BUSINESS LITERACY FOR ALL-BUYING A BUSINESS

It is very difficult to establish and run a business due to the frustrations one has to go through in the registration process and the hard time to come by start-up capital. These factors cause most ideas to forever remain ideas that never materialize into a viable business. There is however a way out in owning that dream business you are yearning to own. The option is buying an existing business since it already has the structure, the employees and existing customers in place to kick-start your business. I must be quick to add that you should not decide to buy an existing business instead of establishing one because you want to avoid the hustle and bustle of setting up your own. You must investigate the industry very well to know the players in there, the market share your new company owns and how profitable it would be if you should buy it. Decide whether or not you are convinced to buy the business and you are ready to make a commitment to that effect. If you are convinced to buy the business, then start talking to the owners of the business and explicitly stating your decision to buy their company. Negotiate with the management of the company you are seeking to buy and seek legal advice throughout the negotiation period. If you are someone interested in buying already established businesses, then talk to business opportunity brokers, read classified newspapers and go for business opportunity trade shows.

Take a very close look at whether environmental and other laws in the industry or country where the business is and whether the business has always adhered to these laws. It is equally essential to check the track record of the management of the company you wish to buy. The management of the business you want to buy should be studied and known, though it’s difficult to assess, it is still crucial to the future well-being of the business. Assess the expertise needed to keep the business going, if present management leaves and you have to hire your own new team.

Technology, if the business is an industry, where it demands IT for it to make high profits, it should be considered whether it can sustain the ever-fast-changing industry and still remain in business for the foreseeable future.

In your decision to buy a business, you would be dealing more with experts like accountants, attorneys, bankers, equipment suppliers and vendors amongst other experts but always remember it is your decision to buy that business. Don’t allow any expert to decide for you. But what would be helpful is that you ask them relevant and specific questions that would guide them in their recommendation to you.

Furthermore, your decision to buy a business should be dependent on facts and figures, industry analysis and objectively evaluation the future prospects of the business considering both macro and micro economic indicators. Most of the above information can be gotten from regulatory agencies of the company you are buying. 

There are source document that you can get from the accounts department of the company you are buying. Certain documents like the balance sheet, cash flow statement and income statements should be checked. Do not forget to always ask for an audited financial statement. Ask for verification documents for their receivables, payables and other lines items in their financial statements. Ask for the seller's personal and business tax returns. In some businesses, you can determine the income by analyzing utility bills or supplier's records. You should be quick to find out if the company has a pending case in court and analyze objectively their chances of winning or losing that case. Also verify to see if there are some outstanding financial obligations the business owes to other companies and find out if they are retrievable or recoverable. This affects the value of the firm as this would help you arrive at the cost of buying the business.

Reasons why you buy an existing business

• An existing business may be the only way to enter the industry.
• Location is an important factor. In some communities, certain types of business can no longer be built and an existing business will be the only way to enter the industry. Proximity to your home will also be a factor. 

Benefits to purchasing an existing business:

• The business has a track record of income and expenses
• Operating costs are often lower than in a new business
• The business will already have trained employees
• There may be true goodwill already built in
• The business may already dominate the market in the trade area

Now, you have an excellent idea of how to buy an existing business.  Direct all questions, comments and additions to: skteye@gmail.com 

©2011, Sophia Kafui Teye

Email: skteye@gmail.com

FINANCIAL LITERACY FOR ALL-HAVING A BUSNINESS

A business is any activity that generates income for you without your presence. In this write up, the word business would be used to describe all kinds of business like sole proprietorship, partnership, and corporation. Most of these businesses carry certain distinct features like legal entity distinct or different from its owners and can act on its own by utilizing its legitimate rights, power and authority. Sole proprietorship does not have the feature separate legal entity.

A business is able to serve a larger community than an individual and a business is expected to be a going concern or is expected to have a perpetual life. Sole proprietorship usually has the shortest going concern because the death of the sole proprietor can render the business closed. Under normal circumstances a business could be passed unto generations to run and serve society.

When one owns a business, one could relieve oneself from many expenses and one can enjoy many privileges from the business, provided the business attains a certain status and is really law abiding by meeting its tax obligations and other statutory responsibilities. You can set up a business yourself or buy an existing business. Whichever, a business is a business and what is important is that it exists and is capable of generating revenue for you and is serving its target market.

There are several things that are required for a business to be successful, human resource issues, cash flow and book keeping issues. Owners of businesses should employ the right people to stir the affairs of the business for it to function and continue to be a going concern.

The cash flow of the business should be a critical factor, because the business cannot exist without money to operate. There should be cash flow management measures in place and these measures should be adhered to and implemented. It is essential for business cash to be spent on budgeted items only and should be captured in the books of account.

Every business needs initial working capital, aside the fixed assets and human capital to operate effectively. Working capital is the cash needed for the day to day running of the business.

 If the business is an existing one, its working capital should be expanded and consolidated.  Without working capital, it is very likely to run into debts that could have been prevented, because things done on credit for the business would always be more expensive, especially when your suppliers know you might not be credit worthy, than when done with cash. Yes, it is better to transact businesses on credit but that would be after your business counterparts know you very well and believe you have a reputation and that you are really credit worthy.

Marketing of the organization’s products or services is crucial to the well-being of the organization and this could help sales flow in so the business could make some good cash. Without vigorous marketing and sales of the products or services, the business has no future. It’s expected that every entrepreneur should be able to sell his or her own products or services very well and hence should be able to hire people like him or her or better than he or she to make good sales for the business.

Every business should have very strong and robust internal controls to cater for administration, accounting and finance and other departmental needs. Approvals and authority levels clearly spelt out. Segregation of duties for employees is clearly done and allocated. That management is not overwriting its own rules and the integrity of management is not questionable.

Internal controls should be designed in such a way that they should help prevent, detect and correct fraud and similar instances.

If the business has no internal controls, it will not last and shall be closed down in no distant future.  The internal controls in fact are the tools intangible that would concretize and make it perpetual.

A business must be backed by a good legal system, meaning, it should protect itself against its competitors by having good lawyers to act for it and it should also be law-abiding to meet all its legal and statutory obligations.

All businesses in the world only exist when they have product(s) and or service(s) to offer to the world else, it is an impossibility to get from the world without giving it anything in return.

Once, again, there is nothing for something in the world.

The business must have a product or service to give to the world and get back from it. The business could increase its product or service lines as and when necessary after doing the necessary marketing survey and research. The product or service should be packaged well to be attractive, catchy, appealing, durable and trusted.

The privileges of having a business are:

·         The business could protect your assets for you

·         The business could bear all personal expenses for you

·         The business could serve a larger society than you doing it alone

·         The business generates income for you while you sleep

·         The business could pay tax in larger amounts than you would pay yourself to aid national development

·         The business could be passed unto your children

·         The business can contribute to environmental friendliness and sustainability development

·         The business opens many doors of opportunities and gives you the opportunity to meet many learned and prominent people

·         If you have your own business, you are your own boss and you not answerable to anybody

·         If you have your business, you can have time to attend to other important, personal matters and still make money

·         If you have a business, your money works for you, while you concentrate on other important matters

It is not only entrepreneurs, who should have businesses, employees could also have businesses and at the same working diligently for their employers.

FINANCIAL LITERACY FOR ALL-AUDITING

The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product.
Financial Audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity (including governments), resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically performed by firms of practicing accountants due to the specialist financial reporting knowledge they require”

In the financial world, businesses are mostly set up by people, who are not necessarily the same people who run or take care of them.

Auditing in the financial realm is meant to show evidence of the performance of the manager(s), and assess and evaluate their stewardship as they have been given authority and responsibility to run the business. More importantly, auditing allows other people to cross-check the work you have done to be sure are no errors or misstatements in the financial statements or any data or information that would be used by others to make decisions.
It is always easier to carry one’s mistakes or errors even from the beginning to the end, but once, there is someone competent to cross-check one’s work, mistakes or errors committed would be eliminated or at least minimized. In Financial Literacy Education auditing is as important as it knowing how well to keep one’s house and abode free from destruction and clean from dirt and filth.
We should learn to audit ourselves, before we are being audited in all our financial dealings and we learn to understand the importance of auditing and the importance of the work of an auditor. When we set up our own business and run them ourselves or let other take care of them for us. Auditing could be the secret that will keep your business going on and striving to the test of time all the time.
When you set up your business whether big or small do not compromise on paying a qualified auditor to audit your financial records for you. You need auditing for many good reasons as would be outlined soon

Around 2002 many companies amomg them were Enron and WorldCom collapsed in the USA and other companies in other parts of the world also collapsed because auditing and corporate governance were not applied appropriately and professionally. If auditing was applied as required those collapsed companies would have lived at least a bit longer. Good and competent auditing could therefore help prolong the life of your business and your own financial being, because if you are a shareholder of any listed company whether private or public limited liability company, you need to participate in selecting qualified auditors to exam the financial statements and express their opinions on them. Your share value could be appreciated or increased and become lucrative for potential investors if auditors give a good report of your company.
Auditors have their responsibilities distinct from that of the managers.
I f you are a manager of an organization, do well to carry out your responsibilities accurately and timely for the auditor to be able to do his work and not have difficulties.



When management performs its duties creditably, it reduces the work of the auditor and lower audit fees are paid.

Auditors could be external or internal. Internal auditing if not outsourced would mostly be performed by staff members who are also employees of the organization and they also have their responsibilities assigned to them by superiority authority within.
Big time companies are supposed to have an internal audit department or consider having one. BPP Publishers define Internal Audit as “an independent appraisal function established within an organization to examine and evaluate its activities.”
External auditing in many cases (all cases) are statutory and whether management is happy with the idea of having auditors or not, audit of their stewardship would be carried out annually and copies of the financial statements filed with the Registrar of Companies. The Internal or Inland Revenue Service also gets a copy so they could study it and get back to the organization on tax issues.
There is public misconception about what auditors especially the external auditors come to do in an organization in which they not employees. Auditors are just human beings, who have been asked by the shareholders or owners of the organization to exam the financial statements and express their opinion on them.
Auditors do not go organizations to audit with an aim of finding faults with employees or management. The auditor is a finance professional who carries out his/her work with professional skepticism among other professional attributes such as objectivity, independence, confidentiality and many more and would report anything good or bad he/ she comes across if there is the need to.
It is not the duty of an auditor to prevent, detect and correct misstatements and errors in the financial statements as far as the current auditing standards are concerned, though the auditor’s responsibilities could be extended, these have not been covered yet. Auditors are expected to prepare their audit plan and programme in such a way that all material misstatements in the financial statements could be detected by they, the auditors but should be corrected by management. So if, in doing their routine work the auditor comes across some fraud or an error and he/she could report it and that would not meant the auditor went there with a mind of finding faults with employees or management.
It is hundred percent and the core duty of management to put in good measure to prevent, detect and correct errors committed by employees or if management itself so that the organization could be a going concern to function smoothly.
The expectation gap exists where, what the public expects the auditor to do and what the auditor actually does. The expectation gap could be broken through public education among other potent factors of the current duties of auditors and management.
Importance of auditing:
• Audited financial statements could be used access funds from lenders

• Audited financial statements are filed with the Registrar of companies and all copies sent to all stakeholders that require them.

• Auditing would report if the organization is a going concern

• Auditing helps the organization keep good and accurate financial records

• Auditing keeps employees and management awake and functioning

• Auditing brings trust between shareholders and management

• Auditing allays and addresses the fears of shareholders and all stakeholders

• Auditing could add to the fortunes of the company
When you set up your organization, make sure you have qualified auditors to audit your financial statements for you and the future well being of your organization could be guaranteed.
Auditors can and should be changed when their independence and objectivity are impaired, prejudiced and threatened and when familiarity begins to mar the good works of the auditor they should be changed. Remember, the auditor is paid to do a good work and should be fired where their independence and other professional demeanours are compromised. On the hand, where everything is going well but management thinks they have had a long relationship with their auditors and familiarity begins to breed up, they could also change the auditors.
Auditors are not managers and should never be seen to be executing management functions.
The solidity of sustainable development and environmental friendliness greatly depends on auditing and auditors reporting appropriately.
By Godwin-Xavier Ayeebo
Email: gayeebo@gmail.com

FINANCIAL LITERACY FOR ALL-GOOD & BAD LOANS

Businesses every where are run with money. Most businesses raise their capitals in the form of loans. Loans are as old as mankind and will continue to live as far as man lives. I, believe, everybody, has at least once been encountered with a loan transaction before whether formal or informal. We take loans from friends, sisters, brothers, employers, and more especially the money-lending financial institutions, i.e. the banks and other non-bank financial institutions.

Many formal loans are borrowed with the understanding of giving back the original loan taken together with some form of interest on it, so that the lender could benefit for the opportunity lost in not putting his/her money in another investment to earn them some return.

Loans taken from friends and family members are mostly interest free and there are also mostly in small amounts taken mostly for personal purposes. Their repayment period is also shorter and many of these loans are not even repaid, because some of the borrowers fail to be honest and reliable to perform their part of the obligation and agreement.

Loans could be good or bad depending on the terms and conditions of the loan agreement and the purpose for which the loan is contracted.

If a loan involving a large amount is taken and the purpose is to acquire personal property then that is a bad loan, in the sense that the loan is not for free, it will be repaid, so, it should go into an income generating venture to make more money for the loan to be repaid easily.

Good loans should be contracted for business purposes, which in the long term will bring more returns than the interest on the loan. A good loan’s interest is tax allowable but with a bad loan you bear the interest yourself. A good loan should help decrease your tax liability but a bad loan helps increase your tax liability

 A good loan is a loan that someone else pays it for you. You don’t feel the pain, inconvenience and depletion in your cash flow. This means, you hedge the loan contracted, so its repayment becomes pleasurable.

Good loans increase the value of   your assets. If you draw up your assets, you realize the loan has added to its value, if not then it’s a bad loan

Good loans have very moderate and affordable interest rates charged on them. Bad loans have interest rates that are skyrocketing and are unpalatable to contract and are never friendly to repay. Most Ghanaian loans are of this class. The interest rates on loans in Ghana are crazy and unbelievable. No wonder, all the banks, report higher profits year after year. Interestingly, the interest the banks give on our monies that we have deposited with them on savings, etc, is nothing compared with the rates on loans. Risks on loans? They are credible and very honest and less risky business ventures and people in the country, but how many banks in Ghana would grant them loans by using even the 91-day T. Bills rate as interest rate for them?

Good loans bring income home, but bad loans take away the little you have from home and give it to the lender. A good loan taken should be invested to generate some type of income for it to be a profitable loan. Bad loans are taken for purposes, which are not investment-oriented and bring nothing home.

Good loans are free from conditions and covenants that are unfriendly and tied or attached to your personal property, in case of default, you lose everything.

Good loans allow and give opportunity to re-negotiate interest rates downwards; bad loans’ interests’ rates are not negotiable after signing.

Mortgages are loans, they could be good or bad depending on what purpose the mortgage was contracted. Mortgages for personal property are bad loans, but mortgages but for business purposes could be good loans.

In my humble opinion, I would not take a mortgage facility to buy a house for my personal use, no. I know I need a house by a certain age, so I plan for it and build it gradually. If I don’t finish building it before I retire, generations after me will finish it, after all the land, the most valuable property, the land would have been acquired and owned by me or us.

In a mortgage facility it will be difficult to transfer the property to generations after you if you have not finished paying for it even if the land was bought by you.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  I wouldn’t mind taking a mortgage facility to buy a house and rent it out and the rent received should be able to pay the interest on the mortgage, if not then no mortgage for me.

If you take a mortgage facility for a personal property, then you become an employee for the mortgage company, because you would be working very hard for them till you finish paying them.

Good loans bring prosperity and wealth creation. Bad loans drain us financially and bring problems home.

© 2010, Godwin-Xavier Ayeebo

Email:gayeebo@gmail.com

Blog: www.g-xavierayeebo.blogspot.com

FINANCIAL LITERACY FOR ALL-ENTREPRENEUR & EMPLOYEE

In the world today, one works as either an employee or an entrepreneur to earn a living. Financial Literacy touches so lovely, attractively and delightfully on the contributions of the entrepreneur and the great contributions of the employee. The two are not the same, so as their rewards.

As has been discussed before, financial literacy affords people the opportunity to learn to be creative, financial literacy greatly promotes entrepreneurship and entrepreneurship is the brainchild of financial literacy.

Financial literacy takes a critical look at the differences between entrepreneurs, who create jobs for themselves, and employees, who work for others and always seek for job security all the time.

Entrepreneurs create a job, whilst employees seek for a job. Entrepreneur takes risks but the employee doesn’t take risks. The entrepreneur’s income could be in the form of portfolio income or passive income but the employee’s income is earned or active income.

The entrepreneur owns the job, but the employee is hired to work, the entrepreneur is the inside investor or shareholder but the employee is mostly not a shareholder, in cases, they are involved they are outsiders investors.

The entrepreneur builds his own assets and has the chance of getting very rich once he/ her succeeds but the employee build assets for somebody else and has little chance of getting richer.

The entrepreneur is greatly a knowledge worker as well a data worker but the employee is mostly a data worker.

The entrepreneur doesn’t seek for job security; they keep on investing in other areas and managing risks, but the employee greatly seeks for job security and doesn’t compromise on it.

That is why some employees would even kill and maim their colleague co-workers to secure their jobs. They don’t take risks, no way. They play politics, they gossip, they pull him/her down ( PHD holders) to occupy certain positions at their work places maybe to get more pay, fame or power but they are answerable to the owner of the business. The entrepreneur owns the company and doesn’t fight with anybody to retain his title and position. He/she can hire and fire appropriately. He/she is not answerable to anybody in taking decisions affecting his/her organization.

The employee relies on a monthly pay cheque to survive life but the entrepreneur doesn’t need a monthly pay cheque at all to enjoy life. In fact, the entrepreneur could live for a long time without pay. The great and successful entrepreneur delays luxury for a later time in order to run his/her business.

The entrepreneur may not necessarily have personal expenses, their organizations could bear all their expenses for them but the employee always has personal expenses, he bears all his/her own expenses.

The entrepreneur has enough time to attend to family matters and other important issues at his/her own will but the employee has to seek for permission to be granted time to be able visit his sick wife/child or her sick husband/mother. In some instances, the employee is refused permission to attend to family matters, even in very urgent ones.

The entrepreneur takes decisions about the company but the employee has little say about the company.

The entrepreneur doesn’t do the same job every day but the employee does a monotonous job all the time, only reassigned once a while. The entrepreneur could sleep and still make some money but if the employee decides to sleep without permission, he/she gets fired to go home without pay, he therefore gets poorer. The employee can only make money when he is working.
The entrepreneur retires or dies and leaves a job for his/her children but the employee retires and goes home without his /her job.

The entrepreneur spends before paying tax, but the employee pays tax before spending.

The entrepreneur plays a leadership role in the organization but the employee plays a managerial role in the organization.

The entrepreneur is visionary and thinks about the long term success of the business but the employee is occupied with the short term well-being of the business.

Life is a choice, you decide what you want and nobody does that for you, not even your parents. You decide to be a follower for the rest of your life or you become a leader to take up great responsibilities with great risks and rewards.

“Leaders are visionaries with a poorly developed sense of fear and no concept of the odds against them” said Robert Jarvik

Credit: Godwin-Xavier Ayeebo
Blog: www.g-xavierayeebo.blogspot.com
Email: gayeebo@gmail.com