The Importance of Balancing the Books

Budget presentation time looms and soon the finance and public enterprises minister Ipumbu Shiimi will engage in this annual ritual.

The presentation of the national budget takes place in parliament early in a calendar and will again provide the minister with an opportunity to let the nation know of the country’s financial health.

During his presentation, Shiimi will propose budgetary allocations to government ministries and public sector entities, and how revenue will be raised to provide the needed funding.

A budget deficit reflects that the government is spending more than the revenue it has collected, and conversely, a budget surplus means the government is collecting more than it is spending.

Denmark, Singapore, Norway, Botswana and Qatar are among the few countries who operate on a budget surplus.

Like Namibia, most countries globally have operated on a budget deficit for years.

In countries running a budget deficit an attractive and quick-fix funding strategy to close the gap is to borrow.

The danger attached to a country operating an excessive budget deficit is that future generations will be saddled with untenable debt.

Other options for a government are not so appetising as it could mean curtailing expenditure or belt-tightening and a politically unattractive one – to raise taxes.

The nation waits with bated breath to hear what Shiimi proposes when he presents Namibia’s budget.

As the ‘owners’ of a nation, a country’s people will hold their leaders accountable for fiscal prudence.

What will be watched by the people of all countries when a minister presents its national budget is whether it reflects an increasing deficit with the risk of higher borrowing and taxes, or whether it is a balanced budget with expenditure adequately covered by income.

People rejoice when a country runs a budgetary surplus with money readily available to fund social and developmental needs.

Balancing the books of a country is important to its people. And so too is the balancing of the books of a business.

When firms are in a deficit position with expenses exceeding income, owners too have options – like stepping up marketing and becoming more visible to retain old clients, and benefiting from repeat business, and soliciting business from prospective or new customers.

Or to add new product lines or services and opening new outlets as a strategy to penetrate a new market.

Borrowing to fund remedial action is often the only solution, but it comes with a financial burden as loans must be repaid.

Other measures entrepreneurs and managers could take to ensure the money spent every month is less than the income generated are cutting operating costs by relocating to cheaper premises, reviewing costs and adjusting prices accordingly, or reducing staff numbers.

For businesses balancing the books starts with ensuring that the financial records match the actual financial situation of the firm.

This is why not keeping books and records is a non-starter.

It is important to keep books from the start-up stage and to cultivate the habit of routinely recording transactions, thereby monitoring business performance.

Then use the status as reflected in the firm’s books to guide on the necessary viability and sustainability actions.

• Danny Meyer is reachable at danny@smecompete.com