Five mistakes Nigerian SMEs make
Business Failure (BF) has been described as a situation where businesses no longer attract profit, go bankrupt or lose the reputation they deserve.
While some small businesses are growing in leaps and bounds, others make costly mistakes that lead to their untimely death.
According to a recent report of the National Bureau of Statistics (NBS), SMEs contribute to 75 per cent of employment rate, three per cent of export rate and 10 per cent of the Gross Domestic Product (GDP), making them a crucial pillar of Nigeria’s economy. Hence, their failure means a huge dip in the economic potentials of the country. While many are succeeding, there are quite a number of others that are failing.
A business analyst and BDS Advisor at Enterprise Development Centre (EDC) in Lagos, Mr Samuel Olufemi Adebiyi, attributed some of the challenges to lack of management systems; lack of vision, lack of financial planning and review, competition or lack of market knowledge; and inadequate capitalization.
Not records keeping financial
Keeping financial records could stabilise a business in many ways. Experts say at every point in time, it gives you the exact status of your business: that is, how the business stands in terms of profits, revenue and expenditures. This knowledge helps the company to plan, strategise and hence determine the progress of a project at hand or to plan the execution of emerging projects.
However, Ms Fatima Lawal who runs a large tailoring outfit in Nyanya town of Abuja with over 10 apprentices said she has already employed five tailors who are productive, but has not thought of having finance personnel to help her keep accounting records.
“Is it not to keep records? I have a record book that tells me if I make profit or loss; I mustn’t be a professional accountant to do that for myself,” she said.
However, the immediate past chairperson of the Society of Women Accountants of Nigeria (SWAN), Abuja chapter, Mrs Patience Katchy, said SMEs would benefit a lot from keeping financial records even when they cannot obtain the services of accountants.
She also said financial records were very necessary for SMEs when they wanted to access bank loans. “When they want to access loans in any bank,” she said.
Katchy added that lack of proper financial records was the reason why some SMEs folded up easily.
“Some SMEs do not know when their capital is depleting and they are running at a loss. That is why they need an accountant to keep such information and those who cannot afford the services of an accountant should keep the records themselves.” Katchy warned
Profit-taking
Another issue that retards the growth of SMEs much profit-taking.
Mr Ogege Iyamu, a growing shoe factory owner in Karu, Abuja, identified too much profit-taking as a factor for some failed businesses.
“When you are ready for any business, don’t depend on the profit in the first few years because that could crash the business. I learnt this lesson the bitter way but later, it dawned to me that I needed to invest a huge part of the profit on it to sustain the business,” he said.
Today, Iyamu’s business of four years employs about 10 staff as he continues to inject 40 per cent of his profit in to the business annually, he noted.
A business consultant on entrepreneurship and innovations, Mr JohnDavid M., said a killer disease of SMEs is over withdrawal from its profits.
“The solution is strict adherence to the principles of savings. Savings is the commitment to putting aside certain amount of money inspite of your pressing needs. It is the ability of the SME owner to assume that the is too saved amount is non-existent and stick by that.
Mr Paul Alaje, a senior economist with SPM Professionals says majorly, lack of structure and system is why some businesses fail whether large businesses or small businesses.
“Any business without structure, things will be done anyhow. System and structure will take out corruption; it will take out people who are not competent in the system. Having a structure will allow for auditing of accounts. Having a structure will help you have policies that will help guide the running of your business,” the expert said.
Alaje said just like the human body has the digestive system, excretive system, respiratory system and more, so every business must have a system/ structure such that the sales system is working perfectly, the account system is working perfectly and the HR system is working efficiently, adding that small businesses that are doing well today survived because they followed this procedure.
Lack of knowledge on how to run a particular business
Before investing in any business, it is extremely important to do your homework and research to know the ‘ins and outs underlying the business’. It is important to understand how the business grows, makes profit and basically learning the ropes of the business.
Mr Paul Alaje, a senior economist with SPM Professionals speaks further: “Another reason businesses fail is because of lack of knowledge. People don’t have enough knowledge on what they are doing: Understanding why people have failed in that business and why others are succeeding.
“One of the newest airlines in Nigeria, studied why Sosoliso and other airlines failed, and they came on board, to find solution to that and bring in new things which other airlines are not doing. This airline is becoming bigger and having a large patronage in the country.
“Look for people who are succeeding in that particular business you are into and learn from them. It could be through mentorship.”
Lack of good marketing strategy
Doris Obetta, a wholesale trader at Fudie Plaza in Jabi said business owners who become complacent, thinking they have ‘arrived’ often fall victim of business failure, she warned.
“Marketing strategies count a lot in business and also the ability to be polite to customers because in all circumstances, a customer is always right. SMEs owners must imbibe these attitudes to succeed,” Doris added.