Fledging Businesses Fail For A Variety of Reasons -Afuwape | Independent Newspapers Limited
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Fledging Businesses Fail For A Variety of Reasons -Afuwape

Posted: Apr 5, 2016 at 3:06 am   /   by   /   comments (0)

Tunji Afuwape is the CEO of 21st Strategies, a business consultant and SME finance expert. He has various publications on ‘How-to’ on SMEs. His organization help small businesses reach their fullest potentials. In this interview with NKASIOBI OLUIKPE, he throws light on series of issues surrounding the young entrepreneurs. Excerpts:

What is your background?

I studied Economics at the University of Port Harcourt 23 years ago. My foray into journalism in 2003 as a business reporter instigated my interest to help small business start–ups  get business loan for their businesses. My loan articles in Success Digest magazine, Business Day and other national newspapers gave me more opportunities to interact with both small and big loan institutions in the country.

How did you get into the business of being a financial adviser for young entrepreneurs and SMEs?

I was inspired to write books on funding windows for SMEs in Nigeria, 100 ways of raising funds for your business without going through the banks. Thereafter, I wrote funding windows for SMEs in Nigeria, I have written over 1000 articles and each of those articles I wrote, inspired small business on how to be part of the whole process with little or no capital. For instance before I wrote an article on export business opportunity, a lot of Nigerians believe it’s a capital intensive business opportunity.

I was able to create information on how to be part of the export value chain, by either being a product sourcing agent or contract sourcing agent. You can start any of these with no capital and make millions of naira thereby contributing to the export value chain.

What is your assessment of the business environment for the new entrepreneurs?

Running a business on Nigerian is tough but highly rewarding. So to survive, you have to be tougher. Nigeria is a harsh terrain to operate in, but since we are Nigerians, it’s important to consider whether you really understand what’s involved and whether you’re suited to doing business as well as being self employment. Start by asking yourself these questions:   How do I choose a business name?   What skills do I need to start a business?    What are my business goals, objectives and skills? How much income will my business need to kick start?   Is this a business or a hobby?  Have you written your business and marketing plan?

How do you think the environment can be made friendlier for young entrepreneurs/SMEs?

The government should provide more skill acquisition centers in each of the local governments in the country. It is sad to note that some skill acquisition centers are not functioning; I will also suggest monthly allowance to the trainees and provision of startup loans for graduates of such centers. I won’t suggest physical cash after graduation but startup equipment and regular inspection and monitoring process to be put in place for their continuous existence.

With the current global economic situation, what strategies would you advice a young entrepreneur/SME operator adopt to survive?

Fledgling small businesses struggle and fail for a variety of reasons, but invariably they all die when they run out of cash. And the reasons why they run out of cash are generally due to a combination of factors, such as, having insufficient customers, spending more than they can generate, poor financial management system, and the burden of debt, right from the onset.

There are many factors responsible for this near death experience. Those that are self inflicted like a major project failure, incompetent management or poor financial control, these are termed internal forces. While those that are not self inflicted like; government intervention, economic recessions, the presence of low-cost competitors or natural disasters is termed external forces. The continuous survival and success of a business greatly depends on managing these forces internally and externally. Neglecting them can spell doom for any business regardless of size!

But all of those failures tend to be accompanied by a single common denominator – which is the inability of the proprietor(s) to understand how to run a business viably and properly. These are just a few of the shortcomings and bad habits that are common to proprietors of both new and established businesses across all sectors – and if unaddressed, can quickly lead to failure. However, whether you are a new startup, already up and running, or an adviser to a small business, at least by recognising that these traits are apparent you can address them to help reduce the risk of failure.

Do you think a young entrepreneur should maintain a financial bookkeeping record or wait until his business grows?

Bookkeeping accounting may look like a great time waster to most small business owners but it is a silent factor that can either make or mar your business. If you really want to grow from a small business owner to a big business owner, then you better start taking bookkeeping accounting very serious.

Bookkeeping is just a small part of accounting or financial management in general, but it is a great place to start especially for small business owners who desire a sustained business growth. Bookkeeping accounting is all about keeping and maintaining financial books. These financial books are very crucial to both small and big business survival. If you are poised for growth and success, some of the books and records you should be keeping are:  Cash Book, Inventory/Stock book, Assets Record,    Profit and Loss accounts, Payroll records, Sales invoice, Cash receipt, Credit book,Credit purchases / Debit book, Cash payment vouchers and  Bank transactions.

Forecasting your business needs ahead and planning for purchases and other business miscellaneous will become easier with bookkeeping.

Some of these young entrepreneurs are denied loans because of lack of structures. What structures do you think they can put in place to be able to access loans or funds?

When it comes to applying for these loans, the good news is that most of these other lenders require the same kinds of information. Of course, each loan program has specific forms you need to fill out. But for the most part, you’ll need to submit the same types of documentation. So it’s a good idea to gather what you’ll need before you even start the application process.

Here are the typical items required for any small business loan application:

You should be prepared to answer the following questions. It’s a good idea to have this information prepared before you fill out the application:

Why are you applying for this loan?, How will the loan proceeds be used?  What assets need to be purchased, and who are your suppliers?  What other business debt do you have, and who are your creditors?  Who are the members of your management team? Your personal background, either as part of the loan application or as a separate document, you will likely need to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc. Some lenders require evidence of management or business experience, particularly for loans that can be used to start a new business. All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and balance sheet. Most loan programs require details of a business’s most current financial position. Before you begin the loan application process, make sure you have accounts receivable and accounts payable.

Some loan programs do not require collateral. Loans involving higher risk factors for default, require substantial collateral. Strong business plans and financial statements can help you avoid putting up collateral. In any case, it is a good idea to prepare a collateral document that describes cost/value of personal or business property that will be used to secure a loan.

Depending on a loan’s specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items in order, if applicable: Your business registration certificates, articles of incorporation, copies of contracts you have with any third parties, commercial leases.

Record keeping or documentation, is essential for running a successful business, but even more critical when applying for a loan. Make sure required documents are orderly and accurate. All information you provide will be verified by your lender and the organization guaranteeing the loan. False or misleading information will result in your loan being denied. Finally, make sure you keep personal copies of all loan packages. Running your own business is a stressful but good career and a life choice. It demands your time and focus. Start by expecting to live your work until it is established so it can get off the ground

Before going too far, think about how plausible your idea is. Is it something that people would actually pay for? Will it turn enough of a profit to be worth spending your time to do it?

Whatever your idea is, be sure it’s as unique as possible. This will help you eliminate or significantly combat competition, which will make your business more successful.