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.

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.

‘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.

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.

Sprawling cities, congestion, the race for resources (and a parking spot), a consumer economy, more waste than the earth can absorb… Most of us have witnessed the side-effects of an economy growing rapidly year after year. Yes, uninterrupted growth was the myth of the New Economy. But already in 1942 the economist Schumpeter predicted that the capitalist economy cyclically moves towards a point of creative destruction, when the old and obsolete (often monopolies) need to make space for the new (often innovative entrepreneurs).

At its core, the slowing down of an economy (aka a recession) is nothing more than a reality check. Awfully over-simplifying the complex social system that drives the economy, the “boom” part of the cycle can be seen as the optimism of new businesses and its reliance on the upwardly mobile consumer, combined with the greed, optimism and shareholder pressure of the large, established businesses setting forever more challenging targets and making their business decisions accordingly. The “bust” part of the cycle is simply reality.

When the sub-prime crisis eventually hit the US, Paul B Farrell could think of 17 reasons why America needs a recession. A few months later in an article published in the Boston Globe, Drake Bennett also takes a philosophical look at the potentially positive effects of a recession on an individual. This year, with the global recession confirmed, Denise Kawaii also posted some good points on why the slowdown is not necessarily a bad thing. She’s particularly upbeat about the positive effect an economic downturn has on creative writing, music and the arts.

Yesterday our National Treasury announced that South Africa is now officially in a recession, having experienced two consecutive quarters of negative economic growth. Time to despair, attack or reflect?

The knee-jerk reaction is to blame the banks and government. But the truth is that both parties have behaved quite prudently during our most recent economic boom phase. Restrained by the National Credit Act (NCA), banks could only lend to individuals who could afford it, largely abating the current housing market woes of the US and UK, for example. Despite pressure from trade unions and other economic liberalists, the Reserve Bank also stuck to its policy of firm inflation targeting, keeping interest rates high at a time when almost the entire globe was wearing rose-tainted glasses and borrowing and expanding. Our fiscal position is also much better than that of many developed countries.

For those of us who have watched the squirrels, learned something and stashed up on cash, now is an opportune time to attack those bargain assets: undervalued shares, easily affordable property and auctioned second-hand goods. For those of us who are experiencing our first economic handbrake turn, let us not forget to fill up the tank in future. It may take longer to reach our destination than we thought.

How long will this recession last? Treasury is hopeful that the Confederations Cup and the 2010 World Cup could pull us through soon. But a lot also depends on the appropriate allocation of our National Budget expenses, boosting infrastructure for growth after 2010, and of course on maintaining political and socio-economic stability in the country.

Let the rest and reflection that usually accompany a recession not pass us by. But eventually we will need individuals’ creativity and innovation to get us out of this slump and start growing again.

Friday we will be saying good-bye to holiday-ridden April with … yet another public holiday, the worldwide celebration of the improvement in the socio-economic conditions of workers. But were does this holiday come from?

Labour Day has its origin in the British Eight-hour day movement, led by Robert Owen from 1817 for several decades. Its slogan, “Eight hours labour, eight hours recreation, eight hours rest”, illustrates the goals of the movement perfectly. At the time, the working day lasted between 10 and 16 hours, 6 days a week. Despite Owen’s toiling, most countries had to wait until the early and mid twentieth century for a work day to be legally limited to eight hours.

Not all developed countries enjoy this work hour protection, though. And some bend the rules in pursuit of more time at the office. The Japanese, for example, are notoriously bad at sticking to their 360 hours per year restriction on overtime (about two hours per work day). Furoshiki or ‘cloaked overtime’ – workers staying at the office with the lights off or taking work home – is widely prevalent. It’s no accident that the Japanese language has a word specifically for death from overwork: karōshi. In 2007 there were 147 karōshi deaths and 208 cases of severe illness due to work-related stress.

This would explain the market in Japan for the i-pot. In this work-focused culture there is often no-one to regularly check in on elderly parents. But no worries, this kettle sends a signal through to a relative’s laptop, monitoring whether the elder is still alive and well and switching on the kettle regularly.

While working long hours is common among cultures that associate hard work with a good and meaningful life (look no further than the Afrikaner’s Calvinist work ethic locally), fear of losing your job can also be a big driver of working longer hours than necessary. But the reality is that, for most people, the law of diminishing returns kicks in after about 7-8 hours of work per day. In other words, at some point the extra hours start to add very little extra productivity. In fact, excessive overtime could even cause you to revise and destroy some of your good work due to fatigue and the poor judgement that often accompanies it.

Work-related burnout is a very real threat, with people in the ‘caring professions’ being particularly susceptible, according to Christina Maslach in Burnout: The Cost of Caring. In worst-case scenarios, burnout could lead to contempt for your clients and ultimately total abandonment of your career.

‘A 40-hour work week? Forget it!’ says Tim Ferriss on the other end of the work-life scale from karōshi. How about the 4-hour work week? Ferriss propagates the new rich lifestyle – valuing time as your greatest resource, in order to pursue the adventure called life.

I can appreciate Ferriss’s philosophy. While regulated work hours are necessary to protect repetitive task or support service workers from employer exploitation, a fixed number of hours per week for anybody else doesn’t really make sense. There are just too many other variables driving productivity: intelligence, experience, creativity, inspiration, peer-appraisal, physical fitness, EQ and biorhythms – to name only a few. Hours at work seem a very poor indicator of value added. And we haven’t even brought human capacity to create value-adding systems and ultimately earn a passive income into the equation yet.

But while we’re given the choice to either take a break or not on Friday, let’s celebrate!

The deadline for South African micro businesses to register under the new, simplified turnover tax system is 30 April 2009. Not only could this lift an administrative burden from your shoulders, but also leave significantly more after-tax money in your pocket. Find out whether this system could work for you.

Who may want to register for the new turnover tax?

• Profit-making non-professional service providers
• Profit-making trading businesses with large profit margins
• Profit-making trading businesses with medium-sized profit margins that could benefit from the significant compliance cost savings

Who qualifies for the turnover tax?

Sole proprietors, partnerships, close corporations or companies with an annual turnover not exceeding R1 million may register.

What types of businesses are disqualified?

• Businesses of which the tax year does not run from the beginning of March until the end of February of the following year
• VAT-registered vendors
• Professional services, including accounting; actuarial science; architecture; auctioneering; auditing; broadcasting; broking; commercial arts; consulting; draftsmanship; education; engineering; entertainment; health; information technology; journalism; law; management; performing arts; real estate; research; secretarial services; sports; surveying; translation; valuation; or veterinary science
• Public benefit organisations
• Clubs
• Businesses of which the investment income (interest, dividends, rental income) form more than 10% of the total income of the business
• A ‘personal service provider’ according to the SARS definition
• Another few, less commonly applicable exclusion. Please see the SARS checklist for turnover tax

What are the main benefits?

• In the case of profitable, high profit-margin businesses the total annual tax payable could be significant lower than with the normal tax system.
• Simpler administration.

Why is the turnover tax system simpler than the normal tax system?

• Under the normal tax system, it can be quite complicated to calculate the taxable income according to the SARS definition.
• No VAT is payable under the turnover system.
• Under the turnover tax system, no secondary tax on companies (STC) is payable if the annual dividends are less than R200 000.

What are the main differences between normal tax and turnover tax?

What are the turnover tax rates for 2009/2010?

In comparison, what are the normal tax rates for 2009/2010?

For companies, profits are taxed at 28% from the first R1. To this, STC of 10% on all dividends declared needs to be added.

For small business corporations, no tax is payable up to R54 200 of taxable income. For taxable income between R54 200 and R300 000, 10% tax is payable on the amount above R54 200. For taxable income exceeding R300 000, R24 580 + 28% of the amount above R300 000 of tax is payable.

How are capital gains taxed under the turnover system?

Capital gains tax is payable at 50% of the selling price of business assets.

In the case of a sole trader, what happens to other non-business earnings?

Any salaried income, as well as interest, rental income and dividends earned in your personal capacity, will be subject to normal tax and handled outside the turnover tax system. The turnover tax is therefore a stand-alone tax and the taxable turnover from a qualifying micro business will be ring-fenced.

What if you’re currently VAT-registered?

You would need to de-register from the VAT system before you can apply for the turnover system. (Exit VAT may apply.)

Who may want to think twice before registering under the new turnover tax system?

• Loss-making businesses have little incentive to change to the turnover system.
• Profit-making businesses with really small profit margins may end up actually paying more income tax under the turnover system.
• For businesses considering selling large business assets soon, it may be worth staying under the old system to benefit from the smaller capital gains tax.
• Businesses with clients that prefer VAT registered vendors as an indication of formality and good standing, may lose clients when de-registering for VAT to apply for turnover tax status.

To get a better idea of the types of businesses that will benefit most from the turnover tax system, have a look at BDO’s article

What if you’re only starting your business during the current tax year?

A new micro business needs to register, if interested, under the turnover tax system within two months from the date of commencing business activities.

Can you change between the turnover and normal tax system as you please every year?

No. You will need to apply before the start of the tax year in which you want to fall under the turnover tax system. If you choose to exit the turnover tax system, you cannot re-register for at least three years.

What records would you need to keep?

• All amounts received
• All dividends declared
• All assets worth more than R10 000
• All liabilities worth more than R10 000

When do you pay the turnover tax?

The turnover tax year runs from 1 March to the end February of the following year. Income tax is due in two six-monthly provisional payments.

For more details on the new turnover tax system, visit your registered SARS branch or the SARS website.

It’s happened again. It’s a new year and you’re dying to improve your finances and learn about generating and growing wealth. But every time you open a business paper or magazine, you start yawning and notice some cracks in your walls that you’ve never seen before. How does one achieve this level of dullness?

Try and be as stuffy as you can

Did the greyness enter when financial service providers starting branding themselves as serious businesses – believing that a little lightness and informality will lead clients to believe that they can’t be trusted with money?

Complicate things

Shall we blame the various financial professions: accountants, actuaries and financial industry lawyers? Did they consciously exclude clients from the inner circle of financial power by wrapping the industry in so much jargon and convoluted sentences? So that clients in the end could not make out head or tails of the products that were being offered.

Don’t give enough background information

Context keeps clients awake while they are reading about your new product or service. But there’s another reason why enough background information is important. The grey and seemingly stable austere of the financial industry hides a lively and unpredictable place. Things can change overnight and the more familiar clients are with the risks of their investment or insurance product, the less likely they are to do a bank-run or cancel a product when financial turmoil strikes. Institutions that realise this, will provide potential clients with plenty of background information, written in client-friendly language.

Steer clear of colour and beauty

At large, the financial media has been an aesthetic desert – not catering for more creative clients, or for those attracted by beauty. (Unless of course you count the long-legged blondes that have been used to attract a predominantly male clientele.)

Don’t bother with stories – they’re for children

Even adults are drawn to (and remember) entertaining stories that gives them more insight into the business, its philosophy and values.

Build no relationship with your client

Many global businesses attribute their success to their move towards not only strong and reliable brands, but brands that enter in a pseudo-personal relationship with the client – what Saatchi & Saatchi has coined ‘lovemarks’. (Think Apple, Mini Cooper and Levi’s). Financial institutions are slow to follow.

Think that money solves all problems

As in any other industry with lots of money going around, financial companies are sometimes guilty of thinking that just sourcing the most expensive leaders, consultants, or partners will give the best results, instead of searching for the people who are most passionate about the product and the company’s target market.

Mercifully, the industry is slowly changing. Many local financial service providers are following the UK, US and Australian trend of presenting all their documentation in clear, easy-to-read English. Allan Gray has used strong narratives in all their ads of the past few years to explain how they approach investment. Coronation’s creative ‘Vincent’ production grabbed the attention – maybe because it is exactly the opposite from what you expect from a financial services ad. Old Mutual’s has added some light-hearted illustrations to their handy online financial planning tools.

We may soon run out of sleep-inducing literature.

If you operate in the information or knowledge economy, have only a plain vanilla offering, and don’t really engage with your clients, now may be a good time to change careers. The world has changed (and for the better).

The ivory towers of professional bodies are slowly crumbling as free information is flooding the web, empowering web users en masse and putting downward pressure on the cost of advisory fees. Is this the end of making money from knowledge-sharing? Definitely not, and thousands of websites are reaping handsome profits in the new information era, but the revenue model has changed. Income is mostly in the form of advertising or survey hosting fees, while some money can still be made from the information itself – in the form of a 2nd tier, more advanced offering with paid membership.

Specific role players will benefit more from the changed economy than others:

The pioneers:

Surfing habits form quickly and are hard to break. Therefore businesses that woo web users first with a real value-add service, often have a distinct advantage to other businesses that enter later.

The impartial:

Wisely, users generally rate impartial advice from an independent business higher than the information feed from a business which could have a vested interest in the advice given. While experts are still respected, they now have to make space for the ‘wisdom of crowds’ as well, as reflected in websites like hellopeter.com.

However, companies are highly aware of the premium users place on peer reviews and several have disappointingly faked positive feedback on social networks. There will be an increasing demand for the services of independent integrity analysts, who will focus on anything from spotting online comments by companies masquerading as happy customers to investigating any kickbacks for positive reviews by forums and other social media networks.

The filters:

With the sheer volume of information around, users will increasingly find value in websites that firstly rate the quality of content and then feed through only the information that is relevant to them.

The specialists:

Experts in a specialised field (for which there is a market) have always been in a better position than generalists to make money from their knowledge. With plain vanilla information being freely available, specialisation may now become a necessity, rather than a choice.

The engagers:

More and more users expect a two-way conversation with an information provider instead of a one-way information feed. They want to be able to ask questions and comment on articles. The language in which information is written will also become increasingly important. Jargon, ‘legalese’ and a technical writing style have kept laymen in the dark and advisory fees sky-high for centuries. Those who can translate technical terms and speak the web user’s language will have a distinct advantage in the new information age.