In South Africa, like the rest of the world, small and medium-sized enterprises (SMME) and professional services continue to be the backbone of respective economies, comprising 60-70% of global employment and the bulk of respective countries’ gross domestic products.
As COVID-19 “advances” throughout the world and across South Africa, the recent lockdown is an unexpected twist in a murky cocktail of bankrupt SOE’s, corruption, “load-shedding”, unemployment and manifestation of an investment downgrade by Moody’s. While we have no other choice, the prioritisation of physical health is at odds with the survival of our formal and informal livelihoods. Local enterprise and the self-employed, especially, are in the firing line.
The inevitable impact on economic growth and the possibility of an extension to the lockdown present the perfect opportunity to “spring clean” and think outside the box on how to sharpen business practices, as a foil to the uncertainty. Reviewing one’s budget is a critical part of a coronavirus response strategy.
A budget has two parts: income and expenditure.
You need to have an idea of how and where to adjust your budget, and that begins with figuring out what your new baseline for income is. For example, if you’ve experienced a 40% revenue cut, then that may correspond to cutting close to half or more of your regular spending, whether personal or business-wise and not create additional debt.
On the income side of this equation, be sure to take advantage of the unemployment insurance (UIF) benefits made available to you and your employees during this time. The benefit is paid on a sliding scale from 38% of the salary to a maximum threshold of R17, 712 per month. If a company can only pay a percentage of salaries, they can apply to this fund for the remainder to top it up.
Some of the other measures available that South Africans can apply for include, but is not limited to:
- Business Growth and Resilience Facility for essential services
- SMME Relief Finance Scheme
- The Solidarity Fund
Next, look at what you have in savings that you might be able to tap into. Ideally, you should have an emergency fund that can cover three to six months’ worth of expenses in place.
Add up what you have access to and see how it could be used to supplement your income. After that cutting costs will seem a lot less stressful.
But before you can do that, however, you first need to understand where and how you’re spending. Begin with fixed expenses. This includes everything you have to spend money each month to maintain a basic standard of living and/or keeping your business running ranging from water and electricity to data costs.
Next step is to list variable expenses, including discretionary spending, some of which you may be able to immediately suspend or terminate. These typically include:
- Entertainment
- Outsourced services
- Travel
Off the bat, eliminate nice to haves or downgrade to cheaper options. If you’re in disaster or emergency budgeting mode, prioritising your expenses matters. For example, paying the rent and keeping the lights on should naturally take precedence over buying new equipment purchases or subscriptions.
If fixed costs like interest payments, rates and taxes remain overwhelming, take advantage of the payment holidays provided by the state and other service providers.
The major banks have announced a three-month debt repayment holiday to both business and personal account holders. This relief applies to home loans, vehicle and asset finance, credit cards as well as short-term loans. Furthermore, the banking sector has collectively decided to waive SASwitch fees during the lockdown. This means that a customer can use any ATM, including those offered by competing banks, without any extra fees.
There are also various tax breaks that businesses and provisional taxpayers can take advantage of including, but not limited to, the Employment Tax Incentive (ETI) raised to cover all ages – and paid monthly. The South African Revenue Service will also pay back the pay-as-you-earn reimbursements every month, instead of twice a year.
Every cent counts. Once you’ve cut the fluff out of your budget, you can start looking at innovative solutions of supplementing your accounts or establishing new business lines. Some local flower operations, for example, have taken to delivering vegetables during these trying times.
With two weeks to go in the national lock-down and your finances back on track, there is more breathing room and time on your hands to start developing those ideas you’ve been postponing for years.