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Business planning is critical for Survival - Old Mutual

The global economy is in recession due to the coronavirus pandemic.

In South Africa, the lockdown has given the economy a further blow.  South Africa’s sovereign credit rating downgrade to junk status could not have happened at a worse time. Your business may be struggling during the economic fallout of the coronavirus pandemic. South African companies may be harder hit to access funding at this time as it becomes more difficult to obtain loans.

The downgrade meant that South African bonds are no longer listed on the FTSE World Government Bond Index. Foreign investors who may not hold junk bonds sold South African bonds by the end of April that led to a significant exodus of foreign investment. As a result, the government has to pay more in debt-servicing cost, which means that less will be spent on infrastructure development and social initiatives. The government would have to raise taxes to plug the funding gap. The downgrade has caused the Rand to depreciate, which means that import costs will rise including oil. It will have a knock-on effect on everything else. When inflation rises above the target range, then the government will be forced to raise the repo rate that will increase the cost of borrowing. This will affect the costs of business loans, property mortgages, vehicle loans, credit cards and personal loans. The higher risk of consumers defaulting on premiums will make it harder for South Africans to qualify for new loans. When they do secure credit, it will be at a higher cost.

 Access to funding is a critical component of survival and growth for Small Medium and Micro-sized Enterprises. Despite the country's strong formal financial sector, most prospects are oversubscribed and require surety if business owners do not have savings.

 Financial wellness is now more than ever the most important gift that you can give your business and family in these difficult times.

"Old Mutual draws from the experience we have gained over the past 170 years to develop reliable business strategies that enable you to navigate through this storm," says Koos Nel, strategic retail manager at Old Mutual.

 We want to build a business to leave a legacy for our children and secure their future.

Yet many of us fail to take the crucial steps to do sound business planning that would assist business owners in accessing funding and growing during difficult times. We are, at heart, a nation of entrepreneurs and independent thinkers. Still, about 80% of new businesses fail in the first year, and more are expected to fail during this pandemic.

 “The best way to take control of your business' financial future is to contact an accredited financial adviser who specialises in business assurance that can help you to be part of the business success rate,” urges Nel. “Old Mutual aims to provide you with the information you need on making entrepreneurship less risky, and on shifting the liability of the business away from the entrepreneur.

Think about it as building safety features into your business to help you survive tough economic times.”

 It’s worth noting that SMMEs contribute between 52% and 57% of SA’s GDP and employ more than 61% of the private sector workforce. With around 50% of the new jobs in the world being created in SMMEs, your efforts as an entrepreneur are not only in keeping with world trends but also plays an active and pioneering role in promoting SA’s economic growth.

You may want to access capital for your own business during the pandemic’s economic fallout. This usually involves having to take out a loan and that in turn means having to stand surety for the loan. In other words, if your business fails, you'll be held liable for repaying the loan you took to run your business. That personal liability can be a source of stress and sleepless nights.

 A good business contingency plan helps shield you from personal liability and enables you to concentrate on growing your enterprise. The plan insures your life and covers the loan amount. The premiums toward the policy are paid by the business and you, as the policy-holder agree to pay the proceeds of the policy to cover the loan.

 While this effectively indemnifies you from personal liability for the loan, there may be some tax implications for the amount paid out, and it may also be affected by estate duty and capital gains tax. 

 “It is, therefore, crucial to speak to your financial adviser to ensure that the plan is structured appropriately and that you make an informed decision in the most tax-efficient way. But a good business contingency plan will help buffer your business against setbacks, especially in the critical stages of its development,” concludes Nel.

 

For solutions relevant to your needs, contact an Old Mutual adviser or click here to find an adviser.


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