This year’s Budget speech has spelt some good news for ownermanaged businesses (OMBs) following tax amendments for small businesses, audit and advisory firm KPMG’s national managing director OMB division Pierre Delaney tells Engineering News.
The speech, however, did not contain enough information to fully understand the intended amendments, nor the number of employees that define a small business, says Delaney.
Finance Minister Trevor Manuel announced in February that the 2008 Budget reduces the administrative burden on small businesses by introducing a presumptive turnover tax on small businesses, as an alter- native to income tax and value-added tax for businesses with a turnover of less than R1-million a year.
Delaney comments that the large administrative burden that has been placed on small- and medium-sized enterprises (SMEs) is one of the reasons that SMEs have such a high failure rate.
He comments that a successful business rests on three pillars. On one side is the entrepreneur, his product, his drive and resilience, and the market, of which Delaney says “there is no shortage in South Africa”.
The second is financing, which is easy to gain access to once the others are firmly in place.
The third pillar is the ability to manage the business once it has started up. This includes the financial management, its ability to stay within regulatory compliance and to deal with all the tax matters from planning to interaction with the South African revenue services, which, Delaney comments, are all very time consuming.
“It is these huge administrative burdens that lead to the failures of SMEs and losses to the financing institutions. Instead of running the business, the SME ends up spending a huge amount of time on the administration to remain regulatory compliant.”
KPMG has witnessed the steady growth of its SME division over the last 22 years.
Nevertheless, Delaney comments that many SMEs avoid using institutions such as KPMG in an effort to avoid the high cost associated with them.
Because of the high costs of professional financial services, many start-up business owners look to do the administration work either themselves, or get the secretary to do what should be done by professionals. This detracts from doing what they had set up to do in the first place.
“Cost of financial services comes at a price. Financial management is a skilled service in a skills-short market. So this service is expensive. “That is why, I believe that the government, instead of throwing money at the problem, should be putting money into the root of the problem. “They should be looking at tax rebates for businesses that go and outsource proper financial services to keep them running once they have been set up.”
In the past, KPMG assisted an SME by offering it a reduced fee in the first year, gradually increasing its fees to the point where the SME is paying the full fee. Delaney does point out, however, that the company cannot afford to do this to all businesses because it would not be viable.
Nevertheless, this strategy has demonstrated that with the right financial management, an SME will have a much better chance of succeeding after it has been set up.
Delaney says that the company tries to support at least two emerging SMEs at any given time, from each of its offices in Polokwane, Pretoria, Johannesburg, Nelspruit, Secunda, Cape Town, Port Elizabeth, East London, Harare, Bulawayo and in one each in Swaziland, Bostwana and Namibia.
When the lifting of the value-added tax threshold and the New Companies Act comes into effect, he forsees the business environment becoming more conducive to success for SMEs. But he does emphasise that support for good financial management is vital to change the statistics for SMEs.