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BUSINESS MANAGEMENT

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How not to manage your business and personal finances
by Robert Jewell B Compt, B Compt Hons, CA (SA) MBA (Wits)




Printing Pain is a home based family business. There were no
employees besides the married couple, the Spenders, who were the
owner managers. The annual turnover and net profit of the business
before owner.s salaries and company income tax were R1, 4 million
and R440, 000 respectively.
Despite its profitability, Printing Pain was unable to pay its debts. It
owed SARS Vat, employee.s tax, interest and penalties and
payments to some of its suppliers were overdue. Furthermore, the
Spender paid some of their personal expenses out of the business
account and did not keep an accurate record of their drawings. The
distinction between business and personal expenses became blurred.
The business accounting records were also not updated regularly. It
was impossible to exercise proper financial control or take informed
business decisions.
Printing Pain had only are major customer which accounted for the
major part of its turnover. This customer often paid late, which had a
severe negative impact on the cash flow of the business. This was
compounded by the inability of the Spenders to control their personal
spending habits. Their combined monthly drawings from the business
exceeded the available net profit. To make up the shortfall payments
to suppliers and SARS were withheld and they incurred interest and
penalties because payments to SARS were overdue.
I advised the spenders to tackle the problem on two fronts. Firstly, I
suggested that they find a few more customers to reduce their
dependency on the single major customer. Printing Pain rendered a
great service. Notwithstanding a short lead-time, the Spenders would
work long hours to insure that the printed material was delivered to
the customer on time. Painful Print was in a niche market and direct
marketing methods were appropriate. They failed to capitalise on this
and continued to rely on the single major customer, who used its
dominant position to force Painful Print to discount its prices.
I also advised the Spenders to draw up a budget for Painful Print and
a personal budget in order to manage the finances of the business
and their personal finances more affectively. The Spenders failed to
curb their spending habits. They then applied to increase the bond on
their home in order to pay SARS. This was not the first time that they
had done this.
The lessons from this case study are:
    Don.t rely on a single major customer or distribution channel
unless you have a proprietary product, technology distribution
agreement or other similar barrier to entry.
    Control your personal spending and live within your means.
Separate your personal and business income and expenditure.
Prepare a personal budget and transfer a fixed amount each
month from the business to your personal account after making
provision for the employees tax.
    Prepare a business budget at least annually. Keep your business
accounting records updated regularly, either manually or using
an accounting package such as Quickbooks. Review the actual
and budgeted figures, preferably on a monthly basis. If you are
using an accounting package, you can load the budget and
generate monthly reports, which compare the budget and actual
results.
    Avoid penalties and interest by paying your taxes on time. The
interest and penalties are not tax deductible. This makes it a very
expensive source of finance.
Printing Pain and the Spenders are not their real names.
In the next issue:
    How through perseverance, focus, steady growth and financial
discipline an entrepreneur built up a manufacturing business
which generates an annual net profit before tax in excess of R1,0
million, and who is personally debt free.

Copyright: Accounting for Entrepreneurs, Author: Robert Jewell B
Compt, B Compt Hons, CA(SA) MBA (Wits), Tel 0861000a4e,
(0861000243), e-mail robert@a4e.bz This article may be reproduced,
copied and circulated freely provided it is not altered in any way, it is
the complete document, and reference is made to the copyright
holder and the author.

THIS ARTICLE WERE PUBLISHED BY THE TESTIMONY

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