May Telkom burn!

[Dave A]

Need to get more specific.

You can't add goodwill to a balance sheet without a sale of the business from one owner to another.

[jinxster]

Need to get more specific.

You can't add goodwill to a balance sheet without a sale of the business from one owner to another.

You shouldn't add goodwill to a balance sheet without a planning sale of the business.

In practice though it is done many times when a company hits a cash slump then later on you battle and battle to get rid of it until you sell the company then the existing goodwill gets credited and your capital gets debited so the company owes the seller less money. All he can do is hope the new owner pays him the same goodwill so that he breaks even, otherwise he is no better off selling the company, hence if put him in the wrong vicious circle.

Its basically a way to keep a company in operation over the long term in spite of immediate cash flow problems.

My advice, if you want a goodwill asset, it is a good indicator if your business is growing or not, but then add in either a general reserve or an asset replacement reserve to aid in reducing future expenses, coz when you sell.. the debits and credits cancel each other out and you capital figure you were always looking at doesnt change drastically.

If you write software your whole business is creating industry norm techniques to give you the edge.

Eg: you need an accounting package... so I write you one.. it takes me 3 years @ R 0 because I did it myself in my spare time. The goodwill asset cost me nothing, but if someone else wants it, he must either pay someone who can do the job for 3 years (eg 36 months @ R15000 = R 480 000) (or hire 3 people over 1 year) so that means if I sell my company, I can get R450 000 and the other oke gets a bargain.

If I want cash now though, I tell the bank I have this intangible asset of R450 000 and they basically give me 75% of it as a funding scheme so I can sell it to customers in the mean time for a monthly license which is much less than a customer paying me R450 000. But if I dont need the cash now, I dont bother with saying it is worth anything unless I want to sell the business.

That said, software isn't truely speaking goodwill though, but is the same concept. Goodwill is usually calculated from past financials to see how easy the profits came.

[jinxster]

Jinxster
I checked the Afrihost invoice and their VAT number is registered.
So I am happy that I have a valid Tax invoice.

One thing they have to guard against is jumping to the wrong conclusions without all the facts. Afrihost have said they get their Internet from IS so they must get a better deal than you hence can sell it cheaper. Anyway they seem quite open and are quite active on MY Broadband, If you search there you will get a lot more info.

Good on them then!

IS dont change their prices between customers (cept on tenders), customers buy bigger packages then aggregate services. Same as a retailer, you buy a million coke cans you will pay less per coke and hence you can be cheaper. But 6 months ago cheaper prices werent anywhere near R29/gb.

It could also be Afrihost thought why not take a hit now (ie sell at a loss) then when the prices come down they will have lots of customers. The only downside to that is, in ISP people like to keep their emails which locks them in to a provider, if they dont have that problem they move... but then its easy come... easy go. Someone else may say R25 then you lose all your good clients.

TBH I dont compete in the ISP price wars, Im not even registered on ISPA. I sell software which uses bandwidth and those clients I supply bandwidth to make life easier. I posted my selling price at the same time as posting my suppliers name, and you can go and buy from that supplier for less than me. Does that not say something? Im not out to steal your ISP customers, Im here to make specialise products work better. If you asked to VPN 4 sites on Afrihost, would they be able to help you at no additional cost? Telkom charge R700 odd pm for up to 20, what if you more than 20.. oops. IS charge er.. well significantly more. (ps: that 4 site VPN must include no configuration or hardware at the clients premises)

However end of the day, your just covering your own needs. If you compare simple services for what you need, its the same thing end of the day. Afrihost is fine, just still looks shady... I am curious to know which VAT number did they use?

[SilverNodashi]

Their VAT number is 4950211534.

And they are a big company, don't let their website or prices fool you into thinking they're small. They also clearly state on their website why their prices are so low, found here: http://www.afrihost.com/adsl-faqs.php

Just a quick secret: I've been paying IS ADSL R50/GB for the past 3years, and we don't have large volume discount. Someone else I know has been paying R40/GB. Yet, the average market price was R70, so everyone made a good profit from it. Is it theft? No, the supplier(s) advertised their prices, and the customers accepted it. But with the arrival of NeoTel, Seacom, "open ISP licences", etc the demand for cheaper prices got a bit out of hand. Afrihost decided to cut their own throat, so to speak, and offer this services at, or below, their cost price. They didn't make any profit from it, but they gained a very large amount of clients. Other's like Axxess, Screamer, etc soon joined in, cause they probably lost clients & market share

I can tell you, from experience, that Afrihost makes enough money on their other products & services to afford this kind of move. Other companies, on the other hand, may not do as good as they do with this kind of offering.



P.S. Generally self promoting (to the extend of saying "I offer product ABC @ R100, sign up here") is generally seen as spam on forums

[Dave A]

If you write software your whole business is creating industry norm techniques to give you the edge.

Eg: you need an accounting package... so I write you one.. it takes me 3 years @ R 0 because I did it myself in my spare time. The goodwill asset cost me nothing, but if someone else wants it, he must either pay someone who can do the job for 3 years (eg 36 months @ R15000 = R 480 000) (or hire 3 people over 1 year) so that means if I sell my company, I can get R450 000 and the other oke gets a bargain.

If I want cash now though, I tell the bank I have this intangible asset of R450 000 and they basically give me 75% of it as a funding scheme so I can sell it to customers in the mean time for a monthly license which is much less than a customer paying me R450 000.

OK. I follow what you're getting at now.

This should be done via a valuation process. You'll revalue your assets and post against a revaluation reserve. This way it would comply with GAAP and not mislead as to where the value came from.

[jinxster]

Yes, thats right.

With that VAT number, BREVIS COMPUTER SERVICES SA PTY LTD should appear on the invoice then, or rather BREVIS COMPUTER SERVICES SA PTY LTD t/a AFRIHOST INTERNET SERVICES. Does it?

You cant use a trading name on its own becuase 2 people in different locations can use same name since that doesnt get verified on the registration documents. Unless the trading name is also uniquely registered for VAT, but that number isnt for that.

If you use that definition of spam, then im afriad using a username the same as your company domain name apart from the .com is pretty much spamming too.

The size of the company in no way changes any laws. The size of the company affects their capacity to repay debt.

You like em, stick with em. Power to you!

PS, I didnt tell you where to signup or the concerns name.

[SilverNodashi]

wow, you really have a gripe with them, don't you? Why don't you phone their legal department and get this matter sorted? No one on this forum can vouch for them, or any other company for that matter.

[Dave A]

With that VAT number, BREVIS COMPUTER SERVICES SA PTY LTD should appear on the invoice then, or rather BREVIS COMPUTER SERVICES SA PTY LTD t/a AFRIHOST INTERNET SERVICES. Does it?

You cant use a trading name on its own becuase 2 people in different locations can use same name since that doesnt get verified on the registration documents. Unless the trading name is also uniquely registered for VAT, but that number isnt for that.

You don't need a seperate number. For example there's this VAT registration with SARS - Alcocks Pest Control (Pty) Ltd t/a Alcocks Entomological Services. We don't have to put the "Alcocks Pest Control Pty Ltd" on the tax invoice. I'm also a director of another company where there's a list of trading names under one Pty Ltd company on the VAT registration (arising from company buyouts). As long as SARS is aware of the trading names, that's all you have to put on the tax invoice.

But this is like trying to pin the mafia on a tax technicality when the real problem is they're in the business of murder, conspiracy and extortion. Jinxster has raised a far more curious issue.

After I made my post about revaluation, I put some thought into how this applies in the Afrihost situation. And of course it doesn't apply.

What follows is a bit speculative based on snippets of info rather than a complete picture - so please take it with a pinch of salt.

First, the Seacom cable doesn't seem to have had a dramatic effect on bulk broadband pricing yet. Or put another way, the benefits have been slower coming than anticipated by many. This could have materially affected Afrihost's original plan and calculations.

If what Jinxster suggests is true, ascribing a potential purchase price is a dangerous game when there is no guarantee that there will be a buyer of the business when time comes. Given that clients aren't locked in on contract, and given the monopolistic environment of the ISP business, it's just as likely the business will be left to crash and burn as there might be a buyout. By padding the goodwill account in anticipation of a sale, Afrihost could be engaged in Enron style accounting and the chickens could come home to roost pretty much anytime.

Fortunately (and unlike Enron) this shouldn't pose much risk to the consumer who, at worst, might find themselves looking for a new ISP on short notice. So enjoy the cheap bandwidth while it lasts.

It's quite a gamble and Afrihost stands to either win big or lose big. Being fair to Afrihost, they haven't exactly kept the fact that it's a gamble a secret. In fact I suspect much of their support comes from respect for their ballsy approach.

I could see why other ISP resellers would have lost their sense of humour over the situation for the moment though.

[IanF]

It's quite a gamble and Afrihost stands to either win big or lose big. Being fair to Afrihost, they haven't exactly kept the fact that it's a gamble a secret. In fact I suspect much of their support comes from respect for their ballsy approach.

I could see why other ISP resellers would have lost their sense of humour over the situation for the moment though.

Here is a post where Afrihost says they are making a profit Afrihost however says that it is working out well for them.

Payne explained that they decided to sell bandwidth below cost in the hope that word of mouth would result in significant growth, which in turn will mean bulk discounts from their upstream provider.

“We are pleased to report that this strategy has paid off and we are now making a sustainable margin at R29 per GB and this will become our new standard pricing into the future,� says Payne. "The R29 price point is not an unrealistic expectation and is here to stay. The R14.50 special that we are running is exactly that, a special, and we will only offer this when we are able to. Afrihost has been in business for close to 10 years and is here to stay.�

Link.
What I see is happening is that bandwidth has become a high volume commodity with profits now made on volume which then cuts out the smaller guys. They are now upset. This happens in all industries and either you change the way you do business by adapting or finding a new niche.

[jinxster]

Dave A, your VAT registration includes both sides of t/a, thats how SARS knows you the same entity.

This one doesnt. This is just about the same as if I put Pick n Pay's VAT number on my own invoice.

The funny thing is... if Afrihost are making such a big profit, why are they more expensive than the average prices on hosting packages, an industry they have been in for longer than bandwidth?

If they can sell bandwidth @ less than 3c a MB, why charge 5c per MB for traffic on your shared hosting packages?

Second, it isnt impossible to make prices less.. in fact, a 50GB service @ R10 is quite easily feasible...

How do you know your ISP isnt secretly stealing your bandwidth?

I mean you look at logs, you see.. I used 4GB this month... but maybe you only used 3.5 and the .5 was to get you closer to you cap...

Advertise a 10GB service.. give 8GB and *bs* the customer into thinking he used 10.... not saying they do that, but could be done.

In fact there are many many ways to get prices down to even R2 /GB but alas... these are rather shady ways...

Why doesnt Afrihost make a reseller program rather (and not only on hosting)? If it is so clean cut, it would be beneficial to all. That would do the same thing "boost volume".. my thoughts... they would rather not deal with too many IT peeps who actually use 100% of their bandwidth...

[IanF]

Jinxster,
As Softdux says we can't answer your questions about Afrihost so you should contact them directly.