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In any business, good financial controls are key for ensuring
continued success. Now is the time, at the start of a new year, to
focus and sort out your finances. One of the most important aspects of
being successful is your cash flow - most businesses that fail, do so
due to lack of financial controls. Even more importantly, as South
Africa starts its climb out of the recession, it is essential to be in
the best position to take advantage of improving economic conditions.
Practicing good accounting and using the right technology systems is
the first step to starting 2010, the year of recovery and opportunities!
So says Hilary Levenstein, CEO of EconoAccounting, manufacturer and
seller of the EconoAccounting software package. She adds, "Making use
of user friendly and financial technology is essential for small &
medium businesses who wish to be on top of their game. Using a fairly
simple, quick and effective system will help your bank balance and will
benefit as you save yourself hours of accounting hassles. It's when
smaller and medium companies are faced with complicated or long and
drawn out accounting practices that they set themselves up for
failure. Essentially, does the entrepreneur have the time and
expertise to spend on long accounting sessions? No".
With the right system in place, your accounts will be kept up to
date, so that your accountant need only skim through them before
signing them off - this will result in significant savings of
accounting fees. Likewise, when the bank requires monthly financials,
you can generate the necessary information with a click of your mouse.
In addition you know on a daily basis what's in the bank, how much
you're owed, what you owe suppliers and more.
There are many ways in which small and medium businesses can work
more efficiently and effectively when it comes to the financial side of
the business. For example:
- Even when times are tough, keep up-to-date with your
financials; that way, when things improve and business starts booming,
you won't have to spend valuable time and money catching up on your
accounting - you can concentrate on making money instead
- Make sure that you always have the right information
at your fingertips, including how much money you have in the bank, how
much you owe your suppliers and how much your customers or clients owe
you
- Collect payments due timeously
- Do your key financial tasks daily, such as:
o Make out invoices when you make a sale and print statements
o Check and reconcile your bank account
o Make payments - write out cheques or do electronic fund transfers in good time to save on interest payments
o Check on the status of payments due to you
o If you're in the business of selling ‘time', keep a
daily record of how much time you spend on each client so that you can
reconcile your time for accounting purposes immediately when needed
o If you sell products, keep your stock sheets current at all times
- Make day-to-day business decisions as they come up -
putting off a decision can lead to costs being incurred, such as
interest due or interest lost
- Buy and implement an accounting package that will help
you to do all of these financial tasks quickly and easily. It is
important to find the right package to suit your business's particular
needs, such as invoicing, financial statements, etc
EconoAccounting is one of them. Levenstein says, "EconoAccounting is
a package that enables you to import your bank statement and instantly
reconcile your bank account, allocate expenses, calculate VAT, help
allocate invoice payments, and produce all your financial statements.
For great convenience, you can print your financials every day if you
wish, which enables you to remain on top of things at all times. The
system allows you to check how much profit you are making, in a mere
five minutes per day. The biggest benefit is that, working in this
manner, you will be in control of your business and on top of your
accounting."
EconoAccounting is a simple easy to use accounting package that
saves time by automating the tedious accounting tasks while removing
the complexities of accounting for small business.
For more information, contact EconoAccounting on 0861-113-094 or at
This email address is being protected from spam bots, you need Javascript enabled to view it
or visit www.econoaccounting.co.za |
A company making a profit but failing miserably
Recently
we gave a talk about accounting for small business.
We created a hypothetical income statement and balance sheet. Please download the sample income statement and balance sheet we used for our talk. It could be very informative for you and your business.
The income statement had about 20
accounts and a turnover of over R3 million which is not a bad turnover.
The expenses added up to R2.3 million. The net profit
was R717 000. By all means a great achievement. A business that made a
good profit. When we asked the group if they would like to get involved
in this business, most said "most definitely, when can we start?" They were attracted by
the turnover, the possibility of a big salary, teamwork, and of course a big profit.
However, looking closer at the income statement - The salaries
amounted to R1.2 Million made up of 2 accounts. A rather high value for a small business with a turnover of R3 Million.
Ask yourself - Do the directors really want to grow
the business or are they only taking as much as they can out of the business?
Now
the twist. We turned over the page to see their balance
sheet. This was a story in itself. They had about R 800 000 in
the bank and about R526 000 owing from debtors - (that meant they had
access to R1,3
million). They had a loan of over R1.3 million.They had creditors of
R545 000. They owed more money than what they were receiving.
This is unfortunately more of a reality then a sample. If the current
loan was called in, they would not be able to repay it and still
survive. A suggestion would be to turn the current liablity into a
non-current liability, eg. a bond and of course to manage their
finances better.
It
is important to analyse your income statement and balance sheet and
make informed decisions based on accurate accounts. In fact the single
biggest reason why
small businesses fail is because of lack of accounts and financial
guidance. You can
save your business by getting your accounts up to date. You can make
your business grow immensely by having accurate accounts and making the
correct decisions.
How Citadel sees investing
Warren Buffet, conceivably one of the greatest value investors
ever, describes in the preface of the book ‘The Intelligent Investor’
the key to successful investing as follows:
“To invest successfully over a lifetime does not require a
stratospheric IQ, unusual business insights, or inside information.
What’s needed is a sound intellectual framework for making decisions
and the ability to keep emotions from corroding that framework” .
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Report back from small business week
By Keith Levenstein
I was recently invited to talk about financial knowledge for small
businesses at the Small Business Week in Cape Town. The Cape Town Small
Business Week was sponsored by the city, the dti, and various other
NGOs. It aims to assist small businesses by providing them with
knowledge and other assistance. The government has a strategy to help
create 100 000 viable small businesses every year, and this was one of
the initiatives. There were also talks about tax, marketing, BEE, all
heavily subsidized. There were about 50 delegates at each of my sessions.
The small business week is moving to Johannesburg this week - 7th to
9th September at Gallagher Estate. Once again attendees will be
subsidized. The small business week is also part of Eskom’s small
business initiative and the franchise exhibition. It may be worthwhile
visiting either the exhibition or attending the conference. For more
details please visit www.smallbusinessweek.co.za. |
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Why Businesses Fail
By Keith Levenstein
24th July 2006
“A recent report indicated that nine out of ten entrepreneurs fail in
the first five years. It was Robert Kiyosaki, CEO of Rich Dad who said
that of the 10% which succeed, 90% fail within the second five years.
In ten years, 99% are gone.
In South Africa statistics show that the main reason for business failure is the lack of financial knowledge by the founder:
· 34% of businesses fail because of poor management of financial activities;
· 16% because of lack of management competency;
· 12% because of inflation and economic conditions;
· 12% because of poor books and records;
· 11% because of poor sales and marketing
· 9% because of staffing problems;
· 6% because of union problems.
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Why it is important to do accounts
Accounts are needed for:
1) Accurate Invoicing:
A business relies on making sales, invoicing its customers and getting
paid. Too many small businesses produce their invoices late, or they
are inaccurate. In many instances they use packages like Excel or WORD
to generate a nice looking invoice, full of errors. We have even seen
companies who are unable to reprint the invoice because the Excel
spreadsheet was overwritten or they did not save it. What a waste of
effort in making a sale and not getting paid for it.
2) Timely payment by debtors (customers).
Once invoiced a business expects to be paid. If the business gives
terms, or even if it officially does not have debtors, it may allow a
customer to pay tomorrow or next week. At that point the business has
to ensure that it collects the outstanding money due. This can get
quite complicated when the business has many customers, or writes out
many invoices. A proper check of what is outstanding is essential. At
the same time the business should issue a statement of what is
outstanding, and how old that particular invoice is.
Moreover when the payment is finally received it must be marked off
against the customer’s account. Here lies a crucial point: When the
customer gives payment in the form of a cheque or even an Internet
transfer, the company must confirm that the money is actually in their
bank account. In particular a cheque means nothing until it has been
cleared in the bank account. The business should mark the account as
having been paid, but also have a way of knowing if the cheque has not
been cleared for payment. This applies to debit orders where the
customer may reverse his payment.
Accurate payment of accounts
As important as it is to be paid, payment of suppliers is crucial to
the business’ success. Supplies who do not receive payment will stop
supplying: telephones will be cut off, electricity disconnected, raw
material deliveries stopped.
3) Proper Budgeting
A business needs to have some idea of where it is going, financially, to be able to do elementary budgeting and planning.
4) Banking
The bank account is the single most important financial document. It
records all money in the bank account. “Cashflow is king”. It is
therefore essential for a business to check their bank account on a
regular basis:
To ensure that it does not exceed this overdraft limit.
To ensure that it can pay it expenses as per its budget.
To check that the customer who had paid them has actually put the money
into the bank account, or not reversed the payment. This goes back to
the point, timely payment by debtors
Without accounts – income statement/balance sheet businesses cannot get overdrafts/loans, even open accounts.
They cannot analyze their business to detect problems.
VAT is difficult to calculate, or inaccurate. Many businesses fail to
include bank charges, and other fees appearing in the bank statement if
they don’t receive an invoice.
It should be clear that doing accounts is an integral part of running a
business, not a task to be put off until tomorrow. It will also start
becoming clear that doing accounts is not as difficult a task as many
businesses think. |
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A completely new approach to accounting with EconoAccounting
Issued by: Econoserv
"The Most Innovative Approach to Accounting Software since the PC was
Invented" is the slogan on the box in which the software is packaged.
Keith Levenstein of Econoserv SA and the author/developer of
EconoAccounting, explains: "Most accounting packages allow a user to
create invoices, capture cheques, handle debtors by capturing deposits,
capturing journals and reconciling the bank account."
Most users of accounting packages are successful at creating invoices,
handling (to an extent) payments and sending out statements. Where many
businesses fail is they do not get around to capturing all their
financial transactions - all the cheques, deposits, bank charges, debit
orders, stop orders, Internet transfers and payments which appear on
the bank statement.
Even if they do succeed, the task of reconciling a bank statement can
be daunting, and to find that last R2.20 is so frustrating that many
people give up on it and let their accountants balance their bank
account at the end of each financial year. With regard to the bank
account, all accounting packages allow the users to capture cheques,
deposits and journals like service fees, bank duty, debit orders,
magtape transactions, etc. Once the data is captured, if there are no
typing errors, in theory, the accounting system will balance with the
actual bank account. In practice, reconciling a bank account is a
difficult task, one that requires an experienced person to find the one
transaction not captured, or captured incorrectly.
"Until now," says Levenstein. "EconoAccounting takes a completely
different approach. EconoAccounting recognises how important the bank
statement is. It recognises that the bank statement contains the vast
majority of financial transactions in a business. Every invoice
payment, every expenditure - cheque, debit order, Internet transfer
appears in the bank statement, (or in a petty cash account).
Effectively if we could duplicate the bank statement, we would have
almost all the transactions necessary to do complete financial accounts:
* Reconcile the bank account
* Produce VAT returns
* Produce an accurate income statement
* Produce an accurate balance sheet
"The EconoAccounting approach is to allow fast easy capture of
transactions to exactly emulate the bank account. For example, the
system will calculate running balances to easily check and reconcile
the bank account. However, EconoAccounting has three built-in features
that make it unique and probably 100 times faster to use than any other
system on the market."
1) Importation of bank account from the Internet
a. With the advent of Internet banking, it is now possible to download
(in electronic format), your bank statement. EconoAccounting allows the
importation of this downloaded statement. Each statement contains
multiple transactions, and EconoAccounting imports each transaction,
capturing the date, the description or narrative supplied by the bank
and the amount. This is done at the rate of 10 transactions per second.
Each transaction is entered/captured correctly, with no errors.
b. The system has built-in "intelligence" to ensure that once a
transaction has been imported, it will not be duplicated the next time
the statement is downloaded, and imported. Effectively the system
ensures that only transactions not yet captured will be imported, even
if they appear on the downloaded bank statement.
2) Automatic reconciliation of the bank account
a. As the data is being imported, the system calculates the running
balance on the bank account. Since all transactions are imported
directly from the downloaded bank statement, the bank account will
always HAVE to balance, ie, it is automatically reconciled. Every
single transaction has been captured, and therefore the account will
always balance.
3) Automatic, and instant allocation of expenses
a. EconoAccounting uses the narrative or description supplied on the
actual bank statement. Often users of other systems will use
abbreviations to try to speed up the data capture process. In the case
of EconoAccounting, because the entire, correct narrative is used, we
realised that the same description appears over and over again on
different bank statements. For example, a description "Internet Payment
to TELKOM" is likely to repeat itself every month. Similarly
descriptions like "Service Fees", "Bank Duty", "Insurance", "Lease" are
likely to re-appear at least every month. EconoAccounting therefore can
be trained to recognise key words or phrases and allocate those
transactions to their relevant expense accounts. When each account in
the chart of accounts is created, there is space to indicate if input
VAT is "usually paid" on this account. If VAT is usually paid, eg on a
lease, then the system will automatically deduct the VAT amount at the
same time that it does the auto allocation.
"We have discovered that up to 90% of all credit transactions can be
'auto-allocated', leaving us only to manually allocate 10% of credit
transactions, and also handle invoice payments in the same way.
Effectively this means that a bank statement containing 200
transactions (four to five printed pages) can be imported, reconciled,
and up to 180 of those transactions can be automatically allocated in
less than five minutes, leaving only 20 to be manually, but quickly
processed.
"We have helped clients download four years of bank statements in less
than 60 minutes, and imported up to 5 000 transactions in less than 10
minutes. By setting up auto-allocations on the repeating transactions
we were able to allocate over 4 000 transactions within one hour.
"The client was able to produce accurate accounts ready for audit within a couple of days.
"Using any other system requiring manual entry it would simply not be
possible or feasible. The benefits are far reaching: because the
software does most of the work, most accounting work can be done
internally, without waiting for the accountant to do his work. This not
only saves money, but more importantly gives complete up to date
information. For the first time ever a small business owner can produce
his own accounts, simply by downloading his own bank statement - which
he needs to do every day anyway. Once he has complete accounts, he can
analyse them to ensure he makes the right decisions in his business. He
assumes total control of his own business.
Levenstein continues: "The innovativeness of the software is not the
exciting features we built into the software, but the fact that a
business owner can for the first time, without effort, produce proper,
accurate debtors information, reconcile his bank account, allocate the
transactions accurately, produce his VAT report and even print out a
'bank manager ready' income statement and balance sheet.
"What is also innovative is that we dislike using too many accounting
terms - for example an entire set of accounts can be written up without
us even using the terms 'debit or credit'.
No wonder the EconoAccounting packaging box says "The Most Innovative
Approach to Accounting Software since the PC was Invented", concludes
Levenstein. |
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Why Small Businesses Fail
Many businesspeople are too busy servicing and supporting customers to make time to keep their financials up to date.
Small businesses that do not have proper financial management systems in place have a high risk of failure.
I am constantly amazed at the ignorance of some businesspeople. They
will work 12 to 14 hours per day trying to keep their business afloat,
go out of their way to assist customers, produce excellent products and
provide great service, but still go insolvent.
Why? Many businesspeople are too busy servicing and supporting
customers to make time to keep their financials up to date. After all,
they say, it is always possible to get an extension on their tax
returns - which they give to an accountant. And, they say, they don't
need daily, weekly or monthly management accounts.
This is a recipe for disaster - a virtual guarantee for failure. What
does a small business need to do regarding its accounts? The following
are non-negotiable:
Invoices: Businesses must invoice customers in order to get paid. There
are still small and medium enterprises (SMEs) that delay sending
invoices to customers for weeks.
Follow up payments: A payment is only received when it is safely in the
bank and cleared. Cheques can be marked 'return to drawer'. If this
happens, the invoice needs to be clearly marked unpaid and payment
collected again. Far too many SMEs discover too late that a cheque has
bounced, or fail to reconcile it with the unpaid invoice. The owner
spends long days and nights delivering the product to the customer, and
then does not even realise they have not been paid.
Check the bank account: SMEs should check their bank accounts every
day. Some either do not do this, or check it once a month when the
statement arrives in the mail. How are you to know that a customer has
paid if you do not check your bank account regularly?
How can you know if the bank has made an error, or if there has been an
unauthorised withdrawal of funds if you do not check your bank account
regularly? Debit orders can be duplicated.
Amateurs accepted:
"A business owner is not expected to become a financial expert - that remains the task of his accountant."
Checking statements once a month is insufficient. It is difficult to
analyse a long list of transactions across many pages of a bank
statements. If it is done every day, or every week, the task becomes
more manageable.
In the last days of the Health and Racquet Club, two debit orders were
sent to clients' banks for the same month. Many people did not even
realise they had been double-debited and proceeded to pay twice.
Make sure the supplier has been paid: At the same time, check if
payment to the supplier has gone through the bank. Imagine not being
able to process an order because the raw materials did not arrive.
Maybe the cheque was lost in the post. Imagine having the telephone cut
off because you forgot to pay the telephone account - this is quite a
common occurrence.
At the same time, SMEs need to check they have not paid the same invoice twice.
I am not recommending that each SME appoint a full-time accountant or
bookkeeper. However, the record-keeping/accounting task needs to be
done by the owner/manager every day. This should take only five minutes
a day - maybe while drinking the first cup of coffee - to handle this
small but crucial task. It should come before even taking the first
telephone call of the morning.
Once the basic record-keeping procedure is in place, it becomes easier
to use the information to make important business decisions. Remember
that accounting and financial data is not prepared only for the
purposes of giving it to SARS or the accountant, but to make proper
decisions about how to run the business.
Financial accounts will tell you if the company is making a profit -
there is no point being in business and working so hard if you are not
going to make a profit. It will tell you how and where you are spending
money.
For example, businesses are often amazed to discover how much they are
spending on bank charges. They don't know that it is possible to visit
their bank and negotiate a discount on bank charges - but this is only
possible if they know how much they are spending.
Financing: Most businesses need finance or an overdraft at some stage.
When visiting the bank for an overdraft, the first item they will ask
for is monthly management accounts - the same accounts you will be
keeping if you have followed the previous points. If you have no
accounts, you will not get the overdraft.
A business owner is not expected to become a financial expert - that
remains the task of his accountant. He is expected to know enough to
understand how to read a balance sheet and income statement.
Typically, many SMEs will rush to their accountant with a pile of
papers and expect them to produce the required accounts. This is
time-consuming and costly, and probably by the time the management
accounts are produced, the SME is either bankrupt or the urgency for
the overdraft has passed. If the business owner did the company's
accounts, he would have the correct information at his fingertips, and
not even need to rush his accountant.
In conclusion, businesses that relegate their financial record-keeping
to the lowest priority are relegating their own business to the scrap
heap. Whatever the level of 'busy-ness', SME owners simply have to make
time to do their accounts properly. It can be done in less that five
minutes per day – I guarantee it. It's not too much to ask in order to
ensure the survival of your business. |
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