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.

What is Invoice Discounting

Invoice discounting is a common finance tool or arrangement with a finance company or bank. It allows the bank to advance monies to a business against its debtors (customers) thus helping cash flow.

This very attractive option in financing your business is somewhat overlooked, however it is a safe, cost effective and fast way to insure that your company has a good and solid cash flow.

This could be an extremely viable funding option available to companies that provide a product or service on credit terms to their customers. The purpose of the finance is to give you access to immediate funds, without having to wait for the customer to pay the invoice. This is particularly beneficial to those of you who are in a growth period and committing more working capital to customer credit \ debtors.

The company lending you the money will agree that for all invoices raised you will have a certain percentage available of the value of the invoice at you disposal. You do not necessarily have to utlisie the full available amount (credit limit) immidiately but have the assurance that you can draw on the facility when needed.It can therefore act similar to an overdraft just with the added advantage that it is not directly influences by collateral as per bank requirements.

The process of getting a credit limit in place is actually very simple: The ‘factor’ (the lending company) is disclosed to all of your customers, with your customers paying the factor direct. The factor will collect all amounts due and offset this amount against your account. The balance of the invoice will be paid into your account, less the fee and interest.

To obtain such a facility you can log onto www.fogwell.co.za

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.

Outsourcing vs Labour Brokering

Especially in South Africa labour brokering is often confused with outsourcing and the biggest culprits in promoting this myth is the labour brokering industry itself. Now I would like to state very clearly that I am not against labour brokering and I am a firm believer that there is an important place for the industry in South Africa. That said I think it is prudent to ensure that the two very different industries are not confused.

Firstly, labour brokering is the provision of staff on an outsourced basis, whilst outsourcing is the fulfilling of a function within which a staffing solution may be provided. The methodology and profit generation of these industries is vastly different. Allow me to explain in slightly more detail.

A labour broker earns its revenue from employing and deploying as many staff members as possible. The profits are generated from invoicing their clients more than what they pay the employee. The biggest reason a company is willing to pay a premium for this service is the “passing-on” of risks associated with employing staff and in some cases the increased costs, if any, can be justified by the decreased administration requirement.

A true outsourcing company, on the other hand, generates its revenue from addressing the need of the company within a function at as low a cost as possible and charging the client a premium for that service. Usually at a lower rate than employing staff to fulfil that function. The focus of the outsourcing company is therefore not on their clients staffing requirement but rather on the function that needs to be fulfilled.

So in other words the outsourcing company generates its margin from increasing its efficiency and by leveraging the intellectual capital within the company. For example using better software and more expensive staff than what its clients could afford and sharing these resources with more than one client. On the other hand the labour broker generates its margin from its administrative abilities and from decreasing legal risk.

So which one should your company choose? Simple, it depends on your need. If you require a warm body and do not want litigation risk and the administrative head ache of employment, labour brokering is a viable option for you. If you on the other hand require a function within your company to be managed more effectively and at lower cost outsourcing should then be looked at.

In conclusion, both industries have an important place in the South African economy and address the needs of companies to reduce risk and potentially costs. That said they should not be confused or pit against each other.

Proper Corporate Governance still a big obstacle for Africa

Africa has seen massive failures in Public Private Partnerships, donor funding that was misappropriated on large scales and project that have all the hopes and dreams of creating jobs and prosperity for its people never being implemented passed the planning phase.

At least this is the thought of most international investors and donors. The successes of many projects are sadly far over shadowed by the failures of others and some of these on spectacular scale. In a fairly recent trip to Uganda I was asked to become involved in a government backed fund raising scheme for Hydro Electricity, the shocking reality is that these projects have been available to investors for years with virtually no takers.

One has to wonder why? The reality is that Africa has ignored Corporate Governance and it is costing the continent growth on a spectacular scale.This is even apparent in South Africa, where we have some of the most progressive codes in corporate governance in the world, in the form of the old King II and now the King III codes. By applying these codes one can effectively manage projects, organisations, partnerships and companies with exquisite corporate governance. The failure to apply these codes is clearly visible in the failures of most state owned company boards, I don’t think it is going to take an avid news reader to think of at least five “para-statels” who’s boards have failed dismally and in the private sector it could also be visible in the board failure of Pioneer Foods.

With the entire continent requiring massive inward investment, donor funding and progressive projects it is clearly time for leaders in both the business and the government sector to embrace proper corporate governance and to take the plight of all stakeholders involved seriously. Africa needs to instil faith in itself and grow trust and respect from the outside community. The only way this can be achieved is by implementing proper corporate governance even in its most basic activities.

Up and coming

My new website will be launching soon. Please watch this space for new information, I look forward to getting my 2010 underway and assisting you, my business friends, with advice, training and support where you would like that I can assist.

Please feel free to contact me if you require any additional information.