The Accountant Nov-Dec 2016

Business Practice and Development
the physical stock and the stock/inventory
records and take corrective action before it
is too late. In addition you will be able to
ensure that items with an expiry date are
not damaged in stock, It is also possible to
note slow moving stock, waste, pilferage or
theft of stock. For contractors who have
work in progress, ensure that your clients
are billed regularly or at intervals and
review such billing at least on a quarterly
basis.
Scrutinize your customers’ credit
worthiness before selling to them on
credit. Also invoice your customers as
soon as you deliver goods or services. You
can also negotiate with your clients about
issuing an interim invoice for a percentage
of the whole invoice amount. Any bad
debts should be referred to debt collection
agents. For cash flow management
especially when dealing with difficult
clients, reduce the credit period e.g.
Within 15 days instead of 30 days credit
period.
At the end of every month balance the
cash book with all payments and receipts.
Obtain monthly bank statements and
prepare the monthly bank reconciliations.
Any discrepancies must be investigated
and resolved. Also ensure that the bank
reconciliations are not prepared and
reviewed by the same person to minimize
the risk of fraud.
As for suppliers ensure you obtain
suppliers statements at least on a quarterly
basis and reconcile with the accounting
records. This will enable you to confirm that
all the payments made to your suppliers
have been recorded in their statements.
Any discrepancy must be investigated and
resolved.
VAT computation; ensure that the
output and input VAT for the current
month are computed accordingly and
remitted to the Kenya Revenue Authority
by 20th of the following month. As for
your non-current assets, have an asset
count done at least quarterly to ensure
that your SME still has the assets that are
shown in your accounting records. This
will prevent theft of your assets especially
high value movable assets such as laptops,
projectors, cameras among others.
Review your monthly Withholding
Tax, PAYE, NSSF, NHIF obligations
and ensure that you are up-to-date
with filing and remitting to the Kenya
Revenue Authority the necessary statutory
deductions. This is one way of attracting
business with Government and other likeminded
institutions. You are aware that
your SME should have a Tax Compliance
Certificate for you to be pre-qualified as
a supplier to the Government and other
businesses. Tax Compliance Certificate is
issued only when an individual/business
has met all its tax obligations. In addition,
the risks of having your business wound
up or pay hefty penalties, interests and
fines for non-compliance with tax laws is
unnecessary.
On a monthly basis prepare profit or
loss statement, balance sheet and a cash
flow statement. These statements can easily
be produced by an accountant to help you
identify any problems for corrective action.
The profit or loss statement will help you
to see the performance of the business
each month and this means there will be
no shockers. The cash flow will help you
track the movement of cash.
Strategic Practices
At the beginning of your financial year set
targets to be achieved. The targets should
be specific, measurable, achievable, realistic
and should have timelines. The set targets
should be adequately funded through the
budget and they must be achieving the
overall objectives of the SME.
Financial statement analysis should
be done at least annually to show the
performance against targets and the
industry targets. The Accountant will
help you perform all the ratios that you
need to grow your business. Review actual
outcomes against set targets on a monthly
basis and address the causes of any
unfavorable variances. It is important that
you and everyone in your SME understand
sales/production break-even. This is the
knowledge of the items/level of services
that need to be delivered to the customer
before the SME can make a profit. This
is in itself a measure of performance of
the SME. If it cannot break-even then
someone has to meet the deficit. The sooner
the situation is rectified the better. Create
a strategic plan to guide your SME for a
five to ten year period. The strategic plan
should be reviewed and updated annually.
The review should also capture the lessons
learnt in the current year.
Ensure that your employees have
contracts and they are insured against
injuries while on duty. For temporary
employees you can hire them on renewable
contracts. Communicate clearly what
you expect from employees and more
importantly the employees should have
job descriptions. It is also important to
include clauses of confidentiality in the
employment contract. In addition, where
there are commissions paid to employees,
the SME should consider paying the
commissions after receipt of the payment
from the customer. This will ensure that
the cash flow is not affected through
payments of commissions on un-receipted
sales income. This will also ensure that
the sales teams are interested in collecting
debts that they have created. On an annual
basis review contracts with the suppliers
and identify any room for negotiating for
longer credit periods, increased discounts,
adjustments on the quantity of order.
If you are in your own premises ensure
that all your land rates are up-to-date
annually. If you are operating from leased
or rented premises ensure that the lease
obligations are being met. For equipment
lease understand your obligations as
regards to the equipment lease and any
ownership/payout arrangement after the
expiry of the lease.
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