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Meet Emma Kuria Communications Officer
 
Emma joined us recently as the Communications Officer. She has worked hard to put together this newsletter and she will ensure that it is delivered to your in-box every fortnight. She is a graduate of BSc. Media Science from Moi University.

 
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                                   Newsletter                 Issue 2015/1
          Welcome to MGK Consulting
 
Welcome to the first issue of MGK Consulting Newsletter, a bi-monthly publication that includes information about MGK, as well as finance and tax matters.  I hope that you enjoy reading each issue of our newsletter.

In this issue, we will give you insights on cash flow management and an overview of the 2014 Finance amendment Act. If you have any questions or feedback, please send an email to ekuria@mgkconsult.co.ke.

Thank you.

Managing Cash Flow

‘Cash is King’, is an old saying which describes the importance of cash in running a business. It basically means that cash flow is at the heart of a business and is a vital element for success of any business.

Good cash flow management entails ensuring that you have more incoming cash than outgoing. Positive cash flow arises when the cash coming into your business from capital, sales and other revenue sources is more than the cash going out through expenses, salaries, etc. Negative cash flow arises when cash outflow is greater than cash received. This generally is a problem for the business that management must grapple with. It is evidenced by:
  • Late or non-payment of suppliers, salaries, taxes and other essential business related expenditure.
  • Inability to fulfill customer demands in a timely manner.
  • Threatened or real legal action by suppliers at the extreme.
  • High stress levels across the business.
Let us first of all deal with the common causes of negative cash flow:
 
1. Business is Unprofitable
Company is making losses due to declining sales, low gross profit margins, uncontrolled expenditure, excessive borrowing hence  high interest charges etc.

2. Over-Trading
This occurs where a business is expanding rapidly and the expansion is funded from working capital.
 
3. Poor Credit Management
If you are selling on credit without proper credit approval and collection process, it will take long to turn a sale into cash and in the worst case, some debts will prove uncollectable.

4. Overstocking
Holding excessive levels of stock ties up cash besides the risk of some stocks becoming obsolete in your hands.
 
5. Capital Expenditure from Working Capital
The returns on assets such as equipment, motor vehicles, buildings etc are long-term. Funding such items out of short-term funds causes a cash flow mis-match and contributes to negative cash flow.
 
6. Taking cash out of the business
This could be due to the business owner making excessive personal drawings or funding purchase of personal assets. Another reason could be revenue/cash leakage to inadequate controls over cash.

In the next few newsletters, we will look at actions that business owners or management can take to address these circumstances and hence ensure a positive cash flow.

 
For Financial Advisory Services, contact Daniel Muhia on dmuhia@mgkconsult.co.ke
 
The Capital Gains Tax
 
The capital gains tax (CGT) has been reintroduced in Kenya following an amendment in the 2014 Finance Act. The CGT had been suspended in Kenya since 1985 to encourage investment in the real estate sector as well as spur growth in the stock market.      

CGT will be applicable on the gains which accrue to a company or an individual on transfer of property on or after 1 January 2015 on property situated in Kenya, whether or not the property was acquired before 1 January 2015.

A transfer takes place where a property is sold, exchanged, conveyed or disposed of in any manner; or on the occasion of loss, destruction or extinction of property, or on the abandonment, surrender, cancellation or forfeiture of, or the expiration of rights to property.

A capital gain is the excess of the transfer value over the adjusted cost (cost plus all other incidental costs on transfer) of property that has been transferred. The difference is subjected to tax at 5% which is a final tax, and is payable upon transfer of  property. Guidelines have been issued on the implementation of this tax.

Taxpayers will be required to prepare self assessment
computations, subject to KRA approval, to determine the capital gains arising from their property sales. Once the property is transferred the taxpayer will be required to prepare the CGT 1 form and submit it to the KRA by the 20th day following the month after transfer. Effective date 1st January 2015.


For Tax Advisory Services, contact Beatrice Njambi on
bnjambi@mgkconsult.co.ke
"Start where you are. Use what you have. Do what you can."
~ Arthur Ashe

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