Accounting advice for small business growth and cash flow
“Building wealth is not sexy; it’s boringly consistent. Your daily principles are what grows your net asset value.”
1. Employment Tax Incentives (ETI)
Employment Tax Incentives (ETI) is an incentive structure encouraging the employment of young and less experienced South Africans. It is also one of the most overlooked tax hacks.
The value of the ETI that an employer may claim depends on the value of the monthly remuneration paid to the qualifying employee.
ETI is deductible from Pay As You Earn (PAYE).
To qualify for ETI, employees must:
· Be between the ages of 18 and 29 or be employed in a special economic zone
· Earn a salary between R2,000 and R6,500 per month
· Be employed full-time
· Have a South African ID, Asylum Seeker permit, or an ID issued in terms of the Refugee Act
2. Simplify your VAT administration
If you’re VAT registered, chances are you’ve had more than one anxiety attack before a submission deadline. However, if you do it correctly, VAT can actually benefit your business.
As a VAT vendor, you act as an agent for SARS. So, when you raise an invoice, you add 15% VAT for SARS, which you need to pay every two months. Before you pay over the money to SARS, you can deduct the VAT you paid on qualifying business expenses, like supplier services, technology costs, and consumables such as ink and paper. This reduces your VAT liability, and you only need to pay the difference to SARS.
Of course, if your business is not registered for VAT and you buy from a registered supplier, you will still need to pay VAT on the supplier’s invoice. However, you won’t be able to claim the VAT back until you are a vendor. Therefore, there are benefits to becoming a voluntary VAT vendor when your business turns over R500,000 in 12 months (it’s compulsory to register as a VAT vendor once your turnover reaches R1 million in 12 months).
3. Business versus personal account
If you want to start building wealth, you need to accurately control your expenses to know exactly how you’re spending your money.
Have you ever wondered why your net income doesn’t increase?
When there’s no business and personal account separation, business owners use their income to grow their lifestyles instead of their business savings. I recommend always having a surplus amount in your business account for emergencies and paying yourself a weekly or monthly salary.
4. Boost your sales and administration skills
There are two common reasons businesses fail: they either lack sales or have poor administration practices. You can be an excellent salesman, but without proper administration, you won’t be able to keep up with tax or VAT practices.
So, how do you develop strong sales and administration skills?
You need to attract and convert the leads you’ve accumulated from your marketing efforts to get more sales.
I suggest the following two approaches:
Long-term: Ultimately, you want to attract customers that believe in your company and its worth. Adding value and building your brand will show customers that you have workable solutions to their problems and don’t just want to take their money and run.
Short-term: This is the “quick sales” approach where you set up your lead generation funnels and boost your digital marketing strategies to get as many leads as possible. Although you still prioritise adding value, your short-term strategy gets you to potential clients using lead magnets, social media ads, etc.
So, how do you differentiate yourself from the business around the corner? Adding value using content that potential customers can relate to ultimately initiates the word-of-mouth advertising you need.
Make sure you have live figures to keep an eye on your cash balances, accounts receivable, accounts payable, and, if relevant, your inventory stock. Check the figures daily or weekly to ensure you’re allocating your cash properly.
Strong debtors management is also key to running a successful business.
Know your break-even point:
You need to understand the number of sales needed to break even each month. Determining the bare minimum to cover your expenses will help you establish how much you need to make a profit.
Try building a passive income:
Identify passive income opportunities, to build additional wealth for your business.
Audit your business income streams regularly:
Make sure the various projects you’re working on are profitable. We often find that businesses have several projects, but two or three are costing the company money instead of generating profits.
Expansion is more important than cost-saving:
There’s no limit to expanding your business. Be creative and find ways of expanding your business to a point where you have consistent cash flow.
Accountants are a wealth of knowledge and connections:
Accountants work with many small business owners in various fields. I personally always want to add as much value to my clients as possible, whether it be brainstorming new ideas and structures or connecting people within the same industry.