The 9 Hats of an Entrepreneur – Chairman
I was once appointed to a management board of a Non-Profit Organisation and duly elected Chairman. It has become an interesting journey finding my place as Chairman of a board of an organisation that I do not work in on a daily basis. What is the role of a chairman? What do the other board members and the staff expect of me? And how do I get along with the CEO?
The Chairman’s hat is a large and often heavy one to wear. It is woven with responsibility and procedure and can often bring about long discussions and uncomfortable decision making. Any organisation from the smallest to the multinational needs someone to play the chairman role and wear the hat. Not having a chairman is like going on holiday without a map. Maybe fun and exciting for a while but soon you will be lost and have no sense of direction.
In my experience, it is always good to get the Entrepreneur and Chairman hats to chat at length to discover the possibilities or opportunities of the business before you bring in the Manager and Share Holder. This allows for expansion before fear sets in. If you do not have a Chairman in your business then take it upon yourself to wear the hat or hire a consultant or coach to wear it for you.
VAT continued
Following our blog last week, we see that VAT is set to increase to 15% from the 1st of April 2018 following the Minister of Finance’s budget speech. This will not be a simple task like many would have imagined where one will just change the rate in their accounting package and continue capturing. It is a complex process that requires much attention, planning and time to execute smoothly.
Companies will have to initially accommodate two VAT rates due to timing and cut-off periods, when were the goods delivered or services rendered and in the case of credit notes that might have to be issued after the 30th of March 2018 for goods or services rendered before the 1st of April 2018. Some invoices will have the two rates, looking the example of cell phone service providers where subscriptions are charges in advance and call are charged in arrears. The biggest complication will be in April where some companies will have VAT of 14 % on income and expenses and VAT of 15% on income and expenses.
Companies, however, have the option to increase their prices simply because the VAT act allows or keep the prices the same but that would mean absorbing the tax costs hence less income from the same price. Companies can opt not to increase their prices for various reasons some being to maintain business relations or to attract more customers but that does not mean they will be immune to the 1% VAT increase from the authorities.
Despite all these companies will have to be ready to comply with the rules. Making the necessary changes immediately is advised considering the amount of work that is estimated to go into this transition especially for big companies with a lot of transactions. Please consult your accounts for assistance with this.
Your business should perform like an athlete
How do you define performance in a business; more specifically how do you define financial performance? Good performance is very easy to recognise for sports people or athletes. There is a target that they are working to beat; say their last marathon time, or their personal best, or the world record, or even just their rival’s score. It is obvious when they have performed well and when they have underperformed. It’s also obvious from the celebration – the fist pump in the air or the lap with the flag.
What can we learn from the world of sports when it comes to the financial performance of our companies? The most under-rated lesson is to CELEBRATE good performance or even just better performance. We are motivated to achieve more, to do better, when we recognise the work that has already gone into our performance and identify the things that have gone right or are working well. Celebrating also gives us a moment to stop and reflect on what we have changed/improved that has made all the difference, and imagine how to do more of that thing.
Another lesson from the world of sports is how to tell if performance is good or bad. There is always a TARGET that the person is trying to reach. In business we often consider performance to be the profit of the company. In fact, the income statement (showing the profit) is now called the Statement of Financial Performance. Setting a target for the profit of the company is a good idea. However, it is also important to look at the variables/elements that generate that profit, as they all need to work together to reach the target you have set. Consider setting realistic targets for your costs, for your turnover, for specific products. What about the management teams, sales people and internal processes that are necessary to achieve your goal performance?
Set up a meeting with our financial management team and we will help you to identify the cause and effect relationships in your financial flow, to establish where you should set targets for improved financial performance.
The 9 Hats of an Entrepreneur – Share Holder
Think for a moment how you would act or react if you had equity in another business? What sort of input would you like to have in the way the money is spent on R&D and marketing or wasted on yet another batch of pink T-Shirts for the next convention. Now consider your own business, I assume you have equity in this? Why then do we ignore the way we often waste our resource just because we have the authority to do so. The Share Holder’s hat needs to be worn all the time to assist in the distribution of funds and budget compilation and approval. How different would you run your business if you have 30% equity invested in say me? I would require regular financial reports and discussions about where my money is going. When any person owns 100% of their business they seem to throw this hat away or hang it up on a peg of non-concern.
It is very interesting to see how this changes when a loan is required and some form of equity or surety is signed. Then all of a sudden the papers fly and new reports are produced. Take time out today and put on your Share Holder’s hat and consider what you would say to the business manager about how they are running your business. Then go look in the mirror and have a board meeting.
The VAT Effect
One of the most common buzz words in South Africa right now is the VAT increase. Individuals and corporates are wondering what effect this will have on the bottom line and if they will be able to cope with the consequence. We discuss the basic history of VAT and implications of this increase and how the VAT system works.
The origins of VAT date back to 1919 in Germany. France later introduced production tax; a form of VAT which was replaced with the producer’s income-based tax in 1948 and consumption tax in 1954.
The Statement of Standard Accounting Practice (SSAP, 1993) defines VAT as “a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain.”
VAT is charged on the supply of all goods and services made in the course of a business by a taxable person unless they are specifically exempt. VAT is levied at each stage of the supply chain, from the manufacturer to the wholesaler, to the retailer, taxing the value added by businesses at each point in the chain. For instance, raw wheat becomes more valuable as it moves along the supply chain to eventually be manufactured into bread or whatever the end product may be. This reinforces the principle that VAT is a tax borne by the end user in the economy, which are households. The increase in VAT from 14% to 15% increases inflation, as every supplier in the value chain adds 1% to their price, and thus the end user bears the brunt of that multiplied price increase.
Businesses are required to register for VAT if their turnover of taxable goods &/or services is above a given threshold, which is currently R1million. A registered business will pay input tax; which is VAT on its purchases and in turn, charges Output tax; which is VAT on its sales. VAT is not a business expense for a registered vendor, but a cost that is ultimately passed on to the end-consumer when they buy the final product. Vendors thus act as collection agents, collecting the tax on behalf of the government.