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The biggest financial mistakes made by businesses in Kenya


Date Posted: 5/2/2012 8:57:49 AM

Posted By: SimonMburu  Membership Level: Silver  Total Points: 838

The main objective of being in business is making profit, satisfying demand comes second or third depending on the goals of a business. Although money is the biggest objective, most Kenyan businesses continue to make major financial mistakes which leads them to bankruptcy and eventually closing of operations. Below are some of the major mistakes made by businesses.

1. Borrowing money when banks lend it rather than when they really need it:

Money can be borrowed from banks and other financial institutions for the purpose of expanding the business, but majority of businesses will go for a loan since the bank has open doors for these loans. It is important to be aware that the banks are doing business too and that's the reason they have peak seasons for lending loans. It is not that they seek advantages from their clients, but simply because they have objectives to meet just like your business, but one should be aware that their objectives are very different from yours.

2. Failure to pay payroll taxes on time:

Failure to pay payroll taxes on time creates unnecessary anxiety, for a business to have a good rapport with the revenue authority it needs to keep two separate accounts, one for the regular operations expense and the other for payroll taxes. Alternatively, a payroll service can be used.

3. Hiring in advance of revenue:

Businesses make the mistake of hiring many people before the revenues are real. There is big difference between having revenue and when it has hit the account. It is therefore advisable to avoid being optimistic.

4. Pricing too low:

Higher prices protect the margin of the business and enhance the business' brand, it is good to have fewer units at lower price and many units at a higher price rather than the vice versa.

5. Permitting accounts receivable:

More often, businesses fail

because they cannot collect the receivables and manage cash. It is therefore wise to avoid offering credit terms to customers unless when there is a good reason or when you must do so.

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