Nuggets for SME Business Owners and Entrepreneurs.

Nuggets for SME Business Owners and Entrepreneurs.

Many entrepreneurs and start-up business owners start out without vital knowledge of best accounting practices and a basic knowledge of measuring profitability. Failure rates of start-up businesses in Nigeria are increasing. In an article published on Forbes many years back revealed that 80% of entrepreneurs starting a business fail within the first 18 months. The barriers to entry for many industries have drastically reduced which has led to increase in businesses as well as failure rates. This short lifespan could be attributed – but not limited – the aforementioned reasons.

To help start-up business owners sail through the turbulent waters, here are three timeless lessons to remember.

Keep a Separate Bank Account for Your business

As a start-up, maintaining a separate bank account for your business enhances your protection and that of your business. A separate business bank account will provide asset protection as well as corporate veil protection, as long as you are paying your business expenses from your business bank account and your personal expenses from your personal bank account.

Many business owners have had serious struggles especially at the end of the business year, when attempting to separate their transactions.

At a glance you easily determine your business cashflow. Accurate knowledge of your bank balance at every point in time helps your decision-making process.

A dedicated bank account for your business is necessary for proper auditing – internal or external. Audits are instrumental for valuations, acquisitions, mergers and …

Keeping these two accounts separately will also protect you from any disagreements with the tax authorities; you can easily estimate your taxes.

In Africa, especially Nigeria, many SME’s start out not expecting to scale. Although this is not a very good trait, business owners, no matter the small outfit they run must cultivate the discipline needed in separating their personal operations from their business operations. It is pertinent to note that every money deposited and withdrawn (transferred) must be properly labelled to avoid confusion.

One of the ways to ensure financial accuracy is to carry on a daily bank statements review. Most importantly for an E-commerce business, a daily review of your bank statements enables you to confirm your sales, expenses paid for and any bank charges.

This process enables you to see your business as it really is, detect bank errors and track your cashflow.

Track your sales with invoice.

Invoice dispensing is not a luxury. An easy way to ensure the accuracy of your revenue is to issue an invoice to your customer either manually or electronically. Having an appropriate invoicing process is great for record keeping, helps to clarify what your clients are paying for and protrude professionalism.

Electronic means of invoicing is preferable because it is faster and cuts the waiting time in half especially when goods bought are many, however, if the technology cannot be afforded yet, it is advised to make do with manual invoicing methods.

Invoices dispensed can be compared with statements from the bank, leading to a double-checking system.

Invoices also help in settling customer disputes, as the customer confirms the items entered and the amount before leaving the business premises.

Always measure profitability

One of the crucial ways of creating an effective business practice and finance management is accurately measuring the business’ profitability at every level of expansion. It is important as a business owner to keep a close eye on the bottom line; regularly calculate and determine if the business is generating enough returns on the capital employed or otherwise.

There are numerous metrics used by businesses, accountants and financial experts to measure profitability in diverse circumstances; net income is the most common of these metrics. Net income reflects the amount of revenue that remains as profit after accounting for all expenses and taxes.

TOTAL REVENUE – TOTAL EXPENSES – TAXES = NET INCOME

Consistent checking of a business’ profitability is tantamount to consistent checking the health of an individual. Risks are quickly recognised and mitigated; patterns are observed leading to better decision making; growth stage of the business is easily recognisable.

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