Great business idea

You have to give credit to the founders of South Africa’s first online investment advice portal, InvestOnline.co.za. Rod Lowe and Nick Brummer spent almost two years automating the advice process for clients who are interested in making a unit trust investment. It’s a great business idea that could provide them with a nice passive income. At the same time they could potentially provide a much needed low-cost service to online investors who have already decided to invest in unit trusts, but just need help deciding between hundreds of portfolios (a.k.a. funds) out there.

Low cost advice

Commission-remunerated financial planners usually charge between 1% and 5% up-front and between 0.5% and 1% per annum for advice. InvestOnline.co.za guides investors through the decision-making process at zero up-front costs – charging only an annual fee of 0.57%.

Simple site lay-out

I played around on the website and found it relatively easy to navigate and the technicalities of unit trusts well explained. Unfortunately, as is often the case, with simplification important intricacies are ignored – to the investor’s detriment.

What about taxation?

Because InvestOnline.co.za considers only unit trust products, clients are not informed about other options that could save them a significant amount of tax, for example retirement annuities and endowment policies (for high net worth clients). But even within the unit trust range no mention is made of tax-efficient options, for example funds composed of preferential shares or funds which perform similarly to cash but without the high income tax associated with large sums of interest income. While I appreciate that tax advice is complicated and difficult to automate, I expect an online advice portal to at least flag high-tax paying investors and recommend that they speak to the founders in person about tax-efficient investment options.

The limitations of a risk profiler

With the first test-run of the risk profiler, I answered the questions with myself in mind and was not surprised to see that I’m classified as an aggressive investor – spot on. But when I tried it again, simulating how my semi-retired mother would have answered the questions, I suddenly became concerned. I told the profiler that I’m 65 and absolutely do not want to lose capital, that I may need to draw an income from the product within three to five years and that I have never invested in shares and definitely would not be comfortable trying them now. The profiler told ‘my mother’ that she has a moderate risk profile and recommended a medley of balanced funds (which may all invest up to 75% in shares). This is the same person who phoned me after the 2008 market crash and asked if we shouldn’t perhaps cash in her unit trust, because she hears there’s trouble in the financial markets. (Fortunately, she was invested in a super low-risk protected equity unit trust and suffered only a very brief and minor capital loss). Imagine her reaction if she was invested in a mix of balanced funds at the end of 2008. Who at InvestOnline.co.za manages clients’ expectations and reminds them of their investment strategies when panic sets in?

A great initiative, but perhaps the owners should have spent just a little more time testing their advice process with real-life users before going live.

South Africans registered as provisional taxpayers need to make their second payment for this tax year no later than 26 February 2010. MoreThanMoney has created a spreadsheet to help you calculate which figures to fill in on your provisional tax form (IRP6).

What would you need before you can start using this calculator?

You will need your payslips, invoices, proof of business expenses, bank accounts and investment statements, details about medical expenses, a list of all your RA contributions, a list of all your donations to Section 18(A) charities, a log book for your business travel expenses, and details of capital gains transactions, where applicable.

If you are going to deduct medical expenses, retirement fund contributions and donations, you will also need a SARS 2009/2010 tax pocket guide which states the limits to these expenses that you are allowed to deduct for tax-purposes.

How does the calculator work?

Click on the Input sheet tab at the bottom of the spreadsheet and then complete all the fields in green. Take special care wherever the tool asks for allowable deductions. You may have to familiarise yourself with the SARS 2009/2010 tax pocket guide to determine how much you are allowed to deduct for medical expenses, retirement fund contributions and donations.

If you have sold any non-personal assets, e.g. your primary residence, investment property or other investments, you can calculate your capital gain by using another MoreThanMoney tool called Calculating the CGT for your IRP6 2009/10.

Once you’ve entered all the relevant information on this sheet, click on the Result tab at the bottom of the spreadsheet. If applicable, you may still need to enter the amount paid to SARS for the first half of the tax year, as well as any penalties imposed by SARS, before arriving at the final amount payable by 26 February 2010.

What do you need to watch out for when using the calculator?

This tool does not automatically limit your medical expenses, retirement fund contributions and donations to the maximum amounts that SARS will allow you do deduct. You need to find out which limits apply to you and adjust the amounts that you enter on the spreadsheet accordingly. Someone who takes care of a disabled person, for example, is allowed more medical deductions than an individual who is the sole beneficiary of his or her medical aid membership.

For whom does the calculator not cater?

To keep it simple, this tool assumes that you have no business losses which you need to/want to ring-fence, i.e. carry over to future tax years, and that your foreign interest and dividends are less than R3500. Oh, and it also assumes that you are single or married out of community of property and not a legal body like a trust or a close corporation.

Disclaimer

MoreThanMoney unfortunately cannot take into account every taxpayer’s unique situation and can therefore not take responsibility for tax issues not covered by the calculator. MoreThanMoney does not take any responsibility for losses suffered due to the use of its calculators.

What do bottomless coffee, a public love affair and a digital camera in the bathroom have in common? They are all examples of the type of low-cost strategies that Mike Said uses to step up sales.

Mike was the one who introduced the idea of bottomless coffee to a well-known South African franchise. “It’s not how much value you add, but how much value you are perceived to add,” he believes. It costs only a few cents to provide customers with top-ups, but coffee addicts feel like they’ve entered nirvana. “It may seem crazy for a coffee shop to give its coffee away, but while the customers are sitting at your tables, they see waiters carrying delicious plates of food past them. And those dishes are yours, not your competitor’s.”

Also, don’t underestimate the power of intrigue. While owning a restaurant in George, Mike started running a small ad in the classifieds, reading Would you like to meet me for dinner at Mike’s on Friday night 8pm? Dave And a week later, Thanks, Cindy, that was incredible. Shall we do the same this coming week-end? Mike’s again. It wasn’t long before he had customers asking him about the ‘affair’ and whether the couple was indeed in the restaurant that night.

It is crucial to adjust your marketing strategy to your market, though. The patrons of a coffee shop seek a very different experience from the clients of a plumber, for example. Few people know what their home’s plumbing actually looks like or are at home while the plumber is fixing it. It’s therefore often difficult for them to tell whether the amount of value added justifies the size of their bill. For these types of service providers Mike recommends documenting the work procedure with a digital camera and including a few photographs with the invoice.

And above all, Mike reminds all small businesses that customers happily hand over their money to those who can make them feel happy.

Does it sometimes feel like you’ve earned less on your investment than the figures quoted by the insurer or the investment company? Chances are good that – from your viewpoint and using the calculation methodology that you’re familiar with – you did actually earn a different rate from the published return.

Are the investment companies cheating? No. In more mature industries (like ours) performance reporting is standardised and well audited. But in order to publish standardised figures, they can’t reflect the idiosyncrasies due to the fact that investors:

• time their contributions and withdrawals diffrently;
• negotiate different types of intermediary fees with their planners.

When they publish a 5-year return, for example, they’re assuming you invested a lump sum on the first day of the period they’re measuring, that you remained fully invested over the five years, and that you didn’t sign a debit order or added to your investment on an ad hoc basis. Also, they look at the incoming investment money from their viewpoint. In other words, if you invested R100 000, of which R2 000 was commission, you’ve only invested R98 000 on their books.

More relevant to you, and also the more accurate measure – catering for every investor’s unique scenario – is the actual annualised return a.k.a. the internal rate of return (IRR) on your cash flows. This methodology looks at all your cashflows and then determines what annualised effective interest rate a zero-cost bank account had to pay on your contributions to leave you with the same investment balance as the insurer or investment company’s pay-out at the end of your investment term.

Want to calculate the IRR on your investment but don’t know how? Don’t worry, our What Did I Actually Earn? calculator will do it for you.

Interest rates are low by South African standards, and investors with spare capital or borrowing power may be tempted to dive straight into the buy-to-let property market. Because you can’t go wrong with property, right?

It is to test sweeping statements like the above, that we’ve designed the Return on Property calculator to work out the expected long-term returns on your investment under different assumptions. This tool allows you to choose the bond rate, increase in rental income, increase in property maintenance costs and capital growth on your property that you think is realistic.

If you need help to complete the second input field of the calculator, relating to transfer and bond registration fees, you can download the The Real Price of a Property tool for a good estimate of up-front costs.

Just remember that the Return on Property calculator does not account for your unique tax situation.

Happy investing.

When I just started working, I was amazed at how so many of my colleagues could bend their knees under the weight of a boulder of a bond just to own a home. The few of us who rented definitely had more spare cash to enjoy every month. Until someone pointed out (what should have been obvious) to me what happens to your rent at the start of every year and continues to do so for the rest of your life, while your home loan instalment stays fairly stable for 20 years and then disappears.

Our Renting or Buying a Home calculator illustrates this point. Yes, we’re not comparing apples with apples here, as rent is an expense with no reward other than a roof over your head for a month, while your bond repayment is an expense linked to the reward of owning a property somewhere in the future. But the calculator can show you instantly:

• how your rent will increase over the years
• the instalment on a bond amount that’s appropriate to your level of income
• the up-front costs associated with a property purchase

(If you don’t want to purchase such an expensive property as the amount for which the calculator shows your income may qualify, our The real price of property calculator allows you to enter your own amounts for the price of the property and the amount of the bond that needs to be registered.)

Many disciplined investors don’t buy the ‘as safe as houses’ investment adage, though. They prefer to rent for the rest of their lives (or until they have saved up a large enough deposit) and invest the amount by which a bond instalment exceeds the rent that they are paying.

If you download the Renting or Buying a Home calculator, you’ll see it will take approximately 12 years before inflation causes rent of R4 000 per month to catch up with a bond instalment on that same property worth, say, R940 000 (Cape Town prices). That’s assuming that the bond applicant earned R30 000 p.m. to qualify for a 100% home loan at the bond rate of 10%, and that rent increases by 7% per year.

In the scenario above, the tenant investor will therefore have excess money to invest over 12 years. By ‘excess’ we mean the difference between what her bond repayments would have been and the rent she actually paid. If she invested all the money that she saved by not buying a property, including the up-front costs related to the property transfer and bond registration, and that investment yielded 11% per year after tax, she can expect her investment amount to be worth more than R1.1 million after 12 years.

But there are other expenses which the calculator does not show. Tenants normally do not have to pay maintenance and rates and taxes, which could be substantial. Let’s assume these additional ‘homeowner costs’ start at R20 000 per year and increase by inflation of 6% per year. Because our disciplined tenant investor did not have these expenses, she could have invested these amounts in the same place where she earned 11% per year after tax, and these accumulated amounts would have been worth approximately R600 000 after 12 years. That leaves her with a total investment lump sum of about R1.7 million after 12 years of renting and diligently investing all the money that she saved by not having to pay bond instalments, the up-front fees of a property purchase, rates and taxes or maintenance.

It may look as if tenants have a point – until you look at what a home owner’s property may be worth after 12 years. If we assume that the capital value of property grows at 7% per year, the R940 000 property should be worth just over R2.1 million after 12 years.

This is a very specific scenario, and by changing a few assumptions or by choosing a very specific investment term, we could make either the tenant or the homeowner look like the cleverer of the two. The important points to remember are:

• Think long-term when you make a financial decision.
• Understand all the risks and future expenses associated with your decision.
• Don’t underestimate the power of either inflation or compounded investment returns.
• Be careful of sweeping statement. Do the calculations.

  

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Last year almost one million taxpayers did not submit a tax return because they earned less than R120 000 during the year. While many of these employees rightly rejoiced in the fact that they may stay below SARS’s radar, others sadly missed out on a welcome cash-back from the taxman. How can this be?

Employees who earn less than R120 000 per year, have a single employer, pay PAYE and have no additional income or deductions other than those on their tax certificates, do not have to submit a return. Unfortunately, many taxpayers are not aware that they have tax-deductible expenses that do not appear on their certificates. By not filing a return, they never inform SARS of the additional deductions and miss their refund. Their employers, unknowingly, have paid more tax on the employees’ behalf than was necessary.

There are many deductions that are outside the employer’s field of vision, but the most relevant ones are private retirement fund contributions, donations and medical expenses.

If the employer is unaware that the employee is contributing to his own retirement annuity (RA), for example, the deductible portion of the RA premium would not appear on the employer’s tax certificate. The deductible amount varies, depending on the size of the employeeís salary, and whether he’s also contributing to an employer fund, but the employee should be able to deduct at least R1 750 of his RA premium from his taxable income.

Donations to public benefit organisations (section 18A) can also be deducted, up to an annual limit. Many schools and churches are registered as section 18A organisations – you may be surprised at how the taxman rewards your generosity towards these institutions.

Wishing you something back at the end of this filing season!

I don’t know a single person who doesn’t enjoy getting something back from the taxman at the end of the year. But some prefer to stay as far below the taxman’s radar as possible – by not registering as tax payers or by not submitting a tax return. If you are one of these, you could be shooting yourself in the foot and robbing your own household of extra cash in the bank. Let’s look at a few scenarios where registering as a taxpayer or submitting a tax return could benefit either the household and/or the taxpayer.

In the first scenario a spouse is employed by the husband or wife’s business. The husband may be officially retired according to SARS’s records, but in reality receiving a salary – off the record – from the cash earnings of his wife’s business for administrating or supervising part of the business. The husband doesn’t want the hassle of submitting a tax return every year and has convinced his wife, the owner of the business, to not disclose his salary to SARS. Other than the fact that the non-disclosure of income is an illegal action, the husband could also be robbing his own household of after-tax earnings. In which circumstances would this be the case?

If the husband’s salary is disclosed in the business’s books, the business would be entitled to deduct that salary from its income, which results in a lower taxable income and less tax payable by the business every year. Even if the employee spouse now has to pay tax, that amount would be exceeded by the tax saving of the employer spouse in all circumstances where the employee spouse’s tax rate is lower than the employer spouse’s tax rate. The household (the employer and employee as a combined entity) will therefore be left with more after-tax income by disclosing the salary.

There are a few administrative hassles, though. In the scenario above, the wife would have to register with Revenue as the employer of the husband and contribute 1% of his salary to UIF every month and the husband will also sacrifice 1% of his salary (capped at R125 per month) to UIF. If the salary exceeds the 2009/2010 tax thresholds (R54 200 for persons under the age of 65 and R84 200 for those above 65) the wife would also have to deduct PAYE and/or SITE from the salary. If the husband earns less than these thresholds, he would not have to be registered as a taxpayer with SARS, but the business still enjoys the tax relief of deducting his salary from its taxable income.

To prevent businesses from abusing the potential tax relief associated with employing spouses, the Income Tax Act stipulates that only the payment for services by a spouse that truly contributes to the trading income of the business may be deducted as business expenses. The Act also specifically prohibits the deduction of any domestic or private expenses. In the scenario above, it would therefore not be possible for the wife to deduct payment to the husband for moving the lawn of their private residence or for managing their household chores. Excessive salaries will also raise a flag with SARS. If you pay your spouse a salary that is higher than the going rate in the market for similar services, SARS may disallow that business deduction.

But if you are truly employed by the business and paid a market-related salary, disclosing your income could be a relatively easy and painless way to leave you, as a couple, with significantly more after-tax income at the end of the year.

On 31 August 2009 trading starts for the fifth Make a Million competition. Last year, instead of buying actual shares for their competition portfolios, entrants had to buy single stock futures (SSFs) for the first time – a slightly more complicated and riskier game.

Buying an SSF does not mean buying the share; it means buying exposure to the share price movement. Because you don’t have to deposit the full value of the shares you’re interested in, a little money can go a long way – or really burn you if the price moves in the opposite direction than you thought it would!

How does an SSF work? You normally deposit about 15% (called margin deposit) of the amount that the shares would have cost you, but enjoy full exposure to the share movement. For example, if the shares are worth R10 000 when you buy your SSF contract and the share price subsequently increases by 10% (R1 000), your 15% (R1 500) margin deposit will yield a R1 000 profit – a return of 67%. But if the share price falls by 15%, for example, you lose your entire margin deposit – a negative return of 100%. If you need more examples, have look at my previous blog on how an SSF works.

How does buying SSFs differ from building a long-term, traditional share portfolio? With an SSF account:

• You could lose more than your capital when the share price falls quite sharply. (You may want to set up a stop-loss with your position to prevent this from happening.)
• You could leverage your profits, as you need to deposit only a fraction of the value of the underlying shares.
• You are usually less concerned with the business fundamentals of a company, as you could have lost either your margin deposit or your patience long before you see the true value of the company reflected in its share price. SSFs are more suitable to share traders than long-term investors.
• It’s easier to short a share. (Shorting is selling a share that you don’t own with the idea of buying it later at a lower price and making a profit.) If you believe that the share price is going to fall, you can just instruct your broker that the SSF contract is a short position.
• You generally pay lower brokerage.

And how does playing the Make a Million competition differ from holding a normal SSF account with a broker? Well, in exchange for standing a chance to win that million, you need to put up with a few restrictions:

• You can only deposit R10 000 per competition entry, of which R9 000 is used as your margin deposit and the remaining R1 000 acts as an additional buffer which earns interest. Nothing stops you from opening several accounts, though.
• Unlike a normal SSF account, you cannot deposit extra funds into a Make a Million account. When you have lost your margin deposit due to the share price falling, you are out of the game.
• You cannot keep your position open after the last day of the competition. Before the close of trading on 13 November 2009, you need to have only cash and no more share exposure in your Make a Million account. With a normal SSF account you could continue your exposure for as long as you please and just roll the 3-month contract over from one quarter to the next.

SSFs are great instruments for those stock market players who want to gear up their capital seven-fold and don’t mind losing that capital when they make the wrong call.

In less than a year, South African banks have dropped their prime lending rate from 15.5% to 10.5%. Under normal circumstances, one could expect some exuberance among consumers, but not this time round. Business confidence is low and consumers have witnessed retrenchments, property and equity markets losing much of the value that they’ve built up over the past years, and credit becoming scarce almost overnight.

Businesses would love you to channel the extra money left in your pocket after the bond rate cuts towards their cash registers, but should you not rather channel it towards your own bond repayments? Conventional wisdom screams ‘yes’ to the latter. And if you use our Killing your bond calculator, you may be pleasantly surprised at how big a difference even an extra R1 000 per month could make to your remaining bond term. If, for example, you still owe R500 000 on your bond and need to pay the bank R5 400 every month, depositing an extra R1 000 with every payment should decrease your repayment term by six years.

But settling home loan debt first is not necessarily the right answer for everyone. Running into cash flow problems is the cause of many foolish financial decisions, like selling fixed assets at the worst time in the market or applying for personal loans at much higher interest rates than the average home loan rate. Therefore first set up your own emergency fund – a high interest earning money market account containing about three times your monthly cost of living – for those times when the going may get tough. Owners of business start-ups or businesses still struggling with their cash flow, may want to build up an even larger cash buffer.

There are also ways of spending your extra money that could provide you with a much higher return than the interest on your bond. Enrolling for a course that increases your annual earning potential is one example of such a high-return investment. It seems like the average MBA graduate, for example, can expect his or her tuition fees back in the first year after studying – in the form of a much higher salary.

But these higher-yield investments seldom guarantee their returns, while you can be pretty certain that putting extra money into your bond will decrease your repayment term and will have the same effect on your pocket as earning interest at your bond rate. Without having to pay tax on it.

I don’t recall the exact moment that it happened, but I know that before the end of our first week of camping under the plane trees, watching the sun set over the river and the medieval city wall of Avignon, Provence had me under her spell. Though previous visits to street-savvy Paris, snowy Chamonix and serene Mont St. Michel proved that other regions in France also have their charm, the South has been luring me back like a homing pigeon since that first visit in 2001.

How can you enjoy the best of Provence without breaking the bank?

Start by choosing a quieter time of the year for your holiday. This year, in a momentary lapse of reason, we travelled in the middle of the French school holidays (normally running from the week-end closest to Bastille Day until the end of August). Bad idea. Not only is accommodation significantly more expensive, but you also have to contend with thousands of camper vans, cyclists and irate French drivers for roads that surely could only have been intended for two placid horses passing. Rather go during the six weeks of early summer (from 1 June to 14 July) or during early but still sunny autumn (September).

Try and book your flights more than five months in advance to get the early bird prices, or alternatively search for last-minute special offers. Check which airline is the cheapest by using a flight comparison website like travelstart.co.za. If you are flexible about your travelling dates, Travelstart searches the days around your specified dates for the cheapest fares. For example, the best deal for a return ticket from Johannesburg to Marseille in June 2010, all taxes included, is currently quoted at slightly over R8 000. If you prefer to take the train from Paris to Provence, the best quote for a return flight from Johannesburg to Paris during June next year is currently under R6 000. A return train ticket for two from Paris to Aix-en-Provence, for example, in the best price (not flexible) 2nd class retails for R1 662 (price for two people travelling together).

After years of struggling to navigate the official French railway site in French, I’m very happy to now see Raileurope.co.za not only quoting ticket and rail pass prices in South African rand, but also providing online tips on how to travel cheaper through France. I just wish I’d found out sooner about the discounts when you buy tickets in groups of two or more people (called Saver tickets), as opposed to solo travelling. I would have made friends right there in the queue with travellers to the same destination!

Whether you would need a car, depends where in Provence you’re going and what you’d like to do and see. Holidayautos.com is one of many sites comparing quotes from different car rental companies to find you the best price. But watch out. They – like their competitors – raise the prices every time you re-request a quote. It’s therefore best to use someone else’s computer to just browse for quotes and then make the final booking on your own computer. You can prepare to pay between R2 500 and R3 000 for seven days’ car rental. Remember to add diesel and toll fees to your budget, although a good French road map can help you to avoid toll roads and stay on the more scenic routes.

What about accommodation? If you own a comfortable home in a sought-after part of South Africa, home exchange is something to consider. Camping is also very popular in France and if you’re a nature lover you may find it difficult to choose between the many well-kept sites along the rivers. Tranquil Camping Bagatelle on the opposite side of the river from bustling Avignon remains one of my favourites – and they charge about 10 euro per night for two people sharing a tent. But if you’ll be more than two people travelling together or you prefer home comforts, and you want to stay in one area for a week or longer, you’d probably be better off renting a holiday home. This year I used Holidaylettings.co.uk and found a particularly good deal – a 3-bedroom, 2-bathroom home just south of Avignon for only 90 euro per night (if you don’t mind bringing your own linen and towels).

Good food and wine is probably one of the top reasons for going to France in the first place. But exceptional night-time dining does not come cheap and if you’re on a budget, you may want to restrict yourself to only a few such outings during your trip. Lunch time is different, though. Even top-end restaurants have a set 3-course menu at heavily discounted prices, and often a glass of wine and a shot of espresso are included in the fixed price. And don’t miss out on the French custom of buying fresh fruit, vegetables, cheese, tapenade, saucisson and warm just-baked bread at a different market every morning.

The good news is that many great Provencal activities – hiking, swimming in the lakes of the Verdon, strolling along the cobble-stoned medieval streets, admiring the French sense of style in towns like Avignon and Aix-en-Provence, or playing boules late afternoon – are free. You’d probably find that, once you’re there and your accommodation is paid for, you don’t need much more than 50 euro per person per day. Bonnes vacances!

We all start out as Innocents, believing that everyone we meet have our best interests at heart. Before we even reach our teens, most of us have been disappointed way too often to remain that naïve. Not the die-hard Innocents, though.

Some adult Innocents may have lived very sheltered lives, delaying their disillusionment. But the majority prefer to maintain the illusion of a protected world, in which they don’t have to make an effort to financially educate themselves and where they simply outsource most financial decisions to either a spouse or a team of professionals.

Unfortunately, perhaps because of the large sums of money channelled towards it, the financial industry attracts more than its fair share of charlatans. Becoming one of the victims of yet another swindler, buying a product with more insurance or a longer investment term than you need, or paying too much commission are only a few examples of the high cost of remaining financially naïve.

On the other hand, the trust that Innocents place in people could also be a virtue. When they choose the people who work for them carefully, this trust will bring out the best in their counsellors and employees. Unfortunately, the unscrupulous can often only be kept in check by Warrior personalities. Innocents will therefore naturally be drawn to partnerships with Warriors, but it is only when they have developed the complementary Warrior-side of themselves, in conjunction with educating themselves financially, that they sport sufficient armour to face most financial battles.

PS: Innocents often also believe that the world is a meritocracy. In other words, as long as they work hard and produce good work, they will be rewarded. Unfortunately, this doesn’t always ring true. In a salaried environment, their relationships with their immediate managers, how well they fit into the company culture, whether the company rewards shareholders rather than workers and their negotiation skills all determine whether they are sufficiently rewarded for their efforts.

Always on the fringes, operating outside the ruling capitalist system, stands the Outsider. The Outsider has a negative perception of the type of work and working conditions that society rewards and therefore wants no part of it. She is often artistic or produces work that is appreciated by a very small niche market. At the extreme, she doesn’t really care whether anyone appreciates her talents and will reward them, because it’s her life and she spends every day as she pleases.

No wonder money is not exactly flying into the Outsider’s bank account.

The Outsider is at heart a child rebelling against the reality of a world in which none of us is completely self-sustaining and would always need to exchange our skills and talents for the goods and services of others. She may think that, by being ‘true to herself’, she will escape the stereotypical movie-version midlife crisis of the corporate executive who has spent his entire adult life doing work he despises to build up material wealth and please others. The Outsider does not realise that her midlife questions may eventually look like this: What if I really made an effort to find fulfilling work that also paid well? What would it have been like to be financially successful and secure at my age? Have I been avoiding the real world and its battles? Does my courage as a non-conformist have a shadow, namely the cowardly avoidance of a challenging and competitive professional life?

The Outsider is caught up in a false dilemma, a belief that her work has to be either fully commercialised or completely authentic. Dividing her time optimally between paying clients or commissioned work, and ‘own time’ to play and create is the key to the Outsider’s financial and emotional well-being.

Warrior-like qualities are essential for the day-to-day battles of protecting you and your family against a wide array of undesirables: from external forces like swindlers, spongers and unscrupulous sales people to internal forces like despair and inertia.

It is also no coincidence that so many leading business people attribute at least some of their success to the principles set out in Sun Tzu‘s The Art of War. The more competitive the industry, the more necessary it becomes to approach business strategy as warfare. Or that has been the thinking in the West, probably since the Industrial Revolution.

But the world is re-discovering cooperative behaviour, most notably by developing a plethora of free technology and by sharing knowledge on the web.

While there is a time and a place for fighting your battles, Warrior behaviour becomes debilitating when one start to see every interaction as potentially hostile or as a competition.

How could this affect the pocket? Because the Warrior tends to think in terms of ‘us’ and ‘them’, he struggles to collaborate and therefore misses out on synergies, such as increased revenue through cross-selling, the sharing of resources and the creation of economies of scale.

Picked up the battle axe one time too many? Then you may find Dr Buffington’s ten tips for honing your collaborative skills useful.

Like the Rescuer, the Victim also suffers from poor self-esteem. While Rescuers feel that helping others maintain their superiority, Victims use their perceived helplessness and the accompanying guilt trips to gain and maintain control over others.

The Victim can be the child who grew up under disadvantaged circumstances, the mother who has sacrificed her career to raise her kids, the serial unemployed who doesn’t understand why he always ends up with an ‘impossible’ manager, or the family member or friend who earns less than the rest of the group and constantly needs to be ‘bailed out’ financially. It can be anyone who believes that the world owes him because of his background, bad luck or the sacrifices he has made.

Because she perceives herself as helpless, the Victim often suffers from financial paralysis. It is as if she just can’t bring herself to take the necessary action, be that to obtain the right qualifications, negotiate harder when it comes to salary discussions, or gain more and better-paying clients for herself. Instead, she waits for good fortune and a Rescuer to improve her financial circumstances.

Often the Victim’s friends and family recognise the pattern long before the Victim does. But if you are reflective enough to recognise your own behaviour for what it is, how do you break out of your Victim pattern? Start by working on your self-esteem. If you can’t afford therapy, at least become familiar with a few ego re-training programmes, like the one suggested in Jurriaan Plesman’s free online book, Getting off the hook (from page 36). Practise assertion every day. Develop your talents and find a way to express yourself creatively. Creating something from nothing does wonders for the self image.

Explore your beliefs that someone must first suffer before he is worthy of affection and happiness. Where does this come from?

Realise that, as an adult, you carry full responsibility for your own wellbeing. By sending others on a guilt trip, you are abdicating not only your responsibility, but also your autonomy over your own life.

Occasionally someone will ask why my website is called ‘MoreThanMoney’. Well, I guess I wished for content that has a little bit more soul than your average financial publication. And for visitors whose lives have always been about more than money, but who now, out of necessity or as part of their personal growth, have to learn how this financial industry of ours works.

Also, money may be just a commodity, a unit of exchange. But the way we earn it, use it, lose it, spend or save it, love it, hate it, or fear it tells us more about what we believe about this world and our role in it, than we would perhaps want to reveal.

While our beliefs don’t change overnight, our roles can vary from one situation to another, covering a colourful spectrum of personae – all in just one day. And this is the way it should be. Play the part which the situation calls for. Unfortunately, we sometimes take on roles that are not only unasked for under the circumstances, but which become debilitating over the long run and also counterproductive. What are the different roles, how do they affect your finances and how can you break a destructive pattern? Let’s start with the Rescuer.

While I’m relieved to live in a world where friends, family and even strangers still lend a hand, Rescuers have made helping out, fixing problems and protecting the helpless their primary reason for existing. If there is no crisis, no poor, sick or sad around, they feel pretty restless and useless.

Yes, some guilt around ‘having things easy’ may motivate Rescuers. However, it is more likely that they are motivated by a deep desire to have their own needs fulfilled, but they have too little self-esteem to ask directly for what they want. Rescuing others boosts their self-esteem. Also, by helping others, they hope that some of what they’re giving will return to them.

Being a Rescuer makes it very difficult to build wealth and just enjoy the rewards of hard work and wise investments. Whenever someone who appears worse off than themselves enters their lives, Rescuers feel guilty if they don’t channel time and money towards that person. Rescuers are easily exploitable. But even worse, they sometimes actively scan the social landscape for signs of any helpless creature that could feed their hero complex. Unfortunately, often their need to be needed does not only prevent themselves from getting ahead financially, but also prevent those being rescued from fighting their own battles in the future.

Don’t get me wrong, being there for friends and family in times of crisis is a virtue. But secretly rejoicing in every opportunity to support someone or save the day probably signals that you may have become a little too attached to your superhero suit.

How do you break the Rescuer pattern? Diane Zimberoff suggests that you become honest about your own needs and take the first step of telling people what you want most from them. Part of this is examining your own discomfort with receiving. Secondly, you would need to establish a new habit of deciding what kind of assistance would really help someone over the long term. Realise that you are only there to support someone while they solve their own problems. Thirdly, if you’ve been caught in the Rescuer role for quite a while, you may have feelings of anger and resentment. Why are you always helping out, but no one seems to care about your needs? If these feelings are not addressed, you could easily switch to the complementary role: that of the long-suffering Victim.

‘How do you sell your way out of tough times?’ Bill Gibson shared his golden rules for selling at Nedbank’s Small Business seminar earlier this month. I add my thoughts on each of Bill’s rules.

Increase the number of right people that you contact. To me this would mean ranking potential clients according to the following criteria:

• How well your business offering fits their needs
• How big a portion of your net profit may come from that client
• Their payment record – if you deliver your products or services on credit. The bigger debtor the client will be on your books, the more important checking their credit record becomes.

Call potential clients more often and be well prepared for each call. Bill cites the National Dry Good Association of America survey, which found that the people who make more than three calls to potential clients are responsible for 80% of all sales. But I think there’s a very fine line between cheeky, but charming, and pushy and off-putting. Being able to read body language and tone of voice is crucial. And if your business is predominantly relationship-based, you have to be extra careful not to make a nuisance of yourself.

Increase the number of people selling. Remember, it’s not only your sales team that’s selling your products and services. Make sure all your employees know the basics of your product range and are enthusiastic about your offering. And if there are related, but not directly competing businesses around who could refer some of their clients to you, create incentives for these business to lead more clients to your door.

Increase your deal closing ratio. Bill has several techniques up his sleeve. Some of them are quite cheeky, in my opinion, but when used on the right customer, they will seal the deal. You could, for example, use the ‘assumed’ close, where you ask the customer what day would suit him best for the delivery before he’s even agreed to purchase your product. Or try the ‘puppy dog’ close, where you allow customers to take your product home and try it out before they buy.

Increase the average size of your individual sales. Try add-ons, e.g. “Hope you enjoy your new notebook. Do you have something to carry it in? Have you seen our bags and cases?” Or up-selling: “Hmmm, from what you’re telling me, the 1G package may suit you better. You may run out of bandwidth with the 500MB contract.”

Increase how often a client buys. Although not appropriate for all businesses, knowing your client very well usually enables you to sell to them more often. I have a friend who, unlike us mere mortals, buys most of her clothes at exclusive boutiques. She favours one particular designer, who phones her up every time he notices something in the new ready-to-wear range that suits her taste. She seldom leaves his shop without at least one purchase.

I’ve been uneasy ever since that phone call from an attorney claiming that I owe my previous gym a few thousand rand. It was easy to prove that it was an error and we quickly resolved the matter. But what else is lurking on my credit record that I’m oblivious to? Not knowing your credit status could waste precious time when your loan or new account application is rejected because of a poor payment history. It could take several months to clear your name.

Fortunately, there are no more excuses to be in the dark about your credit risk rating. It will take you a few minutes to register as a member on Experian’s www.creditexpert.co.za and after receiving your PIN via email, you can obtain your credit summary online for free. If you need a more comprehensive credit report, you simply fax them proof of identification, as well as proof of residential address. As a registered member, you are entitled to one free report per year.

What do you do if your record reveals long overdue debt? Firstly, if you’re in the wrong, settle it as soon as financially possible. If you believe there’s been a mistake, gather all documents that you believe will prove your innocence and contact your creditor.

While you’re busy clearing your name, you may want to lodge a dispute with Experian. It usually takes about 20 days to resolve a dispute and during this time credit providers would not be able to view the disputed item on your credit record.

Even if you have paid your dues, many companies will keep you blacklisted for a further few years, which could still make it difficult for you to obtain credit. Even when your loan application is successful, you could be paying a higher interest rate than other applicants. It is at times like these that the services of an attorney could come in handy to assist you in your application for a rescission (the removal of your name from the blacklist).

Hahn & Hahn, one of the firms specialising in blacklisting, also has a few tips on their website on how to avoid appearing on the list in the first place:

• Pay all your debts before the 7th day of each month.
• Notify all your creditors of a change of address.
• Attend to legal documents and letters immediately – they will not go away.
• Should you be unable to pay your debt, make suitable arrangements with your creditors and keep to your arrangements.
• Be very careful of what you sign.

One could also add to the list another tip from business coach Thayn Niemand: If a company offers you more credit than you need with them, don’t accept it without thinking of the implications. That higher credit limit reduces the amount of credit for which you qualify with a company offering the type of credit that you actually need.

Lastly, if you are still unhappy with the treatment that you are receiving because of your credit record, you can also call the Credit Information Ombud (CIO) on 0861 662 837.

It’s never been easier to find out what your credit record is telling other people about you. And it won’t cost you a cent. Go ahead and make sure that your name is clear.

It is not often that South African banks give their services away for free. That is why I’m surprised that not more business start-ups are taking up Nedbank’s offer of ‘free banking’ for 24 months after opening a new account. Transactions that will incur no banking fees are:

• Cash deposits;
• Debit orders;
• Internet banking;
• Cheques written from own cheque book.

Any other transactions, including credit card sales, will be charged. There is a catch, though. To qualify for the free transactions you need to take out a loan to the value of at least R100 000. This could be vehicle finance, a term loan, a home loan, a commercial property bond or plant and machinery finance. Although Nedbank is adamant that the interest rate associated with the loan will be competitive, it’s always a good idea to compare the rate with quotes from the other big lenders. The offer applies only to businesses that have not been in operation for more than two years and are projecting an annual turnover of less than R7.5 million.

Another free service is the Small Business seminars held twice a year. I attended the Cape Town session this week and can vouch that these seminars are not only informative, but also entertaining, inspiring and fun.

Nedbank has also partnered with a company called SwiftReg to enable you to walk into the branch and have your business registered at very competitive fees. They currently charge R360 to register a shelf or a new close corporation and R960 to register a shelf company.

Don’t make the mistake of thinking that this is all pure altruism on Nedbank’s side, though. The first two years are often the time when small businesses are particularly fragile and most likely to fail. Nedbank is thinking long-term. By aiding business owners through this perilous period, the bank is counting on a larger number of mature fee-paying businesses ending up on their client book.

“Turnover is vanity, profit is sanity, cash flow is reality.” From the many emphatic nods it is clear that the attendees of this year’s Nedbank Small Business seminar know what business coach Thayn Niemand is talking about. And Niemand has several suggestions that could help small businesses shape up their cash situations.

Use long-term finance when buying long-term assets. The interest rate on long-term, asset-backed finance is usually much lower than the rate associated with short-term finance, such as an overdraft facility. Yes, you’re right, if you pay cash for your long-term assets, you won’t have to pay any interest at all. But if you take out a long-term loan and the assets under discussion are used to generate business income, the interest on the loan can be deducted from your taxable income. More importantly, though, financing the assets means you are freeing up your cash to employ it where your business strategy needs it most. And you are less likely to end up paying the exorbitant interest rate on an overdraft when you run into cash flow trouble.

Don’t pay all staff bonuses in one month.“Your biggest overheads walk on two legs”, I’ve often heard business owners say. And Christmas time can rock your cash flow boat particularly hard. Niemand suggests mimicking the old government system of paying annual bonuses in the month of an employee’s birthday to improve your December cash flow substantially.

Move the dates of your debit orders. Do you find that most of your debtors only pay you after the 1st of the month? Would it then not help to move your expense debit orders to the 7th of the month – when you know you would have received most of your income due?

Get your money in quickly and let it go slowly. While you want to remain hot on the heels of your debtors, if your creditors grant you 60 days to repay your debt, use that grace period, especially while you’re earning interest on any positive balance in your bank account.

Keep your stock levels at the optimum level. When your wholesaler offers a large discount on one of your products, it may be tempting to buy as many units as you can possibly lay your hands on. But this large purchase may make it difficult to settle some of your other bills at the end of the month. It’s no use having a warehouse full of bargains if you eventually can’t pay the rent on your building.

Sub-let any excess space. While we’re on the topic of buildings, do you have any storerooms or garages that you could sub-let and earn some extra cash (if your contract allows this)?

Review your short-term insurance policies. The responsibility of updating the insured value of your vehicles and other insured assets lies with you, not the insurer. Insuring your assets at their current second-hand retail value instead of their purchase price could save you a handsome sum every year.

With Nedbank Small Business Services listing ‘poor management of financial activities’ as number one among their surveyed seven biggest reasons for business failure, the expertise of Niemand and other financial coaches seem to be much needed in South Africa today.