NEWSLETTER Nommer Number 1 van of 2004 A truly effective business plan One thing stands out in conversations with business advisors, consultants and their successful clients: Careful business planning is now needed more than ever. Successful people are intentional about their actions and only do things on purpose. Activity alone is not enough – value is only achieved by deliberate action. A well thought-out business plan can ensure that your actions are intentional and focused on clear aims. Therefore, the extent that you plan your own success can dramatically increase your chance to realise that success. In order to be truly effective, a business plan must do much more than simply describe you, your business and the future of your business. There are several steps you can take in creating your plan to ensure that it maximises your chances for success: 1. Make sure you've captured your vision. Your vision for your business is the basis of your business plan. It will guide all the decisions you make about the business, where you want to take it and how you want to get there. 2. Think of your business systematically. What systems and processes have you implemented to ensure that every client has the same high-quality experience, whether you are present or not? Great value is created in the business when you can delegate responsibility to your employees to deliver this outstanding experience. Keep it short and simple. For example, "I'll limit the number of products I produce, rather than trying to be all things to all people." 3. Fine-tune your marketing plan. Consider the demographics of your target market, how to market to prospects, how to monitor prospects and how to find out why key prospects buy. 4. Maintain flexibility. Recognise that there is not one right way to do business. What works today is unlikely to work tomorrow with the same results. Success requires constant innovation and finding a better way. 5. Involve your peers, employees and consultants. Great businesses have never been created by only one individual. Putting your business plan in writing and having it reviewed by other people who understand your industry can uncover blind spots that can be easily addressed. Encourage them to tear it apart and identify aspects not making sense. You're not vying for compliments, but to effect changes in logic or to find ways in which you can serve clients more effectively in order for the firm and your clients to be more successful. 6. Stay the course. Greater opportunities will present themselves as you reach towards the next level of success. Don't be tempted to constantly change your plan. If something doesn't fit your plan, discard it. Be consistent and specific. Be strategic, not tactical. By staying on track, working the plan and fine-tuning according to the new feedback the market provides, you will be well on your way to fulfill your dreams. Controlling computers in business: Backup systems Computers and systems have become part of the daily lives of all organisations. W here many of the benefits were previously only enjoyed from significant investment by large organisations, even the smallest of business now have access to these benefits. These benefits are however accompanied by certain risks. During the following five months, we will provide a series of articles aimed at assisting you to use, manage and control your computer system properly. The existence of suitable backup procedures is one of the most fundamental controls that all businesses, regardless of their size or the extent of their computer use, must implement. As we often find examples of inadequate procedures in this area, the first article in the series will address backup, archive and restore issues. Situations where files are lost can normally be easily resolved by reverting to backup copies of the lost files. Situations where a computer crashes or is stolen will require a disaster recovery plan. One of the basic requirements of any recovery plan is however the availability of adequate backups. If computer files have not been backed up, those files could be lost forever. Depending on the data lost, a business could suffer a number of serious consequences, potentially even the failure of the business itself. The types of costs that could be incurred in the event of a disaster where backups were not available include: Labour time to recreate programs or data; Orders lost while data is being recovered; Industrial completed; Lost production due to lack of systems or data; Penalty charges from customers, suppliers or banks due to inability to process information; action if payroll cannot be Loss of goodwill (customers, supplier, banks, staff); and Closure of business due to lost production/sales/goodwill. You will need to make a number of choices when designing a proper backup procedure, particularly: Frequency of backup (daily, every two days, weekly, etc.) Method of backup (should the process run manually or automatically, should all data be backed up or only changed and new data, etc.) Backup media used (diskettes, DVD, CD, disk arrays, tapes, etc.) As with any business decision, the development of a backup procedure should be accompanied by a thorough cost-benefit analysis. When you make the decision to buy, upgrade or outsource a computer system, you should include the costs of the backup process in your calculations. A wide variety of backup procedures are in use throughout the business world. Defining a procedure for your business should involve the identification and consideration of the costs and benefits of the different options available to you. Despite the costs involved, there is very rarely a situation where a decision not to introduce a suitable backup procedure, is justifiable. Very few computer users (businesses or individuals) can claim they have never lost data they would rather not have lost. The payment of bonuses Many organisations have adopted a practice of paying bonuses, often around year-end. There is however still significant uncertainty about the legal situation as far as the payment of bonuses is concerned. This situation is not alleviated by the fact that Labour Law is silent on the question of bonuses, therefore leaving the decision about the payment or non-payment of bonuses and the related negotiations with employees entirely up to the employer. It is imperative to scrutinise the contract of employment in this case. If the contract indicates that an employee will receive a 13th cheque, for example, the employer is obligated to pay the amount. The employee is therefore entitled to such a payment if it is stated in the contract of employment. If the contract does not stipulate anything in this regard, an employer who presently does not pay bonuses of any sort and prefers to continue in that manner, can do so, without fear of being accused of unfair labour practice. The exact legal situation will depend on the type of bonus. The following main categories of bonus payments can be distinguished: The 13th cheque or “Christmas Bonus” The performance bonus The production bonus It is extremely necessary that employees be informed at least six months in advance that the 13th cheque will not be paid that year. Some employers could argue that they don't know six months in advance that they will be unable to pay the bonus, but surely by mid-year they should have some idea of what the profits will be like at the end of the year. To suddenly advise employees as late as November or early December that no bonuses will be paid that year could result in a charge of unfair labour practice with respect to the provision of benefits, lodged at the CCMA. The employer must bear in mind that many employees include the amount of the bonus in their normal household budget during the holiday season, and that they depend on the bonus to pay for an annual holiday, Christmas presents, etc. To unexpectedly and at the last minute inform employees, that no bonusses will be paid that year is unfair, and should be avoided. Employers should examine and if necessary, revise their policy about the payment of the 13th cheque in order for this type of bonus to be only paid to those employees who genuinely performs well and go the extra mile. The performance bonusA performance bonus is normally paid for good performance, and should be calculated as a percentage of the employee’s salary or wages. A performance bonus can also be paid as a lump sum to a department and divided in equal amounts among the employees in the department. This would apply to a situation where all employees in a particular department are collectively responsible for above-average performance. The performance would be measured against predetermined company standards. The bonus would not only be paid for work that on occasion exceeds company standards, but for work consistently exceeding company standards. This means that line management, the shop foremen and even supervisors have to become more closely involved with the monitoring of performance on the shop floor and keeping comprehensive records. In a situation where the results achieved by a department depend entirely on the collective effort of all employees in the department, the amount of the bonus could be calculated on the basis of a The 13th cheque or Christmas bonus This bonus is normally classed as a gratuity - in other words, a payment of gratitude by the employer to the employee in recognition of a job well done, or if you like, going the extra mile. However, over the years most employees have come to expect the payment of the 13th Cheque as a right or entitlement, or as a condition of employment. This is evidenced by the fact that most applicants will ask "do you pay a 13th Cheque?" at job application interviews. In other words, they expect to be paid a 13th cheque irrespective of whether the job is well done or whether they have travelled the extra mile. They want the payment of a 13th cheque to be included as a condition of employment. It is therefore the responsibility of the employer to get things back onto a proper footing. Nowadays many employers have discarded the practice to pay a 13th cheque and have incorporated the amount into the employee’s basic salary. There may however come a time, when after a bad trading year,, despite having paid consistently for the last ten years, an employer is unable to pay a 13th cheque. percentage of profits achieved over and above what was budgeted for, or as a percentage of the total profits generated by the department and so on. Whatever the case, the method of calculation must be fair and equitable. and reduced rejection rate generating additional profits for the shareholders can only be the result of good management of a department, and a genuine interest of the employees in the job. Changing the bonus policy In the case of the employer who at present does not pay any bonuses, it is entirely up to the employer to decide whether he wishes to do so or not. However the situation is slightly different in the case of the employer who at present pays bonuses. Employees have become accustomed to expecting the payment of the bonus as a right or entitlement. Therefore, those employers who wish to change the status quo with regard to the payment of bonuses, either by paying less, or by paying at a different time of the year than previously, or by dividing an annual bonus into two separate payments, will have to consult employees, explain the problems, and try to convince them to accept the new system. Employers must remember that such changes do constitute a change to the employees terms and conditions of employment, and as this cannot be done unilaterally – changes should be negotiated with the employees. The bottom line is that if employees refuse to accept the change and even if all employees do not agree to it, the employer can proceed and effect the change after negotiations if s/he has good, sound and reasonable commercial rationale for making the change. This however does not mean that a few disgruntled employees will not proceed with a claim of unfair labour practice, but such a problem will not be insurmountable. In summary, be fair and be equitable. Advise your employees in advance if there will be a problem with the payment of bonuses or if there will be a change from the established payment procedures. The production bonus The production bonus is based, not on performance measured against company standards, but rather on production measured against targets. Measurement is also based on quality of production. In other words if the company has set a target for one particular employee or, for that matter, for a particular department to produce 100 widgets per hour, and the employee or department consistently produce 130 widgets per hour, then a production bonus would be justified. Similarly, if the company rule is that a rejection rate of 5 percent is acceptable, but the department consistently achieves a rejection rate of only 1%, then a production bonus would be in order. It must be acknowledged that additional production Deduction of Professional Subscriptions Employees could previously deduct a range of deductions such as entertainment and certain other expenses in their personal tax returns. The Minister of Finance announced in the 2002 Budget that the deductions available to employees would be dramatically curtailed with effect from 1 March 2002. Previously, members of a professional body such as the South African Institute of Chartered Accountants, where their employer did not reimburse the cost of membership, would claim the cost as a deduction. This will no longer be possible in accordance with the provisions introduced by way of section 23(m) of the Income Tax Act. Said section prohibits as a deduction, any amounts incurred by a person receiving a salary other than contributions to a pension or retirement annuity fund, any wear and tear relating to assets used by a person in his/her employment, legal fees incurred in recovering income, or deductions available for bad or doubtful debts where his/her employer goes insolvent and s/he is unable to recover his/her salary. The section also allows amounts of premiums paid which covers the person against the loss of income as a result of illness, injury, disability or unemployment and in respect of which amounts payable under the policy will constitute income, as a deduction. It is therefore advisable for professional persons in employment to ensure that their employer is contractually obliged to pay for their subscriptions to the professional body to which they belong. Failure to do so would mean that either the employee will not be entitled to claim the deduction or in the event that the employer merely reimburses the amount without being contractually obliged, a fringe benefit fully liable to income tax will Interest on late payment of tax Following the decrease in the Reserve Bank repo rate in October 2003, the Minister of Finance approved that the PFMA rate be reduced from 13% to 11,5% with effect from 1 December 2003. The new rates will therefore be applied from 1 December 2003 are as follows: Interest charged by SARS on outstanding taxes, duties and levies is equal to 11,5%; Interest on refunds of any overpayment of provisional tax is equal to 7,5%; and Interest on refunds in respect of certain successful tax appeals as well as certain delayed VAT refunds, is equal to 11,5%.