NEED FOR SME ACCOUNTING IN KENYA | Audit. Tax. Advisory

SME Definition

There is no globally recognized definition of Small and Medium-Sized Enterprises (SMEs). Staff headcount and financial metrics such as turnover and capital are the most common attributes considered in the definition of SMEs. Using staff headcount as our guide then an SME is a firm comprising of not more than 99 employees, a small firm would then comprise 10-49 employees while a medium-sized enterprise comprises 50-99 employees. From time to time the definition has to include a financial metric such as turnover to offer more clarity.

Importance of SME in Kenya’s economy

SMEs are the driving engine of Kenya’s economy contributing up to 40% of Kenya’s Gross Domestic Product (GDP). They employ approximately 90% of the total workforce in the country. According to Kenya Institute for Public Policy Research and Analysis (KiPPRA), there are over 7.4 million SMEs employing about 15 million in various sectors of the economy. SMEs are a source of innovation, growth of entrepreneurial skills, and competitiveness. Their importance is underlined in Kenya’s vision 2030 since they offer the most potential for GDP growth and employment prospects coupled with their huge presence in most sectors of the economy.

Accounting challenge for SMEs

SMEs are plagued by myriads of challenges that deter them from reaching their optimum capacity. The majority of these firms tend to remain small and unprofitable for very long. They are also at constant loggerheads with regulatory bodies over compliance issues. The end result is these entities run into serious going concern problems that often mark ends in their closure.

Accounting for their day-to-day activities is usually at the core of most of their problems. The majority of these entities do not have access to qualified accountants due to various reasons. The small nature of these firms forces them to employ systems and people that are within their price range which more often than not means bringing on board underqualified personnel. Lack of information and know-how around various accounting systems acts as a deterrent to proper accounting.

Solutions to Accounting problems SMEs face

SME accounting, therefore, becomes a credible solution to the accounting problem. For one, it guarantees that your accounting needs are being addressed by a team of professionals offering expert services. Not only will you be getting proper records but also bringing on board a team of competent and unbiased advisors. On top of that, it allows the entity to focus on its core activities without the distraction of accounting problems.

Justification of SME Accounting

A study done in 2018 by Bill.com and CPA.com analyzed the responses of 1700 companies to determine their opinion of the accounting services offered. The services in question included outsourced accounting, finance and back-office support including reconciliations, payroll services, CFO services and technologies support. The findings showed that 80% of clients had more time to focus on their business, 79% of entities that outsourced accounting would refer it to others and 68% found the experience easier and more efficient. Roughly 30% of the entities received advice that helped them increase profitability and felt more prepared to make business decisions.

On certain occasions outsourcing of accounting services has proved to be relatively cheaper. Without the need to set up an office that would have constantly fixed overheads the services can be outsourced to cut on this by paying a fee less than what the overheads accrue periodically. The accounting team is also removed from the business hence likely to lower the occurrence of fraud. Outsourcing of these services frees up some resources that can be reinvested into the business.

Provision of SME Accounting by Ronalds LLP

Accounting is critical to the success of any business. Its only by maintaining proper accounting records that one can be able to make informed decisions. Ronalds LLP is a modern accounting firm full of experts possessing the requisite knowledge and experience to address all your accounting needs. The firm offers to walk with you hand in hand as you strive to meet your business goals and objectives.

Related: What are the benefits of IFRS implementation to a company?

Related: Taxation of ‘Business Profits’ under Article 7 of the Kenya DTAA

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