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Doing things differently

If you want your weekend or underground business to make a successful transition into the mainstream, you need to do things differently. What does this mean for your business? You need to take care of the following areas.

Create a separate legal business identity for your business.
Any mainstream organisation that does business with you wants to make sure you are legitimate. You need a legal identity that is separate from your personal identity. You need to create a Closed Corporation (cc) or limited liability corporation to open certain types of businesses. You'll need a lawyer to help you do this. Once you have established your legal corporation, assume that the government now know you exist. This means they'll be looking for your company's tax returns, annual reports, and other forms that will cost you time and money.
 

Keep separate accounting books and records for your business.
People and organisations outside of your business -- especially those lending you money or providing supplies -- will want to see how much money your business made or lost in the past few years, the resources (if any) your business has available, and any claims other people have against those resources. You must keep books and records for your business activities that are completely separate from your personal records. Often, your financial statements need to be audited by independent certified public accountants. Setting up and maintaining these books and records can be expensive and require accounting skills that many entrepreneurs don't have and have to buy from others. Audits alone can cost thousands of shillings, depending on the size of your company.
 

Report your income and pay taxes on your sales.
This may be the biggest change and cost to the entrepreneur -- from the preparation of the tax returns to the payment of the taxes themselves. Third parties, especially bankers, will require you to provide them with several years' worth of tax returns before making you a loan. They want to be sure their loan will be used to run your business, not pay back taxes or other expenses.
Pay your portion of pay as you earn tax AND your employees' portion of payroll taxes.
Kenyan law requires all businesses to collect a portion of every employee's income and pay it to KRA. Businesses must also pay VAT and other taxes. These costs grow quickly if they're not paid regularly because the largest expense for most businesses is salaries.
 

Make sure you comply with local zoning and licensing laws.
Most towns restrict business activities to certain parts of town and require some businesses to get a license. Once you start getting so much business that you need to move out of your home or non-traditional workplace, you need to meet these requirements. If you have to expand your production locations or start getting a lot more customers, neighbors and others who have ignored that you're doing business in a neighborhood zoned only for residential purposes are likely to start making a fuss with local authorities. Complying with zoning and licensing requirements will likely mean you have to pay for business space. 
 

Get insurance.
This can be a significant cost. Do you believe you don't need insurance and willingly take risks? Your partners and funders are not likely to be quite so willing. Many customers, investors, and lenders don't want to do business with small business owners without certain types of insurance. For example, many customers require their contractors or vendors to have insurance that covers the costs of any injuries or mistakes made on their property or while providing their products or services on someone else's property. That way, the company is not at risk if something happens. This is also true -- almost without exception -- for lenders. Lenders will rarely give money to businesses without proper coverage, especially for ‘slip and fall' cases where someone gets hurt on the borrower's property.

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