Business accessories in selective focus, Items for accounting, Marketing strategy, investment and saving, accounting and stock market.

Why Accounting is Crucial for any Business

Accounting is important for business owners as it helps the owners, managers, investors and other stakeholders in the business evaluate the financial performance of the business. Accounting provides vital information regarding cost and earnings, profit and loss, liabilities and assets for decision making, planning and controlling processes within a business.

The main objective of accounting is to record financial transactions in the books of accounts to identify, measure and communicate economic information. Moreover, tax reporting agencies require you to keep books at a minimum level that tracks income and expenditure.

What Is the Purpose of Accounting?

Accounting is often referred to as “Language of Business”. It is a means of communicating financial information to different users for decision making.

The main objectives of accounting are:

RECORDING TRANSACTIONS

The primary role of accounting is to maintain a systematic, accurate and complete record of all financial transactions of a business. These records are the backbone of the accounting system. Business owners should be able to retrieve and review the transactions whenever required.

BUDGETING AND PLANNING

Business owners need to plan how they allocate their limited resources including labor, machinery, equipment and cash towards accomplishing the objectives of the business.

An important component of business management, budgeting and planning enable businesses to plan ahead by anticipating the needs and resources. This helps in the coordination of different segments of an organization.

DECISION MAKING

Accounting assists in a range of decision-making process and help owners in developing policies to increase the efficiency of business processes. Some examples of decisions based on accounting information include the price to be charged for products and services, the resources needed to make these products and services and financing and business opportunities

BUSINESS PERFORMANCE

Using the accounting reports, business owners can determine how well a business is performing. The financial reports are a reliable source of measuring the key performance indicators, so business owners can compare themselves against their past performance as well as against the competitors.

FINANCIAL POSITION

The financial statements generated at the end of the accounting cycle reflect the financial condition of a business at that time. It shows how much capital has been invested, how much funds the business has used, the profit and loss and the number of assets and liabilities of a business.

LIQUIDITY

A common reason for business failure is the mismanagement of cash. Accounting helps in determining the liquidity of a business which refers to the cash and other liquid resources at your disposal to pay off financial commitments. The information reduces the risk of bankruptcy through detection of bottlenecks.

FINANCING

Accounting helps business owners prepare historic financial records as well as financial projections which can be used while applying for a loan or securing investment for the business.

CONTROL

By placing various checks across the organization, accounting helps in avoiding losses caused by theft, fraud, errors, damage, obsolescence and mismanagement. The internal controls safeguard the business assets and avoid long-term losses.

LEGAL REQUIREMENTS

Law requires businesses to maintain an accurate financial record of their transactions and share the reports with the shareholders, tax authorities and regulators. The financial statements and information are also required for indirect and direct tax filing purposes.

Why Is Accounting Useful for Business Owners?

Poor financial management is one of the primary reasons for business failure especially in the first year of the business. Since businesses have a limited budget and other resources, accounting plays a crucial role in providing information that helps businesses in its growth and development.

For business owners, accounting is crucial due to the reasons below:

  • Keep a track of the cash flow. To prevent your business cash flow from running dry, you should implement policies for efficient record-keeping and a sound financial strategy.
  • To understand the concepts of fixed costs, variable costs and how to accurately cost your project, business owners can rely on cost accounting. This way you don’t end up losing money on a project you thought would be a big earner 
  • Accounting gives you a better grasp of the well-being of the business. You can do this by learning to read a balance sheet, income statement, and cash flow statement
  • Helps you detect and avoid frauds and theft by customers, employees and suppliers
  • When you understand the business finance and dealings, you are better equipped with facing audits
  • Bankers are more confident when dealing with business owners who have a handle on the business finances and actually understand financial implications

Whether you are a solopreneur or employ staff, the key to growing your business is to review your financial statements regularly and establish a detailed budget that will allow you to discover operational inefficiencies.  Saving a little bit on several expenses can add up to big results over the long run.

Why outsourcing  Accountants is Important?

Accounting necessitates huge amounts of data collection and organization of information in a way that can easily be interpreted by the management. Business owners need to keep tabs on the operating costs, changing revenues and dividends to make strategic decisions.

As a small business owner, it might be tempting to manage the business finances yourself, but financial matters can be delicate and may require a trained professional to handle them correctly. Professional accountants assist business owners in making smart fiscal decisions while adhering to the compliance requirements.

Here are some of the key reasons to invest in an accountant for your small business:

  • Analyze the financial data and determine areas for improvement. This is crucial for the long-term health of the business
  • Prepare financial statements based on the Generally Accepted Accounting Principles (GAAP)
  • You will get customized advice based on your unique business needs
  • Using a third-party accountant ensures that you’ll receive unbiased information that is verifiable and objective
  • The accountant acts as a financial advisor and helps you with budgeting and monitoring cash flow on a steady basis. This will allow you to navigate any hurdles that occur in real time
  • It helps you during tax season as accountants can identify potential deductions and help avoid audits

Along with hiring an accountant, business owners are increasingly using online accounting software. The software syncs the accounting system with the banks and helps you understand your real-time cash position. It can also be used for viewing various accounting reports, creating expense claims and sending invoices on the go.

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Our take on the Zimbabwe Mid – Term Budget Review

Fiscal interventions to try and boost the economy and encourage productivity and revenue consolidation were put in place on 16 July 2020 by Finance Minister and these are:

  1. Tax Relief Measures  

PAYE Tax-Free Threshold

Tax free threshold has been raised from ZWL $2000 to ZWL $5000 per month. The highest marginal rate is 40% for above $100 000

Tax Exemption on Risk Allowance Earned by Frontline Health Personnel

COVID-19 Risk Allowances payable to this category of employees are exempted from tax for a period of twelve (12) months commencing from 1 April 2020

Incentives for the Victoria Falls Securities Exchange (VFSE) and Investors

Government’s plan to launch the Victoria Falls Securities Exchange, with a view to attract critical offshore capital to the economy

As part of the incentive package to facilitate establishment and full operationalisation of the exchange the following incentives for the Victoria Falls Securities Exchange and investors:

• Exemption from Corporate Income Tax for the VFSE;

• Exemption from Capital Gains Withholding Tax on disposal of shares listed on the VFSE

• A lower rate of 5% on dividends payable to non-resident investors on the VFSE.

Allowable Deductions on Health Related Donations

A number of corporates have demonstrated a lot of goodwill and sacrifice by donating various goods and services to strengthen the health delivery system and social support framework.

The maximum allowable deduction on donations by corporates to the local currency equivalent of US$100 000.

Tax Exemption on University Infrastructure Projects

In order to support university infrastructure development initiatives by the Infrastructure Development Bank of Zimbabwe (IDBZ), exempt from Income Tax, specified Student Accommodation Projects

with effect from 1 January 2021. The exemption will be granted subject to fulfilling prescribed conditions.

Tax Exemption on Domestic Tourists Accommodation

The hospitality industry is one of the sectors most affected by the Covid-19 pandemic, hence it is essential for Government to take a leading role in supporting revival of the sector. Domestic tourist accommodation will be exemption from VAT with effect from 1 August 2020

2. Revenue Enhancing Measures

Payment of IMTT on Foreign Currency Transactions

Current legislation exempts the transfer of money into and from Nostro foreign currency accounts from intermediated money transfer tax. Intermediated Money Transfer Tax will be extended to cover foreign currency transactions. For the avoidance of doubt, transactions conducted by organisations accredited in terms of the Privileges and Immunities Act (Chapter 3:03) remain exempt from IMTT.

Tax Free Threshold and Maximum Tax Payable per Transaction

In line with market conditions, Intermediated Money Transfer Tax (IMTT) free threshold has been reviewed from ZWL $100 to ZWL $300 with the free threshold extended to foreign currency transactions not exceeding US$5. The maximum tax payable per transaction by corporates has been reviewed from ZW$25 000 to ZW$50 000 on transactions with values exceeding ZW$2 500 000 and maximum tax of US$ 2 000 for foreign currency transactions with a value exceeding US$ 100 000.

Value Added Tax Recording of Electronic Transactions

In order to mitigate risk on fiscal revenue, as well as enhance transparency, all VAT Registered Operators to configure Fiscal Devices to capture all transactions in the currency of trade and also produce the respective invoice in the tendered currency.

Duty Exemption on Donations of Vehicles to Government by Development Partners

Exemption from customs duty, donated single and double cab trucks, in support of Approved Projects undertaken by Government Ministries and Departments.

3. Tax Administration

 Border Post Enhancement

The surge in traffic volumes has created opportunities for smuggling of goods. In order to curtail smuggling activities, ZIMRA has been empowered to introduce Anti-Smuggling Surveillance Drones at both designated and undesignated entry points.

Excise Duty on Fuel

In order to create a balance between optimal revenue collection and affordability of fuel, there is now an Automatic Excise Duty Adjustment Mechanism that reviews excise duty on a monthly basis to levels determined through a designated formula, with effect from 1 August 2020.

4. Customs Duty Exemption on Top Dressing Fertiliser

Top dressing fertilisers of 120 000 metric tonnes on accredited dealers for the 2020-21 summer cropping season will be exempted