Most small and medium-sized enterprises (SMEs) start off thinking too small and then, when they grow, pay an enormous operational, legal, and tax price for their lack of planning.
So says Ettiene Retief, financial director of Financial Tax & Remuneration Services (FTR Services), who has presented a series of seminars for SMEs about the duties of directors. The seminars were initiated and sponsored by Softline Pastel, developer of South Africa's leading accounting, payroll, and business software for SMEs.
"Most SMEs are started by people with a specialist knowledge in their own field but no knowledge of the Companies Act, how to run a business, or the duties of directors. They usually also have financial constraints. So, as is reasonable, they start small and hope to grow. The trouble with that, though, is that they don't plan for being bigger.
"If you don't establish your financial framework, your labour policies, and the structure of your board with growth in mind, the chances are very good that you'll end up costing yourself a great deal of money in the form of tax penalties, non-compliance with legislation, and labour disputes. You will also run foul of corporate governance requirements.
"By contrast, investing at the outset in professionals such as attorneys, accountants and human resources consultants, who can help set you up so as to always be compliant with legislation will not only save you money in the long term, it will actually make your more effective as a business."
Retief points out that corporate governance principles are not required, by law, for SMEs and that the Companies Act does not impose specific managerial styles or best practice on all organisations. "However, good corporate governance and a strong management structure can make the world of difference to any business. No company is too small to apply good governance!
"But once an SME grows and moves to a different league, then governance does become an issue. So why not be compliant from the outset - by following some basic rules?
"Build trust. Be upfront in all your dealings with your customers. If you can't pay a creditor, for instance, take the initiative and phone him and discuss a payment plan rather than leaving him to come after you.
"Keep records of everything. Confirm everything you discuss with customers or suppliers in writing.
"Have a separate bank account for the VAT portion of your income, so that you always know that what is in your ordinary bank account is your real cash flow - and you always have the means to settle your VAT liabilities to SARS.
"Set clear labour policies and communicate them to all your employees."
Regarding black economic empowerment at director level, Retief recommends putting on your board people from previously disadvantaged backgrounds "who can bring real value to the board. Don't limit your options by deciding, for instance, to look only for women candidates or people who are already serving on other boards. When you limit your search to a rigid criterion, you limit the pool of available skills from which to choose.
"Rather, get someone who can bring a broader business and life experience to your board than currently exists on it - and has enough time to give your business their full attention.
"In addition, grow people from inside your company to board level. Start them off by mentoring them, then, perhaps, as non-executive directors. In time, they'll bring additional insight about your business to the board - and you'll be helping to widen the pool of BEE directors available in this country."
Softline Pastel seminars manager, Joe Ferreira, says that running seminars - such as the Directors' Duties one - enables Pastel to go beyond accounting in empowering SME businesses to prosper. "Our product suite offers a full spectrum of tools for automating your accounting - from a simple invoicing application to a sophisticated enterprise resource planning (ERP) solution.
"But there's always some extra business wisdom you can use to be more efficient, more effective, better differentiated - and our seminars aim to provide that."
For more information about Pastel Seminars, visit www.pastel.co.za.
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Softline Pastel, a member of the Softline Group, is South Africa's leader in accounting, payroll and business software for the SME market. Founded in 1989, Pastel has been a trusted name in accounting software for over 18 years and is recommended by nine out of 10 accountants that serve the SME market. While Pastel is South African-born, it is used by 180 000 businesses worldwide and is currently sold in over 52 countries through a network of more than 3 500 channel and business partners. The Pastel support contact centre, a critical component of the business, has received both local and international accolades, and was voted best customer service contact centre in South Africa by its customers in the BPeSA 2007 National BPO Awards.
For more information, please visit the Softline Pastel Web site at www.pastel.co.za.
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