Business Finances | Blog - Financially Fit Life

6 Numbers You Should Know in Your Business

Ronel Jooste — Mon, 03 May 2021 12:43:27 +0000

Finances is an integral part of any business. Let us be honest there is no sense in running a business that is not profitable unless it is for a charity cause. The sad reality is that plenty of business owners don’t spend a lot of time on managing and analysing their finances. Finances is often perceived to be boring, complicated or only a support function within a business. The truth is the better you manage your finances, the more successful your business will become. The better you know your numbers, the more powerful decisions you can make.

You can outsource your finance function or appoint financial people in your business, but as a business owner you should still know and understand your numbers. There are plenty of important numbers in your business you should know. The numbers will also differ from business to business – what might be critical for one business, might not be important for another type of business. Let us discuss the six numbers that are important for the majority of businesses:

Cash

Cash flow is properly the most important number in any business. Multiple large corporations have closed their doors due to cash flow problems. A business can be profitable with good sales, but experiencing cash flow problems. Cash refers to the physical cash that you have available in your bank or investment account. Cash is needed to pay the expenses, pay creditors and to grow your business.

Cash management goes hand in hand with how well you are managing your debtors and creditors. You could have had great sales, but many of the customers / clients have not paid yet. Or you need to pay your suppliers and expenses before you will receive the cash. Both these scenarios can create serious cash flow problems.

Sales (Revenue / Turnover)

Your sales determine your revenue or turnover, in other words the revenue / turnover before cost of sales or expenses have been deducted. In theory, the more you sell of your product or service, the more profit you will make (although this is not always true). Therefore it is important for any business, to know and manage their sales numbers. It certainly helps to pro-actively identify a decrease in sales and investigate the reasons for it.

It is also important to identify trends. For example, an ice-cream company might see a decrease in sales during the winter months but a spike in sales during the summer months. By knowing these trends you will know whether a decrease in sales is due to the nature of the business or whether there is a problem. You constantly want to drive your sales numbers and exceed the set sales targets.

Profit

Profit is determined by deducting cost of sales, expenses, and tax from your revenue / turnover. You want to end up in a profit position and not a loss position where your cost of sales, expenses and tax exceed your revenue / turnover. It is possible to reach sales targets but make a loss. That is why costing and pricing of your product / service are critical aspects of your business and so is expense management within your business.

Profit can be increased by either increasing your revenue or decreasing your expenses. You will pay tax on profit, therefore you need to also take tax into account when you do your budgets and forecasts.

Direct and indirect costs (expenses)

Profits are directly impacted by expenses. It is important to know both your direct costs and indirect costs since both costs play a critical role in the pricing of your product or service. A particular product / service can perceived to be profitable, but once you also take the indirect costs into account, the product might be selling at a loss.

For example: if you sell hotdogs, your direct costs will be the cost of your bread rolls, the sausages, the sauces, the butter and the packaging. Direct costs are the costs attributed to delivering your product or service. The indirect costs might include things like the electricity to heat up the sausages, the salaries of the staff members preparing and selling the hotdogs and marketing costs. Ensure that you take both direct and indirect costs into account when you set a price for your product / service or determine your profit margin.

Budgeted numbers

A budget is crucial for any business regardless the size of your business. A budget is an effective tool to help you plan for the year ahead. You also want to do forecasts for the medium and longer term i.e. 2-5 years and 5-10 years. Forecasts help you to identify those big future expenses that you ideally want to start planning for early on i.e. moving into a bigger office, replacing your computers or buying a delivery vehicle.

It is however inadequate having a budget if you don’t compare your actual revenue and expenses to your budgeted numbers. By comparing your actual numbers against your budget and analysing the reasons for variances, provides you with valuable information to make effective financial decisions.

Debtors (Accounts receivable)

Ideally you want to run your business on a cash basis. It is however not always possible and the nature of many businesses force you to allow for debtors (also referred to as accounts receivable). Long outstanding debtors can create cash flow problems and irrecoverable debtors can cause for your business to close down.

Know your debtors and constantly manage your debtors’ balances. Adopt a payment policy and communicate it to your customers / clients. Do credit checks on your customers / clients and stop providing products / services to them if they don’t pay you within your set timelines.

Start off by knowing and managing these six numbers. It will certainly help you to create a more profitable and successful business.

This article was written for publication in the Woman Entrepreneur magazine.

Visit the website to learn more about our financial consulting and training services for businesses.

Click here for more information about our course for start-up businesses.

Written by: Ronel Jooste

CA(SA), Financial Consultant, Speaker and Author of the award-winning book Financially Fit and Wealthy

Contact: ronel@financiallyfitlife.co.za

10 Steps to Start a Successful Business

Ronel Jooste — Thu, 25 Mar 2021 06:00:00 +0000

This webinar was recorded to celebrate Money Smart Week South Africa. Start a Business and Become Financially Independent. In this webinar I share how starting a business can help you to create multiple sources of income, create wealth and ultimately create financial independence. I also discuss 10 steps how to start a successful business. If you are an aspiring entrepreneur or a business owner still in start-up phase, this webinar will certainly help you gain more insight in starting a small business.

10 Steps how to start a successful business:

What is your business idea? Will you be offering a product or service or a combination? Do proper research about your business. Is there a market for your product or service and are they willing to pay for your product or service?
A critical success factor is to compile a detailed business plan.
What do you need to start the business? A computer, equipment etc.
From where will you operate your business? Can you do it from home? Do you need an office or a factory? Can you run your business online?
Understand the capital / funding requirements to start. Do you have capital available? If not what sources for funding can you consider?
What is the most suited business entity for you – sole proprietor, company, or partnership? Each of these entities have different rules and requirements (registration, tax etc.) that you need to consider.
You will have to open a business bank account. It is also important to keep your personal and business expenses separate.
Marketing is very important to any business. You can have the best product or service but if nobody knows about you, nobody is going to buy from you. Do you need a website? Which social media channels will work for you? Do you need brochures? Will you follow a direct marketing approach to reach your clients or customers?
Financial management including accounting is another critical success factor of any business. Will you be using an accounting system or doing it on excel? Will you be doing your accounting yourself or outsource to an accountant?
Lastly you need to consider compliance. Compliance would include tax, registrations, industry regulations, licences etc.

To learn more about our 2-day course for start-up businesses: ronel@financiallyfitlife.co.za

Self-employed & Retirement: A Stumbling Block for Many

Ronel Jooste — Mon, 05 Oct 2020 08:32:59 +0000

Are you self-employed and feeling stressed about not having sufficient retirement savings? Plenty of business owners are still seen to be actively working years after reaching retirement age. They really love what they do or they don’t have somebody reliable to take over or they don’t want to let go of their ‘baby’ are the common reasons provided to explain this situation. Yes, these can be valid reasons or reasons contributing to the situation but for many business owners the harsh reality is that they cannot afford to go on retirement.

According to National Treasury less than 6% of South Africans can retire comfortably without having to significantly reduce their standard of living. People who are self-employed tend to have less retirement savings than their counterparts working for an employer in a more formalized, structured set-up. This is mainly due to employers’ remuneration packages placing a compulsory obligation on employees to contribute to the employers’ pension or provident fund.

While employed people will benefit from having these benefits incorporated in their remuneration packages, self-employed people are responsible to make provision for retirement themselves. When a business is still in start-up phase or not performing well financially, making provision for retirement savings often disappears from the radar or are put on hold with the intention to catch up at a later stage.

Here are a few tips and considerations for business owners to be better prepared:

Take out a retirement annuity as soon as you start a business if you don’t already have an existing retirement annuity and start contributing towards it as soon as possible. With the time value of money principle in mind, it certainly is beneficial to make the minimum required contribution early on and increase contributions as the business is growing than to not make any contributions at all.
Take advantage of the tax deductions where you can deduct your contributions made towards your retirement annuity up to 27.5% of the highest of either your taxable income or total remuneration, with a maximum of R350 000 per tax year. If you are not in a position to make regular monthly contributions, you can top-up your contributions anytime during the year to maximize your tax benefit.
Don’t be tempted to use your retirement savings from your corporate job to start your business once you leave your job. Transfer your retirement savings to a preservation fund and leave it to grow gradually.
Many businesses are dealing with the complexity that revenue is not earned on a consistent basis or the business is doing exceptionally well during certain periods and poorly during other periods. In this scenario it is advisable to put away sufficient money during the good times to also make provision for the bad times.
When your business revenue is quite volatile (i.e. rapidly changing all the time) or not consistent from month to month, the most effective money management habit to adopt is to put away a certain percentage of any income you receive to provide for retirement contributions etc.
The sooner you can get to a position where you pay yourself a fixed monthly salary from your business the better. The salary you are paying to yourself should ideally make provision for contributions towards a retirement annuity, medical aid, life policy, disability and dread disease policies, income protection and funeral policy. Alternatively, you can set-up these benefits within your business as your business grows and you start employing more people.
As you get closer to retirement age start planning for life after retirement and set the business up accordingly. Do you plan on selling the business and invest the profit derive from the business to also contribute to your retirement savings? Do you have a succession plan to train somebody else to take over from you? Will you still own or partially own the business and earn income from it after retirement?

There certainly are plenty of things a business owner should pay attention to in addition to running a successful business. Remember it is not all about business, you should also take care of your personal health and financial wellbeing. You don’t want to work hard building a business for many years and then having to struggle financially during your golden years.

Want to learn more about starting your investments journey to grow your retirement portfolio? Click here for the Master Investments 101 online course.

VLOG: Checklist for Invoices to be Valid Invoices

Ronel Jooste — Wed, 05 Aug 2020 08:03:34 +0000

Many business owners find the invoicing process quite tedious and this is also a process that many businesses neglect. Invoicing is however a critical process for your cash flow management. Effective invoicing can certainly help you to get cash quicker into your business. It is however also important to check that the invoices you receive from suppliers etc. meet the standard requirements to ensure SARS doesn’t disallow some of your expenses causing for you to pay more tax. In this video clip I explain what a valid invoice for tax purposes should look like and contain…

Watch the video here...

The requirements for an invoice to be regarded a valid invoice for tax purposes:

The invoice should contain the words ‘Tax Invoice’ or ‘VAT invoice’ if you are registered for VAT. If you are not registered for VAT, include the word ‘Invoice’ and avoid making reference to VAT or tax except for specifying that the invoice doesn’t include VAT.
Name and physical address details of you as the supplier. Your VAT registration number if you are registered for VAT.
Name and physical address details of the recipient. Their VAT registration number if they are registered for VAT.
The date when the invoice is issued.
The invoice number.
Description of the product / services you are selling.
The unit price or hourly rate of the product / services you are selling.
The number of units / hours (quantity) you are selling.
The total value of the product / services you are selling. If registered for VAT show the value excluding VAT, the VAT portion and the value including VAT If you are not registered for VAT, indicate that the value excludes VAT.
If you are registered for VAT indicate that VAT is included and the percentage of the VAT.

Use this a checklist to review your invoices as well as invoices received from external parties to ensure compliance.

Tips to Improve Business Cash Flow

Ronel Jooste — Tue, 05 May 2020 14:35:28 +0000

Cash flow is critical to any business despite the size or type of business. Cash flow can be compared to a river. A river will always flow into a dam or the sea and for the river to remain flowing there needs to be a constant inflow of water. At some point there might be a cascade where the water will be tumbling down over rocks and building up to that cascade the river needs even more water flowing in. When there is a strong inflow of water the cascade turns into a beautiful picture. Similarly businesses need a constant inflow of cash to support their cash outflows in the form of expenses, paying suppliers and repaying debt. When a business has a solid inflow of cash and manage the outflow of cash, the business can ultimately grow and thrive.

In a recent study conducted by SasFin and sme.africa, businesses indicated that cash flow (or rather a lack thereof) contributes to 61% of their biggest financial stress and concerns during the current pandemic. Implementing an effective cash flow management strategy is becoming more critical now than ever before. Here are a few tips to help businesses improve their cash flow:

Change your invoicing to improve cash flow

Invoice more regularly and not only on a monthly or weekly basis.
Implement an automated invoicing process / system that sends out invoices as soon as possible.
Make it easy for clients / customers to pay by offering various payment options i.e. cash, credit card and electronic fund transfer.
Include a payment link / button on the invoice for immediate payment.

Use multiple accounts to manage cash flow

Making use of multiple accounts can fundamentally assist to effectively monitor the cash flow throughout the process and immediately identify any shortages in cash or cash flow inefficiencies. Multiple accounts can refer to two types of accounts:

Control / suspense accounts which can be used as a book / accounting entry only to monitor the cash flow process. In this instance cash doesn’t necessarily move between different bank accounts. This is only a cash monitoring function.
Use separate bank accounts to manage cash flow more effectively. For example transfer the VAT component of any funds received to a separate bank account to have money available when the VAT payment is due

Recover debtors to improve cash flow

Offer a discount if clients / customers pay earlier.
Set-up payment terms and communicate accordingly with clients and customers. Don’t be afraid to charge interest and penalties for late payments, but ensure the terms were communicated beforehand.
Where a big client only pay at month-end, negotiate with the client to pay a few days earlier.

Extend payments to improve cash flow

Another crucial aspect of effective cash management is to extend / defer cash outflows without incurring penalties or interest. Any business will benefit from retaining cash within the business for a prolonged period.
For bigger payments, consider to make payments in two instalments to spread big outflows.

For more strategies to improve business cash flow, download the ‘’FREE Guide to Improve Business Cash Flow’ – click here

For a special post-lockdown cash flow consulting package to support SMME’s – click here

SARS Relief to Benefit Cash Flow

Ronel Jooste — Mon, 13 Apr 2020 16:48:39 +0000

Concerns were rightfully raised about the various relief options been announced to help individuals and businesses been affected by the national lockdown enforced to stop the spread of the coronavirus. It became evident that most relief funding options are in the form of a loan repayable with interest; interest and fees are still charged on payment holidays; the criteria set to apply for relief funding is harsh; some insurers exclude covering the coronavirus impact on policies, application systems not working properly or application processes reaching capacity status and being closed early on. Subsequently many people are left stranded, not knowing where to turn to for assistance and also not knowing how they will be surviving the financial impact given the lockdown period been extended for another two weeks.

Amidst the negativity, uncertainty, stress and questions, SARS announced their relief measures. Eventually the dark cloud got a slight silver lining for some tax payers. The SARS relief options whereby a portion of PAYE and provisional payments will be deferred with no interest and penalties, will truly benefit taxpayers’ cash flows. This is the kind of relief most people, being heavily affected by this crisis, were probably looking for and hoping to receive from all role players.

What form of relief has SARS offered?

The tax relief will apply for tax periods from 1 April 2020 to the following tax types:

Employees’ Tax (PAYE) Deferral – 20% of an employer’s total employees’ tax liability can be deferred; and
Provisional Tax Deferral – 35% of a taxpayer’s provisional tax liability can be deferred.

Both PAYE and provisional tax payments will be deferred with no interest or penalties being charged i.e. a true benefit to assist with cash flow in a positive way over the short-term.

Who will qualify for the PAYE and Provisional Tax relief?

Companies, partnerships, trusts and individuals who are tax compliant will qualify for the PAYE deferral. On the provisional tax side companies, trusts and individuals will qualify provided they are tax compliant.

Taxpayers whose gross trade income don’t exceed R50 million for the year of assessment and the gross income shouldn’t include more than 10% of income derived from interest, dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer will qualify. For PAYE relief the employer must have been registered as an employer with SARS prior to 1 March 2020.

Furthermore the taxpayer should be fully tax compliant to qualify for the deferral. Tax compliance will include the following:

The taxpayer is registered for all tax types applicable to the taxpayer;
All returns across all tax types have been submitted; and
No outstanding payments due to SARS or payment arrangements have been made.

More good news is that tax payers who are not currently fully tax compliant, will have the opportunity to rectify the situation and become tax compliant before the next PAYE / provisional tax return is due. Once the applicable return/-s have been submitted and the taxpayer is still not fully tax compliant, the deferral will not be allowed.

The PAYE 20% deferral

For each tax period running for the four months from 1 April 2020 to 31 July 2020, 20% of the total employee’s tax liability will be deferred. The remaining 80% of the monthly tax liability for April to July will still be due as per the usual payment due dates (i.e. before 7^th of the month). The total amount being deferred (i.e. cumulative 20% for 4 months) will be payable in 6 equal monthly payments from September 2020 to February 2021. The first payment of the deferred amount becomes due together with the August 2020 PAYE payment which is due on 7 September 2020.

Please note for the August payment which is due on 7 September there will be no deferral, thus 100% of the tax liability as well as the first payment of the deferred amount will be due and that will be the scenario for the following 5 months. Tax payers should plan accordingly.

Below is an illustration of the 20% PAYE liability being deferred between April and July (i.e. R80 000 in total); and then becomes payable in 6 equal payments from September 2020 in addition to the 100% monthly PAYE liability.

Month	Gross Payroll Liability	20% Deferral	80% Payable	Due Date
April 2020	100 000	20 000	80 000	7 May 20
May	100 000	20 000	80 000	5 June
June	100 000	20 000	80 000	7 July
July	100 000	20 000	80 000	7 August
Total amount deferred		80 000

Month	Gross Payroll Liability	20% Deferral Due (R80 000 over 6 months)	100% Payable	Due Date
August	100 000	13 333	100 000	7 September
September	100 000	13 333	100 000	5 October
October	100 000	13 333	100 000	6 November
November	100 000	13 333	100 000	7 December
December	100 000	13 333	100 000	7 January 21
January 2021	100 000	13 335	100 000	7 February 21
Total deferral paid		80 000

The Provisional Tax 35% deferral

Provisional tax payers whose 1^st provisional payment is due between 1 April 2020 and 30 September 2020 should pay 15% (i.e. 50% less 35% = 15%) of their total estimated tax liability and 35% will be deferred. Where the 2^nd provisional payment is due between 1 April 2020 and 31 March 2021, 65% (i.e. 100% less 35% = 65%) should be paid, taking into account the 1^st payment already paid, and 35% will thus be deferred. The 35% that will be deferred will become due when the 3^rd provisional tax payment is due.

Below is an illustration of the 35% provisional tax deferred payment that will be due on the 3^rd provisional tax payment due date.

Estimated Taxable Income	10 000 000
Company tax @ 28%	2 800 000
1st Provisional Payment	420 000	2 800 000 x 15%
2nd Provisional Payment	1 400 000	2 800 000 x 65% less 420 000
3rd Provisional Payment	980 000	2 800 000 x 35% deferred

Source of information: www.sars.gov.za

Going forward

SARS indicated that they are working on adjusting their systems to automatically allow for the deferrals. Tax payers should however check on the status prior to submitting the relevant returns and follow the SARS instructions / processes with regards to applying for the deferral if registration / applying is required at the time. Tax payers should also keep an eye on all tax calculations during this period to identify any errors early on.

Both the PAYE and provisional tax deferrals will thus benefit qualifying tax payers’ cash flow during this difficult time. It is advisable for tax payers to put money aside during this period to have funds available when the deferred amount becomes payable to avoid cash flow shortages at that stage. Hats off to SARS for offering real relief with a positive impact on tax payers’ cash flows over the short-term.

Coronavirus: Business and financial lessons

Ronel Jooste — Sun, 05 Apr 2020 08:55:15 +0000

The impact of the coronavirus on the economy, businesses and individuals will be phenomenal.

Suddenly terms like ‘unforeseen circumstances’, ‘in case of an emergency’, ‘in the event that’, ‘potential risk’, ‘probability of an unforeseen event happening’, ‘what if’, ‘if it happens to you’, became a harsh reality and the real meaning of these terms became clear. Yes, ‘emergencies’ and ‘disasters’ can in fact happen. It can happen to all of us and it can happen at the blink of an eye.

What are the business and financial lessons the coronavirus situation taught us?

The importance of having an emergency fund. In the event that you cannot work and earn an income or when businesses are taking serious strain, an emergency fund provides peace of mind as it can cover the expenses and carry you through the difficult period.
Whether you are employed or self-employed, an income protection policy is crucial for times when you cannot work and earn an income. Take note of what your policy is covering, the terms and conditions as well as the exclusions.
Business owners should have business insurance that will assist them during periods that the business cannot be operational and experience a loss of income. Take note of what your policy is covering, the terms and conditions as well as the exclusions.
Despite how healthy you might be today, death often happens at an unexpected hour. Ensure that you have life cover and funeral cover to assist your loved ones should something happen to you.
Ensure your will is signed and that both your will and life file are up-to-date. Read this blog article for the basic items your life file should contain.
Travel plans are usually not made with the intent to cancel, but you can end up losing a lot of money when you have to cancel your travel plans. Rather pay a little bit extra and take out a proper travel insurance policy for trips of a higher value.
The importance of having more than one income source is again emphasised. In the event that something happens and your main source of income falls away, additional sources of income can certainly help to diminish the pressure.
The same principle applies to businesses. It is advisable to have various product / business lines. By diversifying your product / business lines, you reduce the risk of making serious financial losses when one product / business line is not producing.
Business owners should have contingency plans. Do you have a plan in place for your business to remain operational should you not be able to work for a period?
If your business is impacted in a negative way during this period, it is advisable to reflect on your business model. How can you tweak your business model to effectively deal with the current situation? What can you do differently going forward to be more prepared to face a situation like this in future?
Tough times convey opportunities too. Some of the largest businesses in the world were initiated during tough times. While some people will lose a lot of money during demanding times, people who spot and grab the opportunities can make a lot of money. Think creatively, identify what do people need and how you can potentially fulfil those needs.
Your circumstances in life or business can change rapidly. The more adaptable you are to change, the better you will function during times of uncertainty and change.
The need to be able to use technology effectively is emphasised. Not everybody is a technology wizard, but the more technologically savvy you are, the easier it will be to find ways to still be effective and delivering during times like these.
Many corporate companies are encouraging their employees to work from home to prevent the virus from spreading. This is a good test run to proof to employers that business can continue as usual when employees have the opportunity to work remotely and enjoy more flexible working hours. Remote working has the benefits of less office space required, less travelling expenses and employees don’t waste valuable time in traffic when they could have been productive at home.
In times of uncertainty, the best investment advice is not to panic. The value of your investments will most likely drop, but don’t be tempted to sell / disinvest at the wrong time. The downwards cycle will realign over time. Many shares prices are showing a significant drop and it is usually a good time to invest when the markets are down.
To sharpen up on personal hygiene and for everybody to be made more aware of personal hygiene is certainly a positive habit to be carried forward. Wash your hands!
Sometimes you need to take a break from your busy schedule, sit back and reflect on your life and your career / business. Spend quality time with your loved ones. Tomorrow might be too late.
Your health remains your most valuable asset. Take care of your health. Follow an exercise programme, eat a healthy balanced diet and boost your immune system.
Live life to the fullest. Life is short and can change rapidly.

Learn from the bad experiences and put measures in place to prevent a similar impact on your business and financial position in future. Stay strong. It will pass too.

This article was first published on the roneljooste.com blog.

8 Financial Reasons Why Businesses Fail

Ronel Jooste — Wed, 23 Jan 2019 15:10:56 +0000

Many businesses fail due to finance related reasons. Financial reasons can cause for both small businesses and large corporates to fail. South Africa has one of the highest failure rates of new SME’s in the world. A study done by SEDA (The Small Enterprise Development Agency) in 2017 indicated that 75% of SME’s in South Africa fail. What are the 8 financial reasons why businesses fail?

Poor financial management

Many business owners are so busy driving sales targets, marketing campaigns and getting new clients that finances is often neglected. The truth is a business can exceed all their sales targets, have amazing marketing campaigns and a growing client base but still go down because of poor financial management. Finances is a very important building block of any business. Business owners should spend sufficient time implementing proper financial management processes and controls regardless how small or big the business is.

Lack of financial knowledge

Plenty of business owners are brilliant at what they do but they don’t necessarily have financial knowledge. While the business is still very small they can get away with it to a certain extent, but the bigger the business grows, the more crucial it becomes that the business owner takes control of the business finances. Even if the finance function is outsourced or people are appointed to take care of the finances, the owner should still know and understand the numbers. Financial knowledge definitely helps to make more effective and informed financial decisions.

Insufficient cash flow

Insufficient cash flow is a huge contributor why many small and large businesses fail. Quite often the difference between turnover, profit and cash flow is not properly understood and measured. Yes businesses can experience an increase in turnover and make big profits, but still have cash flow problems. Cash flow is a key performance indicator that any business owner should monitor on a continuous basis.

Insufficient capital

A lack of capital is problematic as it restricts businesses from expanding and reaching their full potential. Marketing and advertising are important to any business but businesses often cannot afford big marketing and advertising campaigns. The same goes for acquiring big contracts that require a big initial capital outlay from the business before the income and profits will start flowing in. Businesses do complain that they find it difficult to obtain loans / funding from banks and funding providers. Other options like raising funds through investors might sometimes be the easier route to explore.

Lack of information to make proper business decisions

Financial information is sometimes not available or timeously available for the decision makers to use in their decision making. This also relates to the lack of knowledge reason discussed above where business owners do not always know how to use the financial information for decision making or what numbers and ratios to monitor. The timely review of management reports is a critical step in the success of any business.

Inability to budget

Although a budget is the foundation layer of effective financial management, plenty of businesses either don’t budget or they compile a budget but don’t use it to measure their actual results against. A budget that is effectively used provides useful information for business owners to plan for the future and to identify trends.

Failure to differentiate between personal and business expenses

Smaller businesses are often guilty of not differentiating between personal and business expenses. Apart from the fact that it becomes a nightmare for any accountant or auditor, it also results in misinterpretation. Businesses are perceived to perform well even though it might not be the true situation because of the owners’ personal intervention. It is also not possible to calculate profit margins and other financial numbers correctly if personal and business expenses are entangled.

Not seeking professional assistance

Smaller business might not have the cash flow available to get professional financial assistance. Other business owners might feel they will manage the finances themselves or they prefer to spend the money on something else. The reality is the accounting, tax and company laws and regulations change constantly. It is hardly unlikely that business owners who are not in the financial industry will be aware of all the latest updates and new legislation. Do your business a favor by seeking professional assistance. If you cannot yet afford a financial person on a full-time or part-time basis, get a financial consultant on an ad-hoc basis to assist with big decisions and to help with the implementation of financial processes and controls as well as reporting tools.

Visit the website to learn more about our financial consulting and training services for businesses.

Written by: Ronel Jooste

CA(SA), Financial Consultant, Speaker and Author of the award-winning book Financially Fit and Wealthy

Contact: ronel@financiallyfitlife.co.za

Financial Checklist for Businesses

Ronel Jooste — Wed, 16 Jan 2019 10:30:00 +0000

This is an easy financial checklist for businesses that you can apply to ensure your business finances are in order:

Have a budget in place for the year ahead as well as forecasts for 2-5 years and 5-10 years. Most importantly though compare your actual income and expenses against your budgeted numbers and investigate any big variances.
Review your management accounts to ensure it does include all the items and ratios you want to monitor during the year.
Know what your break-even point is and what is required to achieve your break-even point as well as your set sales and profit targets for the year.
Ensure all your compliance requirements are up to date i.e. annual CIPC returns, B-BEE certificates etc.
Confirm that all your tax returns were submitted and you have verified your tax status.
Your cash flow projections are up to date and you can constantly manage your cash flow.
There is a process in place to immediately identify and follow up on any long outstanding debtors.
Review your bank charges package and enquire with your bank whether there is a more cost effective package available that suits your needs.
Update your insurance policies for any changes in the business and request quotes from other insurers to ensure you are paying competitive rates.
Ensure that your accounting records and financial statements are up to date. The more control you have over your finances, the more informed and effective business decisions you can make.

The checklist might be time consuming to implement, but do your business a favour by implementing these 10 items. It definitely will contribute to achieve better results in 2019. It will also give you peace of mind knowing your business finances are in order. Good luck with implementing this checklist. I wish you a successful financial journey during 2019.

For your personal finances checklist, click here.

Written by: Ronel Jooste

CA(SA), Financial Consultant, Speaker and Author of the award-winning book Financially Fit and Wealthy

Contact: ronel@financiallyfitlife.co.za

Visit the website to learn more about our financial services offerings to businesses

Financial Tips for Businesses #4

Ronel Jooste — Wed, 02 May 2018 13:38:56 +0000

Types of funding for businesses

Lack of funding is one of the reasons many businesses fail. Lack of funding also discourages many potential entrepreneurs from starting a business. These are some sources to acquire funding for your business.

Personal Savings
Loans from family, friends or close associates
Bank loans or credit cards
Loans from government organisations focussing on assisting small businesses
Get a partner for your business
Angel funding (wealthy individuals who will provide funding in exchange for an equity share in the business)
Venture capital (provide significant amounts of funding in exchange for an equity share in the business, but will only consider businesses who can ensure a good return on their investment)

Revenue and Cash flow

Whenever businesses apply for credit, ensure that your revenue and cash flow can cover the instalment. Also budget for a potential interest rate increase to avoid ending up in financial difficulty when you cannot afford the increased instalment.

Short-term debt versus Long-term debt

Short-term debt refers to debt which is due within one year and will reflect as current liabilities on a balance sheet. Short-term debt is typically used for short-term funding needs i.e. buying new computers or when there is a timing delay on your cash inflows. Short-term debt includes credit cards and overdrafts. Long-term debt refers to financing or leasing agreements which will be payable over the longer term i.e. new premises or expansion projects. Long-term funding will reflect as non-current liabilities on a balance sheet.

Negotiate better credit terms

Negotiating better credit terms i.e. lower interest rates and / or longer repayment periods with your creditors can have a significant positive impact on your cash flow. Budget for your creditor payments to ensure you can pay your creditors when it is due and you don’t pay late. Maintaining a good credit record with your creditors will count in your favour when negotiating for better terms.