Bookkeeping means recording what happens to the money in your business. It sounds dull, but it is what lets you answer basic questions: Did I make a profit? Who owes me? Can I afford to hire? How much tax do I owe? Without records, you cannot answer, and KRA can assess you on estimates that are rarely in your favour. Good bookkeeping is simple if you keep it regular.

The records you need

At minimum, a small business should keep:

  1. A cashbook listing every receipt and payment with date, description and amount.
  2. Sales records: invoices, receipts or daily sales sheets.
  3. Purchase records: supplier invoices and expense receipts.
  4. Bank and M-Pesa statements for each month.
  5. Payroll records, if you have staff.
  6. An asset list for equipment and vehicles.
  7. Stock records, if you sell goods.

KRA expects you to keep records for at least five years: how to keep business records for KRA.

Choose a method

  • Paper cashbook. Cheap and fine for very small businesses. The simple cashbook is a spreadsheet version.
  • Spreadsheets. Flexible, with templates for expenses, invoices and reconciliation: expense tracker with VAT, invoice with VAT.
  • Accounting software. Better for VAT-registered businesses or those with many transactions, since it produces reports and works with eTIMS.

Start with what you will actually use every week.

A simple routine

Daily: Record sales and cash expenses, as in daily cash-up and stock control.

Weekly: Enter supplier invoices, file receipts, check what customers owe and chase late payers: invoicing and getting paid on time.

Monthly: Reconcile the bank and M-Pesa statements to your cashbook (bank reconciliation step by step), review the profit and loss, pay statutory dues and file returns.

Yearly: Count stock, update the asset register, prepare the figures for your tax return.

Categories that make tax easier

Give every transaction a category, such as sales, cost of goods, rent, salaries, transport, utilities, marketing, loan interest and owner's drawings. The categories become the lines of your profit and loss and the expense claim in your tax return. See expenses small businesses can deduct for what is allowed.

Separate business from personal

Use a separate bank account or M-Pesa line, and treat money you take as owner's drawings or salary, not as an expense. The owner drawings and capital account tracker records it. Mixing them is the most common reason that books do not add up.

Understand the basic statements

The monthly profit and loss statement and the balance sheet template produce them from your entries.

How books help with tax

Turnover tax is based on gross sales, which your sales record proves: turnover tax for small businesses. VAT needs sales and purchase VAT summarised monthly, as in how to file a VAT return. Income tax needs profit with allowable expenses. Banks and investors ask for management accounts before lending. See borrowing for your business.

When to hire a bookkeeper

Consider a part-time bookkeeper or accountant when you pass the VAT threshold, hire staff, or spend more than a few hours a week on records. Give them a clear folder each month rather than a shoebox at year-end.

A first-month plan

In the first week, open a separate bank account or M-Pesa line for the business and create a folder, paper or digital, for each month. In the second week, list your regular suppliers and customers, and set up the categories for income and expenses. In the third week, enter everything from the past month and reconcile it to the statements. In the fourth week, produce a simple profit and loss and look at what it tells you: which product earns most, which cost is growing and who owes you money. Repeat each month, and by the third month the routine takes only a couple of hours. If you get stuck, a short session with an accountant to set up the structure is worth far more than a rescue job at year-end.

Good records also make your tax life easier. Use the KRA filing and payment calendar to see when each return is due, and run a quick penalty check with the KRA penalty calculator if you are behind.

Frequently asked questions

Do I need an accountant to start? No. Start with a cashbook and receipts. Bring in an accountant for tax planning, annual accounts and complex issues.

Is cash or accrual accounting better? Cash accounting is simpler, recording money when it moves. Accrual records sales and costs when they happen and is better as you grow.

How do I record M-Pesa? Treat the M-Pesa statement like a bank statement, and match every entry to a sale, expense or drawing.

What if I have lost old receipts? Obtain duplicate invoices from suppliers and keep bank and M-Pesa statements. Start a proper filing system now.