Easy Business

Mbeu By Mbeu, 8th Jul 2013 | Follow this author | RSS Feed
Posted in Wikinut>Business>Accounting & Finance

Doing business is hard and at the same time easy. The thin line that separates them lies in the decisions of the business owner much of the time and to make it or not also depends on external factors most of which can be controlled. This page analyses some of the factors affecting everyday business and helps owners of small businesses who are operational as well as those wishing to start up. This is achieved through the several topics that will be discussed right here.

Basic Principles of Business

Doing business can be an exciting thing to do and at the same time quite challenging. Many owners of small businesses are workers in their businesses as well. Those doing well may hire helpers to assist them with the actual work as well as professional service providers such as Tax consultants, Accountants and Marketing advisers. Small businesses are as vital as any other business in any economy. What large corporations do, small businesses need to do as well. This includes reporting to stakeholders and shareholders. For this to be possible, accounting is required. It is easy to collect data and process it into useful information in a small business than it is in a large corporate. The intention of this article is to help business owners understand what accounting is and why it is so vital in their business.

Every business needs to know internally what it is worth, how much it owes as well as how much it is owed. It is imperative as well to know how much Assets a business owns. Investors may be interested in the 'Gearing' ratio because if a company owes much, it is not a great investment option as it reduces its profitability.

There are several types of business ownership. If one person is in charge of his or her business, that person is a Sole Trader. Usually these type of businesses are easy for one person to handle like a doctor's office or a lawyer's practice. Most usual Sole Traders also are small grocery shop owners and flower sellers among others. There are also Partnerships. This is when two or more people come together pooling their resources and intellect to run a particular business. Some partners can be actively involved in the day to day affairs while some have commitments elsewhere and are not involved in the daily matters. The profit sharing ratios are agreed upon depending on factors such as amount of capital introduced and active participation in the business' daily concerns. The third common way of business ownership is a Limited Liability Company. This company's capital is raised by the sale of shares to members of the public who then become that company's shareholders. The term limited liability means that in the event of the company going broke, the owners' private property will not be taken to settle the liabilities. Sole Proprietors do not have this kind of protection.

So, let's look at some key terms popularly used in business. CAPITAL is the money or 'things' that are used to start up a business. There are many ways of raising Capital to start a business like borrowing from institutions and family. Capital can be a motor vehicle, office equipment, cleaning equipment, goods for resale etc. ASSETS are things that a business owns. These are things that are used for day to day operations such as motor vehicles, goods for resale, machinery, office equipment et cetera. LIABILITIES are what the business owes to external parties. They can be incurred for anything in a business, things such as materials needed for resale, buying office equipment on credit or amounts owing for utilities.

This basis brings us to the Accounting Equation. At any point of the business, the ASSETS = CAPITAL + LIABILITIES. This is achieved is every TRANSACTION is captured and recorded correctly. TRANSACTIONS are events that occur in a business. These events have a monetary value and should be recorded for analysis in the future. Stakeholders need to see accounting information of any company to make informed decisions. Tax officials, bank managers, potential investors, company shareholders, owners all need to know how a company performs. This is when Accounting comes handy.

Finally, it is not very hard to keep properly maintained books and this improves a business' look. It certainly helps owners map their way forward.

Starting a business entity

Many people want to be independent. We all were born into a society that educates and trains us to be employable, that is work for someone who owns a running business entity. For many, it seems like a daunting task to have a business of their own. I will share with you a personal story in a bid to bring it out in the clear that there really is nothing to it, running a business is as easy at not running it; similar headaches and probably heartaches.

In the 1920s, it took a lot of capital to start a business. The 20s were the industrial period where business aspirants gathered money to buy large tracts of land, factories and then put people on to produce. Looking at it that way, it was kind of difficult to break through especially in heavily monopolized industries. So it took a lot of effort as well as time and money to enjoy the benefits in the long run. Corporations' activities took a new turn in America in February of 1885 when Charles Dow and Ed Jones started the stock market index and today, it still stands, giving investors and stakeholders a glimpse into the markets they want to delve and it helps them make informed decisions. Today we have stock markets everywhere where companies' shares and securities are sold to everyone willing to pay for them.

However, not every company is able to list on stock markets around the world. Small companies may not even be able to do so until they meet the requirements. However, it doesn't mean that they should not be doing business, small companies as a matter of fact are very essential in any economy. In the US small businesses, according to a government agency SBA, between '93 and 2011, small businesses accounted for 64% of the total of new jobs that were created in America. This just shows that even a large economy such as America finds small businesses a shot in the arm. So this has to be a form of encouragement that we need more small businesses, that spring from daily innovations. Thankfully we are long past the industrial age where it required large sums of money to start a business. Today, technology rules the roost. If we consider companies such as Facebook, Paypal, Zynga, Zappos, Spotify etc, we find a very interesting trend, they all did not require large sums of money as probably the railroad companies put up back in the 1800s. Technology has made it so easy and money i generated after creating a product or service that simply adds value to life.

In Zimbabwe, during one of its bleakest financial periods it was even worse. The world's 30th occurrence of hyperinflation occurred in this country. The economic woes began at the turn of the new millenium, peaking around the 2007 period. Joblessness was rampant with statistical estimations of unemployment being above 80%. This prompted people to be highly innovative because the bills kept on coming, for parents; school fees, food, rent, rates, utilities etc. Imagine having to foot all the bills with zero income. Companies folded, government parastatals could not pay civil servants and a mass exodus of skilled labor resulted, with people going abroad and to neighboring countries seeking for better opportunities. School going children dropped out to help parents put food on the table. In this period, people automatically became entrepreneurs. Everywhere, and on street corners, people pitched makeshift stalls selling tomatoes, candy, cigarettes, mealie-meal and other basic commodities that suddenly disappeared off the shelves. This was exacerbated by sanctions that the country was slapped with. Europe and America sanctioned the country, aiming to hurt members of the ruling ZANU (PF) but they succeeded in causing inexplicable hurt to the common man. Petrol pumps dried, hospitals ran out of drugs and qualified labor.

Enterprising individuals rose to the challenge and took the opportunity to create wealth for themselves. First, it was the money changers who possessed forex- US Dollars, British Pounds, South African Rands, Botswana Pula and other major currencies. Since trade was strictly enforced in the Zimbabwean dollar that kept losing value every second of the day, it was a lot wiser to keep the value of the dollars in other currencies and since they too rose in value every time the Zimbabwean dollar lost its value, money changers otherwise affectionately known in the local dialect as Osiphatheleni's trade flourished. They grew fat and bought nice houses and expensive cars from plying their trade. Of course they would because their profit margins ran into the thousands. This was until the police moved in to put an end to this but the process took a long time because it was too easy to bribe the policemen with money since their salaries were paltry to resist the temptation.

For those who could not afford to start money changing enterprises, they resorted to other business ventures. Basic became scarce in the country. Retail outlets' shelves suddenly became empty. Whenever they stocked basics, people came and snatched them right away. Only the first few who would have seen them got them. As a result of this hoarding, a thriving black market was born where scarce goods were sold at prices four to five times higher than the usual. Those who worked in places where sugar, cooking oil, salt and mealie-meal to name but a few commodities were sold, they too used the privilege to hoard and then resale at exorbitant prices. Goods quoted in Zimbabwean dollars were repriced two or three times a day, in accordance to the going rate of the US dollar that the money changers set on an hourly basis. It was more like a live stock market where prices are not stable, and yes, sometimes the rate of the dollar sometimes dipped.

Some went to neighboring countries to buy petrol and sold it out of trucks and those who brought in larger quantities sold their at filling stations. Long queues for everything were the order of the day. With all the money coming in, there was no effective price regulation. People made lots of worthless money and many thought of investing it. Unit Trusts sales went up, so did investments in Mutual Funds and Equity Markets. It was all in Zimbabwean dollars and when the reserve bank decided to revalue the dollar, all billions were turned into a couple of cents in an instant. So again people lost everything that they had toiled to have. The most painful deals were those that involved real estate and those who had signed them in Zimbabwe dollars just became like they gave away their properties.

Then was dollarization, and the spirit of entrepreneurship among people remained. Today, Zimbabwe is a country that has more business minded people than any I have been to. More and more people have even registered their businesses to operate formally although they are still discovering themselves amidst all that had happened. It is a process but when opportunity presented itself, people grabbed it and started their own businesses. Which makes me believe that, anyone can do it, if they commit to it.

Understanding VAT in Zimbabwe

Value Added Tax consumption tax charged on the purchase and selling price, depending on one's perspective- a buyer or a seller's. A manufacturer or retailer pays the government the difference between Output and Input tax. Input tax is the charge they incur when they purchase vat-able goods with a VAT charge on them and when they mark the same up and sell them to consumers or other manufacturers, they also put the 15% (which is the standard rate or any other applicable rate) charge for them. The differences between these two taxes is what they remit to the tax authority or get a refund from.

For a business to charge VAT, they must be registered with the authority of taxes to do so because at the end of every period, the authority expects the business to submit its VAT schedules and verify its VAT claims.
The VAT regime of Zimbabwe is not so complicated. Every business that reaches the threshold (check with the Revenue Authority's latest updates) has to register. If not, then it is unlawful interest and penalties can be levied and that are very detrimental to the operation of any business, let alone achieve its going concern. The specified rates of VAT are 15, 5 and 0%, depending on the type of product. This means that 15% rated products are taxed at that rate, the same applies for the other rates. To get these products, visit the Zimbabwe Revenue Authority for most recent updates. Zero rating attracts no VAT, and it is the government's way of making sure that products are provided VA free and hence at lower prices because VAT always increases the price of products. There are also tax exempt products the suppliers of which do not need to concern themselves about collecting and making submissions of the tax, therefore can not register for VAT. Exempting some products and services helps keep the people provided with low priced and yet vital products and services. Some of these tax exempt products are fuel, water, commuter services, medical and education services.

Air Zimbabwe strikes it back again!

I was dismayed to hear about the collapse of an airline I was so fond of growing up. Air Zimbabwe to me presented an image of an invincible metallic bird I loved see fly past our house, school or playground. As a little kid, my friends and I would form a single line and wave at the passing plane. Sometimes we would shout out to the plane to bring us 'sweets' and other delicacies from the far away cities it was bound for. As a child, I never knew that it took organization and money among other things to run an airline, in actual fact, I did not know about the fact that Air Zimbabwe was a company at all. All I knew was that they had nice commercials that I loved watching during Prime Time television programming on ZBC TV. Well, I grew up and soon learnt that the company did well only for a period until it started tottering and lost it's market share and credibility.

In 2012, the company's market share was a measly 0,7%. Being government owned, and the government being heavily influenced by favoritism and corruption, the airline's strategy was not there at all. Sensible business plans were thrown out of the window by red-tape and bureaucracy. Almost all government owned companies in the country suffered and are still suffering from maladministration and are dying from asphyxiation. However, Air Zimbabwe has bounced back, what a relief! Riddled by debt, having the least stakeholder confidence and riding up to race against healthy competition, the airline indeed has drawn its pants up and ready to put up a David and Goliath battle.

The Magnificent Victoria Falls in Zimbabwe.
The airline recently went out and clinched a lease deal that saw it bringing home an Airbus A320 and two Brazilian 50 seater Embraers. It has already reintroduced the profitable Vic.Fall-Johannesburg route currently serviced by its efficient competition South African Airways and Comair, a British Airways franchisee. It looks AirZim is going to make it, looking at the investment and dedication, but it's going to be a steep climb. If any of you guys go out there and wish to fly out from Mosi-oa-Tunya to Joburg, try out the luxurious Embraers, you sure will fly over our beautiful Savannah terrain in absolute fashion. Go air Zim!

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author avatar Esther Thornburg
10th Jul 2013 (#)

Thinking one to three months ahead lets a small business run well.

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author avatar Mbeu
10th Jul 2013 (#)

It is true, although it would also be great to install systems that will see it sail through those three months and beyond (going concern)

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