SME Bookkeeping 101

2 years ago

Bookkeeping is the process of recording and classifying your business financial transactions. Bookkeeping is for all businesses, small and big and helps business owners know where revenue is coming from, where the money is being spent and when taxes are payable. This is the foundation of Accounting and helps a business owner realize if a business is profitable or not.

Even though bookkeeping may seem complicated and time demanding for the business owner, here is why it is important to keep proper books of account:

  1. Bookkeeping helps you ascertain taxes payable. Keeping a proper record of your revenue and expenses will ensure that profit (or loss) is accurately computed and the resulting income tax. If your business is registered for Vat, a proper record of output, input, and withheld Vat will help ascertain the Vat payable (or claimable) every month. Therefore bookkeeping will keep your business in KRA’s good books.
  2. Bookkeeping helps in external financing applications. SMEs are in constant search for financing to grow their business operations. Banks and other lenders always ask for financial statements before advancing credit to small businesses. Bookkeeping helps in providing important financial statements such as the Income Statement for external financiers to ascertain the ability of the business to repay a loan.
  3. Enhances business planning. As a business owner, planning starts with an analysis of where the business is at a given point. It is impossible to plan if you do know how much you sell every week, expenses incurred or even if you are making a profit or not.
  4. Business performance evaluation. It is important for a business owner to periodically evaluate how the business is doing. This involves reviewing the key performance indicators by comparing actual business performance with the expected/budgeted performance. For this to be done books of accounts must be up to date.
  5. Bookkeeping helps identify and correct financial mistakes. By keeping a close eye on the business transactions, a business owner can identify and avoid serious financial mistakes such as paying invoices more than once. Bookkeeping, therefore, enhances cost control for the business.

Should a business owner wish to do their own bookkeeping here are a few guiding steps;

Step 1: Separate personal and business financial transactions

Step 2: Adopt double-entry accounting – Track where your money comes from and where it goes

Step 3: Adopt the Accrual Basis of Accounting – Recognize revenue and expenses when they are incurred

Step 4: Choose a bookkeeping system – Manual or Accounting Software

Step 5: Categorize your transactions – Helps analyze revenues and expenses

Step 5: Organize and keep documents – Useful for supporting your expenses especially during Audit

Step 6: Be consistent - We recommend that business owners set aside time, at least once a month to record all the business transactions.

At Tsavo Management Consultants Limited, we are a dedicated team of professional accountants providing Bookkeeping, Accounting, Payroll, Tax, and Business Advisory Services to SMEs in the country. We also build capacity among Business Owners and Leaders through our diverse training programs.

If you are interested in outsourcing your bookkeeping and accounting roles or need training to manage your books properly, get in touch with us on 0700 053980 or email info@tsavoconsultants.com.