Accounting & Finance

13
Aug

HOW TO ENJOY PIONEER STATUS INCENTIVE IN NIGERIA

HOW TO ENJOY PIONEER STATUS INCENTIVE IN NIGERIA

Pioneer status is a fiscal incentive provided under the Industrial Development (Income Tax Relief) Act, Cap I7, Laws of the Federation of Nigeria, 2004 (IDA). Under the incentive, companies operating in designated pioneer industries or producing pioneer products, which apply for and are granted pioneer status, are entitled to income tax holiday for up to three (3) – five (5) years in the first instance, renewable for an additional maximum period of two (2) years. In addition to income tax holiday, pioneer companies enjoy other benefits such as the exemption of dividends paid out of pioneer profits from withholding tax.

The review of the pioneer status incentive (PSI); an incentive administered by Nigerian Investment Promotion Council (NIPC), led to the suspension of the PSI scheme since September 2015. However, on 7 August 2017, the Minister for Industry, Trade and Investment, Mr. Okechukwu Enelamah, lifted the suspension on the PSI scheme and also announced the approval of addition of 27 new industries and products to the list of pioneer industries. Similarly, the new PSI guidelines and process chart (“the guidelines”) which the NIPC had earlier released on its website was approved.

This article explains the details of the new guidelines and how companies can take advantage of this incentive.

• Approval of additional 27 industries

The approved list of 27 industries focuses on emerging industries in Nigeria such as e-commerce companies, software development, video and television production, real estate investment vehicles and manufacturing of machinery, among others. The Minister also stated that mineral oil prospecting and cement are no longer part of the list of pioneer industries.

Click here to download a copy of the new 27 industries. The full list can be accessed on NIPC’s website

• Required documents for PSI applications

The guidelines require PSI applicants to submit a copy of the following documents in addition to that required under the former guidelines:

– Applicant’s pension compliance certificate
– Nigerian Social Trust Insurance Fund (NSITF) registration certificate
– Industrial Training Fund (ITF) compliance certificate
– Regulatory license(s) to operate in the sector or business activity (where applicable)
– Approval letter received for any incentives/waivers/concessions/grants from other government agencies (where applicable)
– Applicant’s sustainability policy

• Applicable fees

We have outlined in the table below the change in the applicable fees under the old and new guidelines.

Under the old guidelines, the 2% projected tax savings was paid before the issuance of the pioneer certificate and was not refundable regardless of whether the company makes a profit or loss during the pioneer period. However, under the new guidelines, applicants pay 1% of the actual pioneer profits at the end of a year in which the company makes a profit. Therefore, applicants are better off under the new regime in this instance.

On the other hand, under the new regime, applicants will now pay an additional ₦3million to enjoy PSI in their initial application.

• Timeline for PSI application process

The process flowchart introduced by the Minister proposes definite timeline for application and processing of PSI. Based on the process flowchart, the time required to apply and obtain an approval in principle is 18 weeks while to apply for a production day certificate (which comes after an approval in principle) and obtain the PSI certificate is 7 weeks.

In total, an applicant should expect to receive the PSI certificate in 25 weeks (about 6 months) from the date of application. In addition, the time required to obtain a PSI extension certificate is 15 weeks.

• Annual Performance Report and Impact Assessment

According to the guidelines, beneficiaries of PSI are now required to submit a performance report annually to NIPC not later than 30 June of the following calendar year. The report is expected to contain the company’s financial statements, evidence of payment of the annual service charge and other information as provided in the guidelines.

Failure to submit the annual performance report for any year, after two reminders, will result in the PSI certificate being cancelled, removal of the company’s name from the list of beneficiaries and notification to FIRS to collect the tax for the period the report was not filed and the remaining pioneer period initially granted.

A periodic impact assessment would also be carried out by NIPC during the period that a company enjoys the PSI incentive. The purpose of the impact assessment is to measure the effectiveness of the incentive and to evaluate the utilization of the saving accruing from the incentives.

Conclusion

Going forward, the Federal Executive Council has agreed that the pioneer list would be reviewed every two years in order to ensure that the Federal Government (FG) is responsive to changing economic environment. Based on FG’s commitment to the promotion of transparency and efficiency in the PSI process, we hope that the new PSI application and approval process would follow the provisions of the Guidelines to prevent abuse of the incentive.

17
Jul

How to take advantage of Federal Government’s Tax Amnesty

The Federal Government recently announced a tax amnesty programme known as the Voluntary Assets and Income Declaration Scheme (VAIDS or “the Scheme). The Scheme is expected to run for nine months starting 1 July 2017 and is for all categories of taxpayers in default of taxes. An Executive Order for the administration of the Scheme has also been signed by the Acting President, Professor Yemi Osinbajo.

All entities are eligible to participate in the Scheme however in order to participate, business owners must have a full picture of the Scheme in order to take advantage of it. In this article, I have analysed things to know before, during and after participating in the Scheme.

Before participating……

1. If you have never registered for taxes or you have registered and paid taxes in some years but then stopped paying, or you have been paying less than you ought, this is your opportunity to pay your liabilities and walk away free from penalty, interest and prosecution. Those currently undergoing a tax audit and non-resident individuals and companies are also eligible to apply.

2. You must make full and frank disclosure of your tax liabilities. In this instance, if you are not aware of how much you have accumulate in tax debt, get your tax manager or a tax professional to assist with determining your liability. The tax authorities are also available to assist in this regard once you fill and submit your declaration form.

3. You can make declarations for any prior 6 years of assessment (i.e. 2010 to 2015 financial years) for any tax, as the Scheme covers all federal and state taxes including companies income tax, personal income tax, petroleum profits tax, capital gains tax, value added tax, stamp duties, tertiary education tax and NITDA levy.

4. There will be sensitization for professionals and taxpayers in general. About 7,500 Community Tax Liaison Officers (CTLO) are being recruited and trained for this purpose. Try to attend one of these sessions.

5. Read the FAQs section on the website, www.vaids.gov.ng to ensure that you are fully and completely aware of what is required of your business before participating.

……During participation

1. You must make use of the declaration forms on the Scheme’s website at www.vaids.gov.ng to make your declaration. There are forms for companies and individual (i.e. sole proprietorship and partnership) respectively.

2. If you have never registered for taxes, simply walk into any tax office (state or federal) and obtain a Taxpayer Identification Number (TIN). Use this to fill out the declaration form and the relevant tax authority (RTA) will take it up from there. Please note that TIN is free. You do not have to pay to obtain one.

3. If your business is a business name, your declaration form should be submitted to the State Internal Revenue Service closest to where your business is located. For a company, your form should be submitted to the Federal Inland Revenue Service’s office closest to your business or your usual FIRS office for filing tax returns.

4. Taxpayer have the option to spread the payment of outstanding liabilities over a maximum period of three years subject to any agreement reached with the relevant tax authority. However, any default of an agreed payment plan may result in interest and penalty.

5. Information provided on the forms will be verified by the RTA and they may call for further document and information. There may also require you to submit an amended declaration form if the need arises. Therefore, you must ensure that you are ready to completely expose your business activities to the tax authorities as this is what will be required of you under the Scheme.

Afterwards

1. The Federal Government (FG) has stated that any eligible taxpayer who fails to take advantage of the opportunity provided by the Scheme, shall upon its expiration, be liable to pay in full, the principal tax liability due, penalty and interest thereon. The taxpayer may also be subject of a comprehensive tax audit exercise and prosecution.

2. Taxpayers are expected to be fully complaint after the Scheme or they may forfeit the benefits granted under the Scheme. Therefore, be sure that your business is ready to be tax complaint after the Scheme so that your latter is not worse than your former.

3. Be assured that all information provided by the taxpayer under the Scheme shall be treated with utmost confidentiality in accordance with the provisions of the relevant laws.

We encourage you to take advantage of the Scheme to regularize your tax record as this may be a once in a business lifetime opportunity.

You can attend the Annual Tax Seminar, organized by Covenant Capital, which is holding on Saturday, 29 July 2017 at The Covenant Place, Iganmu to discuss this and other tax matters. There would also be a tax clinic run by tax professionals to attend to tax matters on a one-on-one basis.

15
Jul

3 WAYS TO MAINTAIN A POSITIVE CASH FLOW

As a business owner, what will you consider most important to the survival and growth of your business especially in a tough economy. Is it sales, profit or cash in the bank? While sales is good, profit-making is the reason a lot of us are in business. However, without a steady positive cash flow, the business may close up sooner than it started.

So what’s the difference between sales, profit and cash flow and why should you care? See our differentiation below:

Therefore, a positive cash flow means that;

• you are receiving more money than you are paying out, which is good for your business;

• your business is healthy; and

• your business can deal with unexpected expenses or outgoings that may come up during a month, without the need to rely on credit from suppliers or borrowing.

A positive cash flow also means the business assets are increasing, workers can be paid, debts can be cleared, capital for growth is available and the business is equipped to weather future financial challenges.

There are some simple ways to help you maintain a positive cashflow in your business. We have analysed 3 of these ways below:

1. Improve your receivables

The following techniques will be helpful:

• Offer incentives to clients/customers for early payment.
• Send out your invoices promptly and follow up promptly if payments are slow coming.
• Ask for deposit when customers make orders.
• Encourage a repeat business by using incentives such as discounts and loyalty bonuses to keep your customers coming back.
• Have a C.O.D (cash on delivery) policy for slow-paying customers
• Sell off old or outdated inventory for whatever amount you can get

Mind you at this point, you may have to analyse your customers list and do away with customers that do more harm than good for your business. You must understand that you do not have to service everybody. Master the art of choosing your clients and not them choosing you.

2. Watch your payables

Keep your eyes on your expenses. Any time you see expenses growing faster than sales, examine costs carefully to find places to cut or control them. Here are some tips:

• Ask for credit terms and stay faithful to it. Don’t pay it early or late.
• If you must pay in advance, ask for early payment discount
• Don’t select your vendor solely on basis of lowest price. If you compromise on quality you might pay twice as much to repair the damage.

3. Achieve a balance

• Don’t pile up your bills, it may accumulate so fast and so high
• Pay your taxes promptly and negotiate instalment payments where you can
• Resist the urge to offer ‘unsustainable’ large discount
• Pay yourself first and don’t finance personal expenses from the business purse
• Maintain a culture of cash savings (You can choose to set aside 10% – 20% of cash profit as emergency reserve)

Remember, the objective is to pay out less cash than you collect. Getting this right isn’t easy, but it’s very simple. Get paid as soon as possible, only spend money you have, and only if it will be used to help you make more money.

26
Jun

CREATING SURPLUS VALUE FROM ‘DEAD CAPITAL’

Obafemi Darabidan
@femidarabidan

A news correspondent once asked a Somali nomad how much his house cost. The nomad found the question slightly baffling. He explained that he had built it himself, with materials he had on hand. The walls were made of sticks, woven together and curved into a dome. For protection against rain and sandstorms, he had laid animal hides over the top and lashed them down. He could not say how much the dwelling was worth, because it would never have occurred to him to sell it. When he moved away in search of better pasture, he simply dismantled his house, loaded it onto a camel’s back and took it with him.

Hernando de Soto (De Soto), a famous Peruvian economist known for his work on the informal economy, defined dead capital as “an asset that cannot easily be bought, sold, valued or used as an investment”. De Soto’s work showed that even those who live in slums possess far more capital than anyone realizes. These possessions, however, are not represented in such a way as to make them fungible assets i.e. exchangeable assets. These assets therefore cannot create value for the owners thus they are ‘dead capital’.

De Soto in his book titled “The Mystery of Capital” revealed that most people in third world countries are not as impoverished as portrayed. He found out that the total value of untitled real estate (land) held by the poor of third world and former communist nations is at least US$9.3 trillion. Furthermore, De Soto estimated that the total value of Africans’ informally owned houses and farmland in 1997 was roughly US$1 trillion. These assets are not captured in any land registry known to the legal or financial system in those countries. They are only in possession but not legally recognized to be owned by them. Therefore, these peasants are unable to exercise transferable (ownership) interests and rights in these assets as financial capital in the form of collateral/guarantee for loans, secured assets (asset securitization) or as capital contribution to a partnership.

In the same way, SMEs in Nigeria invest a lot of capital in the form of factors of production (land, labour, financial and intellectual capital) into their business, however they still do not generate as much value (profits) as the capital invested. This is because the capital employed in the business is dead and has not been activated. Some SMEs are afraid to approach a financial institution for a loan because they are not even aware of the capital they possess that they can exchange as collateral for the loan. Some entrepreneurs are selling their business/companies for far less than it is worth because they are not aware that the value of a business is not only the cash in the bank and the business premises. Client list, business name, softwares, equipments and even employees are all capital of a business that has value and can be sold. On the other hand, how can you sell what you do not know exist?

Recently, the Acting President Yemi Osinbajo signed into law, the Secured Transactions in Movable Assets Act, 2017 (otherwise known as Collateral Registry Act). The Act ensures that Micro, Small and Medium Enterprises (MSMEs) in Nigeria can register their movable assets such as motor vehicle, equipments and accounts receivable in the National Collateral Registry and use same as collaterals for accessing loans. This, in turn, will increase their chances at accessing finance and thereby tackle one of the major obstacles faced by MSMEs. However, the question remains – how many SMEs are ready to tap into this potential? That is, how many SMEs have properly documented capital to register at the Registry?

In order to ensure that you are generating value from your capital, you must ensure that it is formally or legally represented and traceable to a functional institution, department or agency recognizable at law. Dead Capital is any form of capital without formal or legal representation. Capital is given life only when it is represented in writing by a recognised authority established by law.

Some practical ways of ensuring your capital is titled or formally represented to enable your business have access to incentives and financial capital include the following:
1. Business name registration with the Corporate Affairs Commission;
2. Software/Intellectual property/Patent registration with the Trademarks, Patents And Designs Registry, Federal Ministry Of Industry, Trade and Investment;
3. Product registration with the National Agency for Food and Drug Administration Control (NAFDAC) and Standard Organization of Nigeria (SON) for product imported into Nigeria;
4. Certificate of Occupancy or registered Deed of Assignment with the Land Registries in all States;
5. Motor vehicle registration with the Federal Roads Safety Commission;

6. Equipment registration (with value above NGN 500,000) with the Industrial Inspectorate Division of the Federal Ministry Of Industry, Trade and Investment;

7. Preparation of a statement of affairs such as cash flow, profit or loss and statement of financial position; and

8. Bank Verification Number

Remember as faith without works is dead so also capital without legal ownership is dead. Therefore, in order to create that confidence in investors to invest in your business and financial institutions to make credit available to you, you must bring to life every capital in your business no matter the size or type.

19
Jun

How to make SMEs Effective in Nigeria

Obinna Ukachukwu
@Ukachukwuwrites

Objective statistics shows that SMEs are over 90 per cent of the businesses in Nigeria and they contribute up to 45 per cent of GDP. This is despite being underfunded and unstructured.
When you consider that the current value being derived from SMEs is substantial despite the fact that most of them are subsistence/micro businesses, then you can begin to imagine how big this opportunity will become if they scaled up just one level.
The biggest challenge in terms of financing SMEs in the country is the fact that SMEs do not have the ability to scale to an extent where bank debt will make a meaningful impact. This prevails because of lack of proper financial education of SME operators, Lack of good corporate governance and business structure and Lack of access to equity – our markets for equity is not very developed.
A few SMEs recognize the challenge, whilst many of them believe that the banks should solve their problems, this is mostly because they do not understand that the nature of bank loans do not accommodate an appetite for funding start-ups or for giving loans that behave like equity. Despite increased attention and support for SMEs by banks and the CBN, most SMEs out there still have this perception that the banking industry is not favourably disposed to SMEs. In other to correct this impression, SMEs need constant education on how the economy runs. If the banks lower their appetite for risk and fund the businesses with poor structure and governance, the loans will go bad, shareholders’ funds will be eroded, and the cycle will hurt SMEs even more.
There are however alternative solutions for SMEs which can be facilitated by banks or any other stakeholder in SME ventures. SMEs can be assisted through business trainings/capacity building programs, business incubator can be set up to cater for handholding businesses, a mentoring platform can be created for entrepreneurs so as to open them up to business best practices as well as provide market access.
In addition to the above, there is however still a need to work at developing alternative sources of funding apart from commercial bank debts. Banks collaborating to set up various pockets of SME entrepreneurship funds might help meet the need for patient capital which commercial bank debts can then ride on.
In the interim, start-ups and SMEs in general can take advantage of intervention funds such as the You-Win initiative and other government driven funding opportunities.

31
May

Are you “Forward” looking in your business?

The year 2016 marked a season of inflation and scarcity for various commodities; tomatoes, pepper, imported rice and not forgetting the world’s most desirable currency, the USD dollar. The free fall of the exchange rate of the Naira to the dollar has been a sore point in the political discussions and an index, in tandem with price of PMS and electricity supply, for judging performance of the current Government. The enlightened populace has been waiting for the Central Bank of Nigeria’s pronouncement on how the new Foreign Exchange (FX) regime.

This article is simple to explain how companies and business owners can hedge against FX fluctuations which affect their businesses.

Hedging as defined by the Oxford Advanced Learner’s Dictionary means to protect yourself against losing money. Therefore, I will attempt to explain how hedging can be done by business owners due to the fluctuations in FX rate.

Sometimes last year,A few days back, I stopped by the roadside sales woman on my way home to buy a bunch of plantain. While still expressing shock at how costly this small bunch was, a neighbour of mine who met me there was regaling me with stories of how expensive tomato wasis and how a piece wasis more costly than an apple – I hadve seen that on twitter, then I remembered that my dear wife had hedged against this risk by buying a basket full of tomato’s months back at Mile 12 market and we don’t have to worry about tomato prices in the medium term – Good woman.

So what are the hedging tools we might see take centre stage in the Nigeria market.

Firstly, the Fisher effect

The International Fisher effect postulated by American economist Irving Fisher shows the relationship between interest rates, inflation rate and exchange rates. Basically, one can predict the future exchange rate of a country’s currency against a reference country currency. So let’s assume that the Naira currently goes for N200 to the $ and the year-on-year inflation for Nigeria and the USA is 10% and 5% respectively. The expected exchange rate for Nigeria at the end of Year 1 would be N209.5/$ (N200 x 110/105). This simple theory also has a relationship with the Interest Rate parity theory which states that expected future movement in Interest rates can also use be used as a basis for determining the future exchange rate at a forward date (assuming variables related to the reference currency remain static). Therefore if the current N/$ exchange rate is N200/$1 and Interest Rates are expected to rise from 10% to 15% in the next year, the future forward exchange rate would be N209.09/$1 (N200 x 115/110). However, we don’t live an ideal world and exchange rate movements are not as simplistic as this.

Now, Hedging Options

It’s June 30 2016 and Mr. Alao needs $100,000 to buy a tractor by December 31 to for use on his cocoa plantation by 1st January 2017. The current dollar buy rate is N200 and therefore Chief Agbabiaka would need N20,000,000 today to buy the tractor. However, he is concerned that using N20m would not be a wise option since he could invest this amount in treasury bills at 10% and just keep it in a fixed deposit account till he actually needs to sell it in December 2016. Worse still, he might not have the N20m to trade with at this time, what can he do?

1. FX Forward Contract

This is used when you want to hedge your foreign currency risk in a simple way up to a predetermined worst-case exchange rate. This is done by exchanging a sum of money into a different currency on a particular date (or within a particular timeframe) in the future at a predetermined exchange rate.

In this case, Mr. Alao goes to the Bank and enters into a forward contract to buy $’s from the Bank on December 2016 at a certain rate. The Forward Rate is agreed at the time the contract is entered into (June 30) and we assume this is N220/$1. It’s unlikely that the Bank would enter into an agreement at the current spot rate as the impact of Interest Rates and Inflation would imply a change in rates at a future date. Mr. Alao assess that this rate is fine and signs the deal. On 31 December, he goes to the Bank collects his $100k and parts with N22m – deal closed. If the rate in the market is now N240/$1, Chief has saved a cool N2m but if it’s the converse and rates are still at N200/$1, he’s lost N2m. However, he’s sure of his cash outlay well ahead of time and therefore reduces the risk of uncertainty in future exchange rates.

2. FX Options

Moving from the first scenario in No. 1, Mr. Alao can take advantage of an appreciation in exchange rate by entering into an Option agreement with the bank. So he says “Mr. Banker, I agreed to buy dollars from you in future at N220 but if it’s N210 in the market, I lose N1m”. So Mr. Banker says he can actually enter an agreement with the bank at a lower rate at the future date but would have to pay an option fee. So he agrees to pay N200K today for the risk the Bank will take on future appreciation in exchange rates. Therefore if the Naira depreciates to N210/$1 in the future, Mr. Alao’s outlay is N21,000,000 (N210 x $100k).

However, he has paid an option fee upfront so his total outlay is actually N21,200,000 which translates to an effective exchange rate of N212/$1. If the Naira/$1 exchange rate depreciates to N240/$1, he simply doesn’t exercise this option and goes ahead to buy at N220/$1 which makes his effective cash outlay as N22,200,000 and effective exchange rate as N222/$1.

An effective cash flow management through hedging can greatly reduce the probability of a company suffering from currency issues in the future.

Please note that the above analysis is done from the perspective of the business owner.

31
Dec

Interest Rates Subsidies for SME Loans in Nigeria.

One major factor blamed for stunted SME growth in Nigeria is access to affordable/cheap or single digit loans. In response to this, various single digit loan propositions have been launched by the Central Bank and the Nation’s foremost development bank, Bank of Industry (BOI).

Whilst these schemes do not really address the core of the challenges inhibiting access to finance in the segment, they do very well in attempting to reduce the cost of debt for the eventual beneficiaries.

My concern however is that these solutions have succeeded in addressing a relatively non-core issue. Businesses generally are supposed to generate enough earnings to cover their cost of capital, otherwise businesses unable to do so should not exist.

Firstly, what is the actual cost of debt in Nigeria? To get us thinking in the right direction, I will use simple metrics to estimate:

  1. The Government currently pays approximately 18% to borrow Naira for 1 year through Treasury Bills. This means that a non-bank Lender should expect a minimum of 18.5%PA return on every loan created that has a 100% repayment guarantee. This rate I call the risk free rate.
  1. Because of the credit reserve ratio, banks can only lend out approximately 80% of deposits placed with them. This increases the expected risk free rate to approximately 23% (18.5 ÷ 0.8)

The implication is that ideally, today, no loan is meant to be created by banks for less than 23%PA. Note that we have not factored in  risk premium and other variables.

As a result, one would want to ask, who pays the subsidies on the single digit intervention loans? Have we measured the impact of these interventions to see that they are not enriching a few businesses that are even hardly SMEs? From experience we know that such subsidies many times lead to unhealthy arbitrage.

I personally do not think there should be interest rate subsidy for bank loans in our system. If a business cannot produce returns (EBIT) above the risk free interest rate for debt in the operating environment, then such business should really not exist. If they must remain, then they must increase the profit on their services by increasing prices or reducing costs sufficiently to cover their cost of capital.

I actually think interest rate intervention schemes only dare to treat the symptoms of the sickness. The real sickness is that the cost of running an SME business is high – from cost of power that we cannot readily control, to taxes and levies that can easily be dealt with. The real sickness is that primary producers can hardly price their products properly because they are fragmented and do not have access to the market. The real sickness is that undocumented payments for imports enable importers to under-declare invoices, hence pay lower duties thereby make locally produced substitute products seem more expensive… The sicknesses are quite a few.

Therefore, when next we think about single digit interest rate loans for SMEs in Nigeria, we should remember that the costs of these loans are over 20%. Whilst interest rate interventions are not sustainable solutions that will boost growth and competitiveness, someone will still bear the cost of such subsidies… Probably, unpaid public servants may just be the ones bearing this cost.

My View.

Compliments of the New Year!

Obinna | @ukachukwuwrites

31
Dec

ACCOUNTING 101 FOR STARTUPS

Start Smart Series – Part 2

Starting a business can be daunting but running the business successfully is the real deal. Running a successful small business starts with the planning stage of deciding what you will sell and where you will locate your business. However, it doesn’t stop there, as everything from your choice of employees to your accounting practices may influence your potential success. If you are smart, you will start right and start smart.

Starting smart begins with understanding “business essentials”, and a major aspect is accounting.

It is said that accounting is the language of business. It simply means that without accounting, no one truly knows what you are doing – even you too. The financial viability of your business is in doubt, business growth cannot be measured, and bankers don’t know if they can take the risk of providing credit to your business. This is aside from the fact that you will lack any probable basis for planning or making major decisions.

Accounting is the process of analyzing and reporting on the financial transactions of a person or an organization. It is therefore an important function of your business.

With a proper accounting system you are able to:

  • understand the financial health of your business

  • save money and reduce wastage

  • secure additional funding/bank loan in the future

  • make plans and achieve long-term goals

  • determine accurately how much tax to pay (without being ripped off by the man)

Small business accounting requires an entrepreneur to learn common accounting terminologies. Let’s take a look at the basic accounting reports that every business owner should prepare and review on a regular basis:

  1. Income Statement

This is also known as the Profit or Loss (P/L) statement. It shows how much you made in revenue, how much you spent, and what your profit or loss is over a specific period of time. Are you making or losing money? Are you spending too much on an expense? The P/L statement will tell you.

  1. Balance sheet

This provides overview of your business financial health. It shows the worth of your business. That is, a summary of your business assets and liabilities. In simple English, it tells you what you own, what you owe and what is left over.

  1. Cash flow statement

This captures how cash flows in and out of your business over a specific period of time. It captures cash flows in three categories: operations, financing and investing. Operations cash flow refers to money flows from normal business operations. Financing cash flows captures cash inflow and outflows from buying or paying off assets and liabilities the business uses for more than a year. While Investing cash flows captures capital inflows and outflows from investors (that is, from the entrepreneur, bankers, other funding parties)

If you desire to run a successful business, it would be beneficial to have an accounting system in place. This would ensure that you are accountable for the success of your business. It will also demonstrate that you are genuinely interested in growing your business. This will show that you are clearly ready for business!