Toolkit on how to Start and Improve your Business

Improve your Accounting System

As a business person you should be able to check if your accounting system is good enough to record your daily transactions. If you do not know how to make such records in a simple and easy manner it will be very difficult for you to identify your income and expenses and eventually you will not know whether you have made a profit or a loss with your business activities.

The absence of recording will also cause some problems in handling customer needs, particularly in providing sales on credit. The lack of recording also makes it very difficult for the tax offices to levy reasonable taxes that are commensurate with the business activities. As a result, you may feel that taxes that are being levied on the basis of estimation are too heavy to bear. Therefore, to improve the accounting and statistics of your business check the following:

Do you have proper cashbook? Example:

Do you have proper records of maintenance services? Example:

Do you use proper records of sales on credit? Example:

Do you use proper records of raw material inventory? Example:

Evaluate sales

At the start of your business, you were expected to make projections of sales at least for one year. At the end of the first year of operation you are expected to evaluate actual sales against the projection.

After evaluation of sales you may get one of the following three outcomes:

1.  Value of actual sales greater than the projected sales;

2.  Value of actual sales less than the projected sales;

3.  Values of actual sales and the projected sales equal.

If the result is No.1, it can be considered that your business has been doing well. In this case, try to build upon your strengths that helped you perform well. But be sure that you have taken all the necessary precautions while preparing the projection and that you did not underestimate it because of limitations in planning.

If the result is No. 2, look for the reasons that hindered you from performing well and try to prepare a strategy to recover from your difficulties during the next business cycle. Some of the reasons for decreasing sales could be:

• Poor product quality;

• high sales price;

• market saturation with similar products;

• poor business location;

• poor customer handling.

If the result is No. 3, it can show that you have made a good estimation of sales before you started the business. In reality, however, this may not be the case.

Follow-up on cost structure

Identify and evaluate what cost components have been involved in your enterprise during the previous year of operation. Example:

• Production costs such as personnel cost, raw material cost, electricity, transport, rent, water, costs of tools and equipment;

• Administrative costs such as stationery, telephone, rent, depreciation, electricity, insurance and equipment;

• Selling expenses such as publicity, promotions and commissions;

• Financial costs such as interest payments;

• Taxation such as business profit tax.

Be sure that you have properly classified the different cost items into fixed and variable costs. Identify which of the above cost components have shown unexpected increment than envisaged and find  means to decrease them. Many people are unaware of costs and therefore waste scarce resources. Making yourself cost conscious is always a good point, particularly when you have the potential to reduce costs (variable and fixed costs) without neglecting quality. Simple ways to reduce costs are:

• Turn off a tap that is running;

• Handle your tools and equipment with care; clean your tools perfectly;

• Switch off any unnecessary lights;

• Switch off machines, if they are not used for hours;

• Work faster, but still be precise;

• Avoid unnecessary wastage of raw materials, finance and productive time;

• Try to reduce unit cost of items through mass production;

• Reduce variable costs;

• Find cheaper suppliers, but at the same or better quality;

• Find other similar businesses and make orders in large quantities;

• Share expenses with others;

• Optimise the stock level: The higher the stock, the higher the expense for storage; and: The lower the minimum stock the higher the risk of running out of stock;

• Improve the workplace layout: Good workshop layout means that the product travels and is handled as little as possible between processes from the beginning to the end of its manufacture.

Data management

To collect data in an organised way, you should have a data management system that suits your needs and capacity. If you have the capacity to use computers, life would be easier for you. But, this requires investment and the necessary knowledge to use computers. However, data can also be managed manually as it is the case for the majority of micro and small enterprises.  

The importance of collecting data that reflects your business to achieve competitive advantage is now a widely recognised fact.  You should collect data on each of the above-mentioned items to evaluate your past performance and adjust yourself in the market and remain competitive. You herewith keep yourself informed about the internal and external environment you are doing business in.

After collecting data, you should further organise and process  this into valuable information that can be used in decision making. In business information should give warning signals when something starts going wrong, or even improves. Therefore, after the first run of your business, usually at the end of the year, you should collect data on:

• How much you produced and how many products you sold;

• How much raw material you consumed;

• How many finished goods you are left with;

• Your total operational/production cost;

• Your total administrative cost, including wedges and salaries;

• Your profit (before and after deduction of tax);

• How many clients you served;

• Who your customers were (low, middle or high income level/rural or urban population).

To get data easily on the above items you should have a properly designed record keeping system.

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