Finance systems for your business

Thursday March 14 2019

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi

We continue exploring the seven systems your business needs for sustainability.

Fourth is finance. Sales drive finances, hence the finance system that you develop must clearly address cash management.

It must also address other areas such as credit and receivables management, debt retirement, pricing, inventory control, fixed and variable cost management and financial reports

How will you collect upon sale? Throughout the history of money, cash money has a tendency to stick to its handler even when the handler is not the owner. If you run your business by the book, by now you know that the business and yourself are separate entities; you run it and it pays you an agreed amount regularly.

You open separate business accounts from your own. You and your staff only handle cash in trust for your business which rightly owns it. You therefore must set up a system that as much as possible removes handling of cash by humans running the business, including you.

Payment systems abound which can do this, for example opening a collection account in a telco, signing up for collection through payment cards, using pre-paid cards where you load cash into a card then the card is swiped through a card reader to collect payment, paying through scanning QR codes etc.


Even where cash must be handled, reducing the incidences will deliver better results. A system has to be in place on how much “float” your cashier should always have, getting “loose change” into the till before opening and during the entire business day, transferring cash to the bank as collected (and not using it for same day purchases) etc.

Financial control systems such as when and how to pay suppliers, bank withdrawal procedures, reserves etc all have to be thought through, documented and preferably automated.

Being a franchisor requires a bit more financial control than when running company outlets. Remember you earn monthly royalties based on franchisee turnover.

You will need a finance system that reports everything the franchisee sells, otherwise you run the risk of not earning your equitable royalties from dishonest franchisees. With modern developments, such a system is easy through the use of Enterprise Resource Programs (ERPs) and cloud computing.

Credit and receivables management will determine how healthy your cash position is at any point.

As awkward as this might sound, the ideal position is where your business offers no credit to customers while you take maximum credit from your suppliers.

The reasoning behind this is that by selling on cash basis, your business is able to accumulate cash reserves way above what is needed to pay off debtors when payments fall due.

This requires maximum financial discipline to ensure that you pay your creditors on time (and not diverting the funds to unplanned investments) in order to continue enjoying the credit lines.

To instill this discipline, you prepare and follow a budget showing where funds will come from, when and how they will be used.

On the expenditure side you divide the budget into capital budget-what you need to invest in equipment and when, re-capitalization and other items needed to successfully run the business and the operational budget-what you need to pay off fixed and variable costs, including your creditors.

A cash-flow statement, though not entirely sufficient, is a good starting point to track your finances.

Also forecasting income and future financial positions through preparation of projected cash flows, profit and loss account and the balance sheet will help you keep tabs with your business.

The writer is the Lead Franchise Consultant at Africa Franchising Accelerator Project. We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise.

We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector.

We create a franchise-friendly business environment with African governments for quicker African integration.,