Janyce Robinson, Contributor
ROBINSON
IF YOU are an entrepreneur who is serious about attracting financing for any aspect of your business venture, you need to be very aware of this: Proper business planning and the maintenance of correct accounting records are essential ingredients in helping financial institutions assess the financial requirements of your enterprise.
Your credit union, in its role as facilitator as well as financier, is more than likely to be in the position to recommend certain professional bodies which can assist small business owners in putting together proper business plans, as well as in getting their recordkeeping in good order. For example, among the institutions to which Churches Credit Union refers members most frequently is the Jamaica Business Development Centre, which is located on South Camp Road in Kingston. There are, however, some basic pieces of information that we can pass on to you in today's column.
WHAT IS THE BUSINESS PLAN?
A business plan is basically your action plan and is, therefore, a document that:
Summarises the operational and financial objectives of a business (and)
Contains the detailed plans and budgets that show how the objectives are to be realised.
Why do you need a business plan? You need it to convince investors and bankers that you know what you are about to basically sell your ideas to them ... and you need it to solicit ideas from consultants and others who can guide you through the process. If properly written, your business plan should get these institutions consultants and anyone who reads the plan as excited about the business as you are and will help them to have confidence and faith in your management skills.
Our advice is to make your business plan a simple and easily read document, which has these four key elements:
1. Description of the Business - inclusive of an executive summary or 'overview' of the enterprise, the need it will meet and its potential for success
2. Marketing Plan - including both market and industry analyses and your strategy for ensuring market acceptance of your proposed products and/or services;
3. Financial data - providing up-to-date income and expense statements, balance sheet and cash flow projections;
4. Organisational Structure - that is, how the organisation will be set up, its management team and personnel plan.
BOOKKEEPING AND RECORDKEEPING
Proper bookkeeping is essential to sustaining and/or expanding a business. Bookkeeping should be as simple as possible and should achieve the objectives of:
Informing you about potential cash flow "crunches", as well as about the risk of wasting money and missing out on opportunities to expand.
Ensuring that any institution can easily evaluate your business activity.
What are the basic records that need to be kept by a small business? They comprise the
following:
1. Income and Expenses
2. Cash expenditures
3. Inventory Records
4. Accounts Receivables
5. Accounts Payables
INCOME AND EXPENSES
These records are intended to help you keep track of how much money is going out, where it is going, and what is coming in. An income and expense accounting journal is used by most small businesses, for single-entry only recording of receipts and expenditures. A double-entry approach can also be used ... and there are many different computerised software programs - including Quicken, QuickBooks and Peachtree - which can assist in whichever method you choose. Our recommendation is that you get an Accounting person to advise you or, if you cannot afford to do this, just keep written records in paper journals.
CASH EXPENDITURE
Cash spent in your business needs to be accounted for, if you are going to record all business transactions in a given year. There are at least two ways to do this: You can write yourself a cheque to reimburse you for cash you've spent on the business' behalf or you can keep a petty cash record. If you choose to pay yourself back with a check, ensure that you do the following:
Keep track of all cash receipts and total them weekly, biweekly or monthly, depending on your volume of expenses;
Keep a log of each category of expense, for tax purposes ... and then write yourself a cheque for the total. Note that you must write "cash reimbursable" in your check register to differentiate this from taxable income.
If you decide to keep a petty cash record, write a cheque to petty cash and keep a log of/prepare petty cash vouchers for each expense paid out of petty cash.
INVENTORY RECORDS
Keeping track of your stock or inventory will assist you in preventing pilferage, keeping stock to a minimum and tracking buying trends. You may need to use a computer to track stock items, especially if you purchase large quantities for resale. But whether done manually or on a computer, you need to ensure that you record:
1. Date purchased
2. Number of items purchased
3. Purchase price
4. Date sold
5. Sale price
ACCOUNTS RECEIVABLE
If you sell goods on credit, you will need a tracking system for payment, that are due to your organisation. Keep a copy of all invoices created for goods sold and use this to maintain an Accounts Receivables record. You will need to record:
1. Invoice date
2. Invoice number
3. Invoice amount
4. Terms
5. Date paid
6. Amount paid and outstanding balance, if any
7. Name of debtor
ACCOUNTS PAYABLE
Accounts Payable are debts owed by the business for goods and services purchased. Such records allow you to keep track of what you owe and when it is due, so that you will be able to establish and maintain a good credit history, while holding onto your cash as long as possible!
If you do not maintain a software system, you can use a manual record - such as a diary - to keep track. Note that many businesses pay bills once a week, twice per month or monthly. The information that you need to maintain Accounts Payable records are the same as those listed at 1 - 7, above for Accounts Receivable. However, in terms of items 7, the word "Creditor" should replace "Debtor" in the Accounts Payable listing.
Janyce Robinson is Assistant General Manager, Credit Administration and Operations at Churches Cooperative Credit Union. For more information or to discuss the contents of this article further, e-mail her at janyce.robinson@churchescreditunion.com
