Chris Boshoff Accountants Rekenmeesters

Gone are the days when unsuccessful business owners jump from the one business to the other and let their creditors pay for their mistakes. Well, in theory anyway.
The New Company Act requires directors of companies to take certain steps when the company they are a director of is going downhill and is heading for a position where

•  the liabilities will exceed its assets (insolvent)
• the company is unable to pay its debts in the normal course of business.

Please note the action should be taken before the company is insolvent. Once it is insolvent it is too late.

Business rescue proceedings also apply to Close Corporations, but not to sole proprietors, partnerships or business trusts.

The steps to be taken are called Business Rescue Proceedings.
What this entails is that the company applies for a business rescue. A business rescue practitioner is appointed to take over the running of the business for a period of up to three months to see whether they can turn it around. While they are running the show the current directors are subject to their authority.
What if a director does not apply for business rescue?
If a director of a company allows the company to trade while insolvent and hasn’t applied for business rescue proceedings before the company became insolvent, the director is personally liable for the debts of the company.

If you would like more information about the steps to follow to institute business rescue proceedings, the effect it has on employment contracts, on creditors etc. please give us a call for more information.

If you would like to know whether you company is solvent please give us a call.

Johnny is his company’s top sales rep and his employer decides to grant him the exclusive use of a brand new company car. Besides the use of the vehicle the employer undertakes to pay all maintenance and fuel cost of the vehicle. The cost of the motor vehicle is R350 000 (Vat Inclusive)
Needless to say Johnny is very happy about the use of his new toy.

At the end of the month Johnny receives his payslip and notices that the tax on his payslip is suddenly considerably more. He further notices a strange amount of R9 800 under an entry called Use of Motor Vehicle.
He decides to query this with Joan from the Payroll department.

Joan explains the amount to him as follows:
“Johnny the amount of R9 800 is calculated by multiplying the cost of the motor vehicle to our employer (R350 000) by 3.5% and then multiplying it by 80%, which is the inclusion rate for PAYE purposes . If the purchase price included a maintenance plan the cost would have been multiplied by 3.25%, not 3,5%. Obviously the cost with the maintenance plan would have been higher so the extra 0.25% would not have made any big difference.
Johnny if you paid the fuel the 3.5% would have been reduced by 0.22% and if you paid the maintenance it would have been reduced by an additional 0.18%.”

After seeing Joan Johnny is still not happy and decides to see the financial manager, Mike, to ask what can be done about this.

Mike explains to Johnny that everything Joan said is correct but that he would further like to point out that the R350 000 x 3.5% only have to be included at 20% for PAYE purposes on a monthly basis if more than 80% of the travel is for business purposes. But the employer must be sure that more than 80% of the use of the vehicle will be for tax purposes.

Other points of interest

No fringe benefit tax is payable when a vehicle is classified as a pool vehicle. A pool vehicle is one that is available for general use by all employees during office hours. With a few exceptions the vehicle must remain at work after hours.

Even if an employee doesn’t travel 80% for business purposes, the person can still reduce the taxable portion of the benefit by keeping a proper logbook. This will help to reduce tax at the end of the year when the taxpayer completes his or her tax return.

An employee will get taxed on the original value placed on the vehicle – it is not reduced yearly as the vehicle gets older. So in year five of use the fringe benefit will be the same as in year one although the vehicle is much older. So perhaps it is a good time in year five to re-arrange things for tax purposes. Give us a call if you are in this position.

A business plan is not simply a document to obtain finance from a financial institutions or potential investor. It can and should deliver way more benefits than that. The most important benefit of a business plan is that it forces the business owner to think and plan strategically. It is a document that can help you stay on track when the road gets bumpy.  And it is a document that should be updated frequently as circumstances change or new opportunities arise.

There are many areas that can be covered in a business plan and I will not list all of them here, but here are some of them.

Market Analysis.

You need to do research of the industry you are operating in or intend to operate in. What is the growth in the market, the trends and how is the market segmented? The most important information to get right is to know exactly who your target customer is and what they want.

Let’s say you intend opening up a carpet cleaning business. Targeting a low income area where students occupy the majority of homes may not be as successful as when the area is upmarket, the majority people in the area have small children and are over concerned about their kids contracting germs and illnesses. If you didn’t do your research you will find out the hard way .

What you are selling.

Include the current as well as future products you plan to sell or services you plan to offer.  The more you can demonstrate you have tested the market and that there was sufficient interest in your product the better.

Your product’s competitive advantage

Why will people buy from you instead of the numerous competitors you are likely to face? What makes your product different? This is a crucial question to answer and one you need to spend serious time on as it can mean the difference between success and failure. The more compelling reasons you have the better your chance of success. The marketing folks refer to this as the Unique Selling Proposition or USP.

History of the business

When did it start or if it is a startup simply mention the fact.

Ownership of the business.

Give a brief background of the owners, their qualifications and especially any business successes they have had in the past.

Organizational chart and management team

What skills do the people you require need, what is a market related salary, what additional staff will you need as the business grow. Once again to obtain finance it is good if you can highlight the achievement of your staff, especially management staff.

Locations of the business and in which areas you plan to operate.

Do you want to operate locally, or internationally, will your premises be in an upmarket area or in a less upmarket area. Less up market customers are more price sensitive and you in all likelihood need premises in an up market area if you intend selling to people in Bishopscourt.

Financial history of the business

If you have been trading for a while it will be a big plus if you can demonstrate that there is a need for your product especially if there has been significant growth. Make sure you highlight all positives.

Marketing plan.

Without customers you don’t have a business and you never will, even if you have the best product in the world. The more time you initially spend to plan how customers will know about you and how you will you stay in front of potential customers so that your business is the first one they think about when they are ready to buy. There are plenty of options available and the more in depth detail your plan contains about the strategy you will follow the better your chances of business success as well as obtaining finance.

Operations

How will you deliver what you have advertised? There is no point standing in the street beating your chest if you cannot deliver what you have promised. Think through the potential problems you may encounter and how you will solve them.

Financial information

This can make or break your plan. A projected Balance Sheet, Income statement and Cashflow statement is the bare minimum. Make sure the cashflow statement support the amount you want to borrow and that the other financial information makes sense.  Most that I have seen, prepared by non accountants using templates, don’t. Do not be overly optimistic and prepare a few sets of projected figures based on different scenarios.

Look at your plan as if you are the potential investor.

Does the information in the plan excite you? Have you seen enough proof that the business idea will work?

Need help?

Whether you need a business plan drawn up from scratch, help with the financial part or need an accountant to look at the financial information you have prepared, we will gladly assist.

Let me ask you a question?

When will a husband and wife who decide to get divorced reach the fairer and more cost effective agreement?

1. When they have drawn up a contract before marriage (while they were in love) discussing the procedures to follow in case of a divorce or
2. When they and their lawyers sort out the details after their relationship have deteriorated to such a point that they do not want to stay together anymore and both parties are emotionally charged?

With that in mind when do you think is the best time for shareholders to agree and sort out certain issues?

Just as a couple who want to get married should discuss in great detail how assets will be shared, who will see the children when and how much each party will contribute towards the child’s support in case of divorce, shareholders should discuss certain matters in great detail when they are calm, rational and optimistic. And the best time to do that is before they start their business relationship as pressure and stress can build very quickly in a new business when things don’t go as expected.

Here are only a few of things a shareholder agreement should cover

• what the procedure is when one shareholder wants to get out of a failing business while the other shareholders wants to carry on. This is especially important if there are only a few shareholders and the business relies heavily on the security provided to the banks or on finance provided by the shareholder who wants to get out of the business.
• how differences in strategic vision will be addressed
• how disagreements that have reached a deadlock will be sorted out
• what the procedure is if one of the shareholder wants to sell his or her shares. How will the price be determined, who can he sell to, must he first offer it to current shareholders etc?
• what restraint of trade (if any) should be placed on a shareholder who decides to leave
• will interest accrue on loans provided by the shareholders to the business and how will a shareholder be compensated for the additional risk he is taking if their loan account is bigger than another shareholder

If shareholders cannot sort out the majority of issues while all parties are calm and optimistic, seriously ask yourself whether you should go into business with the other party. Because when things don’t go right and the pressure is on small disagreements can become big disagreements very quickly.

If you are starting a business or have been running for a while and need someone assistance with shareholder agreements please feel free to give us a call to discuss this matter further.

Let me begin by saying I do not sell Quickbooks or Pastel. I have no connection with them at all. My clients and I use their products on a daily basis and have done so for plenty of years.

I do not intend going into every small detail to compare what each can and cannot do. My aim is simply to give you a broad overview of both.

Ease of use

Both have menu’s that are fairly easy to use and understand. For anybody with a decent level of accounting knowledge both will be similar, but for the person with limited accounting or bookkeeping knowledge Quickbooks is the easier package to use. You don’t have to worry too much about debits and credits.

Marks:  Quickbooks:  8/10 Pastel 5/10

Ability to upgrade and functionality

Here Pastel wins hands down. There are several add on modules you can purchase as your company grows without you having to purchase a brand new program or going for big brother Premier.  If you foresee fast growth where you want to monitor more information and want more functionality I suggest buying Pastel.

Marks:  Quickbooks:  2/10 Pastel 7/10

Price

Pastel is about three times more expensive than Quickbooks. This is one of the main reasons why a startup company may rather go with Quickbooks.

Marks Quickbooks: 7/10 Pastel 5/10

Rectifying errors

Once you updated a batch in Pastel you cannot go into the transaction and rectify the entry. You need to create a new entry. So when you make a lot of errors the ledger can look messy pretty quickly. In Quickbooks you can edit a transaction without creating a brand new entry. Even if you make a lot of errors your ledger can look clean if your accountant edit your errors. You can control editing by way of a password to minimize risk.

Marks Quickbooks: 8/10 Pastel 4/10

 

Support when problems happen (and they will)

There are a lot of people in South Africa making their money by providing support for Pastel.  There are not so many people providing support for Quickbooks in South Africa.  Quickbooks have a support department in South Africa. So does Pastel. Both can help you if you encounter common problems , but when you encounter a more difficult problem the odds are much better that Pastel will sort out your problem. If the Quickbooks support staff in South Africa cannot help you, you can go to the international support website for Quickbooks. Hopefully you will find your answer there.

If not you have a problem.

Here’s a recent example:

Quickbooks have an option where an accountant can work on a client’s data independently from the client and the client can then later import the changes. It is called an accountants copy. I recently made several changes to my clients data and when my client tried to import the changes, they received an error message. To make a long story short I tried to assist them, Quickbooks support staff in Johannesburg tried, their Cape Town office tried without any success.  And it is not something my client did wrong. I seeked for the answer on the International support side and could not find an answer.

Marks Quickbooks: 2/10 Pastel 7/10

 

Conclusion

For a small start-up company wishing to keep track of expenses, purchases, amounts owed by customers or to suppliers without stock or using a network Quickbooks will do the job.  It is also a good option if you have limited accounting knowledge.

When your accounting become more involved, you work on a network or run a stock system rather buy Pastel.  Although Quickbooks also has a stock system and can work on a network Pastel is more stable with more options available to you as you grow.