Christo Botes – Page 3

Although Finance Minister Pravin Gordhan has given further tax relief to small businesses and micro-enterprises in his 2012/13 Budget, there still remains very little incentive for small businesses to start up and flourish in South Africa.

Professor Matthew Lester, speaking at the launch of the 2012 Sanlam / Business Partners Entrepreneur of the Year ® competition, says that tax relief in any form is welcome, but at the current level it will not necessarily encourage small businesses and micro-enterprises to grow at the rate required to stimulate the local economy effectively.

“In some cases it may even be beneficial for small businesses to remain at their current size in order to keep qualifying for the reduced tax. That is why it is imperative that tax incentives are tailored to foster growth in the SME sector,” says Lester.

He explains that in terms of the new budget, the tax-free threshold for small business corporations has increased to R63 556, the 10% rate has been reduced to 7% and the threshold to which this rate applies has been increased to R350 000. “For taxable income above R350 000, the normal 28% corporate rate applies.”

According to Christo Botes of the Sanlam / Business Partners Entrepreneur of the Year ® competition, a taxable income of less than R350 000 is a very small business. “There should rather be a complete tax holiday for the first three to five years of business and a rebate should be paid for sustainable jobs created over this period of growth.

“Essentially, businesses in South Africa are better off overall as a result of these changes, but the benefits are not readily apparent,” says Botes.

Finance Minister Gordhan also announced that qualifying micro-businesses, within the R1 million turnover limit, will be able to pay turnover tax, VAT and employees’ tax twice a year. This means that the number of returns and payments a year will be reduced from about 18 to just two.

“Although this is positive from a red tape perspective, the turnover of R1 million is minimal and formal registered businesses within the manufacturing, construction and retail sectors will receive very little benefit from this as their turnovers should be way above R1m to remain sustainable,” says Botes.

According to Botes, the new competitiveness enhancement programme – which has been initiated as part of the industrial policy action plan, building on existing production incentives in the automotive and clothing and textile sector – is however a positive step. “These sectors are known as key job creators and are mainly run by small businesses.

“The automotive industry has various tiers of manufacturers and it is often small and medium-sized enterprises that do most of the component manufacturing.”

He says that the objectives of government’s draft National Development Plan and vision for 2030 will also effectively support job creation and SME development. “The growth of the manufacturing and agricultural sectors will potentially result in the creation of new small businesses, as well as the expansion of existing businesses.”

Botes adds that the National Tooling Initiative in support of accelerated apprentice training is also a positive initiative that has been discussed a great deal in the past. “We look forward to hearing more details on the roll-out of this initiative, as the potential is for smaller manufacturers to take on apprentices, thus playing a key role in practical training and fostering crucial skills development.”

He says that though the latest budget has outlined a positive vision for the growth of SMEs, more needs to be done practically to profile the success and significant job creation achievements of entrepreneurs across South Africa. “This is the primary aim of our annual competition, which we believe plays a crucial role in elevating the standard of entrepreneurial activity locally, as well as fostering a national entrepreneurial spirit that directly translates into job creation,” concludes Botes.

How to close deals and deal with conflict

In any business, partnership or joint venture, there will be conflict.

Mostly, SME decision makers will enter the fray thinking of the outcome in terms of winners and losers.

Similarly, when these decision makers enter into negotiations with a potential partner, client or supplier, the battle lines are often drawn around who will win and who will lose.

Negotiation and conflict resolution are arts of the business world and one needs to know how to play the game.

How to haggle

When SME decision makers enter into negotiations on a deal, they accept that it is a give and take situation. Usually, everyone wants to be the taker but this is simply not the reality.

Big business will always try to negotiate from a position of strength and Business Partners Executive Director, Christo Botes, says you cannot negotiate as an SME if your back is against the wall.

“If you back off continually and constantly cut your margins, you will lose the other party’s respect. Your reputation in the industry can also be adversely affected,” he explains.

“You need to stand your ground on matters of principle and never allow your integrity to be questioned.”

Jan Steenkamp, the Executive Head of Sanlam Cobalt, echoes this: “Before you enter into a deal you have to be sure of its purpose… It is natural for people to try win at all costs and get all the benefits stemming from a deal. When you try to get too much, it almost always leads to conflict.”

It is also important to be transparent and honest and you need to balance your needs and the other party’s expectations.

“Never bluff – if you create a perception that is not accurate, you will be caught out and you will lose your credibility.

“When you go into a deal you need to ensure that the deliverables are well defined for both parties… you need to define the end goal upfront and take the emotion out of the deal,” Steenkamp says.

It is called batna

Gibs’ Associate Professor Albert Wöcke, says whenever you enter into negotiations, you need to set a BATNA: the Best Alternative To a Negotiated Agreement.

“People think they need to compromise, compromise and compromise until everyone is happy. Or, they try to win at all cost,” he says.

Wöcke explains that once you have set your limits – your BATNA – you enter a negotiation with a sense of power. In addition, if you have set and defined limits, you will know when it is time to walk away.

He adds that not all negotiations are about possessions and that you need to identify quickly what the other party’s motives are.

In a win-win scenario, the conversation revolves around different, and congruent interests.

In a win-lose scenario, one of the players has a positional bargaining ace-card.

“Typically, you need to look at their sources of influence and your own. If it is a large company you need to look at what makes you attractive,” he explains

The deal goes south

Deals with customers, suppliers or joint venture partners will come undone from time to time and it is important to handle the situation professionally.

To Wöcke, conflict is not always a negative word and he says that it is essential to promote innovation and change – it can be a driving force in a business.

When it does move into a negative space, he says that conflict management comes down to the way you want to see the situation play out.

Wöcke explains these intentions are either competing, avoiding, compromising, accommodating, or collaborating.

In other words, you need to decide what outcome you seek through managing the conflict. You also need to decide how important the issue is versus continuing the relationship: “If you have this in the back of your mind, you can generally manage the outcome because the other party will probably respond to your approach.”

Steenkamp adds to this, saying that if the conflict is between business partners, or joint venture partners, one needs to quickly identify the true cause of the disagreement. This is because conflict often manifests itself in issues different from the true cause.

“Most business owners want to be in control and when someone starts stepping on their toes it leads to conflict. The different roles need to be defined clearly and for the benefit of the greater good of the company…

“In some cases the best answer may be to walk away but you need to be mature enough to do this in a way that ensures both parties are not negatively affected,” Steenkamp says.

When the conflict is internal, the rules do not change: “Quite often, conflict stems from emotion and personal management styles or backgrounds. If this happens, you need to improve your communication lines and try to understand the other person’s way of thinking – here an outside person can help you to remove the emotion and facilitate an open an honest conversation…

“You need top be able to listen and understand the other person’s perspective. It does not help communication if you defend your position all the time,” Steenkamp says.

Glass houses

Botes says that when shareholders and directors start to work against each other, it usually signals the beginning of the end.

Shares and voting rights are almost always a source of contention, as SME decision makers want as much control as possible.

Rather, he believes that a business needs a clear leader who has the casting vote in a partnership. Capital, he adds, does not automatically define knowledge or ability.

“If conflict starts to snowball, it can often be too late to save the business. You need to work at your relationship with your business partners every day.”

He adds that silent partners also often become involved in a business when things go wrong. While they did front capital, silent partners are usually not operationally involved in a business for a reason.

“It is always best to set out the relationship from the start… A good way to deal with potential conflict is to have regular meetings to update silent partners. But, do not let these meetings adversely affect the business.”

Botes adds that reverting to a shareholders agreement is only a last resort. Rather, the spirit of the agreement should guide the relationship.

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Tax relief welcome but still not enough incentive for SA small businesses