1st and foremost no business has no record what it does is not keep proper account of the records and that is why professionally the term used is incomplete records, meaning the business doesn’t keep proper records for the day-to-day transactions, but has some sort of records mostly most businesses keep only sales record, almost any business even mama mboga will have this amount correct.
However, operating a business in this manner means taking the risk of not knowing the actual status of its operation i.e. are you in business or are you moving money around,
What does that mean?
Let’s understand what the term business means or better still what the other term for business is, and that is a commercial activity… hence for you to know if you’re in business you’ve got to understand how the money that came in as sales were utilized, of what value addition was those expenditures and how best can you manage or eliminate those expenditures to increase your earning, that way you can say you are in business, all this isn’t possible to deduce unless there are proper recordings when this is not the case then you’re in an arrangement of moving monies in & out of your operations.
What does recordkeeping entail really?
Very simply put, it means accounting for every money movement, if it is a sale record it somewhere as a sale, if it is an expenditure record it somewhere as that and have a document to prove, (i.e. a receipt, an invoice, or anything to justify the payment) and also record mode of payment it is that simple.
Sole proprietors struggle with separating business monies and personal monies especially when the owner of the business is the same person running the day-to-day operations, this is where I recommend that business owners pay themselves a salary and separate the business account from their account that way accountability is established, and a system is set on how things are run, and evaluating the viability of business’ going concerned is measurable. If you’re struggling with this, I have two book recommendations for you i.e. Atomic Habits by James Clear & Start with Why by Simon Sinek and you can also have me take off this load from your to-do list, I will guide you through establishing bookkeeping systems and run them for you
Keeping no records doesn’t mean the Tax man can’t find you if He wants to, we all know about the till number way, there are also bank account records, license way and so many other ways, if not for the tax man wouldn’t you want your business to thrive and not only survive? It’s innately in us to want to thrive, the only way to know if your business is thriving and not surviving is to be able to measure the profit growth rate in different timelines, and this also informs planning, and the strategies to lay down, when to do what, so go ahead and make a decision to thrive, you’ve survived enough already
CHECKS & BALANCES
For tax purposes, if the incomplete record is what’s convenient for you then don’t wait for non-compliant penalties register for TOT (Turnover Tax) this is a final tax, and remember according to the Finance Act 2023 the TOT rate changed upwards to 3% and the ceiling bracket was halved for 50M to 25M, and another very common question I get is, is TOT registered business also supposed to have VAT obligation? The answer to this is YES, if the business engages in VATable goods and services then it most certainly needs to have the VAT obligation.
That’s it from me today, enjoy your lunch & let’s meet here next Friday as we look at what supporting documents are expected during the Audit for payments.