I am afraid that I am back this week for a 2nd assault on your inbox because I am increasingly worried. In amongst the cold figures and the emotion and the misinformation and the good intentions, I need to run you through the experiences that more than 1,250 business owners will have in the next 12 months.

These are well-trained professionals ñ all members of the Pharmaceutical Society of South Africa. Their 5 years of training in the complex field of drugs and chemistry did not include a single semester [term] of business courses [of any nature]. This means that, like most of us, they are technically proficient small

business disasters.

Everybody seems to be looking at the global numbers and statistics, and not at the individual reality that faces these people as they are squeezed in a vice that we are all ignoring. [A further survey of the emails claiming that they deserve this - shows that almost all of these emails seem to come from employees ñ rather than small business owners. Unless you run your own business, you have no concept of the implications.]

Our government has implemented a set of regulations that has dramatically limited a pharmacists business freedom, as well as their profitability. The legislation is well intentioned but poorly designed. Government is telling them to produce business figures, but these are all small business owners ñ and they [like most of us] simply do not keep the kinds of figures that government wants

before they will reconsider their legislation. [Government seems to think that SMMEs are simply small versions of JSE listed firms ñ with all their resources.] Chances are that the paperwork will not find its way to government, because it doesnít exist.

Lets look at the process for a while. The story I am about to share is based on 12 years of intense experience in helping business owners through  this process, as well as my own experience in closing a firm in 1992, so am all too familiar with this path.

The average pharmacist: ï employs about 7 persons ñ and pharmacies are amongst the most BEE compliant small businesses in SA, ï runs an overdraft [secured by a home and life assurance policies, and  a personal surety],

ï is VAT registered [secured by a personal surety in favour of SARS],

ï owns a home [bonded] and securing the overdraft,

ï is renting business premises,

ï is married, with 2 kids at school,

ï and probably has not yet finished paying back a study loan,

The bank overdraft is immediately at risk, because banks lend money for profit and on the basis that it will be repaid. Right now there is a mess of dispute about that, so the banks will immediately tighten up their credit arrangements with pharmacies. This means that some will recall the overdraft immediately; some will ask for a reduction in the limit; and a few will wait. No pharmacist will be in a position to comply with either a recall or a reduction. They simply will not able to borrow any money elsewhere because the word ëpharmacistí now means ëtemporarily employedí. Think about it. Would YOU lend money to a pharmacist right now? Why should a bank do so?

The month ends loom and even though sales have been strong, the month end bills seem to take more cash than there is in the bank account. This is because profitability is non-existent. This means that the first month end hurts, while the

second is terrifying. Our hero isnít getting paid. Nor are his/her personal bills.

This means that it is time to retrench a few staff members, who also have a whole range of personal issues and need the job. They need full retrenchment packages, and very specific procedures need to be followed to comply with the Labour Relations Act. There isnít much cash to fund the retrenchment packages, and no cash to buy professional procedural help, and our hero does what all of us little folk do ñ his/her best under these trying circumstances.

But this isnít good enough, because the staff have more rights under the current labour legislation than the entrepreneur [who, now that I think about it, has no rights other than the right to pursue a profit]. This means that a CCMA hearing is probably on the cards ñ and since many pharmacists trade as sole proprietors ñ in turn this means that the family home can be auctioned to pay for the procedural penalties, and reward the staff for being fired.

In the meantime, since the bank is squeezing, chances are strong that our hero isnít going to have enough cash to meet VAT and PAYE and SDL and UIF and RSC/JSB payments ñ which result in an immediate bunch of non tax deductible fines. Suppliers are also screaming daily at our hero, and eventually they stop supplying ñ other than for cash. This means that the stock level drops, and expensive drugs are only ordered when requested. [This is already happening, with one private hospital pharmacy no longer stocking the very expensive drugs that transplant patients need, preferring to send them to the local government hospital.]

Our hero has been losing money processing card payments, and tries to charge an additional 5% for card payments ñ to prevent a direct loss on each sale. An irate client contacts the card merchant bank ñ who has a strict rule about the

merchant not EVER doing that ñ and they withdraw his/her credit card facility ñ blacklisting the business with all the other merchant banks, thus ensuring that our hero loses a critical transaction system which hurts sales of all other [profitable] products.

The banks start to pull back vigorously when they see that all pharmacies are truly struggling, and they start to recall overdrafts en masse. Our hero ñ whose overdraft is secured by the family home ñ is forced to sell in order to prevent the

home being attached. Banks are notoriously non-negotiable under these circumstances. This sale invokes Capital Gains Tax and transfer duties, and our hero looks for rental accommodation.

While all of this is happening, our hero is in a long, dark tunnel with no sign of light.  Each little legislative glimmer is seized on and held tightly like a child's security blanket, but ripped away each time government defends their position in court, making a few more attorneys rich in the process. I spent 2 years in such a tunnel, and in my case the government wasnít fighting me ñ so these folk face an awfully bleak future. Their entire reason for existence ñ their 17 years of schooling ñ is being attacked. That raises a bunch of questions in the middle of the night.

This special edition of Petes Weekly is brought to you courtesy of Business Warriors - a community of small business owners who want to help you solve your challenges by offering great products, great services, and exceptional value. Please go here to search the database of Warriors before you decide to support a corporate who won't take your business personally, or seriously. They are not responsible for the content, however, and do not necessarily share my opinions. That is all my responsibility.

The rent goes unpaid, more staff get fired, and the business eventually closes ñ way too late to save anything. The landlord exercises a tacit hypothec  ñ their common law right to seize everything on the premises in payment of outstanding rentals. In terms of the surety our hero signed in better times, the landlord sues for payment of the full outstanding rental ñ in this case 2 years of escalating monthly rentals. The summons just joins the stack of other summonses because our hero cannot find an attorney to help. Not unsurprisingly, any attorney defending such a position would like to get payment in advance ñ but there are no funds left. Our professional hero is living from hand to mouth.

Over the next 6-12 months our hero, jobless, wanders helplessly like economic jetsam between CCMA hearings, surety court appearances, and section 61 appearances [where our hero has to appear to show that s/he doesnít have enough money to eat, let alone pay judgments]. In between the pain, s/he looks for a job, but faces garnishee orders [where the courts demand that the employer deduct direct from salaries in order to meet judgments] on any salary earned.

About a year down the track SARS finally gets into gear and sends our hero a letter assuring him/her that itís now time to pay the outstanding VAT and other

stuff, plus penalties, plus interest ñ and that letter has the same effect as a judgment and does not have to be heard in court. Our hero, on registering for VAT, signed a personal surety in favour of SARS. That has now come home to roost.

At this point not even bankruptcy can help! Personal bankruptcy can wipe out every debt ñ except a debt owed to SARS which will live with him/her until s/he dies. That debt ensures that s/he cannot get tax clearance - which means that no matter what business s/he might ever start again, it will not be able to sell to government or any parastatal or any large corporate. That lack of tax clearance means that our hero will not able to formally emigrate because s/he will not be able to send any money overseas to start a new life elsewhere.

Our hero seriously contemplates suicide during this time, but that isnít a way out either, because the life assurance proceeds from his/her death will not  flow to his/her family, but will be used to settle all the death taxes and business debts ñ probably leaving his/her estate bankrupt. In this situation the family gets a mere R50,000!

And the next person that tells me that pharmacists deserve this might as well ask me to take them off this list, because nobody deserves this. Our country, despite government protesting that small business is our future, is hostile to small business owners. Thatís because government ñ leaders and employees ñ does not understand the risks we run. Maybe if they stopped posturing and we starting gathering ñ we could arrive at an understanding of each others challenges.

A simple example: There doesnít seem to be a single government initiative to help start up and operate small service businesses. Every government program is focused on manufacturing. Yet setting up and operating a service business is simple, inexpensive and risk-free ñ and can be started tomorrow. And it is much

more scaleable than manufacturing ñ without much investment. Every small business owner knows that it is much more difficult to start manufacturing. Who wins in this debacle? Certainly the government wins directly ñ because their taxes are guaranteed by everything our hero owns. Politically they look hot, because they are seen to be helping the indigent by reducing the prices of drugs.

But if we look at the longer term, a different picture emerges. In this single case, 8 folk are out of jobs [including our hero], and they each support another 4 ñ and over a 6 month period that means 32 people without income and support. Seven immediately try to claim UIF and start to drain the system. The pharmacist and a few staff remove their kids from private schools and place them into government schools. All of them stop paying their medical aid and start to use government hospitals. All of them stop distributing money into their local economies. All of them stop paying taxes. Indirectly, the cost to government is much, much greater. It simply does not make sense, does it?

1,250 pharmacies @

32 people each = 40,000 people without income or support, relying on government handouts.

Is this truly what government wanted?

What will happen to the income generators ñ those folk with qualifications that they cannot use in SA any longer? These are the folk with the judgments. Will they stay to endure at least 5 years of financial hell, or will they move elsewhere

to follow their vocation where the judgments will not follow them? Ooh, difficult decisionÖ

This is not about the retail pharmacist, it is about small business in this country. If we do not make a stand now and get some balance back, then we may as well all give up and go home. Oops, canít do that, because this is home! After I went down this path 12 years ago, I devoted my life to trying to stop this pain. I cannot stop the government doing stupid things ñ yet. But I can show you how to prevent this in your own life using a Trust and a few simple changes to the way you structure your business and its finances.

Thatís what the Business Warriors web site does ñ encapsulates everything I know about removing the risks from your business because none of us can guarantee what is going to happen in the future. And the more Warriors there are, the more weight we have as a single voice.

September 29th, 2004

- Umhlanga Rocks