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BACK TO SCHOOL FINANCIAL CHECK LIST

By Kerry Sutherland, Alexander Forbes senior wealth manager

 

The arrival of the holiday season means that back to school also looms large, and now is a good time to re-examine your education budget and ready your finances.

 

All parents want the best education for their children and the cost of schooling in South Africa is dependent on whether a child attends a public or a private school. Whatever your situation is, there are various ways to save towards your children’s education including: having a monthly budget, using your annual bonus and savings to pay fees upfront and investing in an education plan.

 

The first tip to pay your children’s education is by working fees into your monthly budget if you are fortunate enough to have a set monthly income. If not, you could use any annual bonus or savings to pay school fees upfront – the advantage of this is that many school offer a discount to those who pay in advance however an important thing to note is that this discount should not entice you to borrow money to do this.

 

An education plan is an assurance product with the only downside being that parents only have five to six years to save for a payment plan period of twelve years of school fees – a way to limit this is to use the plan solely for secondary or tertiary education in an attempt to compound the investment.

 

Kerry Sutherland

Education savings take many forms, one being endowment which is recommended for parents in a higher tax bracket. Within this option interest is taxed at 30%, capital gains tax on equity portion is 10% and you won’t have to declare anything on your tax return – there is a minimum five year term and once the term is over you can take money out when you need it. Another great factor to this option is that the policy may be taken out with your child as the policy owner which is beneficial in the event of a divorce and would mean that this asset will be kept out of accrual and thus not be touched. A unit trust is another option for education savings, and the tax on this will depend on your tax bracket – if you are in the top tax bracket, your interest will be taxed at 45% and capital gains at 13.3% and in South Africa we are allowed an annual interest exemption on the first R23 800 of interest earned per year and the first R30 000 per year earned in capital gains is also excluded from tax. Take these exemptions into account in your calculations for an endowment versus a unit trust as a saving vehicle. This option of education savings allow for flexibility meaning you can take out what you need for school fees, sport or books, it is also similar to endowment in that the policy could be owned by the child who is the beneficiary.

 

Other tips to consider this back-to-school season are: think about saving throughout the year since January is usually a tight month after the holiday season and money for laptops, uniforms and school books may not be attainable or worse yet would mean you would put yourself in debt and spend the rest of the year paying back money owed on a credit card. An easy way to make sure you save for the school season is by depositing money into a money market account every month. Another tip is to make a comprehensive list before you shop for supplies and prioritise between wants and need.

 

Do your research on costly items such as laptops to find out if they will be suitable later in your child’s schooling career. This could mean that you would spend a bit more money for the laptop but end up not having to buy another one soon. If your child relies on transport albeit public or private to get to school, factor this into your monthly budget as well as any extra-curricular activities and aftercare to make sure you are financially prepared when this back-to-school season approaches.

 

Preparing for back-to-school might seem a tedious and financially demanding task throughout the year but if you stick to it your January pocket will thank you for it.

 

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Finance

HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES

CASH FLOW

While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.

 

Managing people and expenses

There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.

You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.

Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.

 

Cash is king

In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.

 

Daily forecasting

As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.

 

Good house-keeping

While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).

Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.

 

Embrace technology

Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:

  • Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
  • Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
  • Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.

All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper.  You will also be able to bring clarity to where your business stands and prepare for the next steps.

 

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Finance

HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK

FINANCIAL SERVICES

By Alex Saric, smart procurement expert, Ivalua

 

UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.

This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.

 

More suppliers, increasing risk

One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.

The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.

A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.

 

Businesses unprepared for the worst

One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).

In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.

 

Making supplier management smarter

It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.

For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.

To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.

 

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