How do you know how well or poorly your business is doing? what products to reduce and which ones to increase? It would all have to begin with getting a good view of your accounts. Any business that wants to have a fair fighting chance at growth stage has to consider accounting as the key.
What this means is that every business must have transparent records on all transactions made by the said company. This offers the business a lifeline. You get visibility on how much you are making, how much you are spending, what you owe, your tax obligations and so on. At the same time, you will need this accounting information whenever you are looking to access credit or create partnerships that accelerate your business growth and opportunities.
When people think about accounting for their business, they think about ridiculous costs involved in getting an accountant or a platform created, accounting doesn’t have to break the bank. Speaking of banks, you do need a bank account for your company as a start. The proceeds from all transactions you carry out must be banked. Also, it might be useful to have a Paybill for your services and products instead of receiving money on your normal mpesa line, that makes it easier to account for your income as well as the spend.
We share a brief breakdown below on what you need to do to create a simple accounting system for your company.
- Keep a record of all the cash coming in (Inflows).
Every single amount you have or are expecting from work done should be included in this list. This list then becomes your Asset List. Your asset list contains:
- Cash at hand
- Cash expected from work done
- Company property- hardware and software
2. Record all expenses you have (Outflows)
How much money are you spending every single month? Put it down. This will make up your Liabilities List. In this list, you should have:
- Loan repayments
- Tax obligations
- Salaries and wages
- Rent and bills
- Transportation expenses
3. Create a simple payroll
When creating your payroll, you have to factor in the amount of money you pay your staff, both full-time and short contract staff. Make sure to include your own remuneration in the payroll so that you aren’t tempted to dip into your business’ accounts for personal use. At the same time, for full-time employees, be sure to factor in their government obligations- tax, NHIF, NSSF and so on. This comes in handy when you’re creating your list of liabilities.
Creating a payroll may be a bit difficult but we are living in a digital world where these systems can be automated for you. Find a payroll service online or better yet, an app. It may cost you a small sum but it frees up your time so you can better care for your clients.
4. Create a balance sheet
Once you’re done with step 1 to 3, it’s time to now take a critical look at what your company’s financial state. Your balance sheet is created from taking out the total liabilities from the total assets you have.
The result is your Profit/Loss Statement.
Every month, you should produce the two documents- the balance sheet and the profit/loss statement.
You can create all these on an automated Excel sheet that you then update at a frequency that works well enough for you. Whenever you make a profit, be sure to put away a percentage of the amount into a Stanbic Pure Save account for emergencies or even to build up into assets.
Go forth and create long-lasting businesses.