You will find that the majority of business women in Kenya are traders. My best guess about it is because it costs less money to start. It also involves less regulations and this fits well if you are a woman who wants to start a side business.
While trading is simpler than processing or manufacturing, as you only have to sell what you have bought, it is not necessarily easy. You deal with far more competition. You also deal with a high turnover. Stock and money is always passing through your hands. This makes it very easy to lose sight of how much profit you are really making and the true performance of your business.
Are you sure business is doing bad because of the economy or it’s just that your former customers have found alternatives? Customers can be as unfaithful as hell.
Success of your trade business requires your attention to detail. It’s at this margin that you beat your competitors and grow. Lucky for you, there are many tools to help you stay alert on all the details. Tools we have shared many times over on this website – for our faithful readers. Here are 6 more:
1. Bad debt expense
What do you do when you fail to receive payment for goods you have delivered? Many business people dealing with the public institutions can tell tales about this. While we do wish bad debt doesn’t happen to you, you have to put it in your records to have a clear picture of how profitable business has been.
If you use cash accounting, not the best, you must write off the bad debt once deadline to payment elapses. If you use accrual accounting, you need to anticipate what percentage of your sales will be bad debt. You can then include that bad debt as expense on your income statement. Since the customer doesn’t give you the money, it will also reduce your cash asset on your balance sheet.
You may think that depreciation is some rocket science stuff. And that it’s best left for the accounting and finance departments of Safaricom, or whatever, not for your small business. You are partly correct. If you’re looking to game KRA, yeah, see a tax expert.
But there is the simple part where it reveals to you just how much value you are getting from your assets. It can also help you know whether it makes money sense to buy new equipment, like a laptop or cash register. All you need to know is the straight line method of calculating depreciation. It’s the simplest.
You subtract the value of your asset at the end of its useful life from the original cost of the asset. Then divide the result by the number of years the asset will be of use to you. If you bought your laptop at sh.50,000 and after 5 years it will have a value of sh.25,000 – then depreciation is sh.5000 (50,000 – 25,000/5). Every year you must add this sh.5000 as expense on your income statement. You can also see that your laptop loses sh.5000 worth of value every year. Reflect this on your balance sheet when noting asset value.
3. Accrued expense
It can also happen that you don’t pay others on time. It may be your suppliers or your employees. Many women traders in Kenya make the mistake of leaving these unpaid expenses from their financial records. You may feel that you should include them only when you make the payment. The problem, with this, is that you’ll end up overstating how much profit you made. This is dangerous for planning and analysing performance of your business. It also negatively impacts your chance to get that business loan. You have to note the accrued expense. When you make the actual payment, you will list it in your cash flow statement so you have nothing to worry about.
4. Add-on sales
Have you gone to buy snacks and the cashier asked you, “hakuna kitu ingine unataka?” He or she is simply implementing the add-on sales strategy. It’s a low effort way of increasing your sales. If I bought a sh.100 thing from your shop and you urge me to spend another sh.25 on something else, that is a 25% increase in sales! This technique works best with related products. Since it goes with great customer service, it will improve your business in more ways than one.
5. Sales per customer
The average is a silly way to measure things. And there is a joke about it. You and I are in a room. We are both worth sh.1000. This makes the average networth of an individual in the room sh.1000. Now, if Ruto joins us the average networth of an individual in the room runs to the billions of shillings. Haha, ok I’m not sure what Ruto is worth. You people say he owns everything.
It’s for this reason that heap analytics argue that knowing the sales per customer is “meaningless.” We beg to differ. Small businesses usually have a narrow market segment plus the differences in what each customer spends is not that great. Customers are also few, relatively speaking, and big spenders can be singled out. With the sales per customer information (total sales/number of customers), you can know that business is bad because the economy is bad if average spending has gone down – without using “a hunch.”
6. Bundle pricing
Traditional Pay TV is dying because of a lot of things. One of which is bundle pricing. Nobody wants to pay for +100 channels when they only watch 10. Bundle pricing is not evil. We all celebrate the offers to buy kuku + chips + soda for a single price. It’s a clever way for you to raise average spending (see 5), move stagnant stock and help decide if you should drop some products. It’s done by selling separate products at one price. But you must be careful that the variable cost of one doesn’t eat too much into the revenues of another. Why don’t we find out much about this on another day? We have surpassed the word limit 🙂3