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Reasons why businesses go bankrupt

by with No Comment Business TipsMoney Talks

A shocker: according to Trading Economics, 132 businesses filed for bankruptcy or were declared bankrupt in June 2021, down from 191 in May 2021. Additionally, given the high rates of unemployment in South Africa, our economy is far from rosy. 

Note that a company does not need to have assets to be declared bankrupt. If the liabilities exceed its assets and it is unable to pay debts when these become due, the business must liquidate, according to the Companies Act. Liquidation is the process of bringing a business to an end and distributing its assets to claimants, which occurs when a company becomes insolvent (a financial state of affairs wherein the individual/business’s income is insufficient to pay its monthly expenses and debt). This is also known as “winding–up”. 

Liquidation of a business/company, according to SARS may happen:  

  • When a business/company is unable to pay its debts
  • As a result of a legal court process
  • By application of the creditors
  • Voluntary, i.e. applied for by members of a Close Corporation (CC)
  • When the business owner decides to do something different, or even perhaps retires for a well-earned rest.

There are two distinct types of insolvency: factual insolvency and commercial insolvency. When a company’s liabilities outweigh its assets, it is said to be in fact insolvent since it is unable to make payments on its debts when they become due. Even though the company has more assets than obligations, commercial insolvency happens when there is not enough cash on hand to fulfill the bills.

One of the benefits of being a shareholder is the protection limited liability provides. When a corporation is liquidated, the majority of the time the remaining debts are wiped off, and the shareholders are not held personally responsible for the firm’s debts. However, a court may rule that the directors and stockholders may be held personally accountable if it is discovered that the business was running when it actually should have filed for liquidation.

Apart from liquidation, another way is for a business to deregister. When a company voluntarily deregisters with the Companies and Intellectual Property Commission (CIPC), it implies the business/company is no longer registered and has no legal standing since it’s not doing any business nor has assets or liabilities. 

Once a business/company receives confirmation from CIPC that they have been deregistered, the registered representative should visit their nearest SARS branch and make sure the business or company is deregistered for all the various types of tax.  

Helpful links:  

Employers – Guide for employers in respect of Employees’ Tax

Micro Businesses – Turnover Tax (TT)

Vendors – Cancellation of VAT registration.  

Source: SARS

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How to protect yourself from Occupational Fraud

by with No Comment Business Tips

“Every company must have a deliberate plan to prevent and detect fraud, and must never underestimate the potential of an attack from within.”

We couldn’t have found a better way to start off this article! Truth is, you never see it coming. Never think your employees will ever do that to you, especially since South Africa is a country with high crime rates. It’s good to trust your employees, however, do not be naive. As they say, our enemies are people around you, they know enough to hurt you, and in this case, your business. 

According to the Global Economic Crime and Fraud Survey, 41% of economic crimes in South Africa were committed by employees, in comparison to the 36% of fraud committed by external sources and 21% was collusion between the two.

Understanding Fraud:

Let’s first unpack this, FRAUD is a common law offense – it is a wrongful or criminal deception intended to result in financial or personal gain.

To understand how to prevent your business from fraud, business leaders must first understand the types of fraud they’re most likely to encounter.

Types/Common Corporate Fraud(s)?

Payroll Fraud Schemes

Payroll fraud can appear in a variety of ways, particularly if a company manages its payroll function internally and is normally handled by a single person.

Types of payroll fraud:

  1. “Ghost” employees – when a “trusted” employee manipulates the payroll process, in order to get an additional paycheque for a non-existent employee.
  2. Falsified wages – when an employee or employees falsifies their wage rate or lies about their sales numbers for increased commission.
  3. Expense and reimbursement fraud – when an employee logs a false reimbursement request or gets an expense claim approved for activities that did not receive the proper attention and valuation initially.

Asset Misappropriation and Skimming Fraud Schemes

The term “asset misappropriation” refers to a broad range of employee-based fraud schemes that fall into two broad categories: cash and noncash.

Types of asset misappropriation:

  1. Cheque tampering – when an employee alters the amount, recipient, and other details on the cheque to transfer funds into their account instead of the original recipient.
  2. Inventory theft – when an employee redirects deliveries of products from vendors to an alternate address – with the intention of keeping or reselling on the company’s dime.
  3. Misuse of assets: When an employee utilizes company property, such as company vehicles, company computers, or company credit cards for unauthorized personal activities.

Financial Statement Fraud Schemes

Financial fraud occurs when a worker purposefully lies or omits crucial financial data—such as sales, revenues, assets, and liabilities—in order to deceive others.

Financial statement fraud red flags to look out for:

  1. Accounting anomalies – when an employee falsifies the company’s revenue numbers to indicate increased income generated by the sale of products or services.
  2. Falsified growth reports – when employees, managers, or executives, intentionally, misrepresent the company’s sales figures and financial growth in order for the company earnings to look healthier.
  3. Falsify the value of an asset: Then is when an employee, manager, or executive purposefully alters the value of an asset to make it appear more valuable than it actually is.

There is no distinction between corporate or business fraud. Under common law, a case of fraud must be supported by the evidence of the following factors:

  • Misrepresentation.
  • Unlawfulness.
  • Actual or potential prejudice.
  • Intention.

When should you take action?

An employer must act as soon as any severe allegations of wrongdoing are known or suspected to exist against a particular employee.

An organization’s capacity to gather important evidence may be impacted by how quickly it responds to any allegations of fraud. When an offense is committed, there is a wealth of evidence that is easily accessible to investigators.

Sure, you can never see it coming. Here are some red flags to look out for internally: 

  • living beyond their means
  • unusually close association with vendor/customer
  • financial difficulties
  • wheeler-dealer attitude
  • control, issues, unwillingness to share duties
  • divorce/family problems

Plan to Succeed: finance

by with No Comment Business TipsMoney TalksSavings

Have you heard the saying, “if you fail to plan, you are planning to fail“? COVID19 is here to prove to us that it’s no cliche! Many are becoming more aware of their financial wellness, and cautious about planning for the future (unforeseen events). Would R10 000, R20 000 have been enough to keep your bakery business amid the national lockdown? It might sound like that’s not a lot, but in difficult economic times/dry seasons, every cent counts.

The first most important step is to set specific short, medium, and long-term financial goals/targets. These goals can include saving up for property, making sure that you are adequately financially provisioned for unforeseen events, and so much more. This process is called financial planning.

A financial plan is obviously different from your financial statements. Here, you make projections for the coming months/years, forecasting income/profits. Hire a qualified and licenced financial planner who will assist you in assessing every aspect of your business finances to help you design and regularly review your financial plan as your business grows.

At Accase Solutions, we offer Financial administrations services, Management Of Cashflow and Budgeting. To get to the bigger goal, you need to hit the smaller targets. Let’s break it down:

Budgeting is simply balancing your expenses with your income, creating a plan to spend your money. This spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. 

Cash flow management is basically tracking how much money is coming into and out of your business. This helps you predict how much money will be available to your business in the future.

A financial administrator is responsible for managing the accounts receivables and payables of the organization.

…moving right along…

To help you gets started, here are six steps to create your financial plan:

1️⃣ To start off, think about what you want to accomplish and ask yourself… Do I need to expand? Do I need more equipment? Do I need to hire more staff? Do I need other new resources? Most importantly, how will my plan affect my cash flow?

2️⃣ Create monthly financial projections by recording your anticipated income based on sales forecasts and anticipated expenses for labor, supplies, overhead, etc..

3️⃣ Through the year, compare actual results with your projections to see if you’re on target or need to adjust. Monitoring helps you spot financial problems before they get out of hand.

✳ If you don’t have the expertise, consider hiring an expert to help you put together your financial plan.

Accase Solutions is registered with the IAC, Institute of Accounting and Commerce as a Certified Tax Practitioner since registration of Accase Solutions.

Practicing number: PR0100503.
Get in touch with us, a consultant await your call 📲😊