Why bookkeeping is vital

Bookkeeping may look like a great time waster to most small business owners, but it is one thing that can either make or break your business.

David Mukwaya, 36, a businessman operating a hardware shop at Kisenyi in Fort Portal town, Kabarole district explains how the fi rst business collapsed for not keeping records.

Mukwaya started business in 2007, after investing about sh4m to open a retail shop. The father of two had just completed university and together with a friend, they pooled resources to start up the business.

For the fi rst six months of the business, all was fine and everyone was appreciating Mukwaya's initiative.

"I would see money coming in. The customers were there and I had a good time. I would spend my money without thinking about the shop," Mukwaya says.

However, after one year and a few months, Mukwaya was out of business and could not fi gure out where the money he had invested and the profi ts made had disappeared.

"By the time I realised I was not doing well, the stalls were empty and I did not have the money. I somehow blamed my friend who would stand in for me," Mukwaya says.

With the collapsing of the business, Mukwaya decided to retreat to the village in Kamwenge district, where he had some eucalyptus trees which he sold to re-invest in the business.

From the trees he was able to raise sh12m. The collapse of his business still haunted him. He was unsure of what to do and what led to the collapse of his business.

"I decided to look at all the past mistakes before I started investing gain. I gave myself three months to consult and set a strong foundation for my new venture. It is during this time that I realised I had no records of what I used to do in my business. I never kept books of accounts and it was a major blow to my business," Mukwaya says.

Going into hardware business

Mukwaya says he was lucky to have had trees in the village to help him relaunch his business. "I decided to invest in hardware business, dealing in building and plumbing materials. But I decided to record everything that I did within the business. In other words I decided to put book keeping at the centre of my business," Mukwaya explains.

Since he decided to keep records, he notes that he is able to tell if he is making profi ts or if the business is not doing well.

"Any serious business person should keep records or else the business will collapse," Mukwaya advises. Tom Bright, the director of Britop Uganda Limited, explains that he would not have been able to grow his business, which includes schools and hotels if it was not for proper book keeping.

"If the business is growing, it will be determined by fi nancial records. I have practised book keeping from the start that is why I am progressing. Most people do not have records in Uganda and that is why they cannot sustain their businesses," Bright says.

He notes that proper book keeping will help one compare the present fi nancial status to previous year records at any point in time. It will in turn help them analyse their growth rate.

"If you really want to grow from a small business owner to a big business owner, then you better start taking book keeping accounting seriously," Bright says.

Benson Ainebyona, who runs a restaurant near Uganda Christian University, Mukono, says for the last three years, he has been keeping records for his business and he in position to monitor the general growth of his business.

"For any serious business person to understand how their business runs, they must have records from which they can evaluate their businesses. It is always important to note every detail of the business because decision making in business is many times based on what the business records show," Ainebyona says.

He also notes that record keeping helps in monitoring the growth of the business; they help in meeting profi tability, cost management and management of materials.

"With proper record keeping, therefore, it is always easy for the business owner to see his business grow and in case of poor performance in some sections of the business, it is easy to tell the problem and how it can be addressed with ease," he adds.

Karen Kyazze, an entrepreneur in Makerere Kavule in Kampala, says keeping records for her business has helped her to determine the cost of production.

"I have a book where I note the raw materials I buy plus their costs. At the end of the day, I am able to determine my production costs and I am in position to set a good price for the product in order for me to make some reasonable profits. Record keeping has also helped me to identify price fluctuations in the market which has helped me not to make losses in my business," Kyazze said. 

What is bookkeeping?

By definition, bookkeeping is the process of recording your company's financial transactions and the first basic step of the accounting process.

The accounting process involves classifying, reporting and analysing of data and none of it can take place if there is no organised and accurate bookkeeping.

The importance of bookkeeping cannot be over emphasised. But here are top reasons why this is vital to the health and life of your business.

Derrick Nkajja, the head of Institute of Certified Public Accountants of Uganda says the basic books of accounting are; purchase ledger, sales ledger and a cash book.

The purchase ledger in which you record all your purchases and expenses, whether or not you have paid them and how much you still owe. On a balance sheet, the total unpaid bills will usually be called trade creditors or accounts Payable.

The purchase ledger has an account for every supplier. The sales ledger where all record of sales and whether or not you have received the money, and how much you are still owed.

On the balance sheet, the total amount still owed to you by Customers will usually be called "trade debtors" or "accounts receivable".

The sales ledger has an account for every custom Cash Book; this is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals.

Entries in the cash book are then posted into the general ledger. Nkajja says the rest of the books are additional to the above.

Others are inventory/ stock book Bookkeeping include assets record, profit and loss accounts, payroll records, sales invoice and cash receipts, among others.