It is easy to recognise that most small businesses in Rwanda have no good book keeping and accounting records.
Even those that do, view bookkeeping as an exercise that they go through for only the tax return. And this is largely why over Frw300 million has been lost in uncollected taxes since 2002.
It has also been an impediment for these businesses to access funding from commercial banks, something that challenges business growth.
Since there is intense competition in the market, to survive in the business, you need good strategies. Bookkeeping is about understanding how a business works and then providing accurate figures that enable the business to know exactly how well it is doing.
It involves the recording of the financial transactions of a business, whether manually or by entering everything onto a computer.
One reason why you must keep in mind the value of book keeping is to help you price your product accurately.
In traditional business, a classic approach to the pricing is called cost plus. Basically, cost plus means that you determine your product price by taking all your costs and adding the amount of profit you want.
Most modern businesses don’t price this way but they also need to identify all the costs they incur, being careful not to miss any of them that might be hiding.
So the total of all of those expenses will assist you define the minimum price you can consider.
It is obvious every rational businessperson wants to sell their product at a profit. But also keeping in mind the customers and competition is very important.
It therefore demands you to arrive at the total cost of what you are selling in order to recoup this cost without exploiting your customers.
As a business you must also know if you’re making or losing money. This somehow has a connection with pricing but it is much deeper issue since it looks at the overall costs of the business and its earnings.
What about your cash flows? Both short and long term, which will help the business determine its viability and ability to meet its bills as and when they fall due.
It also determines your liquidity and solvency and this will help you work well with your bankers.
Let the tax agencies know how you’re doing. It is better to know in advance the amount of tax you are going to pay.
This will help you in making informed decisions about your business.
But good book keeping and according records are much more than just providing information for tax returns.