Print

 [Link] Good Looks Like

 [Link] Integrity and Controls

 [Link] and Contract Management

 [Link] and Stores Ordering

 [Link] Stocktaking

 [Link] Balances, Reconciliation and Banking Controls

 [Link] of Premises

 [Link] Searches

 [Link] Till Results

 [Link] with Customer Theft or Robbery

 [Link] Control

 [Link]

 [Link]

 [Link] Administration

 [Link] User Training Manuals

 [Link] Training
1.1 What Good Looks Like

store management and team promote a culture of ‘minding stock’ and ‘minding cash’ through robust administrative processes and procedures. There is a
system for ensuring customers are always charged the correct price at the pay point. The store manager personally signs off and authorises any spend on
non-resalable items such as stationery, packaging and uniforms, and there is a consumables budget. The store management team ensures that all cash pick-
ups and cash counting is dual controlled with two persons present.

There is strong control over daily cash results. There is strong control over expenses. All documentation is traceable, filed and signed by an authorised
signatory. Stock is seen and cared for as ‘cash’ and full financial stocktaking takes place twice yearly or in line with accounting procedures. External
contractors such as security, cleaning companies, engineers and pest control services are managed and controlled by the store manager. There is strong
security around premises with doors locked and rigid store opening and closing procedures

Back to Menu Print Section 1.1

1.2 Price Integrity and Controls

Stores display the correct price on the shelf and charge the customer the correct price at the paypoints. Every product has a price ticket and the item price
file on the till system is 100% accurate.

1. Missing ticket check

1. a daily missing price ticket check across all departments must take place before the store opens and all missing shelf edge labels must be in
place before customers enter the store

2. all shelf edge tickets must be displayed with the left edge parallel with the left edge of the product display for ease of replenishment

3. all price ticket check forms should be signed, dated and filed to show due diligence
2. Routine price checks

1. the store manager must undertake a routine price check with a product from each department weekly to check for errors, typically ex-
special offer; ‘extra free’ and multipack/pre-priced commodities should be checked

3. POS maintenance

1. a daily missing POS and promotional material check across all departments must take place before the store opens and all missing POS must
be in place before customers enter the store

2. all out-of-date POS material must be destroyed at the end of the offer to minimise the risk of incorrect prices being displayed

4. Special offer controls – promotions ending

1. stores must remove window posters of previous week’s offers and clean glass

2. remove previous week’s offers from gondola ends and box up/label into original pack sizes for storage

3. put up new promotion posters, shelf talkers and price labels on the shelves with start and end dates of promotion

4. ensure all promotions are displayed prior to promotion launch day

5. change all prices back on the front end system at promotion end, remove and destroy all POS material and restore all special offer dressings
to original facings

5. Special offer controls – promotions beginning

1. all promotional labels and POS material must be pre-printed and sorted into departmental sections in the store

2. test scan all promotions through the paypoint to ensure the price is correctly charged at the paypoint

6. Products not recognised at the paypoint

1. front end managers must record all products and their barcodes of items not recognised or scanable at the paypoints
 2. all non-recognised items must be price checked with the shelf and central control file and loaded manually onto the till system. THE
CUSTOMER MUST NOT BE DELAYED BY THIS PROCESS

7. Product test baskets

1. on a daily basis, the front end manager must take the list of products not recognised from the previous day and ‘new lines’ as advised by the
stock control department, and test these prices through the paypoint prior to the store opening

8. New lines maintenance

1. on arrival at the store, all ‘new lines’ for display must be loaded in the back office system (automated) and test scanned

2. ‘pre-priced’ and combo lines’ barcodes should always be double checked and loaded onto the system prior to display

Back to Menu Print Section 1.2

1.3 Facilities and Contract Management

store management and team ensure that the best level of service is received from outside contractors. Regular documented audits take place with the
contractors to measure service levels and performance. Audits of refrigeration and power generator preventative maintenance programmes are monthly.
Audits of contract cleaning standards are weekly.

Reviews with security guard contractors are weekly and records of visits from pest control and alike are documented, signed and stored for reference. All
contractors and visitors in-store wear a name badge and sign the visitor’s book, with access only to relevant areas.

1. Facilities and contractor management

1. store managers must audit performance of contractors through documented periodic audits

2. all contractor visits are to be documented, dated, signed and filed in the store manager’s office
 3. all contractors in-store must be signed in and wear a visitor’s badge

4. an annual review of contractor performance should be undertaken with a view to re-tender in the event of poor performance

Back to Menu Print Section 1.3

1.4 Equipment and Stores Ordering

store managers have total control and visibility of ‘non resalable’ items and costs of goods ordered in the store. All departments have a financial budget for
store items and the store manager signs off and authorises any consumables/equipment/uniforms or office stationery ordered.

1. Stores ordering

1. store managers must sign off and authorise all weekly store’s orders

2. all consumables must be kept in secure areas under lock and key

2. Budgets

1. all departments must have a weekly financial budget for consumable supplies

2. in the event of over ordering, arrangements for return to supplier must be made

3. Carrier bags

1. the re-use of customer carrier bags through cash back schemes or sale of ‘ ECO Bags’ must be in place to reduce costs and save the
environment

Back to Menu Print Section 1.4

1.5 Financial Stocktaking

store management ensure stock is seen and cared for as ‘cash’ and a full financial stocktaking takes place twice yearly or at a frequency in line with
accounting requirements.

1. Stocktaking day preparation and procedure

1. at stocktaking (- 14 days) resource planning should take place, securing staff overtime for physical counting duties on the shop floor and in
the warehouse
 2. at stocktaking (- 7 days) a ‘stock run down’ of shelves, warehouse and storerooms should take place WITHOUT AFFECTING AVAILABILITY TO
CUSTOMERS to ease and simplify counting process on stocktaking day

3. at stocktaking (-1 day) all high value and slow moving warehouse stock can be counted and clearly secured/marked ‘do not touch – financial
stock taken’

4. at stocktaking day all warehouse stock is to be counted (telxon system or manual) into case price x quantity = total value and stock clearly
marked ‘do not touch – financial stock taken’

5. at stocktaking day close of trade the store is to be split into category sections and teams with leaders to physically count stock on the shelf.
Cans/packets/bottles are to be counted and a paper slip with quantity attached to shelf in front of display. Manager to enter amount into
telxon

6. team leader must check quantity and record quantity x price onto departmental stocktaking record/telxon

7. all stocktaking records must be split into separate POS/Charging departments, e.g. Wines and Beers, Spirits, Health and Beauty to gain an
accurate stock result for each department

8. in fresh foods all ‘random weight items’ (items sold per kg) need to be weighed and costed by POS department

9. all stocktaking documentation and forms must be collated and checked against a control form and store plan to ensure all areas of the store
have been counted and all documents received

10. physical stock value is then calculated using warehouse and shop floor forms

2. Deliveries and charging documentation

1. all deliveries charged in the stocktaking period (i.e. received on or dated before/including stocktaking day) must be costed from the debit
note/invoice and included in the stocktaking calculation

2. all deliveries charged in the next stocktaking period and delivered in advance must be kept separate and NOT COUNTED OR INCLUDED IN
FINANCIAL STOCKTAKE
 3. transfer notes outstanding for products inward and outward should be checked to ensure ‘stock in transit’ is included in stocktaking
calculations

3. Reasons for Service Department Stocktakes

The most important reason for taking stock in a service department is to accurately calculate the departmental Gross Profit. This should be done on
a WEEKLY basis.

The other important reasons why service departments stocktake should be done:
• to help manage and control costs
• to verify the accuracy of the stock records
• to support the value of stock shown on the balance sheet by physical verification
• to disclose the possibility of fraud, theft or loss
• to reveal any weakness in the system for the custody and control of stock

Preparing your store room, fridge and freezers for easy stocktake:

1. stack packaging in lots of 100’s or any easy number to make counting of packaging simple and quick

2. arrange boxes with labels facing out, so they are easy to read

3. place unopened boxes beneath open ones so they are easy to access and count

4. arrange the items in the order they appear on the stocktake templates so the counting process is smooth and easy

5. establish a way to mark items that already have been counted (coloured stickers)

4. Service Department Stocktake

1. make a list of all ingredients in stock; this may include packaging depending on your store policy

2. count stock on hand. It is necessary to count the stock as you purchase it, e.g. if you purchase flour in kilograms then you will need to weigh
the flour
 3. if you purchase oil in litres then you will need to record volume on hand

4. record the stock on a stocktake sheet

5. calculate the value of each ingredient, by multiplying weight, volume or units on hand by the cost per kg, per litre or cost per unit

6. add each of the individual ingredient values to get a Total Stock Value

7. it is best to take stock first thing in the morning before any product has been prepared

8. if you have stock in your counter and fridges, you will need to weigh it or count it and record it on the stock sheet. If you have an accurate
cost for each recipe you can use this for your cost price. Otherwise you must subtract your estimated Gross Profit% from the selling price to
obtain the cost price for counter stock

9. stock which is bought in and has a barcode (Freshline/Tender and Tasty) can be scanned with a telxon and the info downloaded through
Sigma to give you a cost

10. the final stocktake figure is then calculated as follows

G.P Rand value = Sales – Cost of Sales

Cost of sales refers to the accumulated cost of all the ingredients you used to achieve your sales and can be calculated using the following
formula:

Cost of sales = (opening stock + purchases) – Closing stock

This week’s opening stock is the previous week’s closing stock

Purchases Include:
- raw materials
- frozen and perishable product
- interdepartmental purchases
- may or may not include packaging depending on the store
Use template below to calculate your Gross Profit Rand and percentage
Back to Menu Print Section 1.5

1.6 Cash Balances, Reconciliation and Banking Controls

store management and team promote a culture of ‘minding stock’ and ‘minding cash’ through robust administrative processes, procedures, audits and
controls. The store management team ensures that all cash collections are secure and that cash counting is dual controlled with two persons present.

There is strong control over daily cash results. There is strong control over expenses. Store safes are controlled with all cash in/out documented. Safe keys
are dual controlled. All documentation is traceable, filed and signed by an authorised signatory.

No cash is missing in the safe, no cash is missing from paypoints.

1. Protecting cash balances and store weekly journal reconciliation

1. ALL coupons and money off vouchers controls should be counted and the discount value total reconciled to paypoint tendering reports

2. sundry cash receipts such as car park fees, returned cheques and charity collection cash must be counted, banked separately and recorded
on a weekly control statement

3. all cash refund slips must be reconciled to paypoint refund book and high value refunds authorised/signed by store manager identified and
investigated
 4. all gift vouchers and coupons should be treated as cash, kept securely with daily counts and control books and total sales for each element
entered onto weekly control statement

5. all monies held in the safe must be supported by a safe control cash book stating current balances

6. the cash office safe should only be opened by two persons and no-one should ever be left unattended with unsecured cash

7. all lottery and scratch cards must be treated as cash, kept securely with daily counts and control books and total sales for each element
entered into a weekly journal

8. cashiers must never turn their backs on the till drawer

9. the following are illegal forms of tenders and should not be accepted:
- notes stained with dye
- foreign currency (coins & notes)
- another retailer’s coupons

10. a daily bottle return recon between till reading and a returns report on the back office should be performed to ensure they balance

2. Cash collection from security company

1. all security guards from cash collection agencies must be identified and show official ID matching records prior to permission to collect store
monies

2. all security guards must be SIRA registered and have a SOB grading certificate

3. security guards from cash collection agencies must retain drop safe keys and unlock themselves

4. all cash collection bags are sealed correctly with seal number recorded in cash delivery book by the STORE MANAGER

5. all cash and cheque values in the cash delivery book must match the slips attached to delivery bags and be CHECKED BY THE STORE
MANAGER PRIOR TO HANDOVER TO CASH COLLECTION AGENCY

6. the store manager or duty manager must oversee all cash collection and banking with cash collection agencies
 7. record arrival and departure time of cash collection agencies

8. No staff should take money to the bank

3. Safe controls

1. all receipts of change/coins must be counted into safe and balances logged into the safe control book by two authorised people

2. all cash transfers in and out of the safe must be recorded in the safe control book

3. all cash office balance shorts and overs must be investigated by the front end manager

4. every time money is added or taken away from the safe evidence must be recorded and signed in the safe control book

5. at any time there will be one person nominated as ‘safe in charge’, this will be the store manager, duty manager, or administration manager

6. Cash Safe Insurance Categories - Listed below are the amounts insured by each category of safe
- Category 1 - R 50 000
- Category 2 - R 100 000
- Category 3 - R 200 000
- Category 4 - R 250 000
- Category 5 - R 300 000 - R 500 000

7. cash in transit companies should collect money 7 days per week

8. recommended safes are drop safe or Deposita, Cash Connect or Cash Nett

THE SAFE MUST ALWAYS BE OPENED BY TWO PEOPLE. NO-ONE MUST BE LEFT ALONE WITH UNATTENDED CASH

4. Basic cash office security

1. cash office bullet proof security door must be locked at all times and entry given to authorised personnel only

2. all rubbish bins must be checked before emptying into tran ent refuse bags
 3. safe keys must be kept separately with access to the primary safe only possible through dual control with the store manager

4. CCTV cameras must view all angles in the cash office

5. there should be a panic button in the cash office

6. no one should enter the cash office while cashing up and depositing is taking place

5. Cash collection from paypoints

1. if a money vacuum system for cash collection from paypoints is used, a supervisor must oversee the sending of ‘cash pods’ through to the
cash office and check receipt of the money

2. if a manual procedure is used, a metal secure and mobile cash collection unit must be used and:
- external doors must be manned by security guards or able bodied persons
- cash in transit must be escorted by two people to the cash office
- the store manager must oversee all cash pick-ups from the paypoints

3. cash pick ups must be done regularly and taken to a safe or smart box

Back to Menu Print Section 1.6

1.7 Security of Premises

store management and teams ensure security of premises through rigid store opening and closing procedures, the control of visitors to the store through
signing in/signing out and the locking and alarming of doors and secure areas.

1. Security guard role in security of premises

1. all security guards must have a SIRA Certificate and hold a SOB grading certificate

2. all store security guards must man high risk areas of front door, wines and spirits area to act as a deterrent to theft

3. security guards must escort all cash in transit between cash office and paypoints
 4. all security guards must tour building exterior daily to look for signs of forced entry or potential weaknesses in security. Report any
suspicious people or vehicles

5. store security should patrol entrance and surrounding areas when opening and closing store

2. Store/duty manager role in security of premises

1. the store/duty manager must be at the tills during peak trading hours

2. the store/duty manager must oversee all cash pick-ups from the checkouts

3. the store/duty manger must oversee and supervise all cash banking and collections

4. the store/duty manager must set/release store alarms at store opening and closure

5. the store/duty manager must maintain a secure building with all fire exit doors, windows, shutters and doors secure and operable

3. Store opening and closing procedure

1. the store/duty manager must ensure that all exits, except the main entrance, are locked and secure. Under no circumstances should
customers be let into the store after closing time is announced

2. customers and staff will only exit the store via the main entrance and staff must not vacate posts until the last customer has left the store

3. customers should be told that the store is closing and helped with any purchases

4. when staff have completed shifts they must exit through the main entrance where controlled security checks will take place

5. security checks must be conducted fairly and in accordance with HR policy, with female staff searches carried out by female supervisor

6. store/duty manager will check the safe is locked and bank any surplus cash into a secondary safe in readiness for counting the following
morning

7. all paypoint drawers must be locked in cash office and paypoint terminals turned off
 8. store/duty manager must ensure the building is empty of people; checking all toilets, cloakrooms and back of house prior to chaining all fire
exit doors

9. store/duty manager and a responsible person will turn lights off, alarm zones, set the store intruder alarm and lock the building

10. store/duty manager will ensure two sets of keys are being held outside the building by responsible persons with a third set held in the safe

11. store/duty manager will ensure all external agencies (police/emergency services/alarm agencies) have an up to date key-holder list

12. the store alarm company should call the manager who opens and closes the store to confirm they received the opening and closing signal

13. always have an armed response vehicle present when opening and closing the store

14. always carry a panic button when opening and closing store. Regularly test that the panic button is operating

Back to Menu Print Section 1.7

1.8 Staff Searches

store management provide a secure area by way of lockers and cloakrooms for staff’s personal items and belongings. A clear ‘staff search’ policy is stated in
the staff handbook. Staff searches are carried out in accordance with HR policy and are carried out with respect for the individual. Staff searches happen on
leaving the premises at shift end and at random throughout the trading day. Staff searches are carried out by responsible and trained security staff.

1. Staff belongings

1. all staff must declare possessions brought into the building and drinks/food purchased must display store security sticker

2. all staff’s personal belongings and clothing must be stored in a secure locker

3. staff must adhere to the store cellphone policy

2. Staff searches

1. staff security checks must be recorded in a security check book, listing staff’s name and the time of search
 2. staff searches must be carried out in a respectful manner

3. female staff searches should only be conducted by female security staff and male staff searches should only be conducted by male security
staff

4. staff searches must be conducted for staff finishing shift and leaving store at store closure

5. staff searches must be conducted under a CCTV camera

Back to Menu Print Section 1.8

1.9 Paypoint Till Results

store management ensure paypoint till results are checked daily and that trends are monitored. Each paypoint starts the day’s trade with a set float value.
The level of cash refunds and cashier errors is measured and cashiers receive feedback on their performance. The store manager receives an update on the
daily till result and shortage/overage is investigated.

All cash registers are closed in between transactions and drawers are locked when paypoint is not open. Transfers of change/coins between paypoints is
managed and controlled by supervisors and logged in a change control book.
It is important that the cashier’s till drawers are totally secure when put into the safe at the end of their shift each day or in between use and a control is
kept. Proving nobody got into the till drawer while it was in the safe.

1. Paypoints controls

1. all paypoints must be locked when not in use and closed signs displayed

2. all paypoint drawers must be locked between transactions

 3. all paypoint cash drawers start the day with a set float value

4. all cashiers must have a separate login number

5. all refunds from paypoints are authorised by a supervisor

6. all ‘pods’/‘banking’ prepared for the cash office is overseen by a supervisor

2. Front end operator controls

1. all cashiers are measured on

• voided transactions
• number of refunds
• cash overages/shortages

3. Till drawer security

It is important that the cashier’s till drawers are totally secure when put into the safe at the end of their shift each day or in between use and a
control is kept. Proving nobody got into the till drawer while it was in the safe.
Each store should have seal control book with the following columns: (See in Resources Tab)

1. the cashier enters her operator number, the seal number, the date and then signs in the column (under IN) and uses the seal to seal the bag
with their cash or the bag into which their till drawer fits

2. the cash clerk verifies in this book that the seal number is correctly recorded and signs under ‘verification in’

3. the till drawer/float is then put into the safe by the cash clerk, not the cashiers

4. the next time the cashier is given the till drawer/float from the safe by the cash clerk, she and the cash clerk check the seal to this book to
ensure it is the same and both then sign this book under the columns headed OUT

5. at the same time both the cashier and the cash clerk must check the seal has not been tampered with and that the seal is still intact
 6. never have more than one cashier in the cash office cashing up at the same time

4. Cashing up procedures

1. the cashier should record everything she hands in on a cashier’s cash up slip and sign it, to ensure the cash amount given to the cash clerk is
recorded. This eliminates any uncertainties (see Resources Tab)

2. the cash clerk then checks it in front of the cashier and signs for everything handed in, and then takes over responsibility for everything
handed in

3. that sign over and the fact that the cashier stayed in the office until the cash up was signed for by the cash clerk is your safe-guard
 4. It is slightly different when using a SMARTBOX and this manual looks at both procedures for drop safe and SMARTBOX

5. next step is to find out whether the cashier actually has the expected amount for each tender type to hand in

6. check the safe for any uplifts from the cashier till drawer, these must be included in the final cashing up

7. the cashier’s actual takings are recorded on the cashiers cash up slip

8. calculate the cash amount being handed in, using the weighing machine the same way as with the float

1. once all the cash is calculated the weighing machine will give a printout. This printout should be stapled to the cashier’s cash up slip

2. the cashier can now record all cheques being handed in, by recording the customer’s name and the amount

3. while the cashier is doing this, the cash clerk, to save time, can be separating the “other” tender types, the EFT slips, the Buy Aid slips, account slips
and coupons

4. the system adds up all the EFT payments. The cash clerk enters the value to the cashier’s cash up slip

5. all debit card and credit card slips are grouped together with a paper clip

6. all the Buy Aid slips are added together on the adding machine and grouped together with a paper clip with the adding machine strip on top. The
total is recorded on the Cashier’s cash up slip

7. charge accounts slips are handled in exactly the same manner as Buy Aid slips

8. if the Speed point system was not working and credit card sales were done manually then they will need to be added up and handled in the same
manner as the Buy Aid slips are handled

9. once the cash clerk has captured all amounts on the Back Office, the Back Office system will work out whether the cashier balances or is over or
short

Back to Menu Print Section 1.9

1.10 Dealing with Customer Theft or Robbery

 store management and teams recognise that theft of stock is a major erosion of store profits. Shrinkage control and awareness of customer theft is an
important activity in the store. All staff are aware of high risk product groups for customer theft and understand the process for identifying dishonesty,
watching and reporting shoplifters.

Store/duty managers are trained to deal with shoplifters, use the correct language and process outside the store to approach potential/identified shoplifters
who have been clearly seen taking and concealing property then leaving the store without using the paypoints. Store/duty managers complete a security
incident form, issue banning letters and call the police dependent on the severity of theft.

1. Correct procedure for dealing with shoplifters

1. shoplifter MUST be visually identified and seen removing/concealing stock

2. staff member/security guard must not lose sight of shoplifter prior to leaving premises

3. staff member must inform management and security staff

4. security guard will stop suspect OUTSIDE the store after clearly avoiding payment at the paypoint

5. store/duty manger will NOT PUT THEMSELVES AT RISK

6. security guard will invite potential shoplifter back into store for a ‘routine check’ of receipt in private office as there is reason to believe an
item may not have been scanned at paypoint

7. store manager will call the police if evidence of substantial theft

8. shoplifter must be kept in secure office with security guard present until police arrive

9. store manager must record all details of person and vehicle. Take a photograph of the suspect

10. all stolen articles must be recorded and stored in a safe place. Police must sign for receipt of stolen article
2. Armed Robbery

In case of an armed robbery or attempted armed robbery the following procedures must be adhered to:

During an armed robbery:

1. wait until the suspects leave the store and then press the panic button and contact the SAPS

2. only press the panic button after the suspects have fled the store to alert the Armed Response team

3. be submissive during the robbery

4. do not attempt to arrest the armed robbers whilst the robbery is in progress. It will only aggravate the situation

5. DO NOT TRY TO BE A HERO!

After the robbery

6. close the door of the store; be alert and affect an arrest if possible

7. assist the SAPS and Armed Response Team

8. assist any staff or customers that might be injured

9. move all staff and customers away from the tills, try and gather them at the back of the store

10. the owner must look at the CCTV system in case suspects stay behind and act like customers

11. contact the Guarding Manager and Supervisor

12. get all information on suspects:

• vehicle descriptions and registration numbers
• colour of vehicle
• registration of the vehicle
• model – old shape or new shape e.g. box shape BMW 318i
• make of vehicle
• unique Identification marks – sticker; dents; scratches
• how many suspects were involved
• what weapons were used
• any identification on characteristics; like tattoos, walking with a limp, etc.
• protect all evidence on the scene by using shopping baskets or trolleys
• fingerprints
 • blood
• rounds and ammunition – cartridges, etc.

13. do not allow anybody to enter the crime scene after it was secured by the Police and Armed Response Team

Back to Menu Print Section 1.10

1.11 Key Control

store management have a strong culture of key control. All safe keys are dual controlled and signed in and out in a safe control book. There are three sets
of store keys, one of which is always locked in the safe as a e set. All secure stores, wines and spirits, mobile telephones, pharmaceuticals, cash drawers and
electronics storage cages are locked.

1. Correct procedure for dealing with keys

1. all key boxes contain numbered and labelled key

2. all key boxes must have a sign in/sign out sheet with name/date/signature

3. duty manager must sign all store keys out in the morning

4. duty manager must sign all keys back in at close of trade

5. there must always be two sets of store keys outside the store when the store is closed

6. police, emergency services and alarm company must have an up to date key holder list with contact names and contact telephone numbers

7. all locks must be changed annually or when there is a change of management

8. keys must be stamped “DO NOT DUPLICATE"

Back to Menu Print Section 1.11

1.12 Receiving

1. Designing your receiving bay

Based on best practice a store should try, wherever possible, to design the receiving area bearing the following in mind:

1. the actual receiving bay must allow for a vacuum system (two door system)

2. trucks must be able to back straight up against the back door and the loading bay should be as close to truck height as possible to allow off
loading with trolleys, etc.

3. the receiving person’s desk should be positioned in a way that faces the open receiving door

4. the receiving bay should have an “in tray” so that the receiving person can post completed documentation into this tray once he/she has
finished with it so it does not lie around getting damaged or go missing
5. there should be a dedicated section for damaged goods for return to supplier. This should be in a secure area so that these items do not go
missing or get taken by the staff

6. there must be a dedicated area for crates, lugs, etc. that must be returned to the DC and empty cool drink bottles, etc. that must be
returned to suppliers
 7. the opening times of the receiving department should be displayed prominently on both the receiving door as well as the entrance to the
receiving yard

8. there must be a secure cage for empty boxes and these should be broken up once emptied

9. there must be a sealed bin room for all waste. This will reduce the chance of rodent infestation

2. Types of deliveries

1. there are a number of types of deliveries which must be considered, when deciding on how to schedule your deliveries:

TYPES OF DEFINATION NORMAL PROMOTIONAL SEASONAL

DELIVERIES

Deliveries A delivery is a delivery which Your normal delivery which comes Extra deliveries which you may Extra volume of c
you get from your D.C. at the same time on a regular receive to accommodate a large lines which you m
schedule. promotion. at specific times o
(e.g. toys at Christ

Dropshipment A supplier which delivers Your normal deliveries which you Extra deliveries which you may Extra volume of c
Deliveries directly to your store, but sends receive from dropshipment receive to accommodate a large lines which you m
the invoice to the D.C. for suppliers such as Beacon, Willard, promotion at specific times o
processing. You subsequently etc. (e.g. more ice - cr
(e.g. chocolate eggs at Easter).
get charged by the D.C. summer).

Direct A supplier which delivers Deliveries which you may receive When you have arranged your Specialty lines wh
deliveries directly to your store and also based on customer demands own in-store promotion with a sell during holiday
invoices you directly. particular to your store location direct supplier on a certain seasons which the
 TYPES OF DEFINATION NORMAL PROMOTIONAL SEASONAL
DELIVERIES

and customer profile, of lines specialty line not stocked by the does not stock.
which your D.C. does not stock. D.C.

2.

AS DROPSHIPMENT AND DIRECT DELIVERIES ARE HANDLED IN EXACTLY THE SAME WAY WE WILL REFER TO THEM AS EXTERNAL
SUPPLIERS IN ORDER TO DIFFERENTIATE THEM FROM THE DC

3. Receiving person’s responsibilities

Whoever is responsible for the receipt of goods, whether the owner, receiving manager or service department manager, has an extremely
responsible job. Losses occur at two main areas within the store, the Point of Sale (where the tills are) and here, in the receiving department.

1. The person receiving deliveries must:

• prepare the receiving area and the stock room
• schedule deliveries
• implement loss control measures
• receive the delivery as swiftly as possible
• ensure that products received are in a saleable condition
• ensure there is a 100% match between the supplier invoice and the quantities received
• process claims promptly
• clear waste regularly
• accurately record all stock leaving the store
 2. THE RECEIVING AREA MUST BE KEPT NEAT AND CLEAN AT ALL TIMES. IT IS IMPOSSIBLE TO WORK ACCURATELY IF THE WORK AREA IS NOT
TIDY

4. Scheduling deliveries

1. schedule your deliveries so that no more than one delivery is at your back door at any one time

2. delivery trucks are scheduled so you do not keep them longer than is necessary at your back door

Use the following procedure to schedule your deliveries:

3. plan your deliveries according to a delivery schedule

4. plan your deliveries well in advance by considering the following:

• the size of the order placed and the capacity of your store room
• the type of product being delivered
• how long it will take to off-load it
• schedule “other big” deliveries for the days you are not getting the D.C. delivery
• the time of the month - for example larger orders get placed near to pay day
• what other deliveries are expected

5. arrange for your perishable deliveries to be delivered early in the morning in order to maintain the cold chain

6. prepare the receiving area for the delivery by:

• cleaning the receiving area and the storage area
• cleaning the cold room

7. allow enough time for the receiving of any delivery, don’t let the driver rush you as this will compromise security

5. Loss control in receiving

1. while a customer can steal one or two items a dishonest delivery agent can steal case lots

2. the points below are good general loss prevention points:

• every single item signed for must be received
• every delivery must have an invoice accompanying it and not just a delivery note so that prices can be checked
by the G.R.V. office
• the receiving door must be kept locked at all times unless a delivery is actually being received
• THE PERSON RECEIVING MUST NEVER TURN HIS/HER BACK ON AN OPEN
RECEIVING DOOR
• receiving and locker keys must never be left lying around or given to anyone else other than authorised senior
members of the store
• anyone leaving through the receiving door must be searched
• no small cartons of stock should be left lying around near the waste area or left lying around the stock room or
taken to the shop floor
• ensure that only the receiving manager or the store owner accepts goods at receiving
• ensure that service department managers follow and implement security measures when helping to receiving goods
• do not receive any items through the front door of your store, you are making yourself vulnerable to theft and it
creates poor customer perception
• receive only one supplier at a time
• weigh all meat, cheese, cold meat loaves, fresh produce, etc. In fact any product charged to the store by weight
• match item description and quantity on the invoice to the purchase order
• accept only the original copy of an invoice
• date stamp all boxes received
• never sign on invoices under which there are carbon copies
• spot check suspicious looking cases and sealed cartons at random
• write the cash amount in words onto COD invoice
• invoices, once matched to purchase orders and the physical delivery should in no instance be handed back to
the driver
• goods once received and checked should be immediately moved into the stock room. Extra care should be taken
on high volume smalls, which are more prone to pilferage
• the G.R.V. stamp should be in possession of the receiving manager / locked away when not in use to avoid
 fraudulent usage
• persons receiving goods may not accept any gifts or samples or even damages from any of our suppliers
• keep a watchful eye on tampered seals or open cases, to ensure that no items are missing
• 2 people should check large bulk deliveries/full pallets which may contain a hollow
stack (e.g. sugar, Coke, etc.)
• check to ensure that no empty bottles are being received in place of full ones (Coke)
• open all cases and check each item, if continuous difficulties or discrepancies are being experienced with
particular supplier(s)

6. Breaches in security

1. merchandisers and other outsiders such as repairmen and reps, etc. should not come into the receiving/stockroom area unattended

2. they must not be allowed to walk around on their own

3. no unauthorized person is allowed in the receiving area. This should be made clear to all suppliers

4. should you see someone you do not know or someone that should not be in receiving, walking around the receiving or store room, it is your
responsibility to ask them what they are doing there

5. if they are a rep wanting to check stock counts or a repairman wanting to work in the area check they have signed the visitor’s book and
received a visitor’s badge. The manager will arrange for someone responsible to be with them and watch what they are doing

7. The vacuum system

1. the receiving bay should have a vacuum system in place

2. this system refers to a cage built around the receiving door which has two lockable doors:
• one from the street into the cage
• one from the cage into the stock room
 3. AT NO TIME MAY BOTH DOORS BE OPEN AT THE SAME TIME

4. when a delivery is being received and the receiving door is open, the door to the stock room must be closed and locked. When the door to
the stock room is open, the receiving door must be closed and locked

5. suppliers must bring their goods into the bay where they are checked. While this is being done, the door to the stock room must be locked

6. check the delivery accurately, whilst in this vacuum cage

7. once the goods are checked the receiving door must be locked. The door to the stock room can then be opened and the cage must then be
emptied, and the goods taken into the stock room before another delivery may be accepted

8. the vacuum cage must be emptied of stock between deliveries

8. Housekeeping

1. housekeeping of your receiving area is absolutely vital

2. no one can work efficiently in an untidy work area

• keep your desk tidy at all times or you will find yourselves hunting for stationery and tools when you
need them
• keep your paperwork in a neat and orderly fashion, preferable clipped together in the order in which the
deliveries were received
• always ensure your forms and stamps are kept together
• make sure the receiving area is kept clean and hygienic, and mop up any spills as soon as you have finished
the receiving of the delivery before receiving the next delivery
• ensure scales are in working order and weighing accurately – check once a month

9. Control of orders

1. the receiving person should have a copy of every order to ensure that what is being delivered is effectively what was ordered
 2. no delivery should be accepted unless there is an order

3. it is the person in receiving’s job to:

• file all orders correctly
• warn others of large orders so that space can be made in the stock room before the delivery arrives
• follow up on outstanding orders to ensure they are received on time
• advise others of any special instructions on the order that may affect him/her. (Example – If it must be kept aside for a promotion)
• advise management of deliveries that are overdue
• advise management of any problems regarding outstanding orders (Example – The supplier is out of stock and cannot deliver)

First thing every day, the person in receiving should get a printout from the Back Office called “Expected Deliveries” for that day. This
shows the suppliers as well as the number of lines expected from each supplier and the team can prepare for the day to ensure they are
ready and all claims are made ready.

10. Receiving D.C. deliveries

1. the Distribution Centre has the following objectives for delivery of product:
• to enable retailers to order their merchandise effectively
• to deliver merchandise to retailers:
- efficiently
- accurately
- at a scheduled time
- in a saleable condition

2. in order for the D.C. to achieve these objectives the following systems need to be in place:

SYSTEM DESCRIPTION

Turnaround To achieve maximum productivity of our truck fleet, the D.C. must deliver as quickly as
possible to all stores and get the trucks back to the D.C. to reload them for their next
 SYSTEM DESCRIPTION

delivery

Security System Seal System: all trucks leaving the D.C. have a security seal attached to the back doors to
ensure that your delivery has not been tampered with

Schedule of The D.C.’s schedule deliveries to specific geographical areas on a daily basis and changes
Deliveries can be made due to public holidays

Timing From the time of placing the order with the D.C. the order will be processed and delivered
to the store

3.

4. claims for damage must be prepared prior to the D.C. truck arriving at the store

5. in order for the D.C. to meet its objectives, as a member you have an obligation to the D.C. by ensuring that you fulfill the following:

YOUR COMMENT
OBLIGATIONS

Preference • Give preference to deliveries

• Arrange all other major deliveries on another day

Procedures • Abide by all receiving procedures as laid down by your D.C.

 YOUR COMMENT
OBLIGATIONS

Documentation • Ensure that all documentation has been correctly completed

• Hand appropriate documents back to the driver

Sealing • Seal the truck before it leaves your store, if there is another delivery on the truck

Scheduling • Comply with scheduling arrangements laid down by your D.C.

Overstocks • Get approval from your D.C., before returning stock to the D.C.
• Returns must be in full case lots

6.

11. Receiving procedure

1. ensure that your vacuum system is used correctly

2. check the address on the invoice/delivery note making sure that the delivery is for your store

3. check the seal number on the truck to the seal number on the LDA and break the seal, if correct. Contact your D.C. immediately if seal
numbers don’t correspond

4. unload the truck, ensuring that goods are carefully handled, to avoid breakages and damages

5. check, together with the driver, that the number of cases specified on the LDA, correspond to the number of cases actually delivered

6. ensure that discrepancies between the LDA and number of cases received are handled in the following way:
• recheck with the drive
• phone the D.C. to report shortage
 7. immediately stamp the D.C. invoices with the store G.R.V. stamp, to avoid the use of fraudulent invoices

8. sign the LDA once the unloading is completed

9. sign the driver’s Daily Route Sheet

10. drop the completed paperwork into the receiving “post box”

11. seal the vehicle and record the seal numbers on the LDA

12. now lock your receiving gates

13. check every item, description, size, weight, grade (whichever is applicable) and quantity to the delivery note and tick or record what is being
received

14. use a red or green or purple pen when checking the goods in. Comments and notes and ticks stand out well and will not easily be missed
when paying invoices

15. thoroughly check, item by item, containers carrying mixed products

16. every D.C. item put into the stock room must be date stamped

17. if an item is charged by weight – weigh it

18. cigarettes, because they are so pilferable, must be checked item by item even though they are from the D.C.

12. Receiving external suppliers

1. the method of receiving and even the method of order is exactly the same, and therefore the following receiving procedure applies to both
forms of supplier

2. there should be a policy in place that is communicated to all suppliers that the store never accepts a new delivery until damages have been
accepted by the supplier

3. damages should be prepared ready for when the supplier delivers

 4. with these deliveries every carton received must be date stamped whether going onto the shop floor or into the stock room

5. with these suppliers every item is checked, item by item. We do not just check number of cartons

6. as with any delivery, if you are charged by weight for a product then that product must be weighed and not counted. If we are charged by
quantity and not by weight then count the items being delivered

7. all other procedures as with the D.C. apply, as do all loss prevention points

13. Quality control

1. quality control must become an obsession with you as a Retailer

2. sometimes a supplier may take a chance and try to deliver inferior quality to your store, if you let him get away with it he will try and do it
over and over again.

3. never accept inferior quality at receiving, even if it means that you have to do without that product until the next delivery

4. accepting inferior quality goods will also result in more waste and mark downs – losses to the store

5. in order to receive quality products it is imperative to maintain the Cold Chain. The Cold Chain is the movement of perishable goods from
the factory, to the store, and from your store to the customer’s home. These products must be moved and stored at a certain temperature,
in order to maintain shelf life and the quality of the product

6. it is advisable, when receiving quality sensitive products such as fresh produce, meat, deli items, etc. that the department head check the
delivery with the receiving person. The department head will be able to check quality better than the receiving person

7. however, the receiving person is responsible for receiving the goods and this responsibility may not be passed to the department head

8. you will need to check various different characteristics for quality control at receiving, according to the product type:
PRODUCT TYPE ALWAYS ENSURE THAT ALWAYS ENSURE THAT THERE IS NEVER…

Fresh Produce • Uniform sizing of produce • Discolouring/browning

(See Produce Module) • Check the temperature Is less than 5°C unless it is • Excessive moisture in prepacks
ambient produce • Signs of dehydration
• Produce is firm and crisp • Decay/rotting/mould
• Splitting of produce
• Insects
• Wilted/slimy produce
• Sprouts growing out of fresh produce
• Soft, mushy produce

Cut Flowers • Firm closed buds • No bruised petals

• Good colour • No petals dropping off/wilting
• No slimy stems

Plants • Firm leaves and stems • No damaged/wilting leaves

• No infection of leaves/steams

Fresh Meat • Meat must smell fresh • No sticky/shiny meat

(See Butchery • A Grade classification • No bad odour
Module) • Firm in texture
• Meat temperature must be below 5°C
• Chicken temperature must be between 2 - 4°C

Cold Meats • Check sell by date from the manufacturer • No cold meats packs to have “blown”
(See Deli Module) • The temperature must be below 5°C • Check for mould where appropriate
 PRODUCT TYPE ALWAYS ENSURE THAT ALWAYS ENSURE THAT THERE IS NEVER…

Cheese • Colour of cheese • No discolouration

• Texture of cheese • No broken packaging
• Sell by date from manufacturer • No bad odour
• Check for mould where appropriate
• Check the temperature of goods being delivered
• The temperature must be below 5°C

Dairy • Check for sell by date from the manufacturer • No burst/broken packaging
• The temperature must be below 5°C • No bad odour

Frozens • Products are all still frozen • Packaging is not broken

• Temperature must be below -18°C • No freezer burns on products

Chocolates • Chocolate not melted

• Chocolate not discoloured/mouldy
• Packaging is not broken

Ice cream • Still frozen solid • Packaging is not broken

9.

10. if temperature is unacceptable, then make use of the probe thermometer to record the temperature. Make out credit claim if temperature
is out of temperature zone
 11. document the temperature of truck and perishable product when delivery arrives

14. Receiving cold chain products

1. the cold chain is the supply chain that is applicable to products which have to be maintained at a particular temperature

2. unless the cold chain is maintained from start to finish (finish is only when the customer uses or eats the product), the quality of the product
will be affected

3. keeping it at the right temperature maintains the products shelf life and prevents contamination

4. when rejecting a product out of the temperature zone, record the temperature and note the reason for rejection

YOU MUST BECAUSE

Maintain the cold chain, when storing and handling cold This
chain products influences
the shelf life
of these
products
since the
shelf life is
directly
related to
the number
of bacteria
present

Ensure the temperature of cold chain products does not Bacteria

exceed 7°C before being refrigerated doubles in
 YOU MUST BECAUSE

quantity at a
temperature
of 3°C and
above
within the
first 12
hours!

5.

6. REMEMBER: for every 30 minutes products are left lying outside the fridge, 2 hours of shelf life is lost

15. invoice

1. the invoice is delivered to the store with the order and used by the retailer to check the order Note that the invoice is split into D.C.
categories not store categories (e.g. dog food) and departments (e.g. Personal Care)

2. apart from the products being delivered, the invoice also shows lugs and crates being delivered

3. below is a list of the terms used on the invoice, together with a definition of each: It is best to read this with an invoice in front of you

TERM DENIFITION

Store name & Postal The name and address of the store
TERM DENIFITION

Address

VAT Reg Store VAT number

LDA Number The number of the LDA which corresponds to the order

Customer The store code

Zone The retail pricing zone which applies to the store. This is used in setting
the Retail Guide Price

Order The store order number which is generated by the store system

Date The date on which the order was printed

Invoice The invoice number allocated to that order

Description & Size The item description and size

Pack The shipping quantity/number of retail units enclosed in the pack

Code The warehouse item code

 TERM DENIFITION

Weight The weight of the item if it is a variable weight item (e.g. fresh produce/meat)

Quantity The number of packs ordered by the retailer

Add % The additional percentage which is built into the price (excl. VAT) for an item.
The percentage takes into account store location and class of item

Price (excl. VAT) The cost to the retailer of a single pack of the item (excl. VAT), but
including ADD%

Amount The quantity of packs X the cost per pack (exclusive of VAT)

Tax % Confirming what VAT percentage is added

Unit Cost The actual cost per selling unit exclusive of VAT

Ret Guide The guide selling price for the retailer

GP % The GP the retailer will make if he sells it at the guide selling price

4.

At the foot of the invoice is the total cost exclusive of VAT, total VAT and total cost of the invoice. It also shows the total gross profit
percentage of the invoice, the total retail selling price (based on the guide price) and the total GP in Rands.
16. Out of stock report

1. with every delivery the D.C. will supply a computer generated report of “Out of Stocks”

2. this is a list of all the products ordered by the store but not delivered by the D.C.

3. this out of stock report must be given to the manager who might want to order up on other products whose sales could increase as
replacements for the out of stock lines

4. if the product is out of season or discontinued, the manager will need to be told so he/she can fill the shelf space once the product sells out

5. if the product is orderable, the manager might want to order as soon as he/she gets this list from receiving

6. the following table which is found on the out of stock list gives the reason for the out of stock

SYMBOL MEANING

A Product code is not valid at the D.C.

B Temporarily unavailable from the vendor

C Temporarily unavailable from the D.C.

D Original pack not available

G Store may not order the product

H Store order quantity adjusted

 SYMBOL MEANING

I Substituted item

J Discontinued

K Out of Season

7.

17. Load and delivery advice

1. the LDA as it is known

• is printed by the supplier/ D.C. after the cancelled lines and variable weight items have
been registered
• comes with an order to a store, where it is used as a proof of delivery document or store receipt
by the store
• is used by dispatch to check the number of packed items into a dispatch bay, and then subsequently
onto a vehicle. This amount should reconcile with the amount which arrives at the store

2. below please find the terms used on an LDA and a definition of each:

It is best to read this with an invoice in front of you

TERN DEFINITION

Store Name The name of the store

TERN DEFINITION

Store Code The code that refers to the store

Route Code The route to which the store’s order has been allocated according to delivery size and
geographical location

Stop The stop code that the driver of the vehicle uses to determine which store to deliver
to first, if there is more than one store’s delivery on a vehicle. The billing sequence
ensures that orders are loaded onto the vehicle in the correct sequence so that the
unloading is more efficient

LDA No The number which the system allocates to the document. The LDA number also
appears on the invoice document

Date The date on which the LDA is generated

WHS The code which signifies from which warehouse the order was assembled. An order
which includes perishables as well as dry grocery items will have 2 LDA’s as the
system differentiates between each physical warehouse

Invoice No The number allocated to the invoice for the order

Warehouse No The number which the D.C. system allocates to the order

Store Order No The order number which is generated by the store’s system
TERN DEFINITION

LDA Section The section of the warehouse in which the order was assembled

Cases Invoiced The number of cases assembled from each section and charged to the retailer

Units Invoiced The number of units assembled from each section and charged to the retailer

Packed in Cartons / The number of cartons or bins in which the units assembled from each section are
Bins repacked. This is entered manually at dispatch level

Total Packed in The total number of cartons or bins used to repack units. This is entered manually at
Cartons / Bins dispatch level

Total items invoiced The total number of items invoiced. This is equal to the sum of the total number of
cases and units invoiced

Total cases The sum of the total number of cases invoiced and the total number of cartons and
bins. This is entered manually at dispatch level

Average Item Value The average value of each item, calculated by dividing the total value of the order
(excluding VAT) by the total number of items
 TERN DEFINITION

Checked by The name of the person who checked the order

Loaded by The name of the person who loaded the order

Driver Name The name of the driver

Truck Reg. The registration of the truck on which the order was delivered

Trailer Reg. The registration of the trailer on which the order was delivered

Seal No: In /Out The numbers of the security seals used to ensure that a delivery is received intact

Pallets The number of pallets and containers returned by and left at the store
and containers: In /
Out

Total The quantity of either items of TOTAL CASES received by the retailer. This is filled in
Quantity Received by the retailer and signed accordingly

3.
NOTE: Be aware that on an LDA a “case” is a container and that container could be a carton or even a cage or rollertainer containing a
number of cartons and worth a lot of money
18. G.R.V. stamp

1. each store should have a store stamp that has the information shown in the example below

2. it is good practice to show the store name as well as the store number

3. it is also good practice to have the entry “Claim No” cut into the stamp to remind the receiving person to send back claims as well as to
condition the suppliers to the fact that at we only accept deliveries if they take back returns
 4. use this stamp to stamp all documents pertaining to the delivery. That’s both their copy as well as our copy

5. ensure that handwriting is legible

19. Daily route sheet

Below please find an example of the daily route sheet, which is to be completed by the driver, and should be checked by the [Link] is a D.C.
control.
 (See daily route sheet in Resources Tab)

20. G.R.V. Register

1. the G.R.V. register is a document used to record deliveries received from all suppliers (including D.C.) at the backdoor
2. implement the following when setting up a Goods Received Voucher Register:
• use a duplicate book with the columns shown below
• all entries should be recorded in duplicate and one copy sent to the G.R.V. office with the applicable invoices

G.R.V Register Form

(See G.R.V Register form in Resources tab)

 “R Total” Inclusive and Exclusive refer to the cost price on the invoice.

21. Discrepancies

1. if the goods you receive do not agree in any way with those charged on the delivery note then there is a discrepancy

2. it could be quantity, weight or even the quality

3. all are equally important as they affect the price and therefore your margins

4. unless recorded correctly they could cause disputes with your suppliers

5. THE DELIVERY NOTES

On both copies of the delivery note:
• clearly tick the quantities received in full
• where a different quantity was received to that charged, clearly write the actual quantity received
• where a quantity was charged but nothing received, write N/R

EVEN IF THE SUPPLIER, HIMSELF, HAS CROSSED SOMETHING OUT ON THE DELIVERY NOTE ENSURE YOU STILL MARK IT AS N/R

22. Credit Claims

Credit Claims Form

(See Credit Claims form in Resources tab)

1. wherever there is a discrepancy between the stock received and the stock charged for, it is important that a formal credit claim is raised

2. there are two different “CREDIT CLAIMS” books

3. one is used for claims from the D.C. and this book is available from the D.C.
4. the other book is for claims from suppliers who deliver directly to the store and this book is designed and printed by the store. Therefore,
not every store uses the same book

5. the CREDIT CLAIMS designed by the store should have similar information as the CREDIT CLAIMS used by the D.C.

6. both the CREDIT CLAIMS books should be in triplicate:

• 1st copy will go to driver
• 2nd copy to the G.R.V. office for follow up
• 3rd copy to remain in the book for audit purposes

7. with a CREDIT CLAIMS on External Suppliers:

• complete a store (not D.C.) CREDIT CLAIM
• write the Credit Claim number on the supplier invoice as well as the G.R.V. stamp

8. with a CREDIT CLAIMS on the D.C.:

• complete a D.C. CREDIT CLAIM form
• write the Credit Claim number on the LDA

9. when completing a CREDIT CLAIM

• enter the full description, size/weight if applicable, etc. of the product in dispute
• record exactly what was charged for and what was received
• get the driver to sign confirming these details
• also record the driver’s name

10. when to make out a CREDIT CLAIM

IF THIS HAPPENS DO THIS

1. If you get less goods than the 1.1 This is a shortage

supplier is charging you for on 1.2 Complete a CREDIT CLAIM
the delivery note 1.3 The driver signs and prints his name
1.4 Enter the vehicle registration number
 IF THIS HAPPENS DO THIS

2. If the supplier delivers more 2.1 Refuse to accept the extra goods
goods than what is charged 2.2 Do not make out a claim
for on the delivery note

3. If you get different goods to 3.1 The goods charged on the delivery note but
those charged for on the not received must be recorded as a shortage
delivery note as explained in 1 above
3.2 The goods being brought in and not charged
for must not beaccepted and must be handled
as explained in 2 above

11.

12. IF THE SUPPLIER HAS AN ITEM CROSSED OUT ON THE DELIVERY NOTE, YOU COULD STILL BE CHARGED FOR IT. YOU DO NOT KNOW WHO
HAS CROSSED IT OUT

13. MAKE OUT A CREDIT CLAIM FOR THESE ITEMS EVEN IF THE DELIVERY AGENT SAYS YOU WERE NOT CHARGED

Back to Menu Print Section 1.12

1.13 Dispatching

1. Introduction

1. your role in dispatching stock

• to keep items awaiting collection in a neat and safe manner
• to contact suppliers to collect items for despatch
• to ensure that items are despatched to the correct supplier
• to ensure NOTHING leaves through the receiving door without the correct documentation
 being completed
• to accurately and fully complete all documentation
• to ensure that ALL items dispatched are signed for by an authorised employee of the supplier

2. a CREDIT CLAIM must be used to record all dispatches to any supplier or the D.C.

3. use the same book used to record discrepancies

4. ensure you use the D.C. CREDIT CLAIMS book for D.C. claims and the store CREDIT CLAIMS book for returns to suppliers

2. Dispatch loss control

1. under no circumstances should anything (besides waste) leave the shop through the receiving door without being recorded and signed for

2. before giving stock or equipment to anyone, the receiving person must ensure that they are authorised representatives from that company
and they must sign for all goods taken. If possible the registration number and time of the truck collecting the goods should be recorded on
your dispatch notes

3. all cardboard boxes should be flattened and waste must be checked before being removed from the store

4. load any pallets, damaged cases and returns onto the vehicle, together with a claim form

5. damages must be signed for by the driver collecting them

6. ensure NOTHING leaves through the receiving door without the correct documentation being completed

3. Completing the credit claim

1. there are two ways to compete the Credit Claim form used to dispatch goods from the store

2. you can write them by hand or you can capture them on the Telxon

3. capturing items on the Telxon is far more efficient and considered Best Practice

4. knowing which suppliers are to deliver each day, items for dispatch that day should be recorded, by supplier, on the Telxon
 5. the Telxon is then taken to the Back Office where this information is downloaded and a Credit Claim is printed by the Back Office

6. the person collecting the goods then signs this printed Credit Claim

4. Returns to DC

1. sometimes you may find that you have damaged goods, which arrive at your store

2. your D.C. will inform you as to what procedure to follow with respect to damaged goods

3. they deduct a set percentage from your invoice to make allowances for damaged goods; this is called a swell allowance

4. or they may have a policy that certain specified goods can be returned to the D.C. and you can raise a claim for goods returned

5. before returning goods to the D.C. contact them and they will give you a claim uplift number for goods you can return. Without this uplift
number they will not pass you a credit even if you complete your CREDIT CLAIM invoice

6. CONTROLLING GOODS FOR RETURN

• storeroom to have dedicated racking for damages
• record damages per supplier in order to claim
• same procedure must be followed for perishable items. Damaged items must be sealed in containers
to avoid cross contamination
• record damages for which you cannot claim so that you know how much stock you are writing off
per week
• separate items into the following categories and pack into separate cartons: tins, plastics, paper
packaging, boxes and bottles
• store hazardous items separately, e.g. pool acid, chlorine

7. please take note of the following points with regard to damages:

• seasonal lines and toys will not be accepted back by the D.C.
• expired stock will not be accepted unless the D.C. delivered the stock with an unacceptable expiry date
• return damages frequently, do not allow them to accumulate
• return damaged units rather than whole cases wherever possible
 • where possible, use damages in-store, e.g. sugar, coffee, tea, etc.
• returns will not be accepted if packed loosely in cages or cold boxes

8. saleable stock returned to the warehouse will only be accepted in their original ship cases, these must be sealed

9. if you return saleable stock to the D.C. you may be charged a handling fee

10. please contact the Inbound Manager for further details

11. apply the following when processing claims

Step Action

1. Separate claims into the following categories: Groceries, Personal Care, General Merchandise and
Perishables

2. Mark all cartons with their relevant claim number and store name

3. Have a separate claim or reference made on the list as to which carton the items are in

4. Provide a separate claim for each reason for the return, e.g. damages ex store, damages ex truck,
saleable stock, etc.

12.

5. Transportation containers
Transportation containers are very expensive and the store is charged for them, so return them to the D.C. as follows:
 1. GKN Pallets:
You will notice on your L.D.A. (Load & Delivery Advice), which you receive with each delivery, that the number of pallets sent to your store
is recorded. Each time a truck delivers to your store you must ensure that you send the previous delivery’s pallets back to

2. Cold Boxes:
Cold boxes used for the transportation of perishables must be returned to on the same delivery

3. Lugs:
Some D.C.’s send fresh products in lugs to the stores; these must be returned to the D.C. with the next truck

These must be recorded on a CREDIT CLAIM as the store was charged for them on an invoice from the D.C.

4. High value cages:

High value cages, which are used for high value and small products/cases when stock is delivered to the store, must also be returned to the
D.C. with the following delivery

5. Record on the L.D.A. how many pallets, lugs, cages you are sending back to the D.C. and give The L.D.A. back to the driver

6. After re-loading the containers and any returns, please ensure that the delivery vehicle is resealed according to the triplog

6. Returns to suppliers

1. some suppliers (e.g. liquor suppliers) will give you a Swell Allowance, instead of accepting damages

2. they will deduct a certain discount % off every invoice in order to cover any damages incurred

3. every dispatch must be signed for by the person who collects the dispatch as well as PRINTING THEIR NAME CLEARLY

4. anybody collecting goods from a supplier must provide identification

5. wherever possible, the truck registration should also be recorded

7. Waste

1. every store must have good waste facilities to cope with dry and wet waste

2. it is preferable that your store has a waste cage which is lockable so that no-one can get to your waste

3. adhere to the following procedures in order to enforce rigorous hygiene standards when handling waste:

Step Action

1. Arrange with your local municipality to collect your waste according to your requirements. Adhere to
local municipal regulations

2. Ensure that your waste area does not look onto the street - it must be enclosed by a wall out of the
public eye

3. Ensure that the area outside your receiving area and waste area which is open to the street is always
spotlessly clean

4. Ensure that the waste area is thoroughly disinfected after the waste is removed

5. Ensure that your waste area caters for WET and dry waste. Wet waste to be thrown into sealed bins,
until they are removed

4.

8. Inter-branch transfers

1. this system is only used where a retailer owns more than one store
 2. it is good practice to record the transfer of stock or fixed assets between stores

3. unless this is correctly done stock balances and GP will not be accurate

4. items sent must be removed from the records of the sending store and added to the records of the receiving store

Back to Menu Print Section 1.13

1.14 Financial Administration

1. Introduction to Financial Administration

The finance and administrative functions of a store are closely linked and are therefore combined into a single sectional to help store owners
implement established best practices in stores. This section is a guide only and is not intended to be an exhaustive study of financial systems and
controls. Wherever necessary, store owners may need to adapt recommendations to suit the unique characteristics of their store.

Admin office responsibilities

The responsibilities of the Admin office include:

• record and reconcile all financial information in the accounting records

• provide financial and related reports to the Store Manager/Owner
• complete and submit tax and other returns to the relevant authorities
• control, manage and facilitate payments and receipts
• provide support to the Store Manager for the day to day running of the store
• oversee the effective functioning of all systems and controls
• implement and maintain controls to safeguard the business and its assets
• oversee the functioning of other smaller departments
• record keeping, filing and archiving
• assist the Store Manager/Owner with compliance of the relevant laws and regulations
2. Financial and business systems

1. Introduction

It is important to understand that financial systems are not limited to the accounting software used to record and report financial
information.

Financial and business systems extend to:

• the processes followed
• the controls implemented, and
• the people involved in producing the financial information

Therefore, the accounting software used merely facilitates the processing of data into a useful format in which to report that financial
information and may include the use of more than one type of software. In a typical store, a combination of various software packages will
be used for various functions and could include off the shelf software or software specifically developed for retail.

For example: Pastel /Easy Accounts for maintenance of accounting records, Pastel Payroll for salary processing, Sigma for stock control and
pricing, etc. Your D.C. supports the following account packages: Pastel and Easy Accounts. The accuracy of the financial information reported
will depend on the efficiency and strength of the total financial and business systems.

This will include:

• how accurately data is processed in the relevant systems
• the level and quality of human involvement in processing data
• the strength of the controls protecting against any weaknesses in the system
• management’s monitoring and reviewing procedures

Since finance has an impact on every aspect of the business and there will be a number of overlapping areas, it is also imperative that all
systems and controls work in synergy with each other. For example, the systems and procedures applied to stock control will have an impact
on creditors, purchases and bank, and must therefore consider the impact on those areas. Stores may decide to use other accounting
systems than the example above. For the purposes of this manual this is irrelevant as long as the systems were proven to be reputable, have
been implemented properly and staff appropriately trained.
The focus of this manual will be on the systems, controls and best practices to be applied to ensure that:
• financial information is produced accurately and on time
• is used appropriately to manage the store and improve performance
• applicable laws and regulations will be complied with

Diagrammatic representation of the flow of information through business systems in a typical store:
A.
B. The accounting system
3. Income

1. Introduction

Credit sales will be covered under the Debtors section. This section will cover sales in more detail as well as all other types of income. Sales
refers to credit and cash sales in this section.

We will look at the following in more detail:

• recording sales
• reporting and management
• other income

2. Recording sales

Your store will be equipped with a frontline point of sale system that will be linked to your GRV system. The point of sale system records all
sales at the tills and has to be actively linked to the GRV system to pick up the stock codes and prices of each stock item. However, this point
of sale system is not linked in the same manner to the accounting system, which ultimately summarises all financial records. Therefore, sales
must be recorded in the accounting records from information provided by the point of sale system.

For accounting (and VAT) purposes sales are recorded when all rights and obligations change hands. Effectively this means that a sale is
recorded in your records when the customer takes delivery of the goods.

End of day procedures

The point of sale system will require certain procedures to be run at the end of each trading day once all tills have been closed. This will vary
depending on the type of system and the version; however they will generally include functions such as:
 • closing off the day’s sales so that new records are started the next day
• summarising all sales transactions for the day, by till and in total
• calculating GP by department, product lines, categories, etc.
• summarising the different cash receipt types, e.g. credit and debit card payments, vouchers, cash, debtors, etc.
• calculating statistics such as customer count, average basket size, sales ratios, etc.
• update the sales records in the G.R.V. system

Updating the GRV system for sales each day ensures that the stock records are kept up to date. The end of day procedures are usually
performed by the Duty Manager, who will also generate all the necessary reports needed by the Cash office and the Admin office to
accurately record and reconcile sales and cash.

The minimum reports that must be generated by the point of sale system are:
• sales summaries for each till for the day
• total sales summary for the day
• total payments report (summary of all forms of payment by customers that should agree to sales for the day)

These reports are forwarded to the cash office for reconciling.

Cash office

This office will take the reports generated by the point of sale system, along with the Smartbox reports (the drop safe system used to
safeguard and control cash through the day) and agree these reports back to the actual amounts banked, accounting for all non-cash
methods of payment.

The Cash office will also prepare a summary spreadsheet of all the till and banking reports. This means summarising:
• cash sales per payment method (cash, debit card, credit card)
• credit sales
• vouchers
• returns
 • amount of cash banked
• cheques banked
• VAT

This summary will then be forwarded to the bookkeeper for recording as a single journal every month. Sales reporting is done from reports
generated by the GRV system and the point of sale system. It is therefore unnecessary for sales entries to be recorded in the accounting
system daily; however the Cash office must reconcile all reports daily.

Errors and discrepancies

Any discrepancies between the cashing up reports and the cash actually banked must be investigated and resolved daily. Differences
between sales and amounts banked will affect GP and makes reconciling the bank account difficult. Further, these differences could indicate
poor cashier training or theft, both problems that need to be resolved quickly to reduce losses. Dealing with cashier errors will be covered
under Cash up and Banking and HR matters.

Standard rated and zero rated sales

The point of sale system will provide all information needed to account for sales and VAT correctly. This means that the sales reports will
provide at least the following detail:

• sales per VAT category (standard rated, zero rated and exempt)
• total VAT charged

The bookkeeper must ensure that sales per VAT category and VAT is recorded correctly in the accounting records as this information will be
used to complete the VAT returns. Errors in declaring sales and paying over VAT will result in penalties and interest charged by SARS. Your
bookkeeper should always consider the VAT implications whenever entries are processed.
4. Reporting and management

Looking at sales alone will not give you enough information to assess the performance of your store.

You need to know at least Because

Sales excluding VAT The earning potential of your store

Promotional sales Measure the success of your store

promotions

Customer count More customers mean more sales

Basket size Measures how much each customer

spent on average

Sales per square metre Is your stock paying the rent?

Scan rate Measures the efficiency of your

systems (GRV and point of sale)

Sales mix (sales ratio) Measures each department’s

contribution to sales

Notional, actual and promotional GP Measures profitability before and

after shrinkage and promotions
 You need to know at least Because

Profit contribution How does each department

contribute to profit?

Comparative sales for the same day, previous month and previous year Store performance from one period
to the next

Cash to credit sales ratio Are credit sales under control and
how much is tied up in debtors?

5.
• all of this information is usually provided by the point of sale system and need only be put together as a report by
the Admin office
• week on week and month on month comparatives are useful to help you evaluate the results
• this report can be prepared daily, weekly or monthly. It need only be reviewed weekly by the Store Manager, unless
there are particular problem areas that need closer monitoring and warrant daily review

The Front End Manager should review sales and GP reports from the point of sale system when performing end of day procedures. Any pricing
errors detected must be corrected as quickly as possible to limit financial loss.

Tip – compare apples with apples

When looking at comparatives consider the time of the week and month. For example, if the
day was a public holiday last year but is a normal working day this year the sales last year could
exceed this year’s sales. Easter holidays change between March and April, if Easter was in
March last year but in April this year it would be more useful to compare last year’s March
 Tip – compare apples with apples

sales to this year’s April sales.

6.
What to do with the information:

• identify and understand major fluctuations or deviations in sales before taking any action or you risk reacting incorrectly
and making incorrect decision
• use the information to isolate and identify problem areas and then focus your attention to these areas, For example,
your lower GP could be a result of problems with a particular stock category or service department and not necessarily
shrinkage across all departments, once identified you can focus your time and energy on correcting problems in that
stock category or department
• use your sales trends to gauge whether you are holding the right amount of stock, especially in key value items (KVI’s)
• sales trends also give you a good indication of your customer’s buying habits. You can use this information to plan
purchases and decide what items to stock
• keep a track of credit sales to ensure it does not get out of control. If credit sales are on the rise take steps to curb this trend
• gauge the effectiveness of promotions and make sure you are not losing too much because of marked down items
• monitor high GP departments and lines to ensure that you are maximising sales in these areas
• review GP% for any indication of errors in pricing or costing so that these can be corrected
• when reviewing information look at Rand values as well as percentages
• percentages alone can sometimes be misleading if they relate to small numbers. Also, remember you bank Rands and
not percentages
• check that sales reported by the point of sale system agree to sales reported by the GRV system
• errors will result in incorrect GPs and incorrect stock quantities reported by the GRV system
• compare your performance to other similar stores. Information is available from your D.C. This will also give you an
indication of your problem areas and where you need to focus your attention
• use the statistics to improve performance of your store. E.g. aim to increase basket sizes and customer counts, make
better use of your shop floor and increase your sales per square metre, etc.
 • manage your overall store GP by managing your sales mix and profit contribution

7. Sales, GP and Profit Management

1. Cost of sales

Before you calculate gross profit you need to understand and calculate cost of sales. Cost of sales is the direct cost of goods sold before
taking other expenses into account.

Calculate cost of sales as follows:

Cost of sales = Opening stock + Purchases – Closing stock

2.
All amounts are at cost price, not retail price. Closing stock is deducted because this stock has not yet been sold. The GP’s from Sigma are
the most accurate.

3. Calculate gross profit

Gross profit is the direct profit you earn from each sale before taking overheads into account.

Calculate gross profit Rand value as follows:

Gross profit = Sales – Cost of sales

Calculate gross profit percentage as follows:

Gross profit % = Gross profit ÷ Sales × 100

4.
Gross profit and gross profit percentage can be calculated by product, product lines, sub-departments, departments and at overall store
level. Notional gross profit is the theoretical gross profit without taking any shrinkage into account. Actual gross profit accounts for
shrinkage and is the actual profit you earn on sales.

5. Retail selling price

You will calculate the retail selling price by first determining what GP% you should earn on that product. Use the required GP% to calculate
the mark-up% on the product to arrive at the retail selling price.

Calculate the mark up% from required GP% as follows:

Calculate mark up% = GP% ÷ (100 – GP%) × 100

Calculate the retail selling price as follows

Retail selling price = Cost price + Mark up%

6.

Calculate GP% by product

Calculate G.P% = Selling price – Cost Price x 100
Selling Price

Calculate Mark up by product

Calculate Mark up = Selling Price – Cost Price x 100
Cost Price
7.
If you are not earning the GP% you require on a product, check the retail selling price by working it back from the cost price.

8. Mark up
Mark up is the difference between the cost price and the selling price of a product.

Calculate mark up% from gross profit and cost as follows:

Mark up% = Gross profit ÷ Cost of sales × 100

9.
Remember you earn GP and not mark up. Mark up% will always be higher than GP%. You must concentrate your efforts on managing GP
in your store.

10. The sales mix and the magical mix

Sales mix (also referred to as sales ratio) is the percentage contribution of each department’s sales to total store sales. By managing your
sales mix (i.e. driving sales in high GP departments), you can optimise your average GP at store level and increase overall profitability. The
magical mix refers to the optimum combination of sales between the various categories and product lines which results in the optimal
average GP for the store as a whole. Your goal should be to manage GP’s and your sales ratio so that you achieve and maintain this magical
mix. It will probably take some time before this is achieved and is therefore something that you need to work towards.

The magical mix will vary from store to store according to the following contributing factors:
• store location
• store size
• store facilities
• customer profile
• local economy
You have to set target GP’s for each department and work towards achieving those targets.

Calculate your sales mix as follows:

Sales mix = Department sales/Total sales × 100

Repeat the calculation for each department.

Remember:
• some departments yield a lower GP than others due to price sensitivity, e.g. Perishables yield a lower
GP than service departments
• service departments yield the highest GP’s
• while some product lines yield lower GP’s, they are also considered KVI’s. You should also focus on
optimising sales for these items

11. Profit contribution

It is important to know how each department contributes to profitability so that you can:
• identify non-performing departments and focus on improving performance
• understand your customer’s buying habits and service them better
• maximise sales in high GP departments
• get your overall sales mix right (magical mix)

As the sales ratio is used to calculate the profit contribution, the factors affecting your sales mix will also affect your profit contribution per
department.

Calculate profit contribution:

 Profit contribution = (Department sales ratio × Department GP%) ÷ 100

Repeat the calculation for each department

12.
Example of profit contribution by each department

The following table is an example of how each department contributes to the GP of the store.

Department Sales ratio Gross profi Profit contribution

t

Bakery (incl. all bread) 6.5% 35% 2.3%

Butchery 10% 24% 2.4%

Fresh produce 8% 20% 1.6%

Deli / Fast foods 5% 35% 1.75%

Groceries 33.5% 15% 5.0%

HABA 5% 15% 0.75%

Cigarettes 3% 13.5% 0.41%

 Department Sales ratio Gross profi Profit contribution
t

Sweets / Snacks 3% 25% 0.75%

Perishables 12% 14.5% 1.74%

Cheese 3% 9% 0.27%

Frozen foods 5% 18% 0.90%

Non foods 6% 25% 1.50%

Store total 100%

13.
How to read the table: The butchery yields a GP of 24% and makes up 10% of the total store sales. GP from the butchery comprises 2.4% of
the total store’s GP. (See Profit contribuition templates on the Resource Tab) Stores to fill in their own figures on this template.

Profit yield

If overheads are controlled and remain consistently static, every additional Rand you earn in GP becomes net profit, resulting in a direct
increase in your net profit percentage. This is called profit yield. Once you have control over fixed expenses you can focus your efforts on
increasing GP. This will produce the best results.
14. Break-even sales

The break-even point is the point at which your store makes neither a profit nor a loss. It is imperative that you know your break-even sales,
i.e. the minimum amount of sales you must make to cover your overheads. For new stores, this is always the first target.

Calculate break-even sales as follows:

Break-even sales = Total fixed expenses or overheads/GP%

15.
Total fixed expenses refer to all the expenses you would incur regardless of how much of sales you make and is also known as overheads,
although overheads generally do not include fixed selling costs. The most accurate way to calculate break-even is to use all fixed costs. The
GP percentage used in the calculation is the average GP% for the store for the period. For example, if you are calculating annual break-even
sales you will use total fixed expenses for the year and the average annual GP%. Break-even sales cover your minimum expenses. The GP
from every additional sale after the break-even point becomes net profit. Therefore, your aim should be to keep your break-even point as
low as possible.

The best way to manage your break-even point is to:

• optimise GP
• minimise fixed costs

New stores must calculate and be aware of break-even sales per week and month. If your store is not yet profitable or is new calculate your
break-even sales for the year using your most realistic budgets, divide by 365 to get your daily break-even sales and use that as your daily
sales target. Once you start to become profitable you can increase your targets to drive performance. Your break-even sales will change if
your sales mix changes resulting in a change in your average GP. Be mindful of this and redo the calculation if you know that you are not
achieving the average GP you initially targeted. It will take some time for new stores to break-even due to start up costs, new placement in
the market and other similar factors that are unique to new stores.
 16. Target sales

The break-even sales calculation can be amended to calculate target sales. If you set a net profit target, use the break-even sales calculation
to calculate the sales you must make to achieve that net profit.

Calculate target sales to reach a target net profit as follows:

Target sales = (Total fixed expenses + Target net profit)/GP%

17.
By setting a target net profit you can drive sales to achieve that level of profitability. Use this calculation when doing your store
budgets. The same principles as with break-even sales management apply, i.e. to maximise net profit you must optimise GP and reduce
fixed costs.

8. Other income

Other than sales, stores generally earn other sources of passive income which can include:
• rental (e.g. from sub-letting part of the building)
• interest (e.g. on call accounts)
• discounts (e.g. volume discounts granted by suppliers)
• rebates (e.g. rebates granted by suppliers based on reaching predetermined levels of purchases in a period)
• dividends (e.g. from investments in other companies)
• profit on disposal of fixed assets (e.g. sale of store assets at a profit)
• Lotto commission
• sale of ends / promotional recoveries
• other sundry income (e.g. insurance claims paid out)

These sources of income are considered passive income as this is not part of the core business of your store.
Recording and reporting

• this income must be recorded and accounted for when it is earned, e.g. rental income will be recorded according
to the lease agreement, interest income will be recorded when the interest accrues to you, discounts will be
recorded when you become entitled to the discount, etc.
• review other income on a monthly basis to ensure all forms of income have been accounted for in your accounting records
• do not allow collection of other income to fall behind (e.g. overdue rental income)

To do

Ensure your Admin office does the following:

• record other income at least monthly when you become entitled to that income
• follow up if you have not received the income when it was due. Because this is not the core source of income for the store
does not mean it should not be managed
• check amounts to supporting documentation, check calculations and verify information when recording other income.
For example, recalculate rebates and check that the supplier has complied with all terms and conditions initially negotiated
• keep all supporting documentation
• consider the VAT implication for other income wherever applicable. Remember to include this income on your VAT
returns
• report other income separately from sales so as not to distort GP and operating profit. Show other income after gross profit
on the income statement
• sign lease agreements and renew the lease agreement when the lease comes up for renewal for all property leased

Other income reduces overhead costs and your break-even point. But remember this is not the focus of your business and not where you will make
your money. Controlling stock, driving sales and managing GP should remain your first priority.
9. Expenses

1. Introduction
Expenses are the overhead costs of running your business. These are the necessary costs incurred to keep your store running on a day to
day basis but have no direct link to sales. These costs are incurred regardless of whether you make one sale or 50 000 sales.

Examples include:
• rent
• electricity and water
• insurance
• stationery
• computer expenses
• repairs and maintenance
• labour costs

This section will largely focus on the types of expenses and management and control of these expenses. (See Expense template on the
Resource Tab) Stores to fill in their own figures on this template.

2. Effect on the bottom line

Getting your sales mix right and earning your target GP is pointless if expenses are out of control. At the end of the day it is your net profit
that is ultimately retained in the business and/or paid out to shareholders after paying tax (often referred to as the “bottom line”).

Calculate the “bottom line” as follows:

Net profit = Gross profit – Expenses

3.

Expenses and break-even

 Expenses also affect your break-even point, i.e. higher expenses means you have to make more sales to break even. You therefore need to
manage expenses and keep them to an absolute minimum to ensure that any improvements in GP filter through to the bottom line. For
break-even calculation purposes all overhead expenses are treated as fixed expenses. A more detailed explanation is provided below.

4. Types of expenses

Before you make any decisions to manage or control expenses you need to understand the effect your decision will have on expenses and
sales. There are various types of expenses depending largely on how they change according to your level of activity (sales).

Fixed expenses
These expenses do not vary with the amount of sales you make or your level of activity in the store. They remain relatively unchanged from
month to month.

Examples of fixed expenses include:

• rent (unless linked to sales)
• insurance
• IT support services (monthly retainer)
• subscriptions
• membership fees

Because these expenses are fixed it does not mean that they cannot be managed. Manage fixed expenses by questioning these expenses
and ensuring spending efficiency as you would any other type of expense.

Variable expenses
Variable expenses fluctuate regularly, usually in some correlation to the level of activity your store is operating at.

Examples of variable expenses are:

 • water and electricity
• packaging
• labour costs (casual labour)
• consumables
• credit card commission
• interest

The best way to manage and control variable expenses is to train your staff to become aware of costs and identify cost saving opportunities.
Sometimes it is the creative, out the box thinking from your staff that gets the best results.

The most effective answers are not always the obvious answers, for example:
• having summer and winter settings on air conditioners saves electricity
• using packaging customers prefer can sometimes work out to be the cheaper form of packaging
• closed refrigerators use less energy than open fridges
• train staff in a number of departments so that they can be moved around as needed instead of hiring temporary or
new staff during peak periods
• recycle

Variable overhead expenses and the break-even calculation

While these expenses fluctuate within a range from month to month, you can determine your average monthly spend on each item. They
will naturally be slightly higher during peak periods, but overall you will find that there will be a certain level of consistency in the amounts.
For this reason, variable overhead expenses are often treated as a fixed expense for break-even calculation purposes only.

Mixed expenses
Certain expenses have both a fixed and variable element, i.e. a portion of the expense is fixed and the rest is variable according to usage.

For example:
• telephone costs (fixed monthly rental plus usage)
• repairs and maintenance (minimum scheduled maintenance is required but unscheduled maintenance varies)
• office equipment rental (fixed monthly rental plus usage)
 • bank charges (minimum service fee plus transaction charges)

Mixed expenses must be managed as with fixed or variable expenses, however you will probably have greater influence over the variable
portion than the fixed portion.

5. Managing expenses

Monitoring expenses
What is not measured cannot be monitored, and what is not monitored is not managed. Get your Admin office to provide you with all the
information you need to make quick and sound business decisions regarding expenses. You need not spend too much time managing
expenses if you set up appropriate management tools that will easily detect problem areas.

Monitor the following at least monthly

Compare expenses to budgets, investigate and resolve major variances

Compare expenses against prior periods, account for any significant

fluctuations

Review expenses as a percentage of sales, compare to prior periods and focus

on expenses that are too high

6.

Calculate expenses as a percentage of sales as follows:

Expense % of sales = Expense/total sales × 100

 Repeat the calculation for every expense item

7.
Your D.C. should be able to provide some information on expenses as a percentage of sales for stores similar to yours. Use this as a guideline
to establish how your store is performing. No two stores are exactly the same, so use the information as a guideline only.

8.
Store owner’s salary

If you are both owner and store manager, include your salary cost to staff costs
when monitoring expenses if the salary is market related.

If your salary is not market related and is also used as a means of distributing
profits to you, only include the market related portion of your salary when
monitoring performance (net profit), calculating staff statistics and calculating
expenses as a percentage of sales.
What you can do to manage expenses

Ask yourself What you can do

Are you spending too much? Get comparative quotes from alternate service
providers

Is there opportunity to reduce the cost? Renegotiate prices and rates with the supplier, or
negotiate price increases for next year

Can you incur the cost more efficiently? Make sure the goods or services you are buying
add value to your business. Get the most out of
Ask yourself What you can do

these expenses. For example, fully utilise the

property you are letting and sublet unused
space. Take advantage of discounted fees for
paying a year’s subscriptions up front (cash flow
permitting). Make sure your advertising is doing
the job

Do I really need to incur this cost? If you don’t need it don’t spend it. Always
consider the cost versus the benefit of incurring
that cost

Will cutting this cost hurt sales or the business in Do not cut costs that drive sales, rather look into
general? how you can use the money more wisely. Do not
cut essential costs like repairs and maintenance
and training, as this may cost you more in the
long run

Have you created cost awareness amongst staff? You cannot manage costs on your own, create
cost awareness and get buy-in from your staff by
showing them the benefits to them (e.g.
bonuses, better pay increases, etc.)

Are you monitoring expenses regularly? Monitor expenses at least monthly, compare to
prior periods and your budget, and take action
when needed
9.

Staff costs
Staff costs will be your largest expense.

Manage staff costs by:

• hiring and training the right people for the job
• train your staff to be flexible enough to fill gaps in other departments when needed
• make the right choice between permanent, part-time and casual staff, as each type of employment provides its own
benefits and disadvantages, all with different cost implications
• monitor and control overtime, as you will have to pay your staff a higher rate to work after hours
• Implement staff performance measures and an appropriate rewards system to motivate staff to work efficiently
• develop a system to monitor staff working hours and move casual staff to permanent staff if they are regularly working
normal hours
• schedule staff work shifts effectively
• consider the cost of outsourcing staff versus hiring your own. Outsourcing is more expensive but provides a certain
amount of flexibility
• review work methods regularly and look for opportunities to improve productivity
• encourage staff to put forward ideas on how to improve efficiency, productivity and work methods. They
sometimes know what works better as they are on the ground
• create a positive working environment to keep staff motivated

Useful statistics
Use the following calculations to provide you with statistics on staff efficiency.

Calculate cost per man hour as follows:

Cost per man hour = Total staff costs/man hours worked

10.
 Calculate sales per man hour as follows:

Sales per man hour = Total sales/man hours worked

11.

Calculate sales per employee as follows:

Sales per employee = Total sales/total no. of employees

12.

Packaging expenses
Packaging expenses refers to front end packaging for customer purchases and service department packaging. You are required by law to
charge for plastic carrier bags with handles, i.e. front end packaging. Most of your packaging costs will be incurred through service
department packaging.

Make sure:
• staff are aware of packaging costs
• wastage is reduced by applying good packaging methods
• staff are not careless with packaging material and it is stored correctly
• you are not overstocked on packaging material.

For control purposes record packaging material in the GRV system so that you know how much you have on hand and when you need to
reorder.

Expenses that drive sales

Certain expenses have a direct influence on sales, e.g. advertising costs, staff performance bonuses. These are usually easy expenses to cut
 and you may be tempted to reduce the amount you spend on these expenses during tight periods. Before you do, consider the impact it will
have on your sales.

It will be more beneficial to look at how the money is spent. Your solution to increased profitability may very well lie in increasing expenses
that drive sales.

• identify the expenses that drive sales

• look at how these expenses were incurred and did they have a positive effect on sales. If these expenses are not
driving sales as intended then you need to change what you spend your money on
• consider whether increasing the amount you spend on these expenses will increase sales

fees and other expenses on the statement

Certain expenses are charged on the statement monthly. If you have a problem with these fees you must contact your credit controller,
complete and submit the necessary documentation and follow-up regularly until your query is resolved. Queries regarding these charges are
dealt with in the same manner as normal queries on your statement unless it relates to standard fees. These fees are set by and are
charged by agreement.

13. Payroll

Payroll refers to keeping record of staff salaries and wages, payments and calculations as required by the various laws. HR records will be
covered under the HR section. Only maintenance and recording of the payroll will be covered here.

Maintaining the payroll

Your Admin Manager must maintain the payroll records. Salary information is highly confidential and ensuring compliance with the tax and
other laws can also be complicated. This duty should therefore be entrusted to someone responsible, competent and appropriately
trained. Your staff may range from those that are paid weekly, bi-weekly or monthly. These are called the pay periods, i.e. the intervals at
which you pay staff.
Maintaining the payroll requires updating of the following records for each employee at every pay period:
• hours/time worked
• rate of pay
• income (basic and all other forms, e.g. bonus)
• fringe benefits
• allowances
• tax calculation and deductions
• other deductions
• leave accrued

Other functions that must be filled are:

• adding new employees
• taking off old employees
• changes to pay rates
• maintaining the employees’ personal records and files
• issuing tax certificates for each tax year (IRP5 and IT3 certificates)
• completing and submitting returns monthly and annually to SARS

It is recommended that you try to pay your staff monthly, directly into their bank accounts. This reduces the administrative burden and the
number of payments you have to make, and is a safer method of payment for you and your staff.

Checking and authorisation of the payroll

• the payroll will be run every pay period, but the information used (e.g. hourly rates, hours worked, etc.) must be
checked and authorised first by the employee’s immediate superior or department manager, and then by the
Admin Manager
• the Store Manager must perform the final check of the payroll to ensure correctness
• use a reputable payroll software system that accurately performs all calculations, especially tax calculations, in
accordance with the latest relevant laws
• issue payslips to employees at every pay period. Employees will check the information and bring any errors to your
attention
• use passwords, usernames and access control to protect the confidentiality and integrity of payroll information.
 Lock away all hardcopy information and files
• you need not recalculate the entire payroll when checking. You need only make sure that controls are in place and
are working properly and that the right people have been paid at the right times at the correct rates
• you must also authorise all net payments to employees as you would any other payment

Recording the payroll

The Admin Manager must record the payroll entries in the accounting system at least every pay period. Payments to employees and third
parties are recorded from the cashbook. Amounts due to SARS and other third parties (e.g. medical aid companies, etc.) will become a
liability on your balance sheet until those amounts are paid over every month.

Payments and returns to SARS and other third parties

Your Admin Manager must make sure that all amounts deducted from employees on behalf of third parties (e.g. medical aid funds, etc.) are
paid over on time. Late payments of employees’ tax can result in interest and penalties to you. These costs cannot be recovered from
employees as it is your responsibility to pay over these amounts by the due dates. The required returns and other information must also be
submitted to SARS or the relevant organisations monthly (or as required).

14. SDL levies

Skills development levy is an expense to the business based on your total monthly payroll. Unlike UIF or employees’ tax, it is not recovered
from employees. However, it is collected by SARS together with UIF and employees’ tax.

Payroll checklist
Ensure the following happens at every pay period.

To do Who

Check and authorise time records for hourly or daily paid employees Department/
Admin Managers
Check payroll calculations, pay rates, fringe benefits, tax, deductions Admin Manager

Check payroll for accuracy and authorise payroll Store Manager

Update leave records Admin Manager

Authorise new employees and changes to existing records Admin/

Store Manager

Update staff files, personal information, etc. Admin Manager

Issue IRP5 and IT3 tax certificates to employees (annual) Admin Manager

Complete and submit returns to SARS and other third parties Admin Manager

Issue payslips to employees Admin Manager

Pay over amounts due to third parties Admin Manager

Authorise payments to employees and third parties Store Manager

Record the payroll entries in the accounting records Admin Manager/

Bookkeeper

Report staff costs to the Store Manager Admin Manager

 15.

10. Debtors

1. Introduction
Considering the nature of goods sold by a store, ideally sales should be concluded on a cash only basis. This is not always possible for some
stores that have historically always granted credit to some of its more long standing customers, particularly true for rural stores. Large
corporate clients also tend to purchase on credit as it makes administration easier. Credit sales can also fuel growth. Whether necessary to
survive or as part of a strategic plan, granting sales on credit is a business risk and that risk must be managed.

This section will cover the following areas:

• credit sales
• granting credit to new customers
• recording and reporting credit sales and debtors
• managing debtors

Credit sales cause cash flow strain and can cost you money if you have to dip into your overdraft to meet cash requirements. Further, there
is never a guarantee that a debtor will pay on time (if at all). The more you sell on credit, the more money you have tied up in working
capital, and a large working capital is expensive and inhibits growth.

Selling on credit costs you money in the form of:

• interest on your overdraft
• settlement discounts granted to customers (cuts into your GP as you would normally sell those same goods at the
full price for cash)
• the cost of hiring a debtors clerk to administer debtors, etc.

Why sell on credit when you can sell on a cash basis, receive the money when you conclude the sale and earn higher profits? Sales to
customers purchasing on credit or debit cards are considered cash sales as the bank will settle immediately. Only sales to customers who
 hold accounts with you are credit sales.

2. Credit sales

Controlling credit sales

The cash to credit sales ratio

At least monthly you should monitor your cash to credit sales ratio, i.e. what percentage of your sales for the month was a cash sale and
what percentage was a credit sale.

3.
Calculate credit and cash sales ratio as follows:

Credit sales ÷ Total sales × 100 = % credit sales

Cash sales ÷ Total sales × 100 = % cash sales

At least 95% of your sales should comprise cash sales. It

may not be useful to monitor these figures on a daily basis as credit sales largely occur over a specific period in the month (e.g. end of the
month).

It is however useful to compare:

• month on month
• year on year
• budget vs. actual

The proportion of credit sales that comprises your total sales will give you a good indication of the amount of time, effort and resources you
need to dedicate to the control of debtors and credit sales.

4.
Tip

At the minimum, your cash sales should at least equal your break-even sales.
Break-even sales is the amount of sales you must make in order to cover your
overheads and earn neither a profit nor a loss.
Reducing credit sales
Remember that your business is geared as a cash business and you should therefore always strive to reduce credit sales and increase cash
sales.

This can be done by:

• encouraging credit customers to buy cash
• discouraging new credit customers (do not advertise credit sales)
• setting customer limits on credit sales
• charging interest, administration fees or a premium on credit sales
• making sure your employees involved in granting credit fully understand the implications of extending credit to customers

Changing the credit mindset

Some stores have long standing credit arrangements with customers. This may have been inherited when the store was purchased. This
does not mean that you are stuck with those credit customers, some of whom never pay on time as they have always managed to extend
their terms because of personal relationships with the previous owner or other similar circumstances. These customers should be
encouraged to become cash customers.

Limiting credit sales

Use the credit to cash sales ratio to benchmark your store against industry averages and similar stores (size, location, etc.).

Then you can:

• set a target ratio and a timeframe in which to reach that ratio
• formulate a strategy that will get you to your goal ratio
• implement that strategy
• regularly review your progress and make decisions in line with your goal
 • once achieved, maintain that ratio and look for opportunities to improve

If you are exposed to credit sales it will take time to reduce that exposure. For highly exposed stores the strategy to reduce risk will have to
be more aggressive. This may mean losing some customers, but if those customers where regularly defaulting on their debts your store may
be better for it in the long run.

By applying any number of interventions described above in a controlled and stepped approach, you can control credit sales. Be cautious of
being too aggressive without properly communicating with your customers as you will risk losing the good customers. Any changes to terms
and conditions of credit sales should be communicated to your customers before they become effective.

Other helpful tips to reduce/control credit sales

• grant early settlement discounts where profits allow
• reducing credit limits and terms of payment until the account is settled in full by the due date
• use promotions to encourage cash buying, e.g. 2 for 1 offer or promotion price available to cash customers only
• limit quantities per item if sold on credit, e.g. limited 1 unit per customer if purchased on credit
• allow settlement discounts on current purchases only if overdue amounts have been paid in full
• change overdue accounts to cash accounts

5. Granting credit to new customers

Managing debtors and credit sales does not begin when the customer buys on credit, it begins when the customer requests credit. It is at
that point which you need to start thinking about the risks to your business, i.e. before you allow the customer to purchase. Bad debts and
problem debtors can be avoided by applying stringent credit policies.

Are strict credit policies a deterrent to customers?

There is the argument that stringent credit policies deter customers who will then turn to competitors that offer more lenient credit policies.
Consider the following two situations.

Customers put off by credit applications

Customers that are easily deterred by strict credit screening realise that their applications will be denied because of a poor credit rating or a
poor credit history. This will easily be found out during the application process if the credit policies are thorough. A customer with a poor
credit history is likely to default on debts in the future. As a result, strict credit policies will actually prevent you from taking on a customer
that is a high risk.

Losing customers to competitors

Credit screening policies are standard practice in the business world. Any business that fully understands the risks of granting credit will
implement these policies, including your competitors. Therefore, a customer who turns to competitors because they are deterred by your
strict credit policies will find it very difficult to avoid this process elsewhere. The risk of losing business because of credit policies is therefore
minimal.

What to look for in a credit customer

All new credit customers must be appropriately screened and authorised by the Store Manager or designated staff member before credit is
granted to that customer.

Particular consideration must be given to:

• credit worthiness – their ability to settle their debts on time and in full
• credit history – how have they handled credit in the past
• financial stability – is the customer financially secure or are they requesting credit because they are
experiencing financial difficulty
• overall risk in granting credit to that customer – consider other risks, such as the risk of absconding without
payment, providing fraudulent information to secure credit, etc.

Credit approval - the process

 6.
Step To do Responsibility

1. Provide customer with credit application forms Admin office

2. Customer must purchase on a cash basis only until credit has Admin office
been approved

3. Receive completed credit application and begin verifying all Admin office
information received, particularly:
- Contact and alternate contact details
- Company/CC registration information
- Trade references (at least 2)
- Banking details

4. Perform credit check Admin office

5. Submit all information to store manager for review and Admin office to Store Manager
approval

6. Review credit application, assess risk, authorise if risk is Store Manager

acceptable

7. Set credit limit based on cash purchases by the customer Store Manager
National Credit Act
You must comply with
8. Allow credit purchases after waiting period expires, ensure that Admin office the requirements of
credit limit is set on the system the National Credit
Act and any other
9. Increase credit limit only at the written request of the customer Store Manager
and after reviewing credit worthiness and payment history
relevant laws when granting credit to individuals. If you do not comply with these regulations and a debtor defaults on payment, you may
not be able to recover the debt through legal action. Reckless lending is also an irresponsible practice that hurts the economy. Incorporate
the legal requirements into your credit control system. Legal requirements will also extend beyond the initial application process, it is
relevant for as long as you grant credit to the customer.

Useful tips:
• implement a mandatory 3 month cash only basis for all customers requesting credit. This will give you sufficient time
to fully verify the credit application before approval. Further, the buying patterns for those first 3 months can be used
as a basis to set credit limits for the customer
• always set lower credit limits to start with. They can be increased as the customer creates a credit history
• the initial credit limit should not exceed 1 month’s cash purchases for the mandatory waiting period
• always check trade references. In practice these references are often not checked directly. If the customer’s account is
in arrears with an existing creditor the risk to you is greater. Consider the reasons for the overdue account. The arrears
may be as a result of an account query. Ask if the account is paid on time and in full regularly
• allow a minimum waiting period of at least 3 months between credit limit increases. This will allow you to determine if
the customer is able to honour the higher debts where once-off credit limit increases are allowed (e.g. a temporary
increase in December because purchases are expected to be high for that month only, to be returned to normal in January),
ensure that the limit is reset to normal in the new month. Allow once-off credit limit increases only if reasons are valid
and the risk of non-recoverability will not increase. Look at the debtors history, the Admin Manager and Store Manager
must authorise these limit increases
• print all terms and conditions of credit sale on the credit application form
• if the customer is a legal entity (close corporation, co-operative, company, etc.) ensure that the person signing the
credit application has the authority to conclude agreements on behalf of the entity
• obtain alternate contact details and ensure these details are verified
• do not accept credit applications that are incomplete or do not supply sufficient information
• granting credit to individuals is more risky than granting credit to a corporate entity. Individuals are more mobile in that
they could easily change addresses and fall out of contact. If you cannot contact them then you cannot recover the
debt. Established corporate entities cannot fall out of contact as easily and you should always consider how long they
have been in business

Minimum information to request in a credit application

 • full legal name of applicant
• physical and postal address
• contact telephone numbers, fax numbers and email addresses
• company registration number
• VAT registration number
• proof of identification (individuals) or CK documents (close corporations) or CM29 (companies)
• full name and contact details of the person responsible for paying the account
• full name and contact details of an alternate contact person
• full name, ID numbers and physical addresses of all members/directors of the close corporation/company
• supplier name, contact number and contact person of 2 suppliers for which accounts have been held for at least 1 year
• request copies of:
- A business letterhead
- Identity documents
- Proof of banking details
- Company stamp
- Proof of VAT registration
- Proof of company registration
• legal declaration regarding the accuracy of the information provided
• permission to perform a credit check

7. Recording and reporting credit sales and debtors

Recording
Customers purchasing on credit will do so in the same manner as cash customers would, i.e. the sale will be recorded through the point of
sale system at the tills. However, the point of sale system is not automatically linked to the accounting system and the debtors account will
therefore not update whenever a sale is made. There is a manual process to follow to transfer information between the two systems.

Transactions affecting debtors are:

• credit sales
 • credit returns
• debtor receipts
• journals

8.
Keep debtors up to date

1. Record credit sales (and returns) in your accounting records from the information provided by the point
of sale system every day (along with all other sales)

2. Record all debtor receipts received for the day via the cash book

3. Review the debtors accounts for any obvious allocation or other errors and correct

4. If necessary, record debtor journals. Check and authorise before finalising journal entries

5. Electronically update the debtor balances in the point of sale system by uploaded these balances from
the accounting system (creating the debtors link)
The debtor balances
6. Check that the debtors balance in the accounting system agrees to that in the point of sale system. in the point of sale
Investigate and correct any discrepancies system must be
updated so that
customers will not
have a problem when
purchasing at the tills.

Debtor reconciliations
• you must reconcile the debtors list to the debtors ledger account at least monthly
• this can be done by comparing batch totals of transactions posted to the debtors accounts to that posted to the
 debtors ledger account
• differences identified need to be adjusted for by way of a debtors journal

In practice, most accounting systems have an integrated debtors and general ledger. This means that whenever a transaction is posted to an
individual debtor’s account the general ledger is also updated. Your Admin Manager must check that there are no problems with the system
and agree the debtors age analysis and debtors list to the debtors ledger account regularly.

Debtors journals
Journals are used to record non-routine, once off transactions and to correct errors. If not properly controlled, they can also be used to
conceal fraud and error.
• debtors journals can be prepared by the debtors clerk, but the Admin Manager must check and authorise every
journal entry
• keep a log of all debtors journals processed
• record journals in the current month so that it reflects on the debtor’s statement

Point of sale and accounting system interface

The point of sale and accounting systems will have all the necessary functions required to support the recording and reporting of credit sales
and debtors.

Some of the key system controls should include (but not be limited to):
• passwords, user rights and authorisation controls for debtor information
• checks and balances to ensure that the point of sale system agrees to the accounting system, i.e. if the accounting
records show that the debtor has been put on stop supply, the point of sale system should not allow any further sales to
that account
• regular, accurate update of information in the point of sale system and data accuracy checks

These controls will usually form part of the system, Store Managers need only ensure that they are working effectively and errors are
identified and resolved. Do not allow override of these controls.

If these controls do not work effectively then:

• fictitious debtors could be created and used to steal stock and/or cash
Recording controls Responsibility

Consider appointing a person dedicated to administering the debtors/credit Store Manager

sales function
• debtors will not
be controlled
Check that the total debtors balances in the point of sale system agrees to Admin Manager
properly, resulting in
that of the accounting system after receipts and sales have been recorded
possible bad debts if
a debtor is allowed to
Check that new credit customer details and any changes to existing credit Debtors clerk/ Admin Manager overdraw on
customer details are recorded in the accounting records as and when their account
authorised • errors could occur
between the two
Send out statements to every debtor every month and keep a record of all Debtors clerk systems, where
debtor queries and responses, preferably in writing records of one system
do not agree to
records in the other
Reconcile the debtors control account to the debtors listing and age analysis Debtors clerk system. This
monthly can be problematic
for reporting and
Check and authorise journal entries Admin Manager control purposes, and
is difficult to resolve if
not detected in time
Monitoring and review control Responsibility

Agree credit sales per the point of sale system sales report to credit sales Debtors clerk Key controls
per the accounting system sales report daily 9.

Review debtors list for any obvious errors (e.g. credit balances) and correct Admin Manager

Agree total debtors balance per the point of sales to that in the accounting Debtors clerk
records daily

Agree the number of debtors on the point of sale system to that in the Debtors clerk
accounting system daily

Agree debtors receipts per the cashbook to receipts recorded in the point Debtors clerk
of sale system and debtors accounts daily
Reporting to management
To facilitate some of the review and monitoring controls described above and to ensure that the Store Manager has sufficient and
appropriate information to base sound business decisions on, the following minimum information should be reported on at the intervals
prescribed.
Account status Your response When

Debtor is current Debtors clerk to send 2 weeks before payment is due

statement of account to
customer 10.
Report How often

Account is 1 day overdue. Debtors clerk to place a Day after the due date
Credit to cash sales ratio and Rand value with comparatives: Monthly
courtesy telephone call to the
- year on year
customer reminding them the
- month on month
account is due and they must
- actual vs. Budget
settle. Take into consideration
that payment might take a day
Debtors age analysis to clear the bank account Weekly

Report onremains
Account correspondence and 1progress
overdue after week. withDebtors
defaulting debtors
clerk to make a more Weekly
1 week of due date
firm but polite second
telephone
Bad debts written off and the provision for bad debts call requesting Monthly
immediate payment

Debtors collection days Monthly 11. Managing debtors

Account overdue by 10 days E-mail or fax copies of the 3 days after last follow up
statement and all outstanding In addition to the
invoices to the main contact. interventions
Request in writing a date by described above the
which payment can be following steps must
expected, ensure a response is be taken to prevent
received in writing. Do not debtors turning into
agree to anything longer than bad debts.
1 week
What to do with an
Account overdue by 17 days Refer to Store Manager. 1 week after last follow up overdue debtor
Initiate automatic stop supply 12.
on account. Store Manager to
advise customer in writing
that credit facilities will be
restored once the account is
settled within 1week. Client
must confirm they have
received the notice. For
Common problems encountered when contacting debtors

In practice, to be successful at debt collection certain skills are required. Your debtors clerk should be properly trained in debt collection and
telephone manner and should be fully prepared to deal with customer responses when following up on debts. Here are some examples of
the more common customer responses. Some of these responses will be used equally by individuals and corporate customers.
Customer’s Your response
response

I did not Please confirm your postal address and fax number, I will fax one to you and post the original.
receive a Please confirm you have received it 13.
statement
and cannot
make
payment
without a
statement

I do not Please confirm your postal address and fax number, I will fax and post all outstanding invoices
have the with a statement for ease of reference. Please confirm you have received it
invoice.
(lost,
misplaced,
never
received
one, etc.)

The person Is there anyone else that can help in their absence? When is the responsible individual
responsibl expected to be available?
e for
payment is
not in
today/is
not
available

We did not I will fax/email our banking details. Please confirm you have received it
have your
banking
details and
could not
make
payment
 Some practical tips for collecting debtors:
• always have all information on hand when calling the customer so that you can answer any questions
they may have. This includes account information like amounts outstanding, last payment received, invoice
numbers and statement, etc.
• try to get a debtor to acknowledge the debt in writing from the very first follow up. This will be needed if you
decide to take legal action later. It is not uncommon for debtors to claim they do not owe you money as a way of
trying to get out of the debt, even after previously promising to pay you. A written commitment to pay is just as good
as an acknowledgement of debt
• start following up on the longest outstanding debts first. The longer a debt remains outstanding the greater the chance of
it becoming a bad debt
• never threaten any action unless you are willing to follow through on your threat. For example, do not tell the customer
you will take legal action unless the debt is settled if you have no intention of taking legal action as it is too expensive
• always stick to what you commit to. If you tell the customer you will follow up again in 2 days, make sure you do so
• for corporate debtors try to build a relationship with the person in charge of the account or the owner. They will put you
at the top of their payment list if they are in contact with you regularly and feel like you are an important supplier
• create a provision for doubtful debts that closely approximates the amount of debts overdue for 90 days or more. This
will force you to look at a more realistic debtors amount when making decisions about working capital and cash flow
• send out statements to all debtors every month and ensure your payment terms are printed on all invoices and statements
• don’t be afraid to follow up on outstanding debtors. It is your money and you should not feel bad about asking for it
• calculate and monitor your debtors collection days at least monthly (the actual number of days on average it takes to
recover your debtors). Compare with prior periods to ensure your debtors book has not gotten out of control. The goal
is to keep your debtors days as low as possible, in line with your credit terms

14.
Calculate debtors collection days as follows:

Debtors collection days = Average debtors ÷ Credit sales × Days in the period
 Remember to use average debtors and credit sales for the period concerned. Anything less than your normal credit terms is good.

Summary of the debtors clerk’s responsibilities

Your debtors clerk should have the necessary skills and expertise to complete at least the following functions and duties:
• build relationships and communicate with debtors
• follow up on outstanding debts with debtors
• resolve debtor queries
• send statements to debtors
• record debtor transactions (debtors receipts and journals)
• issue credit application forms to new customers
• verify information on credit applications received
• report debtor information to the Admin and Store Managers
• inform the Admin or Store Manager of potential bad debts

Some stores may have only a small amount of debtors and it may not be efficient to employ a debtors clerk. These functions must still be
carried out even for a small number of debtors and therefore becomes the responsibility of your Admin Manager. While certain functions
may be delegated, it is important that you assign responsibility for the management of debtors to one person. This will motivate them to
keep debtors under control. You will also get the best results by dedicating one person to these tasks.

11. Creditors

1. Introduction
Purchases and creditors are two sides of the same coin as most of your purchases will be on credit. The controls and policies you implement
will therefore serve both areas.

This section will cover the following:

• administration of creditors and purchases
• managing creditors and purchases
2. Administering creditors and purchases

Transactions that will affect creditors are:

• purchases (supplier invoices)
• claims (credit notes)
• creditor payments (receipts)
• journal entries

Recording of creditor and purchases transactions involves 2 business systems:

• the GRV (stock control) system
• the accounting system

In practice, these systems are not integrated. A purchase recorded in the GRV system will not automatically update the creditors and
purchases records in the accounting system. However, both sets of records must be kept up to date for reporting and management purposes
as information is used from each system in the day to day running of the store. This does not mean that every transaction needs to be
processed twice though. The data will only be input once and the information will be used to electronically update records in both systems.
This is usually referred to as the creditors link, i.e. creating an electronic link between the GRV system and the accounting system.

The process
All purchases and claims will be recorded via the GRV system as goods are received or returned. This will include inter department and inter
store claims. At least the following transaction details are recorded in the GRV system when you GRV goods:
• supplier name and code
• date
• goods purchased/returned
• value including and excluding VAT
• discounts

Therefore, all details required to record the transaction on the accounting side has already been recorded and this process need not be
repeated. Accurate recording of goods received/returned will be covered under Receiving and Dispatching Goods. Here we will focus on the
transfer of this information to the accounting system.
 End of day procedures and the creditors link
At the end of the day every transaction processed by the GRV office into the GRV system will be electronically imported into the accounting
system. This procedure is performed by the Admin Manager/creditors clerk by first exporting the transaction file for the day from the GRV
system and then importing that file into the accounting system. Once this is done the creditors and purchases information will be up to date
in both systems and, most importantly, the records in each system will agree.

This form of transferring data captured in one system into another is a common feature of most accounting packages and can be done easily
once set up correctly and staff are trained to perform this function. While technology helps to facilitate the process, checks must still be
performed to ensure
To do When By whom that no errors occur.

Print a transaction log for the day and send to the administration office Daily GRV clerk
Checklist for ensuring
accurate recording of
Export the transactions for the day from the GRV system and import into Daily Admin Manager/ creditors
the accounting system Creditors clerk
3.

Agree the balances of the creditors, purchases and VAT accounts in the GRV Daily Admin Manager/
system to that in the accounting system Creditors clerk

Investigate any differences between the 2 systems and resolve as soon as Daily Creditors clerk
possible. Make corrections in the relevant system GRV clerk

Print the exception or error reports and check if any data could not be Daily Admin Manager/
transferred successfully or if any errors were detected Creditors clerk

Correct any errors detected by the exception reports Daily Creditors clerk

Ensure the data transfer is done daily so that other administration functions Daily Admin Manager/
related to creditors can be completed, e.g. payments and reconciliations Creditors clerk

Record creditor payments from the cashbook to account for payments made Daily Admin Manager or
Cashbook clerk
After these checks have been done and all discrepancies have been corrected, purchases and creditors have essentially been recorded and
both systems will be up to date.

Recording creditor payments

Creditor payments are initiated by the admin office or by the supplier directly ( warehouse and dropshipment suppliers). These payments
must be recorded via the cashbook in the accounting system to update the cashbook and the creditor accounts. This will assist you in
managing credit limits and determining payments due for cash flow projection purposes. Creditor payments will be covered further below.

Creditor journals
Occasionally it may be necessary to make corrections to the creditor records in the accounting system due to processing or other errors or
to account for non-routine transactions (e.g. special discounts). Control over journal entries is essential as it can easily be used to conceal
fraud and error. Implement the following controls for journal entries.

These controls should apply to all types of journal entries.

• keep a full hardcopy record of all journals proposed, including the person preparing, recording and authorising
the journal entry
• the Admin Manager must check the accuracy of journal entries proposed against supporting calculations and documents
• the Admin Manager must authorise all journal entries

Pricing adjustments must be corrected at the GRV office. This will filter through into the accounting system when the day’s transactions are
imported into the accounting system. All other adjustments identified through the reconciliation process and done in the accounting system
by the admin office must be sent to the GRV office for updating. For example, if a credit was granted by the creditor and it was not recorded
in your records, the credit note must be sent to the GRV office to update the stock records in that system for that item.

Reconciling creditors
There are essentially 2 types of reconciliations relating to creditors that must be performed:
• reconcile the total creditors list to the creditors general ledger account (at least monthly)
• reconcile each creditor’s statement balance to the creditor’s ledger account in your account records
(whenever a payment is due for that creditor)

Reconciling the creditors list to the creditors account

This entails ensuring that the total of all the individual creditors’ accounts in the creditors ledger agrees to the summary of entries found in
the single creditor account in the general ledger. Fortunately, most account systems have a fully integrated creditors system and the
creditors list always agrees to the creditors account as transactions are recorded simultaneously in both accounts. Your Admin Manager
must check that this does happen. If there is a difference it must be identified and corrected as soon as possible. Differences can be
identified by comparing batch transactions posted to the accounting records to that in the creditors system.
Reconcile creditor statements to your records
Reconciling the balance of the creditors account according to your accounting records to the balance on the statement provided by your
creditor at a certain date is an important control that ensures that:
• creditor transactions have been recorded correctly
• claims have been settled by the creditor
• the balance according to your creditors list is correct at that date
• any outstanding claims are followed up on
• incorrect transactions reflected on the statement are corrected with the supplier
• payment has been received and correctly allocated to your account by the supplier
• any discounts due have been granted and recorded
• the amount due for payment is determined correctly

How to perform the reconciliation

Performing the reconciliation entails going through the statement and matching each transaction on the statement to the transactions you
have recorded in your records. Any differences between the two sets of records will be reconciling items that need to be resolved.

Differences could be as a result of:

• timing differences – where there is a time delay between transactions, e.g. payments you made received later
by the supplier will be recorded in next month’s statement, or
• adjusting differences – where either you or the creditor needs to make an adjustment to the records to bring
them inline, e.g. the creditor has not yet recorded a claim, or you have not recorded a settlement discount the creditor
granted you

Timing differences need only be identified and taken into account in your reconciliation as these will resolve itself, usually by the next
period. Adjusting differences that require adjustment on the creditor’s side need to be recorded on your reconciliation. No adjustment to
your accounting records will be required. Inform your creditor of these adjustments to ensure they make the necessary changes on their
side. The Creditors clerk must follow up with the creditor regularly to ensure queries are resolved. These adjustments will usually relate to
credits that the creditor must pass (claims).
 Differences that require adjustment to your records must be done before the reconciliation can be finalised. These differences will not
appear on your reconciliation.

4.
The reconciliation can be done by following these steps:

1. Start with the creditor’s statement balance

2. Add/deduct all timing differences
3. Add/deduct adjusting differences that the creditor has not yet accounted for
4. To arrive at the creditors balance as per your records

Once you reconcile the statement

balance to your balance, you can then
determine the amount due for payment. You need not do this for accounts (Dropshipment and Warehouse) as payments are reflected on
the statements. For your direct suppliers, the balance of the account is not necessarily the amount due for payment. You must keep in mind
the terms of payment you negotiated with your supplier. If the terms are 30 days from date of invoice, only pay invoices that are 30 days old.
If the terms are 30 days from date of statement then all invoices on that statement will be due for payment in 30 days from the statement
date.

If you are entitled to a settlement discount, you must deduct this discount before paying. These terms are likely to differ from supplier to
supplier, it is therefore important that your creditors clerk fully understands the terms for each supplier so that the payment due can be
calculated correctly. This reconciliation must be performed for every supplier each time a payment is due or at least once a month.

statements
You will receive the following statements from (whichever applicable to you):
• warehouse
• dropshipment
• Christmas toys
• Easter
• Back to school
• Extended terms
• Opening stock
 • Re-launch stock
• Tops warehouse
• Tops dropshipment

Each statement must be reconciled to your records and in doing so you can also ensure that the necessary credits have been passed for all
claims. If you have any queries on the account you can follow these up at the same time. Remember to follow the administration process as
specified by D.C. to resolve account queries in the quickest possible time.

fees
fees will be charged on the warehouse statement monthly.

fees include:
• Guild fees
• development fund fees
• advertising fees
• other expense charges (e.g. hygiene report, etc.)
• computer support fees
• handling fees (charged for returns to for over ordering)
• swell allowance (returns for packaging, etc.)
• swell allowance credit (given off each delivery from to accommodate for damages)

These fees must be recorded when the statement is received. If you have a query on any of these fees you must follow the same process as
you would for normal warehouse account queries.

Dropshipment statements
The dropshipment statement shows all your transactions with the dropshipment suppliers summarised by supplier with balances for each
supplier. You should maintain a separate creditor account for each dropshipment supplier on your statement even though only one
statement and account is in effect held. The reason for the separation is so that claims can be tracked and followed up on for each supplier
and should there be problems in reconciling to the statement, it is easier to isolate the problem to a particular supplier. When recording the
payment you will need to split the payment between the various creditor accounts according to the balances on the statement.
Remember that initiates payment of the amount due on the due date as per the statement by debit order, regardless of claims
outstanding. Your Creditors clerk should try to resolve claims before payment for the related invoice goes through. It is much more difficult
to resolve a claim after the invoice has been paid.

Resolving queries with statements

Reconciling each creditor account to the statement will bring to light any errors on the account or any outstanding credits that have not yet
been granted. You must attempt to resolve these queries as quickly as possible, as outstanding credits could have a significant financial
impact.

Warehouse account queries

Queries on your warehouse statements should be dealt with by following the due process your D.C. has established. Make sure you
complete all the necessary documentation correctly (claims) and attach all relevant information when submitting your query in order to
facilitate a quick response (invoice, claims, POD, etc.). Claims are usually completed by Receiving and a copy is forwarded to the admin
office. The Creditors clerk can use this copy to follow up on claims. Contact the D.C. for all outstanding claims and if not satisfactorily
resolved you can forward the claim to the debtors department and credit controller.

Dropshipment account queries

Queries relating to dropshipment suppliers must be resolved directly with the supplier, e.g. if the supplier has not issued a credit for a claim
you submitted you must contact the supplier directly to get them to issue the credit. Resend the claim with the corresponding invoice and
any other relevant documents. However, if the supplier has resolved the query but it is not reflected on your statement or if the problem is
not with the supplier but with the D.C., then you must complete a Dropshipment Account Query form and submit to the D.C. with all
relevant documentation.

The Dropshipment Account Query form requires you to specify the reason for the query and provides the following possible reasons:
• debit processed as a credit
• incorrect account charged
• credit notes passed by supplier
• duplication of invoices
• copy invoice requested
• other (specify)
 Keep a copy of these query forms for your records.

Direct supplier statements and queries

Your direct suppliers will send you statements at least once a month, depending on your credit terms. If you do not receive a statement you
must request one. You must follow the same process of reconciling statements to your accounting records for each supplier. Account queries
must also be resolved directly with the supplier.

Try to establish a relationship with the person responsible for maintaining your account in the supplier’s finance department so that you can
resolve queries more efficiently. Keep a record of all correspondence with your creditor when resolving queries. With direct suppliers you
will initiate payment, generally by EFT. Don’t pay any invoices that are under query and deduct claims that you have submitted even if the
supplier has not yet granted the credit. But when the supplier does eventually grant you the credit, remember to account for the fact that
that you have already deducted the credit from a previous payment.

Checking reconciliations and payments

The creditor reconciliations are prepared by the Creditors clerk. The Admin Manager must review all reconciliations.

5.
Look for For example

Accuracy and logic • Outstanding claims have been deducted

• There are no items that require adjustment of your accounts

Calculation errors • Discounts have been calculated correctly

• Payment has been calculated correctly

Compliance with creditor policies • Queries have been submitted to and necessary forms completed
• Claims have been followed up on

Compliance with creditor terms • Discounts have been taken where allowed
• Payment terms have been followed and the payment has been
calculated correctly
 Creditor payments
terms are:

6.
Statement Terms Issued

Warehouse 19 days from statement Wednesday

Drop shipment 30 days from statement Monday

Statements will be issued every week

but payment for the invoices on that statement will be due 19 or 30 days from the statement date. Because of this you will find several due
dates and corresponding amounts due on your statement. payments will be generated by by debit order for the amount due according to
the aging on the statement at that due date. If you have claims outstanding against invoices on that statement, they will not be taken into
account until they appear on a statement. Keep this in mind when you do your cash flow projections as large claims can have a significant
 impact.

Important items for you to note on your statements relating to payment are:

7.
Note Why

Statement This is the date the statement was generated. The due date for payment will be calculated
date from this date, e.g. 19 days from this date for warehouse payments

Terms Tells you your credit payment terms for that statement. This will vary for the different types of
accounts (e.g. Christmas toys)

Due date The date a payment will be due, you can expect a debit order to go through on this date.
There will be several due dates with corresponding amounts due on those dates due to the
payment terms

Amount due The amount you can expect to go off your bank account on the corresponding due date
Your direct supplier
terms will vary and it
is up to you to
negotiate the best possible terms. For your direct creditors, you must arrange for payments to go through by the due date. Electronic
payments are the most efficient and secure method of making payment. Unlike payments the amount you will pay will not necessarily be
the balance on the statement. Your Admin Manager must check and authorise every payment.

8. Managing creditors and purchases

New creditors
When taking on a new creditor, follow the procedures below.
 9.
Step To do Who When

1. Ask supplier to complete a product listing and GRV office to Before first order
return tothe GRV office supplier

2. Complete credit application received from Admin Office Before first order
supplier, except for terms and conditions

3. Set terms and conditions and sign off and Store Manager Before first order
finalise credit application, e.g. repayment
terms, credit limit, etc.

4. Get credit approval from supplier Supplier Before first order

to Admin

5. Communicate receiving bay and admin policies Admin office Week before first
to creditor, e.g. completing claims forms for delivery
returns, etc.

6. Check and authorise product listing received Store Manager Week before first delivery
from supplier

7. Load supplier and product details onto GRV GRV clerk Week before first delivery
system

8. Activate supplier in the GRV system GRV office Week before first delivery It is important that
the supplier and

9. Load supplier onto accounting system, Admin office Week before first delivery
including all relevant information
product codes are loaded onto the receiving and accounting system before the first delivery takes place. If this is not done, the goods cannot
be GRV’d and the purchase will not be recorded in the accounting records. Credit applications sometimes take a while to be finalised. The
supplier may allow delivery to take place on a cash on deliver (C.O.D) basis. If you accept these terms, you must still ensure that steps 5 to 9
are carried out before the first delivery takes place. Never issue cheques to the supplier’s delivery staff, issue payment directly to the
supplier (i.e. pay electronically and send them proof of payment).

Minimum information you should request from each supplier

• legal and trading name
• registration number
• physical and postal address
• physical address of the distribution centre or warehouse if different from the supplier’s administration or finance office
• full contact details for their sales, distribution and finance department
• VAT registration number
• names of the owners and directors/members
• credit controller or main contact person in the finance department

Credit terms and credit limits

Payment terms must be negotiated upfront on application for credit. Credit limits are also set on credit approval, but you can request for a
credit limit increase at a later stage once you have established buying patterns and a strong credit history with the supplier.

Keep in mind that room for negotiation will be limited for some suppliers and certain goods, depending on the nature of the goods. For
example:
• SA Breweries and Independent Newspapers – 7 days
• Fresh produce and perishables – average of 15 days

Day to day management of creditors

Your creditors provide you with the stock you need to run your business and it is therefore essential that you maintain good relationships
with them and manage creditors and purchases efficiently. Creditors and purchases will not always relate to stock for your store. You are
likely to also purchase goods and services to support the functioning of your store, e.g. computer and IT support services, repairs and
maintenance services for your equipment or back office supplies. The policies and procedures will be exactly the same for these types of
creditors as with your other creditors.
Key controls and tips for managing creditors
• know your credit limits and buying patterns for each supplier
If you expect your purchasing requirements to push you over your credit limit contact the supplier before you place your
order and arrange for a credit limit increase. Your department managers can assist by informing you of any unusually large
orders anticipated. This will avoid delivery delays due to administration problems.
• know your credit terms and manage your orders and deliveries accordingly
Try to co-ordinate your orders such that you allow yourself the longest possible payment term. For example, if your terms
are 30 days from date of statement and statements are issued on the last day of the month, try to arrange for large deliveries
on the first of the month. The invoice will only be due at the end of the following month, effectively allowing you up to 60
days for payment of that particular invoice.
• know who you owe money to and how much
Review the creditors age analysis at least weekly to keep a track of amounts due to creditors. Make sure that your Creditors
clerk is clearing queries regularly by looking at amounts outstanding past the credit terms. Focus on clearing larger queries first.
If buying patterns for a direct supplier changes over time, consider re-negotiating terms. For example, if your purchases from a
supplier have increased substantially and this trend is expected to continue for the future, you can use this to negotiate discounts
or better repayment terms.
• be mindful of cash flow implications
High creditor balances mean large payments will become due soon and you should plan for this. Long outstanding claims on
your statements mean you have paid for goods you do not have.
• enforce disciplined buying practices amongst your department managers
Time deliveries well and only purchase what is necessary so that your creditors do not get out of control.
• appoint competent creditors clerks and make sure they are well trained
If you have enough creditors to warrant employing more than one Creditors clerk, assign specific creditors to each clerk based
on their experience, competence and skills.
• use creditor payment days calculations
Creditor payment days calculation measures on average how long you take to pay your creditors. Calculate your creditor payment
days at least weekly, review against prior periods and investigate any major variations. This calculation will pick up deviations from
standard creditor payment terms.
 10.
Calculate creditor payment days as follows:

Creditor payment days = Average creditors ÷ Credit purchases × Days in period

• use the “amount due” and “due date” information on your statements for cash flow projections
• control new creditors being loaded onto your system
Use passwords and user rights to ensure that only authorised staff can add a new creditor and/or product to the GRV
system and the accounting system.
• double check creditor payments
While your Admin Manager will check each creditor payment, you should also check the payment before you authorise it.
• don’t be afraid to negotiate terms with your suppliers. Nothing is written in stone

Creditors clerk’s responsibilities:

• communicate with creditors to administer and maintain the creditor account accurately
• reconcile creditor statements to the accounting records
• submit reconciliations and all supporting documents to the Admin Manager for review
• attach invoices, POD’s, query forms and claims to the relevant statement and reconciliation, and ensure that all documentation
is correctly filed and archived when necessary
• follow-up on and resolve account queries. Keep a record of all correspondence with creditors when resolving queries
• complete Dropshipment Account Query forms and submit to the D.C. whenever there is a query on the dropshipment account
and the problem is not with the supplier but with the D.C.
• complete credit application forms for new creditors (with the exception of credit terms and credit limits)
• calculate and prepare creditor payments for management (direct creditors only)
• check debit order payments to ensure correct payments have gone through
• identify and record any adjustments that need to be made to the creditors account in the accounting system
• advise the GRV office of any adjustments that need to be made on the GRV system
• report any creditor related problems to the Admin Manager and/or Store Manager
12. Stock

1. Introduction
Control and recording of stock at receiving and on the shop floor will be covered under Receiving and Dispatching and Stocktaking. This
section will focus on the recording, monitoring and general management of stock through the back office (the Admin office).

More specifically, this section will cover:

• Recording and reporting stock
• Analysis and management

2. Recording and reporting stock

Recording
Transactions relating to stock are:
• purchases
• price adjustments (other than promotions)
• stock transfers
• opening and closing stock movement
• stock write-offs
• provision for shrinkage
• promotions

Stock walk report

This report is produced from the GRV system every week showing the movement of stock by category. It will reflect month to date
information, i.e. if generated in the third week of the month it will show the stock movement between the first to the third week of the
month. Depending on the system, it can also be generated by sub-departments, providing a greater level of detail for analysis and reporting
purposes.

Other information shown on this report include (per category):

• actual opening stock
• actual and theoretical closing stock
 • purchases and inter-department transfers at cost and retail price
• notional GP% calculated at the point of receiving the goods
• actual GP% calculated after accounting for shrinkage
• sales, cost of sales and gross profit in Rands
• stock adjustments
• stocktake write-offs
• stock movement
• difference between notional and actual stock

This report is used to record the entries related to stock.

Purchases, price adjustments and stock transfers between branches

These entries are recorded in the GRV system by the GRV clerk and are then imported daily into the accounting system via the creditors link
by the Admin Manager. Balances must be checked to the stock walk report to ensure accuracy. This ultimately covers the majority of stock
related transactions in both systems. Further entries will be required to facilitate meaningful reporting from the accounting system.

Inter-department stock transfers

Inter-department stock transfers are also recorded by the GRV office daily, but it is not always practical to record these transfers in the
accounting records on a daily basis. Stock used for internal consumption (i.e. not used in the service departments to produce saleable
goods, but in back office or for store consumption), can be recorded monthly by a single journal. Inter-department transfers are summarised
on the stock walk report and this can be used to record the journal entry.

Stock used for internal consumption is an overhead expense to the store and you must remove the cost of this stock from cost of sales and
allocate to overhead expenses with a journal. If this journal is not done the accounts will reflect an incorrect GP and will distort
performance. The journal should be recorded by the Admin Manager or bookkeeper at least monthly.

Opening and closing stock movement

• you have to determine your closing stock balance at the end of each month and record the movement between opening and closing
stock for that month
• the stock walk report (at cost) from your GRV system will provide you with the opening stock, closing stock and stock movement
amounts per department for the month
 • you must adjust the balance of your stock account on your balance sheet to agree to the closing stock amounts for the month by means
of a journal. The difference is taken to closing stock under cost of sales in your income statement
• closing stock from non-service departments can be taken directly from the stock walk report. However, closing stock on the stock walk
report for service departments should only be relied upon if you are certain that all transfers and costing into and out of the
departments
are recorded correctly at the correct values. Closing stock is calculated at cost and not retail price

Use the followings steps to calculate closing stock for service departments if you are uncertain as to how accurately your staff is recording
stock in the service departments, or if you want to recalculate closing stock to double check the accuracy of the balance.

3.
To determine closing stock for service departments

Step To do Information
from

1. Start with closing stock as calculated last month Last

monthly
pack

2. Find purchases for the month for all service departments GRV system

3. Find the average actual GP% for the service departments from last month GRV system

4. Find sales for the month for all service departments Point of
sale system

5. Apply the average GP% to the sales amount to get sales at cost 3 and 4
above
If your store is new

6. Opening stock plus purchases less sales at cost will give you closing stock for the From above
service departments for the month
 and you do not have an average actual GP% from the previous months/periods, use the notional GP% as calculated at receiving. This can be
changed to average actual GP% in subsequent periods.

Stock write offs

The GRV system will record stock when received and calculate the theoretical stock balance, i.e. the stock value before any shrinkage.
Category and service department stocktakes will then be performed every week and any differences will be adjusted for in the GRV system
as stock write-offS (or write-ups). The value of stock after the count is called the actual stock. The difference between your theoretical stock
(notional stock) and your actual stock is your stock write offs. Stock write offs must be written off against the provision for shrinkage.

Provision for shrinkage

You must create a provision for shrinkage in the accounting records as a contingency for any stock write-offs. By providing for an acceptable
amount of shrinkage in your accounts, your reporting during the year will be more realistic. You will not have a situation where a large stock
write-off occurs at year end and profitability during the year is unrealistically high.

• a provision is an amount determined largely by judgement after taking into account factors such as past trends,
expected results, etc.
• there is no rule on how to determine the value of a provision for shrinkage as shrinkage varies from store to store
• shrinkage is also very much related to the strength of controls and systems in place, weak or ineffective controls
will necessitate a larger provision for shrinkage

You can use the following formula as a starting point:

4.
2/3rds of the last 3 months sales × the year to date actual shrinkage as a % of year to date actual sales
= provision for shrinkage

Last 3 months sales Obtain from the stock walk reports

for the last 3 months

Year to date actual shrinkage From the year to date stock walk
report

Year to date actual sales From your accounting records or the

year to date stock walk report
Use your knowledge of your store and its systems and controls to adjust the formula or the result from above to determine a reasonable
amount for the provision for shrinkage that best represents your store. Set up a policy on how to determine the provision value and apply
this consistently. The provision for shrinkage represents a credit balance on your balance sheet. Each month you will adjust this credit
balance to the value of the provision you want to create. The difference is debited (increase in the provision) or credited (decrease) to cost
of sales. At year end, the total provision for shrinkage will be compared to actual shrinkage for the year after a year end stock count is
performed and any over or under provision will be written back to cost of sales.

Promotions
The GRV office will set promotions according to promotion dates and the Store Manager’s instructions for in-house promotions. No entries
need to be recorded on the accounting side as the costs to promote will come through automatically from recording sales at the discounted
value. However, for monitoring purposes, reports from the GRV system provide all necessary information on the cost of promotions.

Promotion prices are set on the GRV system by the GRV office by instruction from the Store Manager and .

Reporting
Your Admin office should report the following:
 5.
Report When

Stock walk report by category and service department Weekly and month to date

Stock walk report by sub-department Weekly and month to date

Provision for shrinkage calculation and adjustment Month end

Stock level by department and sub-department Weekly

Category and service department stocktake variances Weekly and month to date

Promotions and cost of features Weekly and month to date Every promotion cycle

Promotion reports
Promotions reports
should at the least provide the following detail:
• total sales
• promotional sales
• promotional sales as a % of total sales
• cost price
• mark down
• promotional purchase price difference
• net mark down
• notional GP%
• promotional GP%

Be mindful of the following when looking at the promotion reports:

 • note the promotion start and end dates. Promotion dates often run across week and month ends
• if you want to look at promotions for the month only, you need to note the promotion start and end dates and deduct whatever
relates to the previous month
• to assess the effectiveness of promotions it may be more useful to look at the promotion report for the promotion cycle, i.e. the
promotion start and end dates
• calculate the cost of promotions by comparing the cost price to the promotional selling prices

6. Analysis and management

Holding too much stock
Holding too much stock erodes your profits and has a number of other ripple effects such as strain on cash flow, insufficient working capital,
etc. The total effect of holding too much stock (or inventory) in your business is represented diagrammatically below.
Look for, investigate and resolve Why

Major differences between theoretical and This represents shrinkage

actual stock (stock write-offs)

Large discrepancies between notional and actual GP May indicate incorrect prices or promotions
%
Holding too little
stock
Negative stock values May indicate problems in receiving and/or Holding too little
your G.R.V. office (goods not GRV’d) stock can be just as
serious a problem as
holding too much
Irregular notional GP% May indicate pricing problems or errors with GRV’s.
stock. Being out of
stock on key value
Irregular actual GP% May indicate incorrect prices, incorrect costing items or items that
or errors in promotions draw customers to
your store will hurt
Actual gross profit exceeds theoretical or This is called overage and is not an advantage as your sales. Your
notional gross profit it indicates problems potentially in: customers will go to
• Errors with mark up your competitors to
• Errors at cashiers and tills find what they
• Over received goods want. You therefore
• Supplier discounts not accounted for need to strike a
balance between
your customer
Differences between sales per the stock walk Differences will result in incorrect GP requirements and
and sales per the point of sale system calculations and stock on hand quantities. Also holding the right level
indicates problems between the GRV system and the of stock to reduce risk
point of sale system to your business.

Negative gross profit Rand values This indicates you have made a loss on those items.
packaging will always have a negative GP Stock, GP and
promotions

Too high or too low stock levels Holding too much stock costs you money. 7.
Not carrying enough stock will hurt sales

Cost of features too high a percentage of sales This measures what it costs you to promote
items and affects profitability
8.
 Shrinkage
Shrinkage includes theft, wastage, breakages and losses through obsolescence.

9.
Calculate shrinkage as follows:

Shrinkage = Notional gross profit – Actual gross profit

Therefore you must manage your GP

such that you close the gap between notional and actual GP, i.e. limit shrinkage.

10.
How to manage shrinkage

1. Calculate shrinkage by department and isolate problem areas

2. Count stock every week in problem areas until you get shrinkage under control

3. Tighten controls in receiving and GRV office

4. Train staff on how to store and handle stock

5. Check temperature controls and storage facilities to ensure optimum conditions for stock storage

6. Improve security controls

Provision for shrinkage

• review the calculation to ensure compliance with your policy

• assess the balance for reasonableness, consider your stock holding and the strength and effectiveness of your controls

Remember that the provision for shrinkage requires your judgement and you are therefore ultimately responsible for determining a realistic
amount.

Cost of features

• calculate the cost of features at the end of every promotion for each product line
• the cost of features tells you how much it cost to run that promotion. Represent the cost of features as a
percentage of sales to get a meaningful ratio to work with
• this can then be compared to previous promotion periods and the effect on sales can be assessed
 Your store will receive promotion stock at the promotion price. However, you are likely to have stock on hand of those products at the
normal cost price from before your promotion stock arrives. Nevertheless, the entire quantity of stock on hand will be marked down to the
promotion price at the start of the promotion. The cost of features represents the mark down of stock from normal price to the promotion
price.

11.
Calculate the cost of features as follows:

Units sold on promotion = Total units at start of promotion – Total units at end of promotion

Rand value of mark down = Normal price per unit – Promotion price per unit

Cost of features = Units sold on promotion × Rand value of mark down

Cost of features as a % of total sales = Cost of features/total sales × 100

Average stock days

Average stock days measures the amount of stock you have in days, i.e. how many days can you continue trading without receiving more
stock before the shelves are empty.

Use average stock days to:

• determine whether you have too much or too little stock
• manage shrinkage, e.g. too high average stock days in the perishables department will mean stock can
expire before it is sold

You should measure your average stock days at least weekly and monthly, and by department since perishables will have a shorter stock
holding period than non-foods. Compare this to guidelines provided by your D.C., but remember to factor in your store’s location as this will
impact on how quickly stock can be delivered to you.
 12.
Calculate the average stock days as follows:

Average stock days = Average stock at retail price/average sales per day
or
Average stock days = Actual stock at cost price/forecast cost of sales per day for next month

Both calculations will

give you more or less the same answer, but it may be easier to use retail price and sales as these figures are easily available from the GRV
system. Average amounts are used to counteract the effect of daily fluctuations that even out over the month.

Stock ratio
This ratio shows the makeup of your store’s stock. Similar to the sales ratio, it tells you what percentage of stock you are holding in each
department. Use the stock ratio with the sales ratio to determine whether you are over or under stocked in any particular department or
sub-department.

13.
Calculate the stock ratio as follows:

Stock ratio = Department stock holding/Total stock holding × 100

Repeat the calculation for each department

Return on investment
in stock
A large portion of your working capital will be invested in stock. Besides making sure you are holding the right amount of stock you also
need to ensure that you are holding the right type of stock, and that the stock is providing a satisfactory return. Your aim is to maximise your
return on investment in stock. The best way to do this is to increase the number of times your stock turns, i.e. the more your stock turns the
more it earns.
 14.
Calculate your return on investment in stock as follows:

Return on investment in stock = Sales ÷ Average stock at cost × GP%

Stock turns
Measure the amount of times your stock turns for the period, compare to prior periods and try to increase this. The more the stock moves,
the more you earn and the lower the risk of shrinkage.

15.
Calculate your stock turn rate as follows:

Stock turns = Cost of sales ÷ Average stock at cost

13. Cash and bank

1. Introduction
Your business is essentially a cash business and you therefore have to implement stringent policies and procedures to control and manage
cash and your bank balance.

Cash up and banking will be covered separately, this section will focus on recording and management of cash and bank in the following
detail:
• recording and reconciling the cash book
• electronic banking
• petty cash
• cash management
• reporting
 2. Recording and reconciling the cashbook
The cashbook is used to record all transactions that go through your bank account, i.e. all receipts and payments.

Ensure that you:

• set up a separate cashbook in your accounting records for each bank account that you hold
• all payments and receipts are recorded in the cashbook daily
• arrange for electronic banking facilities with your bank and implement the security controls they recommend for the
banking system you select
• select a banking system that is cost effective and provides you with all the necessary functions you need to run your business
• have unrestricted access to bank statements for all your bank accounts as and when you require

The process
No. To do Who
3.

1. Print the bank statements for all bank accounts Admin Manager

2. Record all receipts in the cash book in the accounting system Cashbook clerk/ bookkeeper

3. Record all payments in the cash book in the accounting system Cashbook clerk/ bookkeeper

4. Reconcile the bank statement balance to the cash book balance and Admin Manager
the general ledger account

5. Follow up and resolve any long outstanding receipts and cheques Cashbook clerk/ bookkeeper

6. Submit the bank reconciliation and corresponding bank statement to Cashbook clerk/ bookkeeper
the Admin Manager for review

7. Review the bank reconciliation for accuracy Admin Manager

8. Repeat 1 to 7 above for all bank accounts Admin office

Step Do

1. Obtain the bank statement and the cashbook for the period

2. Tick off all receipts and payments that appear in both the cashbook and the bank statement. Make
sure the amounts are the same

3. Identify all transactions that are in the cashbook but do not appear on the bank statement

4. There should not be any items that appear on the bank statement but not in the cashbook as you
would have recorded all payments and receipts. However, if there are, record these transactions in the
cashbook and tick them off on the bank statement

This process must be

5. Find the bank statement closing balance followed daily to
ensure that the latest
6. Add all outstanding receipts identified in 3 above (receipts recorded in the cashbook that have not creditors and debtors
been cleared by the bank) information is
available.
7. Deduct all outstanding cheques identified in 3 above (cheques that have been issued and recorded in
Performing the bank
the cashbook but have not been cleared by the bank)
reconciliation

4.
8. Arrive at the reconciled balance which should be equal to your cashbook closing balance for the
period

9. Repeat 1 to 8 for each bank account held

 The bank reconciliation should be performed at least weekly by the Admin Manager.

5. Electronic banking
The most secure method of payment is via electronic funds transfer using reliable electronic banking facilities provided by your bank. These
 facilities usually also include a number of other useful services depending on the system you select. Each bank offers different electronic
banking facilities depending on the size of the business and requirements. Select a banking system based on these factors, giving special
consideration to your particular security requirements. Once you are on electronic banking avoid issuing cheques. Cheques are a more
expensive form of banking and the risk of fraud is higher.

Controls
Implement the following controls for electronic banking, in addition to the controls your bank recommends:
• allocate a single computer to electronic banking and restrict access to that computer to authorised staff only
• use the passwords and user rights facilities to restrict each user’s use of the system, e.g. the cashbook clerk should
only be allowed to view and print statements, the Admin Manager should have higher user rights but should not be
allowed to make a payment on their own, etc.
• all transactions should require authorisation from at least 2 people (the Admin Manager and Store Manager)
• never authorise a transaction without first checking and signing off all the supporting documentation. This includes adding
on new beneficiaries and transfers between bank accounts
• the Admin Manager should always authorise before the Store Manager
• always print proof of transactions
• ensure proper software security (secure internet connection, firewalls, anti-virus software, etc.).
• change passwords and authorisation codes regularly, commit these to memory and never have them written down
• never leave the computer terminal unattended whilst logged on
• should you receive any error messages whilst banking and you are unsure as to whether or not the transaction has gone
through, wait a day or two to check the bank statement before retrying the transaction
• be aware of the latest electronic banking scams and amend your controls and policies if necessary. Banks often advise
clients of the latest fraud scams
• review the beneficiaries loaded on the banking system at least annually and delete or block all inactive beneficiaries to
avoid making payments to these beneficiaries in error

6. Petty cash
Petty cash is a small amount of cash kept by the Admin office to cover ad hoc, small expenses that may arise during the normal day to day
running of the store.
• assign responsibility of the control and recording of petty cash to one person in your Admin office. This responsibility
 can be given to a creditors, debtors or cashbook clerk as long as the Admin Manager conducts regular reviews
• set a limit to the amount of petty cash to be held. Having too much of petty cash on hand could lead to theft or errors in
recording and control
• the Admin Manager should perform random spot checks on petty cash, checking the amount on hand against the petty
cash records
• petty cash is usually taken out of the previous day’s cash sales. This must be properly controlled and recorded on the cash
control sheets
• petty cash should be used for valid store expenses only, the Admin Manager should review and authorise the entries
recording petty cash
• petty cash must be recorded in the accounting system each time it is replenished

While petty cash held is not a high value amount, small amounts stolen or lost over time can add up. Further, weaknesses in the control of
petty cash could result in a weakness in control of cash up and banking, since petty cash is normally replenished from the previous day’s
cash sales.

7. Cash management

Managing working capital

Your working capital requirements will have the greatest impact on your cash flow, therefore managing working capital will effectively
manage your cash.

Working capital comprises:

• stock
• debtors
• creditors
• cash

Try to keep working capital requirements to a minimum.

Tips for managing working capital

 • calculate your debtors collection days at least monthly and work to reduce these to less than or equal to your
debtors terms
• conversely to debtors, your main objective with creditors is to try to negotiate the longest terms possible without causing
harm to normal operations. The longer you take to pay your creditors, the more time you have to sell that stock and earn
the cash to make the payment. In other words, ideally you want to sell your stock before you have to pay for it
• use the creditors days calculation to monitor how long you take to pay your creditors on average. You should do this
calculation at least monthly and compare to prior periods. Anything over 40 days is an advantage, and you should attempt
to extend this by negotiating with your suppliers
• some suppliers may offer you early settlement discounts to encourage you to pay early or volume discounts for bulk purchases.
Only take advantage of these offers if it will not harm your cash flow and cause you to be overstocked
• cash purchases harm your cash flow as the goods are paid for upfront. This is sometimes unavoidable for new suppliers
while credit applications are being approved or for certain support or back office goods and services, e.g. servicing vehicles.
Try to limit your
cash purchases to the absolute minimum and make sure you make provision in your cash flow for these purchases
• manage your stock levels as this is the least liquid item of working capital and you have to rely on a sale to turn it into cash

Managing the cash flow gap

Cash management not only entails controlling and safeguarding the cash generated by the store but also includes managing the cash flow
gap. The cash flow gap is the time between when money comes into the business (cash inflows) and when money is due to go out (cash
outflows).

You must manage the flow of cash into and out of the business efficiently such that:
• payment obligations can be met on time and in full
• cash reserves can be invested or utilised to grow the store
• working capital requirements can be kept to a minimal

Good cash flow management also reduces reliance on expensive short term debt like overdrafts and therefore also reduces borrowing
costs. The best management tool available to help you manage your cash flow is a cash flow forecast.

What is a cash flow forecast?

A cash flow forecast attempts to predict the timing and extent of cash inflows and outflows over the foreseeable future. It should be
prepared by the Admin Manager and should project for at least the next 6 months. While it is noted that the further into the future you try
to predict the less accurate the results become, any projection that does not at least cover the short to medium term cannot fully serve its
purpose.

A 6 month to 1 year projection is considered most beneficial and the accuracy of the projection will depend on:
• who prepares the forecast, i.e. their experience and knowledge
• the sources of information, i.e. based on past trends, budgets and actual information
• how often the projection is updated for changing circumstances and new information, etc.

Daily vs. Weekly vs. Monthly forecasts

While weekly or monthly forecasts may be easier to prepare and more manageable to update and work with, they may hide cash tight
periods. For example, if major outflows are scheduled for the 25th of the month and major inflows are only expected from the 31st of the
month, the period between the 25th and 31st could be a cash tight period that would not be picked up by a weekly or monthly forecast. The
best recommended practise is to monitor cash flow on a daily basis to highlight these problem periods.

When deciding on the level of detail you want in your cash flow projections, consider how sensitive or volatile your cash resources are. Are
you expecting it to drastically fluctuate in the foreseeable future? If you are uncertain, then it may be best to start with a daily forecast and
in time move to a weekly forecast if you find that a daily forecast gives no added benefit. Your business is a cash intensive business. Most of
your sales are cash sales and your major creditors are paid weekly ( warehouse and dropshipment suppliers). You should therefore at the
very least work with a weekly forecast.
Step Do Remember

1. Decide on More detail requires more work, but can be more useful to you
the format
and level of 8.
detail you
require, i.e.
daily, weekly,
or monthly

2. Start your Use a positive sign for favourable balances and a negative sign for an overdraft
forecast with balance
the bank
balance at
the
beginning of
the period

3. Identify the Do not assume that debtors will pay within terms, rather look at previous trends
timing and for realistic timing of inflows. Do not forget about capital inflows.
amounts of
all cash
inflows.

4. Identify the Use your budgets to help identify expenses. Do not forget about capital payments.
timing and
amounts of
all cash
outflows.

5. Account for Enter these items into your projection when you actually expect them to clear your
any bank account and not when it is deposited
outstanding Practical tips for
deposits and
payments
from your
last bank
reconciliatio
preparing a cash flow forecast:
• you bank sales and pay suppliers inclusive of VAT. Remember to include VAT in all your projections
• be careful with favourable and overdrawn bank balances. Entering your bank balance incorrectly in your projections
will result in an incorrect projection
• include capital receipts and payments such as cash you intend on putting into the business, loan repayments and assets
bought with cash
• the statements provide you with the exact amounts and due dates for upcoming payments (up to six weeks ahead).
Use this information to improve the accuracy of your cash flow projections
• exclude non-cash items such as provisions and depreciation from your cash flow forecast
• be realistic about the timing and amounts of cash flows. Adopting a prudent approach to cash flow forecasting allows you
to plan for the worst. Remember you are trying to predict when and how much of cash is likely to be passing through your
bank account
• start taking action as soon as a problem is detected, even if it is months away. The more time you allow yourself to react,
the easier it will be to find solutions
• include easily forgotten costs such as interest, bank charges and tax payments
• update the forecast regularly for any changes and new developments or information that come to light to make your
projections more accurate
• always consider the cash flow impact of major transactions. If uncertain, enter it onto your cash flow projection to assess
how it will affect your cash flow in the future, before you make any decisions
• compare the actual movement of cash to the cash flow projection to identify any deviations and ways to improve your cash
management and the cash flow projection going forward. Major deviations from the projection should be investigated and
understood before reacting

Cash flow in new stores

The biggest cause of business failure is a lack of cash and not a lack of profit. New store owners should make sure they understand the
difference and realise that cash flow management will be one of their most important management functions, especially in the first few
years when cash flow is particularly sensitive.
• do not be tempted to overspend, buy only what you absolutely need when you need it
• be mindful of debtors and debtors growth
• control your stock levels strictly
• set up favourable credit terms with suppliers
 • where possible, arrange for small, frequent deliveries rather than bulk deliveries
• consider cash flow in every decision you make in your store
• plan major outflows after your largest sales days in the month (e.g. after the 26th)
• use your cash flow forecast to determine your cash flow needs and plan accordingly
• apply for an overdraft before your cash resources become strained. It is more difficult to get bank approval when you
are already in trouble. The bank will require you to prove your cash requirements with a cash flow forecast

New stores are likely to experience a negative cash flow cycle, at least until it starts to make a profit, and may have to rely on borrowings or
initial capital invested by the owner to survive in the interim. If you have bought an existing store you may experience the same problems as
a new store. In addition, you may have inherited underlying problems from the previous owner, e.g. shrinkage or weak controls. Make sure
you identify these problems upfront and take steps to limit the effect on your cash resources from the beginning.

Negative cash flow

Your business is in a negative cash flow cycle when your cash outflows (payments) consistently exceed your cash inflows (receipts). This is an
indication that your business may be suffering and could be as a result of one or more of the following circumstances:
• your expenses exceed income
• your purchase budget has been exceeded
• you pay your creditors too soon
• your debtors have accumulated beyond your terms
• you have incurred capital expenses that you cannot afford
• you are servicing too much expensive debt
• you are a new store that has recently started trading and have yet to establish a market presence
What to do about a negative cash flow

1. Watch your shrinkage more closely, perform checks regularly and continue to monitor at regular
intervals
9.
2. Reduce expenses (excluding expenses that drive sales). Where expenses cannot be reduced look at
spending efficiency

3. Improve controls in:

• receiving
• GRV office
• security

4. Authorize all orders. Check cash flow before authorizing orders

5. Conduct regular price checks on the sales floor

6. Manage GP and sales by department and at store level

7. Implement strong controls for debtors and improve debtors collection

8. Pay creditors according to terms and wherever possible negotiate longer payment terms

9. Consider cost versus benefit of straining cash flow to take up early settlement discounts. The cost of
extending your overdraft is likely to exceed the settlement discount earned

10. Become more involved in your service departments and drive sales in these departments

11. Make sure staff are properly trained, promote cost awareness and control staff spending

12. Control stock more tightly. Count stock more often if necessary, especially if shrinkage is a problem

13. Consider short, medium and long term cash flow before committing to capital expenditure. Look at net
profit and not sales when deciding whether you can afford capital outlays14.
Positive cash flow
A positive cash flow results in your business having excess cash resources after meeting cash requirements. You have a cash control problem
if you find that the following conditions exist but cash flow remains strained.
• sales growth and a healthy GP
• good stock controls
• minimum shrinkage
• good debtor collection
• tightly controlled spending
• increasing net profits
• minimum debt exposure

Improve your cash controls and cash flow management and you will find your store in a positive cash flow cycle. Cash resources must be
used strategically to grow your business. Specific strategies that can be applied include:
• revamping your store
• extending product ranges
• investing more in advertising
• creating new service departments
• reducing debt and paying off loans

Whatever you decide to do with your cash reserves, make sure that:
• you have sufficient working capital left over afterwards to continue running your store
• you use the cash on sound strategies that will grow your business
 • you take special interest in the plans you put in place for those cash reserves to ensure they are utilised properly

10. Reporting

Prepare By For When Your Admin office

should facilitate the
Bank balance, total Admin Manager Store Manager Weekly following reporting
sales, customer count relating to cash and
and basket size per day bank.
(all bank accounts and
11.
all sales)

Bank reconciliation (per Cashbook clerk/ Bookkeeper Admin Manager Weekly

bank account)

Current account bank Admin Manager Store Manager Monthly

balance trends over the
month (can be in the
form of a graph)

Petty cash journal entry Cashbook clerk/ Bookkeeper Admin Manager When petty cash is needed
and record

Discrepancies with cash Cashbook clerk/ Bookkeeper Admin Manager Daily

up and banking records,
and amounts actually
banked

Cash flow projection Admin Manager Store Manager Daily / Weekly

Inactive beneficiaries on Admin Manager Store Manager Annually

the banking system
14. Fixed assets

1. Introduction
On opening a store, a large amount of the capital is invested in fixed assets required to run the business. Fixed assets are the items you
use either directly or indirectly in your business.

Typical fixed assets for a store include:

• land and buildings
 • refrigerators
• shop fittings
• equipment (e.g. bakery equipment)
• delivery vehicles
• computer equipment (incl. tills)
• other office furniture and equipment

The above are called tangible assets.

Your store can also own intangible assets such as goodwill, patents and trademarks. These types of assets represent the value assigned to
intellectual property.

This section will cover the following

• intangible assets
• recording assets
• control and safeguarding fixed assets
• budgeting for fixed assets
• management responsibilities

2. Intangible assets

Goodwill
Goodwill is acquired on purchase of an existing store and represents the inherent value of the store you acquired.

3.
Calculate goodwill as follows:

Goodwill = Purchase price of the business – Net asset value of the business

Net asset value = Total assets – Total liabilities

 The net asset value represents all assets and liabilities fairly valued at the sale date. Goodwill is only acquired on purchase of a business.

brand
The brand belongs to and is not an asset to your business. As a voluntary trader you are allowed to use the name and brand. Further, for
accounting purposes you cannot recognise a brand you developed as an asset in your balance sheet. You are only allowed to recognise a
brand as an asset if it is purchased. It will then be valued at the purchase price.

4. Recording assets

Accounting system
New assets
Assets are recorded in the accounting system at cost plus all expenses incurred to bring the asset into use (installation costs, etc.) at the date
of purchase. Assets of a similar nature are grouped together in categories, e.g. computer equipment, furniture and fittings, motor vehicles,
etc. Tangible assets are recorded separately from intangible assets as most tangible assets are depreciated.

Depreciation
• assets lose value over time, e.g. a motor vehicle purchased in January will not be worth the same in December as it
will be a year old
• this loss in value over time and use is referred to as depreciation for accounting purposes
• every year a portion of the cost of the asset, representing the amount by which that asset has lost value that year,
is written off to the income statement as a depreciation expense
• depreciation is not paid to anyone, i.e. it is a non-cash expense
 • depreciation can be calculated using a number of methods, but the most common method is the straight line basis
• using the straight line method, on purchase of an asset you need to decide how long this asset will be of use to you
before you have to scrap it. The value of the asset is then written off over that period of time, i.e. the period of its
useful life. For example, if you decide that a delivery vehicle will only last 5 years, the delivery vehicle will be written
off over five years (or at 20% per annum). This will be the depreciation rate for that asset.
• the written down value of the asset is called the book value
• generally depreciation rates are set per category of asset to make administration and control easier

Depreciation should be recorded in the accounting records monthly (take the annual depreciation and divide by 12 to get the monthly
amount). Land and buildings are not depreciated as it is accepted that they do not lose value through use or over time. They can be re-
valued at regular intervals (e.g. every 5 years). Accumulated depreciation is the total amount by which an asset has been depreciated over
the years and since it was acquired. It is standard practice to write down assets to nil value, i.e. to depreciate the full cost of the asset.
However, it is more accurate to write down assets to the residual value. The residual value is the amount which you expect to receive on
sale or scrapping of that asset at the end of its useful life.

Wear and tear

For the purposes of calculating your income tax for the year, SARS allows you to claim a portion of assets at a fixed rate each year against
your taxable profits. This capital write down each year is called wear and tear for tax purposes and is similar to depreciation described
above. The rate at which you can claim wear and tear on each asset is prescribed by SARS. There are fixed rates for each type of asset, e.g.
motor vehicles is at 20%. A full comprehensive list of assets and rates can be found on the SARS website. To make administration easier,
most businesses tend to set their depreciation rates according to the SARS wear and tear rates

Assets disposed of (sold or scrapped)

The disposal is recorded by writing back the cost and accumulated depreciation against the selling price and any difference will be a profit or
loss on disposal, shown in the income statement.

5.
Calculate the profit/(loss) on disposal as follows:

Book value = Cost – Accumulated depreciation

Profit/(loss) on disposal = Selling price – Book value

The selling price excludes VAT (if applicable). The asset must be depreciated up to the date of disposal before the profit or loss on the
disposal can be calculated.

Impairment
An asset is impaired if it loses greater value than normal depreciation over the same period. This is usually as a result of significant damage
to the asset, e.g. a vehicle in a car accident or equipment damaged through fire. Impaired assets must be written down to the impaired
valued in your accounting records.

The fixed assets register

Entries are recorded in the accounting system to bring the accounting records up to date and reflect the correct value of assets at the
balance sheet date. You are also required to keep a detailed record of every asset item in the form of a fixed assets register.

A fixed assets register is necessary because:

• this is a legal requirement for all companies and close corporations
• it is an essential tool to help you keep a track of all your assets (safeguard and control)

A fixed assets register must contain certain minimum information, but it is also useful to include other additional information that will help
you maintain control of your assets.
 6.
Minimum legal requirements Recommended

• Date of acquisition • Accumulated depreciation

• Cost • Depreciation method and rate
• Depreciation • Supplier name
• Date of revaluation • Description of the asset
• Re-valued amount • Revaluation policy
• Date of disposals • Identification of assets that are owned,
• Consideration received for sale or scrapping (proceeds) leased or financed by instalment sale
• Location
• Asset number

Your Admin office must update and maintain the fixed assets register regularly. Further, the fixed assets register must agree to the
accounting system records. There are a number of software packages which can be used to maintain your fixed assets register. However, in
practice using a spreadsheet would suffice as long as you ensure formulas are correct.

7.
Update fixed assets register when When

Purchase new assets, enter new asset details On purchase

Dispose of asset, enter details of disposal of asset On disposal

Calculate depreciation per asset Monthly

Check opening cost and accumulated depreciation balances Start of year

Agree balances (cost, accumulated depreciation, depreciation, etc.) in the fixed assets register Monthly
to accounting system
8. Control and safeguarding fixed assets

Physical control
You need to prevent theft, loss and damage of your assets. Start by implementing the following:
• wherever possible, clearly mark property that belongs to the store
• assign a unique asset number and tag every asset by affixing the unique number onto the asset
• do not allow assets to leave the premises without record and authorisation
• know the location of all your assets
• get your Admin office to perform random asset checks at least once a month by selecting a few assets and checking
that they are used as required and that the assets are in good working order
• wherever possible assets not in use should be locked away
• perform an asset check when you do a wall to wall stock count
• certain types of assets are more prone to theft than others. You must implement stricter security controls over these
assets
• other assets are unlikely to be stolen but will be more susceptible to damage from negligence and normal use.
For these assets you need to schedule regular services and maintenance checks
• ensure assets are fully insured for all risk at their replacement value
• use your security staff to help safeguard your fixed assets
• repair leaking pipes and electricity faults immediately as they can harm the functioning of your assets. For example,
power surges damage computer hard drives and equipment. Water damage can affect the temperature in fridges or
cause shortages
• stagger switching on and off major equipment like bakery ovens. This will prevent power surges and will also save
you electricity
• train staff to operate equipment correctly and with due care
• you inherently know what assets you own. Review your fixed assets register regularly to account for all your assets.
Physically inspect each asset item on your fixed assets register at least once a year during the year end stock count

Repairs and maintenance

• make sure scheduled maintenance is done on all fixed assets like equipment and motor vehicles. This will prevent
unexpected breakdowns from disrepair
• do not allow assets to fall into disrepair. This shortens the useful life of your assets and will cost you more in the long
 run when you have to replace these assets more frequently
• the cost of repairs and maintenance (including scheduled maintenance) is an expense and cannot be used to increase
the value of the asset
• replace assets at the end of their useful life to avoid spending more money on repairing assets that should be scrapped.
For example, delivery vehicles should be replaced every 4 years because after the fourth year the maintenance costs
drastically increase
• compare the repairs and maintenance costs of older assets to the cost of replacing the asset. You may find that it would
be more cost effective to replace than repair

Insurance
• insure all assets for all risk at full replacement value
• remember to advise your insurance company of new assets purchased and assets disposed of
• review your insurance policy regularly to ensure you have comprehensive and sufficient cover
• shop around for the best rates but do not compromise on the amount and extent of insurance cover you get
• put your premiums on debit order so that there are no problems with non-payment or late payments if you do
need to claim
• ensure you comply with fire and safety regulations

9. Budgeting for fixed assets

Budgeting for fixed assets or capital budgeting is necessary to ensure you have the finances available for investment in fixed assets. Capital
investment in your store is essential for growth. Unlike income and expense budgeting or cash flow forecasting, capital budgeting must look
beyond a year. Your store assets will on average last between 3 to 5 years. However, assets need to be replaced at various times, creating a
continuous process that spans 1 to 5 years.

There are 2 main considerations for capital budgeting:

• the assets that require replacement or new assets required to fuel growth (what are you going to spend the money on)
• the financing required for investment in assets (where are you going to get the money from)

How to prepare a capital budget

 10.
Step To do

1. Take your fixed assets register and identify replacement dates for each asset based on the expected
useful life

2. Assess what it is going to cost to replace each asset at that date. Remember to account for inflation

3. Consider your growth and strategic plans for the next few years and identify the assets you will need
to implement those plans

4. Establish a cost for these assets at the time you will need to make the investment. Again, remember
inflation

5. Major store refurbishments are required every few years. Establish when next you will need to
refurbish the store and determine how much this will cost you at that time

6. Now put the information together for the next 1 to 5 years in a format that you understand and find
easy to work with. At this stage all you are doing is identifying assets that must be purchased each
year and at what price

7. You can group major categories of assets like computer equipment or shop fittings if it comprises a
number of smaller items

8. Work out how you intend to finance the purchase of these assets each year. Start with the larger
investments like store refurbishments. The best source of finance is profits from your store from
previous years
Financing capital

9. The way you intend to finance your capital investments will affect other budgets, e.g. loan finance will
incur interest and require monthly loan repayments, etc. Incorporate your capital budget into other
budgets, e.g. income and expense budgets and cash flow forecasts
 expenditure
Capital expenditure can be financed from:
• existing profits
• borrowings
• combination of the above

When deciding on how to finance major capital expenditure you should consider both the profit and cash flow implications. Ask yourself the
following questions:
• what are the options available to me?
• how much will it cost me per annum and per month for each option?
• what are the cash flow requirements per annum and per month for each option?
• which option will have the least impact on cash flow?
• will the benefits generated from the asset exceed the costs incurred for each financing option?

11. Management responsibilities

Your responsibilities with regards to fixed assets can be summarised as follows:
• authorise all acquisitions and disposals of fixed assets
• ensure that the fixed assets register is maintained as required by law
• ensure that assets are shown at book value on your balance sheet
• set depreciation rates
• prepare the capital budget
• decide how assets will be financed
• decide when assets are impaired and by how much
• decide when assets have to be replaced
• ensure assets are maintained in good working condition
• implement controls to safeguard assets
• ensure that your assets are properly insured
• check that depreciation has been recorded in the accounting records
• ensure that the fixed assets register is updated regularly and agrees to the accounting records
 All other functions (e.g. actual updating of the fixed assets register) can be carried out by your Admin office.

15. Shareholder funds

1. Introduction
You need start up capital to start any business. For most stores, owners use a combination of their own funds and loans from financiers to
start up or buy out a store. The money borrowed from financiers will be paid off with interest over a period of time. The money invested by
owners or the shareholder’s funds ultimately represents the shareholder’s claim to the business, i.e. the owner’s equity on your balance
sheet.

2. Growing shareholder funds

As your store starts to earn profits (in the beginning new stores usually incur losses), you will draw some of the profits out of the business in
the form of dividends or bonuses (depending which is most tax efficient). Whatever you choose to leave in the business becomes
accumulated profits or reserves and will be included in shareholder funds on your balance sheet.

The best source of finance is profits from prior periods. Your aim is therefore to:
• fund growth for your business from accumulated profits, and
• grow shareholder funds as this represents the value of your business

Return on investment
Shareholders will expect to earn a reasonable return on the capital they invest in the business. You will obviously have the same expectation
even if you are the sole owner of your store. It is difficult to define what a reasonable return on an investment is, as each investor’s
expectations and risk tolerance is unique.

Generally, as an investor you should consider the following factors when deciding on a return you would like to earn:
• the business and financial risk associated with the investment, i.e. the risks involved in owning a store
• the return you could earn by investing the same capital in other investments with a similar risk
• the minimum return you could earn by investing the same capital in other investments that you consider low risk.
You should in the very least earn a return greater than what you would receive if you put the money in the bank
 The relationship between risk and returns is such that higher risk means higher returns. New stores will not earn the expected return in
earlier years. Higher returns earned in the future when the store enjoys sustainable success will make up for losses and reduced returns in
early years. The return on your investment can be calculated in a number of ways, depending on the profit and investment amount you use.
Two methods that are most appropriate to retail stores will be discussed.

3.
Calculate return on investment in assets as follows:

Return on investment in assets = Net profit ÷ Total assets × 100

This method measures how effectively your assets are

being utilised to earn profits.

4.
Calculate return on shareholder funds as follows:

Return on shareholder funds = Net profit ÷ Total equity

This method measures the return you earn on the

capital you invest in your business.

Shareholder loans
• you may also choose to loan money to the business
The business will have to repay these funds to you according to the terms you set. A loan from a shareholder is a liability and is
shown under liabilities in the balance sheet.
• charge interest on this loan as it is tax efficient for both you and the business
The business will be able to claim the interest for tax purposes and interest up to a certain amount is tax free for you.
• for external analysis purposes, the banks and other financiers will consider any shareholder loans to be part
of equity If the business has to close the shareholder loans will be the last creditor settled after all other external creditors
have been paid, thus reducing risk to outside creditors.
• for your analysis purposes you should treat shareholder loans as a liability
 Treat shareholder loans as a liability when evaluating performance for your business for your own purposes only and
when making strategic decisions regarding gearing (the extent you borrow funds for your business).

Internal and external financing

Internal financing is capital invested by shareholders as equity or as shareholder loans. From a shareholder’s perspective, the best
investment you can make is investing in your own store. External financing is loan capital borrowed at market related interest rates from
banks and similar types of financiers. In practice, some form of external financing is necessary as shareholders cannot always meet the
capital requirements of a business. External financing can be used effectively to fund major expansion plans that are expected to produce
sustainable benefits over the long term. This also helps to balance off shareholder expectations.

The interest and loan need only be serviced for a limited time period. Once the interest and loan are paid off, all benefits from the
expansion, will go directly to the shareholders. Balancing internal and external funding is known as gearing.

Tips for managing shareholder funds:

• fund growth from shareholder funds, this will also limit exposure to external debt
• pay off external financiers before you pay yourself
• charge interest on money you loan to the business
• invest in your own business. It is a safer investment as you have greater control over what happens to your money
and how much returns you can earn
• draw only what you need to from your business
• consider cash flow and the effect on operations when declaring a dividend (if a company, this is a legal requirement
to consider).
• declare dividends at the time of year when your cash reserve is at its peak. Look at prior year cash balance trends
(at least 3 years) to determine which time of the year will be most appropriate
• calculate your return on investment regularly to ensure you and/or your business partners are earning the returns you
targeted. This will also boost investor confidence

5. Declaring dividends
There are no hard and fast rules regarding when and how often you should declare a dividend or how much the dividend should amount
to. It is a decision that you need to arrive at after considering a number of factors such as:
 • available profits
• working capital requirements for normal store operations
• cash reserves available to cover the dividend and related taxes due
• shareholder expectations (if you are not the sole owner of your store)
• strategic growth plans for the store and the financing of those plans
• general economic conditions and the effect on your store for the foreseeable future.

As a broad guideline the maximum dividend you can declare for a period can be calculated using the formula below, but you must adjust
your answer for the factors described above.

6.
Calculate the maximum dividend you can declare for a period:

Maximum dividend = Net profit for the period + all non-cash expenses

Net profit represents the net profit after normal

tax. Non-cash expenses include depreciation and any provisions created or increased (e.g. provision for doubtful debts). The maximum
dividend calculated includes any taxes due on that dividend.

16. Taxation

1. Introduction
Taxation in South Africa has become very complicated, the detail of which is beyond the scope of this manual. This section will focus on
what you need to know as a store owner, with emphasis on your responsibilities as a business operating in South Africa. The best practise is
to obtain the services of a reputable and competent tax advisor.

More specifically, this section will cover:

• types of taxes
• your obligations as a taxpayer
 • managing your tax affairs

2. Types of taxes
If your store is operating as a close corporation or company it will have a separate legal identity from yourself as the owner. This means that
you will have to pay tax in your own capacity (as an individual) and in the business (the legal or juristic person). Any business or person
earning income in South Africa will be liable to pay tax in South Africa.

There are two avenues by which a taxpayer can be taxed in South Africa:
• direct taxes, such as Income tax, which is a tax on the income earned
• indirect taxes, such as Value-added tax (VAT), which is a tax on transactions

Only the taxes that are likely to affect a typical store will be discussed briefly.

Value added tax

This is the tax charged on the supply of goods and services in South Africa. It is the tax you will charge on most sales you make (called output
VAT), and the tax claimed on most purchases you incur (called input VAT).

3.
Type of supply VAT Input tax claim
rate

Standard rated (all supplies that are not zero rated or exempt) 14% Can be claimed

Zero rated (basic foods, etc.) 0% Can be claimed

Exempt (certain services not subject to VAT) Nil Cannot be claimed • VAT is collected
and the net (after
deducting Input tax
claims) is paid over to
SARS at every VAT period
 • it is not a tax to you or your business. You will add VAT to the selling price of the goods you sell and
claim the VAT that your suppliers charge you (where allowed)
• you are not allowed to claim certain input VAT credits, these include the VAT paid on:
- Motor cars
- Entertainment
- Sports and recreational type subscriptions
• if VAT input exceeds VAT output, SARS will refund you. This will usually happen when you first start trading
and you stock your store for the first time
• remember to claim the VAT input on any bad debts actually written off. Similarly, if those bad debts are subsequently
recovered, you must pay over the VAT output on the amount recovered

4.
Calculate VAT due to or from SARS at every VAT period as follows:

VAT payment/(refund) due = VAT output – VAT input

Income tax
Income tax can be broken down further.

5.
Type of tax What is it?

Normal tax Tax on normal income earned after deducting allowable expenses, e.g. wear and
tear

Dividends tax As from 1 April 2012, dividends tax replaced secondary tax on companies (STC).
Dividends tax is a tax on dividends which have accrued to the shareholder of a
business. This tax is borne by the shareholder.

Capital gains tax (CGT) Normal tax on capital profits earned

 Income tax rates
Different rates apply to the different types of entities (i.e. companies, close corporations, trusts, etc.) and individuals. For tax purposes a
close corporation is treated as a company. Any distribution of profits by a close corporation is treated as a dividend. If you trade as a sole
proprietor or partnership, there is no legal separation between you and your business. Tax rates applicable to individuals will apply to all
[Link] to the SARS website at [Link] for the latest tax rates applicable to individuals, companies and close corporations and
trusts. These rates can change annually.

Collection of income tax

6.
Income tax is collected as follows:

Companies and close corporations 2 compulsory and 1 optional provisional tax payments

Trusts 2 compulsory and 1 optional provisional tax payments

Directors/members of CCs 2 compulsory and 1 optional provisional tax payments

All other Individuals Employees’ tax system (PAYE)

 • provisional tax payments are based on estimated taxable income for the year and are paid over to SARS:
- six months before the financial year end of the business (half the estimated tax due for the year is paid)
- last day of the financial year (second half of the estimated tax due for the year is paid)
- six months after the financial year end of the business (optional, also called the “top-up” payment)
• employees’ tax (PAYE) is collected through deductions made by the employer from the employee’s salary
or wages at every pay period and paid over to SARS by the employer monthly

Skills development levy (SDL)

• you are required to register for SDL as long as you are an employer, even though you may be exempt
from paying the levies
• this levy is paid by all employers with an annual payroll exceeding a certain amount
• the levy is based on a percentage of the gross monthly payroll
• this levy is a charge to you as an employer and cannot be deducted from staff salaries. It will be reflected as an
expense item on your income statement
• it is collected together with employees’ tax and UIF by SARS monthly
• declarations and calculations are included on the monthly return submitted for PAYE purposes
• SARS collects this levy on behalf of SETA

Unemployment insurance fund contributions (UIF)

• UIF is also collected with PAYE and SDL on a monthly basis by SARS
• the contributions are split equally between the employer and employee
 • the rate is a fixed percentage of the gross salary of each employee up to a maximum amount
• declarations and calculations are included on the monthly return submitted for PAYE purposes
• SARS collects these contributions on behalf of the fund

Workmen’s compensation fund

• this is an annual contribution based on your annual payroll, number of employees and type of business you operate
• you will be required to complete a return, providing all relevant details on your payroll and your business
• the fund will calculate an amount which you must contribute based on the information you provide
• the contributions are paid annually, directly to the fund

Other municipal or regional council levies

Depending on the area in which you operate your business, there may be additional council levies that are specifically applicable to
businesses operating in that area. On registration of your business, check if there are any levies that you will be required to pay by
contacting your local council.

Find out:
• when these levies have to be paid
• how to calculate these levies
• the administration process involved (i.e. do you need to register, what forms do you have to complete?)

7. Your obligations as a taxpayer

VAT
 8.
To do When

Register for VAT with SARS as soon as you expect your annual turnover to exceed When you anticipate
the threshold set by SARS for a 12 month period exceeding the threshold

Complete and submit your VAT 201 return and payment as regularly as your VAT By the due date
period requires

Compare and reconcile turnover declared on your VAT 201 return to turnover in Every VAT period
your accounting records to ensure VAT is paid over correctly

Compare and reconcile the amount due to or from SARS as per your last VAT Every VAT period
return to the VAT control account in your accounting records
Step Action

Advise SARS of any changes to your business (such as directors, addresses, etc.) As needed
Determine the VAT charged (output tax)

Ensure you charge VAT correctly on all goods and services supplied Ongoing
Completing the VAT
1. If you are on the invoice basis, add up all the invoices (cash and credit sales, including the VAT) issued
201 return
by you – whether they have been paid yet or not
Ensure you only claim allowed input tax credits Ongoing
9.
2. If you are on the payments basis, add up all the actual payments (including the VAT) received by you

3. Enter Standard Rated Sales, including VAT in block 1

4. Multiply this amount by 14 and divide it by 114 (i.e. 14/114). This will give you the total VAT included
in your sales for the period

5. Write your answer in block 4

6. If you sell or trade-in any of your business assets, the amount including VAT must be filled in block 1A
Step Action

7. The same fraction above (14/114) must be used to work out to the amount of VAT that must be filled
in block 4A

8. Block 2 is for zero-rated items, for example bread, milk, etc. Your total sales for these supplies must be
filled in here. No output tax is calculated on zero rated supplies

9. IF THEN
Members withdraw goods from stock for: The
• own use market
• staff refreshments value
of the
goods
must be
totaled
and
reflected
in block
10

The tax
fraction Reference on Vat 201
must be can be found
applied at [Link]
to this 10.
amount
and the
VAT
included
in block
11

10 Record the total of the following in block 12 under “Other”:

• Goods returned to suppliers / wrong prices, etc. – this information will be derived from suppliers’
credit notes
• Cash settlement discounts granted by suppliers – this information will be derived from the cash
book / cheque stubs, when payments are made to suppliers
• Insurance claims – any insurance claims settled by an insurance company will be inclusive of VAT.
To do When

Register for tax, including provisional tax with SARS On registration of business

Complete first provisional tax return (IRP6), and submit with payment to 6 months before the year end
SARS

Complete second provisional tax return (IRP6), and submit with payment Last day of the year end
to SARS

Complete third provisional tax return (IRP6), and submit with payment if 6 months after the year end
required

Complete tax return for self and business and submit to SARS by the due By the due date indicated by SARS
date

Check tax assessment received from SARS to tax return submitted. Write When assessment received Normal tax, CGT
letter of objection for any errors or discrepancies and dividends tax

11.
Pay amount due on assessment (if any) By due date on assessment

Advise SARS of any changes to your business (such as directors, As needed

addresses, etc.)

Complete dividends tax return and make payment by the last working When a dividend is declared
day in the month after the dividend is declared.
To do When

Register for PAYE, SDL (if applicable) and UIF As soon as you employer
someone

Calculate and deduct tax correctly from employees At every pay period
PAYE, SDL and UIF
Complete EMP201 return and submit to SARS with payment every month By the 7th of the month 12.

Issue IRP5 and IT3 certificates to all employees Within 2 months of February

Reconcile amounts deducted from employees and amounts paid over to Within 2 months of February
SARS for PAYE only

Complete and submit EMP501 return Within 2 months of February

 Workmen’s compensation

13.
To do When

Register for Workmen’s compensation On registration of business

Complete annual return of information By due date on the return

Pay amount due as per assessment By due date on assessment

14. Managing your tax

affairs
Tips for managing your tax affairs
• always remember that you are ultimately responsible for your own tax affairs. It is up to you to make sure you:
- are registered appropriately
- pay all taxes due on time and in full
- submit all relevant information and returns to SARS as required
• you may outsource your tax administration to a tax practitioner, but it is your responsibility to ensure they are competent
and reputable and that your tax affairs are kept up to date
• when choosing a tax practitioner consider:
- getting recommendations from their existing clients
- their qualifications and experience
- their reputation
- their availability and capacity to deal with your tax affairs on time and when you need them to
- their tax planning expertise
• even if you do rely on a tax practitioner to administer your tax affairs, make sure you perform necessary checks to ensure
everything is being administered correctly, for example:
- check your tax assessment to your tax return
- check the VAT turnover reconciliation to your management accounts
• know when tax payments will be due and budget for tax payments accordingly. Provisional tax especially can be a large
amount so make sure you make provision in your cash flow
• make use of SARS e-Filing to submit returns and make payments. It is secure and convenient, allowing you more
flexibility and time to keep up to date on your tax matters
• using SARS e-Filing or debit order for VAT payments will give you a few days’ leeway on your cash flow. VAT returns
and payments submitted manually and by EFT payment are due by the 25th of the month. E-Filing and debit order
payments go through on the last working day of the month
• using SARS e-Filing or debit order for VAT payments will give you a few days’ leeway on your cash flow. VAT returns
and payments submitted manually and by EFT payment are due by the 25th of the month. E-Filing and debit order
payments go through on the last working day of the month
• when making bank payments always allow a day or two for the funds to clear, depending on which bank you bank with.
The payments must reach SARS on or before the due date or they will charge interest and penalties for late payment, even
though you made the payment out of your bank account on the last due date
 • you can request a tax clearance certificate from SARS if you want to confirm all your tax affairs are up to date
• be tax compliant. The cost of non-compliance in the form of interest and penalties charged by SARS will erode your
hard earned profits quickly

17. Other balance sheet accounts

1. Introduction
This section deals with other balance sheet accounts not covered specifically in previous sections. In order to successfully manage your
business and make sound business decisions you need accurate financial information. All balance sheet account balances must therefore be
properly understood and verified. The balance sheet summarises amounts into major categories of assets, liabilities and equity. It is
important that you have a good indication of what your assets and liabilities comprise of and that you make sure the balances are accurate.

Examples of some of the balance sheet items not yet covered include:
• loans payable, e.g. loans for financing assets
• provision for leave pay, a provision for the amount of leave staff have due to them in rand value
• accruals, goods and services already received but the invoice has not been received
• deposits held (excluding bank accounts), deposits paid for services such as electricity and water or
rental of property

When drawing up your accounts, the aim is to create the most realistic financial picture of your business at a point in time. This involves
identifying and recording all assets and liabilities. The items above become necessary to achieve accurate financial reporting.

2. Verifying balance sheet items

Each balance sheet item must be explained by some supporting documentation so that the balance can be verified. If your business is
operating as a close corporation or a company, your accounting officer or auditor respectively will also require you to provide supporting
information to verify all balance sheet amounts.

Depending on the type of balance, the supporting documentation can vary. Examples can be:
• loans payable to banks – statements from the bank
 • provision for leave pay – leave pay records from payroll
• accruals – copies of delivery notes or invoices received after the year end
• deposits – deposit confirmation from the holder (electricity or rental deposit)

Some balances are arrived at through management judgement, for example provision for bonuses. To verify the balance and provide an
audit trail for these types of balances, you can draw up a schedule detailing the thought process and information used to arrive at that
balance. This is also useful for your own purposes as you may not remember how you arrived at the amount for future reference. The
important thing is to maintain a proper paper trail and make sure you account for all assets and liabilities.

What you need to do:

• your Admin office must reconcile these balances at least monthly
• where judgemental amounts are arrived at, ensure that you are consistently applying the same calculations
and principles
• make sure that all assets and liabilities have been accounted for in full and in the right period
• compile information to verify balance sheet amounts on a monthly basis, so that there is a clear paper trail for
auditors/accounting officers at year end. This will also help to reduce your audit/accounting fees

18. The income statement

1. Introduction
What is it?
• the income statement is a summarised record of all income earned and expenses incurred for a specific period.
Think of it as a financial scorecard for your store for the period
• the net amounts of income and expenses result in the net profit or loss for that period
• the period can be anything from a month to a year
• the income and expenses are summarised into major types, e.g. interest income, profit on sale of assets, salaries
and wages
• sales or Revenue is always shown separately from other income items, as this is income derived from the main
source of business
• cost of sales is also shown separately from other expenses because it is the direct cost of goods sold
What is it used for?
The income statement is used to measure the performance of your store for a specific period.
From looking at your income statement you will know:
• if you are trading successfully (earning a profit)
• how much you are selling
• what does it cost you to sell (cost of sales)
• how much you spend on the day to day running of your store (overheads)
• how much of tax you pay (tax on profits)

You can further analyse your income statement to calculate:

• your overall GP%
• your expenses as a percentage of sales
• your net profit percentage

You can compare this information to prior periods, other stores and other similar businesses in your area and use the information to
improve your business operations. You can also use the income statement as a starting point to working out how much you should declare
as a dividend and how much should be retained in the business to grow your store. The income statement is also used to prepare budgets
and cash flow projections to better plan around high and low sales months.

What you need to do

Get your Admin office to prepare an income statement for:
• the week to date
• the month to date
• the year to date

Your aim is to:

• analyse the income statement by calculating all profitability and productivity ratios, setting targets and working towards achieving
those targets
• monitor your store’s performance regularly and compare to your budgets
• make the necessary changes and decisions to improve profitability
2. How to read the income statement
Income Statement for the period ended (period end date)
19. The balance sheet

1. Introduction
What is it?
• the balance sheet can be considered a financial snap shot of your business at a point in time
• it shows you the financial position of the business by summarising all your assets, liabilities and equity at a
specific date
• it further tells you all your major types of assets arranged in order of liquidity, from least liquid to most liquid,
i.e. how close each type of asset is to being converted to cash
• a balance sheet can be prepared at any date, but it is most useful to prepare a balance sheet at specific intervals,
e.g. weekly, monthly, half yearly or yearly
• the financial position of the business changes daily and the balance sheet could look very different from one
day to the next

What is it used for?

From looking at your balance sheet you will know:
• what your major assets and liabilities are
• how much current assets you have versus current liabilities
• how much cash you have compared to the amount of liabilities you have due
• the net worth of your business (equity)
• the strength of your business based on how much your assets exceed your liabilities by

You can further analyse your balance sheet by specifically looking at:
• liquidity
• gearing
• return to investors
• growth
 True growth is having a balance sheet that is stronger at the end of the year than it was in the beginning of the year. It is also useful to
compare the balance sheet to prior periods, other stores and other similar businesses in your area to benchmark your performance.

What you need to do

Unlike the income statement, the balance sheet is accumulative up to the balance sheet date. Your Admin office, therefore, need only
prepare one balance sheet at the reporting date, whenever that date may be (month end, year end, etc.).

Your aim is to:

• ensure that all assets and liabilities have been fully accounted for
• analyse the balance sheet by calculating all balance sheet related ratios
• use the information to identify problem areas and make decisions that will strengthen your balance sheet
from one year to the next

Analysing the balance sheet

You can use the balance sheet to determine liquidity and solvency of your business by calculating and evaluating the current and acid test
ratios.

2.
Calculate the current ratio as follows:

Current ratio = Current assets ÷ Current liabilities

In the retail environment the norm is 3:1. This means that for every R1 of current liabilities you have, you should have R3 in current
assets. This is merely a guideline and will vary from store to store depending on various factors. A norm of 2:1 is the general rule for all
businesses.

3.
Calculate the acid test ratio as follows:

Acid test ratio = (Current assets – Stock) ÷ Current liabilities

 This ratio tests true liquidity by removing stock from the picture as stock is the least liquid current asset. The norm should be 2:1, i.e. for
every R1 of current liabilities you must have at least R2 in cash and debtors. This is also a guideline only. The norm of 1:1 is the general rule
for all businesses. You can also test your debt exposure by calculating and evaluating the gearing ratios.

4.
Calculate the debt ratio as follows:

Debt ratio = Total assets ÷ Total liabilities

Total assets must at least cover total liabilities. If

liabilities exceed assets you are insolvent.

5.
Calculate the debt/equity ratio as follows:

Debt/equity ratio = Total liabilities ÷ Total equity

This ratio measures your exposure to external debt and

how much of the business is financed by the shareholders

6. How to read the balance sheet

Balance Sheet as at (period end date)
20. Budgets and goals

1. Introduction
Budgets are necessary to:
• drive performance
• plan activities
• implement your business plans
• set and achieve goals

Essentially budgeting is an attempt to convert your business plans and goals into Rands and Cents. It is therefore clear that the starting point
of the process is your plans for your business.

You need to have a clear idea of:

• what it is you want to accomplish
• the time frame within which you want to accomplish it

2. Setting goals for your store

There are probably a number of goals you have for your business, but realistically, you cannot focus on all of them at the same time.
• at the start of each year you should decide what goals are most important for that year. Try to focus on those that
will result in the most financial savings to begin with
• your goals may be tied into specific problems your store is facing, e.g. too high stock holding, therefore your goal for
the forthcoming year is to reduce stock holding
• goals could also stem from targets you wish to achieve, e.g. grow sales by 20% and market share by 10% year on year
• goals may be strategic, e.g. reduce credit sales to 10% of total sales
• there are three levels of goals:
- basic results expected (predicting the likely outcome)
- indicators of performance (the standard)
 - standards of performance (setting a stretch, although not unrealistic, target to drive performance)
• Goals should be SMART goals:
- specific – provide enough detail
- measureable – you must be able to gauge your progress
- actionable – take immediate steps towards reaching that goal
- realistic – it must be attainable or it will be demotivating
- time frame – allow a specific time within which to achieve that goal

Be careful not to be overly optimistic when creating budgets and targets unless you intend for these targets to create a culture of
performance in your store. Always bear in mind the most realistic target which, at the very least, you should reach comfortably.
How to begin

1. Identify key performance indicators. E.g. GP% by department, NP%

3.

2. Measure current performance as a starting point. Use current information available

3. Identify areas that are underperforming or need improvement, i.e. performing below the standard. E.g.
shrinkage too high, average GP% not optimum

4. Set varying degrees of targets for each indicator, i.e. minimum, standard and stretch target. E.g.
minimum average GP% = 17%, standard = 20% and stretch target = 22%

5. Establish a plan of action to achieve the targets (input from staff can be useful here)

6. Set individual department goals and feed these into your goals at store level. E.g. set sales and GP%
targets per department to achieve magical mix at store level

7. Communicate targets and plans to staff and ensure they understand their role

8. Implement plan of action established. Involve staff so that they feel part of the process and understand
how they affect the overall performance of the store

9. Regularly measure and review results. Amend implementation plans if they do not appear to be
working. E.g. target average GP% = 20% vs. Actual GP% of 18%

10. Update targets for changing conditions, i.e. if the stretch target has been reached there may be
opportunity to achieve more by setting a new stretch target. E.g. stretch target average GP% = 22%,
now set new target at 23%

11. Set up an appropriate rewards system to reward and motivate your staff for contributing to achieving
goals

12. Discuss goals and progress towards goals at staff meetings

4. Preparing budgets
• budgets are the more traditional form of setting financial targets
They usually take the form of income and expense budgeting, but also include other aspects of the business
such as capital expenditure budgeting, cash flow forecasting, etc. Capital expenditure budgeting and cash flow
forecasting will be covered under Fixed Assets and Cash and Bank respectively.
• you should prepare, at the very least, an income and expense budget for your store each year
This will drive performance, improve profitability and make sure that your efforts are focused and committed to
the overall objectives of your business.
• budgeting is not an administrative function
You can, and should, rely on your Admin Manager to assist with drawing up budgets for your store. However,
as owner of your store your valuable input is necessary for the process to be useful. There are a number of high
level decisions and judgements that must go into preparing a meaningful budget. For example, how much stock to
hold, how much growth in sales can be expected, etc. These decisions and judgements can only come from you.
• you can use previous year’s budgets or actual results as a starting point to preparing a new budget or you
can start afresh If you use prior budgets as a starting point, make sure you do not carry forward any errors from the
previous attempt. Also give consideration to major changes in conditions. Starting a budget from new can be more
time consuming and requires more decision making, but can also prove to be more accurate.
• always maintain a questioning mindset when preparing budgets
Question the need for every expense item and the amount spent, ask where can you improve, etc. This will ensure
your results are most accurate.
• budgeting is a pointless exercise if you do not compare your actual results to your budgets regularly
You need to assess how your store is performing and whether or not you are on track to achieving your goals. If you
are not on track, you need to know sooner rather than later. Waiting until the end of the year to determine whether
you have met your goals is too late, as you could have made changes months earlier that could have produced the
desired results.
 5.
Practical tips

1. Decide what format will be most useful to you (i.e. monthly, bi-monthly, quarterly, etc.). This will
depend on when actual information will be available to review against the budget and how often this
can be done

2. Before you take any action, make sure you fully understand the reasons behind variations between
actual and budget amounts, otherwise you risk reacting incorrectly

3. If, after investigation, you find that your budget was off the mark, adjust your budget going forward

4. Make notes of your assumptions and basis of the decisions you make when preparing budgets. This will
be useful for future reference when looking at variances and can also be used to prepare budgets in
subsequent periods

5. Prepare a short, medium and long term budget to help you in managing your store going forward. It is
always useful to plan ahead. However, remember that the further into the future you predict, the less
reliable the results are going to be

6. Use all reliable information at your disposal to prepare budgets, e.g. quotes, previous trends, etc.

7. Take into consideration factors such as seasonal fluctuations, inflation, economic conditions, capacity
limitations and other non-financial factors that will affect your store
21. Financial reporting
8. Bring together all your store goals and targets for key performance indicators into your budgets 1. Introduction
Financial reporting is
essential for the
 successful running of your business. There are essentially 2 types of financial reporting, based on the purpose of the reporting and the user
of the information.

2.
Type To Used for

Internal reporting Store management For management and operational decision making
purposes

External Banks, SARS, Investors, etc. For investment and similar purposes
reporting
A balance sheet and
income statement is
used for both internal and external reporting. Other than this, there are a number of differences between the two types of reporting.

3. Internal reporting
Internal reporting is also known as management reporting. All the reporting discussed thus far in the various sections is part of internal
reporting. Management reporting does not take on any specific format nor is it limited to any specific information that must be included.
You must decide what information you need to be able to successfully run your store on a day to day basis. You may find that you will look at
different types of information at different times, depending on your focus. All forms of information a store manager will need has been
discussed already. You need to get your Admin Manager to consolidate all this information into an easy to understand and concise format
for you to evaluate and review.

4.
Prepare When Include

Weekly pack Every Monday for the previous week Month to date figures

Monthly pack First week of the month for the previous month Year to date figures

Yearly pack First month of the new year for the previous year Month by month analysis
 Important to note about management accounts
• these packs should include at least all the relevant information covered in each section, as well as budgets and
actual versus budget analysis
• your management packs should also include any other information you deem important
• the accuracy and usefulness of your management accounts depends on the level of expertise of the person preparing
them and the strength of financial controls in your store
• banks will request your last annual financial statements when deciding on whether or not to advance funds to you.
They are also likely to request the latest management accounts because financial statements are prepared annually but
management accounts are prepared more frequently
• providing up to date management accounts that are well put together in support of a request for financing gives the
bank an indication of the management and financial control of the business and will help you get financing approved

5. External reporting
External reporting is normally done annually for the full financial year of the business. It is also known as the annual financial statements of
the business.

Annual financial statements take on a more formal and predefined format in the form of the following statements:
• balance sheet
• income statement
• cash flow statement
 • notes to the financial statements

Unlike management accounts, annual financial statements are prepared according to strict reporting guidelines determined by accounting
experts. This is done so that banks and external investors can understand and compare your business’ financial statements against other
businesses. These statements are usually prepared by your accountant because of the specialised knowledge of the accounting standards
that is required, but is based on the financial information you supply to them.

Legal requirements
It is a legal requirement that financial statements must be prepared at least annually.

6.
Type of entity Requirements Issue

Close corporations Review by accounting officer Accounting officer’s

report

Companies Audited Auditor’s report

Sole proprietors or partnerships Prepared in accordance with reporting No report required

guidelines
Save on accounting
officer or auditor fees
The best way to save
on fees paid to an accounting officer or audit fees is to reduce the amount of time they spend on your accounts.
This can be achieved by:
• implementing strong controls and regularly monitoring and reviewing these controls to make sure they work effectively
throughout the year
• get your Admin office to provide all the necessary information and support the accounting officer or auditor requires
• respond to queries from the reviewer immediately
• make sure you have a proper paper trail in support of all transactions and balances in your accounts
• provide all the necessary supporting schedules in support of balance sheet items to the reviewer
 • provide them with the latest management accounts, as they will help them understand your business and provides evidence
of your financial controls
• keep your accounting records up to date

How are financial statements used?

• SARS will use the financial statements to verify information you have previously submitted to them
(e.g. on VAT201 returns), to make sure you are meeting all of your tax obligations.
• banks and other potential investors will analyse your financial statements to gauge the financial health of your business.
This will include calculating and evaluating the results of financial ratios, comparing your financial position to similar
businesses or previous years, and assessing your performance
• users will also pay close attention to your cash flow statement which looks at how you utilised your cash over the year.
Unlike a cash flow forecast, which attempts to predict future cash flow, the cash flow statement looks back at how the
cash was actually used
• some key factors that indicate retailer decline and can be detected from financial statements include:
- decline in cash reserves year on year
- decline in liquidity ratios year on year
- accumulated losses
- increase in borrowing costs
- deterioration in debt/equity ratio
- decline in GP% and NP%
- negative growth in sales
- unexplained increase in debtors
- financing working capital from long term borrowings

7. How to detect retailer decline

Your management accounts, if prepared properly, will provide early warning signs of your store heading for a decline. There are other signs
that are not specifically finance related but will also indicate retailer decline.

The Three Stages of "Retailers in Decline"

Retailers: For
each of these:
"vital signs" in
your business, STAGE ONE STAGE TWO STAGE THREE
which stage
8.
are you
today?

Cash Going Going Gone!

Employees Questioning Even the best people are not Brain Drain (Those who are
management getting bonuses still here cannot get jobs
elsewhere)

Advertising Cut back to save Totally vendor-driven Highly promotional to raise

expenses cash

Appearance of Unkept. Outdated. Public areas Years behind. Chronic

Stores Maintenance cut shopworn and neglected neglect; lack of concern
back to save
expenses

Merchandising High propotion of Merchandising to raise cash. Purely "scramble mode"

out-of-season No customer focus
merchandise

Inventory Out of balance. Missing basic stock: styles, In the grip of the "Death
Overbought sizes. Sprial" Limited to whichever
"Death Sprial" begins vendors will still ship

Vendor Losing cash Losing "most desirable" Totally dependent on

Relationships discounts vendors keeping "second tier". marginal vendors.
Factors/flooring increase Factors/flooring in control
influence

Financial Operating losses Operating losses. High debt-to- Operating losses. High-to-
worth ratio worth ratio. Cash crisis
22. Archiving and filing

1. Your Admin office

• your Admin office should take primary responsibility for filing and archiving all financial records
• by law you are required to keep all your finance related records (original hardcopies and electronic information)
for a certain amount of time, usually extending from 3 years
• establish a filing and archiving system that will store all your records safely and in a logical manner, such that the
records can be retrieved easily
• as a general rule, the current year’s financial records should be more easily accessible and prior year records can
be archived
• only archive records for previous financial years once the annual financial statements have been signed off and the
final tax assessment has been received and settled
• be particularly careful with electronic files. These must be backed up and stored safely, preferably offsite.
• wherever you store your records, consider fire and water damage
• remember to maintain the paper trail of transactions

Guideline for the retention of documents and records (recommended by SARS)

Record Retention
period
2.
Company statutory records (Certificate of Incorporation, Memorandum and Articles, etc.) Indefinitely

Close corporation statutory records (CK1, CK2, etc.) Indefinitely

Annual financial statements, ledgers and supporting accounting records and information 15 years
(including fixed assets register)

Tax returns and assessments 5 years

Staff personnel records 7 years

Salary and wage records 7 years

Paid cheques and bills of exchange 6 years

Invoices (sales and purchases) 5 years

Bank statements and vouchers 5 years

Stock sheets 5 years

Year-end working papers 5 years

VAT records 5 years

The above is not a

Other vouchers and general correspondence 5 years

Records on microfilm Indefinitely

 comprehensive list. The retention period starts on the last day of the financial year.

23. Financial toolkit

1. Financial calculations and ratios

This section provides a quick reference of all financial calculations, ratios and formulas mentioned in this manual.
Profitability and performance ratios

Gross profit % Gross profit ÷ sales × 100 Can be calculated

on average for
the store or for 2.
each
department, sub-
department or
product.
Aim: optimise
gross profit

Mark-up % Gross profit ÷ cost of sales × 100 The % by which

goods are
marked up to
selling
price. Mark-up %
will always be
higher than GP%

Net profit % Net profit ÷ sales × 100 The % of sales

earned as profits
after
overheads. Aim:
optimise net
profit

Break-even sales Total fixed expenses ÷ GP% Measures how

much sales you
must make to
cover your
overheads. Aim:
Keep fixed
expenses to a
minimum

Target sales (Total expenses + Target net profit) ÷ GP% Measures how
much sales you
Term Definition

Actual gross profit Gross profit after accounting for shrinkage and cost of features.

24. Glossary
Assets Items of value controlled by the business and used to directly or indirectly
earn income and can comprise of fixed and current assets. Examples: land
and buildings, trademarks, debtors.
Back to Menu Print Section 1.14

Bad debts Debtors that have defaulted for which all attempts at recovering the debt 1.15 SIGMA User Training Manuals
have failed and no further attempts will be made to recover the amount due.  System Overview

 Label Printing
Cash flow The movement of cash into and out of the business.
 Management Reports
Cost of features The cost of promoting stock items.  POS Module (dStore)

 Product Maintenance
Cost of sales The actual direct cost of goods sold calculated as opening stock + purchases
– closing stock.  Promotions

 Recipes
Cost price The price at which goods are purchased from the supplier or the price at
 Stock Takes
which it costs the business to make an item.
(See SIGMA User Training Manuals in
Resource tab)
Creditors Amounts owed by the business to suppliers for goods or services purchased
on credit. Back to Menu Print Section 1.15

1.16 dStore Training

Current assets Assets that are fairly liquid, change on a regular basis and can be turned into
cash in the short term. Examples: stock, debtors, cash. Please click here to view the related
dStore Training Material.

Current liabilities Amounts owed to third parties that change on a regular basis and are due in Back to Menu Print Section 1.16
the short term. Examples: trade creditors, amounts due to SARS.

Debtors Amounts owed to the business by people who purchased goods on credit.

Depreciation The write down of the cost of tangible assets to account for the loss of value
over time and use.