My sincere condolences to Uganda and its people

I would like to extent my sincere condeliences and best wishes to all people affected by the bomb blasts in Kampala.

May we soon live in a world with humanity, honour and compassion where outrageous acts like these do not have any place in the world anymore.

My thoughts and prayers are with all those that have lost family and friends and may prayer is that the peacefull and loving nature of the Ugandan people remain intact as an example to the rest of the world.

How to calculate your break even

Many business owners do not understand the financial side of their business and actually do their best to avoid it, as it is perceived as a complex and dificult process. In this article the author aims to address just one of the most business criticial financial analysis that needs to be done for you to better understand your business. Whether you are in financial services, selling products wholesale or run a consulting business. Knowing when your business actually breaks even is extremely critical. What is the break-even point? The break even point is defined as the point where business sales or revenues (your income) is equal to your business expenses. Therefor there is no profit made nor no loss incurred at the break-even point.

This figure is imperitive for any business owner in the managing of the business since the break-even point is the lowest limit of profit when setting prices and determining business margins. Obviously the break-even point becomes very important when calculating a strategy for net profit or quoting on new projects or even introducing new products to your business. Calculating your break even amount is actually extremely simple, you merely calculate your operational expenses. However I believe it is prudent to take the following factors into consideration when calculating your break even and I have my own little break even calculator, although it may not be academically correct it has worked well in every business I saw it introduced. Break Even = Operational Expenses + Contigency Provision + Cost of Re-Capitalisation + Minimum Entrepreneurial Fee required. Now lets unpack that in a little more detail:

Operational Cost = The total running cost of your business.
Contigency Provision = An amount of money you put aside to isnure break even in the immidiate future. Either by being able to use it to address some unforseen circumstances or to have surplus capital available to "cover" yourself.
Re-Capitilisation = How do you cope with growth? How do you replace that machine you bought cash. You recapitlisation savings is used to insure that when old machines are reduntant you do not need to suddenly scramble for cash.
Entreprenerial Fee = The minimum entrepreneurial fee is the minimum amount required by the entrepreneur to keep himself going. Do not place your wanted income hear, but the minimum income required.

Now that you have a true break even margin you need to work out how you are going to get there. This is done by calculating your break even margin.The break-even margin is a ratio and this ratio shows the gross-margin factor for a break-even condition. The formula is also fairly simple. You take your total expenses and divide by net revenues and multiply this by 100 to get a percentage. This ratio is extremely helpful when setting your selling prices, in the tendering process and when negotiating contracts with vendors and accounts.

By understanding your business break-even point and the required break-even margin business owners can truly understand the impact of decisions. In purchasing, costs can be lowered by bulk purchasing, negotiating price/ terms or finding new suppliers. Revenues can be improved by increasing value to the customer or offering non-price concessions. It must at all times be remembered that increasing profits by simply increasing margins, therefore selling price, could be a very risky strategy. Unless the consumer perceives higher value from the product or service, the consumer may not be willing to pay these higher prices.

A Dynamic Group that cares

Yesterday I had the privilege, nay honour of doing a seminar to the people of Dynamic Vision Optometrist network on Finance for non financial people. I would like to say that it was without a doubt one of the most pleasant experiences in my training career.

Not only did I enjoy listening to a couple of other dynamic speakers that have an incredible passion towards their business but I was fortunate enough to get an insider’s view of how this industry ticks and works. The most impressionable part of the experience was the caring nature of all the parties attending. Caring for their patients, caring for other and caring deeply about their businesses, and it was reassuring to see this high level of care and passion in such a large organisation.

I would again like to thank Dynamic Vision for the opportunity and the kind words after my little accident the morning.
You guys are fantastic.

Direct Insurance, is it the right move?

We as consumers are being bombarded with advertising, mock TV shows s and call centre telling us that it is better to insure directly and cut out the “expensive” middle man. A large emphasis is placed on the fact that they are irrelevant in the short term insurance realm and even more that they are a pure burden to the consumer. A recent advert comparing a broker to a fish and chip sales person is a clear indication that little regard is being placed on the role of financial advisors and brokers within the short term insurance industry.

The prudent question I believe we need to ask ourselves is whether we believe this propaganda and whether we would want to trust a call centre operator with insuring our valued assets and now even our lives. Let’s take the following points into consideration when unpack direct insurance for ourselves, ignoring propaganda.

It does not take a rocket scientist to understand that the very call centre operator assisting you in obtaining your insurance is in fact a low level employee, irrelevant of earnings, within the company. They are selling high volumes of policies and therefore making it impossible to remember a little thing like your name. If you have a dispute on your claim who would you speak to? The answer is very simple, their legal department. One young man, who alleges on Hellopeter.com that he was effectively bullied by a large direct insurer’s in house legal team into signing documents that eventually led to his claim being denied is proof of that.

Now no one is claiming that the young man is talking the truth about the matter or that the insurance company is in fact bullying clients into not paying claims, the fact that is being brought across is merely that when a dispute arose his communication point was moved from the friendly voice at the call centre to the legal department, an intimidating place for any non legal professional.
Now bringing that into comparison with a broker environment one needs to understand that your broker would be your port of call, not his legal department. If it is warranted that a legal department of an insurer has to get involved you would at least be “protected” if not just escorted by your broker. Your broker is also an individual with a larger vested interest in your well being and naturally concerned with you cancelling other policies with him. He or she is not just a voice.

I would like to re-iterate that this article is not aimed as an attack on direct insurance, although I must convey my surprise that the broker industry has not attacked back with similar vigour. It is merely aimed at providing some perspective within the propaganda.

Ignorance or Ignoring

King III, the good for proper corporate governance, was published on the 1st of September 2009 and the codes apply to all entities. This is very different to the old King I and King II reports that was only applicable to public or listed entities. The question I however want to ask today is whether the property syndication industry are working along these ethical guidelines.
I firmly believe that they are probably not. This, to me, is evident from the constitution and guidelines of the Public Property Syndication Association (PPSA) that does not mention compliance to any of these codes. Two of the syndication companies I have had dealings with namely Blue Everest Investments and City Capital (Capital Investments), both of which are now defunct never conformed to King I or King II and it did directly apply to them as public companies. Further the Financial Services Board (FSB) also does not mention it at all as one of the 1.8 licence requirements.

Now the next question we have to ask is why? Is it ignorance or just ignoring it. Is it because the cost of compliance is excessive? Well before you answer that question for yourself, let’s look at why compliance to these codes are, at least in my opinion, important.
The King reports are all about conducting an ethical and transparent business. It is about disclosing all the facts to all stakeholders, giving access to required information, it is about accountability of company directors, it is about thinking of others. The codes also places strong emphasis on independent directorship and active shareholder participation. In conclusion it is about playing open transparent cards and honest commentary to everyone involved and respected writers like Bruce Cameron and Deon Basson has been claiming that is the last thing that they are doing.

Now that you have some information to make up your own mind on why the property syndication industry may not be applying these codes let’s focus on being active in demanding the application of the codes. Financial Advisors, Regulators and the public in general should demand the application of King III in all syndicated companies and fractional ownership schemes so that we insure that it is not avoided by ignorance. This will then make it extremely clear which promoters is ignoring ethical, transparent and honest business practices.

If you want to find out more about King III, the New Companies Act or the Consumer Protection Act visit http://www.sinkorswim.co.za/ or contact john@sinkorswim.co.za

People, Planet & Profit

The new King III report puts a much larger emphasis on so called Triple Bottom Line reporting for businesses. Business is not just about making money anymore as it is about how you make the money and whether you take from the people and planet or give to the people and planet.

Obviously as King III applies to all entities it is placing a bigger burden on smaller business to also comply to these codes and therefore we are seeing a bit of resistance to King III. That said King III has an apply or explain approach and therefore I am off the opinion that this approach makes it accessible to most businesses. But what does apply or explain mean? This basically means that you need to apply your mind on how you can comply, do the best you can do to comply and explain why you can’t do more. So basically it is a soft and positive approach rather than the traditional comply or else like in the US system. With the recent global meltdown I am sure we can debate for hours on the success of the more aggressive approach taken by the US government in governance.

I do however believe we need to ask ourselves a more prudent question. Is it good business to comply to King III? Well let’s not debate the legal issues around it but the pure advantage that it will offer you, if any. I think the answer is a resounding YES. Most of us as directors spend 110% of our time working IN our businesses focussing on our functional role within the company and we don’t spent any time working ON our businesses focussing on strategic and long term visions. When complying and applying King III into your business you will force yourself to spent at least some time ON your business and just in that the advantage of compliance is massive.

In conclusion, every change brings opportunity and risk and compliance to King and THINKING about Poeple, Planet and Profit will give more opportunity to you to manage your business effectively. Non compliance only brings risk. So my opinion is: Lets apply King III.

To find out more about King III, the New Companies Act or the Consumer Protection Act please visit http://www.sinkorswim.co.za/

Are Financial Advisors ready for the new challenges?

The New Companies Act brings opportunity the Consumer Protection Act brings some additional strain whilst the proposed Protection of Private Information Bill will place additional strain on marketing methods and additional responsibility on database management within the financial services practice. This is a clear indication that 2010 and 2011 is going to be a very interesting time for financial advisors and business owners alike.

That said, I had to ask the question are Financial Advisors ready for these paramount changes and the opportunity and challenges that it holds. The extremely interesting part is in a quick survey, conducted with 40 companies that have attended the Sink or Swim Seminars, only about 15% of them had a active relationship with a financial advisors and most of these were merely related to pension funds and medical aids on not to any other business critical issues.

Even more over I was surprised that in a phone call to about 20 brokers only one offered business risk insurances, and I am not referring to asset insurance. Now the question I have is why don’t business owners have relationships with financial advisors and why don’t financial advisors focus on providing these key risk insurance instruments to their client base.

In recent years we have seen how the pendulum have swung in favour of the consumer and I have to wonder if Financial Advisors will now also be found wanting if their clients are not properly insured for these business critical risks. Never mind the massive opportunity that lies in this market segment.

2010 and beyond

Nostradumus, in his lost book of images, allegedly predicted the end of the world and humankind in 2012. Although I am no psychic nor do I care much for predictions it does not take much psychic powers to predict the end of the business world as we know it in 2010 for South African business people.

The promulgation of two critical acts namely the Consumer Protection Act and the New Companies Act does change everything we know about corporate and business law in South Africa but even more over the more aggressive prosecution of the Employment Equity Act and the criminalisation of the Competitions Act is also set to make your life as company director more strenuous and just plain scary.

It is rumoured that the commission has been instructed to fine a minimum of 270 companies during 2010 for non compliance to the Employment Equity act and to prosecute aggressively whilst critics believe that the criminalisation of the competitions act will have extremely negative effects on business. Another portion of the New Companies Act is Section 6,Business Rescue and Compromise with creditors, and I am off the opinion that it will have a massive impact, at least in the short term, on the credit environment in South Africa. Where does this leave company directors?

Simply it places a huge burden on company directors and officers and does open them to a tsunami of potential litigation, regulatory fines and stakeholder scrutiny. Therefore I am of the opinion that Financial Advisors are going to play a more vital role in the daily business life of directors. In a recent “survey” done by Sink or Swim only 15% of the respondents have a trusted and active relationship with a financial advisor. Similarly in a couple of phone calls to brokers it became apparent that they do not offer nor understand business and intangible insurance products that they require.

Now the important questions that we need to answer is, can I as a financial advisor be held liable if my clients business is not properly insured for these risks? Is it the prudent move to avoid the issue? Am I ready for the changes? Financial Advisors already have a tough time with the need to comply to FICA, POCA, FAIS and soon the consumer protection act. How will this impact your business and the inherent risk that you take in your daily activity.

To find out more about the New Companies Act and the Consumer Protection Act visit http://www.sinkorswim.co.za/

Consumer Protection Bill and the Services indusrty

The Consumer Protection Bill will set the benchmark in responsible marketing for service providers in South Africa.

The consumer protection Act, due to be promulgated in October 2010 in South Africa, is aimed at setting a national benchmark for high standards of marketing and responsible sales and advertising. The act affords a myriad of protections to the consumer with a strong emphasis on the previously disadvantage participants that have been exploited by some business sectors.

Companies providing service to the public have to start now to get themselves in line with the new Act as the consequences of not being in line could be dire.

Just some important provisions in the act for service providers

• A contract would be interpreted in favour of the consumer, in the event of ambiguity allowing for more than one reasonable interpretation. Although this reflects the existing law, it is now an unalterable right.
• Any exclusion within the contract would be measured against whether a reasonable person in the position of the consumer would have expected such exclusion, taking into account the contract's contents, the manner in which it was presented and the circumstances around concluding it. Contract exclusions must to be drawn to the consumer's attention.
• Service Providers will not be allowed to take advantage of the fact that the consumer is unable to understand the terms of the contract being concluded with it as a result of either physical or mental disability, illiteracy, ignorance or inability to understand the language of the contract.
• The Terms of the contract may be ruled as unfair, unjust or unreasonable if they are excessively one sided, contain terms so adverse to the service provider as to be inequitable, or if the consumer was misled by the service provider company.
  The terms of the contract must be in writing and in plain language (see definition of plain language at bottom).
  

In conclusion, the New Companies Act places a huge responsibility on service providers to act responsibly with there consumers and to ensure that all contracts are easily understandable and properly explained.

To find out more about the New Consumer Protection Act visit www.sinkorswim.co.za for seminar dates.

Plain Language – In essence plain language means that you should write documents (advertising or other) in such a manner that it can be understood by the lowest potential target market.