Accounting in Burkina

I just recently wrote a small "case study" for the new trainees. I'd thought I'd share it with you so you could get an idea of my work here. Keep in mind it leaves out a lot of the annoying stuff and kinda supports the Peace Corps idealism that slowly dies as you try to help people in the real world. Not to sound negative but in reality helping people is hard! But anyways enjoy and I'll be sure to post something soon to balance out this story. I would have to say however this makes my two years feel somewhat successful and worthwhile.

How accounting can help entrepreneurs improve their businesses

I currently work with a master tailor who owns a workshop with about 10 other tailors and apprentices. Before we started working together he was running his business “dans le noir” which means that he didn’t have a system of accounting whatsoever. He did have tons of notebooks tracking how much work tailor “A” had done and how much tailor “B” did so that he could pay them. He even had a book that noted how much he sold each article of clothing for. The problem is that these books although in decent order served no ultimate purpose. The head tailor had nothing that told him if he was earning or losing money. He made the mistake that most entrepreneurs here make; he judged success by whether or not there was cash in his pocket at the moment. As long as there was some cash in the safe (wooden box with a lock) for the workshop, even if he had taken out several loans in the past month, he felt that he was doing well. One day after I had a shirt made the tailor asked me if I could help him start doing accounting. We started by creating a very simple system that monitored how much money was going in and out. There was a basic table with two arrows representing money coming in and money going out. We detailed his expenses into categories such as, operations (electricity, water, tea for him and the employees throughout the day), materials (buttons, thread, lining for garments), salaries, and personal expenses(money so that his wife could go to the market and buy supplies to make lunch for the whole workshop and his family, loans to family members). I worked with him for about 4 hours one day explaining this system to him. The mini lecture I gave was good but the system came alive when I gave him scenarios mirrored his daily business transactions (ex. Madame Diallo come into the shop and buys a dress for 500FCFA, the electricity bill comes in, tailor “A” asks for an advance on his salary). After the initial session I followed up everyday for two weeks to check his entries to see if they were any errors. At first there were a lot of problems and the tailor was confused. However, these were problems that were beneficial for the tailor. Suddenly he found himself having to justify each expense, each CFA spent by placing it into a column. This made him almost immediately conscious of how much and how often he was spending and receiving money and for what reasons. After the first month of bookkeeping we did a simple Income Statement. We added up his revenues and all of the columns of expenses. After subtracting his costs from his revenues we found that he had a small profit for the month. He also had a total of how much he spent in each category of his expenses. This also brought up some new issues/observations. He realized that he was taking too much money for personal reasons and he needed to create a fixed salary for himself. He also realized that his workers were taking more advances than the work they were doing. Additionally he recognized that he could use his own profits to reinvest in his business instead of asking for a grant from a NGO. Lastly he became conscious of the effect of some cultural elements such as buying tea or supplying lunch for the whole workshop on his profits (nothing has changed but it is better that he is now consciously buying tea everyday knowing how it plays into his profits) .

We continued with the system and the next month he was in the negative. This was because of a loan he took to buy a new machine and to build a porch for his store front. The fact that he lost money when compared to the last month’s revenues showed him that he simply exceeded his means. He really didn’t like the fact that he lost money. This made him think about whether or not taking out the loan was a good idea. He also saw how his employees had once again taken more money than they had generated. He now became determined to find a solution to that particular problem. This problem was due to a cultural factor. In general, there is an African understanding between people if a family member or friend needs money and you have it, you should help them out and give it to them. His workers in a way were taking advantage of this and would come and ask him very often for money to take care of family emergencies or even regular expenses. For example if there was a worker who had already had taken an advance and he was asking for more money because he spent all of his advance already and now needed more money so that he could eat that day, the tailor would give him more money. Because of that a majority of workers owed money to the tailor and were essentially working off debt instead of earning money. However, this became a vicious cycle however since they kept taking loans along the way.

Also there have been other setbacks as well. After I taught him the simple system, he felt very confident. He actually found a free training on accounting in our village run by an NGO. He went and learned a much more complicated system. This included making receipts for every transaction and signatures from each worker everyday. At the end of the training they hadn’t shown him how to make an income statement (the most practical document for him) but promised to do a follow up in a couple of weeks. Unfortunately they took four weeks to do the follow up and when they did come the person who came didn’t know how to answer the tailor’s questions. Eventually the people who ran the training had left my village and left the tailor with an incomplete system that he didn’t really understand. So for about 2 months the tailor had followed their system and became discouraged because he didn’t have a real understanding of what he was doing. At first I didn’t do anything because I didn’t want to step on the NGO’s toes since it seemed that they were trying to help him reach a higher level of accounting. But when for all intents and purposes they abandoned him I then tried to help him adapt the system. The system didn’t make much sense, had no real way of monitoring progress and seemed superfluous. At that point I recommended that we go back to the simple system that we started with.

Today, months and income statements later we are still working together and now the system has evolved to a more sophisticated system that includes: a general ledger, a cash book, a book to follow the work of each tailor, a book to follow the trends of clients, and an idea/future projects book. It’s simple enough for the tailor to do in his free time and advanced enough to give him all the information he needs on how his business is doing. We have also found solutions to a lot of the problems that were plaguing the business. All this came from a simple table that showed money going in and money going out. Once he understood the system of accounting the problems that he had in management revealed themselves. By seeing a big difference in his revenues and profits he naturally tried to minimize his costs in each category so that he would maximize his profits. For that to happen he had to address issues such as where he bought his inputs, how he paid his employees, how he paid himself, how he spent his profits, and how to accomplish his future goals with his own money. These are just a couple of examples of how accounting made the tailor start thinking about all different sorts of issues that ultimately helped him improve his business.