Employment and Labour Ministry announced extension of covid19 relief payments until August 15 in Budget vote

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The Employment and Labour Ministry today announced an extension to the COVID-19 TERS relief payments that it has provided to ordinary workers in this country to shield them from the worst effects of the pandemic and to ensure that their families are not pulled into abject poverty.

Speaking under the theme Protecting Workers and Jobs in the era of Covid19 at the occasion of Budget 31, the Deputy Minister of Employment and Labour, Ms Boitumelo Moloi announced: “Following due diligence and consultation with the Unemployment Insurance Fund actuaries, and in line with the President’s decision to extend the life of the Disaster Management Act until 15th August, we have taken the decision to similarly extend the Covid19 Ters benefit until 15th August 2020.”

The benefit structure and existing criteria remain the same. We are considering closing the April, May and June applications at the end of July 2020; all valid applications already received for these two months will be processed. We are in consultations with the social partners at NEDLAC in this regard.

The extension of the relief scheme comes as the UIF has put cash in the hands of workers of some R34-billion in 7.4-million payments while maintaining its normal benefits disbursements which have amounted to R4-billion in 677 000 payments to beneficiaries since March 26, 2020.

During the speech, the DM who spoke on behalf of Minister Thulas Nxesi who is recovering from Covid19 related illness also announced:

  • The Compensation Fund’s stated commitment to consider any claim from workers who contract the virus while at work. The relief provided by the CF comprises:
    • pay-out for temporary disablement while the worker is in quarantine, self-isolation or hospitalized;
    • payment of medical expenses; and
    • where, tragically, the illness results in fatality the Fund will pay out survivor benefits to dependents in the form of a monthly pension and funeral benefit.
  • Public Employment Services, in a joint programme with Higher Education funded by the EU, will purchase 24 mobile units, to operate across all provinces in the quest to taking services to the people, reducing the travel costs of work-seekers, and taking into account the new realities of social distancing in the era of Covid19. The branch will also streamline and place online its registration processes to make it easier for work-seekers and employers to access services.
  • As part of a larger project to develop a National Employment Policy, Labour Migration Policy development is being fast-tracked both to address immediate challenges, as in the Road Freight and Logistics sector, as well as to coordinate labour migration policies with the Southern Region and continent wide.
  • The Inspectorate and Enforcement Services is focused on enforcing Covid19 related Health and Safety directives. It will also prioritize advocacy work to promote compliance with labour legislation in the domestic sector. There will also be renewed focus on implementing Employment Equity Legislation.
  • The Inspection and Enforcement Services Branch in conjunction with the Compensation Fund had committed to recruit an additional 500 Occupational Health and Safety Inspectors. This process will be largely completed by the end of this month. Vacancies in the existing staff establishment are also being filled, spurred on by the need to increase capacity to enforce new directives to protect workplaces from the spread of the corona virus. Whilst the passage of the Occupational Health and Safety Amendment Bill was stalled by the 2019 elections, the Bill is still very much alive, and has been prioritized for legislation in the current session of Parliament.
  • The Inspectorate has also worked closely with the CCMA (Council for Conciliation, Mediation and Arbitration) to enforce the National Minimum Wage. Some 4,300 non-compliant employers were referred to the CCMA resulting in the recovery of R20 million in short payments to workers.
  • The UIF is revamping its Call Centre to better respond to clients’ queries. Moreover, a UIF App and USSD service are being developed to go live in August. These are the lessons we have learnt from the Covid19 Ters benefits model, which we will now customize and apply to normal UIF benefits.
  • The Compensation Fund is also focused on strengthening its online application system in advance of a possible uptick in claims. To date, 2066 claims have been lodged.
  • In addition, during the lockdown:
    • Over 20,000 claims were registered in CompEasy by employers;
    • 146,000 medical invoices were processed;
    • R 921 million was paid to healthcare practitioners for the period 01 April 2020 to 13 July 2020;
    • R15 million was paid in total temporary disablement benefits to beneficiaries; and
    • R276 million was paid to the 24,000 pension beneficiaries of the Fund.
  • The CF has prioritized the Rehabilitation and Return to Work programme, underpinned by proposed amendments to the COIDA (Compensation for Occupational Injuries and Diseases Act).Deputy Minister Moloi also committed the department to working with all stakeholders like NEDLAC in facilitating engagement of the social partners to prioritize the commitments of the Jobs Summit to refocus on growth and jobs. This supports government’s plans for economic reconstruction and calls for a national debate on the way forward.The department, through its entities, has to date committed, R2, 3 billion resulting in nearly 10,000 sustained jobs. The Fund has also, jointly with the UIF, committed to invest R1.4 billion in the SME Fund, of which an initial R400 million investment has been made. This is to provide venture capital to support small businesses in creating jobs.

    The UIF, as part of the October 2018 Jobs Summit commitments has refocused its Labour Activation Programmes on direct support to distressed companies to preserve jobs via the TERS programme (Temporary Employer/Employee Relief Scheme) and by supporting training that is directly tied to employment. In 2019/20, 33 companies were supported, at a cost of R120 million, directly saving 4,000 jobs. The Fund also preserves and creates employment through its Enterprise Development programme, High Social Impact Fund and Partnership Development Programme, which supports start-ups.

    The UIF is also committed to implementing its Section 5D obligations under the UI Act (as amended). It will set aside 10% of its assets to support Labour Activation Programmes in support of jobs and training geared to the needs of the labour market. The UIF has committed R394 million to funding training for 26,000 learners, 50% of which will be youth and women.

    To assist vulnerable workers to report under-payment, the Minister this year launched the Impimpa Hotline. It is estimated that some 6 million, mostly vulnerable and unorganized workers, have benefited from the implementation of this measure. The National Minimum Wage Commission will publish a full report this year on its impact in relation to employment, poverty and inequality. This will inform any amendment to the minimum rate for 2021. In the meantime, the minimum wage was increased this year in line with CPI (Cost Price Index).

    The department has urged all socially responsible employers, organized labour, health and safety committees and individual workers to work with the Inspectorate to maximize the impact.

    “In this respect, our capacity is also strengthened by joint inspections with other departments e.g. Agriculture, Home Affairs, SAPS and Transport depending on the companies we visit,” said Deputy Minister Moloi.

    The CCMA continues to serve a critical role in stabilizing labour relations, advancing employment security and promoting labour market stability. In 2019/20, the Council experienced a 16% increase in case load, largely as a result of the introduction of the National Minimum Wage Act and amendments to the BCEA (Basic Conditions of Employment Act) in January 2019. This has placed great strain on the organization, exacerbated by budget constraints. Over the same period, engagement with parties saved the jobs of 42% of employees facing retrenchment under section 189A referrals. The Council has responded creatively to the current Covid19 constraints by utilizing virtual hearings and going to the clients to hold hearings at employers’ premises.

    Recognising the slow pace of transformation in the workplace for blacks, women and people with disabilities, Cabinet approved the Employment Equity Amendment Bill, 2019 in February 2020. The Bill empowers the Minister of Employment and Labour to regulate sector specific Employment Equity numerical targets, and to prescribe criteria for the issuing of an Employment Equity Certificate of Compliance as a prerequisite for accessing state contracts.

    The Department has developed a Code of Good Practice on the Prevention and Elimination of Violence and Harassment in the workplace, which will go for public comment. This is in line with International Labour Organization.

    “The Department provides subsidies to support ten organisations of people living with disabilities, which employ 950 workers with disabilities. We also have 13 factories providing employment to 1,150 workers with disabilities under the Supported Employment Enterprises programme, which produce high quality furniture and linen and now PPE products. We have an obligation to support them, as government structures, at all levels, as well as the private sector,” she said.

    Last Friday, Productivity South Africa presented findings indicating that South Africa’s global competitiveness ranking had fallen from position 56 in 2019 to 59th in 2020.

    “As a country, we need to appreciate that this poor performance is what underpins our fundamental crisis of unemployment, poverty and inequality. We are determined to work through Productivity SA to advocate a culture of productivity and competitiveness,” Deputy Minister Moloi said.

Source: http://www.labour.gov.za/

It’s official: Stay out of office till October, and SARS will let you claim home office costs

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Amid some recent uncertainty, the SA Revenue Service has confirmed that full-time employees will be able to claim home-office expenses during lockdown.

Typically, people who earn commission and independent contractors claim these expenses.

But full-time employees can also claim if they work from home for at least six months of the tax year. This means that you would have to work from home at least until the end of September, if you left the office at the start of the national lockdown.

If an employee’s duties are mainly performed from their home, they will be able to claim some expenses, a SARS spokesperson confirmed to Business Insider SA.

“To take a simple example, if an employee works normal office hours for a single employer for the tax year from 1 March 2020 to 28 February 2021, this requirement will be met if the employee performs their duties from the home office for more than half the year,” the spokesperson said.

However, your home office must be specifically equipped for work – and “regularly and exclusively used” for such purposes, he added. This means that you must have a dedicated work area – you can’t just use your dining room table for work.

These are some of the expenses you can claim for a home office:

  • Part of the interest on your bond, or part of the rental of the home – as well as municipal rates and taxes, including water and electricity. This will take into account the floorspace of your home office, compared to the total floor area of your house. If, for example, your home office is 20 square metres and your house is 200 square metres then you can deduct 10% of the qualifying expenses such as rates and taxes or interest payable on bonds. You can’t deduct all your expenses.
  • You can also claim for stationery, and data costs.
  • Wear and tear on office equipment.

Importantly, if you own your home, claiming home office expenses could cost you in extra capital gains tax (CGT) when you sell.

For primary residences, the first R2 million of any capital gain on selling is not taxed. But if you tell Sars that part of your home isn’t a residence, but an income-generating office, that part of your home is excluded from the capital-gains tax break.

So if you claim 10% of the floorspace of the home as an office, then 10% of the eventual selling price could be liable for CGT, at a rate of 40%. However, the CGT calculation also takes into consideration the length of time over which you use your home office

In addition, if your employer reimbursed you for data costs, stationery or other expenses – you may not have to pay tax on these payments.

“(An) employer’s reimbursement of an expense incurred by an employee is not taxable if the expense has been incurred at the employer’s instruction, for the employer’s trade, and the employee must account for it to the employer to prove that it has only been used for that purpose,” the SARS spokesperson said.

Examples of reimbursed expenses that would not be subject to tax would be data bundles purchased to work from home and stationery used for work purposes.

 

Source: https://www.businessinsider.co.za/

smile – and get paid more quickly

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Who knew? Emoticons work!

Put ‘happy’ faces [ 🙂 ] in emails to clients when you’re thanking them for paying promptly and
‘sad’ faces [ 🙁 ] in emails if they don’t keep to payment arrangements.

WHY – reason #1
Research published some time ago in the journal Social Neuroscience revealed that we react to emoticons in the same way we react to seeing an emotion expressed on someone’s face.

In a study run by Dr Owen Churches, from the school of psychology at Flinders University in Australia, 20 subjects were asked to look at images of people’s faces and smiley face emoticons while electrical activity in their brains was examined. Similar face-specific brain activity was triggered when participants looked at images of faces and emoticons in their conventional setting.

Researchers showed the participants smiley faces, along with real faces and strings of symbols that shouldn’t look like faces, all while recording the signals in the region of the brain that’s primarily activated when we see faces. This signal, called the N170 event-related potential, is the highest when people see actual faces, but was also high when people saw the standard emoticon :).

“This indicates that when upright, emoticons are processed in occipitotemporal sites similarly to faces due to their familiar configuration,” the researchers write.

WHY – reason #2
South Lanarkshire in Scotland has 226 Vehicle Activated Speed (VAS) signs.

They reward drivers who drive under the speed limit with a smiley face. Those who drive above the speed limit are met with a sad face.

It’s a simple concept and one that appears to be paying off. Since implementing the personalized smiley feedback to drivers, speeding in the area has decreased by 53 per cent.

SUMMARY
Just doing this ISN’T going to influence all of your account customers to pay you on time! But … it IS another of the many ‘little’ things that we do that makes our non-confrontational method of account collections so VERY powerful and effective. As irrational as it might seem, it appears we enjoy making people happy and prefer to avoid making them sad.

 

Source: https://creditflowsolutions.com.au/

ARE YOU FUTURE PROOFED?

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Accounting professionals who acquire the necessary new skills will position themselves well for an uncertain future in the post-COVID-19 world.

By Professor Rashied Small, Executive: Centre of Future Excellence (CoFE), South African Institute of Professional Accountants (SAIPA)

It’s a brave man who will predict the future, especially in the wake of the COVID-19 emergency —everybody was expecting a pandemic, but it was the scale of the response that nobody foresaw. But while one should resist making detailed predictions, it would be equally foolish not to recognise the currents that are going to shape our world and, more particularly, our profession of accounting.

It’s clear that organisations that are agile and responsive to change were more likely to have spotted the threat posed by COVID-19 early on, and thus gave themselves time to ready themselves for change even though they were not necessarily certain about the details of that change.

One of SAIPA’s main aims is to help its members identify the trends that will be shaping the profession, and to help them acquire the skills they need to navigate the uncertain waters of change. We have identified the following trends that look set to disrupt accountancy:

Impact of technology on the profession. The impact of technology on business and society is undeniable, but professionals have tended to feel that they are to a great extent protected from anything more significant than having to learn some new technologies. It’s becoming clearer by the day that this is largely illusory. Advances in artificial intelligence and machine learning coupled with the immense processing power of the cloud (the Fourth Industrial Revolution) means that many of the services currently rendered by accountants can be done better, faster and cheaper by software.

At a more profound level, increasingly sophisticated automation means that accountants can no longer rely on producing information — financial statements, balance sheets and so on—but must become information users and knowledge producers. This is good news because accountants are highly skilled people with a lot to offer both the private and public sectors. — and now they can focus on adding genuine value.

This will require a substantial mindset shift for many professional accountants. It will also mean that they will need to invest sensibly in technology and, particularly, in their own technology skills. Only by being expert users of the increasingly sophisticated software that is available will they be able to carve out a niche for themselves.

The days of simply churning out “the numbers” are rapidly ending.

Changing client demands. The flipside of the technology revolution is that clients will be able to do more for themselves, and their demands for advice will become more sophisticated. In many senses, both the private and public sectors are becoming more complex and the environment in which they operate is more uncertain. Their reliance on advice rather than information is likely to grow. Professional accountants must be ready to move from being primarily numbers people to something more like financial strategy consultants or advisors. To make this jump, they will need to understand the value of the data that the systems have generated, and how to use it to advise clients.

In the end, I believe that professional accountants can essentially position themselves as virtual CFOs for smaller enterprises, providing them with the financial insight they need to survive.

Growing regulation. Financial services are already highly regulated but expect more regulation to be coming your way. Fourth Industrial Revolution technologies can be of great assistance in boosting compliance, and professional accountants need to understand how to use them to align themselves with the spirit as well as the letter of the law.

Virtualisation of the working relationship. As many have observed, COVID has forced everybody onto virtual platforms to conduct both business and social life. As with the Fourth Industrial Revolution technologies that are transforming their profession, accountants must embrace this change which is likely to be long-lasting. In due course a hybrid model will doubtless emerge, but virtual consultations have much to offer: they save an enormous amount of time and can be remarkably effective. A more virtual client relationship also means that a professional accountant can service a much greater number of clients over a theoretically unlimited geographical area.

Perfecting the technique of using a video call to build or deepen a relationship is going to be an essential skill for professionals as well as businesspeople.

Build resilience into your business model. The disruption caused by the current pandemic should serve as a wake-up call for smart professional accountants. Not only should they focus on risk identification and mitigation, they need to take steps to ensure that their practices are better able to adapt to the unexpected at speed. Above all, resilience will depend on the ability to cope with the materialisation of unforeseen risks.

Rather neatly, those who embrace the technology revolution will find themselves better positioned to change—or “pivot” as the new jargon has it—when the next unexpected challenge comes their way.

Are you future-proofed? 

 

Source: https://www.saipa.co.za/

Four steps for accounting to weather the 4IR

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The Fourth Industrial Revolution will profoundly change the world of accounting. But agile companies stand to benefit from these changes.

Jodi Joseph, Divisional Executive, CaseWare Africa – Adapt IT – unpacks the different elements of the 4th Industrial Revolution and specifically what they mean for accounting professionals in terms of how they run their businesses and avail of the opportunities for growth that this latest technology era brings.

Accounting, or accountancy, is thousands of years old and can be traced to ancient civilisations. Italian Luca de Pacioli – recognised as the father of accounting and bookkeeping – published his work on double-entry bookkeeping, as long ago as 1495.  The profession has weathered the challenges and opportunities of each of the first three industrial revolutions, but the changes looming in the Fourth Industrial Revolution (4IR) look set to take place faster than any that came before it.

Throughout the ages, the fundamental purpose of the profession has stayed consistent – to:

• provide reliable financial information,
• help businesses stay compliant with ever increasing regulations
• and take up the role of trusted advisor for people who want to run businesses and make money.

This purpose will remain true throughout the 4th industrial revolution. But how we will provide reliable financial information and what a trusted advisor will need to do and know, will change.

Driving these changes will be certain key 4IR technologies:

• Blockchain. In a world of fake news and a drive for total transparency, the Blockchain equals the Truth.
• As an incorruptible chain of blocks where each block contains data of value which is validated by all nodes in the network, information stored on the blockchain can never be deleted or altered.  This technology is viewed as the future of land registries due to the myriad of benefits it offers and its potential to greatly reduce property fraud. Blockchain technology underpins ‘smart contracts’, which are programmable contracts that self-execute when certain conditions are met, and offer the possibility that transactions could complete much more quickly when combined with a blockchain registry.
• Big data and cloud computing capabilities. As public expectations change and accountants and auditors must review all information of a company at scale, big data and cloud computing capabilities supports data acquisition. At the same time, data analytic tools are now smarter than ever before. Patterns that could never be detected before are now available at a click of a button.
• Internet of Things. IoT solutions support stock control and risk management for accounting clients across all sectors, enabling accounting efficiency and improving profitability.
• Artificial Intelligence. AI programmes are set to intelligently enhance process automation, reducing the risk of human error and improving efficiency and compliance.

In the short to medium term we see all 4th IR technologies significantly improving the efficiency of the profession – it should be far quicker and cheaper than ever before to process more information, and the quality of outputs to inform decisions should also vastly improve.

Four steps to adapting to the change

For the accounting profession, these new technologies bring with them sudden change, but also significant opportunities. To weather the change and enter the 4IR on a competitive footing, accounting should take the following four steps.

Step one – Focus on purpose

Throughout the ages the accounting profession has existed to help people, governments and economies make good decisions about the allocation of resources and to hold others to account for those decisions.

Better technologies will only enable the profession to deliver on its purpose better than ever before. Improvements will be on speed and quality of information for all participants in the ecosystem.

Step Two – Exploit powerful technologies

To fully exploit new technologies, we need to be clear about what they can do and how they can help. Be informed and get involved so that technologists help solve fundamental business problems in new ways. Clients will look to you to bring some of these answers.

In preparing to exploit 4IR technologies, accounting must focus on leveraging 3IR technologies, automating the practice and ensuring quality data exists today.

Step Three – Think radically

As a profession, we need to be open to more profound change. Research is showing that humans and computers working together produce better results than computers in isolation. We need to think about how we will use technology to leverage the truly human qualities that make the profession effective –  such as professional scepticism, leadership, empathy and creativity.

Step Four – Be adaptable

Technology is changing more rapidly than ever before, so it is impossible to predict how far it will get in replacing human decision making. Therefore, accounting professionals will need to take a flexible approach when thinking about the future. Skills will also have to adapt, with a concerted effort made to understand new technologies and data.

Accounting must also understand clients’ appetite to leverage technologies. Growing numbers of clients are using online cloud accounting packages – not to perform the accounting role, but to take up parts of the process that serve them, such as instant invoicing or chasing up their own collections. The impact of this is better cash flow for clients and better data for accounting to work with.

Most of all, the 4IR means accounting will have to move quickly, get with this change, and stay agile, as this revolution cannot be ignored.

Source: https://www.casewareafrica.co.za/

Training the accountants of tomorrow, today

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South Africa’s small businesses face an unprecedented range of challenges, and unfortunately due to the Covid-19 crisis, three out of four SMMEs are not expected to survive, according to new Heavy Chef research. It’s a bleak outlook, but with the right support and advice, this prognosis can be changed. Now more than ever, accountants have a vital role to play in supporting small businesses.

The accounting community, equipped with the right tools and skills, can be among the most valuable advisors and key to restarting the South African economy.

Today’s accountants can cut repetitive manual processes and improve efficiencies by using cloud technology and automation. Our recent research found that 87% of accounting firms use some cloud technology so that they can dedicate their time to adding value-adding activities like advising. This crisis has made the benefits of technology clear, and firms which use the cloud have had significant advantages.

However, the research found that two-thirds of accounting firms struggle to hire talent with the right skills to use new technologies. Future accountants will need to be equipped with all the right skills and tools, but how can we prepare them for an unpredictable future?

Training future accountants

In addition, 35% of the respondents reported that their firm already seeks candidates with cloud skills. Compare that to the 14% of recruiters that reported a skills gap in technical expertise, and it becomes clear that cloud accounting is a skill that is in high demand. Fortunately, universities are already stepping up to close this skills gap.

Preparing today’s accountants

We’ve already seen a tectonic shift in the way accountants support their clients, moving from working exclusively with the numbers to offering insights and business counsel – and the Covid crisis has only accelerated this. In the future, 54% of firms expect to handle both finances and business advice, while 38% expect to be single-mindedly focused on telling clients exactly what they can do to make their business grow. Just 8% of accountants expect to remain solely focused on the numbers.

It’s great to see this positive shift happen, but for accountants to truly transition into essential advisors, they need the right skillset and a community of partners to help them meet their clients’ needs.

More and more we’re seeing accountants leaning on partners to help them become even more efficient and offer a wider range of support to their small business clients. For example, working with alternative lenders to help with access to capital, using smart apps to give real-time insights into cash flow and using bank feeds to automate financial data capture.

Prepare for the transition

Business’ expectations of their accountants are undergoing a radical shift, as they move beyond merely handling finances and mould into business consultants and advisors. In fact, 37% of small business respondents expect their accountants to handle their finances in addition to providing some advice on ways that they can improve their business, while 28% expect their accountants to act as a business consultant. This is an increase from last year when 29% of the businesses we surveyed wanted to use accountants to handle finances and consultancy, and only 11% wanted to use them exclusively for consultancy.

At a time when it’s unclear what the future holds, reliable advice is vital to keeping businesses nimble and adapting to changing circumstances. Far beyond ensuring compliance and crunching numbers, today’s – and tomorrow’s – accountants need to stay ahead of the technology curve and adopt the latest tools to successfully guide business leaders.

Source: https://www.bizcommunity.com/

YOUR TIME IS NOW

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At SAICA’s (South African Institute of Chartered Accountants) recent Leadership in a time of crisis series, actuary and innovator Dean Furman spoke about how the greatest innovation is created in tough times.

We may be going through challenging times, but that doesn’t mean we need to become deflated or paralysed with uncertainty. In fact, many of the greatest business success stories began their journey during recessions, depressions and moments of chaos.

As part of SAICA’s Leadership in a Time of Crisis series, actuary and innovator Dean Furman spoke about how we can all use this crisis as a catapult for creation and innovation.

“I have seen two diametrically opposed responses to this crisis,” says Furman. “Most people have been frightened into inaction, but some companies have really taken a step back, reset and considered how to take their company to a new level.”

Real-life examples of innovation through chaos

Where there is a crisis, there is always an opportunity. And while Furman is aware of the sensitivities around Covid-19, and the need for empathy during this time, he also stresses that this can, and should be, a time for growth. “Even if you have been majorly hit by the crisis, you need to have a response,” he says. “Often when chaos happens we retreat into ourselves, but it’s important to reset and spend time thinking how we can use this as an opportunity for growth or inspiration,” he reminds us. “When 90% of your competitors are standing still, there’s a real opportunity to take that next step forward.”

As proof of this, Furman takes us through a few incredible case studies of companies or products that were born in times of chaos or depression.

Disney: In 1929, people were lining the streets of the USA for food parcels, yet Walt Disney, who had just a few years prior to the Depression began dabbling in cartoons, filed the patent for Mickey Mouse. Just three years later, he bought the rights to Technicolor technology. For two years they were the only company in the world able to offer colour film. Today Disney is worth $180 billion – because they used the time during the Great Depression to turn themselves around and bring light and fun to the lives of many.

Sony: Fast forward to Japan in the 1940s. It was a terrible time, to say the least, with a World War raging, and two atomic bombs being dropped. Yet Masaru Ibuka and Akio Morita, who had met during the war while working on a missile system together, found a small bombed out retail shop and started tinkering with electronics. Their first item was an electronic rice cooker, then a heated cushion, neither of which were hits. But they didn’t give up and since then Sony has created a number of world firsts while creating jobs for many people.

Apple iPod: The next major downturn was the Dot-com bubble, where IT stocks dropped by 75% over an 18-month period. It was during this time that Apple created a world first with their iPod. Launched in 2001, just after the crash, Apple has since sold hundreds of millions of this physical item, which is unheard of, and the technology they developed was the foundation of future products such as the iPad, iPhone and so on.

Uber and AirBNB: Both of these companies (as well as others such as Whatsapp, Slack, Pinterest and Square) were founded during the Great Recession of 2007/2008. While Uber and AirBNB didn’t necessarily plan this, the timing worked in their favour. With so many people looking for extra revenue, it suddenly made sense to turn your car into a taxi on the way home, or to get some extra cash for renting out your spare room, ideas that may have seemed crazy just a few months or years before. They may not have timed it this way, but if they hadn’t carried on working on their big dreams, their great success never would have happened.

How to innovate

Furman reminds us that companies get paid to create value for individuals, and to make people’s lives better. “People are willing to pay you money for solutions that cater to their needs.”

And that is precisely why a crisis offers so much opportunity. “People’s needs have changed in a major way,” he says. “Their priorities have shifted, the way they operate on a daily basis has changed and as such, there are many opportunities for individuals and companies around the world to offer new services and solutions, or to offer existing solutions in different ways that cater to new needs.”

In light of this, Furman believes that there are three elements you need to consider, if you really want to innovate.

1. Focus on the client

“You need to solve a real need,” says Furman. For him, it’s one thing getting media attention, or creating something people think is cool, but it is way harder to create something that is going to create revenue and profitability. “People don’t pay you to be creative, they pay you to make their lives better,” he reminds us.

“Your customers’ greatest complaints are your biggest opportunities for learning, growth and innovation,” he adds. “Listen to them, and consider how you can solve their problems and make their lives better, even in a small way.”

2. Challenge the way you do things

“So many of my clients are on a hamster wheel, they are working flat out, and even though much of the stuff they are doing is nonsensical, they don’t have time to assess and decide on better ways of doing things,” says Furman. This moment is making the whole world challenge the way we operate, even from basic things like working at home. Use it to charter a new path towards growth, as the same way of doing things won’t achieve the same results in this new world.

3. Explore the world around you.

People, and especially executives and leaders, are way too busy to really explore the world and see what the new possibilities are. “I’m astounded at how few top leaders in big organisations are aware of the tools available to them to improve their business,” says Furman. There are so many new, enabling technologies. Think of anything you want to do, and there exists a technology to do that. “You should be spending ongoing time every week learning about what’s possible, as if you don’t, you’ll become obsolete.”

Challenging times are undoubtedly a good time for action, for getting things done. “You need to decide if you are going to be a victim of the circumstances, or use this as an opportunity for success,” says Furman. “Just like a catapult, the more you get pulled back, the further and faster you can go forward. This is your time to move forward.”

To help address the challenges faced by many, SAICA hosted a complimentary virtual leadership series called Leadership in a time of crisis. This series focused on various elements affecting individuals, businesses and the accounting profession as a whole during the Covid-19 pandemic. Sessions in this series have been recorded and can be viewed on SAICA’s events page.

Has coronavirus changed bookkeeping forever?

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The global health and economic crisis triggered by coronavirus is a heavy burden for businesses. Even those for whom remote working is possible had to solve the problem of accessing the data they need in order to stay operational.

Traditional bookkeeping software is typically installed on a dedicated computer drive, only accessible by a licensed user through a desktop application on their machine.

Now take your bookkeeper out of the office, and ask them to work from home.

  • They no longer have access.
  • You can’t simply leave receipts or invoices on their desk to process.
  • They can’t chase payments, because they don’t know who has paid, or not paid.
  • And so on…

Fortunately, fintech has evolved to a point that cloud accounting software resolves many of these accessibility issues. Bookkeeping software has, in most instances, been moved to the cloud, and what a relief that is in unprecedented times like these.

The global spread of COVID-19 has contributed enormously to the sudden surge of businesses moving over to cloud-based bookkeeping software. It’s an industry that had been seeing robust growth anyway, but the necessity of making changes in order to continue functioning has pushed some business owners off the fence.

But what is the difference between cloud and traditional accounting software?

There are three major differences between traditional accounting solutions and their newer, cloud-based accounting cousins: how accessible they are, how easy it is to grow, and how much it costs.

Accessing bookkeeping during lockdown

Cloud-based software essentially means that your bookkeeping data is stored on a remote server, and accessed through a highly secure online interface, anywhere with an internet connection. Unlike traditional accounting software, users are not restricted to a single machine from which to access what they need, so access doesn’t stop when the building closes.

It means that data is no longer stored locally, and instead provides multiple authorized users with round-the-clock access to real-time information. Managers, accountants, clients and bookkeepers can all even be in different places and time zones and yet continue to monitor and control the business’s financial health.

Growing the bookkeeping with the business

Growing the business can be an expensive business for users who rely on traditional accounting software. Hiring an additional bookkeeper? Better buy more computer storage, upgrade the local server, and increase the bandwidth access to it as well. If you don’t, things can slow down, and suddenly two bookkeepers are working at the rate of one.

The impact of COVID-19 on bookkeeping practices has forcefully demonstrated the sheer versatile scalability of cloud accounting. It’s up to the software provider to manage server space, speed and performance, and usually for the cost of a monthly subscription, which is much more financially flexible.

And that brings us to cost

Fewer local servers mean less real estate is needed to house them. That’s certainly one way to reduce the expenses that come with a larger property footprint.

Most cloud accounting software providers offer access on the basis of a monthly or annual subscription fee, usually including all the server storage you could need.

The software is online and updates itself at the source. No more paying for the IT team to come out and install updates on everyone’s individual machine.

At times like these, businesses tend to either grow or shrink rapidly, whether that’s long or short term. Monthly subscriptions offer flexibility to businesses who need to furlough or hire staff on a rapid turnaround.

 

Source: https://www.accountingtoday.com/

THE DEMISE OF BUDGETS

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For many decades, organisations used a management system based on a fixed plan for an entire year. Companies and governments demanded annual budgets from department heads, to populate their business plans with financial estimates. Budgets were hardly ever revised during a financial year, and then only when exceptional circumstances made them invalid for planning and control.

We may well ask how companies were able to operate successfully with a fixed annual planning system for so long.  In the industrial age budgets performed many different functions. Budgets gave a board and top managers a structured process to grant resources to departments for the year ahead by considering, debating, and then approving their budget requests. The approved budget gave department heads authority to spend, thus enabling a company to delegate responsibility to individual managers for achieving elements of the planned results. The annual budget was the only opportunity for middle and lower management to compete for resources, and for senior managers to decide where resources should be allocated.

The budget gave an organisation a target and a forecast of the future. It provided a benchmark for controlling costs and revenues, which could also be used to measure the performance of individual managers. Budget preparation was a good way to educate managers in the financial workings of their departments and their business. In summary the functions of a budget were to:

  • allocate resources
  • delegate responsibility
  • provide a benchmark for control
  • set a mutually agreed target
  • forecast the future
  • educate managers.

Many people would agree that these are important and necessary parts of a system to manage the responsible use of resources for the stakeholders in any organisation. Management courses years ago taught that the basic functions of management are to plan, lead, organise and control. Every organisation needs to find a way to authorise spending, allocate resources and delegate responsibility, in accordance with the organisation structure. Managers need targets and forecasts to measure progress towards goals, and to educate new managers. The budget provided the means.

 

Command and control

 

In 1989 the Harvard Business Review published an article by Charles Ames, CEO of Uniroyal Goodrich Tire Company in the United States. The article “Straight talk from the new CEO” Harvard Business Review, November-December 1989, set out principles (or command rules) which captured the mind-set of American business executives at that time. “We will run our business by developing plans, and then achieving the planned results”, said Ames. Managers who wanted to get on had to achieve their annual budget, no matter what.  The annual budget was cast in stone and the job of managers was to respond to threats and overcome them.

The bottom-up driven budget cycle began with each management team drawing up a departmental business plan and budget. Senior managers would review and challenge these plans before approving them. The approved budget gave managers authority to operate within the budget. When results departed from budget, head office would demand explanations and prompt action. Apart from rare major external events beyond a manager’s control, it was believed that failure to achieve planned results could only be due to two things:  either the plan was no good to begin with or it was executed badly.

Boards of Directors resisted the idea that external events could divert a business from a course chosen a year earlier. The job of managers was to respond to threats and overcome them. A Board would judge a business unit’s performance on how well they developed good plans and then achieved their planned results. Managers who failed to overcome the operating or competitive obstacles that inevitability appeared, would be moved aside to give others who have these abilities a chance.

    Reliance on bureaucratic systems with strict levels of authority, formal written rules, regulations, and control from the centre, led to dysfunctional behaviour. Managers protected their careers by under-budgeting revenues and over-budgeting costs. Said Jack Welch, former CEO of General Electric “Budgeting is the bane of corporate America.  It never should have existed. Making a budget is an exercise in mineralisation.  You’re always getting the lowest out of people, because everyone is negotiating to get the lowest number.” A manager in a large organisation described the annual budget process as a “burecratic nightmare.” Budget processes could consume up to three months, with the emphasis on filling in forms by prescribed deadlines, rather than creative thinking. Cost budgets were prepared by escalating prior year figures. Accountants’ time was spent gathering, preparing and consolidating numbers, instead of providing guidance to managers. Budget review meetings focused on cost reduction and made people feel threatened and undervalued. Budgets encouraged gaming and perverse behaviour. Office politics thrived in this environment. Some departments were unable to address pressing problems due to budget constraints. Yet in other departments the “use it or lose it” rule, meant money was spent unnecessarily.

 

The system started to break down

 

The idea of budgeting for a year at a time was developed in a world of stable markets, static costs, and predictable inflation. During the last quarter of the previous century, the rate of change in the world accelerated, increasing instability. Globalisation led to increased competition. There were advances in new technologies, changes in political systems and regimes, in climate, in weather patterns and the environment. The world was disturbed by viruses and Black Swan events.

Accountants found that constantly changing market conditions made it impossible to produce meaningful budgets 12 months ahead. Outdated budgets couldn’t be relied on as performance benchmarks or as a roadmap to the future. Managers gave up trying to meet unrealistic targets and sales staff set their own sales targets based on their readings of the local market. Production volumes and procurement were planned to meet these targets, but financial results were still reported against the original, outdated, budget. The control system started to break down. Monthly budget reports were only issued 15 to 20 days after each month end, and no one complained that the figures were late. Budget reports were filed away without analysis, action plans, or follow up. In some cases, the budget was only finalised after the new financial year has started.

Financial staff spent many futile hours each month preparing detailed reconciliations of actual results against budgets, with explanations of price, volume, mix and exchange rate variances. When companies failed to meet profit targets, management ordered arbitrary, across the board, cutbacks of costs. But conservative boards of directors were reluctant to discard their traditional budget processes. In a decentralised world, budgeting remained the only centrally coordinated activity. They thought that regular re-planning would consume scarce management time better devoted to operations, with benefits difficult to quantify. CFO’s worried about uncontrolled overspending, a breakdown in internal controls, increased risk and possible re-rating by credit agencies.

 

Transition from budgets to forecasts

 

A new approach was needed. Fixed annual budgets couldn’t be used as targets or forecasts in an unstable, unpredictable world. Managers wanted to be able to react and respond by changing plans and targets very fast, to reflect current reality. Companies had to be agile and responsive to competitor moves, which meant moving money, people and physical resources to the areas they were needed most.

Finance departments developed flexible planning, reporting and control systems to reallocate resources quickly when market conditions changed, without losing control. Companies started to update their budgets more regularly when new information became available. Score cards and dashboards based on relative improvement targets were built to measure performance.

Some organisations proceeded cautiously by re-forecasting to the current year end only. “Worry about one year at a time” their management said. We learnt that forecasting to year end encourages an organisation to think, plan and operate in one-year silos. A management system should transcend the artificial barrier of a year end, motivating managers to spend more time thinking about the future.

One-off spreadsheet projections prepared by accountants at head office, are not rolling forecasts. Line managers want to be involved in the preparation of their forecasts. Variances are reduced when people have to explain why their forecasts vary from actuals.

Regular forecasting helps to quantify, and by implication manage, the gap between original planned outcomes and reality. Accountants have found that their forecast accuracy in a familiar environment improves with repeated analysis, learning, judgement, detailed supporting data and good systems.

 

Culture

 

Management styles in the new century have evolved from centralised, authoritarian, command and control to decentralised, responsive and participative. A rolling forecast system aims to overcome the bureaucracy in traditional budget systems. The opposite of bureaucracy is adhocracy, which is a term used to describe a flexible and adaptable organisation. An adhocracy culture features an inclusive environment that welcomes new ideas, and a shared commitment to innovation at each level of an organisation. Centralized structures rely on a head office group to make decisions, issue instructions and provide direction for the company. Decentralized structures grant autonomy to teams and make individual business units responsible for making their own business decisions and running their business.

 

Technology as an important enabler

 

In the previous century annual budgets were the only feasible approach, due to limitations in the speed of communications and computation. Advances in technology assisted companies to adopt more flexible processes featuring continuous updates, re-planning and resource allocation based on current information. Technology assisted managers in three ways: they were able to collect and manage large volumes of data, set up global communication systems, and respond fast to market signals by updating forecasts.

 Electrolux, the global manufacturer of household appliances, was a case in point. Between 2000 and 2005, the company was hit with falling sales, foreign exchange losses, price competition and product litigation. Profits declined for five years in a row. In this turbulent world, the company’s annual budget became outdated within 2 months and could not be used for planning or forecasting. The group operated in regional silos. Geographical and communication constraints made it impossible to co-ordinate global activities. Excess inventory sat in warehouses around the world while other products were not available to meet demand. Sales and production plans were based on regional short-term forecasts, while financial results were reported to head office against the original, outdated, budget. Electrolux was running separate planning and reporting systems.

In 2005 CEO Hans Streiberg ordered a complete overhaul of Electrolux’s planning, budgeting and reporting system. Computer processing power, data management software and internet communication, enabled the company to collect and share data from its global operations for the first time.  The company embarked on a two-year “Global data consolidation” IT project. “We wanted better co-ordination of our activities around the world, and to make our strategy, budgeting and forecasting process more efficient” said Streiberg.

The Electrolux global data consolidation project created a management resource which enabled the company to convert uncertainty into knowledge by collecting and analysing large amounts of data. Each region collected and purified its own sales, production and inventory data. Analysis, planning and reporting was centralised at head office. The centralised database captured data on orders, sales, inventory and production from all business units around the world. Forecasting as a science was embedded in the company culture. The data enabled the company to build demand forecasts and co-ordinate production, sales and inventory globally. Raw materials and finished goods could be shipped between regions. Finance used the sales forecasts to develop rolling financial forecasts.

Mr. Streiberg described the features of the new process: “At the start of each year, relative (not absolute) targets are set at board level. These targets are reviewed and updated in a quarterly re-planning and forecasting cycle”. The new system gave managers early visibility of performance trends and reaffirmed commitment to realistic targets on a quarterly basis. Rolling forecasts provided much needed real-time information to internal managers for decision-making. The company communicated quarterly earnings forecasts to investors and market analysts which impacted the share price. Electrolux returned to profitability. Over the next 5 years the company’s shares outperformed the Swedish Stock Exchange, doubling in value.

 

Source: https://www.johnstretch.com/

This is an extract from John’s book “The power of foresight: forecasts, budgets and scenarios in uncertain times” https://www.amazon.com/dp/B088RG8SQX/