Saturday, 10 June 2023

Strategy & Business Insights

Lawyers and Accountants: The Advisors necessary for Growth of SMEs

A lawyer and an accountant are necessities for growing a business in today's unpredictable economy of Africa, as their advisory services can determine growth and profitability of the business.

Business is about growing assets and managing liabilities using internal and external relationships, under the leadership of the business owners, with the counsel of sound advisors. The advisory aspect is especially important, as the lawyer and the accountant assist in how to navigate the various terrains to grow assets, manage liabilities, and effectively relate internally and externally for profitability and growth.

A lawyer is important for a business owner because he or she can advise on how to deal with potential and existing lawsuits that might impact the business. An accountant is important for a business owner because he or she can provide information on how to get the most out of your financial resources and reduce extra costs that might interfere with profits.

A lawyer and an accountant are not just there for when you are in trouble and need financial advice or legal advice but are there to help you navigate the whole business journey of growth, development, and acquisition of a good return on your investment.

In Africa, the lawyer and accountant have always played critical roles in advising businesses, so they have been able to manage operations better with legal knowledge. In South Africa, for example, there are laws on consumer rights and consumer protection, such as the Consumer Protection Act 68 of 2008 which defines unfair practices by businesses and lays out procedures for controlling them, as well as standard business practice principles also laid out in law.

Another important legislation on consumers is the Protection of Personal Information (POPI) Act that sets out the minimum standards regarding accessing and 'processing' of any personal information belonging to another. The Act defines 'processing' as collecting, receiving, recording, organizing, retrieving, or the use, distribution or sharing of any such information. Advice from a lawyer for the business owner helps as they plan for their website and all online media for business and marketing.

Lawyers are especially important to business owners for intellectual property management, as trademarks, patents, franchises, and utility models are all things that businesses encounter and must know. A business lawyer may interpret laws and regulations for clients, conduct research used in preparing a variety of documents, and communicate both orally and in writing with clients and other legal professionals as well.

In South Africa, there are lots of opportunities to develop latest brands just business proper manipulation of IP laws such as Utility Models. In short, a utility model is a shorter version of a patent, allowing you to take a technology, change it a bit and use it locally. Utility Models have grown the Chinese economy to become a global exporter. South African small businesses, with the guidance of their lawyers, can tap into this stream of revenue for their business.

Complementary to the lawyer, the accountant comes into this picture to advise the business owner on valuation of intellectual property, as in accounting all these are intangible assets whose valuation is the talk of the town today.

Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched, or physically measured. Examples of intangible assets include trade secrets, copyrights, patents, trademarks. If a company acquires assets at the prices above the book value, it may carry goodwill on its balance sheet. Goodwill reflects the difference between the price the company paid and the book value of the assets.

If a company (company A) received a patent through their own work, though it has value, it does not show up on its balance sheet as an intangible asset. However, if company A sells this patent to company B, it will show up on company B's balance sheet as an intangible asset. The same applies to brand names, trade secrets etc. For instance, Coca-Cola's brand is extremely valuable, but the brand does not appear on its balance sheet, because the brand was never acquired.

Some intangibles are amortized. Amortization is the depreciation of intangible assets. Many intangibles are not amortized. They may still be written down when the company decides the asset is impaired. Whenever you see an increase in goodwill over several years, you can assume it is because the company is out buying other businesses above book value. GOOD if buying businesses with durable competitive advantage.

In a study done by the Department of Small Business Development in South Africa, in collaboration with UNDP, titled "The Impact of COVID-19 on Micro and Informal Businesses in South Africa", economists expected that roughly 60% of SMEs would be closed before the pandemic was completely over. No post-pandemic studies have been done, but as the pandemic crossed 2020, 42% of businesses had closed.

These are all businesses that have found themselves in situations that affect their assets, liabilities, and relationships, and to navigate, they require legal advice and financial advice that best comes from a lawyer and an accountant. Many sought advice, and recovered, but others are still in trouble and trying to move from having more liabilities to having more assets.

Having a business lawyer and an external accounting firm is not necessarily about how big a business is, but how effective you want to be as a business owner. Some lawyers and accountants offer pro-bono services so that the business grows, and at the right stage introduce consulting fees, or invoice as per request of specific tasks required.

Whether navigating the world of intellectual property, tax, local regulations, a business owner needs to have good financial accounting and legal advice only available from qualified lawyers and accountants to grow and be profitable.

Source: Guru Focus