Reflections from a Bowl of Fruits

I just bought a handful of plums for 100/-. Just a bunch. Why would plums be more expensive than grapes? I get, they're seasonal but hey? Doesn't add up. 

Be that as it may, this reminded me of our growing up days in a farm. With some fruit trees, we had more than enough plums; and it got me thinking:

1. Never take for granted what you have. The wise would say, you never know what you have till you lose it. Well. The eyes of the wise then will be open to treasure what they have and not wait till they lose it.
2. Tomorrow may be different from today. How prepared are you? It all depends with how much you see. George S. Clason says that opportunity is a haughty goddess who wastes no time with the unprepared. 

Living on that farm, it was hard to fathom a day when I would have to buy those same fruits so dearly. There are two types of conditions here that changed. I'll call the first micro i.e. The personal conditions involving my family's rural urban migration: hence no more fruit trees. The second I'd call macro i.e. Inflation in the country pushing the prices of plums high.

Both are in a way representative of changes we all go through. Micro changes at personal and family levels. Macro changes at national and global levels. But they all affect us. They affect the ease with which we can access "fruits", no?

Well. What do you have in your life that you currently take for granted? Family? Good health? Peace? Don't take it for granted. Be grateful.

How could your tomorrow change from today? Are your eyes open to the shifting landscape? How would you be more prepared? 

May 2018 find us more grateful and alert.

Image credit

A Letter to My Niece Starting Her Cake Business

Dear Stella,

It gives me great joy to hear that you have decided to venture out and start your cake business. At first, I feared for you when you said you had left employment. But then again, I really have to admit we are living in different times than the ones our parents lived in and as Bob Kiyosaki would say, there is no longer such thing as job security. 

I don't know if you find this a cliche but let me say this: starting a business is not just a walk in the park. But let me not be the one to discourage you so early in the journey. So let me put it as I have found it to be: starting a business is like mountain climbing. Not that I have ever quite climbed one but from what some of my friends who have climbed mountains tell me: it is both a tasking and enjoyable business. You will undoubtedly have your fair share of challenges in the business, but there will also be lots of moments to celebrate.


The Ultimate Gift
I think the greatest gift that I have gotten from running a business is the growth in my character. The first thing that a business builds in you is discipline. Discipline in management of two critical resources: time and money. Let's talk about each one:

1. Time: Many people want to leave employment and start a business to be their own boss. It ideally means that you no longer have reporting time to the office. If your boss was like the lady boss in that movie you had brought me to watch (was it called The Devil Wears Prada?) - then you feel that you are finally out of hell - starting a business then feels like your journey to heaven. And this is where discipline comes. It will take discipline for you to still give enough time to your business as if you were actually employed there. If however, as you have told me before, baking cake is your passion, then this should not be much of a problem. After all, the desire to bake will be pulling you as opposed to you being pushed by any other external force. But then as the business grows, you will find another side of that very same coin. You will find that the business will want more and more of your time - more time than you can ever afford to have - and that's where again, you will need more discipline. You will have to learn to tell the business, enough is enough; I've done enough work for today. It's time to rest. If you don't learn to do this, you will be like the foolish man that Steve Covey said was too busy driving that he didn't get time to stop and fuel. There is no prize for guessing what happened to his journey. Of course to do this, you have to build the kind of systems that Michael Gerber talks about: the kind of systems that ensure you do not just work IN the business, but you mostly work ON the business. If you promised to buy me coffee I could tell you more about that - but it just helps to know that you will need to be disciplined about your time. 
2. Money: money, money, money! We're always looking for more. I think money plays a critical role in informing one's decision to start a business. First, many are held back by the comfort provided by employment. It is quite understandable. If my monthly salary is not nearly enough to cater all my expenses, what happens when I face certain expenses and uncertain incomes when I leave employment? So in that way, the fear of the unknown holds back many from jumping ship. I must therefore commend you that you have been brave enough to venture into the world of business. Now, what I found upon leaving employment is that money cycles for a business person are quite different from when I was employed. In summary, I can tell you that when employed, money cycles are quite regular. I knew how much to expect, when to expect it and could predict where to spend the money. I could even afford to borrow and give an almost definite date of repayment. Not so running a business. With a business, I'd say the money cycles are irregular. Whereas some expenses are constant, not so with incomes.  So what do you do? You have to try and regularize your money cycles. How do you do this? There is so much I could say here - as you know it's my area of work and I risk boring you with too much detail. So let me simply summarize this and say: in the days of plenty, remember there will be days of lack. Develop a discipline around your finances. 

I could probably write endlessly but then; no matter how much reading you do, how much advice you receive, you still have to chart your own path and discover your unique lessons. Nevertheless, I think it does no harm to hear a word from those who have gone before you and avoid reinventing the wheel.

Stella dear, I think enough said for today. I wish you all the best. As Uncle Sam would tell you, the best time to start this business was yesterday. The next best time is today. So congrats for the big step of faith. Oh yes. It is a step of faith. Calling something that is not as if it is and seeing it come into existence. I look forward to seeing your business grow into a household name. (and of course I'll love for you to hire Prolific as your accountants :)

All the best,

Uncle Jeremy

Honesty is the Best Policy

As part of our company policy, we generally insist on a down-payment for any work before we start - with only a few exceptions. A client may therefore send all requested documents to us but we make them understand we will not be starting until they have made a deposit. Similarly, once a client has paid up their deposit, we know it is their expectation that we embark on their work at the earliest possible opportunity.

So there is this time when a long time client (one going back many years and who is familiar with the policy) promised to send us her documents for annual accounting work. She also promised to do a bank transfer but encountered some challenges as she was out of town in an area with poor Internet connectivity. Eventually, she e-mailed the documents and let me know that the wire transfer was effected. True to her word, I received a confirmation message from the bank that the money had hit our account.  Now, had she sent the documents just a week earlier, we would have embarked on her work immediately. However, the delay meant that by the time she sent them, it was already the end of the month/beginning of a new month.

Now, the first week of every month is usually the busiest for us - as we generate the previous month's reports, finalize reconciliations as well as file PAYE, NSSF and NHIF returns for our clients - in other words, routine work. Having paid, there was an unspoken expectation that we would start on her work right away. However, given that this was the first week of the month, this was going to be a really tall order! I must confess that on my side, there was the temptation to tell her that we would be embarking on her assignment right away. After all, we never start on an assignment before payment, and once you pay we start on it right away. There was however another voice urging me to just be truthful - let her know that we were going to delay by a week. The voice of truth prevailed. I e-mailed her noting that given the timing, we could only manage to start her on her assignment the following week. She was okay with it.

Come the following week and as promised, we were keen to get down to her work. We opened the files and, alas! To our amazement, she had sent us the wrong files. Instead of sending 2017 statements, she had erroneously sent 2016 statements. Though marked 2017, they were actually 2016 statements. I wrote to her to let her know of the mix-up.

"My bad," she said, and sent us the correct files.

It did not seem a big deal but I could not help to think: supposing I had succumbed to the temptation, a week earlier, to lie to her that we had already embarked on her work? What would I have said, one week later, on realizing that these were wrong files? I was quite grateful that in spite of the perceived pressure generated by receiving the down-payment, I had chosen to stick by the truth. It had really saved my face when eventually it became apparent that we had the wrong documents. It had served to confirm that indeed, honesty is the best policy.

image credit

The horse is made ready for battle...

It was a a time like this last year when I felt persuaded to write about my business journey. Well, how fast time has flown. Without a doubt, a lot has happened over the last one year. But let's pick up the conversation from where we stopped. Last time we were talking about horses; and I want to share a key thought that has brought me this far - and that as it turns out... has to do with horses.

A driving force in business for me over the years has been this principle drawn from Proverbs (21:31).
The horse is made ready for battle, BUT victory rests with the LORD.

Traditional Warfare, Modern Businesses
Traditionally, horses were the "vehicles" for war. Expansion of a king's territory was through war and to do this, the horses that went to war had to have been well prepared. So how does this relate to a modern entrepreneur? Many of the concepts of traditional warfare are applicable to the modern day business environment. You hear words like "cut-throat competition". Whereas victory for a traditional king may have been in "winning a battle," victory for today's businessman may be in "winning a tender." Laying plans, designing strategy, building teams, expansion to new territories are things that an entrepreneur will be involved in today, but which would not be too alien to an army commander of a thousand years ago. The landscape has of course changed a lot over the years but it seems that the principles applicable to warfare back then have found their place in the business environment. Strategy, courage, accurate timing are just a few examples of principles that applied to traditional warfare and are equally applicable to today's business environment. Probably the best indication of this is the popularity that such writings as The Art of War by Sun Tzu have found in today's business world. You can also think of the "Trojan Horse" - a malicious computer program which misleads users of its true intent. The term is derived from the Ancient Greek story of the deceptive wooden horse that led to the fall of the city of Troy. Indeed, ancient warfare concepts find place in today's business environment.

The horse is made ready for battle...
If indeed ancient warfare concepts find home in today's business environment, what then would be the entrepreneur's horse? I would say it is his business. How well the company/firm is built represents the strength of the entrepreneur in achieving his goals - e.g. of winning additional market share, expanding to new territories and so on. Importantly from this proverb is that the horse is made ready for battle... It is important for the businessman to "make his horse ready for battle." It is important that the businessman is deliberate in building his business. Finding an appropriate business name, setting up initial business systems in place such as opening a bank account, establishing a financial system, designing a social media strategy, doing sales and business development. All of this is making a horse ready for battle and it is important to the success of the business.

BUT victory rests with the LORD
The second part of the proverb states that victory rests with the LORD. It is important to make the horse ready for battle - brand your company, build a great team, have a sales plan, track your expenses, manage your taxes etc - but none of these in and of themselves provide business success. The best laid plans will still not grant business success unless God so ordains. A very obvious example in my journey of entrepreneurship is this: some of the clients we put a lot of effort in following up, did not necessarily come through. On the other hand, some of the best and longest had clients came to us without necessarily a lot of effort on our part. Now I know many in today's world may simply relegate such scenarios to chance, good luck or bad omen. I am however persuaded that it is more than mere chance, good luck or bad omen. Behind every signed deal is the unseen hand of a Mighty God.

Is it possible that some of the business that never came through was because we didn't understand the client need, had not designed proper product features that meet client needs, we were too expensive (or even unbelievably cheap)? All of those are possibilities whose analysis and corrective action is part of "making the horse ready for battle". Being blind to those realities and simply saying God ordained the outcome may not be the most accurate thing to do. It however remains that having done our best to "make the horse ready for battle", God still has the final word.

As the old adage goes, do your best, let God do the rest.

Give Unto Caesar

The Kenya Revenue Authority recently announced that the fine for late filing of returns would go up by up to 20 times. Whereas the fine for not filing an individual tax return was Kshs.1,000, this has now been increased to at least Kshs.20,000. This penalty applies for the year of income 2016 onwards. There are instances in which the penalty would exceed the Kshs.20,000 i.e. in instances where the tax due for the year in question is above Kshs.400,000, in which case the fine would be 5% of the tax due.

Image credit

Is it a New Law?
These enhanced penalties are not exactly new. They were enacted in the Tax Procedures Act (2015) which came into law last year (2016). The Tax Procedures Act seeks to harmonize and consolidate the procedural rules that govern tax laws in Kenya. We can therefore say that by increasing these fines, the taxman has simply decided to implement what the law already handed him. The Tax Procedures Act has itself come under some criticism. Arguably, the most contentious issue in the Act was that the Act provides for the taxman to penalize tax avoidance. Tax avoidance is the arrangement of one's financial affairs to minimize tax liability within the law. The difference between tax avoidance and tax evasion is that tax avoidance uses legal means to lower one's tax liability, whereas tax evasion is the non-payment or under-declaration of tax dues. The question that has been posed then is, how can the Authority penalize that which is legal? Diverse views notwithstanding, the law as it is remains to be that tax avoidance would attract a penalty of 200%.


Filing Returns vs. Paying Tax
It is good to note that there is a difference between filing a tax return and paying tax. While they may go hand in hand, the two are distinct. Filing of tax returns would simply refer to the process of declaring an income. Whether there is tax to pay on that income is a different question all together.

Take for example a person whose sole source of income is employment. Such a person already has their tax deducted and remitted by the employer under the Pay-as-you-earn (PAYE) scheme. Therefore, at the end of the year, they have no tax liability owing to the Revenue Authority. However, they are still required to file their tax return i.e. declare that they earned employment income and that this has been remitted to the Revenue Authority on their behalf by their employer.

In this case, there are many people who would feel that filing of the tax return is an unnecessary burden. This is because the employer has already filed the PAYE return (i.e. declared that the employee earned the said income) and also remitted the accompanying tax. This could explain why in 2011, the then Finance Minister, (current President) Uhuru Kenyatta, abolished the requirement by salaried employees to file annual tax returns terming it unnecessary. Uhuru's proposal exempted employees who had no additional source of income other than their salaries from filing tax returns. Parliament adopted the recommendations but KRA reintroduced the individual tax returns for salaried employees the following year. This according to KRA was the only way to determine if employers actually remitted the tax deductions made on employees' salaries.


Cumulative Effect of the New Penalties
Obviously, an increase of 1900% is substantial. The impact of this increase is felt even more where the penalties start accumulating and earning interest. Take the example of a university student who joined university in the year 2016 and who does not file the tax return every year arguing they have no income. While indeed the student has no income, failure to file the tax return means they now incur a fine of Kshs.20,000 every year. By the time the student graduates in 2020, the taxman will be demanding from them amounts close to Kshs.100,000. This is quite different from a similar student who joined university in 2011, when the penalty was only Kshs.1,000, and who in 5 years time would be owing Kshs.5,000. Whereas the taxman may not necessarily go after this graduate to recover the tax penalty, it will be very hard for them in future to obtain a Tax Compliance Certificate without first clearing the accumulated penalties and interest.

Filing on the iTax Platform
The Tax Procedures Act enforces the use of electronic returns. This has been possible by utilizing the iTax platform. With the provisions to submit electronic tax returns, iTax makes possible what was not possible under the Income Tax Act. The Income Tax Act required that if the deadline for filing a tax return fell on a weekend or public holiday, the due dates would be the last working day prior to the weekend or holiday. With the iTax however, it is now possible to file tax returns on weekends and holidays.

My advice for iTax users is to view iTax as just one of the other online accounts you possess in this digital age. e.g. Facebook account. The same way that you have to log in to Facebook, LinkedIn, Twitter or even e-citizen is the same way you log in to iTax. Whereas you may log in to Facebook using your email address, the user name for logging in to iTax is your KRA PIN number. What happens when you can't remember your Facebook password? You simply reset the password by clicking "Forgot Password" and the password reset instructions are sent into your inbox. In the same way, should you forget your iTax password, you simply "forget password" and the reset password instructions are sent into your e-mail address. It goes without saying then that one of the security measures, just like you would with your other online accounts, is to ensure that the e-mail address linked to your iTax account is one in which you have access and control over. Otherwise, anyone who has access to that e-mail address has by extension access to your iTax account.

Filing of individual tax return for salaried employees as well as filing of nil returns is fairly straightforward in iTax. Help is also available in form of tutorial videos, assistance from the iTax support centres and one could also seek the services of a qualified accountant. If a taxpayer opts for the latter, the cost of obtaining the tax/accounting service should be justifiable e.g. if the cost of getting the services of an accountant exceed the penalties in question, the taxpayer may be better off filing the tax return themselves. Whichever the case, no one should find themselves paying the unnecessary penalties by not filing their tax return.