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Key Aspects of Financial Management for Businesses in South Africa

chart with raising points

Financial management is a critical element for businesses in South Africa, enabling them to effectively track, analyze, and plan their financial activities. This article explores three crucial aspects of financial management: financial reporting, financial insights, and budgeting and forecasting.

Understanding these topics is essential for businesses in South Africa to make informed decisions, enhance performance, and achieve long-term success.

1. Financial Reporting: Providing a Clear Financial Picture

Financial reporting is the process of preparing and presenting financial statements, enabling businesses to communicate their financial performance to stakeholders. In South Africa, financial reporting is governed by the Companies Act and International Financial Reporting Standards (IFRS).

Accurate and transparent financial reporting is vital for several reasons. It helps businesses monitor their financial health, comply with regulatory requirements, attract investors, and build trust among stakeholders. Key financial reports include the income statement, balance sheet, and cash flow statement, which provide insights into revenue, expenses, assets, liabilities, and cash flow.

2. Financial Insights: Gaining Deeper Understanding for Informed Decisions

Financial insights involve analyzing and interpreting financial data to gain a deeper understanding of a company’s performance and trends. By examining revenue patterns, expense structures, and profitability ratios, businesses can identify strengths, weaknesses, and opportunities for improvement.

In South Africa, financial insights play a significant role in strategic decision-making. They help businesses identify cost-saving opportunities, optimize pricing strategies, assess investment options, and evaluate financial risk management. Leveraging advanced financial analysis techniques, such as ratio analysis and trend analysis, allows businesses to make data-driven decisions to enhance profitability and competitiveness.

3. Budgeting and Forecasting: Planning for Future Success

Budgeting and forecasting enable businesses to plan and allocate financial resources effectively. A budget serves as a financial roadmap, outlining expected revenues, expenses, and cash flow for a specific period. Forecasting, on the other hand, involves projecting financial performance based on historical data, market trends, and future expectations.

In South Africa, budgeting is not a legal requirement for companies but it aids in meeting financial reporting obligations. Additionally, budgeting and forecasting empower businesses to set realistic goals, manage cash flow, make informed investment decisions, and adapt to market fluctuations.

By regularly monitoring actual performance against budgeted figures, businesses can identify deviations, take corrective actions, and maintain financial discipline. Furthermore, budgeting and forecasting support strategic planning, helping businesses align their financial goals with their overall business objectives.

Financial reporting ensures transparency and compliance, enabling businesses to communicate their financial performance accurately. Financial insights provide a deeper understanding of financial data, aiding in decision-making and identifying areas for improvement. Budgeting and forecasting facilitate effective planning, ensuring businesses allocate resources wisely and adapt to changing market conditions.

By prioritizing these aspects of financial management, businesses in South Africa can enhance their financial stability, make informed decisions, and position themselves for long-term success in today’s complex business environment.

In conclusion, sound financial management is vital for businesses in South Africa to navigate a dynamic and competitive landscape successfully. Financial reporting, financial insights, and budgeting and forecasting form the cornerstone of effective financial management.

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5 Benefits of Cloud Accounting for South African Businesses using Xero Accounting Software.

finger pointing at screen on laptop

As more and more businesses in South Africa are embracing digital transformation, cloud accounting has become an increasingly popular choice. Cloud accounting software, such as Xero, is a powerful tool that can help South African businesses streamline their accounting processes to save time, money and effort. In this article, we will explore the benefits of migrating your accounting system to a cloud accounting system.

1. Access your financial information from anywhere

With cloud accounting, you can access your financial data from anywhere, as long as you have an internet connection. This means you can work from home, from your office or while you’re on the go. It also means you can collaborate with your team and your accountant in real-time, which can help you make better business decisions.

2. Save time and money

Cloud accounting software automates many of the repetitive tasks associated with accounting, such as data entry and reconciliations. This means you can save time and reduce the risk of errors, which can help you save money in the long run. Additionally, because cloud accounting software is usually priced on a subscription basis, you can avoid large upfront costs associated with traditional accounting software.

3. Increased security

Cloud accounting software providers use advanced security measures to protect your financial data, such as encryption, firewalls and two-factor authentication. This means your data is often safer than it would be if it were stored on your local computer or server.

4. Better reporting and analysis

Cloud accounting software provides real-time financial data that can help you make better business decisions in realtime. With Xero, for example, you can generate reports on a wide range of financial metrics, such as revenue, expenses, cash flow and profitability. You can also use Xero’s built-in analytics tools to analyze your financial data and gain insights into your business.

5. Integration with SARS for VAT returns

One of the biggest advantages of using Xero for South African businesses is its direct integration with SARS for VAT returns. Xero can automatically calculate your VAT liability, prepare your VAT return and submit it directly to SARS. This can save you time and reduce the risk of errors, which can help you avoid penalties from SARS.

Migrating to cloud accounting, particularly with Xero, can help your South African business in many ways. From increased flexibility and better security to more accurate reporting and automation of time-consuming tasks, the benefits are clear. And with Xero’s integration with SARS for VAT returns, you can further streamline your accounting processes and stay compliant with South African tax laws. So why not consider migrating to cloud accounting today?

Contact us for a free 15 min consultation if you are interested in migrating to Xero. We offer a free conversion service when migrating from an existing online accounting service. We are also able to do a systems audit if you are not already on a cloud based system.

Contact us today!

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#BizTrends2023: The Accounting Practice in 2023: What the future holds for businesses

Women answering her phone with a laptop on her lap.

Trends that are surfacing in the accounting industry in the lead-up to 2023 year include a flip in the role of the accountant, business owners taking control of their accounting and shift in the workload of accountants.

Digital disruption and rapidly evolving technology present the accountancy profession with both substantial opportunities and risks. But it also presents both big opportunities and challenges for the accounting profession as a whole.

I believe the accounting profession will change significantly in a world where all transactions are fully transparent and have built-in validation. Both auditors and accountants’ areas of emphasis are evolving in business. Ultimately, digital disruption will influence the nature of demand and expectations on what an accountant is and does.

The accounting role post Covid has slowly been changing from accountant to financial manager. Businesses now want accountants with diverse skills, who are more relevant and strategically focused. They want pre-emptive problem solving and a personal relationship.

Business owners are taking control of their accounting with proactive alerts. After the emerging of accounting technologies, we are now at a stage where we no longer do strenuous manual data processing. We’re becoming educators and we’ve started training the business owners to do their own accounting and managing their business finance.

We’ve become account managers, focusing on client needs.

The evolution of the accountant

Business needs have evolved in such a way that the role of an accountant is shifting, and they are taking on more of a Financial Manager role, which includes accounting and other aspects of finance. Financial managers are concerned with a company’s overall health, from cashflow planning and investments to long-term spending objectives.

In the past, accountants were responsible for compiling and maintaining information in the form of reports and historical records, while today, as more of a financial manager, they interpret the data, and make recommendations based on what they see happening now, they monitor the results to ensure that goals are met in real time.

This means that it is essential for business owners to maintain a close relationship with their accountant so that they are fully informed of the business’s expectations, challenges, and procedures. If accountants are unaware of the business objectives, they cannot assist with strategic future planning for the business.

Balance of workload is shifting; less processing, more insight

Technology has been an integral part of the accounting profession in recent years. The days of constant on-site consulting have given way to quick off-site encounters, accompanied by a multitude of extra tools for visibility and accountability of business tasks. The technological improvements of the present day have eliminated the need for obsolete financials, lack of real-time data, remote control sessions, and even basic desktop applications.

While our role previously consisted of 80% processing and 20% insight, today it’s closer to 20% processing and 80% insight. This allows for more proactive accounting, which provides valuable financial insights for the business owner. Proactive accounting provides businesses with benefits such as managing their finances effectively, easy decision-making, and potentially increasing profits. The accountant must think ahead and add the value that clients demand from their services. In contrast to basic accounting, which consists solely of punching numbers and filing taxes on time, proactive accounting goes above and beyond to be strategically useful to a business.

By examining spending patterns and revenue trends, a proactive accountant assists businesses in improving their financial planning and suggests strategies to save taxes and time expenditures; they make sure that the accounting process has benefits beyond just ensuring tax compliance.

Business owners are taking control of their accounting

Business owners are working smarter and comprehending more because of technology. Accountants become educators and start training business owners how to manage their own accounting. The availability of software and applications with consumer-level functionality has made it easier for non-accounting professionals to comprehend their financial situation. In addition, access to faster software that can manage more complex tasks, as well as interconnected technologies, has made accounting easier and more efficient. Remote access to real-time data enables both accountants and clients to simultaneously view, edit, and comment on their accounts.

And, when clients can access and analyse the data on their own, they become excited about their financial position and are better able to comprehend their accountant’s strategic recommendations. In the end, it implies that clients can prosper through improved business processes, allowing them to remain in business, grow their business, and remain a client.

The role of the employee is shifting

Considering the changes that technology brings to the needs and expectations of clients, the accountant’s workload, and their individual roles, it begs the question of what the future role of established accounting firms and Accredited Training Centre (ATCs) are and how they adapt. From their professional and social responsibility to pass on their expertise to Learners of the accounting profession, to recruitment and retention of skilled professionals, accountancy firms and ATCs need to consider whether a shift in their practice is required.

With the proliferation of remote work caused by the Covid-19 pandemic, opportunities for qualified accountants are greater than ever. Employers can access talent from across the country through remote work. It has expanded candidate pools and heightened market competition for top talent.

A hybrid workplace combines remote work and office-based work, providing employees with the flexibility and autonomy to choose when and where they work. Providing flexibility and a digital-first mentality will make a firm more appealing to a wide range of talented professionals, which is essential for attracting and retaining top talent.

Unquestionably, the accountant of the future will need to be technologically savvy in order to adapt to the industry’s transformation. As intelligent technologies advance and more businesses migrate their data to cloud-based systems, accountants must become adept at leveraging the cloud to provide clients with up-to-date financial analysis and to maintain their competitive edge.

Despite the fact that many accounting tasks are being automated, accounting professionals will never be replaced by technology, and future accounting jobs will require committed professionals who are willing to adapt as the industry evolves.

The digital world is evolving rapidly, and we are just at the beginning of the journey. Technology, the shifting role of finance and accounting activities, and the skills and competence required by finance professionals to remain relevant are now necessary, and it is the responsibility of all finance professionals to guarantee that they remain relevant and adapt to their clients’ needs.

We take a proactive approach to each accounting task because we understand that your company’s finances cannot exist in isolation from its strategic objectives. Approaching tax, audit, and cash flow with greater foresight can spur internal and external development. Contact us today for more info about our services.

This article originally appeared on BizCommunity.

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What is VAT?

vat tax

Starting a new business is one of the most exhilarating feelings in the world. You get to be your “own boss”, set your working hours, create the work culture you aspire to and make money doing the exact thing that you love. But, behind the scenes, there are a lot of regulatory elements to adhere to. One being VAT.

So what is VAT?

A value-added tax (VAT) means that consumption tax is added to a product at every stage of the production chain because the value is being added to the product. Revenue is raised for the South African government by requiring certain businesses to register and charge VAT on supplies of goods and services. Any business must register for VAT if the income earned in any consecutive twelve-month period exceeded, or is likely to exceed, R1 million rand. Once you have registered, you are classified as a vendor for the government. Learn More

More than 160 countries around the world use a VAT system. These are usually industrialized countries that make up the Organisation for Economic Cooperation and Development (OECD). Most industrial countries adopted their VAT systems in the 1980s.

But VAT has developed a negative connotation in some parts of the world. It is often seen by small businesses as an added burden by putting strain on the lower-income taxpayers. According to the International Monetary Fund, a study found that countries who adopt a VAT system initially feel the negative impact of reduced tax revenues despite its greater revenue potential.

But by understanding VAT and preparing effectively for your payment, you can reduce this burden and ensure you remain compliant.

How does Value-Added Tax Work?

Let’s start with the basics. In South Africa, VAT increased from 14% to 15% in April 2018. VAT is levied on the gross margin; the company’s net sales minus its cost of goods sold. Vat is based on a taxpayer’s consumption rather than their income. So, at each point of the manufacturing-distribution-sales and importation process of an item, VAT is levied, accessed, and collected. Sales tax is only assessed and paid by the consumer at the end of the supply chain.

There is also a limited range of goods and services which are subject to a zero VAT rate and/or are exempt from VAT. The following categories are levied at a zero rate and are known as ”Essential Goods” Learn More

1.    Food

–   Any food product, including non – alcoholic beverages;

–   Animal food;

–   Chemicals, packaging, and ancillary products used in the production of any food product 

2. Cleaning & Hygiene Products

–   Toilet Paper, sanitary pads, sanitary tampons, condoms;

–   Hand sanitizer, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment;

–   Chemicals, packaging, and ancillary products used in the production of any of the above 

3.    Medical

–   Medical and hospital supplies, equipment, and personal protective equipment;

–   Chemicals, packaging, and ancillary products used in the production of any of the above

4. Fuel, including coal and gas

5. Basic goods, including airtime & electricity

 This means that if your business sells, produces, manufactures, or imports goods that do not fall into the above categories, and if your turnover is greater than R1 million per annum, you are more than likely required to pay VAT.

Value-Added Tax Example

There are two major components of the (Value Added TAX) VAT see-saw.

On the one end there is OUTPUT-VAT that represents the tax paid to SARS on taxable sales.

On the other end there is INPUT-VAT, this represents all transactions that is bought from a registered VAT vendor.

If you or your entity is registered for VAT, you can deduct this from your OUTPUT VAT and reduce your VAT liability to SARS.

To illustrate by example, let’s assume that everyone except for the end consumer is registered for VAT:

A coffee bean supplier sells coffee beans to a barista for R115. The coffee bean supplier receives R100; the extra R15 represents OUTPUT-VAT, which the coffee bean supplier pays to the government. A portion (R15) of the R115 that was paid by the Barista can be claimed back from SARS as a INPUT-VAT.

The barista uses the coffee beans to make a cappuccino and sells it to a customer for R30 the Customer pays R34.50, including a R4.50 VAT. The Barista pays the R4.50 OUTPUT-VAT to the government.

BUT REMEMBER, at the end of the process the consumer is not registered for VAT and cannot claim any INPUT-VAT back, but is effectively paying OUTPUT-VAT to the Coffee Shop of R4.50 where this Coffee shop must pay it over to SARS.

The VAT process

Frequently Asked Questions about VAT

What does a value-added tax do?

A value-added tax (VAT) is a flat tax levied on an item. Portions of the tax amount are paid by different parties to a transaction, depending on the stage of manufacturing-distribution-sales.

What is Sales Tax?

Sales tax is similar to VAT, except that the full amount owed to the government is paid by the consumer at the point of sale.

Who benefits from a VAT tax and who doesn’t?

VAT’s impact would be felt less by the wealthy than the lower-income consumer because they spend a larger percentage of their take-home salaries on necessities. Better-off consumers could benefit if a VAT replaced income tax.

How can the negative potential effects of a VAT on lower-income individuals be fixed? 

 If the government were to exclude more necessary household goods and foodstuffs from the VAT or if they provided rebates or credits to low-income citizens.

When should I submit VAT returns and make VAT payments?

A business is required to submit VAT returns and make payments (or claim a VAT refund) by the tax period allocated to the business. Normally, these are made on or before the 25th day after the end of the tax period. Late payments will attract a penalty and interest.

When is my VAT due to SARS?

Top Tip: On 19 October 2012, SARS clarified in a notice that vendors who use eFiling may continue to submit their VAT declarations on the 25th of the month. The benefit of no interest, penalties, or prosecution will remain effective if the declaration and payment are submitted via eFiling (or EFT) on or before the last business day of the month. 

SARS.gov.za

We are proud to announce that Digital CFO has now registered for VAT as required by the rules and regulations as stipulated by SARS. The cost of our accounting services will remain the same, as 15% VAT is now added to the invoice that can be claimed back on your VAT201 returns if you are also registered for VAT.

 Please do not hesitate to contact us should you have any questions. We are dedicated to helping you!

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Kwalifiseer my besigheid vir hulp in die COVID-19 pandemie?

Ons as besigheids eienaars is almal in ’n paniek oor die COVID-19 uitbraak. Ons is bekommerd oor hoe ons huishoudings gaan aanhou funksioneer in die geval van die stilstand van die ekonomie. Ons huishouding strek verder as net ons vier mure, dit is elke persoon wat vir ons werk en elke mond wat daardie persoon moet kos gee.

Eerstens is daar ’n Solidariteits Fonds https://www.solidarityfund.co.za/  begin met R150 miljoen kapitaal uit die staats koffers en R1 biljoen rand van elk die Rupert en Oppenheimer families. Enige persoon of besigheid kan skenkings doen aan die fonds deur ’n belasting aftrekbare donasie. Kom ons begin eers deur te gee wat ons het, wat ander nie het nie.

Daar is ’n voorlegging vir ’n spesiale dispensasie vir besighede in nood as gevolg van COVID-19.

Deur die meganisme kan werkers ’n salaris verkry deur die “Temporary Employee Relief Scheme”. Dit sal besighede help om mense steeds te betaal en afdankings te vermy. As ’n werknemer siek word deur blootstelling by die werk, sal hulle ook vergoed word. As laaste uitweg kan die WVS (UIF) fonds genader word vir hulp as jy op datum is.

Daar is 7 maniere wat ons as besigheids eienaars in nood hulp kan ontvang.

1) Jou werkers

Deur die belasting sisteem sal daar ’n subsidie van tot R500 per maand vir die volgende vier maande vir privaat sektor werkers verleen word indien hulle minder as R6500 per maand onder hul Indiensnemingbelastingaansporing (ETI). Hulle ondersoek ook nog ‘n verlaging in bydraes tot die WVS en SDL fondse.

2) Jou belasting voordele

SARS gaan werk om die betalings van indiensnemingbelastingaansporing terugbetalings van twee keer per jaar na een keer per maand te versnel om die kontant in die hande van werkgewers te kry wat voldoen aan die vereistes.

3) Jou SARS betalings

Besighede wie “compliant” is met ‘n omset van minder as R50 miljoen per jaar, sal toegelaat word om 20% van hul LBS betalings terug te hou oor die volgende vier maande asook ‘n porsie van hul voorlopige besigheids belasting sonder boetes of rente oor die volgende 6 maande.

4) Jou kontantvloei

Die departement van Klein Besigheid Ontwikkeling het R500 miljoen rand in fondse beskikbaar gemaak om dadelik klein tot medium grootte besighede wat in nood is te help deur ‘n eenvoudige aansoek proses by www.smmesa.gov.za

5) Jou besigheid wat help met die direkte behandeling van die pandemie

Die IDC het ‘n pakket saamgestel in samewerking met die DTI van meer as R3biljoen rand vir industriele finansiering om die COVID-19 pandemie aan te pak. Dit sal finaniering versnel vir die sektor.

6) Jou gastehuis, venue of spyseniering besigheid

Indien jy in toerisme is, is daar ‘n addisionele R200miljien beskikbaar gestel deur die departement van Toerisme om enige besighede in die toerisme of gasvryheids sector wt onder geweldige druk verkeer te help as gevolg van die reisverbod.

Al die bogenoemde hulp sal slegs gegee word as jou besigheid “compliant” is. Praat vandag met jou boekhouer oor wat die stand van sake is op hierdie aangehegte lys.

Indien jy nie die goed in plek het nie kan ons help. Ons mobiliseer mense in ons direkte gemeenskap wat boekhouding kan doen, om julle deur ons besigheid Digital CFO te help.

Enige mense wat tans tuis is sonder ‘n inkomste wat gekwalifiseer is ‘n boekhouding of wat besig is met hul SAIPA of SAICA klerkskappe, of mense wat kennis en ondervinding het met CIPC en SARS, stuur asb jul CV’s na work@digitalcfo.co.za sodat ons kan kyk watter kos ons in julle huishoudings se monde kan plaas gedurende die tyd.

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Do you qualify as a Small Business Corporation & Pay less Tax

 In South Africa, a Small Business Corporation (SBC) is defined under Section 12E of the Income Tax Act (Act 58 of 1962). Section 12E provides certain tax benefits and incentives to qualifying small businesses.

To be classified as a Small Business Corporation, a company must meet the following criteria:

1. Company Size:

The company must be a close corporation (CC) or a private company, meaning it is not publicly traded. Additionally, it must have gross income of less than ZAR 20 million per year.

2. Nature of Business:

The company must operate primarily within South Africa and derive its income from trades or activities that are not specifically excluded by the Income Tax Act.

3. Shareholder Requirements:

The company’s shareholders must be natural persons (individuals) and must hold equity shares directly in the company. Certain types of shareholders, such as trusts, close corporations, and companies, are excluded from qualifying for SBC status.

The benefits of being classified as an SBC in South Africa include:
1. Tax Rates:

Small Business Corporations are subject to a reduced tax rate on their taxable income. The tax rates for SBCs are more favourable compared to the standard corporate tax rates.

2. Accelerated Depreciation:

SBCs are eligible for accelerated depreciation allowances on certain assets, which means they can claim higher deductions for wear and tear on qualifying assets.

3. Losses:

SBCs can carry forward their assessed losses indefinitely and set them off against future profits, subject to certain limitations.

It’s important to consult with a tax professional or accountant to determine if a specific company qualifies as a Small Business Corporation and to understand the exact tax benefits and requirements associated with Section 12E of the Income Tax Act in South Africa. 

For help to see if you qualify, contact us today!