Outcomes
On completion of this section you will be able to;
- Explain the importance of separating personal money from the company’s money;
- State what the law says and how the need for business to continue links with the above;
- Explain how expenses affect profit of a business and business continuity;
- Explain the money terms used by business people in small businesses;
- Understand and apply the principles of costing in a small business context;
- Understand and apply the principles of pricing in the context of a small business;
- Explain the importance of cash flow in terms of business continuity and day to day operations.
PART 1
UNDERSTAND AND APPLY
FINANCIAL CONCEPTS TO RUNNING
A BUSINESS
SEPARATING PERSONAL MONEY FROM THE COMPANYS’ MONEY
When you start a new business, you need money to get it off the ground. Any business is driven by adequate finances and as such the finances have to be managed in such a way that the money belonging to the business should be separate to monies belonging to the owners. All financial concepts involved in setting up a new business have to be factored in order for the business to be a success.
The importance of differentiating between personal money and money belonging to the business
To understand the relationship between personal money and company money we need to look at what the law says in this regard. The type of company determines whether there is separation or not between personal money and business money. In South Africa there are six main trading entity types. These are listed here in order of the amount of each of these entities
When you start a new business, you need money to get it off the ground. Any business is driven by adequate finances and as such the finances have to be managed in such a way that the money belonging to the business should be separate to monies belonging to the owners. All financial concepts involved in setting up a new business have to be factored in order for the business to be a success.
The importance of differentiating between personal money and money belonging to the business
To understand the relationship between personal money and company money we need to look at what the law says in this regard. The type of company determines whether there is separation or not between personal money and business money. In South Africa there are six main trading entity types. These are listed here in order of the amount of each of these entities:
- Sole Proprietor;
- Partnership;
- Close Corporation;
- Private Company;
- Public Company;
- Business Trust.
However, most companies in the small to medium enterprise (SME) sector are either Close Corporations (CC) or Private Company (Pty). In each case the law states that in both of these types the owners or member have limited liability meaning that a person’s financial liability is limited to a fixed sum, most commonly the value of a person’s investment in a company with limited liability. In other words, if a company with limited liability is sued, then the plaintiffs (complainants) are suing the company, not its owners or investors.
Importance of separating personal money and the business’ money
With the above background we can see that there is a distinction between money that belongs to owners or members of the company as individuals and money belonging to the business as an entity.
This is important in the following ways;
- In the event that the indivduals are sued in their personal capacities, they settle damanges on their own and thereby business is not affected and this ensures continuity;
- In the event that individuals in their personal capacities become bankrupt, the company is not affected and business continues;
- In the event that business fails to pay its debts and gets bankrupt, the owner as individual persons are only affected as far as their investment in the company is concerned and their personal money will not be affected;
- If the company is sued, the palintiffs (complainants) recover damages from the company and not from the owners and thus they may have a choice to pull out and form another company.
THE IMPACT OF EXPENSES ON THE PROFIT OF A BUSINESS
DEFINITIONS
EXPENSES are those things that the business spent on during the course of doing business with others PROFIT is the money the business made after expenses
From the above definitions we can see that the two are related and we can present the relationship in the following formula
PROFIT = GROSS INCOME (SALES – COST OF SALES) - EXPENSES
The following conclusions can be made from the above calculation on the impact of expenses on profit, provided that the gross income is constant.
- If the expenses are increased, profit gets reduced;
- If the expenses are reduced, profits actually increases;
- If the expenses remain constant, if they are unchanged, profit will also remain constant.
MONEY TERMS USED BY ENTREPRENEURS
The following terms are used by entrepreneurs in small business:
START UP CAPITAL
This refers to the money that is needed to get the business going for the first year or so of operation.
WORKING CAPITAL
This is the difference between what the company owns and what it owes.
REVENUE
The amount of money a business generates from sales.
COST OF REVENUE
Is the expense a company incurs in order to manufacture, create or buy inventory (goods to be sold). It includes the purchase price of the raw materials as well as the costs of turning them into a product.
GROSS PROFIT
Is the total revenue minus the cost of generating the revenue. It tells of how much money a business would have made if it did not pay any other expenses such as salaries, administration expenses and income tax.
EXPENSES
The total amount of money that the business spends on all its operations.
NET PROFIT
The gross profit minus expenses.
DEBIT
The amount of money that a business owes to other businesses or individuals.
CREDIT
The amount of money that a business is owed by other businesses or individuals.
CASH
Bank notes or coins especially in hand or readily available used to buy goods or services.
THE PRINCIPLES OF COSTING
DEFINITION
COSTING IS A PROCESS OF DETERMINING THE TOTAL COST TO DEVELOP AND DELIVER A PRODUCT OR SERVICE IN ORDER TO COME UP WITH ITS PROPER PRICE
One purpose of costing is to determine what funds were required to provide the goods or services. A second purpose is to provide a guide to fund usage through the use of budgets that clearly identify managers’ responsibility.
One basic difficulty in product costing is that products do not drive all the company expenses. For example, it would be very false to allocate general management costs, administration, general IT-support and human resources costs, etc. on products.
We are going to look at the following costing methods;
STANDARD COSTING
This is where costs are established through identifying an objective relationship between specified inputs and expected outputs. Therefore, standard costs are generally related to carefully analysed phenomena both in the laboratory and in the workplace.
For example, in the factory of a company that produces high-quality cotton shirts for men, standard costs are used for materials and labour.
In standard costing we have direct and indirect costs.
Direct costs are those associated directly with the product, such as the cost of materials, components, direct labour, direct expenses, and so on.
Indirect costs are costs met by the company, such as rent, rates, heating, lighting, telephone, fax and administration, which cannot be directly related to the product.
EXAMPLE
Total direct cost associated with n units over the 12 month period 200 000
Total indirect costs associated by the company, over 12 months 115 000
Total profit for 12 months, before tax 85 000
Total income for 12 months 75 000
ACTIVITY BASED COSTING
Activity based costing monitors the use and efficiency of the way the resources have been used in the activities. An activity is an operative unit focusing on limited actions. Typical activities are selling, purchasing, assembling and packaging. It also monitors the way in which these activities have been utilised to produce the objects, ie. The products and services.
MARGINAL COSTING
It approptions fixed costs to the products produced in total. Fixed costs are those costs that a company must meet that are not directly associated with the manufacture of its products. They are fixed in a given trading period, say 12 months. Fixed costs must be paid by the company whatever its levels of production.
Example of Fixed Costs: The rent for the company buildings, the salaries of staff, the cost of heating and lighting the buildings must all be paid for irrespective of the levels of production.
PRINCIPLES OF PRICING
Setting the right price for a new product or service can be one of the biggest problems faced by small business owners. Costing your product or service is relatively straightforward, but pricing is essentially set by the market place.
In setting a price for your service as an ECD service provider, the following considerations have to be made;
- What competitors are charging?
- What customers will be prepared to pay?
- The price needs to cover all the costs and allow for a profit;
- Setting too high a price can lead to lost sales;
- Undercharging will lower your profits and possibly result in your business failing;
Prices charged should relfect costs on the one hand and the strength of the market on the other;
Pricing communciates messages about the quality of the products or services offered and position your business in the markeplace. You need to understand the impact of pricing on profitability and be able to choose the best pricing strategy for your business.
We are going to look at two methods of pricing that can be used in business.
COST PLUS PRICING
Determines all the costs associated with providing the service and then adds on a profit margin, usually as percentage of the total service cost.
PRICE MINUS PRICING
Price estimates what the market will pay for the service before the service is provided. This is called the market selling price (MSP). The price minus approach to pricing lets the market decide the service price, which is largely a marketing exercise rather than a financial one.
Having determining the price for your service, you can then take on the following pricing strategies;
PENETRATION STRATEGY
Here as a new entrant in the market you may set prices lower than that of established competitors to boost sales.
DIFFERENTITATION STRATEGY
You may set prices higher than the market, as higher price denotes and customers buy your product as they view it to be of high quality.
THE IMPORTANCE OF CASH FLOW
DENFINITION
Refers to the movement of cash into and out of a business
Watching the cash inflows (income) and outflows (expenses) is one of the most pressing management tasks for any business. The expenses include those cheques you write each month to pay salaries, suppliers, and creditors. The income includes the cash you receive from customers (operating activities), lenders (financing activities), and investors (investing activities).
THE IMPORTANCE
Many new small businesses mostly fail within the 1st or the 2nd year. This is mostly due to cash flow problems. In the perspective of small business, cash flow is the most important financial measure because it determines the value of small business; as well it determines its survival. It is very important to have a good cash flow management plan in plan as it gives the following benefits to the business;
Benefit 1
If the income of cash exceeds the expenses, a company has a positive cash flow. A positive cash flow is a good sign of financial health. This means the business has cash to pay for its expenses such as wages and suppliers.
Benefit 2:
Having a positive cash flow enables the business to pay for unexpected demands from creditors for payment, thus it can survive even through difficult times.
Benefit 3:
The business can also take advantage of opportunities that may arise, such as the opportunity to buy goods at discounted prices when they have enough cash resources ready. Thus business tends to grow faster.
Benefit 4:
Having adequate cash flows means the business may get loans for expansion from financial institutions, as they will be deemed able to repay the loans.
PART 2
PREPARE STORE OPERATIONS
Outcomes
On completion of this section you will be able to:
- Explain the importance of record keeping;
- Outline the problems arising if accurate records are not kept;
- State the advantages of good record keeping;
- Develop a basic record keeping system for a small business;
- Understand and apply stock control systems in a small business;
- Assess the banking facilities needed for a specific business;
- Outline how those facilities link with costs, ease of use and applicability to a specific business;
- Assess the suppliers needed for a particular business, wheather they are able to deliver quantities required on time and costs;
- Assess the human resources (HR) needed for a particular business;
- Make sure the HR is affordable, allows business growth and fufils customerservice needs;
- Develop a simple customer service policy to attrat new customers and keep existing ones.
Introduction:
This relates to the tasks that are done almost on a day to day regarding the issues of stock, how is to be stored and its movement. It also relates to the keeping of records for the various transactions which takes place within the business.
The importance of record keeping
DEFINITION
Record keeping is a process of managing the creation, amendment, version control, distribution, filing, retention, storage and disposal of records, of your business.
A record is any document, book, paper, photograph, map, sound recording or other material, regardless of physical form or characteristics, made or received important by law or in connection with the transaction of official business.
Everyone in business must keep accurate records, failure to do with lead to serious problems which may ultimately lead to business failure.
Problems arising if accurate records are not kept:
- It may be difficult to determine how much money came into the business and thus may lead to the company losing a lot of money;
- It will be difficult to know the acutal expenses of the business and at the end some employees and management may exaggerate expenses to benefit themselves;
- If problems arise it will be difficult to identify the root cause;
- Having inaccurate records leads to embezzlement of funds by financial personnel;
As a result the business will close down due to the above mentioned reasons.
Advantages of good record keeping;
- You need good records to monitor the progress of your business. Records can show whether your business is improving, or what changes you need to make. Good records can increase the likelihood of business success;
- You need good records to prepare accurate financial statements. These include income (Profit and Loss) statements and balance sheets. Thse statements can help you in dealing with your bank or creditors and help you manage your business for a given period of time. A balance sheet shows the assets, liablities, and your equity in the business on a given date.
- You can identify the source of receipts. You will receive money from your customers. Your records can identify the source of your receipts. You need this information to separate business from non-business receipts and taxable from non taxable income.
- You keep track of deductable expenses. You may forget expenses when you prepare your tax return unless you record then when they occur.
- Helps prepare your tax returns. You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statements.
- Support items reported on tax returns. You must keep your business records available at all tiems for inspection by South African Revene Service (SARS). If SARS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination;
- Helps improve in business management practices. Analysis can be done and trends established from good records problems are rectified.
A BASIC RECORD KEEPING SYSTEM
There are mainly two types of record keeping systems a person can use in his or her business namely Hand-kept ledger (records documented by hand into a record book) and computerised system (as the name suggests, details are entered into a computer). A record keeping system helps in the accurate capturing and managing of stock, accounts, and administrative data.
When choosing the right record keeping system to incorporate into your ECD service, remember decisions made on the business can be no better than the information used to make them. A good record keeping system is one that will provide the necessary information and provide the information when needed.
We are going to consider two main types of records for a small business, namely financial and administrative records with their respective record keeping systems.
FINANCIAL RECORD KEEPING
A basic financial record keeping system sould have at least the following components;
- Summary of your business transactions;
- Purchases;
- Income;
- Expenses.
ADMINISTRATION RECORD KEEPING SYSTEM
An Administrative record keeping system allows you to create and maintain any of the following types of records:
- Routine correspondence or interoffice communications;
- Records relating to human resources;
- Equipment and supplies, and facilities;
- Reference materials;
- Routine activity reports;
- Work assignments, appointment books, and telephone logs.
Below is an example of a basic record system for wages for a company.
STOCK CONTROL SYSTEMS IN A SMALL BUSINESS
DEFINITION
Stock Control otherwise known as inventory control, is a process used to show how much stock you have at any one time, and how you keep track of it.
It applies to every item you use for your service, from raw material to finished goods. It covers stock at every stage of the production process, from purchase and delivery to using and re-ordering the stock. Efficient stock control allows you to have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily.
Types of stock
Everything you use to provide your service and to run your business is part of your stock.
There are four main types of stock:
- Raw materials and components – ready to use in production
- Work in progress – stocks of unfinished goods in production
- Finished goods ready for sale
- Consumables – for example, fuel and stationary
The type of stock can influence how much you should keep.
STOCK CONTROL SYSTEM
A stock control system is a way of tracking the movement of your stock. Any stock control system must enable you to:
- Track stock levels;
- Make orders;
- Issue stock
The simplest manual system is the Stock Book, which suits small businesses with few stock items. It enables you to keep a log of stock received and stock issued.
EXAMPLE:
Below is an example of a stock book for a retail shop dealing in furniture and electric appliances.
It can be used alongside a simple record system.
For example, the two bin system works by having two containers of stock items. When one is empty, it time to start using the second bin and order more stock to fill the empty one.
THE BANKING FACILITIES NEEDED FOR A SPECIFIC BUSINESS
Any small business need bank facilities. Depending on the type of business that you are involved, bank facilities are always important. These are various facilities that a bank offer which come in handy for small businesses. Although some may be a bit expensive for a small business as a result you need to assess whether you can afford the services provided by a bank before you engage them.
The following facilities are provided by banks to small businesses;
Lending – Banks can provide short-term loans, overdrafts to small businesses for their operations at either at start up or for expansion. The interest rate has to be relatively low for a small thus a small business should look for a bank with lower interest rates;
Saving – The small business can save some money it does not intend to use immediately in the bank to earn interest. The bank with higher interest rates for savings should be chosen by a small business;
Withdrawals – Banks provide withdrawal services after customers make their deposits. It should be easy for a business to withdraw cash when it needs. Hence the withdrawal service should be easy accessible. A bank with a huge branch and Automated teller machine network would be preferred by a small business;
Foreign Currency – Banks provide foreign currency to small businesses if they want to import goods for resell. The commission therefore charged by the banks for the transaction should not be too high.
Financial Intermediation – Banks should make it easy for small businesses to make payments to their suppliers and creditors through bank transfers and for them to receive payments from debtors and customers through the same way. The process should not be difficult.
In order to assess the capabilities of a bank in the above regard, there is need to gather enough information about banks to ascertain if they provide the above services in the way you want. The assessment can be done in the following ways;
Sending questionnaires to those banks which have a potential to provide you with the services. The questionnaires should indicate the factors and each bank should outline how they deliver those services.
- Asking other players in the market about the bank they recommend.
- Consult bank rating agencies, as these have information on banks and they are likely to give the best information for the choice of your preferred bank.
Having obtained the information, the bank with the best service will be chosen.
ASSESSMENT OF SUPPLIERS NEEDED FOR A SPECIFIC BUSINESS
Small business should be careful when choosing a supplier. There should be a criteria in selecting otherwise you may deal with an unreliable supplier, which may jeopardise your business.
In the assessment of suppliers, the business has to take note of the considerations;
The ability to offer a service that is of high quality. Select a supplier who has the technical capabilities and equipment needed to fill your requirements;
Efficiency in delivery. Choose a supplier who is known to be efficient in delivery goods for your orders. A supplier who delivers on agreed times is needed;
Competitive price. A supplier who has a lower prices or who gives discounts for huge orders should be chosen.
Excellent Customer Service. A supplier with a good track record in customer service should be selected for your business.
ASSESSMENT OF THE HUMAN RESOURCES NEED FOR A SPECIFIC BUSINESS
DEFINITION
Human Resources is a term used to describe the individuals who comprise the workforce of an organisation.
Human Resources is also the name of the function within an organisation charged with the overall responsibility for implementing strategies and policies relating to the management of individuals (i.e. the human resources). This function title is often abbreviated to the initials HR.
For the purposes of this study human resources will mean the individuals needed to work in a particular business. Whatever business you are involved, you need to select and recruit those individuals with the qualities and skills you require to work in your organisation. The following maybe some of the requirements you need from the people who will work in your company.
- For people who will be working in customer service you will need someone who has customer relations skills and qualifications, one who is cheerful and friendly to customers.
- For operations you will need those with people who are qualified and love to work with children.
- For management you would need someone who you can afford to pay. That is you should have salary caps for certain key position otherwise the wage bill will be your biggest expense and the business may broke.
- For a small business there is need to have a small workforce, otherwise you will have headaches with your wage bill and other HR related expenses.
DEVELOPING A BASIC CUSTOMER SERVICE POLICY
DEFINITION
A customer service policy is a detailed plan put in place by an organisation to assist and meet its customers’ needs.
Customer service affects all levels of your operation, and everyone involved needs to have the same mind-set and follow the same policies.
First work on establishing the “people” aspect of customer service, this means the interaction between your employees and your customers.
The ultimate goal of good customer service is a happy, returning customer. Most businesses rely on their returning customers for 80 percent of their business, and it’s less expensive to maintain an old customer than to attract a new one.
PART 3
UNDERSTAND THE CHANGING
BUSINESS MARKET
Outcomes
On completion of this section you will be able to:
- Define your own client base in terms of current and future situations;
- Identify your competitors and how they do their business;
- Use the information to your advantage.
Introduction
DEFINE YOUR OWN CLIENT BASE
A client base consists of customers you are already doing business with or those customers you hope to target and do business with in the future. When you are formulating strategies to retain existing customers and attract new ones you look at your client base. The client base is the source of your customers that will keep your business going.
A client base can be defined in the following ways;
- Those individuals who make use of services on a regular basis;
- Those who only use your service once off;
- Those in the market that you are targeting already;
- Those who have the resources to make us of your service;
- Those who may have the need or desire for the service as indicated by marketing research.
After defining your client base, you can begin to develop policies and strategies to satisfy existing customers to retain them and to appeal to potential ones in order to win them.
IDENTIFYING COMPETITORS WITHIN THE MARKET
Knowing who your competitors are, and what they are offering, can help you improve your service. It will enable you to set your prices competitively and help you to respond to rival marketing campaigns with your own initiatives.
Competitors take many forms namely, business' that provide the same services as you, a new business offering a substitute or similar product that makes your own redundant, or another product or service that’s being developed and which you ought to be selling or looking to license before somebody else takes it up.
You can use this knowledge to create marketing strategies that take advantage of your competitors’ weaknesses, and improve your own business performance. You can also assess any threats posed by both new entrants to your market and current competitors. This knowledge will help you to be realistic about how successful you can be.
HOW TO IDENTIFY YOUR COMPETITORS
You can get information about your competitors from the following sources:
- Local business directories;
- Your local Chamber of Commerce;
- Advertising;
- Press reports;
- Exhibitions and trade fairs;
- Questionnaires;
- Searching on the internet for similar products or services;
- Information provided by customers;
- Flyers and marketing literature that have been sent to you – quite common if you’re on a bought-in marketing list.
HOW TO ACT ON THE COMPETITOR INFORMATION YOU GET
Evaluate the information you find about your competitors. It may help you spot whether there are gaps in the market you can exploit or indicate whether there is an oversupply in certain areas of your market, which might lead you to focus on less competitive areas. Draw up a list of everything that you have found out about your competitors, however small.
Put the information into three categories and implement following strategies:
What they’re doing better than you that you could learn from.
Here you need to respond and make some changes. It could be anything from improving customer service or reassessing your prices to changing the way you market yourself, redesigning your literature and website and changing your suppliers. Try to innovate not imitate. Now you have got the idea, can you do it even better, add more value?
What they’re doing worse then you are
Here exploit the gaps you have identified. These may be in their product range or service, marketing or distribution, even the way they recruit and retain employees. Customer service reputation can often provide the difference between businesses that operation in a very competitive market. Renew your efforts in these areas to exploit any deficiencies you have discovered in your competitors.
What they're doing the same as you are
Here ask why they are doing the same as you, particularly if you’re not impressed by other things they do? Perhaps you both need to make some changes. Analyse these common areas and see whether you have got it right. And even if you have, your competitor may be planning an improvement.
PART 4
THE CONCEPT OF SHRINKAGE AND
LOSSES
Outcomes
On completion of this section you will be able to:
- Demonstrate an understanding of the concepts of shrinkage and losses, giving examples;
- Identify methods of shrinkage and losses for a small business;
- Describe reasons for preventative policies and procedures;
- Check whether those reasons allow the business to continue operating in the future;
- Explain the impact of shrinkage andlosses on theorganisation’s continued survival in the long term.
REASONS / NECESSITY FOR PREVENTATIVE POLICIES AND PROCEDURES
An organisation which loses a lot of stock due to shrinkage should have in place preventative policies and procedures in order to deter losses in this way.
The preventative policies and procedures will go a long way in helping the organisation in any of the following ways;
They allow discovery of where and how much shrinkage is occurring allowing the company to come up with mitigating measures in those areas;
- Provides a view of resources currently devoted to shrink reduction;
- Relates shrinkage reduction to various types of loss prevention expenditures
- Helps to standardise operating procedures;
- Helps you to continuously refine and monitor the progress of the measures that have been put into place to curb shrinkage.
THE IMPACT OF SHRINKAGE AND LOSSES ON THE ORGANISATION
It is undisputable that shrinkage has a very negative impact on a business. If shrinkage is not addressed, business may close in the long run due to loss of income.
The following are negative consequences of shrinkage in the long run:
- It leads to loss of revenue;
- Due to loss of revenue, the organisation will incur losses and fail to pay its expenses;
- Due to failure to pay its expenses will lead to claims from creditors and as a result of that, the business may be liquidated and forced to close.
THE LEGISLATION APPLICABLE TO SMALL BUSINESS’
Outcomes
On completion of this section you will be able to:
- Assess its impact on business;
- Identify and apply the legilation applicable to a specific business
Introduction
Legislation is very necessary in business as it brings order in terms of the standards to be adhered to as well as to prevent any unfair practices especially business owners to customers and even their own employees.
CLOSE CORPORATIONS ACT, 1984
This form of business entity was introduced in 1984. It is intended to serve smaller businesses, extending limited liability and other advantages of corporate identity without requiring compliance with all the formalities of the Companies Act, 1973. Close corporations are regulated under the Close Corporations Act, 1984. A close corporate exists as a separate legal entity from its members hand has an unlimited lifespan. Membership is restricted to ten members. A close corporation does not have any directors and there is, therefore, no practical separation between ownership and management.
IMPACT:
This Act may impact small businesses in the sense that in the event that owners get broke, they may use the business’ money due to unlimited liability. This may lead to the business going broke due to a reckless and extravagant owner. The small business may not increase members beyond and this will force them to register with the Companies Act which will mean an extra cost.
COMPANIES ACT, 1973
All companies are regulated in terms of the Companies Act, 1973 as amended. As in the case of close corporations, a company exists as a separate legal entity from the shareholders/members and has an unlimited lifespan. But, unlike close corporations, both natural and juristic persons may become members.
Furthermore, since companies must have directors, there is a separation between ownership and management. A private company may be established by one or more persons provided that it does not have more than 50 shareholders.
IMPACT:
This Act impacts small businesses, in terms of the issues of corporate governance, where owners or shareholders are not to manage the business. This will means people who are not owners will have to manage the business and this will come with an extra cost in salaries and benefits. They may not have the business at heart as owners would be.
CONSUMER PROTECTION ACT (PENDING)
The CPA is about to come into effect. The Act applies to all organisations involved in transactions involving goods and services.
The organisations should operate in part of the supply chain either as producer, importer, distributor and retail of goods or as service provider and the extent of the application of the CPA to such activities. It will seek among other things to:
- Promote and protect the economic interests of the consumers;
- Improve access to and the quality of information that is necessary so that consumers are able to make informed choices according their individual wishes and needs;
- Protect consumers from hazards to their well-being and safety;
- Develop effective means of redress for consumers;
- Promote and provide for consumer education, including education concerning the social and economic effects of consumer choices;
- Facilitate the freedom of consumers to associate and form groups to advocate and promote their common interests;
- Promote consumer participation in decision making processes concerning the market place and the interests of consumers.
The CPA may impact retails on products (design and development), business management and processes (risk management processes and internal controls) as well as interactions with customers.
LABOUR RELATIONS ACT, 1995
The purpose of the Labour Relations Act, 1995 (LRA) is to advance economic development, social justice, labour peace and the democratisation of the workplace. The LRA provides a framework within which employees, trade unions, employers and employer organisation can bargain collectively on wages, terms and conditions of employment and other matters mutual interest. The LRA is specifically designed to promote orderly collective bargaining at industry level, especially designed to promote orderly collective bargaining at industry level, particularly by means of bargaining councils that have the power to conclude and enforce collective agreements. The LRA also promotes employee participation in decision making in the workplace through consultation and joint decision making. The LRA provides simple procedures for the resolution of most labour disputes.
IMPACT
The small business may be impacted by this Act in the sense that some of the bargains by labour organisations may be too much. For example the labour organisations may demand certain salary levels which a small business due to its limited finance may not be able to meet.
BASIC CONDITIONS OF EMPLOYMENT ACT
The Basic Conditions of Employment Act, 1997 (BCEA) prescribes minimum standards of employment. Although the BCEA allows for a certain measure of variation of some of its provisions, important minimum © Copyright 2008 UHY International Ltd. -24- standards may not be varied by agreement. The BCEA regulates working time in respect of certain categories of employees such as regulates working time in respect of certain categories of employees such as managers and employees who earn less than an amount determined by Government Gazette, by inter alia providing for the maximum ordinary hours of work per week at 45 hours and determining payment for overtime work. The minimum extent of annual leave, family responsibility leave and maternity leave provisions in respect of all the employees are regulated by the BCEA. The BCEA also places comprehensive administrative requirements on employees. The BCEA creates a permanent commission with broad powers to set minimum standards tailored primarily for those industries where collective bargaining does not take place.
IMPACT
The small business because of this Act may not be able to meet all the conditions of employment due to its small size. For example if may need to have its staff work overtime but not have enough finances to pay for it. If they may be sued and lose out.
EMPLOYMENT EQUITY ACT, 1998
The Employment Act, 1998 (EEA) was promulgated to achieve equality in the workplace by promoting equal opportunity and fair treatment in employment through the elimination of unfair discrimination. The further purpose of the Act is to implement affirmative action measures to redress the historical disadvantages unemployment experienced by designated groups (defined as “black people, women and people with disabilities”), in order to ensure their equitable representation in all occupational categories and levels in the workforce. Extensive fines are imposed upon employers who do not comply with the transformation provisions of the EEA.
IMPACT
The Act impacts the small business in the selection of employees. There are instances where some groups may not have the requisite skills and experience and there cannot be employed. Failing to have them on board may seem as discrimination and the company may be punished for that.
IMCOME TAX ACT 1962 (As amended)
The Act provides different definitions of taxable income for individuals and businesses. The business’s tax will be calculated from the net income. The income tax is levied on a yearly basis. The tax rates are amended on an annual basis by the Ministry of Finance.
IMPACT
The Act will require the small business in the sense that in case of failure to fill in their returns in time they will be heavily fined.
CONSUMER AFFAIRS (UNFAIR BUSINES SPRACTICES) ACT, 1988
Prohibits unfair business practices by organisation and provides for the protection of customers in any business deals.
IMPACT
A small business which is involved in any practice that may be deemed unfair may be sued under the Act and lose a lot of money.
NATIONAL SMALL BUSINESS ACT, 1996
Promotes smalls business in the Republic, and provides for matters incidental thereto. The act also provides to expand, co-ordinate and monitor the provision of training, advice, counselling and any other non-financial services to small business in accordance with the National Small Business Support Strategy.
IMPACT
This may not have a direct impact on a small business since it is there to promote the establishment of small businesses. The challenge may be in instances where a business is no longer considered to be small, and thus may lose the benefits provided to small businesses by the Act.
NATIONAL CREDIT ACT, 2005
The Act:
- Promote a fair and non-discriminating market place for the access of credit;
- Prohibits unfair practices;
- Aims to prevent reckless lending and unfavourable lending practices and
- Establishes new and improved right for credit consumers.
IMPACT
This new legislation will affect businesses and individuals who use any of the following banking facilities;
- Overdraft,
- Credit Card;
- Personal Loan;
- Vehicle Finance
- Home Loan
When a small business applies for credit from a credit provider, the provider will,
- Do a proper assessment of its ability to meet the repayments. This requires full disclosure by the borrower of total monthly income and expenditure and details of any other credit agreements already held. This if the small business does not have enough income, they may not get credit;
- Evaluate the small business’ understanding and appreciation of the risk, costs and obligations of the proposed credit agreement. If a small business fails in the above, they may not get credit;
- Assess the small business’ ability to meet the repayments timeously within his/her existing financial means and their debt repayment history. This will impact negatively those small businesses with a bad credit record as they may not secure credit.
