Presented by Sage

Budget 2020 will deliver a blow – Here’s how businesses can soften it

Finance Minister Tito Mboweni will deliver one of the toughest Budget Speeches to date on 26 February 2020.

Whatever he announces will have a massive impact on individuals and businesses – and it’s likely that tax increases will be one measure to revive the economy.

It’s hard not to get caught up in the cloud of negativity hanging over the country: the budget deficit is at its highest in 20 years; investor confidence is low; unemployment is at record levels; the tax base is declining as more businesses resort to retrenchments; economic growth is dismal, dragged down by flailing State-Owned Enterprises (SOEs); and the threat of being downgraded to junk status is still very real.

Speaking in a recent podcast, Yolandi Esterhuizen, registered tax practitioner and Compliance Manager for Sage Africa & Middle East, and Gerhard Hartman, Vice President for Medium Business, Sage Africa & Middle East, discussed the tough decisions the Minister will need to make, and how businesses can help to soften the blow, not only for their own organisations but for the country in general.

Between a rock and a hard place

The Minister will have little option but to increase taxes. This could include hikes in personal income tax and value-added tax (VAT), and will very likely include increases in fuel levies and sin taxes.

We can only hope that this money will be allocated where it’s needed most – education, job creation, and stabilising the power grid.

Yes, it’s a bleak picture, but we were in a similar situation in the early ‘90s and we pulled through. But if there’s one thing we’ve proven as South Africans, it’s that, when we apply our minds to something, we make it happen. And we can pull through again.

What we need – and what global investors will be listening out for in the Budget Speech – is a plan with concrete timelines, and a commitment from all stakeholders to execute it.

Crucially, they’ll want accountability, especially when it comes to struggling SOEs like Eskom and SAA. They’ll want confident communication that the government is doing everything possible to turn these businesses around, to escape a ratings downgrade.

That said, we can’t only rely on the government to make change happen. We all have a role to play, as individuals and businesses, to fix South Africa.

We should view the upcoming Budget Speech not as a harbinger of more bad news, but as an opportunity to engage on the economic policies and initiatives that are available to businesses to turn things around.

Look for the silver lining

The Employment Tax Incentive (ETI) and the Youth Employment Services programme are excellent initiatives aimed at creating employment and skills development opportunities for young people.

Yet few businesses take advantage, either because they’re not aware of them, they don’t want the extra administrative burden, or they don’t understand the compliance requirements.

The ETI and Youth Employment Services programme incentivise businesses to employ young people through a reduced PAYE bill and extra points towards their Broad-Based Black Economic Empowerment (B-BBEE) scores, respectively.

But the real motivation should be an opportunity to give back to their communities and to contribute to South Africa’s recovery by equipping the youth with the skills and knowledge to either start their own businesses or to make them immediately employable.

These are just two avenues that businesses can start using immediately to grow their operations and to reduce the unemployment rate.

They deserve ample airtime in the Budget Speech so that more businesses are made aware of the immediate value and long-term benefits.

Building business resilience

To survive tough economic times, businesses need to manage their finances better and invest in the things that will drive growth and profitability.

We’ve already discussed skills development as one such investment, but there are other things you can do to boost your business’s resilience, like:

  • Being cash smart. Find ways to make any spare cash work for you. If you’re in retail, for example, invest in a new product line that will boost your success. If you need to lend money or take out additional capital, think about how you’ll manage and repay your debt.
  • Appointing people who fit your culture. Find people who believe in your vision for your business and who have the right mindset to take your business forward. Look after your people, invest in their development, and ensure they’re equipped for regular change. Open the lines of communication, offer flexible ways of working, and encourage them to give back to their communities through corporate volunteer programmes.
  • Staying on top of compliance and automating processes. Cloud-based accounting software that evolves with your business can help you to stay on top of your finances and give you insights into your operations. By automating admin-heavy processes, it also frees up your time to focus on your people. With access to accurate, real-time information about your business, you’ll be able to monitor trends and do forecasting that will help you identify investment opportunities, stay profitable, and service your debt.
  • Taking risks. If you don’t test your limits, you’ll never know what’s possible. Take the leap of faith – there are so many positive, inspiring stories of entrepreneurs who have taken risks and reaped massive rewards.
  • Getting expert advice. Not sure where to start with any of this? Speak to a business analyst or your accountant to help you spot unnoticed opportunities or warning signs.

The cycle of forecasting, investing in your people and opportunities, increasing revenue and profits, and paying off debt is ultimately what will support business success.

The moment you step outside this circle, review your situation, make adjustments, and start moving again.

Standing still during tough times is not an option. Businesses need to keep adjusting, adapting, and taking as many people along for the ride as possible.

Click here to listen to the podcast.

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Budget 2020 will deliver a blow – Here’s how businesses can soften it