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How The Vat Increase Affects Small Business

in 2018, vat increased for the first time in 25 years.

A 1% hike may not seem that significant, there are a few elements to this that we must consider in your small business.

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 will make this adjustment easier. Any updates have been prepared and released in time, ensuring that for your small business, it’s business as usual.

Recommended in the Shop: Sage Business Cloud Accounting (Formerly Sage One) >>

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

If you are not a Vat Vendor, this does not mean that you should not adjust your selling price as well. Due to our strained economic environment, adjusting your selling price to recover increases in operational expenses makes sense. Your profits will be impacted if you do not, leaving your small business potentially under financial strain.

I 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. It will help you to identify any shortfalls in the upcoming month and make provisions accordingly.

Recommended in the Shop: Cash Flow Forecast – Template in Excel >>

How The Vat Increase Affects Our Consumers

The Vat increase will affect consumers, especially the lower-earning consumers, by decreasing or even drying up, their disposable income. The same 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 items and expenses (such as utilities) that are needed within the average household. As a result, 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 small business owner, take a look at your profit and loss reports since 1 April 2018, compare it to previous seasons, and then make a judgement call. An increase may lose you sales as your consumers may not see what you provide as being essential, and cut purchasing from you to save cash. Loss of sales means less cash available to meet your monthly obligations, so it may be a tough decision to make.

Recommended in the Shop: Accounting Solutions For Small Businesses >>

Personal Case Study

To date [as at the date of this article], I haven’t yet increased our fees. I wanted to see first hand how the Vat increase would affect my business profits. As a virtual accounting firm, we have the benefit of lower overheads than firms with a physical office space. This doesn’t mean I dodged a bullet by much. The biggest pinch has been in my personal, disposable income. Some personal expenses have increased by more than R100 so my Rands purchase considerably less than they did pre-Vat increase.

Rather than adjusting our fees right now, I am looking at adding some additional streams of revenue to our income. We’ve partnered with famous software brands and are creating templates and resources for small businesses to download and use in their business for a small fee. Funding partnerships have also been formed to assist clients get access to finance when they need it most, and add revenue as well.

These additional revenue streams in my firm may keep a price increase at bay or lessen the percentage in upcoming months. Unfortunately, the Vat increase is not the only factor that may affect cash flow and profits in the future. Fuel hikes, as well as the impact of load shedding on productive hours, are a massive cause for concern. For now, all we can do is remain informed and strategize where necessary.

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

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