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How The Vat Increase Affects Small Business

 

South Africa, 1 April 2018. The day South Africa effected is first vat increase in 25 years.

While percentage wise, the 14% to 15% leap may not seem that drastic, there are a few elements to this that we must consider.

Adjusting Your Selling Price

As a registered Vat Vendor, by now you should have adjusted your selling price. Using fully compliant, SARS accredited accounting software, such as Sage Business Cloud Accounting*, Sage Pastel Xpress or Sage Pastel Partner will make this adjustment easier. Any updates have been prepared and released in time, ensuring that it’s business as usual.

If you’re creating your invoices manually, ensure that you’ve adjusted any formulas on your quote, proforma invoice and invoice templates to ensure that you’re not under charging. As you should be submitting VAT201 forms to SARS periodically, there will be variances between what should be paid (or refunded), and what has been collected if this isn’t adjusted. Avoid a mess, update your templates.

If you’re not a Vat Vendor, this doesn’t mean that you shouldn’t adjust your selling price as well. Cash flow is the lifeblood of any business, no matter its size. Due to our strained economic environment, adjusting your selling price to recover increases in operational expenses makes sense. If you don’t adjust it, your cash flow could dry up faster than a drop of water in the Saharan desert.

If you’re not doing so already, I would recommend that you start planning your monthly cash flow with a simple cash flow forecast. This forecast will help you plan cash inflows and outflows, as well identify any shortfalls that you may incur. Being able to plan ahead for your monthly financial commitments will empower you, as well as keep your business out of hot water.

How The Vat Increase Affects Our Consumers

The Vat increase will affect consumers, especially the lower-earning consumers, by decreasing, or even potentially drying up, the disposable income that allows them to purchase goods and services from small businesses. While the Vat increase doesn’t impact Zero-rated items, it still impacts other groceries that are Vatable, as well as other expenses that are needed within the average household. Due to this, some small businesses may be forced to absorb a portion of the additional costs. A drastic increase in selling price drastically may cost these businesses some much-needed sales.

As a business owner, who knows your consumers better than you? Take a look at your profit and loss reports since 1 April 2018, compare it to previous seasons, and make a judgement call from there. Loss in sales means less cash flow with which to meet your monthly obligations, so it may be a tough decision to make.

Personal Case Study

To date, I haven’t personally increased the selling price on my services and some of my resources as yet. To satisfy my curiosity, I wanted to see first hand how the Vat increase would affect my business profits. As a home-based service provider, with fairly low operational expenses, business profits haven’t as yet been substantially impacted by this decision. The biggest pinch has been in my personal, disposable income. Many personal expenses have increased by more than a just little, with some increasing by more than R100. A modest trip to the local supermarket for basic groceries has seen my Rands purchase considerably less.

Rather than adjusting my pricing, I’m looking at adding some additional streams of revenue to my income. I’m currently partnering with some fantastic international software brands to add additional streams of revenue to my income. Growing these additional streams could potentially keep a price increase at bay, which is great news for my clients. Unfortunately though, the Vat increase is not the only factor that may affect my profits and selling price in the future. The constant fuel hikes are a massive cause for concern. Due to this, I may be forced to make a tough call and increase in the near future.

For now, I wait.

** I have not increased my selling prices as I am currently not required to register as a Vat vendor. **

I’d love to hear how the Vat increase has impacted both your business and you personally. Drop a comment below!

This post may contain affiliate links. Please read our affiliate disclaimer here.

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Magdalene van der Walt

Magdalene is TBB's founder and small business specialist. She is a certified accountant, Sage Business Cloud adviser, approved CIPC service provider and serial entrepreneur. Her mission is to empower small business owners by equipping them with the tools that they need to succeed in business.

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