Operating on cash is killing your business

Aug 16, 2015 | | Say something

One of the main complaints of African entrepreneurs is the lack of loans or financing from the local banks. At the same time, a huge proportion of business is done by cash. Many companies in fact do not even have a business bank account. The main reason, obviously, is to avoid or reduce tax.

Now, other than the problem of mingling personal and business finance, which I will discuss in a future blog post, operating on cash or “under the table” make it hard to build a financial track record for the business. Banks therefore can only rely on a hefty collateral (such as real estate) to assess loan applications and guarantee that funds that are disbursed will indeed be paid back.

Maintaining accounting books, receiving payments at  local institutions and paying expenses from the same account however would have started/contributed to the reputation with the financial institution and certainly facilitate future loans or line of credits.

Another advantage is when it comes to selling the business or bringing in investors. A business which cash flow is completely mixed with the owner personal finances will be difficult to value properly.

It is time to stop being narrow minded when it comes to the management of your company. Instead of trying to hide everything from the government, the effort should be made instead to explore legitimate options to minimize your tax bill. It is actually more easier than people usually think. There is no other option, unless you want to remain a small business forever.

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