small businesses can get away with
demanding shorter terms in return for
lower pricing and superior service.
You may, however, encounter dif?culties
when supplying larger businesses, which
often have long and complicated supplier
payment procedures. Balance the value of
their business with the cost of carrying the
debt.
Also bear in mind that if you choose
to carry stock to speed up the delivery
process, you need to factor in the actual
cost of holding the stock, eg, warehousing
and storage fees, and then build this into
your pricing.
As a small business, try to limit your terms
to 14 days maximum, and make sure these
terms are understood and agreed upon by
your customer before a sale is made.
13
conservative the lowest value is usually used in
?nancial statements.
Strategic alliances
Another option is to join forces with a company
that complements your business, and agree to
leverage off each other’s strengths in order to
achieve a common goal. For example, a small
travel agent and a tour operator could work
together to obtain and provide services to
new business prospects. The travel agent could
market the tour operator’s itineraries on their
website, while the tour operator could conduct
the tours.
Convertible debt
This is a term used to describe debt ?nanc-
ing that has a feature allowing the debt to be
converted to equity, often at the option of the
investor, in the event of a default on repayment
terms. Other times the conversion feature can be
granted as a “sweetener”, providing the investor
with the option of converting debt into equity if
results are good.
Whichever route you choose, remember that
alternative ?nancing options can be tricky.
Unless you are an experienced business person,
it is always advisable to use a trusted consultant.
CASE STUDY: The cost of forex
A local entrepreneur recently started a
wholesale company (www.jewellerygallery.
co.za) importing upmarket costume jewellery.
Initial investigations at craft markets and
boutique owners in KwaZulu-Natal showed
a positive response. The products have
since been launched in South Africa. One of
the owner’s concerns, however, is how to
manage the ?nancial implications of selling
a product in Rands after a delayed period,
when it is initially paid for in forex. André
Joubert, general manager of MWEB Business,
responds:
“The obvious concern is that if you set your
prices in Rands, changes in the exchange
rate might mean you wind up paying more
for a batch of products than you can sell
them for. At the same time, you’d like to be
able to offer your regular buyers consistent
pricing in the local currency.
“Your best option is to investigate ‘forward
cover’, a type of foreign exchange insurance
that is available to businesses of any size.
You pay a ‘forward rate’ today, which covers
you for a set period against ?uctuations in
the currency tomorrow. It costs money, but
this can be built into your pricing structure.
The advantage is that it allows you to ‘?x’
your prices for extended periods, or at the
very least, minimise the impact of changes
in the exchange rate. You can therefore plan
accurately, without any nasty surprises.
“Think carefully about how far forward you
would like to cover yourself – the last thing
you want is to be covered at a rate that is
way in excess of the actual exchange. Your
bank should be able to advise you on how to
go about doing this.”
For more small business case studies, read
the Real Business supplement in Business
Day or visit www.realbusiness.co.za.
14 14
If you are a BEE small business owner it can be
a frustrating task ?nding information on how to
apply for government funding. Accessing avail-
able online information is dif?cult, and searching
the information super highway could quickly
lead to cyber road rage! Many websites give a
good indication of what government funding
can do for your business, but offer no assistance
on how to go about it. They also give no indica-
tion of what the criteria are.
However there is light at the end of the tunnel.
There are two support agencies to which you
can apply for funding, both of which are linked
to the South African Department of Trade and
Industry (the dti). They are Khula Enterprise
Finance Limited and the Small Business
Enterprise Development Agency (SEDA).
Khula was established in 1996 to facilitate
access to ?nance for SMEs. Khula is a wholesale
?nancier, which means that you do not apply to
Khula but rather to your local commercial bank,
retail ?nancial intermediary or micro credit outlet.
Khula ?nance is a good option for business own-
ers who have insuf?cient or no assets to offer as
collateral. To qualify for a Khula-supported loan
you will need to contribute 10% of the amount
you want to borrow, either in cash or equipment
that will be used in your intended business.
Bear in mind that an annual 3% fee is required
in advance for the duration of the loan. Khula
also provides services to guide and counsel you
in various aspects of managing your business.
Call: Toll-free helpline 0800 118 815
Email: [email protected]
Visit www.khula.org.za or visit a business
banking consultant at a Standard Bank branch.
Sting in the tail for BEE funding
We all know that the government offers funding to black-
empowered small business owners, but where do you apply
and what is required?
Helping BEE SMEs
Standard Bank has dedicated Business
Banking staff that assess the viability
of SME customers. The bank also has a
department dedicated to ensuring that
BEE SMEs can apply for ?nance in an
environment that fully understands their
needs.
Each province has a BEE Champion to
direct and drive BEE within the province,
and to assist various bank branches to
develop black business prospects and
opportunities.
For more information visit
www.standardbank.co.za.
14
SEDA is the dti’s new support agency for the
development of small business in South Africa,
and was formed through the merger of the
NAMAC Trust and Ntsika Enterprise Promotion
Agency. SEDA of?ces offer entrepreneurs help
with business plans, technical advice and mar-
keting, and information on exporting, tenders
and incentives.
The SEDA website includes small business fact
sheets that provide valuable guidance on various
topics, including ?nancial guidelines on:
• Writing a ?nancial plan for your business.
• How to ?nd ?nance, where to go.
• Preparing your business plan for presenta-
tion to a ?nancial institution.
• How to tender for business.
Call: 0860 103 703
Email: [email protected]
Web: www.seda.org.za.
Other options
15
There are two main types of organisations
specialising in small business ?nance –
whether you are black-empowered or not:
1. Those that lend directly to small
businesses – These organisations
consider loans to businesses that would
not usually qualify for a bank loan. They
are less strict on the criteria involved, but
are more expensive than bank loans. You
can approach Khethani Business Finance
(a non-pro?t organisation) New Business
Finance (a commercial small business) and
Business Partners (see website below).
2. Those that make access to bank
loans easier – Organisations like Khula
guarantee a portion of your bank loan while
you provide collateral for the remainder.
These companies take over the cost of
screening applications and reduce the risk
of lending through mentorship programmes.
Another option is venture capital, in which
investors provide funds in return for shares
in the business. After three to seven years,
they usually sell their shares back to the
original owner or to another investor.
Venture capitalists usually expect a 30%
return on their investment. For more info
see the Business Partners website
www.businesspartners.co.za.
The Black Business Supplier Development
Programme (BBSDP) is the dti’s cost-sharing,
cash grant incentive scheme, which offers
support to black-owned enterprises in South
Africa.
The scheme offers small businesses funding
for up to R100 000, and provides access to
business development services to assist in
improving their core business competencies
and managerial capabilities.
You qualify if:
• You are majority black-owned (51% or
more) and have a signi?cant representation
of black managers on your team.
• You have a maximum annual turnover of
R12 million.
• You have been in business for at least a
year.
• You are compliant with commercial
regulatory requirements in the relevant
areas of business, eg, registration with
CIPRO and SARS. See www.cipro.co.za.
How to apply
Obtain the information brochure, application
guidelines and an application form from
the dti Customer Contact Centre. Complete
the application form, attach a tax clearance
certi?cate and submit it to the dti.
For more information contact the dti
Customer Contact Centre on 0861 843 384 or
visit www.dti.gov.za.
Assistance from the dti
Getting to know you
Banks have changed in recent years and
are not as cold and unapproachable as they
may have once seemed. In turn, bank staff
are encouraging customers to be open and
honest about their small business needs.
Approaching your bank for expansion or any other kind of ?nance can be
nerve-racking, but don’t let it put you off. A positive attitude will help you
to start off on a good footing with your bank manager.
Ensuring that the relationship with your bank manager is open on both sides
is also vital. Issues such as access to ?nance cannot be done in isolation
and it is imperative that your business banker knows who you are and what
your company does. A strong relationship is key to ensuring that an overall
• Be open and honest.
• Provide as much information as possible.
• Interview your bank manager to ascertain if he or she understands
your business.
• Save time by providing information for your credit pro?le.
• Keep him or her informed of the developments within your business.
• Invite your banker to visit your premises.
Improve your relationship
16
17 17
solution is achieved in the ongoing process of
?nancing your business.
Why forge a relationship with your bank?
In the past, banks in South Africa may have felt
more like “Big Brothers” than business partners,
keeping customers at an arm’s length and not
seeming approachable at all. As a result, your
interaction with your bank may have been
limited to those times when you’ve stood at
the bank manager’s door with your hat in your
hands.
Fortunately, things have improved and these
days banks welcome – in fact prefer – building
a relationship with you. This has a number of
bene?ts for both parties.
• It helps to build up trust. Your bank gets
to know you and what you do. Today banks
encourage customers to keep them informed
of their business’s progress. You can do this
by sharing your dreams – and ?nancial results
– regularly. This approach could make future
interactions with your bank easier and quicker.
• Keeping your eggs in one basket is a
good thing. By keeping all your business in
one place, you can use your personal banking
pro?le and existing relationship to bene?t
your business. Your bank will be able to more
accurately calculate the risk of lending funds
to you, while you will be in a better position
to negotiate lower interest rates.
• It makes better business sense for every-
one. If your bank knows everything there is to
know about you and your business, it is easier
for them to assess you. Remember that your
banking consultant only knows what you tell
him or her. The more you share, the more he
or she can help you build up your business.
tips to help
the bank learn
your business
Supply your business banker with:
1. Videos and/or pamphlets of your
business or products.
2. Your business plan.
3. A pro?le of your business and its
founding members.
4. A paragraph on what your company
does (keep it simple).
5. Information on your biggest clients.
6. Accreditations, certi?cates or awards.
7. All telephone, cell phone and
fax numbers, email and website
addresses.
8. Information on your closest
competitors.
9. Your personal business background.
10. Compliance with relevant industry
standards or charters, eg, companies
in the building industry must have
a strong management pro?le that
includes BEE and a policy on providing
access to housing for disadvantaged
people.
17
Must-haves when working with your bank
• Ensure that you have updated ?nancial
information available, including a balance
sheet, income statement, cash ?ow
projections and management accounts.
• Is your business plan up to date? Does it
show what you are trying to achieve and
how you intend to achieve it?
• Show that you have the passion and
commitment to make your business work.
Believe in what you are doing and make the
bank’s money work for you.
• Think of your bank as an investor. It has a
stake in your business, so remember to treat
it as you would any other stakeholder.
18
Wind beneath your wings
We all wish for a fairy godmother, but did you know that one
in 10 start-up companies in the United States have angels on
their shoulders? And they could be heading your way soon …
Although not a widely known concept in South
Africa, angel investing is one of the better-
known forms of private equity in Europe and the
United States. It normally takes the form of a
loan or actual equity in the start-up company.
Angel investors who provide funding in return
for an equity stake have usually been entrepre-
neurs or have enjoyed business success them-
selves. They are often wealthy private investors
who put money into early-stage deals offered by
new business owners and companies that need
capital.
Unlike traditional venture capitalists, angels con-
tribute smaller amounts to businesses in the for-
mation phase. They also add non-monetary value
by taking an active interest in operations, usually
drawing on their own experience. Investments
typically range from R10 000 to R500 000, with
the “angel” expecting a return of ?ve to 10
times the original amount within about ?ve to
seven years. Angels tend to be more liberal in
their lending criteria than venture capitalists or
banks.
Will SA go the same route?
Venture capital activity in South Africa is not
the same as overseas. Here, investments are
mainly tied into management buy-outs and
mergers and acquisitions, none of which involve
?nancing start-up companies. This is because
major investors in South Africa are institutional;
?nancial decisions are based on a more
conservative model; and access to private equity
through the Johannesburg Securities Exchange
(JSE) is subject to rules and quali?cations.
Not surprisingly, these institutions have a
primary responsibility to their stakeholders and
• The term angel comes from the early
1890s when prosperous American
businessmen invested their money in
Broadway productions. This gave them
the opportunity to associate with the
theatre personalities they admired, as
well as the prospect of a return on their
investment.
• Ford Motor Company, The Body Shop
and Amazon.com all had angel money
backing before becoming the leading
giants that they are today.
• Angel ?nancing is one of the
largest sources of equity capital for
entrepreneurs in the United States.
Did you
know that …?
Angel investors usually look for small
companies that are too speculative for bank
loans and too young for venture capital.
Examples include the high-tech, retail,
personal and health services industries.
Angel investors usually prefer to invest
in industries they are familiar with. For
more information contact the South
African Venture Capital and Private Equity
Association or visit its website at
www.savca.co.za.
Is your business
a candidate?
19
cannot afford to take the same risks as the
self-made millionaire angel investor. Regulatory
restrictions also play a part – the American mar-
ket relies on a sizeable amount of self-regulation
(sometimes with disastrous results) whereas the
local market has strict laws.
As a result South Africa was spared some of
the excesses of the dot-com bubble, as was the
equally cautious British market. However, South
Africa still has a desperate need for start-up
capital. The government has recognised this and
supports initiatives in the SME sector, including
the South African Venture Capital and Private
Equity Association (SAVCA).
Currently, companies can approach angels for
?nancial help but must adhere to the rules set
by the regulatory bodies that govern them.
In the late 1960s Raymond Ackerman,
age 34, was unemployed after being ?red
from his position as general manager of
Checkers.
He wanted to build his own corporation
and had heard about a small Cape Town
chain called Pick ’n Pay, comprising three
supermarkets and one small credit store.
The owner wanted to sell it for R620 000,
but Ackerman could only raise R130 000
from his bank. Ackerman’s auditor found
60 shareholders – each of whom put in
capital ranging from R3 000 to R6 000. The
deal was structured in such a way that half
of the investment was equity and the other
half a loan. The bank then provided the
balance of the purchase price.
Ackerman had total control of the
company. Initially he only had stores in
Cape Town. A few years later he opened
Boksburg Hyper, at great personal risk to
himself and the company. The rest, as they
say, is history.
Says Ackerman: “There must be a reason
for taking risks in business and it must be
a good one.”
Raymond Ackerman
– a South African
success story
Angel investing can be risky as it is dif?cult
to predict long-term returns. Once an angel
invests in a start-up business his or her money
may not be accessed for an extended period
before the company goes public. As a small
business owner you may not want to include
someone else in your business because of
the added ?nancial burden if your business
does not perform. On the other hand, it may
be bene?cial to involve an experienced angel
investor who can provide advice on managing
your business and who has additional
resources that you can tap into.
The ups and downs of angel investing
20
Kick-start your business
If you want to get a business up and running in a hurry,
buying an existing one offers some obvious advantages.
But take care, there are also pitfalls.
Buying an established business is one way to
kick-start your ambitions. You can bypass the
start-up phase and evaluate what you’re getting
before you commit to it. Be aware, however, that
the seller could be making the business look
more attractive than it actually is.
You’ll need to put some serious work into
assessing the real worth of the business. Be pre-
pared to research the industry as a whole, how
the markets operate, who’s who and any other
factor that might impact on the business. Then,
get to know the business itself.
One of the quickest ways of doing this is to write
a business plan. This is also the most ef?cient
way of ensuring that the company survives
the change of ownership. Consider things like
whether or not the staff are well trained and
happy, and whether there are any pending
changes that might affect pro?ts. For example,
is a new shopping centre about to be built on
your doorstep, which may draw customers away
from you?
If you’ve been through these steps and feel that
you can make the same or more money than
the previous owner, then you may well be on to
a good thing. You’ll also have a great deal of
ammunition when you apply for ?nancial assist-
ance to help purchase or expand the business.
Provided you have done your homework and
prepared a sound business plan, ?nancing your
purchase through conventional channels should
be a formality.
For useful guidelines on purchasing a business
visit www.standardbank.co.za, or
www.brain.org.za or www.frain.org.za.
• It is less risky than starting from scratch
as you can easily assess what you’re
paying for.
• Existing equipment and stock may
have been bought at a reduced price
compared with its current cost.
• A customer base is already in place.
• Lines of credit are usually established
and available for you to use.
• Trained staff usually come with the
business, saving you the hassle and cost
of developing their skills.
• Licences and permits should all be in
place, obviating the need for you to
source them.
• Suppliers are generally willing to
continue to extend credit, so you don’t
have to go through the process of
establishing your credentials.
Why buy a
going concern?
21
Family business Texies Seafood is the biggest
independent retail chain of fresh and fast food
seafood in the Western Cape. Management
wants to expand, but doesn’t have the infra-
structure to do so. The company has considered
looking for an operational partner in Gauteng
(preferably BEE), or creating a franchise system
that will allow them to expand while adding
value to the community. André Joubert, general
manager of MWEB Business, offers a few words
of advice:
“Franchising is not a quick ?x. You would have
to take a long-term view and accept that dur-
ing the ?rst few years it is going to cost, rather
than earn, you money. For franchising to work
in Johannesburg, you have to have a very strong
franchising formula and be able to provide
comprehensive guidance and training. You will
also have to accept that you are no longer in
the business of ?sh, but rather in the business
of selling a concept to others and making them
successful.
“In your current situation, you’re looking for
support in order to expand in an all-new region.
As a franchiser, you would be providing the sup-
port – not receiving it.
“Bear in mind that the logistics and costs
involved in expansion – especially into a mar-
ket as competitive as Johannesburg – can be
enormous. First investigate ways of making
better use of your existing resources. What other
options are there to penetrate the Western
Cape market and build awareness of the Texies
Seafood brand? Are you sure that you have
exploited all the opportunities in your own back-
yard? Your time and resources would be better
spent focusing on this ?rst, before expanding
out of the region.”
For more small business case studies, read the
Real Business supplement in Business Day or
visit www.realbusiness.co.za.
CASE STUDY: Franchising your idea
If you are thinking of buying a franchise,
?rst visit the Franchise Advice and
Information Network (FRAIN) website. It
offers invaluable information on how to go
about becoming a franchisee or franchiser,
which franchise to buy into and the legal
rami?cations of owning a franchise. You can
also register your franchise on the website.
Visit www.frain.org.za or call them
on 0860 103 703. Alternatively,
contact the Standard Bank Franchise
Desk on (011) 636 6573 or email
[email protected].
What to choose?
22
Put yourself in the seller’s shoes
Don’t expect a seller to give away a hard-earned business.
Be reasonable and it is likely that a good deal can be struck.
When you consider buying a business, the ?rst
question to ask is why the seller wants out.
Typical reasons usually include retirement,
partnership disputes, personal relocation, family
problems and concerns, the need for a change,
illness or entering into another business venture.
Assuming that you are satis?ed that the sale is
for legitimate reasons and that both you and the
seller are honest brokers, it is only right that the
seller receive a fair price for the business.
But what is a fair price? It is human nature for
the seller to want to in?ate the worth of his or
her business. After all, he or she has probably
shed blood, sweat, tears and no small amount of
money on making it a success, and is entitled to
a reasonable return.
There’s also the goodwill factor. Here you might
want a lawyer or accountant to help quantify
this rather nebulous entity. If the seller has set
The value of a business is a moving target,
but you don’t necessarily have to hire a
professional to do it. One of the best methods
to use is the Income Multiple technique, in
which the income of a business is subject to a
certain multiple to arrive at a selling price.
Income (or “owner bene?t”) = the total
amount you can expect to extract or have
available from the business, based upon what
it has generated in the past. Calculate the
income multiple as follows:
Pre-tax pro?t + owner’s salary (and bene?ts)
+ additional owner perks + interest +
depreciation
Then choose a multiple to apply to this owner
bene?t ?gure. Small businesses typically
have a multiple of between one and three.
A one time multiple is best suited for those
businesses where the seller is “the business”,
eg, consulting businesses, professional
practices and one-man businesses.
Companies that have a strong track record,
repeat clients, historical pattern of growth,
more than three years in business and perhaps
some proprietary item or an exclusive territory,
will sell in the three times ratio. Also consider
the annual Return On Investment (ROI) that
you can expect to achieve when buying the
business – ie, the pro?t you’re likely to make
by the end of a year, less the purchase price.
Aim for a minimum 25% return.
Getting started:
• If you don’t know how to read an income
statement, then learn.
• Work with your accountant to determine
the true “owner bene?t” of the business.
• Calculate the selling price (see left).
• Determine your investment level and ROI.
• Ask the seller how the asking price was
established.
• Be certain that the business itself is right for
you!
The price is right … or is it?
23
up a string of good relationships with customers,
suppliers and investors, you need to quantify
how much this goodwill is worth to you. Always
bear in mind that you should only pay what
the company is worth, and it is therefore in any
buyer’s best interests to get an independent
professional valuation. For more information and
advice on buying a good business at a
great price, see Small Capital Issue 2
(May 2005), pg 26-27.
The Standard Bank website (www.
standardbank.co.za) offers a range of
hints and tips for anyone wanting to buy
a business. An important part of the risk
of buying a business is your ability to
sue the previous owner if he or she has
misrepresented the health of the business.
Be extra careful if the seller is about to
emigrate, or if all the assets are tied up in
trusts and other companies.
Improve your chances
– hire a lawyer
Words of wisdom
When buying an existing business, you
can only bene?t by having professional
legal help. Use a lawyer to draw up the
agreement and include the following:
• Conditions of the sale agreement.
• Detail of accounts receivable.
• A list of assets.
• A list of rights to business and trade
names.
• Details of existing contracts and how
these slot in to the business.
• An effective date of sale.
• The price for the goodwill component
that you will pay.
• Details of any warrantees that exist.
• A restraint agreement, if necessary.
• Details of how your purchase will affect
current employees.
• An indemnity clause to protect both the
buyer and seller.
Ask yourself:
What are your goals, and will the new business help you reach them?
Do you have the skills to pull it off, and if not, can you hire them? In small business,
employees are usually loyal to the original owner and you could lose as much as 80% of your
new staff within the ?rst 12 to 18 months after the change in ownership.
Who will help you run it? Review all of the management personnel of the company you are
thinking of buying. If they are not people you would normally consider hiring, don’t keep them.
Remember to include this in your sale agreement to avoid legal problems later.
24
Cleaning up your credit
When you fall into debt not only do you ?nd
yourself drowning in a morass of paperwork
and legal wrangles, but you also enter
a world in which demands, threats and
spiralling interest rates make you question
whether running your own business was ever
worthwhile.
Don’t wait until it’s too late to sort out a potential debt problem. It is not
something you need to be ashamed of, but it is something that should
be managed sooner, rather than later when the pressures have reached
insurmountable proportions.
A debt management plan (DMP) is your ?rst line of defence. A profes-
sional, certi?ed counsellor can assess your ?nancial situation, create a
spending plan and discuss the terms of your debts with creditors. By
negotiating lower interest rates and waived late fees, your advisor can
often arrange more affordable payments and shorter payoff periods. You
can also consolidate your debts into one convenient monthly deposit that
will disburse directly to your creditors.
25
Once you get your DMP in place and a bit of
professional help, it is amazing how quickly
your stress levels drop. Your creditors are more
likely to be understanding and accept that they
will be paid; your customers might pay up soon-
er and improve your cash ?ow; and the pressure
on you is reduced to manageable proportions.
How to avoid debt stress
Debt stress can have a profound effect on every
aspect of your life. You may ?nd that you are
experiencing certain changes in your personal-
ity. It’s possible that you are reacting inef-
fectually in situations, both at home and work,
whereas previously the solutions seemed to be
at your ?ngertips.
As with any condition that affects the day-to-
day running of our lives, the signs of debt stress
are obvious:
Denial
Shock
Numbness
Depression
Disorientation
Panic
Anger
Physical ailments (eg, insomnia)
If you have identi?ed certain symptoms of
stress, and have acknowledged that your stress
is related to debt, then it is time to identify the
source of that debt. Ask yourself why you now
owe more money than you can ever hope to
repay.
The answer may be related to retrenchment,
bad luck, bad money management, or
problems of a more personal nature such as
chronic credit, living beyond your means, or a
more serious issue such as drug addiction or
gambling.
Labelling the cause of your debt overcomes
the hurdle of denial and sets the course clear
for ?nancial rehabilitation. It is advisable to
seek specialised professional help for what you
have identi?ed to be the speci?c cause of your
money problems.
Few things in life cause more tension than a
debt crisis. Do not tackle this alone. Ask those
closest to you to help see you through this dif-
?cult time.
If you ?nd you need a debt counsellor, use
a reputable organisation and check what it
is going to cost, before signing up. In many
instances your bank can help you to:
• Pay less than your monthly minimums.
• Do a realistic debt settlement
programme based on your budget.
• Negotiate with your creditors to reduce
your unsecured debt.
• Stop many of the harassing and
threatening calls from your creditors.
• Remove inaccurate information from
your credit report.
• Avoid bankruptcy.
This is a legal procedure that can give
people who cannot pay their bills a fresh
start. Filing for bankruptcy may help you
shed unsecured debts, stop foreclosures,
repossessions and utility shutoffs. On the
other hand, bankruptcy will be part of your
credit record for up to 10 years. This means,
for example, that it will be dif?cult for you
to secure a bond to buy a home, among
other things. File for bankruptcy only as
a last resort after you have exhausted all
other efforts to solve a ?nancial crisis.
Can you deal
with bad debt?
Bankruptcy
26
Put your bank to work
To run your business successfully you need to manage your
banking ef?ciently and conveniently. Make sure you select an
option that meets your speci?c needs.
Time is money – and nowhere is this more so
than when it comes to running your own busi-
ness. No small business owner in their right
mind should still be spending hours every week
visiting a branch to do basic banking transac-
tions. If you’re reading this with a sheepish grin
on your face, it is time to explore the option of
Internet banking.
Internet banking is a safe and cost-effective way
to control your ?nances from the convenience
of your of?ce. It gives you the ?exibility of being
able to check your ?nances 24 hours a day,
seven days a week, which means you can keep
an eye on your business and its money at the
same time.
Standard Bank’s Domestic Banking offers a
range of business services, including the ability
to pay creditors and employees electronically,
stop payment of cheques and transfer money
between accounts. Other services include:
• Obtaining up-to-date statement information
on your accounts.
• Managing your investments.
• Loading multiple debit and credit payments.
• Transferring funds to and from your accounts.
• Better account reconciliation.
If you’re still not convinced, think of it this way:
banking online could save you a signi?cant
amount in basic charges, which helps make up
for the cost of connecting to the Internet in the
?rst place. For the less technically minded, there
is also always help available either online or
through bank call centres.
For more information on Standard Bank’s
Domestic Banking service visit
www.standardbank.co.za.
Connectivity basics
All you need to do Internet banking is a
standard PC equipped with a modem,
Internet browser software and an account
with an Internet Service Provider. If you
already have these, the next question is
which type of access should you choose?
ANALOGUE DIAL-UP works over your
existing telephone line. It is slow (56kbps –
kilobytes per second), but also cheap if you
only go online infrequently, for very short
periods. Costs include the normal phone
line rental, a monthly connectivity fee, and
Telkom call costs for time spent online.
DIGITAL DIAL-UP (ISDN) is between two
and four times faster than analogue. It is
proportionately more expensive, but you
can download more information in less
time. Costs include the installation of an
ISDN line by Telkom, monthly rental and
connectivity fees, as well as Telkom call
costs for time spent online.
ADSL gives you fast (512kbps) constant
access to email and Internet for a ?xed
monthly cost. There are three options,
based on the amount of information you
upload/download each month, which is
capped at either 3Gb (gigabytes), 6Gb
or 9Gb. It is up to eight times faster than
ISDN. Costs include the installation of an
ADSL line by Telkom and the monthly rental
and connectivity fees.
27
Balancing the costs of connectivity
The dial-up/ADSL shoot-out
Speed = time Time = money More time = more money
How long does it take to download a 10Mb
email attachment or Internet ?le?
Analogue 40-45 minutes
ISDN (64kbps) 20-25 minutes
ISDN (128kbps) 10-15 minutes
ADSL 3-4 minutes
How much will it cost per month, on average,
if you spend one hour online every day?
Analogue R770
ISDN (64kbps) R950
ISDN (128kbps) R1 500
ADSL R930
How much will it cost per month, on average,
if you spend two hours online every day?
Analogue R1 250
ISDN (64kbps) R1 450
ISDN (128kbps) R2 450
ADSL R930
Bear in mind that you can do more in one or two hours on the faster ADSL line (eg, download the equivalent of 15 x 10Mb ?les),
than you can on an analogue line (not even two x 10Mb ?les). For anyone who conducts aspects of their business online, ADSL – the cost of which
is expected to continue to drop over the next six to 12 months – will probably prove more cost-effective in the long run.
Still confused? Contact MWEB Business on 0860 100 127.
Saving costs by banking online won’t help if your phone bill suddenly
doubles as a result. This is unlikely to happen, but if your connectivity
costs are getting out of hand, it might be time to re-evaluate your
needs and change to an option that suits you better.
While analogue dial-up appears to the cheapest option, the real costs
of connectivity depend on how much time you spend on the Internet,
and how effectively that time is spent.
MWEB Business conducted the following “shoot-out” between
analogue, ISDN and ADSL, to see how each connectivity option
performs.
Figures are a rough guide only, and are based on standard costs.
28
It’s as easy as 1, 2, 3 … isn’t it?
Does “double-entry accounting” ?ll you with dread, income
statements make you head for the hills, and balancing the
balance sheet boggle your brain? Here are some simple tips to
help you tackle the accounting basics.
Whether you hire an accountant, beg a friend for
help, or keep your business’s books yourself, it
pays to have a good grasp of accounting basics
– especially when you’re ?rst starting out.
Cash or accrual?
When setting up your accounting system you
should decide whether you are going to use
the cash or accrual system. This decision also
determines how you will report your business’s
income and expenses.
Cash accounting is when records of income
and expenses are kept as and when the cash is
actually received or disbursed.
• Keep in mind that if you receive money on
30 December, which gives you a great fourth
quarter and, even if you deposit the money
in January, it is still part of your last quarter’s
income.
• Don’t deduct every cash expense immediately,
for example, larger purchases like equipment
depreciate over time and the expense has to
be amortised.
• Rent payments made in advance may only be
counted for the year in which they apply.
• If you receive or give goods and services as
payment it must be counted as income at fair
market value.
Accrual accounting. This method is used
when a transaction or sale takes place, not nec-
essarily when you get paid.
• For example, if you sign a contract for
R12 000 and get paid in instalments over
three months you must record an income of
The balance sheet shows a business’s
assets, liabilities and net worth and
is usually prepared at the end of an
accounting period – usually a preceding
month, quarter or year. By looking at the
accounts receivable line you are able to
compare cash accounts to the amount you
are owed. You can also track your long-
and short-term liabilities.
• Assets = cash and accounts receivable,
inventory and large equipment value,
prepaid expenses (rent deposits).
• Liabilities = accounts payable to your
suppliers, loans and tax liabilities.
• Net worth = your investment in the
business re?ected by liabilities on the
balance sheet (the amount the business
owes to its owners).
The income statement shows how
pro?table a business is by re?ecting all
income and expenses over a period of time.
Microsoft Of?ce Online offers a handy
?nancial and accounting template called
an “opening day balance sheet”, an Excel
spreadsheet provided by the Service Corps
of Retired Executives (SCORE). It allows
you to examine the ?nancial state of your
company as you open for business.
Visithttp://of?ce.microsoft.com.
Track your
business activities
29
R12 000 when the contract is signed, not
R4 000 a month as you receive the money.
• You must record an expense when you receive
the goods or services, not when you pay for
them.
Double-entry accounting
This is the foundation of all modern accounting,
and is a method of record-keeping that lets you
track where your money comes from and where
it goes. Using double-entry means that money
is never gained nor lost – only transferred. Not
only does this system aid the accurate calcula-
tion of pro?t and loss, it also makes it easier to
detect errors and fraud.
Remember the simple rule –
for every debit there’s a credit.
Example: If you purchase new equipment
it is counted as a withdrawal from your
bank account and an increase in expenses
(because it increases the amount spent on
equipment).
Formula: credit your cash account + debit
your equipment expense account = double
entry.
• The accrual method gives you more
accurate information on how your
business is doing from month to month
and year to year.
• Accrual is more effective in matching
income to expenses.
• Income is accounted for when it is earned
and not when you receive payment.
• Expenses are recognised when you are
liable for payment.
• Accrual also helps you smooth out peaks
in income and could lead to tax bene?ts.
• SMEs using a physical inventory are
required to use the accrual method while
service-based businesses tend to use the
cash method.
• CCs with over a certain amount of
average annual income are required by
law to use the accrual method.
• Accrual may also be used by partnerships
in which at least one CC is a partner.
• The cash method also has tax bene?ts if
an SME is able to pre-pay or defer some of
its expenses.
• You may combine both methods – using
accrual for sales and purchases of
inventory and the cash method for other
accounts.
• Watch out if you combine the two
methods – it could mean more work
for you, as the two systems need to be
maintained regularly.
Quick tips: making cash or accrual work for you
1 23
Double-entry
accounting:
rule of thumb
30
It might sound like basic common sense, but it
always bears repeating: a well-managed budget
is the foundation as well as the scaffolding that
you need to build your business successfully. It
helps you to keep an eye on the future while
tracking past performance. It tells you what you
can spend each year and how much you need to
make, thus helping you to set goals and priori-
tise your ?nances.
A good budget can also be the glue that holds
a partnership together, as it encompasses a plan
of action and can be used to calm egos when
partners don’t agree.
Remember, though, that budgets are not set
in stone and should be ?exible enough to take
advantage of unexpected business opportunities,
if and when they arise.
Make your money count
Managing your budget – however small – is central to the
success of your business, and it is the penny-pinching in some
areas that pays for the big ticket items in others.
If your business has grown to the extent
that you are employing staff, you must
start recording wages and salaries.
The main reason for this is that these
require entries in several different accounts
because of payroll and other taxes
involved.
Don’t forget:
• Salaries must be debited to a wages
expense account.
• Pay as You Earn (PAYE) taxes and UIF
payments are then deducted from the
employee’s salary.
• You must record your taxes as an
employer by debiting a payroll tax
expense account and crediting a liability
account such as a UIF payable account.
• When hiring someone include in the
employment contract the taxes that you
must pay as the employer as well as the
hourly rate and number of hours the
employee has to work.
• Include the cost to your company of any
employee bene?ts you offer.
For the low-down on employee tax visit
www.sars.co.za or www.labour.gov.za.
Recording salaries
31
How to get the most out of a budget
• Set speci?c goals, eg, increase turnover by
10% while keeping costs static.
• Use as much data as you can when planning,
eg, past ?nancial statements and invoices.
• Be sure that each expense category is a ?xed
expense that occurs each month on a set date
for a set amount, like rent.
• Variable expenses, such as advertising, can be
controlled by monitoring what you spend and
reducing or increasing it accordingly.
• Ensure that you have money set aside for
?xed or variable periodic expenses.
• Review your budget each month or quarter to
check expenses against your ?nancial plan.
You may be under budget in one category
and over budget in another. Find out why and
amend your budget accordingly.
• A budgeting tool is a must and should form
part of your software accounting package,
either in the form of a ledger you keep manu-
ally or an Excel spreadsheet.
Keep that cash ?owing
Cash ?ow, or the pattern of money coming into
and going out of your business, determines if
you stay in business. Manage it better by:
• Regularly reviewing when you expect to
receive money and pay it out.
• Keeping an eye on the three main cash ?ow
accounts – accounts receivable; accounts pay-
able; and inventory.
• Examining supplier and customer credit terms.
If you understand how these relate to each
other you can pre-empt potential problems.
• Analysing the accounts payable and accounts
receivable at the end of each month.
• Ensuring there are processes to keep cash
?owing in as well as out. For example, don’t
send out invoices at the end of the month,
send them as soon as the job is complete.
• Knowing when your customers pay you, and
when they fall behind. Consider technologies
that will help you achieve this, such as MWEB
Business’s GetPaid-Mobile, which enables you
to process credit payments while you’re on
the move.
• Offering discounts for early payment.
• Asking for a deposit. You can put the money
to good use while you ful?l the order.
Visithttp://of?ce.microsoft.com for Microsoft’s
Of?ce Online ?nancial statement templates.
These include Excel spreadsheets designed to
track cash ?ow and create cash ?ow projections.
To download a 60-day trial of Microsoft Money
(the computer accounting program) go to
www.microsoft.com/money/deluxe.
A builder would never use a chisel to
cement together the bricks of a house.
Likewise, small business owners should
always use the right tools when managing
their budget.
Microsoft Of?ce Online has an expense
budget tool that can help you track
budgeted and actual amounts and the
difference between the two. Ideally a
budget should cover a single accounting
period, eg, a month, as this gives you the
ability to compare monthly ?gures side by
side on a single spreadsheet.
Using simple formulas, Excel gives you the
option of viewing your business data on
one spreadsheet for one ?nancial year. It
also shows historical data to demonstrate
the business’s growth from year to year.
For more information visithttp://of?ce.microsoft.com.
Build a budget
using the right tools
32
The taxman and you
Start your relationship with the taxman on a positive note by
taking time to choose someone to help you with your books.
Whether you are an individual, a company, a
CC, a director, a member of a CC, a partner, a
sole proprietor, an employee or a spouse – if you
earn income in this country you must pay tax.
Selecting a tax advisor can be a tricky busi-
ness but be sure to interview him or her as you
would any other professional. You might not be
an expert in this ?eld (yet!) but think of it as a
learning experience. Meet with a few different
tax professionals and see who you feel most
comfortable with.
Six steps to ?nd a good tax pro
1. First meeting: Most tax professionals
charge according to an hourly rate, tax return
complexity and hassle factor. Get your act
together and take all the relevant documents
and information to your ?rst meeting as this
will cut down on the time (and money) he or
she spends searching for documentation.
2. Be early: Give your tax pro plenty of time
to prepare so that he can give the taxman a
more considered return.
3. Avoid rush jobs: Few will be open to taking
you on as a new client if you only call a few
days before the tax return deadline.
4. Extensions are ?ne: Rather send an accu-
rate return late than an inaccurate one on
time.
5. Don’t cheat: Don’t ask your tax advisor to
cheat the system – they don’t want to do it.
6. Training: The person helping to prepare
your taxes may not have any formal training
– some tax preparers work seasonally and
sometimes have little formal training beyond
a company course. Find out if this is the case,
and whether or not they have more highly-
trained professionals checking their work.
How to register your
company for tax
The easiest way to register your company
for tax is to visit the South African Revenue
Services (SARS) website, which gives you
the guidelines for registration and the
application forms. It also provides useful
information on registering yourself, your
company and your employees, as well
as advice on UIF, VAT, transfer duty and
various tax-related issues.
Visit www.sars.co.za or your local SARS
of?ce.
33
Questions to ask
What are his or her credentials? Tax pros
are normally certi?ed public accountants (CPAs)
who focus on tax issues; enrolled agents (EAs)
who specialise in tax issues; or unenrolled pre-
parers who may or may not have formal training.
Which area or clientele does he or she
specialise in? You need someone who is
familiar with the issues that affect you and your
business.
How much professional education does
he or she receive each year? Passing the
test as a CPA or an EA is not enough. Tax codes
and the interpretation thereof can change and
it is important for tax pros to keep abreast of
develop ments. Ideally they should complete a
certain amount of training each year.
With whom will you be dealing? You don’t
need to know how the tax pro’s back of?ce
operates, but you do need to know if he or she
is the one who will answer your queries.
What is his or her policy on returning
phone calls? Some tax advisors are notoriously
dif?cult to get hold of.
Will he or she be available outside of the
tax season? Tax pros who work seasonally
might only be available for the ?rst four months
of the year. If this doesn’t suit you, say so.
How much will he or she charge? Be
upfront about payment, it is your money after
all. Any tax pro should be able to give you a
good estimate once he or she has interviewed
you and checked your previous returns.
According to current tax law, legal
deductions include:
• Medical expenses in excess of R1 000 or
5% of taxable income.
• Retirement annuity funds – 15% of non-
pensionable income.
• Donations of more than R1 000 or 5% of
taxable income to public bene?t, which
includes universities, colleges, selected
educational funds, children’s homes
and organisations for the aged and Aids
sufferers.
Other deductions
• Determine your period of assessment
– for companies and CCs a normal year
is a tax year; individuals, sole traders and
partners in a partnership use 1 March to
the last day in February as their tax year.
• Calculate tax using your net pro?t
according to your income statement.
• You may deduct any expenses incurred
in the production of income.
• Bad debts can be deducted as long as
the original transaction that led to the
bad debt was included in your taxable
income for the previous year.
• If you operate your business from part
of your home you can claim a portion of
your expenses such as bond repayment,
rates, electricity, telephone and domestic
workers’ wages.
Need-to-know info
34
VAT is a tax levied on the supply of goods and
services. It is charged at a rate of 14% and is
borne by ?nal consumers of goods and services.
Some simple rules to remember are:
• You must register for VAT if your business’s
income exceeds R300 000 a year.
• VAT you charge is output VAT.
• VAT you pay to suppliers is input VAT.
• Output VAT – input VAT = VAT payable.
• Keep adequate VAT records for ?ve years.
• Complete a VAT return and submit it to SARS
with payments every two or six months (check
www.sars.co.za for guidelines).
• Include a VAT number on your invoices and
the words “Tax invoice”.
• Ensure that every invoice you receive from
your suppliers has a VAT number.
• Keep a record of all the invoices you receive
and issue.
• Develop a good system of tracking all your
input and output VAT.
You can use an Excel spreadsheet to keep track
of and calculate input and output VAT. Visithttp://of?ce.microsoft.com for downloads.
VAT need not
be taxing …
How to calculate
VAT payable
Total sales
including VAT x
Eg: Sales R228 000 x
= R28 000
35
VAT-free milk …
Depending on the nature of your business,
there may be certain items within it that
are VAT free. These include:
• Brown bread, milk, petrol and diesel.
• The sale of your business.
• Certain educational services, rail, bus
and taxi fares, home rental and life
assurance.
Visit www.sars.co.za to download their tax
guide for small businesses.
Typical mistakes to avoid
Not keeping your smaller receipts. Keep all
your receipts, even those for small amounts. They
might not be scrutinised by the tax pro but he
will need to have a record of them. For example,
a receipt for a small expense for entertaining a
client will need to be detailed – where you went,
who you went with, when you were there, etc.
Write your client’s name on the credit card or
cash slip, as well as the date and time.
Lumping equipment with supplies.
Equipment is capital expenditure that has to
be depreciated. Special rules allow most small
businesses to write-off a certain amount for tan-
gible personal property such as computers and
of?ce furnishings. These purchases must still be
reported as capital expenditure and use the spe-
cial method of expensing the costs. If you don’t
report this properly and deduct your computers
as supplies, SARS will probably rule that you are
not entitled to the deduction that you claimed.
Forgetting to track reimbursable expenses.
It is acceptable for small business owners to
pay for some business expenses out of their
own pocket or with a personal credit card, but
don’t forget to track these costs and submit the
expenses to your company for reimbursement.
You should also have a non-taxable
reimbursement plan in place for employees.
Miscalculating car deductions. There are a
number of ways to calculate deductions for vehi-
cle use. Here are some brief pointers:
• Take a standard mileage deduction per busi-
ness mile or a deduction for actual expenses
and include depreciation of the car. You can’t
claim mileage deduction and depreciation for
actual expenses.
• Switch between the two methods but be
careful – using standard mileage to calculate
actual expenses means you can’t depreciate
using the modi?ed cost recovery system. You
must use straight-line depreciation, which
usually yields a smaller deduction.
• If the vehicle is owned by the business, 100%
of the costs can be depreciated. Remember,
personal use of a vehicle by an employee has
to be included as part of their taxable income.
Giving more than you receive. There’s no
problem with being generous and giving gifts
to your clients and associates, but don’t go
overboard. Decide how much you want to spend
before you start buying gifts. SARS usually allows
the full amount for gift deductions but will inves-
tigate higher amounts, eg, an R80 000 car!
Did you know?
• As a vendor you must issue a tax invoice
if goods or services total R3 000 or more.
• If you receive goods and services worth
R3 000 or more VAT registration numbers
must also be included on the invoice.
• There are about 16 000 to 17 000
registered VAT vendors in SA.
• A common error when issuing tax
invoices is not including the purchaser’s
name and address.
• A new scheme for informal small retail
businesses, ie, spaza shops, has been
implemented to help simplify their VAT
and bookkeeping processes.
• To qualify for this scheme you must have
a turnover of less than R1 million a year.
For more information visit www.sars.co.za.
36
Calculating a
travel allowance
• Have an opening and closing odo-
meter reading for all business jour-
neys. Remember that the distance travelled
between home and work is not counted as
business.
• Keep an accurate logbook of distances
travelled. If a logbook is not kept and you
travel more than 32 000km a year, the ?rst
18 000km are counted as business and the
remainder as private. If you travel less than
32 000km, the ?rst 14 000km are counted as
private and the difference as business.
• Have a travel allowance. If you have a
travel allowance and have kept an accurate
logbook of the kilometres that you have
travelled, your claim will not be limited to
32 000km.
• Be aware of what the travel bene?ts
are. A travel allowance gives you a cash
?ow advantage because monthly PAYE tax
is calculated on only 50% of this allowance.
However, it can work against you if travel-
ling is not part of your everyday work or if
the distance travelled does not add up to the
allowance you receive. If this is the case, the
outstanding tax will be collected from you
when you submit your tax return.
For example, if you travel a total distance that
is less than 14 000km during the tax year and
do not keep a logbook, you will not be able to
claim against your travel allowance and will
be taxed on the full amount. If you receive an
allowance of 20 000km and your claim totals
only 10 000km, then you will be taxed on the
remaining 10 000km.
Let’s say that you own a vehicle with a
value of R47 250 and you receive a travel
allowance of R24 000 a year. During the
year of assessment you travelled 45 000km
and did not keep accurate records of
business and private trips. Your travel claim
would be calculated as follows:
Total kilometres travelled: 45 000
Less: kilometres for business use: 18 000
Kilometres for private use: 27 000
Fixed cost element*: R25 197
Fixed cost per kilometre:
Fixed cost (25 197)
= 56,0 cents
Km travelled (45 000)
Fuel cost element/kilometre 24,8 cents
Maintenance cost/kilometre 19,2 cents
Total cost/kilometre 100,0 cents
Total claim calculated:
Business km x total cost/kilometre
(ie, 18 000 km x 100 cents) = R18 000
* Fixed cost element depends on the vehicle
you drive. Visit www.sars.co.za for details
on how to calculate this.
Checklist for correct
travel expense claims
Keeping a record of all your company’s travel expenses can be
tricky – but is important. Here are some simple tips for staying
on the right track.
37
Electronic ?ling (eFiling) is wholly owned by
SARS and is a channel between SARS and the
taxpayer through which tax forms and tax
payments can be submitted online.
Standard Bank’s Business Online website
links into this online tax service through its
Domestic Banking section to enable the bank’s
customers to make online payments to SARS.
eFiling enables you to:
• View forms and related correspondence.
• Get a full payment and form submission
history online.
• Access help facilities and online guidelines.
• Receive reminders via SMS and email.
• Download and use any tax form, and do
payment tracking.
• Get electronic con?rmation of transactions.
• Request extensions and tax directives.
Access is available from the Business Online
home page. See www.standardbank.co.za andhttp://corporateandinvestment.standardbank.
co.za/.
For more information please call 0860 123 006
or email [email protected].
If you are a Standard Bank Business Online
customer then:
• Log on to www.standardbank.co.za and
click on “Domestic Banking”.
• Submit your tax payment using the
eFiling system. Payment instructions will
be submitted to Standard Bank Business
Online.
• Your payment will be processed into
SARS’ eFiling account. Business Online
will notify SARS eFiling of the payment.
• The eFiling system will match the
payment con?rmation received by the
taxpayer and submit a reconciliation
report to SARS.
• The taxpayer is billed for using the
system by Business Online.
• Business Online will generate a report to
SARS eFiling.
If you are not a Standard Bank customer
simply log on to www.sars.co.za to access
eFiling.
Low-down on eFiling
How to use eFiling
38
Analysing your vital statistics
You’ve been tracking your ?nancials like a demon. You’ve got
spreadsheets, ?gures and columns and columns of numbers.
The question now is what to do with them …
Analysing your company statistics not only pro-
vides valuable measurables to track the course
of your business, it can also be used to build
competitive advantage. This data can help you
set goals and determine how much you should
charge for your services or goods. By examining
the trends in your business you can plan ahead
and seize opportunities as they arise.
The kind of data you choose to collect depends
on the kind of business you are in. For instance a
retail store doesn’t have the same requirements
as a self-employed professional but both have
one thing in common: they bene?t from collect-
ing information about their customers.
As with anything in life, what you get out of
your information is only as good as what you
put in. Accuracy counts – particularly when col-
lecting personal information such as names and
addresses. Start building up a database that not
only includes basic customer information, but
which also details what they buy from you and
what other products or services they want.
In a new business you might not have histori-
cal sales and expense data at ?rst, but you can
always compare what you have budgeted for
with what you think you can earn. Setting sales
goals will help you to determine if your business
is on track. Collecting and analysing sales infor-
mation can help you to decide which products
and services you should continue to offer, or
stock more of, and which you shouldn’t. It will
also help you to establish if you have the right
sort of suppliers and all the employees that you
need.
Other bene?ts of data collection include pricing,
sales forecasting and managing expenses.
One of the challenges of running a small
business is dealing with its feast-or-famine
nature and it is not just about the ?ow
of business, but also the ?ow of cash.
Microsoft’s small business website www.
microsoft.com/southafrica/smallbusiness
offers the following tips:
1. Avoid slow-pay/no-pay customers:
Weed them out before they start owing
you money. If someone is about to
become a signi?cant customer, ?rst
check out their payment track record.
2. Use barter instead of cash: If you
need something from someone and can
offer goods or services of your own in
return, do it. This reduces the strain on
your immediate cash.
3. Trim your inventory: Money spent on
inventory is not producing any interest
or savings. Find clever ways to keep it
down. For example, a restaurateur can
cut back on the size of his wine cellar by
focusing on a smaller number of better
quality wines.
4. Consolidate your loans: If you have
several loans, review the rates and terms
of each. If you can, consolidate them
into a lower-interest account. You could
also consider extending the term in
exchange for lower payments.
quick tips for
improving
cash ?ow
39
How to reach your goals
Expanding your business means that you need
to know what volume of sales will cover your
costs. You need to establish how much to
charge for your time as well as the products
and services you sell. If you take out a loan
to help you expand, you will also want to
calculate how much you can borrow in order
to meet the repayments.
Microsoft Excel has a number of useful tools
to help you meet your day-to-day business
goals and score a few new ones. One of them
is the goal seek function, which is found on
the Excel spreadsheet under the tools menu.
The goal seek command allows you to
calculate the value of a formula you’ve written
equal to a goal you have set. Goal seek can
help you determine how many units you have
to sell in order to attain a certain income.
Goal seek also helps you to:
• Analyse your break even point
Using the Excel command you can plot your
business’s current level of expenses and
income and work out how many hours the
business needs to bill in order to cover its
costs.
• Do loan calculations
This is invaluable when determining the
amount of money you can borrow given a
set monthly repayment. Simply punch in
the term of the loan, or how many monthly
repayments you’ll need to pay it back, the
interest rate you expect to pay, the loan
amount and the amount of the monthly
repayment.
• Conduct a data tables analysis
This helps to determine how a small change
in price or the number of hours that you bill
can affect your bottom line. It helps you to
thoroughly analyse your business’s ?nancial
picture.
For more information, visithttp://of?ce.microsoft.com.
More useful
Excel tools
• SUM and average are the two most
used (and useful) Excel functions, and
are used to add up a column of numbers.
• The PV function calculates the present
value of an investment and can help you
decide whether to pay for equipment in
cash or through instalments over time.
• The FV function calculates the future
value of an investment, for example how
much an investment will earn over the
years as you contribute to it.
40
Ask yourself some questions: Why do sales go
up and down? Which of your products do you
sell the most of at certain times of the year?
What percentage of the orders you receive are
more than a set amount? The tools you need
to answer these questions are probably already
on your desk – most of?ce software packages
include a spreadsheet system, like Excel, which
allows you to select and ?lter certain informa-
tion about your business. Even if numbers aren’t
your strong point, you can easily convert these
statistics into graphs and charts to provide a
visual representation of business trends.
Sorting
Spreadsheets allow you to sort information
according to certain criteria, which helps you
identify groups or patterns of behaviour among
your customers. By loading the information
onto a spreadsheet, you could, for example, sort
your customers according to city, province or
even neighbourhood, to see where the bulk of
your business is coming from. You can also sort
according to product or date, to see which cus-
tomers bought which items and when.
Filtering
Filtering spreadsheet information allows you
to focus on speci?c areas. For example, Excel’s
AutoFilter function has a drop-down list that
enables you to select a particular value as a
?lter. This allows you to view things like best-
selling items, customers who buy the most, best
sales months of the year and so on.
Charting
Plotting your information on a bar chart can help
you to compare sales and expenses over a certain
period. Similarly a pie chart can help you see the
relative proportion of each category of expenses
as a part of the whole. A line chart will help you
to plot your sales over time. Programs like Excel
can create these charts automatically, while giv-
ing you a variety of graph types to choose from.
Pivot table
Pivot tables and charts are designed to let you
see information from different angles, either in
detail or in the form of a summary, without hav-
ing to set up more than one spreadsheet. This
is particularly helpful when you need to make
sense of lots of detailed data, for example, sev-
eral years’ worth of sales or expenses.
Microsoft offers a number of software options
for charting and analysing your business. For
more information see the Microsoft Small
Business Kit (ISBN: 0-7356-2054-7) or visithttp://of?ce.microsoft.com.
Tracking the ups and downs
Are your “best” customers also your most pro?table ones? And do they change from month to
month? Which should you keep and which should you let go? Identifying these trends will give
you new insight into how your business performs and – more importantly – why.
How to chart key business issues
41
If you’re starting a new business, or are thinking of upgrading your
software, choose something that is relatively easy to use and which
will allow you to conduct basic ?nancial management and analysis
by yourself. Look for a package that is speci?cally geared for small
business users, such as Microsoft Of?ce Small Business Edition
2003. Before you buy anything, check that it allows you to:
Prepare an overview of ?nancial performance: You will need
this for any bank or potential investor. Microsoft’s small business
template collection includes a PowerPoint template that allows you
to present customised ?nancial data.
Conduct a value product analysis: When you’re trying to
determine the best way to make your case to prospective customers
and clients, let the numbers tell the story. Excel includes templates
that help you to chart the bene?ts of your product or service against
the investment required.
Build a competitive points list: What are your strengths and
weaknesses? What do you offer that your competitors don’t?
The Word template found in Microsoft’s small business template
collection helps you to identify areas for improvement. It also easily
converts into a marketing piece that showcases your strengths.
Draw up a basic marketing plan: Having a great product or
service only leads to success when potential customers know about
it. You need a marketing plan that shows step by step how you
intend to reach your objectives. Excel has a template that outlines
the basics and helps you to understand how to put together a
detailed campaign.
Create a job performance review guide: As a busy owner/
manager, it can be hard to track performance on a regular basis.
Microsoft Word has a performance review guide template that
allows you to standardise employee reviews and track individual
performance over an extended period.
42
Work smart to give you the edge
No matter how small your business, the right suppliers can
make managing your ?nances a whole lot easier. Here’s how.
Are you the kind of business owner who is picky
about where you purchase your paperclips, or
who only prints out essential documents to
save on print costs? Well, that’s good. In the big
world of small business it is the little things that
count. Being fussy about how you run your day-
to-day business, and who you do it with, can
help to reduce your running costs and ultimately
improve your bottom line.
Start by choosing your suppliers intelligently.
Your Internet Service Provider (ISP), for example,
should be far more than just a connection to
the World Wide Web. Internet-based technolo-
gies are increasingly being used as the building
blocks for basic business systems, and a good
service provider should be able to show you how.
Get the most out of your ISP
Ask your ISP what applications it can provide
that will help you to manage your business
online. Besides electronic billing and website
creation and maintenance, this could include
business functions like online accounting, spend
The bene?ts of
managing business online
The cheque’s in the (e)mail …
Many small business owners are their own
worker, marketer, admin and ?nancial manager,
all rolled into one. And all too often, preparing
invoices and chasing late payments cuts
into valuable time that could be better spent
generating new business. This is where a tool
like eBilling can make a world of difference.
eBilling is an online facility that enables small
businesses to send invoices and statements
electronically, while giving customers the
option of paying online. For example, MWEB
Business’s eBilling facility allows you to track
how many bills or statements have been
sent, and to whom. It provides proof that a
document was sent to the customer and can
even track when the recipient read it.
Besides the obvious savings on paper, printer
cartridges, envelopes and postage, being able
to manage your invoicing system electronically
cuts labour costs, saves time and eliminates
confusion. It also means (at last!) that your
cheques de?nitely AREN’T in the mail …
For more information see www.mwebbusiness.
co.za/ebilling.htm.
Online business management is the next
technology step forward for small business
owners, and has a number of advantages:
• Cost effective – you don’t have to
purchase the software application/s.
• Up to date – by “leasing” the
applications you have free access to the
latest versions and virus protection.
• User friendly – you don’t need to be a
?nancial expert to use the programs.
• Completely secure – much like Internet
banking, online applications are secure,
encrypted and password protected.
• Convenient – you pay for what you use,
and use it for only as long as you need.
It replaces paper-based systems and is
available 24 hours a day.
43
management, goods procurement and payment.
These applications are typically developed by an
ISP like MWEB Business, and are stored on one
of their servers. Instead of purchasing the appli-
cation and loading it on to your own machine,
you access and use it via the Internet on a sub-
scription basis. You “lease” or rent it for as long
as you wish to use it, while your ISP ensures it is
bug-free, up-to-date and supported by a helpline.
Simply put, it is like a “virtual” admin depart-
ment that you can access and use in much the
same way as you would online bank accounts.
The use of online applications is based on the
principle that Internet connectivity is a tool with
which to make your business more effective,
more productive and therefore more pro?table.
It is also a way for you to ensure that your serv-
ice provider works as your business partner, and
does more than just send you a bill at the end of
each month.
For more information visit www.mwebbusiness.
co.za. Click on the eBilling or mobile commerce
links for examples of online applications.
Give your
cell phone credit
Using cell phone technology to make credit
card payments is a relatively new concept
to hit South Africa. It provides a quick,
simple and completely secure payment
solution for mobile businesses such as
electricians, plumbers, installers and
those selling goods from non-permanent
locations, such as ?ea markets. It helps
businesses to conduct secure transactions
from anywhere and receive immediate
payment, without hard cash changing
hands.
All you need is your cell phone and your
customer’s credit card. Once you sign
up for the service, you simply follow the
prompts to enter the transaction and card
details into the phone, and the transaction
is processed immediately. You will also
receive an SMS and email con?rmation
of the transaction, which you can then
forward to your customer.
Transactions can also be made using a
landline telephone.
For more information, see
www.mwebbusiness.co.za/
mobile_commerce.htm.
44
Managing business accounts requires time,
specialised accounting skills, and often a sophis-
ticated software application – all of which few
small business owners actually have. The launch
of MWEB Business’s online accounting facility
is one of South Africa’s ?rst examples of how
Internet-based technologies are helping to
remove some of these obstacles.
Being able to manage your accounts in a safe,
secure, online environment has several bene?ts:
• Because the application is stored on your ISP’s
server, you do not have to purchase an expen-
sive accounting package. You simply log on via
the web whenever you want to use it.
• You don’t need to hire special skills to use or
support the application – your ISP provides
24-hour trouble-shooting and support.
• Accounting tasks are faster and easier, from
paying bills and invoicing customers, to
tracking expenses and printing reports.
• All your business ?nancial information is
organised in one place, and you can access
these records 24 hours a day, from anywhere.
Your information is completely secure, but if
wish, you can give someone else access to it
(eg, an external book-keeper).
Account management is the ?rst in a number of
online applications that will soon be available on
the South African market. This includes MWEB
Business’s Spend Management tool, being
launched at the end of September. This web tool
will allow you to integrate and manage purchase
orders, leave requests and expense claims, right
through to payslip generation. Bear in mind,
however, that these applications are designed
for users with ADSL connectivity.
For information see www.mwebbusiness.co.za.
Get safety in numbers
There are numerous software applications to help you balance
your books. But when you ?nd one that suits your small
business environment, it often comes at a big business price.
It is natural to be concerned about security
when working with business information
online. If you are thinking of using online
applications, or are looking for a new
service provider, ?nd out what security
measures they have in place, ie, ?rewalls,
encryption and password protection.
Remember, though, that they can’t protect
you if you give out your details to a
stranger.
“Phishing“ is one of the latest forms of
fraud and is an attempt by criminals to
access your con?dential information.
You will either be requested by email to
provide your banking information or be
lured to a spoof website. Another phishing
method sends users an email from their ISP
containing links to a legitimate site. At the
same time a pop-up window will appear
requesting your credit card information.
If you suspect you are being “phished”,
under no circumstances should you interact
with the sender of the email, or provide
anyone with your personal or bank account
details.
If you are in any doubt about the source of
an email or request for such information
that claims to come from your bank, or
of the validity of a website, contact your
branch or service provider.
Hook, line and sinker
MWEB’s CommerceZone eProcurement
portal is a prime example of how ISPs are
growing their service offering to include
additional Internet-based tools for speci?c
segments of the small business market.
Strategic sourcing: If you sign on to
CommerceZone, you have access to a
range of goods and services that can be
tailor-made (within the CommerceZone
database) to meet your business
requirements. This portal provides you
with a full procurement management
function that includes sourcing, contract
management, service levels agreement
management and BEE certi?cation of
suppliers.
Specialised services: CommerceZone also
gives you the ability to handle complex
procurement transactions (rather than a
simple “select from catalogue” purchase)
by ensuring that they follow the same
order processes as simpler items.
This includes a print management
solution, which helps you to
secure the best price, quality
and service for complicated
print requirements, as
well as an in-house travel
management service.
For more information visit
www.commercezone.co.za.
45
Get in the zone
As a small business owner you can leverage
your existing relationships with your larger
suppliers and save cash by procuring goods
and services online.
Larger companies often pay a monthly licence
fee to a supplier or broker who then helps
them to access goods and services at lower
prices. Some companies, such as MWEB’s
CommerceZone, are offering their customers
the same opportunity.
Business-to-business (B2B) eProcurement
solutions can give you immediate, direct and
measurable savings and business bene?ts
based on strategic sourcing of indirect goods
and services. For example, if you purchase
a great deal of stationery, you could make
signi?cant savings by purchasing it online
through a facility like MWEB’s CommerceZone.
Besides having a positive impact on your
long-term cash ?ow, you also have the added
bene?t of getting as much value as possible
from an existing supplier (your service
provider) rather than having to create new
relationships with unknown ones.
The BEE-ne?t
Working this way can also help you to achieve
some of your broader business goals. For
example, MWEB’s CommerceZone ensures
that a greater percentage of your spend
is directed to bona ?de black empowered
organisations. Once you purchase online, you
receive a report outlining the BEE rating of the
supplier, in this way increasing your company’s
exposure to BEE businesses.
Why buying online makes business sense
Ability to pay: A borrower’s ability to meet their
current and future debt obligations.
Accountant: One who is skilled in the practice of
accounting or who is in charge of public or private
accounts, and is responsible for reporting ?nancial
results – for a company or for an individual – in
compliance with government regulations.
Account balance: The amount of money in an
account, equal to the net of credits and debits at that
point in time for that account. Also called balance.
Accounting: The systematic recording, reporting, and
analysis of ?nancial transactions of a business.
Accounts payable: Money that a company owes
to vendors for products and services purchased on
credit. This item appears on the company’s balance
sheet as a current liability, since the expectation is that
the liability will be ful?lled in less than a year. When
accounts payable are paid off, it represents a negative
cash ?ow for the company.
Accounts receivable: Money that is owed to a
company by a customer for products and services
provided on credit. This is seen as a current asset on a
balance sheet. A speci?c sale is generally only treated
as an account receivable after the customer is sent an
invoice.
Accrual basis accounting: The most commonly
used accounting method, which reports income when
earned and expenses when incurred, as opposed to
cash basis accounting.
Active asset: An asset that is used in the daily
operations of the business.
Angel investor: An individual who provides capital
to one or more start-up companies. The individual is
usually af?uent or has a personal stake in the success
of the venture. These investments typically have
high levels of risk and potentially large returns on
investment.
Asset ?nancing: Financing for which assets are
converted into working cash in exchange for a security
interest in those assets. The most common kind of
asset ?nancing is to extend loans against accounts
receivable. Other kinds of asset ?nancing, such as
lending against inventories, are also common practice.
B2B: Or Business-To-Business is a transaction that
occurs between two companies, as opposed to a
transaction involving a business and a consumer. The
term may also describe a company that provides goods
or services to another company.
Back taxes: Taxes that were not paid when they
were due.
Balance sheet: A quantitative summary of a
company’s ?nancial condition at a speci?c point in
time, including assets, liabilities and net worth. The
?rst part of a balance sheet shows all the productive
assets a company owns, and the second part shows
all the ?nancing methods (such as liabilities and
shareholders’ equity). Also called statement of
condition.
Bank credit: The borrowing capacity provided to an
individual by the banking system, in the form of credit
or a loan. The total bank credit the individual has is
the sum of the borrowing capacity each lender bank
provides to the individual.
Bank reconciliation: The process of adjusting
an account balance reported by a bank to re?ect
transactions that have occurred since the reporting date.
Bankruptcy: A court proceeding in which an insolvent
debtor’s assets are liquidated and the debtor is relieved
of further liability.
Books of ?nal entry: Accounting ledgers where
information is transferred from the books of original
entry.
Bottom line: Gross sales minus taxes, interest,
depreciation and other expenses. Also called net
earnings, net income or net pro?t.
Break-even analysis: A calculation of the
approximate sales volume required to cover costs
of a business, below which production would be
unpro?table and above which it would be pro?table.
Break-even analysis focuses on the relationship
between ?xed cost, variable cost and pro?t.
Budget de?cit: The amount by which a government,
company, or individual’s spending exceeds its income
over a particular period of time. Also called de?cit or
de?cit spending and is the opposite of budget surplus.
Business credit: A bank loan to a company. Also
called commercial lending or commercial credit.
Capital: Cash or goods used to generate income. Also
the net worth of a business – the amount by which its
assets exceed its liabilities.
Cash budget: A forecast of estimated cash receipts
and disbursements for a speci?ed period of time.
Cash cycle: The length of time between the purchase
of raw materials and the collection of accounts
receivable generated in the sale of the ?nal product.
Also called cash conversion cycle.
Cash ?ow: A measure of a company’s ?nancial
health. Cash receipts minus cash payments over
a given period of time; or net pro?t plus amounts
charged for depreciation, depletion, and amortisation.
Glossary of terms
46
Character loan: A loan based on the reputation
and/or personal credit history of a borrower, rather
than collateral.
Cash ?ow statement: A summary of a company’s
cash ?ow over a given period of time.
Chart of accounts: A list of all account names and
numbers used in a company’s general ledger.
Collateral: Assets pledged by a borrower to secure a
loan or other credit, and subject to seizure in the event
of default. Also called security.
Cost accounting: The process of identifying and
evaluating a company’s production costs.
Creditor: A person or organisation which extends
credit to others.
Credit scoring: A statistical technique used to
determine whether to extend credit, and how much,
to a borrower.
Debit: An accounting entry that results in either an
increase in assets or a decrease in liabilities or net
worth.
Debit balance: The amount that a business or
individual owes a lender or seller.
Debtor: An individual or company that owes debt
to another individual or company (the creditor), as a
result of borrowing or issuing bonds.
Deposit: Money given in advance to show intention
to complete the purchase of an item. Also money
transferred into a customer’s account at a ?nancial
institution.
Equity capital: Capital raised from business owners.
Fee-based ?nancial planning: Financial planning
services that are paid for on a ?at fee or hourly basis,
rather than on a commission basis, to eliminate
potential con?icts of interest.
Finance: The management of assets, especially
money. Can also mean to raise money through the
issuing and sale of debt and/or equity.
Financial asset: A non-physical asset, such as a
security, certi?cate, or bank balance.
Financial statement: A written report that describes
the ?nancial health of a company and includes an
income statement, a balance sheet and a cash ?ow
statement. Financial statements are usually compiled
on a quarterly and annual basis.
Fixed asset: A long-term, tangible asset held for
business use and not expected to be converted to cash
in the current or upcoming ?scal year, for example,
manufacturing equipment, property and furniture.
Fixed-rate loan: A loan in which the interest rate
does not change during the entire term of the loan.
General ledger: A book of ?nal entry that
summarises a company’s ?nancial transactions, by
using debit and credit accounts.
Gross: The total amount before anything is deducted
or 12 dozen (144).
Gross earnings: An individual’s taxable income
before any appropriate adjustments are made.
Gross pro?t: Pre-tax net sales minus cost of sales.
Also called gross income.
Guaranteed bond: Corporate bond where principal
and/or interest payments are guaranteed by a
corporation other than the issuer.
Hidden asset: An asset not immediately apparent
from a balance sheet.
Impaired credit: The result of a reduction in the
credit rating of a borrower.
Income statement: An accounting of sales, expenses
and net pro?t for a given period.
Income tax: Annual tax levied by the Government,
most states, and some local governments, on an
individual’s or corporation’s net pro?t.
In?ation rate: The percentage increase in the price
of goods and services, usually annually.
Insolvent: Unable to meet debt obligations.
Intangible asset: Something of value that cannot
be physically touched, such as a brand, franchise,
trademark, or patent.
In the black: Pro?table. Opposite of in the red.
Inventory: A company’s merchandise, raw materials,
and ?nished and un?nished products, which have
not yet been sold. These are considered liquid assets,
since they can be converted into cash quite easily.
There are various means of valuing these assets but
to be conservative the lowest value is usually used in
?nancial statements.
Investment management: The process of managing
money, including investments, budgeting, banking and
taxes. Also called money management.
Liability: A ?nancial obligation, debt, claim, or
potential loss.
Net worth: Total assets minus total liabilities of an
individual or company. For a company, also called
owner’s equity, shareholders’ equity, or net assets.
Value Added Tax: VAT – consumption tax which is
levied at each stage of production based on the value
added to the product at that stage.
47 47
Where to learn more
Please note: The Real Business partners do
not endorse the following resources in any way.
These are intended as information reference
points only. For other general training and online
resources for small business in South Africa,
please see Small Capital issues 1 and 2.
www.thedti.gov.za
The of?cial website of the
Department of Trade and Industry.
www.khula.org.za
Information on Khula credit guarantees for small
business.
www.frain.org.za
Franchise Advice and Information Network.
www.brain.org.za
The South African Business Referral and
Information Network, which offers value-added
information to SMMEs.
www.businesspartners.co.za
Business Partners provincial of?ces.
www.smallbusinessonline.co.za/
seminars.htm
Financial management training for small
businesses, offering access to ?nance for
franchising.
www.realbusiness.co.za
Also see the Real Business printed
supplement in Business Day on the third
Monday of every month.
www.mwebbusiness.co.za
MWEB Business sales: 0860 100 127
(email [email protected])
www.microsoft.com/southafrica/
smallbusiness
0860 225 567
(email [email protected])
www.standardbank.co.za
0860 012 345
(email [email protected])
Your small
business partners
Small business resources
48
49
www.fsp.co.za
Tips, information and ideas on business and
?nances plus advice from experts in business,
personal ?nance and tax.
www.small-business-hub.co.za
Small business loans, business plans, business
opportunities and ?nance for South African
entrepreneurs.
www.saeverything.co.za/
businessrequisites.htm
South African business resource portal.
www.mbendi.co.za/idc/?nance/apply.htm
Details of the ?nance required from the
Industrial Development Corporation (IDC) for
medium, small and start-up businesses.
www.saguides.co.za/BO.htm
The SA guide to business opportunities
webpage, containing information on venture
capital and other sources of ?nance, as well as
BEE and VAT.
www.microsoft.com/sbs
For information on the Windows Small Business
Server 2003 – the affordable networking
solution for small businesses.
www.microsoft.com/southafrica/experts
Find the perfect technology partner – for
information on organisations with technical
expertise, strategic thinking and hands-on skills.
BG0003B
issue two June 2005
The Small Capital practical guide
is proudly brought to you by:
Produced by Words’worth (011) 381-7700
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doc_665594532.pdf
Abstract explain a practical guide for small business owners.
The
money
issue
Securing ?nance
Managing ?nance
A practical guide for
small business owners
issue three September 2005
1 23
Turn yourself into an expert
Why small business owners
have to be ?nancial
managers
02
28
As easy as 1, 2, 3 …?
Accounting basics; the double-entry
rule of thumb; making your money
count; tools to build a budget
18
Wind beneath your business wings
The ups and downs of angel investors; local options;
Raymond Ackerman – a South African success story
04
Banking on credit
Must-haves for bank ?nancing; vital
info checklist; equity vs loan capital;
why banks decline loans
12
Creative ?nancing
Where else to ?nd capital; the cost of
forex; talking terms; BEE funding
16
Getting to know you
Improving your relationship with your
bank; helping the bank to understand
your business
20
Kick-start your business
Buying a going concern; franchising
vs growth; put yourself in the seller’s
shoes; valuing a business
24
Cleaning up your credit
Dealing with bad debt; bankruptcy – a
last resort; avoiding debt stress
26
Put your bank to work
Banking online; connectivity basics;
balancing the costs of connectivity
32
The taxman and you
Choosing a tax professional; registering
for VAT; VAT basics; typical tax mistakes;
travel allowance checklist; eFiling
38
Analysing your vital statistics
Using statistics to reach your goals;
useful tools; identifying trends;
business issues
42
Smart relationships
Choosing the right ISP; paying by cell
phone; using the Internet as a business
tool; online ?nancial management
46
Financial glossary of terms
PLUS where to learn more – must-see
websites and useful contacts
01
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“Finance, schminance …”
… heard it all before? Securing ?nance and managing
it wisely are two of the toughest challenges facing small
business owners in South Africa. Are you reaching for the
headache pills already? Then read on.
If approaching the bank for a loan or any kind of ?nance leaves you cold, there are some simple
solutions to ensuring that the buck doesn’t stop here.
This Small Capital handbook is the third in a series of practical guides that provides essential advice
and need-to-know info for small business owners in South Africa.
This issue explores why strong ?nancial management is key to securing your business’s future. It
covers everything from ?nding bank ?nance, tackling investors and approaching government, to
managing debt, credit and ?nancial relationships with banks, suppliers and customers – just what
you need to avoid that ?nancial hangover.
Turn yourself into an expert
You run a business that is in the business of making money
– but are you managing your own ?nances properly?
Sound ?nancial management is part of every-
thing that you do. Whether it be sales, produc-
tion or personnel, good ?nancial management
helps you to deal with each of these functions
ef?ciently.
All your activities have a ?nancial implication
– directly or indirectly – and good organisation
is a must if you want your business to be pro?ta-
ble. You need to know exactly how your business
is doing and how successful you want it to be.
Having good systems that you can manage
easily and effectively help you to cope with
unexpected demands and deal with the everyday
running of your business in a planned manner.
But it is not just about bookkeeping. Proper
?nancial systems enable you to:
• Keep track of how your business is doing.
• Manage cash ?ow, work?ow and meet
deadlines.
• Monitor how well things are being done and
establish levels of customer satisfaction.
• Improve your ability to do things right the ?rst
time.
Legislative issues are a major challenge for small
business owners in South Africa, and proper
systems help to ensure that the basics are taken
care of so that you can get on with the business
of doing business.
For example, you need to develop a good tax
and Unemployment Insurance Fund (UIF) system
to manage the daily running of your business
and to enable you to retrieve information as
quickly as possible. If SARS requires information
on your employees you have to be able to ?nd
and provide the correct PAYE and UIF informa-
tion (as well as your own) almost immediately.
Not keeping the necessary employee records, or
not being able to access them easily enough,
can have harmful rami?cations for your business.
In a nutshell, ?nancial management helps you
2
Financial manager
vs bookkeeper
A ?nancial manager is concerned with
planning, policies, controls and procedures,
while a bookkeeper records normal
business transactions in accordance
with the instructions established by an
accountant. The accountant may help
to select and train the bookkeeper as
well as provide technical supervision.
The accountant normally reports to the
?nancial manager, but in the case of a
small business, the same person might ?ll
both roles. The ?nancial manager could be
the business owner or an outside expert,
depending on the size of the business, its
?nancial complexity and the capabilities of
the owner.
In many instances, the small business
owner handles day-to-day ?nancial
management and uses an accountant
a few times a year to deal with more
specialised tasks such as preparing
year-end statements and expanding the
business. Most of?ce software systems
include ?nancial management tools that
are ideal for small business owners. For
example, Excel spreadsheets can be used to
prepare sales forecasts, income statements
and cash ?ow projections. For more
information on ?nancial and accounting
templates visithttp://of?ce.microsoft.com.
to obtain the ?nancial statements you need to
measure your company’s success, meet govern-
ment requirements and gather facts for making
sound management decisions.
It also allows you to analyse how pro?table
certain activities are, so that you can take advan-
tage of those that make more money for your
business, and eliminate those that don’t.
As a small business owner, your
responsibilities include keeping records,
preparing budgets and forecasts, cost
accounting, exercising internal controls,
preparing government reports (where
applicable), obtaining and monitoring
insurance and data processing.
Other important functions include
analysing data and determining how
your company is performing, making
recommendations about whether
to expand or downsize, as well as
coordinating your personal ?nancial and
tax goals with those of the business.
• Handle company ?nances with the aim
of maximising pro?ts while maintaining
liquidity and ?nancial stability, with or
without increased sales.
• Protect company assets from employees
and outsiders.
• Plan ?nancially to achieve company and
personal goals, including non-?nancial
company goals (such as having the best
premises you can afford or offering the best
quality products) and owner goals such as
security, retirement, or leisure activities.
• Prepare ?nancially for unknown
developments such as new technology,
competition and customer needs, changes
in the economy and legislation. This also
includes planning for the continued life of
the company.
3
Your money management systems should enable you to:
What does a
?nancial manager do?
It is said that you need money to make money,
and many small business owners in South Africa
?nd themselves in this Catch 22 situation when
applying for ?nance. It can be a slow, frustrating
and sometimes disappointing process.
There are four main reasons why South African
banks are wary of granting loans to small busi-
ness owners.
These include:
1. Your contribution (or capital injection) into
the business speaks volumes. If you have
contributed little or no equity to the business,
banks will be wary of granting you a loan.
Remember that banks don’t ?nance business-
es, they ?nance operating assets and working
capital. So if your business is under-capitalised
it may be dif?cult for you to raise a bank loan.
2. Your small business may not have a structured
balance sheet as many SMEs typically do not
keep accurate books.
3. Your business might not have a strong cash
?ow. The bank must be satis?ed that you will
be able to repay the loan, but this can prove
dif?cult if your cash ?ow is strained.
4. You may lack the necessary business manage-
ment skills to run a small business.
Having an existing relationship with the bank
will certainly help in your efforts to secure a
business loan. For example, at Standard Bank
the turnaround time for loan requests is much
quicker if you have an existing current account
that is well conducted.
Turnaround times on loan agreements differ
depending on the type of application and the
extent to which the bank is provided with the
required information upfront. Standard Bank’s
4
Are you banking on credit?
Your business is up and running and in need of a cash
injection, so you’ve decided to approach your bank for a loan.
But getting it might not be that easy …
Who can help?
• Business consultants situated in
Standard Bank branches across the
country.
• Standard Bank website:
www.standardbank.co.za.
• Visit the BRAIN website at
www.brain.org.za for a list of other
?nancial institutions and what they
offer small business owners, or call
BRAIN on 0860 103 703.
usual turnaround time for a small, simple
request from an existing customer, is 48 hours.
However, in general, a request for an application
for a new customer, where ?nancial statements
need to be assessed, may take longer.
If you apply for a more involved, less straight-
forward loan, such as Khula credit, the process
can take up to three or four weeks. For more
information on Khula see page 14.
Some banks have specialised business managers
who are speci?cally trained to provide assistance
and process ?nance applications for small busi-
ness customers.
For more information, visit your local Standard
Bank branch or call the helpline for business
banking customers on 0860 012 345.
5
Must-haves for bank ?nance
Constraints
facing SMEs
The unfortunate reality is that there are
many constraints facing small business
owners who need ?nance. The main
problem is that as talented as you might
be in a particular ?eld, you might not have
all of the competencies needed to ensure
the viability of a small business. There is
greater potential for such a business to fail,
which is why banks are often reluctant to
approve a loan application.
This is exacerbated when:
• The application shows a lack of
feasibility or pre-screening.
• The business plan is poor – possibly
as a result of being drawn up by a
consultant, with little input from the
owner.
• The proposed business plan is based
on unsustainable margins.
In general, banks prefer to offer asset
?nance rather than a general business
loan, because they can use the asset itself
as part of the collateral. If you fail to pay
back the money, they can take back the
asset, and in this way their risk is reduced.
You need collateral – Before lending you
money most banks will ask for collateral or
security. Collateral is any asset that you own
and promise to hand over to the lender if you
cannot pay them back. This includes a house,
a building, investments, savings or any other
asset. Unfortunately, the smaller your business,
the more collateral the bank may demand,
as you are perceived as being a high risk.
The irony is that the smaller you are, the less
collateral you are likely to have.
Be patient – One of the most frustrating
things about applying for ?nance is that
there can be long delays in processing your
application and granting a loan. Ensure that
you provide all the necessary documentation to
reduce the time taken.
Clean up your credit record – If you have a
bad credit record, even if it dates back years,
it works against you when you apply for
assistance from a bank. Before you even apply
for a loan do everything you possibly can to
settle your old debt and clear your name. Be
totally open and upfront about it with your
bank. See page 24 for tips.
Be ?exible – The four main banks in South
Africa all have special divisions for small
businesses. Even though banks regard lending
to small businesses as risky, they are required
by the Financial Sector Charter to promote this
sector.
6
The documents required for loan applications vary according to the type of business that you run, and compiling these can be a job
in itself. That’s why, when you walk into a bank, you should be prepared for any eventuality. Use this checklist to ensure that you
have everything you need for the bank to process your loan application quickly and ef?ciently.
Sole proprietors
and sureties
Close corporations Companies Trusts Partnerships
Copy of ID document Registered founding
statement (form CK1)
or amended founding
statement (CK2)
Certi?cate of
incorporation
Trust deed Partnership
agreement (if it
applies)
Proof of income Annual founding
statements/
management
accounts*
Certi?cate to
commence business
Letter of authority Annual ?nancial
statements/
management
accounts*
Signed statement of
assets and liabilities
12-month cash ?ow
forecast
Certi?cate of change
of name (if it applies)
Annual ?nancial
statements/
management
accounts*
12-month cash ?ow
forecast
12-month cash ?ow
forecast
Memorandum and
articles of association
12-month cash ?ow
forecast
Copy of ID
documents
Annual audited
?nancial statements/
management
accounts*
Copy of ID
documents
List of directors/
shareholders
12-month cash ?ow
forecast
Copy of ID
documents
* If company is older than six months.
ID
EN
TITY D
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CU
M
EN
T
ID
EN
TITY D
O
CU
M
EN
T
ID
EN
TITY D
O
CU
M
EN
T
ID
EN
TITY D
O
CU
M
EN
T
ID
EN
TITY D
O
CU
M
EN
T
ID
EN
TITEITSD
O
KU
M
EN
T
ID
EN
TITEITSD
O
KU
M
EN
T
ID
EN
TITEITSD
O
KU
M
EN
T
Save time – and money
7
Some South African banks use the behavioural
scorecard method to work out how much they
are prepared to lend you.
This system calculates your credit rating by
analysing patterns of behaviour in how you have
conducted your account. For example, if you
have issued a cheque without the funds to cover
it, this will work against you in your scorecard
rating. If you ?rst informed the bank that this
might happen, it could work in your favour.
Whether you are a ?rst-time loan applicant who
has no history with the bank, or an existing cus-
tomer whose requested amount exceeds what
the bank would normally be willing to grant, the
type of information required for the application
are more or less the same.
You will need to supply:
? Your business address, telephone and fax
numbers and email details.
? Income tax and VAT numbers.
? Annual turnover ?gure.
? Two trade references.
? Description of your business, including
product or service offered, customer and
competitor information, how you get your
product/service to your customers, etc.
? Type of business entity, eg, sole proprietor or
close corporation.
? Details of existing bank accounts or credit
with the institution.
Use the table opposite as a checklist for addi-
tional documents needed.
Check list of
vital info and documents
It takes patience (and paperwork!) to apply for a loan, and it
helps to be prepared and well organised when compiling the
essential documents.
Reading the small print
Once a loan is granted, the terms and
conditions of the agreement are con?rmed
in writing and a letter of grant or offer is
signed. The letter of grant includes:
• The size of the loan.
• Its intended use.
• Collateral details.
• Details of the principal debt.
• Instalment details.
• Fees and interest.
• General terms and conditions.
If you feel that you are drowning in
legalese when reading these agreements,
you’re not alone. Ask your business
banking consultant what the small print
means. Banks and their staff are required
by the Financial Advisory Intermediary
Services (FAIS) Act to help customers
understand the documents they are signing
and what the possible implications are.
Don’t be afraid to ask.
8
Show me the money …
There are several ?nance options available to entrepreneurs
who want to grow a small business into a bigger one. And
choosing the right type of ?nance could determine whether
you sink or swim.
Most businesses usually use a combination
of loan and equity capital to balance the
pros and cons of each.
Loan capital allows you to pay the money
back over a period of time and keep
control of your business. However, because
you have to start repaying the loan
immediately, it is worth keeping the loan
amount (and therefore the repayments) as
low as possible.
Equity gives the other party some control
over how the business is run while also
reducing your risk. Even if your business
does not succeed, you will only be liable
for a percentage of what is owed.
Banks are more likely to grant loans
to business owners who have already
invested some of their own money, as
this demonstrates their commitment and
con?dence.
Loan vs own
There are two main sources of ?nance open to
small business owners: loan capital and equity.
Equity is money invested in the business from
either your savings or your family and friends.
Formal equity may come from public or private
venture capitalists, business partners or public
stock companies.
Equity
Equity ?nance is the capital granted by a person
or institution that takes a share of your company
in return for its money. This is normally used for
small businesses that have good prospects for
fast growth and above-average returns.
To attract equity ?nance your business needs to
have a good track record or a competitive prod-
uct or service. You are also required to have the
experience and ability to run your own business.
Investors will want to see growth potential and
have a good idea of what the return on their
investment will be.
There are disadvantages to ?nancing a small
business with equity. Firstly, you have to share
ownership with the investor. Secondly, it can
prove costly, as you also have to share the
pro?ts.
Loan capital
Loan capital is money that you borrow from
personal contacts, banks or credit lenders,
usually in the form of personal loans, business
loans, credit cards or other lines of credit. The
main disadvantage of loan capital is that the
9
repayments negatively affect your cash ?ow
each month. Therefore, banks will usually advise
you to apply only for the amount of ?nance that
is actually needed and to focus on appropriate
capitalisation in terms of the life cycle and needs
of the business.
Any debt is risky – if you cannot cover the
monthly repayments, the ?nancier can take legal
action against you.
Personal loans – There are many lending insti-
tutions that offer personal loan products, all with
their own terms and conditions. Shop around
and get a number of quotes to ensure that you
?nd the best interest rate and lowest monthly
repayments. Visit www.FasterInfo.com for links
to some of the country’s most trustworthy – and
cost effective – lenders.
Business loans – These are the most likely
sources of credit for SMEs. Banks require a busi-
ness plan and cash ?ow projections in order to
evaluate the viability of the business for which
you require the loan.
Credit cards – These come in useful when
businesses wish to procure goods online, or
need to pay immediately for goods and services
and do not want to carry cash. They also provide
a transaction history for your business. Credit
terms vary and most banks offer similar options
for paying the whole amount back at the end
of the month or making regular payments over
a set period, based on a percentage of the total
borrowed. Standard Bank offers a second credit
card for which no annual card fee is charged, as
well as a garage card that can be linked to the
credit card.
Private equity is capital that is put into
a new or growing business in return for
part-ownership of the business and a
share of the pro?ts. Typically, a private
equity or venture capital investor does
not want permanent ownership of
your business. They want to “exit” your
business within ?ve to seven years by
selling the shares you gave them at a
good pro?t.
Advantages Disadvantages
You don’t need to pay any interest as you
would with a loan.
Your business will be expected to generate
substantial pro?ts so that equity partners
earn good dividends on a regular basis.
Your private equity partners could bring new
networks, useful contacts and management
expertise to the business.
You will be required to regularly generate
detailed information on your business’s
performance and prospects.
The involvement of private equity in your
business usually makes it easier to get other
forms of ?nance, should you need it.
The cost of complying with ?nancial
regulations can be high.
It focuses your business’s objectives and
ensures structure, discipline and a stable
base for strategic decision-making.
It requires you to give up a share of the
business and share decision-making and
pro?ts.
The capital injected strengthens your
balance sheet and reduces gearing (the
proportion of debt relative to equity).
The demand for high returns may introduce
the danger of short-term thinking.
Private equity – heads or tails?
Another avenue
for ?nance
Collateral – or the lack thereof – is viewed as a
barrier to ?nance, and with good reason. Banks
have a responsibility to protect depositors’ funds
and any entrepreneur applying for a loan opens
the bank to risk. Collateral provides security
should a loan not be repaid.
There are two kinds of collateral: traditional and
non-traditional. Most banks prefer traditional
collateral, which includes assets such as property,
?xed deposits, shares or supported guarantees.
Collateral “free” loans
Khula credit indemnity supports most SMEs
that cannot provide collateral, as long as the
business owner meets certain criteria. You will
qualify for a Khula loan if:
• You are the full-time manager of the business.
• You are a South African citizen.
• You make a 10% owner contribution.
See page 14 for more information.
Historically, non-traditional collateral has been
denied to small business owners. This includes
the accumulation of wealth and/or assets.
However, in the current business climate, new
opportunities are opening up, especially for
black-empowered businesses.
10
Collateral clari?ed
To qualify for bank ?nance SMEs are usually
assessed using four main categories:
MANAGEMENT
? Pro?le of entrepreneur: This demonstrates
your background, quali?cations and expertise.
? Management, ?nancial and marketing skills:
How you will bring in new business.
? Technical quali?cations: These give the bank
an idea of your technical expertise.
FINANCIAL
? Owner’s contribution: The more you put in,
the better your chances.
? Realistic projections: These indicate the
likelihood of business success.
? Debt carrying capacity: How much you can
realistically borrow and pay back.
? Assets: These can be used as collateral.
SECURITY
? Tangible collateral: Property or investments.
? Intangible collateral: Suretyships, eg, by
member/s of the CC.
? Personal assets: You can use these to act as
security for a loan.
? Cash ?ow: The stronger your cash ?ow, the
less risky your business looks.
ENVIRONMENTAL
? Industry risk: Is there a risk of pollution in the
area where your business is based?
? Location: Is it convenient for your customers?
? Competition: Where are your competitors
and how saturated is the market?
? Entry barriers: Includes legislation around
franchising, issues relating to how long it
will take to build up your reputation and the
costs of entering the market.
How will you measure up?
Other types of loans
Most local banks offer other types of funding
that include:
• Secured ?nance – in the form of asset ?nance,
Khula guarantees and other traditional bank-
ing products.
• Unsecured ?nance – offered to the borrower
in absence of security on a loan, for example
in the form of an overdraft. This type of loan
carries a higher price as the bank needs to
cover itself for possible losses in the future.
• Mezzanine ?nance – this may take the form
of convertible debt, senior subordinated debt
or preferred equity. Mezzanine debt is actually
closer to equity than debt, in that you relin-
quish some ownership of the business and
forfeit possible future pro?t. Because mez-
zanine ?nance is not classi?ed as pure debt or
pure equity ?nancing, it is dif?cult to classify.
If you become insolvent, the repayment of
mezzanine debt is secondary to that of an
overdraft or other primary debt.
Other forms of credit
There are various credit mechanisms in place to
give SMEs access to ?nance – one of which is
contract ?nance. A small business might be
awarded a contract to do a particular job, but
might not be able to access the ?nance needed
to start the work. Contract ?nancing, as supplied
by Standard Bank, is when the bank enters into
a cash ?ow lending agreement off the back of a
?rm contract. A specialist team reviews the con-
tracting environment and assesses applications
on an individual basis. As the business performs
on the contract, so the bank pays regulated
amounts into a controlled account.
The bank will also negotiate elements of the
contracting environment to facilitate greater
access for BEE suppliers and enhance their
sustainability.
Leveraged ?nance provides empowerment
?nance to SMEs in the form of acquisition and
expansion capital. When supplied by Standard
Bank, this takes the form of structured deals
normally ranging from R1 million to R25 million.
This funding also includes advice on identifying
a BEE partner, legal documentation to facilitate
a transaction and advice on suitable tax-ef?cient
funding structures, such as the formation of a
new company or a preference share structure.
For information on leveraged ?nance and
other business banking solutions visit
www.standardbank.co.za, call 0860 012 345
or visit your local Standard Bank branch.
11
Reasons why
banks decline loans
• Business is unsound, risk is too high, or
the bank cannot determine the level of
risk.
• Insuf?cient security.
• Lack of owner commitment.
• Business plan does not provide adequate
information.
• Purpose of loan not justi?ed.
• Poor character or lack of suitability of
owner.
• Passive investment – for example if you
want to apply for a loan with the bank
and your grandmother signs surety, she
has a passive interest. Banks will regard
it as reckless to risk the livelihood of
your grandmother if the business does
not work out.
Talking terms
12
There are a number of ?nancial sources available
to you over and above the traditional ones. Start
by taking a closer look at your business itself.
Customer/supplier assistance
Approaching your customers and/or suppliers
for help can generate a healthy cash ?ow in the
short term. If you have an exemplary business
record you may ?nd that one or two of your big-
ger customers are prepared to pay on invoice or
even in advance. After all, it is in their interest to
ensure that a reliable and trusted source of sup-
ply remains viable.
Likewise, your record could see your suppliers
allocating goods to you “on consignment”,
which means that you won’t have to pay for
them until they are sold.
Inventory ?nancing
This is a way of borrowing cash by using your
inventory as security. Manufacturers of consumer
products, which tend to form a large portion
of their assets, often make use of inventory
?nancing.
Inventory is typically made up of merchandise,
raw materials and ?nished and un?nished
products that have not yet been sold. These
are considered liquid assets since they can
be converted into cash quite easily. There are
various means of valuing these assets, but to be
Who says ?nancing your
business is not creative?
There may be some good reasons why you don’t want to use
a bank as a source of funds, and there are other ways of going
about it. How you do this depends on how much you need,
and it pays to be a little creative.
New and small businesses are not really
in a position to be generous with credit.
For example, if you import products (such
as the jewellery company mentioned in
the case study opposite) you need cash on
hand to pay duties and taxes on products
when they come through customs.
The ideal way to keep customers happy
without getting too deep into the debt
trap is to charge a deposit upfront (eg,
50%) with the balance due on delivery.
Most small businesses can get away with
demanding shorter terms in return for
lower pricing and superior service.
You may, however, encounter dif?culties
when supplying larger businesses, which
often have long and complicated supplier
payment procedures. Balance the value of
their business with the cost of carrying the
debt.
Also bear in mind that if you choose
to carry stock to speed up the delivery
process, you need to factor in the actual
cost of holding the stock, eg, warehousing
and storage fees, and then build this into
your pricing.
As a small business, try to limit your terms
to 14 days maximum, and make sure these
terms are understood and agreed upon by
your customer before a sale is made.
13
conservative the lowest value is usually used in
?nancial statements.
Strategic alliances
Another option is to join forces with a company
that complements your business, and agree to
leverage off each other’s strengths in order to
achieve a common goal. For example, a small
travel agent and a tour operator could work
together to obtain and provide services to
new business prospects. The travel agent could
market the tour operator’s itineraries on their
website, while the tour operator could conduct
the tours.
Convertible debt
This is a term used to describe debt ?nanc-
ing that has a feature allowing the debt to be
converted to equity, often at the option of the
investor, in the event of a default on repayment
terms. Other times the conversion feature can be
granted as a “sweetener”, providing the investor
with the option of converting debt into equity if
results are good.
Whichever route you choose, remember that
alternative ?nancing options can be tricky.
Unless you are an experienced business person,
it is always advisable to use a trusted consultant.
CASE STUDY: The cost of forex
A local entrepreneur recently started a
wholesale company (www.jewellerygallery.
co.za) importing upmarket costume jewellery.
Initial investigations at craft markets and
boutique owners in KwaZulu-Natal showed
a positive response. The products have
since been launched in South Africa. One of
the owner’s concerns, however, is how to
manage the ?nancial implications of selling
a product in Rands after a delayed period,
when it is initially paid for in forex. André
Joubert, general manager of MWEB Business,
responds:
“The obvious concern is that if you set your
prices in Rands, changes in the exchange
rate might mean you wind up paying more
for a batch of products than you can sell
them for. At the same time, you’d like to be
able to offer your regular buyers consistent
pricing in the local currency.
“Your best option is to investigate ‘forward
cover’, a type of foreign exchange insurance
that is available to businesses of any size.
You pay a ‘forward rate’ today, which covers
you for a set period against ?uctuations in
the currency tomorrow. It costs money, but
this can be built into your pricing structure.
The advantage is that it allows you to ‘?x’
your prices for extended periods, or at the
very least, minimise the impact of changes
in the exchange rate. You can therefore plan
accurately, without any nasty surprises.
“Think carefully about how far forward you
would like to cover yourself – the last thing
you want is to be covered at a rate that is
way in excess of the actual exchange. Your
bank should be able to advise you on how to
go about doing this.”
For more small business case studies, read
the Real Business supplement in Business
Day or visit www.realbusiness.co.za.
14 14
If you are a BEE small business owner it can be
a frustrating task ?nding information on how to
apply for government funding. Accessing avail-
able online information is dif?cult, and searching
the information super highway could quickly
lead to cyber road rage! Many websites give a
good indication of what government funding
can do for your business, but offer no assistance
on how to go about it. They also give no indica-
tion of what the criteria are.
However there is light at the end of the tunnel.
There are two support agencies to which you
can apply for funding, both of which are linked
to the South African Department of Trade and
Industry (the dti). They are Khula Enterprise
Finance Limited and the Small Business
Enterprise Development Agency (SEDA).
Khula was established in 1996 to facilitate
access to ?nance for SMEs. Khula is a wholesale
?nancier, which means that you do not apply to
Khula but rather to your local commercial bank,
retail ?nancial intermediary or micro credit outlet.
Khula ?nance is a good option for business own-
ers who have insuf?cient or no assets to offer as
collateral. To qualify for a Khula-supported loan
you will need to contribute 10% of the amount
you want to borrow, either in cash or equipment
that will be used in your intended business.
Bear in mind that an annual 3% fee is required
in advance for the duration of the loan. Khula
also provides services to guide and counsel you
in various aspects of managing your business.
Call: Toll-free helpline 0800 118 815
Email: [email protected]
Visit www.khula.org.za or visit a business
banking consultant at a Standard Bank branch.
Sting in the tail for BEE funding
We all know that the government offers funding to black-
empowered small business owners, but where do you apply
and what is required?
Helping BEE SMEs
Standard Bank has dedicated Business
Banking staff that assess the viability
of SME customers. The bank also has a
department dedicated to ensuring that
BEE SMEs can apply for ?nance in an
environment that fully understands their
needs.
Each province has a BEE Champion to
direct and drive BEE within the province,
and to assist various bank branches to
develop black business prospects and
opportunities.
For more information visit
www.standardbank.co.za.
14
SEDA is the dti’s new support agency for the
development of small business in South Africa,
and was formed through the merger of the
NAMAC Trust and Ntsika Enterprise Promotion
Agency. SEDA of?ces offer entrepreneurs help
with business plans, technical advice and mar-
keting, and information on exporting, tenders
and incentives.
The SEDA website includes small business fact
sheets that provide valuable guidance on various
topics, including ?nancial guidelines on:
• Writing a ?nancial plan for your business.
• How to ?nd ?nance, where to go.
• Preparing your business plan for presenta-
tion to a ?nancial institution.
• How to tender for business.
Call: 0860 103 703
Email: [email protected]
Web: www.seda.org.za.
Other options
15
There are two main types of organisations
specialising in small business ?nance –
whether you are black-empowered or not:
1. Those that lend directly to small
businesses – These organisations
consider loans to businesses that would
not usually qualify for a bank loan. They
are less strict on the criteria involved, but
are more expensive than bank loans. You
can approach Khethani Business Finance
(a non-pro?t organisation) New Business
Finance (a commercial small business) and
Business Partners (see website below).
2. Those that make access to bank
loans easier – Organisations like Khula
guarantee a portion of your bank loan while
you provide collateral for the remainder.
These companies take over the cost of
screening applications and reduce the risk
of lending through mentorship programmes.
Another option is venture capital, in which
investors provide funds in return for shares
in the business. After three to seven years,
they usually sell their shares back to the
original owner or to another investor.
Venture capitalists usually expect a 30%
return on their investment. For more info
see the Business Partners website
www.businesspartners.co.za.
The Black Business Supplier Development
Programme (BBSDP) is the dti’s cost-sharing,
cash grant incentive scheme, which offers
support to black-owned enterprises in South
Africa.
The scheme offers small businesses funding
for up to R100 000, and provides access to
business development services to assist in
improving their core business competencies
and managerial capabilities.
You qualify if:
• You are majority black-owned (51% or
more) and have a signi?cant representation
of black managers on your team.
• You have a maximum annual turnover of
R12 million.
• You have been in business for at least a
year.
• You are compliant with commercial
regulatory requirements in the relevant
areas of business, eg, registration with
CIPRO and SARS. See www.cipro.co.za.
How to apply
Obtain the information brochure, application
guidelines and an application form from
the dti Customer Contact Centre. Complete
the application form, attach a tax clearance
certi?cate and submit it to the dti.
For more information contact the dti
Customer Contact Centre on 0861 843 384 or
visit www.dti.gov.za.
Assistance from the dti
Getting to know you
Banks have changed in recent years and
are not as cold and unapproachable as they
may have once seemed. In turn, bank staff
are encouraging customers to be open and
honest about their small business needs.
Approaching your bank for expansion or any other kind of ?nance can be
nerve-racking, but don’t let it put you off. A positive attitude will help you
to start off on a good footing with your bank manager.
Ensuring that the relationship with your bank manager is open on both sides
is also vital. Issues such as access to ?nance cannot be done in isolation
and it is imperative that your business banker knows who you are and what
your company does. A strong relationship is key to ensuring that an overall
• Be open and honest.
• Provide as much information as possible.
• Interview your bank manager to ascertain if he or she understands
your business.
• Save time by providing information for your credit pro?le.
• Keep him or her informed of the developments within your business.
• Invite your banker to visit your premises.
Improve your relationship
16
17 17
solution is achieved in the ongoing process of
?nancing your business.
Why forge a relationship with your bank?
In the past, banks in South Africa may have felt
more like “Big Brothers” than business partners,
keeping customers at an arm’s length and not
seeming approachable at all. As a result, your
interaction with your bank may have been
limited to those times when you’ve stood at
the bank manager’s door with your hat in your
hands.
Fortunately, things have improved and these
days banks welcome – in fact prefer – building
a relationship with you. This has a number of
bene?ts for both parties.
• It helps to build up trust. Your bank gets
to know you and what you do. Today banks
encourage customers to keep them informed
of their business’s progress. You can do this
by sharing your dreams – and ?nancial results
– regularly. This approach could make future
interactions with your bank easier and quicker.
• Keeping your eggs in one basket is a
good thing. By keeping all your business in
one place, you can use your personal banking
pro?le and existing relationship to bene?t
your business. Your bank will be able to more
accurately calculate the risk of lending funds
to you, while you will be in a better position
to negotiate lower interest rates.
• It makes better business sense for every-
one. If your bank knows everything there is to
know about you and your business, it is easier
for them to assess you. Remember that your
banking consultant only knows what you tell
him or her. The more you share, the more he
or she can help you build up your business.
tips to help
the bank learn
your business
Supply your business banker with:
1. Videos and/or pamphlets of your
business or products.
2. Your business plan.
3. A pro?le of your business and its
founding members.
4. A paragraph on what your company
does (keep it simple).
5. Information on your biggest clients.
6. Accreditations, certi?cates or awards.
7. All telephone, cell phone and
fax numbers, email and website
addresses.
8. Information on your closest
competitors.
9. Your personal business background.
10. Compliance with relevant industry
standards or charters, eg, companies
in the building industry must have
a strong management pro?le that
includes BEE and a policy on providing
access to housing for disadvantaged
people.
17
Must-haves when working with your bank
• Ensure that you have updated ?nancial
information available, including a balance
sheet, income statement, cash ?ow
projections and management accounts.
• Is your business plan up to date? Does it
show what you are trying to achieve and
how you intend to achieve it?
• Show that you have the passion and
commitment to make your business work.
Believe in what you are doing and make the
bank’s money work for you.
• Think of your bank as an investor. It has a
stake in your business, so remember to treat
it as you would any other stakeholder.
18
Wind beneath your wings
We all wish for a fairy godmother, but did you know that one
in 10 start-up companies in the United States have angels on
their shoulders? And they could be heading your way soon …
Although not a widely known concept in South
Africa, angel investing is one of the better-
known forms of private equity in Europe and the
United States. It normally takes the form of a
loan or actual equity in the start-up company.
Angel investors who provide funding in return
for an equity stake have usually been entrepre-
neurs or have enjoyed business success them-
selves. They are often wealthy private investors
who put money into early-stage deals offered by
new business owners and companies that need
capital.
Unlike traditional venture capitalists, angels con-
tribute smaller amounts to businesses in the for-
mation phase. They also add non-monetary value
by taking an active interest in operations, usually
drawing on their own experience. Investments
typically range from R10 000 to R500 000, with
the “angel” expecting a return of ?ve to 10
times the original amount within about ?ve to
seven years. Angels tend to be more liberal in
their lending criteria than venture capitalists or
banks.
Will SA go the same route?
Venture capital activity in South Africa is not
the same as overseas. Here, investments are
mainly tied into management buy-outs and
mergers and acquisitions, none of which involve
?nancing start-up companies. This is because
major investors in South Africa are institutional;
?nancial decisions are based on a more
conservative model; and access to private equity
through the Johannesburg Securities Exchange
(JSE) is subject to rules and quali?cations.
Not surprisingly, these institutions have a
primary responsibility to their stakeholders and
• The term angel comes from the early
1890s when prosperous American
businessmen invested their money in
Broadway productions. This gave them
the opportunity to associate with the
theatre personalities they admired, as
well as the prospect of a return on their
investment.
• Ford Motor Company, The Body Shop
and Amazon.com all had angel money
backing before becoming the leading
giants that they are today.
• Angel ?nancing is one of the
largest sources of equity capital for
entrepreneurs in the United States.
Did you
know that …?
Angel investors usually look for small
companies that are too speculative for bank
loans and too young for venture capital.
Examples include the high-tech, retail,
personal and health services industries.
Angel investors usually prefer to invest
in industries they are familiar with. For
more information contact the South
African Venture Capital and Private Equity
Association or visit its website at
www.savca.co.za.
Is your business
a candidate?
19
cannot afford to take the same risks as the
self-made millionaire angel investor. Regulatory
restrictions also play a part – the American mar-
ket relies on a sizeable amount of self-regulation
(sometimes with disastrous results) whereas the
local market has strict laws.
As a result South Africa was spared some of
the excesses of the dot-com bubble, as was the
equally cautious British market. However, South
Africa still has a desperate need for start-up
capital. The government has recognised this and
supports initiatives in the SME sector, including
the South African Venture Capital and Private
Equity Association (SAVCA).
Currently, companies can approach angels for
?nancial help but must adhere to the rules set
by the regulatory bodies that govern them.
In the late 1960s Raymond Ackerman,
age 34, was unemployed after being ?red
from his position as general manager of
Checkers.
He wanted to build his own corporation
and had heard about a small Cape Town
chain called Pick ’n Pay, comprising three
supermarkets and one small credit store.
The owner wanted to sell it for R620 000,
but Ackerman could only raise R130 000
from his bank. Ackerman’s auditor found
60 shareholders – each of whom put in
capital ranging from R3 000 to R6 000. The
deal was structured in such a way that half
of the investment was equity and the other
half a loan. The bank then provided the
balance of the purchase price.
Ackerman had total control of the
company. Initially he only had stores in
Cape Town. A few years later he opened
Boksburg Hyper, at great personal risk to
himself and the company. The rest, as they
say, is history.
Says Ackerman: “There must be a reason
for taking risks in business and it must be
a good one.”
Raymond Ackerman
– a South African
success story
Angel investing can be risky as it is dif?cult
to predict long-term returns. Once an angel
invests in a start-up business his or her money
may not be accessed for an extended period
before the company goes public. As a small
business owner you may not want to include
someone else in your business because of
the added ?nancial burden if your business
does not perform. On the other hand, it may
be bene?cial to involve an experienced angel
investor who can provide advice on managing
your business and who has additional
resources that you can tap into.
The ups and downs of angel investing
20
Kick-start your business
If you want to get a business up and running in a hurry,
buying an existing one offers some obvious advantages.
But take care, there are also pitfalls.
Buying an established business is one way to
kick-start your ambitions. You can bypass the
start-up phase and evaluate what you’re getting
before you commit to it. Be aware, however, that
the seller could be making the business look
more attractive than it actually is.
You’ll need to put some serious work into
assessing the real worth of the business. Be pre-
pared to research the industry as a whole, how
the markets operate, who’s who and any other
factor that might impact on the business. Then,
get to know the business itself.
One of the quickest ways of doing this is to write
a business plan. This is also the most ef?cient
way of ensuring that the company survives
the change of ownership. Consider things like
whether or not the staff are well trained and
happy, and whether there are any pending
changes that might affect pro?ts. For example,
is a new shopping centre about to be built on
your doorstep, which may draw customers away
from you?
If you’ve been through these steps and feel that
you can make the same or more money than
the previous owner, then you may well be on to
a good thing. You’ll also have a great deal of
ammunition when you apply for ?nancial assist-
ance to help purchase or expand the business.
Provided you have done your homework and
prepared a sound business plan, ?nancing your
purchase through conventional channels should
be a formality.
For useful guidelines on purchasing a business
visit www.standardbank.co.za, or
www.brain.org.za or www.frain.org.za.
• It is less risky than starting from scratch
as you can easily assess what you’re
paying for.
• Existing equipment and stock may
have been bought at a reduced price
compared with its current cost.
• A customer base is already in place.
• Lines of credit are usually established
and available for you to use.
• Trained staff usually come with the
business, saving you the hassle and cost
of developing their skills.
• Licences and permits should all be in
place, obviating the need for you to
source them.
• Suppliers are generally willing to
continue to extend credit, so you don’t
have to go through the process of
establishing your credentials.
Why buy a
going concern?
21
Family business Texies Seafood is the biggest
independent retail chain of fresh and fast food
seafood in the Western Cape. Management
wants to expand, but doesn’t have the infra-
structure to do so. The company has considered
looking for an operational partner in Gauteng
(preferably BEE), or creating a franchise system
that will allow them to expand while adding
value to the community. André Joubert, general
manager of MWEB Business, offers a few words
of advice:
“Franchising is not a quick ?x. You would have
to take a long-term view and accept that dur-
ing the ?rst few years it is going to cost, rather
than earn, you money. For franchising to work
in Johannesburg, you have to have a very strong
franchising formula and be able to provide
comprehensive guidance and training. You will
also have to accept that you are no longer in
the business of ?sh, but rather in the business
of selling a concept to others and making them
successful.
“In your current situation, you’re looking for
support in order to expand in an all-new region.
As a franchiser, you would be providing the sup-
port – not receiving it.
“Bear in mind that the logistics and costs
involved in expansion – especially into a mar-
ket as competitive as Johannesburg – can be
enormous. First investigate ways of making
better use of your existing resources. What other
options are there to penetrate the Western
Cape market and build awareness of the Texies
Seafood brand? Are you sure that you have
exploited all the opportunities in your own back-
yard? Your time and resources would be better
spent focusing on this ?rst, before expanding
out of the region.”
For more small business case studies, read the
Real Business supplement in Business Day or
visit www.realbusiness.co.za.
CASE STUDY: Franchising your idea
If you are thinking of buying a franchise,
?rst visit the Franchise Advice and
Information Network (FRAIN) website. It
offers invaluable information on how to go
about becoming a franchisee or franchiser,
which franchise to buy into and the legal
rami?cations of owning a franchise. You can
also register your franchise on the website.
Visit www.frain.org.za or call them
on 0860 103 703. Alternatively,
contact the Standard Bank Franchise
Desk on (011) 636 6573 or email
[email protected].
What to choose?
22
Put yourself in the seller’s shoes
Don’t expect a seller to give away a hard-earned business.
Be reasonable and it is likely that a good deal can be struck.
When you consider buying a business, the ?rst
question to ask is why the seller wants out.
Typical reasons usually include retirement,
partnership disputes, personal relocation, family
problems and concerns, the need for a change,
illness or entering into another business venture.
Assuming that you are satis?ed that the sale is
for legitimate reasons and that both you and the
seller are honest brokers, it is only right that the
seller receive a fair price for the business.
But what is a fair price? It is human nature for
the seller to want to in?ate the worth of his or
her business. After all, he or she has probably
shed blood, sweat, tears and no small amount of
money on making it a success, and is entitled to
a reasonable return.
There’s also the goodwill factor. Here you might
want a lawyer or accountant to help quantify
this rather nebulous entity. If the seller has set
The value of a business is a moving target,
but you don’t necessarily have to hire a
professional to do it. One of the best methods
to use is the Income Multiple technique, in
which the income of a business is subject to a
certain multiple to arrive at a selling price.
Income (or “owner bene?t”) = the total
amount you can expect to extract or have
available from the business, based upon what
it has generated in the past. Calculate the
income multiple as follows:
Pre-tax pro?t + owner’s salary (and bene?ts)
+ additional owner perks + interest +
depreciation
Then choose a multiple to apply to this owner
bene?t ?gure. Small businesses typically
have a multiple of between one and three.
A one time multiple is best suited for those
businesses where the seller is “the business”,
eg, consulting businesses, professional
practices and one-man businesses.
Companies that have a strong track record,
repeat clients, historical pattern of growth,
more than three years in business and perhaps
some proprietary item or an exclusive territory,
will sell in the three times ratio. Also consider
the annual Return On Investment (ROI) that
you can expect to achieve when buying the
business – ie, the pro?t you’re likely to make
by the end of a year, less the purchase price.
Aim for a minimum 25% return.
Getting started:
• If you don’t know how to read an income
statement, then learn.
• Work with your accountant to determine
the true “owner bene?t” of the business.
• Calculate the selling price (see left).
• Determine your investment level and ROI.
• Ask the seller how the asking price was
established.
• Be certain that the business itself is right for
you!
The price is right … or is it?
23
up a string of good relationships with customers,
suppliers and investors, you need to quantify
how much this goodwill is worth to you. Always
bear in mind that you should only pay what
the company is worth, and it is therefore in any
buyer’s best interests to get an independent
professional valuation. For more information and
advice on buying a good business at a
great price, see Small Capital Issue 2
(May 2005), pg 26-27.
The Standard Bank website (www.
standardbank.co.za) offers a range of
hints and tips for anyone wanting to buy
a business. An important part of the risk
of buying a business is your ability to
sue the previous owner if he or she has
misrepresented the health of the business.
Be extra careful if the seller is about to
emigrate, or if all the assets are tied up in
trusts and other companies.
Improve your chances
– hire a lawyer
Words of wisdom
When buying an existing business, you
can only bene?t by having professional
legal help. Use a lawyer to draw up the
agreement and include the following:
• Conditions of the sale agreement.
• Detail of accounts receivable.
• A list of assets.
• A list of rights to business and trade
names.
• Details of existing contracts and how
these slot in to the business.
• An effective date of sale.
• The price for the goodwill component
that you will pay.
• Details of any warrantees that exist.
• A restraint agreement, if necessary.
• Details of how your purchase will affect
current employees.
• An indemnity clause to protect both the
buyer and seller.
Ask yourself:
What are your goals, and will the new business help you reach them?
Do you have the skills to pull it off, and if not, can you hire them? In small business,
employees are usually loyal to the original owner and you could lose as much as 80% of your
new staff within the ?rst 12 to 18 months after the change in ownership.
Who will help you run it? Review all of the management personnel of the company you are
thinking of buying. If they are not people you would normally consider hiring, don’t keep them.
Remember to include this in your sale agreement to avoid legal problems later.
24
Cleaning up your credit
When you fall into debt not only do you ?nd
yourself drowning in a morass of paperwork
and legal wrangles, but you also enter
a world in which demands, threats and
spiralling interest rates make you question
whether running your own business was ever
worthwhile.
Don’t wait until it’s too late to sort out a potential debt problem. It is not
something you need to be ashamed of, but it is something that should
be managed sooner, rather than later when the pressures have reached
insurmountable proportions.
A debt management plan (DMP) is your ?rst line of defence. A profes-
sional, certi?ed counsellor can assess your ?nancial situation, create a
spending plan and discuss the terms of your debts with creditors. By
negotiating lower interest rates and waived late fees, your advisor can
often arrange more affordable payments and shorter payoff periods. You
can also consolidate your debts into one convenient monthly deposit that
will disburse directly to your creditors.
25
Once you get your DMP in place and a bit of
professional help, it is amazing how quickly
your stress levels drop. Your creditors are more
likely to be understanding and accept that they
will be paid; your customers might pay up soon-
er and improve your cash ?ow; and the pressure
on you is reduced to manageable proportions.
How to avoid debt stress
Debt stress can have a profound effect on every
aspect of your life. You may ?nd that you are
experiencing certain changes in your personal-
ity. It’s possible that you are reacting inef-
fectually in situations, both at home and work,
whereas previously the solutions seemed to be
at your ?ngertips.
As with any condition that affects the day-to-
day running of our lives, the signs of debt stress
are obvious:
Denial
Shock
Numbness
Depression
Disorientation
Panic
Anger
Physical ailments (eg, insomnia)
If you have identi?ed certain symptoms of
stress, and have acknowledged that your stress
is related to debt, then it is time to identify the
source of that debt. Ask yourself why you now
owe more money than you can ever hope to
repay.
The answer may be related to retrenchment,
bad luck, bad money management, or
problems of a more personal nature such as
chronic credit, living beyond your means, or a
more serious issue such as drug addiction or
gambling.
Labelling the cause of your debt overcomes
the hurdle of denial and sets the course clear
for ?nancial rehabilitation. It is advisable to
seek specialised professional help for what you
have identi?ed to be the speci?c cause of your
money problems.
Few things in life cause more tension than a
debt crisis. Do not tackle this alone. Ask those
closest to you to help see you through this dif-
?cult time.
If you ?nd you need a debt counsellor, use
a reputable organisation and check what it
is going to cost, before signing up. In many
instances your bank can help you to:
• Pay less than your monthly minimums.
• Do a realistic debt settlement
programme based on your budget.
• Negotiate with your creditors to reduce
your unsecured debt.
• Stop many of the harassing and
threatening calls from your creditors.
• Remove inaccurate information from
your credit report.
• Avoid bankruptcy.
This is a legal procedure that can give
people who cannot pay their bills a fresh
start. Filing for bankruptcy may help you
shed unsecured debts, stop foreclosures,
repossessions and utility shutoffs. On the
other hand, bankruptcy will be part of your
credit record for up to 10 years. This means,
for example, that it will be dif?cult for you
to secure a bond to buy a home, among
other things. File for bankruptcy only as
a last resort after you have exhausted all
other efforts to solve a ?nancial crisis.
Can you deal
with bad debt?
Bankruptcy
26
Put your bank to work
To run your business successfully you need to manage your
banking ef?ciently and conveniently. Make sure you select an
option that meets your speci?c needs.
Time is money – and nowhere is this more so
than when it comes to running your own busi-
ness. No small business owner in their right
mind should still be spending hours every week
visiting a branch to do basic banking transac-
tions. If you’re reading this with a sheepish grin
on your face, it is time to explore the option of
Internet banking.
Internet banking is a safe and cost-effective way
to control your ?nances from the convenience
of your of?ce. It gives you the ?exibility of being
able to check your ?nances 24 hours a day,
seven days a week, which means you can keep
an eye on your business and its money at the
same time.
Standard Bank’s Domestic Banking offers a
range of business services, including the ability
to pay creditors and employees electronically,
stop payment of cheques and transfer money
between accounts. Other services include:
• Obtaining up-to-date statement information
on your accounts.
• Managing your investments.
• Loading multiple debit and credit payments.
• Transferring funds to and from your accounts.
• Better account reconciliation.
If you’re still not convinced, think of it this way:
banking online could save you a signi?cant
amount in basic charges, which helps make up
for the cost of connecting to the Internet in the
?rst place. For the less technically minded, there
is also always help available either online or
through bank call centres.
For more information on Standard Bank’s
Domestic Banking service visit
www.standardbank.co.za.
Connectivity basics
All you need to do Internet banking is a
standard PC equipped with a modem,
Internet browser software and an account
with an Internet Service Provider. If you
already have these, the next question is
which type of access should you choose?
ANALOGUE DIAL-UP works over your
existing telephone line. It is slow (56kbps –
kilobytes per second), but also cheap if you
only go online infrequently, for very short
periods. Costs include the normal phone
line rental, a monthly connectivity fee, and
Telkom call costs for time spent online.
DIGITAL DIAL-UP (ISDN) is between two
and four times faster than analogue. It is
proportionately more expensive, but you
can download more information in less
time. Costs include the installation of an
ISDN line by Telkom, monthly rental and
connectivity fees, as well as Telkom call
costs for time spent online.
ADSL gives you fast (512kbps) constant
access to email and Internet for a ?xed
monthly cost. There are three options,
based on the amount of information you
upload/download each month, which is
capped at either 3Gb (gigabytes), 6Gb
or 9Gb. It is up to eight times faster than
ISDN. Costs include the installation of an
ADSL line by Telkom and the monthly rental
and connectivity fees.
27
Balancing the costs of connectivity
The dial-up/ADSL shoot-out
Speed = time Time = money More time = more money
How long does it take to download a 10Mb
email attachment or Internet ?le?
Analogue 40-45 minutes
ISDN (64kbps) 20-25 minutes
ISDN (128kbps) 10-15 minutes
ADSL 3-4 minutes
How much will it cost per month, on average,
if you spend one hour online every day?
Analogue R770
ISDN (64kbps) R950
ISDN (128kbps) R1 500
ADSL R930
How much will it cost per month, on average,
if you spend two hours online every day?
Analogue R1 250
ISDN (64kbps) R1 450
ISDN (128kbps) R2 450
ADSL R930
Bear in mind that you can do more in one or two hours on the faster ADSL line (eg, download the equivalent of 15 x 10Mb ?les),
than you can on an analogue line (not even two x 10Mb ?les). For anyone who conducts aspects of their business online, ADSL – the cost of which
is expected to continue to drop over the next six to 12 months – will probably prove more cost-effective in the long run.
Still confused? Contact MWEB Business on 0860 100 127.
Saving costs by banking online won’t help if your phone bill suddenly
doubles as a result. This is unlikely to happen, but if your connectivity
costs are getting out of hand, it might be time to re-evaluate your
needs and change to an option that suits you better.
While analogue dial-up appears to the cheapest option, the real costs
of connectivity depend on how much time you spend on the Internet,
and how effectively that time is spent.
MWEB Business conducted the following “shoot-out” between
analogue, ISDN and ADSL, to see how each connectivity option
performs.
Figures are a rough guide only, and are based on standard costs.
28
It’s as easy as 1, 2, 3 … isn’t it?
Does “double-entry accounting” ?ll you with dread, income
statements make you head for the hills, and balancing the
balance sheet boggle your brain? Here are some simple tips to
help you tackle the accounting basics.
Whether you hire an accountant, beg a friend for
help, or keep your business’s books yourself, it
pays to have a good grasp of accounting basics
– especially when you’re ?rst starting out.
Cash or accrual?
When setting up your accounting system you
should decide whether you are going to use
the cash or accrual system. This decision also
determines how you will report your business’s
income and expenses.
Cash accounting is when records of income
and expenses are kept as and when the cash is
actually received or disbursed.
• Keep in mind that if you receive money on
30 December, which gives you a great fourth
quarter and, even if you deposit the money
in January, it is still part of your last quarter’s
income.
• Don’t deduct every cash expense immediately,
for example, larger purchases like equipment
depreciate over time and the expense has to
be amortised.
• Rent payments made in advance may only be
counted for the year in which they apply.
• If you receive or give goods and services as
payment it must be counted as income at fair
market value.
Accrual accounting. This method is used
when a transaction or sale takes place, not nec-
essarily when you get paid.
• For example, if you sign a contract for
R12 000 and get paid in instalments over
three months you must record an income of
The balance sheet shows a business’s
assets, liabilities and net worth and
is usually prepared at the end of an
accounting period – usually a preceding
month, quarter or year. By looking at the
accounts receivable line you are able to
compare cash accounts to the amount you
are owed. You can also track your long-
and short-term liabilities.
• Assets = cash and accounts receivable,
inventory and large equipment value,
prepaid expenses (rent deposits).
• Liabilities = accounts payable to your
suppliers, loans and tax liabilities.
• Net worth = your investment in the
business re?ected by liabilities on the
balance sheet (the amount the business
owes to its owners).
The income statement shows how
pro?table a business is by re?ecting all
income and expenses over a period of time.
Microsoft Of?ce Online offers a handy
?nancial and accounting template called
an “opening day balance sheet”, an Excel
spreadsheet provided by the Service Corps
of Retired Executives (SCORE). It allows
you to examine the ?nancial state of your
company as you open for business.
Visithttp://of?ce.microsoft.com.
Track your
business activities
29
R12 000 when the contract is signed, not
R4 000 a month as you receive the money.
• You must record an expense when you receive
the goods or services, not when you pay for
them.
Double-entry accounting
This is the foundation of all modern accounting,
and is a method of record-keeping that lets you
track where your money comes from and where
it goes. Using double-entry means that money
is never gained nor lost – only transferred. Not
only does this system aid the accurate calcula-
tion of pro?t and loss, it also makes it easier to
detect errors and fraud.
Remember the simple rule –
for every debit there’s a credit.
Example: If you purchase new equipment
it is counted as a withdrawal from your
bank account and an increase in expenses
(because it increases the amount spent on
equipment).
Formula: credit your cash account + debit
your equipment expense account = double
entry.
• The accrual method gives you more
accurate information on how your
business is doing from month to month
and year to year.
• Accrual is more effective in matching
income to expenses.
• Income is accounted for when it is earned
and not when you receive payment.
• Expenses are recognised when you are
liable for payment.
• Accrual also helps you smooth out peaks
in income and could lead to tax bene?ts.
• SMEs using a physical inventory are
required to use the accrual method while
service-based businesses tend to use the
cash method.
• CCs with over a certain amount of
average annual income are required by
law to use the accrual method.
• Accrual may also be used by partnerships
in which at least one CC is a partner.
• The cash method also has tax bene?ts if
an SME is able to pre-pay or defer some of
its expenses.
• You may combine both methods – using
accrual for sales and purchases of
inventory and the cash method for other
accounts.
• Watch out if you combine the two
methods – it could mean more work
for you, as the two systems need to be
maintained regularly.
Quick tips: making cash or accrual work for you
1 23
Double-entry
accounting:
rule of thumb
30
It might sound like basic common sense, but it
always bears repeating: a well-managed budget
is the foundation as well as the scaffolding that
you need to build your business successfully. It
helps you to keep an eye on the future while
tracking past performance. It tells you what you
can spend each year and how much you need to
make, thus helping you to set goals and priori-
tise your ?nances.
A good budget can also be the glue that holds
a partnership together, as it encompasses a plan
of action and can be used to calm egos when
partners don’t agree.
Remember, though, that budgets are not set
in stone and should be ?exible enough to take
advantage of unexpected business opportunities,
if and when they arise.
Make your money count
Managing your budget – however small – is central to the
success of your business, and it is the penny-pinching in some
areas that pays for the big ticket items in others.
If your business has grown to the extent
that you are employing staff, you must
start recording wages and salaries.
The main reason for this is that these
require entries in several different accounts
because of payroll and other taxes
involved.
Don’t forget:
• Salaries must be debited to a wages
expense account.
• Pay as You Earn (PAYE) taxes and UIF
payments are then deducted from the
employee’s salary.
• You must record your taxes as an
employer by debiting a payroll tax
expense account and crediting a liability
account such as a UIF payable account.
• When hiring someone include in the
employment contract the taxes that you
must pay as the employer as well as the
hourly rate and number of hours the
employee has to work.
• Include the cost to your company of any
employee bene?ts you offer.
For the low-down on employee tax visit
www.sars.co.za or www.labour.gov.za.
Recording salaries
31
How to get the most out of a budget
• Set speci?c goals, eg, increase turnover by
10% while keeping costs static.
• Use as much data as you can when planning,
eg, past ?nancial statements and invoices.
• Be sure that each expense category is a ?xed
expense that occurs each month on a set date
for a set amount, like rent.
• Variable expenses, such as advertising, can be
controlled by monitoring what you spend and
reducing or increasing it accordingly.
• Ensure that you have money set aside for
?xed or variable periodic expenses.
• Review your budget each month or quarter to
check expenses against your ?nancial plan.
You may be under budget in one category
and over budget in another. Find out why and
amend your budget accordingly.
• A budgeting tool is a must and should form
part of your software accounting package,
either in the form of a ledger you keep manu-
ally or an Excel spreadsheet.
Keep that cash ?owing
Cash ?ow, or the pattern of money coming into
and going out of your business, determines if
you stay in business. Manage it better by:
• Regularly reviewing when you expect to
receive money and pay it out.
• Keeping an eye on the three main cash ?ow
accounts – accounts receivable; accounts pay-
able; and inventory.
• Examining supplier and customer credit terms.
If you understand how these relate to each
other you can pre-empt potential problems.
• Analysing the accounts payable and accounts
receivable at the end of each month.
• Ensuring there are processes to keep cash
?owing in as well as out. For example, don’t
send out invoices at the end of the month,
send them as soon as the job is complete.
• Knowing when your customers pay you, and
when they fall behind. Consider technologies
that will help you achieve this, such as MWEB
Business’s GetPaid-Mobile, which enables you
to process credit payments while you’re on
the move.
• Offering discounts for early payment.
• Asking for a deposit. You can put the money
to good use while you ful?l the order.
Visithttp://of?ce.microsoft.com for Microsoft’s
Of?ce Online ?nancial statement templates.
These include Excel spreadsheets designed to
track cash ?ow and create cash ?ow projections.
To download a 60-day trial of Microsoft Money
(the computer accounting program) go to
www.microsoft.com/money/deluxe.
A builder would never use a chisel to
cement together the bricks of a house.
Likewise, small business owners should
always use the right tools when managing
their budget.
Microsoft Of?ce Online has an expense
budget tool that can help you track
budgeted and actual amounts and the
difference between the two. Ideally a
budget should cover a single accounting
period, eg, a month, as this gives you the
ability to compare monthly ?gures side by
side on a single spreadsheet.
Using simple formulas, Excel gives you the
option of viewing your business data on
one spreadsheet for one ?nancial year. It
also shows historical data to demonstrate
the business’s growth from year to year.
For more information visithttp://of?ce.microsoft.com.
Build a budget
using the right tools
32
The taxman and you
Start your relationship with the taxman on a positive note by
taking time to choose someone to help you with your books.
Whether you are an individual, a company, a
CC, a director, a member of a CC, a partner, a
sole proprietor, an employee or a spouse – if you
earn income in this country you must pay tax.
Selecting a tax advisor can be a tricky busi-
ness but be sure to interview him or her as you
would any other professional. You might not be
an expert in this ?eld (yet!) but think of it as a
learning experience. Meet with a few different
tax professionals and see who you feel most
comfortable with.
Six steps to ?nd a good tax pro
1. First meeting: Most tax professionals
charge according to an hourly rate, tax return
complexity and hassle factor. Get your act
together and take all the relevant documents
and information to your ?rst meeting as this
will cut down on the time (and money) he or
she spends searching for documentation.
2. Be early: Give your tax pro plenty of time
to prepare so that he can give the taxman a
more considered return.
3. Avoid rush jobs: Few will be open to taking
you on as a new client if you only call a few
days before the tax return deadline.
4. Extensions are ?ne: Rather send an accu-
rate return late than an inaccurate one on
time.
5. Don’t cheat: Don’t ask your tax advisor to
cheat the system – they don’t want to do it.
6. Training: The person helping to prepare
your taxes may not have any formal training
– some tax preparers work seasonally and
sometimes have little formal training beyond
a company course. Find out if this is the case,
and whether or not they have more highly-
trained professionals checking their work.
How to register your
company for tax
The easiest way to register your company
for tax is to visit the South African Revenue
Services (SARS) website, which gives you
the guidelines for registration and the
application forms. It also provides useful
information on registering yourself, your
company and your employees, as well
as advice on UIF, VAT, transfer duty and
various tax-related issues.
Visit www.sars.co.za or your local SARS
of?ce.
33
Questions to ask
What are his or her credentials? Tax pros
are normally certi?ed public accountants (CPAs)
who focus on tax issues; enrolled agents (EAs)
who specialise in tax issues; or unenrolled pre-
parers who may or may not have formal training.
Which area or clientele does he or she
specialise in? You need someone who is
familiar with the issues that affect you and your
business.
How much professional education does
he or she receive each year? Passing the
test as a CPA or an EA is not enough. Tax codes
and the interpretation thereof can change and
it is important for tax pros to keep abreast of
develop ments. Ideally they should complete a
certain amount of training each year.
With whom will you be dealing? You don’t
need to know how the tax pro’s back of?ce
operates, but you do need to know if he or she
is the one who will answer your queries.
What is his or her policy on returning
phone calls? Some tax advisors are notoriously
dif?cult to get hold of.
Will he or she be available outside of the
tax season? Tax pros who work seasonally
might only be available for the ?rst four months
of the year. If this doesn’t suit you, say so.
How much will he or she charge? Be
upfront about payment, it is your money after
all. Any tax pro should be able to give you a
good estimate once he or she has interviewed
you and checked your previous returns.
According to current tax law, legal
deductions include:
• Medical expenses in excess of R1 000 or
5% of taxable income.
• Retirement annuity funds – 15% of non-
pensionable income.
• Donations of more than R1 000 or 5% of
taxable income to public bene?t, which
includes universities, colleges, selected
educational funds, children’s homes
and organisations for the aged and Aids
sufferers.
Other deductions
• Determine your period of assessment
– for companies and CCs a normal year
is a tax year; individuals, sole traders and
partners in a partnership use 1 March to
the last day in February as their tax year.
• Calculate tax using your net pro?t
according to your income statement.
• You may deduct any expenses incurred
in the production of income.
• Bad debts can be deducted as long as
the original transaction that led to the
bad debt was included in your taxable
income for the previous year.
• If you operate your business from part
of your home you can claim a portion of
your expenses such as bond repayment,
rates, electricity, telephone and domestic
workers’ wages.
Need-to-know info
34
VAT is a tax levied on the supply of goods and
services. It is charged at a rate of 14% and is
borne by ?nal consumers of goods and services.
Some simple rules to remember are:
• You must register for VAT if your business’s
income exceeds R300 000 a year.
• VAT you charge is output VAT.
• VAT you pay to suppliers is input VAT.
• Output VAT – input VAT = VAT payable.
• Keep adequate VAT records for ?ve years.
• Complete a VAT return and submit it to SARS
with payments every two or six months (check
www.sars.co.za for guidelines).
• Include a VAT number on your invoices and
the words “Tax invoice”.
• Ensure that every invoice you receive from
your suppliers has a VAT number.
• Keep a record of all the invoices you receive
and issue.
• Develop a good system of tracking all your
input and output VAT.
You can use an Excel spreadsheet to keep track
of and calculate input and output VAT. Visithttp://of?ce.microsoft.com for downloads.
VAT need not
be taxing …
How to calculate
VAT payable
Total sales
including VAT x
Eg: Sales R228 000 x
= R28 000
35
VAT-free milk …
Depending on the nature of your business,
there may be certain items within it that
are VAT free. These include:
• Brown bread, milk, petrol and diesel.
• The sale of your business.
• Certain educational services, rail, bus
and taxi fares, home rental and life
assurance.
Visit www.sars.co.za to download their tax
guide for small businesses.
Typical mistakes to avoid
Not keeping your smaller receipts. Keep all
your receipts, even those for small amounts. They
might not be scrutinised by the tax pro but he
will need to have a record of them. For example,
a receipt for a small expense for entertaining a
client will need to be detailed – where you went,
who you went with, when you were there, etc.
Write your client’s name on the credit card or
cash slip, as well as the date and time.
Lumping equipment with supplies.
Equipment is capital expenditure that has to
be depreciated. Special rules allow most small
businesses to write-off a certain amount for tan-
gible personal property such as computers and
of?ce furnishings. These purchases must still be
reported as capital expenditure and use the spe-
cial method of expensing the costs. If you don’t
report this properly and deduct your computers
as supplies, SARS will probably rule that you are
not entitled to the deduction that you claimed.
Forgetting to track reimbursable expenses.
It is acceptable for small business owners to
pay for some business expenses out of their
own pocket or with a personal credit card, but
don’t forget to track these costs and submit the
expenses to your company for reimbursement.
You should also have a non-taxable
reimbursement plan in place for employees.
Miscalculating car deductions. There are a
number of ways to calculate deductions for vehi-
cle use. Here are some brief pointers:
• Take a standard mileage deduction per busi-
ness mile or a deduction for actual expenses
and include depreciation of the car. You can’t
claim mileage deduction and depreciation for
actual expenses.
• Switch between the two methods but be
careful – using standard mileage to calculate
actual expenses means you can’t depreciate
using the modi?ed cost recovery system. You
must use straight-line depreciation, which
usually yields a smaller deduction.
• If the vehicle is owned by the business, 100%
of the costs can be depreciated. Remember,
personal use of a vehicle by an employee has
to be included as part of their taxable income.
Giving more than you receive. There’s no
problem with being generous and giving gifts
to your clients and associates, but don’t go
overboard. Decide how much you want to spend
before you start buying gifts. SARS usually allows
the full amount for gift deductions but will inves-
tigate higher amounts, eg, an R80 000 car!
Did you know?
• As a vendor you must issue a tax invoice
if goods or services total R3 000 or more.
• If you receive goods and services worth
R3 000 or more VAT registration numbers
must also be included on the invoice.
• There are about 16 000 to 17 000
registered VAT vendors in SA.
• A common error when issuing tax
invoices is not including the purchaser’s
name and address.
• A new scheme for informal small retail
businesses, ie, spaza shops, has been
implemented to help simplify their VAT
and bookkeeping processes.
• To qualify for this scheme you must have
a turnover of less than R1 million a year.
For more information visit www.sars.co.za.
36
Calculating a
travel allowance
• Have an opening and closing odo-
meter reading for all business jour-
neys. Remember that the distance travelled
between home and work is not counted as
business.
• Keep an accurate logbook of distances
travelled. If a logbook is not kept and you
travel more than 32 000km a year, the ?rst
18 000km are counted as business and the
remainder as private. If you travel less than
32 000km, the ?rst 14 000km are counted as
private and the difference as business.
• Have a travel allowance. If you have a
travel allowance and have kept an accurate
logbook of the kilometres that you have
travelled, your claim will not be limited to
32 000km.
• Be aware of what the travel bene?ts
are. A travel allowance gives you a cash
?ow advantage because monthly PAYE tax
is calculated on only 50% of this allowance.
However, it can work against you if travel-
ling is not part of your everyday work or if
the distance travelled does not add up to the
allowance you receive. If this is the case, the
outstanding tax will be collected from you
when you submit your tax return.
For example, if you travel a total distance that
is less than 14 000km during the tax year and
do not keep a logbook, you will not be able to
claim against your travel allowance and will
be taxed on the full amount. If you receive an
allowance of 20 000km and your claim totals
only 10 000km, then you will be taxed on the
remaining 10 000km.
Let’s say that you own a vehicle with a
value of R47 250 and you receive a travel
allowance of R24 000 a year. During the
year of assessment you travelled 45 000km
and did not keep accurate records of
business and private trips. Your travel claim
would be calculated as follows:
Total kilometres travelled: 45 000
Less: kilometres for business use: 18 000
Kilometres for private use: 27 000
Fixed cost element*: R25 197
Fixed cost per kilometre:
Fixed cost (25 197)
= 56,0 cents
Km travelled (45 000)
Fuel cost element/kilometre 24,8 cents
Maintenance cost/kilometre 19,2 cents
Total cost/kilometre 100,0 cents
Total claim calculated:
Business km x total cost/kilometre
(ie, 18 000 km x 100 cents) = R18 000
* Fixed cost element depends on the vehicle
you drive. Visit www.sars.co.za for details
on how to calculate this.
Checklist for correct
travel expense claims
Keeping a record of all your company’s travel expenses can be
tricky – but is important. Here are some simple tips for staying
on the right track.
37
Electronic ?ling (eFiling) is wholly owned by
SARS and is a channel between SARS and the
taxpayer through which tax forms and tax
payments can be submitted online.
Standard Bank’s Business Online website
links into this online tax service through its
Domestic Banking section to enable the bank’s
customers to make online payments to SARS.
eFiling enables you to:
• View forms and related correspondence.
• Get a full payment and form submission
history online.
• Access help facilities and online guidelines.
• Receive reminders via SMS and email.
• Download and use any tax form, and do
payment tracking.
• Get electronic con?rmation of transactions.
• Request extensions and tax directives.
Access is available from the Business Online
home page. See www.standardbank.co.za andhttp://corporateandinvestment.standardbank.
co.za/.
For more information please call 0860 123 006
or email [email protected].
If you are a Standard Bank Business Online
customer then:
• Log on to www.standardbank.co.za and
click on “Domestic Banking”.
• Submit your tax payment using the
eFiling system. Payment instructions will
be submitted to Standard Bank Business
Online.
• Your payment will be processed into
SARS’ eFiling account. Business Online
will notify SARS eFiling of the payment.
• The eFiling system will match the
payment con?rmation received by the
taxpayer and submit a reconciliation
report to SARS.
• The taxpayer is billed for using the
system by Business Online.
• Business Online will generate a report to
SARS eFiling.
If you are not a Standard Bank customer
simply log on to www.sars.co.za to access
eFiling.
Low-down on eFiling
How to use eFiling
38
Analysing your vital statistics
You’ve been tracking your ?nancials like a demon. You’ve got
spreadsheets, ?gures and columns and columns of numbers.
The question now is what to do with them …
Analysing your company statistics not only pro-
vides valuable measurables to track the course
of your business, it can also be used to build
competitive advantage. This data can help you
set goals and determine how much you should
charge for your services or goods. By examining
the trends in your business you can plan ahead
and seize opportunities as they arise.
The kind of data you choose to collect depends
on the kind of business you are in. For instance a
retail store doesn’t have the same requirements
as a self-employed professional but both have
one thing in common: they bene?t from collect-
ing information about their customers.
As with anything in life, what you get out of
your information is only as good as what you
put in. Accuracy counts – particularly when col-
lecting personal information such as names and
addresses. Start building up a database that not
only includes basic customer information, but
which also details what they buy from you and
what other products or services they want.
In a new business you might not have histori-
cal sales and expense data at ?rst, but you can
always compare what you have budgeted for
with what you think you can earn. Setting sales
goals will help you to determine if your business
is on track. Collecting and analysing sales infor-
mation can help you to decide which products
and services you should continue to offer, or
stock more of, and which you shouldn’t. It will
also help you to establish if you have the right
sort of suppliers and all the employees that you
need.
Other bene?ts of data collection include pricing,
sales forecasting and managing expenses.
One of the challenges of running a small
business is dealing with its feast-or-famine
nature and it is not just about the ?ow
of business, but also the ?ow of cash.
Microsoft’s small business website www.
microsoft.com/southafrica/smallbusiness
offers the following tips:
1. Avoid slow-pay/no-pay customers:
Weed them out before they start owing
you money. If someone is about to
become a signi?cant customer, ?rst
check out their payment track record.
2. Use barter instead of cash: If you
need something from someone and can
offer goods or services of your own in
return, do it. This reduces the strain on
your immediate cash.
3. Trim your inventory: Money spent on
inventory is not producing any interest
or savings. Find clever ways to keep it
down. For example, a restaurateur can
cut back on the size of his wine cellar by
focusing on a smaller number of better
quality wines.
4. Consolidate your loans: If you have
several loans, review the rates and terms
of each. If you can, consolidate them
into a lower-interest account. You could
also consider extending the term in
exchange for lower payments.
quick tips for
improving
cash ?ow
39
How to reach your goals
Expanding your business means that you need
to know what volume of sales will cover your
costs. You need to establish how much to
charge for your time as well as the products
and services you sell. If you take out a loan
to help you expand, you will also want to
calculate how much you can borrow in order
to meet the repayments.
Microsoft Excel has a number of useful tools
to help you meet your day-to-day business
goals and score a few new ones. One of them
is the goal seek function, which is found on
the Excel spreadsheet under the tools menu.
The goal seek command allows you to
calculate the value of a formula you’ve written
equal to a goal you have set. Goal seek can
help you determine how many units you have
to sell in order to attain a certain income.
Goal seek also helps you to:
• Analyse your break even point
Using the Excel command you can plot your
business’s current level of expenses and
income and work out how many hours the
business needs to bill in order to cover its
costs.
• Do loan calculations
This is invaluable when determining the
amount of money you can borrow given a
set monthly repayment. Simply punch in
the term of the loan, or how many monthly
repayments you’ll need to pay it back, the
interest rate you expect to pay, the loan
amount and the amount of the monthly
repayment.
• Conduct a data tables analysis
This helps to determine how a small change
in price or the number of hours that you bill
can affect your bottom line. It helps you to
thoroughly analyse your business’s ?nancial
picture.
For more information, visithttp://of?ce.microsoft.com.
More useful
Excel tools
• SUM and average are the two most
used (and useful) Excel functions, and
are used to add up a column of numbers.
• The PV function calculates the present
value of an investment and can help you
decide whether to pay for equipment in
cash or through instalments over time.
• The FV function calculates the future
value of an investment, for example how
much an investment will earn over the
years as you contribute to it.
40
Ask yourself some questions: Why do sales go
up and down? Which of your products do you
sell the most of at certain times of the year?
What percentage of the orders you receive are
more than a set amount? The tools you need
to answer these questions are probably already
on your desk – most of?ce software packages
include a spreadsheet system, like Excel, which
allows you to select and ?lter certain informa-
tion about your business. Even if numbers aren’t
your strong point, you can easily convert these
statistics into graphs and charts to provide a
visual representation of business trends.
Sorting
Spreadsheets allow you to sort information
according to certain criteria, which helps you
identify groups or patterns of behaviour among
your customers. By loading the information
onto a spreadsheet, you could, for example, sort
your customers according to city, province or
even neighbourhood, to see where the bulk of
your business is coming from. You can also sort
according to product or date, to see which cus-
tomers bought which items and when.
Filtering
Filtering spreadsheet information allows you
to focus on speci?c areas. For example, Excel’s
AutoFilter function has a drop-down list that
enables you to select a particular value as a
?lter. This allows you to view things like best-
selling items, customers who buy the most, best
sales months of the year and so on.
Charting
Plotting your information on a bar chart can help
you to compare sales and expenses over a certain
period. Similarly a pie chart can help you see the
relative proportion of each category of expenses
as a part of the whole. A line chart will help you
to plot your sales over time. Programs like Excel
can create these charts automatically, while giv-
ing you a variety of graph types to choose from.
Pivot table
Pivot tables and charts are designed to let you
see information from different angles, either in
detail or in the form of a summary, without hav-
ing to set up more than one spreadsheet. This
is particularly helpful when you need to make
sense of lots of detailed data, for example, sev-
eral years’ worth of sales or expenses.
Microsoft offers a number of software options
for charting and analysing your business. For
more information see the Microsoft Small
Business Kit (ISBN: 0-7356-2054-7) or visithttp://of?ce.microsoft.com.
Tracking the ups and downs
Are your “best” customers also your most pro?table ones? And do they change from month to
month? Which should you keep and which should you let go? Identifying these trends will give
you new insight into how your business performs and – more importantly – why.
How to chart key business issues
41
If you’re starting a new business, or are thinking of upgrading your
software, choose something that is relatively easy to use and which
will allow you to conduct basic ?nancial management and analysis
by yourself. Look for a package that is speci?cally geared for small
business users, such as Microsoft Of?ce Small Business Edition
2003. Before you buy anything, check that it allows you to:
Prepare an overview of ?nancial performance: You will need
this for any bank or potential investor. Microsoft’s small business
template collection includes a PowerPoint template that allows you
to present customised ?nancial data.
Conduct a value product analysis: When you’re trying to
determine the best way to make your case to prospective customers
and clients, let the numbers tell the story. Excel includes templates
that help you to chart the bene?ts of your product or service against
the investment required.
Build a competitive points list: What are your strengths and
weaknesses? What do you offer that your competitors don’t?
The Word template found in Microsoft’s small business template
collection helps you to identify areas for improvement. It also easily
converts into a marketing piece that showcases your strengths.
Draw up a basic marketing plan: Having a great product or
service only leads to success when potential customers know about
it. You need a marketing plan that shows step by step how you
intend to reach your objectives. Excel has a template that outlines
the basics and helps you to understand how to put together a
detailed campaign.
Create a job performance review guide: As a busy owner/
manager, it can be hard to track performance on a regular basis.
Microsoft Word has a performance review guide template that
allows you to standardise employee reviews and track individual
performance over an extended period.
42
Work smart to give you the edge
No matter how small your business, the right suppliers can
make managing your ?nances a whole lot easier. Here’s how.
Are you the kind of business owner who is picky
about where you purchase your paperclips, or
who only prints out essential documents to
save on print costs? Well, that’s good. In the big
world of small business it is the little things that
count. Being fussy about how you run your day-
to-day business, and who you do it with, can
help to reduce your running costs and ultimately
improve your bottom line.
Start by choosing your suppliers intelligently.
Your Internet Service Provider (ISP), for example,
should be far more than just a connection to
the World Wide Web. Internet-based technolo-
gies are increasingly being used as the building
blocks for basic business systems, and a good
service provider should be able to show you how.
Get the most out of your ISP
Ask your ISP what applications it can provide
that will help you to manage your business
online. Besides electronic billing and website
creation and maintenance, this could include
business functions like online accounting, spend
The bene?ts of
managing business online
The cheque’s in the (e)mail …
Many small business owners are their own
worker, marketer, admin and ?nancial manager,
all rolled into one. And all too often, preparing
invoices and chasing late payments cuts
into valuable time that could be better spent
generating new business. This is where a tool
like eBilling can make a world of difference.
eBilling is an online facility that enables small
businesses to send invoices and statements
electronically, while giving customers the
option of paying online. For example, MWEB
Business’s eBilling facility allows you to track
how many bills or statements have been
sent, and to whom. It provides proof that a
document was sent to the customer and can
even track when the recipient read it.
Besides the obvious savings on paper, printer
cartridges, envelopes and postage, being able
to manage your invoicing system electronically
cuts labour costs, saves time and eliminates
confusion. It also means (at last!) that your
cheques de?nitely AREN’T in the mail …
For more information see www.mwebbusiness.
co.za/ebilling.htm.
Online business management is the next
technology step forward for small business
owners, and has a number of advantages:
• Cost effective – you don’t have to
purchase the software application/s.
• Up to date – by “leasing” the
applications you have free access to the
latest versions and virus protection.
• User friendly – you don’t need to be a
?nancial expert to use the programs.
• Completely secure – much like Internet
banking, online applications are secure,
encrypted and password protected.
• Convenient – you pay for what you use,
and use it for only as long as you need.
It replaces paper-based systems and is
available 24 hours a day.
43
management, goods procurement and payment.
These applications are typically developed by an
ISP like MWEB Business, and are stored on one
of their servers. Instead of purchasing the appli-
cation and loading it on to your own machine,
you access and use it via the Internet on a sub-
scription basis. You “lease” or rent it for as long
as you wish to use it, while your ISP ensures it is
bug-free, up-to-date and supported by a helpline.
Simply put, it is like a “virtual” admin depart-
ment that you can access and use in much the
same way as you would online bank accounts.
The use of online applications is based on the
principle that Internet connectivity is a tool with
which to make your business more effective,
more productive and therefore more pro?table.
It is also a way for you to ensure that your serv-
ice provider works as your business partner, and
does more than just send you a bill at the end of
each month.
For more information visit www.mwebbusiness.
co.za. Click on the eBilling or mobile commerce
links for examples of online applications.
Give your
cell phone credit
Using cell phone technology to make credit
card payments is a relatively new concept
to hit South Africa. It provides a quick,
simple and completely secure payment
solution for mobile businesses such as
electricians, plumbers, installers and
those selling goods from non-permanent
locations, such as ?ea markets. It helps
businesses to conduct secure transactions
from anywhere and receive immediate
payment, without hard cash changing
hands.
All you need is your cell phone and your
customer’s credit card. Once you sign
up for the service, you simply follow the
prompts to enter the transaction and card
details into the phone, and the transaction
is processed immediately. You will also
receive an SMS and email con?rmation
of the transaction, which you can then
forward to your customer.
Transactions can also be made using a
landline telephone.
For more information, see
www.mwebbusiness.co.za/
mobile_commerce.htm.
44
Managing business accounts requires time,
specialised accounting skills, and often a sophis-
ticated software application – all of which few
small business owners actually have. The launch
of MWEB Business’s online accounting facility
is one of South Africa’s ?rst examples of how
Internet-based technologies are helping to
remove some of these obstacles.
Being able to manage your accounts in a safe,
secure, online environment has several bene?ts:
• Because the application is stored on your ISP’s
server, you do not have to purchase an expen-
sive accounting package. You simply log on via
the web whenever you want to use it.
• You don’t need to hire special skills to use or
support the application – your ISP provides
24-hour trouble-shooting and support.
• Accounting tasks are faster and easier, from
paying bills and invoicing customers, to
tracking expenses and printing reports.
• All your business ?nancial information is
organised in one place, and you can access
these records 24 hours a day, from anywhere.
Your information is completely secure, but if
wish, you can give someone else access to it
(eg, an external book-keeper).
Account management is the ?rst in a number of
online applications that will soon be available on
the South African market. This includes MWEB
Business’s Spend Management tool, being
launched at the end of September. This web tool
will allow you to integrate and manage purchase
orders, leave requests and expense claims, right
through to payslip generation. Bear in mind,
however, that these applications are designed
for users with ADSL connectivity.
For information see www.mwebbusiness.co.za.
Get safety in numbers
There are numerous software applications to help you balance
your books. But when you ?nd one that suits your small
business environment, it often comes at a big business price.
It is natural to be concerned about security
when working with business information
online. If you are thinking of using online
applications, or are looking for a new
service provider, ?nd out what security
measures they have in place, ie, ?rewalls,
encryption and password protection.
Remember, though, that they can’t protect
you if you give out your details to a
stranger.
“Phishing“ is one of the latest forms of
fraud and is an attempt by criminals to
access your con?dential information.
You will either be requested by email to
provide your banking information or be
lured to a spoof website. Another phishing
method sends users an email from their ISP
containing links to a legitimate site. At the
same time a pop-up window will appear
requesting your credit card information.
If you suspect you are being “phished”,
under no circumstances should you interact
with the sender of the email, or provide
anyone with your personal or bank account
details.
If you are in any doubt about the source of
an email or request for such information
that claims to come from your bank, or
of the validity of a website, contact your
branch or service provider.
Hook, line and sinker
MWEB’s CommerceZone eProcurement
portal is a prime example of how ISPs are
growing their service offering to include
additional Internet-based tools for speci?c
segments of the small business market.
Strategic sourcing: If you sign on to
CommerceZone, you have access to a
range of goods and services that can be
tailor-made (within the CommerceZone
database) to meet your business
requirements. This portal provides you
with a full procurement management
function that includes sourcing, contract
management, service levels agreement
management and BEE certi?cation of
suppliers.
Specialised services: CommerceZone also
gives you the ability to handle complex
procurement transactions (rather than a
simple “select from catalogue” purchase)
by ensuring that they follow the same
order processes as simpler items.
This includes a print management
solution, which helps you to
secure the best price, quality
and service for complicated
print requirements, as
well as an in-house travel
management service.
For more information visit
www.commercezone.co.za.
45
Get in the zone
As a small business owner you can leverage
your existing relationships with your larger
suppliers and save cash by procuring goods
and services online.
Larger companies often pay a monthly licence
fee to a supplier or broker who then helps
them to access goods and services at lower
prices. Some companies, such as MWEB’s
CommerceZone, are offering their customers
the same opportunity.
Business-to-business (B2B) eProcurement
solutions can give you immediate, direct and
measurable savings and business bene?ts
based on strategic sourcing of indirect goods
and services. For example, if you purchase
a great deal of stationery, you could make
signi?cant savings by purchasing it online
through a facility like MWEB’s CommerceZone.
Besides having a positive impact on your
long-term cash ?ow, you also have the added
bene?t of getting as much value as possible
from an existing supplier (your service
provider) rather than having to create new
relationships with unknown ones.
The BEE-ne?t
Working this way can also help you to achieve
some of your broader business goals. For
example, MWEB’s CommerceZone ensures
that a greater percentage of your spend
is directed to bona ?de black empowered
organisations. Once you purchase online, you
receive a report outlining the BEE rating of the
supplier, in this way increasing your company’s
exposure to BEE businesses.
Why buying online makes business sense
Ability to pay: A borrower’s ability to meet their
current and future debt obligations.
Accountant: One who is skilled in the practice of
accounting or who is in charge of public or private
accounts, and is responsible for reporting ?nancial
results – for a company or for an individual – in
compliance with government regulations.
Account balance: The amount of money in an
account, equal to the net of credits and debits at that
point in time for that account. Also called balance.
Accounting: The systematic recording, reporting, and
analysis of ?nancial transactions of a business.
Accounts payable: Money that a company owes
to vendors for products and services purchased on
credit. This item appears on the company’s balance
sheet as a current liability, since the expectation is that
the liability will be ful?lled in less than a year. When
accounts payable are paid off, it represents a negative
cash ?ow for the company.
Accounts receivable: Money that is owed to a
company by a customer for products and services
provided on credit. This is seen as a current asset on a
balance sheet. A speci?c sale is generally only treated
as an account receivable after the customer is sent an
invoice.
Accrual basis accounting: The most commonly
used accounting method, which reports income when
earned and expenses when incurred, as opposed to
cash basis accounting.
Active asset: An asset that is used in the daily
operations of the business.
Angel investor: An individual who provides capital
to one or more start-up companies. The individual is
usually af?uent or has a personal stake in the success
of the venture. These investments typically have
high levels of risk and potentially large returns on
investment.
Asset ?nancing: Financing for which assets are
converted into working cash in exchange for a security
interest in those assets. The most common kind of
asset ?nancing is to extend loans against accounts
receivable. Other kinds of asset ?nancing, such as
lending against inventories, are also common practice.
B2B: Or Business-To-Business is a transaction that
occurs between two companies, as opposed to a
transaction involving a business and a consumer. The
term may also describe a company that provides goods
or services to another company.
Back taxes: Taxes that were not paid when they
were due.
Balance sheet: A quantitative summary of a
company’s ?nancial condition at a speci?c point in
time, including assets, liabilities and net worth. The
?rst part of a balance sheet shows all the productive
assets a company owns, and the second part shows
all the ?nancing methods (such as liabilities and
shareholders’ equity). Also called statement of
condition.
Bank credit: The borrowing capacity provided to an
individual by the banking system, in the form of credit
or a loan. The total bank credit the individual has is
the sum of the borrowing capacity each lender bank
provides to the individual.
Bank reconciliation: The process of adjusting
an account balance reported by a bank to re?ect
transactions that have occurred since the reporting date.
Bankruptcy: A court proceeding in which an insolvent
debtor’s assets are liquidated and the debtor is relieved
of further liability.
Books of ?nal entry: Accounting ledgers where
information is transferred from the books of original
entry.
Bottom line: Gross sales minus taxes, interest,
depreciation and other expenses. Also called net
earnings, net income or net pro?t.
Break-even analysis: A calculation of the
approximate sales volume required to cover costs
of a business, below which production would be
unpro?table and above which it would be pro?table.
Break-even analysis focuses on the relationship
between ?xed cost, variable cost and pro?t.
Budget de?cit: The amount by which a government,
company, or individual’s spending exceeds its income
over a particular period of time. Also called de?cit or
de?cit spending and is the opposite of budget surplus.
Business credit: A bank loan to a company. Also
called commercial lending or commercial credit.
Capital: Cash or goods used to generate income. Also
the net worth of a business – the amount by which its
assets exceed its liabilities.
Cash budget: A forecast of estimated cash receipts
and disbursements for a speci?ed period of time.
Cash cycle: The length of time between the purchase
of raw materials and the collection of accounts
receivable generated in the sale of the ?nal product.
Also called cash conversion cycle.
Cash ?ow: A measure of a company’s ?nancial
health. Cash receipts minus cash payments over
a given period of time; or net pro?t plus amounts
charged for depreciation, depletion, and amortisation.
Glossary of terms
46
Character loan: A loan based on the reputation
and/or personal credit history of a borrower, rather
than collateral.
Cash ?ow statement: A summary of a company’s
cash ?ow over a given period of time.
Chart of accounts: A list of all account names and
numbers used in a company’s general ledger.
Collateral: Assets pledged by a borrower to secure a
loan or other credit, and subject to seizure in the event
of default. Also called security.
Cost accounting: The process of identifying and
evaluating a company’s production costs.
Creditor: A person or organisation which extends
credit to others.
Credit scoring: A statistical technique used to
determine whether to extend credit, and how much,
to a borrower.
Debit: An accounting entry that results in either an
increase in assets or a decrease in liabilities or net
worth.
Debit balance: The amount that a business or
individual owes a lender or seller.
Debtor: An individual or company that owes debt
to another individual or company (the creditor), as a
result of borrowing or issuing bonds.
Deposit: Money given in advance to show intention
to complete the purchase of an item. Also money
transferred into a customer’s account at a ?nancial
institution.
Equity capital: Capital raised from business owners.
Fee-based ?nancial planning: Financial planning
services that are paid for on a ?at fee or hourly basis,
rather than on a commission basis, to eliminate
potential con?icts of interest.
Finance: The management of assets, especially
money. Can also mean to raise money through the
issuing and sale of debt and/or equity.
Financial asset: A non-physical asset, such as a
security, certi?cate, or bank balance.
Financial statement: A written report that describes
the ?nancial health of a company and includes an
income statement, a balance sheet and a cash ?ow
statement. Financial statements are usually compiled
on a quarterly and annual basis.
Fixed asset: A long-term, tangible asset held for
business use and not expected to be converted to cash
in the current or upcoming ?scal year, for example,
manufacturing equipment, property and furniture.
Fixed-rate loan: A loan in which the interest rate
does not change during the entire term of the loan.
General ledger: A book of ?nal entry that
summarises a company’s ?nancial transactions, by
using debit and credit accounts.
Gross: The total amount before anything is deducted
or 12 dozen (144).
Gross earnings: An individual’s taxable income
before any appropriate adjustments are made.
Gross pro?t: Pre-tax net sales minus cost of sales.
Also called gross income.
Guaranteed bond: Corporate bond where principal
and/or interest payments are guaranteed by a
corporation other than the issuer.
Hidden asset: An asset not immediately apparent
from a balance sheet.
Impaired credit: The result of a reduction in the
credit rating of a borrower.
Income statement: An accounting of sales, expenses
and net pro?t for a given period.
Income tax: Annual tax levied by the Government,
most states, and some local governments, on an
individual’s or corporation’s net pro?t.
In?ation rate: The percentage increase in the price
of goods and services, usually annually.
Insolvent: Unable to meet debt obligations.
Intangible asset: Something of value that cannot
be physically touched, such as a brand, franchise,
trademark, or patent.
In the black: Pro?table. Opposite of in the red.
Inventory: A company’s merchandise, raw materials,
and ?nished and un?nished products, which have
not yet been sold. These are considered liquid assets,
since they can be converted into cash quite easily.
There are various means of valuing these assets but
to be conservative the lowest value is usually used in
?nancial statements.
Investment management: The process of managing
money, including investments, budgeting, banking and
taxes. Also called money management.
Liability: A ?nancial obligation, debt, claim, or
potential loss.
Net worth: Total assets minus total liabilities of an
individual or company. For a company, also called
owner’s equity, shareholders’ equity, or net assets.
Value Added Tax: VAT – consumption tax which is
levied at each stage of production based on the value
added to the product at that stage.
47 47
Where to learn more
Please note: The Real Business partners do
not endorse the following resources in any way.
These are intended as information reference
points only. For other general training and online
resources for small business in South Africa,
please see Small Capital issues 1 and 2.
www.thedti.gov.za
The of?cial website of the
Department of Trade and Industry.
www.khula.org.za
Information on Khula credit guarantees for small
business.
www.frain.org.za
Franchise Advice and Information Network.
www.brain.org.za
The South African Business Referral and
Information Network, which offers value-added
information to SMMEs.
www.businesspartners.co.za
Business Partners provincial of?ces.
www.smallbusinessonline.co.za/
seminars.htm
Financial management training for small
businesses, offering access to ?nance for
franchising.
www.realbusiness.co.za
Also see the Real Business printed
supplement in Business Day on the third
Monday of every month.
www.mwebbusiness.co.za
MWEB Business sales: 0860 100 127
(email [email protected])
www.microsoft.com/southafrica/
smallbusiness
0860 225 567
(email [email protected])
www.standardbank.co.za
0860 012 345
(email [email protected])
Your small
business partners
Small business resources
48
49
www.fsp.co.za
Tips, information and ideas on business and
?nances plus advice from experts in business,
personal ?nance and tax.
www.small-business-hub.co.za
Small business loans, business plans, business
opportunities and ?nance for South African
entrepreneurs.
www.saeverything.co.za/
businessrequisites.htm
South African business resource portal.
www.mbendi.co.za/idc/?nance/apply.htm
Details of the ?nance required from the
Industrial Development Corporation (IDC) for
medium, small and start-up businesses.
www.saguides.co.za/BO.htm
The SA guide to business opportunities
webpage, containing information on venture
capital and other sources of ?nance, as well as
BEE and VAT.
www.microsoft.com/sbs
For information on the Windows Small Business
Server 2003 – the affordable networking
solution for small businesses.
www.microsoft.com/southafrica/experts
Find the perfect technology partner – for
information on organisations with technical
expertise, strategic thinking and hands-on skills.
BG0003B
issue two June 2005
The Small Capital practical guide
is proudly brought to you by:
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