The current world economic meltdown resulting to the high
level of Unemployment and or under-employment that is ravaging so many
countries of the world including Nigeria is forcing many people to crave for personal
businesses. The need to be self employed is on the rise. There are also calls from different quarters;
even those at the helm of government are creating platforms to enable the
younger generation embrace self sustenance.
But before you go into self employment, hear this; while it
may sound easy to own a business, turning it into a worthwhile and successful
venture is a different story. It is no
longer a new story that eight out of every 10 businesses established in a
period of time fail within 18 months of existence. A research by Basil in 2005 specified that
most SMEs in Nigeria die within their first 5 year of existence due to lack of
proper foundation. It is therefore
pertinent to note that when proactive steps are not taken to adequately protect
a new business, it is liable to die. I am sure no one would like to invest hard
earned money in a business that will die within a short period of time.
After making observations and follow up on some Sole
Proprietors, I have found out that the following factors are responsible for
the collapse of many small businesses:
Lack of Proper Financial Structure
Most small business owners in Nigeria do not separate their
personal expenses from that of the company’s.
Because they are the owner of the business, they always dip their hands
in the company’s purse each time they need to make an expense without taking
into consideration the level of profit they had made.
They will spend that little profit and dip their hands into
the capital of the business, hoping they will get-around-it. This practice is very destructive to any
business.
For you to grow your business to a profitable level, you
must run it as a different entity. Separate your purse from the company’s
purse. Experts say you should pay
yourself salary as if you are an employee of the business and ensure that it is
a salary that the business can afford.
If there is any need for extra expenses, you can borrow from the company
but ensure you sincerely pay back when you get your salary. Do not be in a hurry to eat your profit,
reserve it for a period of time when it will be enough for more investment and
or growth.
Most small scale business owners do not have proper record
of their income and expenses. This makes
it impossible to determine the cash flow of the business; it gives a wrong
position of a business at every point in time. It also gives room for stealing.
You need to keep the record of every penny that goes in and
out of your business by keeping a simple cash book.
Borrowing money to increase your stock is only good to your
business when you get the funds at the right places. Borrowing money from banks and microfinance
banks may not be profitable to your business because of their high interest rates
and short term period of repayment. Instead of borrowing money that could ruin
your business opt for other alternatives like:
Buy Goods on Credit - Seek for
manufacturers or distributors that can give you goods on credit to pay within a
specified period. When you get one, try
as much as possible to be honest with your dealings.
Look for Investors - Search for people,
even members of your family who can invest their money in your business on
profit sharing bases.
As you follow these
financial structures over a period of time, let’s say 1 year, you will be at a
better position to know if the company is making profit or not. You will also
be able to know whether to expand the business or continue to grow the existing
one to avoid financial loss.
Diversion of Business Funds
Business is a risk they say but some business risks are not
worth taking. Before you divert your
business funds into another business opportunity, make sure it is something
that will yield more funds. Many
business owners often lose their business capital to Fraudsters which
eventually leads to collapse of their businesses. Do not jeopardize the future of your company
because of the quest to make quick money, study the opportunity and ask
questions before venturing into any investment.
Unnecessary Expansion
It is observed that as soon as new business owners’
break-even, the next action will be to open a new branch without laying a
strong foundation for the existing business.
Many Banks in Nigeria died as a result of this
uncontrollable opening of branches. Huge
amounts of money were spent to purchase properties, install expensive banking
gadgets, employ staff and at the end of the day, the branch will not be able to
generate the desired income to run such branches.
As a new business owner, your priority should be on how to
grow your existing business. Do not use
the funds you will need to grow your business to open branches that will not
yield good results. When those branches
are opened a manager will eventually be employed because you cannot be at the
two places at the same time, these managers will end up helping themselves to
the detriment of the business.
It is better to own one well structured and profitable
business than to have 10 shaky businesses.
I hope these factors are more than enough to help you start
your business, but if you feel different on any of these factors, please let me
know by dropping your view in the comment box.