FROM RETRENCHMENT TO REINVENTION: NAVIGATING THE ENTREPRENEURIAL JOURNEY
- Heather Flack
- Apr 14
- 4 min read
I ncreasingly I am seeing, in this rapidly changing economic landscape, businesses scaling back and riding the proverbial wave, by retrenching as many people as they can. A huge upswing of retrenchments was seen globally in 2024. Dell cut its workforce by 12,000 employees, Samsung by 26,780 and Unilever by 7,500. The South African mining sector retrenched over 10,000 people. And Telkom reduced their headcount by 1,747. Undoubtedly, retrenchment is one of the most emotionally taxing career moments for anyone. But once the rollercoaster ride is over, those brave enough realise they have an opportunity to be their own boss and, ‘ta-da’ – a new consultancy is born! This ethos is what I love about South Africa, the opportunities to be an entrepreneur abound.
So, what’s next? You need to consider three factors. Mitigating risk and protecting your personal assets from the risks of a new venture. Maximising your ability to access finance. And being as financially efficient as possible and leaving no tip on your tax bill!
Let’s delve a bit deeper.
Most people run out and register a Pty Ltd (Proprietary Limited). When deciding on whether to trade as a sole proprietor versus a Pty, I always ask clients – what track are we racing on? You need to bring the right vehicle to the right track. I grew up on a farm, and out there, a tractor is your best friend. Formula 1 is also a deep passion of mine. Now, you can enter a tractor in an F1 race, and it will make it around the course – eventually, but it will never win, and the cost to Team Tractor will be huge. Similarly, you can put Lewis Hamilton and his Ferrari in a tractor race, and that beautiful red racing machine will be smoking and in pieces before the first corner.
Often for service industries, such as consultants or contractors, a Pty may not be the most efficient vehicle for you to start your business in. Similarly for businesses with high risk and stock exposure, being a sole proprietor may not be the best move. So, get some advice and decide what track are you going to race on, before you go out and buy the vehicle.
Being self-employed, your access to finance has now drastically changed. While you were employed, walking into a dealership with three months’ pay slips and bank statements, meant walking out with a new car. Now, you need to prove your income, and your overall wealth and ability to sustain that income. For a financial institution to assess whether you are still able to afford the debt you need, they will now use the Annual Financial Statements (AFS) of your business. This is the independently accounted for and reported record of all financial transactions of your business. So, get a good accountant as soon as possible! And remember that when presenting an AFS to a bank or investor, the reputation of your accountant does matter, so choose wisely.
Something that is very important to every entrepreneur, is their tax bill. While you were employed, the company you worked for deducted PAYE (Income Tax) from your salary and paid it over to South African Revenue Service (SARS) every month. Once a year they issued you with a tax certificate (IRP5) that showed your total earnings and how much tax they had deducted from your salary. You used this to submit your personal tax return to SARS each year, and that was that. As a contractor or consultant, you still need to pay tax. The question is how much tax, and how do you pay it over to SARS?
Your business cycle will work in financial years – beginning 1 March and ending the last day of February each year. You will need to register as a provisional taxpayer with SARS – which means every six months in August and February, you submit an estimate of how much profit you think you will make for the whole year, so be sure that you are including all the deductions available to you. You then pay 50% of the tax due on that profit to SARS. When your final income tax return is submitted, you need to be within 80% of your provisional tax estimates. If you are not, SARS will charge a 20% penalty, plus daily compounding interest on the under-estimation. Multiply that over a few years and suddenly the penalties and interest grow into a mountain. What an absolute waste of money. So please get a good accountant who will effectively help you to plan for this.
You have already survived the hard part of the retrenchment, so take a moment to dream of something new. Reach for the stars but keep your feet firmly on the ground by getting informed and starting off right. I wish you every success on your journey! Our beloved country needs more people like you.
T: +27 (0)31 207 1572 E: heather@flairaccounting.co.za W: www.flairaccounting.co.za
