Mcusi Accounting Services

Business Budgeting – The SME edition

Business Budgeting - The SME edition

For many entrepreneurs the finances are just ‘not their thing.’ When it comes to the core trade of the business, they are doing an amazing job but the finance and compliance bit gets a bit tricky. There are various ways to budget but we’ll go through two popular ones, zero-based and historical:

1. Zero-based Budgeting

This is the budget you draw up as part of your business plan (if you have one). The

figures are based on your research and feasibility tests, etc. It’s called zero-based because it’s based from zero ‘factual’ experience of the business. To ensure this type works for you, it’s best to study similar entities and set realistic targets. If your type of business mandates you to rent facilities, gather quotations from ideal commercial offices (including utilities and parking fees) and include them; the same would go with other general expenses and payroll. The advantage with the option is that you get a wholistic and current expectation of your company’s finances. The disadvantage is that there can be a major variance to actuals if your research was inaccurate, possibly dipping into the red now and then. NB: This approach can also be used by entities with trading history should they wish to start from scratch.

2. Historical-based Budgeting

This is the easier one; extract reports from previous financial years, analyze it and make adjustments to cater for the new year. The tricky portion being an accurate analysis to make sound judgements for the changes to be implemented. The advantage of this type is that it’s tried and tested; your objective is to improve from the previous financial year. The disadvantage however lies in the amendments, should this be in bad judgement, the entity will suffer material variances.

With both types, it’s important to continuously evaluate your performance. Diarize quarterly financial analysis and report sessions to see what happened versus what was budgeted, implementing a second forecast mid-year can also contribute to the success of budgeting.

Long story short, you know your business, the ins and outs of it and what it needs to thrive, your numbers should reflect exactly that. Tag a professional to assist you if you are still unsure. MAS is available and able to help you grow your business.

Happy business budgeting!

#newyearnewme #budgeting #businessfinance

Financial Health

Solvency or liquidity, which is best?

Well it depends on your objective but overall we vouch for solvency overall, here is the difference:

1. Solvency: Solvency is the ability of a company to meet its long-term debts (long term being more than 12 months) and other financial obligations.

2. Liquidity: Liquidity refers to the ease with which an asset, or security, can be converted into cash.

Cash is king remains a true proverb; this is the reason why you are able to pay your staff, rent and other ops costs but let’s talk about this a little more.

Being solvent means even if the business were to shut down tomorrow for whatever reason, all your debts and financial commitments would be settled using the company’s assets. You may be the sole director but the company is a separate juristic person and should be able to handle it’s own debts. On the other hand, being liquid means you can pay your rent and buy trading stock to keep operations going on in the near future using current assets that are easily convertible into cash; i.e. not selling fixed assets (e.g. company car) to do so.

NB: The two are not mutually exclusive!

Before you sign that contract for a new house or a new car, take time to consider this and evaluate your financials; your lender will ask you for annual financial statements for this same reason to determine what you can afford. If anything choose to be liquid and solvent.

2021 Tax Season has you sweating?

Tax season is different this year huh?

SARS is well aware of the changes that came into effect in the blink of an eye since South Africa officially went on lockdown in March 2020. Some unfortunately lost their jobs, some relocated and some were working from home; no matter how your job situation changed, be aware of your tax rights in your specific situation:

1. If you were working from home, you may claim certain expenses that you incurred directly in the production of income (salary). For example, you may not claim groceries because those are not directly connected but you may claim a computer monitor you bought in order to work. Very important, you must be able to prove these expenses! You may be asked for invoices, contracts, pictures, etc. to prove your expenditure. Worst case scenario, SARS may request to come on site and physically inspect the premises.

2. If you did receive an auto-assessment, you have a right to decline should you believe not all relevant data was taken into account.

3. Waiting period for a response is 21 business days, should you not receive correspondence within that time period about a dispute, you may contact SARS again or lay a complaint.

With rights, come responsibilities, these responsibilities include:

1. Declare all income you received for the tax period, whether on a contractual or once-off basis as a casual worker (for example).

2. Keep all documentation that affects your taxes for at least five years.

3. Let SARS know of any changes in your personal details (address, banking details, etc.)

With that being said, we wish you all a happy filing season!

Please be aware that the individual filing season closes in November 2021, but don’t wait for the last minute, let us help you at MAS.

Client Break-ups?

#Entrepreneurship101 - Client break-ups are a thing.

Sometimes in the process of acquiring new business one party or both sells the other dreams or things change along the way and that causes a misunderstanding/conflict between service provider and client. Perhaps the values never aligned at all?

In our journey, we've had situations where an agreement would be signed and the service put into effect and then "the big conflict" happens. You have the option to fix the relationship (most recommended option - remember the initiation costs of the relationship and all the system adaptations and learnings absorbed from the process) or, you can end it and call it a day (should the cause of the conflict be significant and unavoidable by both parties).

With SMEs most of the time, cash and resources are very crucial and limited, should you as the client decide to default on your payment, that could be someone's salary or rent for the premises putting the entrepreneur under significant pressure; some end up taking credit to pay operational expenses. The invoice value may be insignificant to you, but it may be the reason an SME's door closes and further contracts the economy. If you can, pay them on time, if you cannot, communicate with them on time.

Either way, do right by your business partners.

Ethics matter in business.

Managing your finances better

HOW CAN I MANAGE MY COMPANY FINANCES BETTER?

The most common misconception for SME owners generating less than R1 million per annum, is that the company bank balance, is your balance. It looks healthy and well-fed and you worked hard to get there, so why can’t you spend it, it is yours in a way right?

The importance of separating yourself from the business comes at play here. Legally, the company is normally a legal person in itself with it’s own rights and responsibilities the same way you are. You have an ID number and the company has a registration number; see? Different! Here are a few things you can implement as the guardian of your company:

1. Have a separate bank account.

This has proved to be a significant contributor to tax nightmares because your McDonald’s receipts are all mixed up with your raw material invoices. Do you really have the capacity to sort these at least once a month successfully?

2. Register the company on CIPC

If you haven’t registered, perhaps this could be the right time. The advantages of a listed company far outweigh the costs. Your clients can vet the company and base opinions and referrals on the company alone without implicating your personally. Should you wish to work with government contracts for example, they will ask for the company’s CK documents. The more people ask about your business the more business you have to give away...

3. Compliance checklist

Certain industries have standards that need to be satisfied and requirements to be met. For example with us certified accountants, we are required to provide proof of learning and improvement in the form of training, i.e. continuous training and professional development. Things change a lot in our profession and we need to always provide our clients with the relevant and updated data affecting their accounting division. We submit reports and pay our license fees as part of it.

In addition to this, the other compliance measures are around the company taxes. When do you need to submit your provisional taxes and your annual returns, what about monthly submissions? Tabulate these and set auto reminders to comply.

Lastly check in with your SETA, what do they need from you in order for your business to keep it’s doors open and growing. Keeping compliant is a savvier option as opposed to running around last minute trying to save the business in the eleventh hour. You can avoid unnecessary penalties and interests levied on non-compliance.

These are just three tips, there are many more ways to manage your company financial affairs. For additional tips, reminders or just fun facts, be sure to look out for us on our social pages.

We look forward to welcoming you on board.

Our very first blog

Being a business owner or manager in 2020 sure has taught a lot of people about strategies and flexibility. When plans change on the drawing board, we also need to change the master file, in other words the financial plan backing those strategies.

Although it may not seem as something urgent or important till tax time comes, it's important to consider the financial implications from every aspect of a change in strategy. Okay so now that you are hosting consultations virtually, you may decide to take a 20% cut on your rate but what about your financial commitments and assigned budgets?

The magic hand behind book-keeping is this; because you have been keeping track and analyzing your performance these past few months prior COVID-19, you know where to trim, how to do it and how to recover what was lost based on the analysis reports from the book-keeping system.

We had the privilege of doing a second forecast for a client earlier this year and within three months of implementing the new strategy based on historical records, his business is enjoying maximum tax benefits, payment flexibility and an extra revenue stream. How has good book-keeping changed your business? Do you need help? We are excited to hear your stories! Send us an e-mail to info@mcusi.co.za.

With great power, comes great responsibility...

- Uncle Ben