Zimbabwe Business Manual 101 - Fidelis Fengu (well read books TXT) 📗

material inventory that is processed (a.k.a. work-in-process inventory) to be sold as finished goods inventory. For a company that sells a product, inventory is often the first use of cash. Purchasing inventory to be sold at a profit is the first step in the profit making cycle (operating cycle) as illustrated previously. Selling inventory does not bring cash back into the company -- it creates a receivable. Only after a time lag equal to the receivable's collection period will cash return to the company. Thus, it is very important that the level of inventory be well managed so that the business does not keep too much cash tied up in inventory, as this will reduce profits. At the same time, a company must keep sufficient inventory on hand to prevent stockouts (having nothing to sell) because this too will erode profits and may result in the loss of customers.

Other Current Assets

Other Current Assets consist of prepaid expenses and other miscellaneous and current assets.

Fixed Assets

Fixed assets represent the use of cash to purchase physical assets whose life exceeds one year. They include assets such as:

Land

Building

Machinery and Equipment

Furniture and Fixtures

 

 

 

 

 

 

 

Intangibles

Represent the use of cash to purchase assets with an undetermined life and they may never mature into cash. For most analysis purposes, intangibles are ignored as assets and are deducted from net worth because their value is difficult to determine. Intangibles consist of assets such as:

Research and Development

Market Research

Goodwill

Organizational Expense

In several respects, intangibles are similar to prepaid expenses; the use of cash to purchase a benefit which will be expensed at a future date. Intangibles are regained, like fixed assets, through incremental annual charges against income. Standard accounting procedures require

Most intangibles to be expensed as purchased and never capitalized (put on the balance sheet). An exception to this is purchased patents that may be amortized over the life of the patent.

 

 

Other Assets

Other assets consist of miscellaneous accounts such as deposits and long-term notes receivable from third parties. They are turned into cash when the asset is sold or when the note is repaid. Total Assets represent the sum of all the assets owned by or due to the business.

LIABILITIES AND NET WORTH

Liabilities and Net Worth are sources of cash listed in descending order from the most nervous creditors and soonest to mature obligations (current liabilities), to the least nervous and never due obligations (net worth). There are two sources of funds: lender-investor and owner-investor. Lender- investors consist of trade suppliers, employees, tax authorities and financial institutions. Ownerinvestor consists of stockholders and principals who loan cash to the business. Both lender-investor and owner investors have invested cash or its equivalent into the company. The only difference between the investors is the maturity date of their obligations and the degree of their nervousness.

 

 

Current Liabilities

Current liabilities are those obligations that will mature and must be paid within 12 months. These are liabilities that can create a company's insolvency if cash is inadequate. A happy and satisfied set of current creditors is a healthy and important source of credit for short term uses of cash (inventory and receivables). An unhappy and dissatisfied set of current creditors can threaten the survival of the company. The best way to keep these creditors happy is to keep their obligations current.

Current liabilities consist of the following obligation accounts:

Accounts Payable -- Trade (A/P)

Accrued Expenses

Notes Payable -- Bank (N/P Bank)

Notes Payable -- Other (N/P Other)

Current Portion of Long term Debt

Proper matching of sources and uses of funds requires that short-term (current) liabilities must be used. Only to purchase short term assets (inventory and receivables)

 

Notes Payable

Notes payable are obligations in the form of promissory notes with short-term maturity dates of less than 12 months. Often, they are demand notes (payable upon demand). Other times they have specific maturity dates (30, 60, 90, 180, 270, 360 days maturities are typical). The notes payable always include only the principal amount of the debt. Any interest owed is listed under accruals.

The proceeds of notes payable should be used to finance current assets (inventory and receivables). The use of funds must be short term so that the asset matures into cash prior to the obligation's maturation. Proper matching would indicate borrowing for seasonal swings in sales, which cause swings in inventory and receivables, or to repay accounts payable when attractive discount terms are offered for early payment.

Accounts Payable

Accounts Payable are obligations due to trade suppliers who have provided inventory or goods and services used in operating the business. Suppliers generally offer terms (just like you do for your customers), since the supplier's competition offers payment term. Whenever possible you should take advantage of payment terms as this will help keep your costs down. If the company is paying its suppliers in a timely fashion, days payable will not exceed the terms of payment.

Accrued Expenses are obligations owed but not billed such as wages and payroll taxes, or obligations accruing, but not yet due, such as interest on a loan. Accruals consist chiefly of wages, payroll taxes, interest payable and employee benefits accruals such as pension funds. As a labor related category, it should vary in accordance with payroll policy (i.e., if wages are paid weekly, the accrual category should seldom exceed one week's payroll and payroll taxes).

 

Non-current Liabilities

Non-current liabilities are those obligations that will not become due and payable in the coming year. There are three types of non-current liabilities, only two of which are listed on the balance sheet:

Non-current Portion of Long Term Debt (LTD)

Subordinated Officer Loans (Sub-Off)

Contingent Liabilities

Non-current portion of long-term debt is the principal portion of a term loan not payable in the coming year. Subordinated officer loans are treated as an item that lies between debt and equity. Contingent liabilities listed in the footnotes are potential liabilities, which hopefully never become due. Non-Current Portion of Long Term Debt (LTD) is the portion of a term loan that is not due within the next 12 months. It is listed below the current liability section to demonstrate that the loan does not have to be fully liquidated in the coming year. Long-term debt (LTD) provides cash to be used for a long-term asset purchase, either permanent working capital or fixed assets.

Contingent Liabilities

Contingent Liabilities are potential liabilities that are not listed on the balance sheet. They are listed in the footnotes because they may never become due and payable. Contingent liabilities include:

Lawsuits

Warranties

Cross Guarantees

If the company has been sued, but the litigation has not been initiated, there is no way of knowing whether or not the suit will result in a liability to the company. It will be listed in the footnotes because while not a real liability, it does represent a potential liability, which may hurt the ability of the company to meet future obligations.

Total Liabilities

Total liabilities represent the sum of all monetary obligations of a business and all claims creditors have on its assets.

Equity

Equity is represented by total assets minus total liabilities. Equity or Net Worth is the most patient and last to mature source of funds. It represents the owners' share in the financing of all the assets.

Income Statement

Known also as the profit and loss statement, the income statement shows all income and expense accounts over a period of time. That is, it shows how profitable the business is. This financial statement shows what how much money the company will make after all expenses are accounted for. Remember that an income statement does not reveal hidden problems like insufficient cash flow problems. Income statements are read from top to bottom and represent earnings and expenses over a period of time.

 

Conclusion

Nyaya yedu is very simple, mari irimo muZimbabwe and yakati wandei, inongoda kushandirwa and inoda vakangwara. Go out there and seek your share of the billion dollar economy. Get involved in the economic revolution and your chance is now. Entrepreneurship is God's gift to mankind and it is a clear cut tool to end poverty. When you do business use the Bible as a textbook there are several valuable lessons that will help the entrepreneur.

Sibusiso Media thanks you for reading and purchasing our basic manual on business in Zimbabwe. We look forward to hearing from you sibusisomedia4@gmail.com.

Important Contacts

Every entrepreneur needs support and we have put together a few contacts that can help you in your journey to starting up a business in Zimbabwe or growing your current business

 

 

Zwelibanzi Ndlovu : He is a Motivational Speaker and the CEO of Stop to Start International , he specialises in transformation, and leadership and investor relations. He can be contacted on :E-mail: zwelibanzi@stoptostart.biz or landline : (09) 247602/1

Fidelis Fengu is a skilled business development consultant and coach who will help you navigate through the challenges of entrepreneurship. He is the owner of Sibusiso Media and can be contacted on email : fidelisfengu@gmail.com whatsapp or calls +263719584327 www.fidelisfengu.com 

Nyasha Mandeya: She is the Director of Economic Affairs at ZANU PF HQ. She is well versed in Government and party programs that can benefit the Entrepreneur and she can be contacted on (04) 781382

Metbank E-mail: info@metbank.co.zw , www.metbank.co.zw Tel: (04) 773401/ 7734506/774964/777256

 

Empower Bank Contacts. Branch: Tendeseka Park, Block 4, First Floor Samora Machel Avenue, Harare. Tel: +263 242 709 550 - 709 555. Email: info@empowerbank.co.zw.

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Publication Date: 01-05-2019

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