Starting a new business is tough. The Small Business Administration estimates that half of all new businesses fail within the first five years after their creation, and only about one third survive 10 years or more. In addition to the economic and operational risks that every business faces, there are a number of legal and general mistakes made by small businesses which can and do have significant effects on their success or failure.
Failure to adopt a well-thought-out business plan
Most businesses start because the founder perceives there is a need in the marketplace that isn’t being met or can be met more cheaply. Where businesses fail is by not determining the market for their product or service, the costs and profitability potential, and whether the business will generate sufficient cash flow or will need capital from outside the company. Any business endeavour needs to have a well thought out plan.
Failure to address employment issues
Hiring the right employees is crucial in a small business, where a bad hire can have huge business implications. But in addition to finding the right people for the job, small businesses need to be aware of the legal relationship between the business and the employees, compliance with various regulations, and the impact and enforceability of employment agreements and restrictive covenants.
Failure to do a buy/sell agreement
Any small business that has more than one owner needs to have an agreement that covers items such as governance and management, profit -sharing, the addition of new owners, and solving disagreements. It is more likely than not the ownership group of the business will expand or change, and, much like a will that provides for an orderly disposition of assets upon death, having a well-considered agreement among the owners can head off or limit disputes down the road and promote harmony among the owners.
Failure to protect intellectual property and trade secrets
Intellectual Property (IP) is the most valuable asset of a startup. Patents, trademarks, and copyrights are the three essential components of intellectual property. It is crucial to not let anyone claim a right to your IP. Strict non-disclosure agreements are a way of ensuring this. Startups often neglect the protection of intellectual property and suffer later.
Many entrepreneurs lump all types of intellectual property together, but it is important to distinguish the different types and determine how best to protect each type early in the operation of the business. Patents protect ideas or concepts which are novel and non-obvious. In order to claim patent protection, you must obtain a patent and, importantly, must file the application for the patent no later than one year after the idea is published, used in public, or offered for sale.
Trademarks protect words, designs or phrases which serve as the “brand” for a product or service. Trademarks are automatically protected under state and federal law simply by using them, although registration provides additional benefits.
Copyrights protect creative expressions fixed in a tangible medium, such as prose, music, and video. Like trademarks, copyright law protects works automatically and registration is not required, but copyright registration can provide significant benefits as well.
Lastly, trade secret law protects commercial information which is not disclosed to the public (a good example is the Coca-Cola formula). In order to maintain trade secret protection, the business must maintain the secrecy of the information by not widely disseminating the information and requiring those with access to the information to agree not to disclose information.
Failure to avoid costly litigation
Litigation should generally be considered as a last resort. It is expensive and a drain on the time and efforts of any involved employees. Before getting involved in litigation, any small business should try to temper the emotions that are caused by a dispute and consider the costs and benefits of the litigation, just like they would any other business decision, and determine any collateral effects of the litigation as well.
Failure to hire legal services
In the rush to start up their business, entrepreneurs mostly focus on everything except the legal considerations of operating their business. This point may seem self-serving, but working with a lawyer on legal issues is at least as important as working with an accountant on financial issues. Experienced counsel can help a small business spot and avoid legal issues before they become destructive to the company.
Not tracking expenses
Another common mistake commonly made by the startups is not keeping track of their expenses, small or large, throughout the year. Many businesses try to collect all receipts only when tax returns must be filed! What is not documented is not deduced, hence, it’s like leaving money in the open. There are many options available to manage and record expenses. Entities can also hire accountants in order to manage these records.
Lack of documentation
Each interaction, whether minutes of meeting or anything else, must be on record. It is crucial to have all documents in proper order at all times. Legal due diligence can make or break a crucial deal of business.
Don’t have proper agreement of the founders
It is important to have a solid founder’s agreement because it is worth thinking about how you and your co-founders could face failure. The agreement of founders must contain all the essential clauses, such as adjudication rights, property, and the functions and responsibilities of each founder, including conditions of employment and wages.
Mixing revenue and capital expenses
One of the main confusions for those who present business for the first time is about expenses. What expenses are considered capital/assets expenditures and what are called deductible income expenses in the P&L A / c. The most valuable items that will last significantly more than a year are known as capital/asset/equipment expenses. Therefore, be careful when you are accounting for all those expenses.
African leaders should support MSMEs for rapid recovery of economies – Report
African leaders would help speed up the recovery process in most African economies if they can continue to support the MSMEs.
African leaders have been enjoined to promote and support policies that would strategically support the Micro, Small and Medium-sized Enterprises (MSMEs) and speed up the recovery process in most African nations.
This was stated in the Foresight Africa 2021 report, a publication of African Growth Initiatives of the Brookings Institution, a non-profit organization devoted to independent research and policy solutions.
According to the report:
- “Policymakers must continue to support businesses—both smaller enterprises and larger firms—that have been disrupted by the crisis.
- “Arguably, the greatest priority must be to bolster the micro-, small-, and medium-sized enterprises (MSMEs) that are key to African commerce and account for 83 percent of private-sector employment in Africa.
- “Such businesses, which number between 85 million to 95 million, are especially vulnerable to COVID-19 mitigation measures given they are often characterized by person-to-person contact. By just May 2020, 75 percent saw their revenue decline by over 30 percent.
- Finance will continue to be one of the greatest needs for African businesses; indeed, only 5 percent of MSMEs across the continent feel they have received adequate support from lenders. Provided governments navigate Africa’s fiscal challenges with skill and determination, they can continue offering suitable financial support to small enterprises; in addition to indirect support through value chains and banks, such assistance might include loans, debt forgiveness, low-interest rates, assistance with payments to suppliers, and reduction in utility costs.”
Ways Governments can provide financial support to MSMEs
- “There are several steps that governments can take to provide financial support to MSMEs. One option is to assist MSMEs through larger firms in their value chains, which might include upstream suppliers and downstream buyers.
- “Governments can provide easier liquidity and working-capital terms to these larger players, and they can make such support conditional upon these firms’ providing favourable financial terms to MSMEs.
- “Governments can also consider providing risk guarantees or first-loss mechanisms while requiring banks to on-lend under the chosen set of criteria and guidelines in order to encourage banks to lend to MSMEs.
- “Policymakers must not lose sight of the region’s informal sector, as 84 percent of African MSMEs are unregistered. Policymakers can take advantage of the opportunity created by the crisis to convince larger numbers of informal enterprises to register, and thus gain better access to finance and markets. Moreover, to promote registration, governments could shape bold campaigns and attractive packages, potentially including multi-year tax holidays and capacity building for MSMEs.”
Why this matters
- Micro, Small and Medium-sized Enterprises (MSMEs) are widely recognized for the important contributions they make to sustainable development, in terms of contributions to economic growth, creation of jobs, provision of public goods and services, as well as poverty alleviation and reduced inequality.
- The pandemic has seriously impacted the MSMEs in all African nations as it has exacerbated economic hardship and may have pushed more than 40 million Africans into extreme poverty.
- It is imperative that the African leaders focus on enabling businesses to respond effectively to these new and unfavourable conditions to which most MSMEs have been exposed to.
The FG in partnership with the private sector will continue to support MSMEs – Osinbajo
Osinbajo has stated that the FG in partnership with the private sector would continue to provide interventions to boost the growth of small businesses.
Nigeria’s Vice-president Prof. Yemi Osinbajo during an MSME stakeholders’ meeting, disclosed that the Federal Government in partnership with the private sector would continue to provide interventions to boost the growth of small businesses across the country.
According to a press statement issued by Laolu Akande, the VP made this statement on Monday at the first meeting of MSMEs stakeholders for the year 2021.
Prof. Osinbajo said the Government would continue to support innovation and interventions to deepen the involvement of new and existing MSMEs in the nation, this he said would help to improve the economy and create more employment opportunities for Nigerians.
He stressed further that the implementation of the Economic Sustainability Plan Survival Funds has sent positive economic signals. In a bid to complement the gains in this space, the Government needs to scale up interventions in the MSMEs sector.
In this vein, Osinbajo urged stakeholders in the public and private sectors at the virtual meeting to be innovative in the interventions planned for small businesses across the country, so as to consolidate on the gains recorded in the MSMEs space in the past few years.
What they are saying
Prof. Yemi Osinbajo, during the MSME stakeholders’ meeting, said:
“We must continue to be innovative in the interventions that we plan for MSMEs because small businesses are the engines of growth of any economy, in the areas of wealth creation and employment opportunities, MSMEs are very important.”
Continuing, Prof. Osinbajo said:
“We really have to think out of the box in our engagements going forward. We need to change the way we do many things, we need to look for ways of multiplying our efforts because the challenges in this space are greater than what we have been able to achieve so far. Of course, we have done a lot, but looking at the numbers in need, you will find out that there is a lot more to be done.”
What you should know
- The Federal Government’s MSMEs Survival Fund grant scheme, which includes Payroll Support, Artisans and Transport support tracks, is a component under the Nigerian Economic Sustainability Plan, NESP.
- The Survival Fund scheme was designed to cushion the economic effects of the COVID-19 pandemic especially on the most vulnerable small businesses, is a conditional grant to support vulnerable MSMEs in meeting their payroll obligations and safeguard jobs in the MSMEs sector.
- The scheme is estimated to save not less than 1.3 million jobs across the country. However, 283,023 Nigerians employed by MSMEs across the country have benefited from the Payroll Support Scheme. This leaves millions of Nigerians out of the consideration of the scheme.
283,023 Nigerians employed by MSMEs have benefited from FG Payroll Support Scheme
The FG has revealed that over 200,000 persons have so far benefited from its Payroll Support Program.
The Federal Government of Nigeria has disclosed that 283,032 Nigerians employed by MSMEs across the country have so far benefited from the Payroll Support Scheme of the Federal Government.
This disclosure was made in a tweet shared via FG Survival Fund’s official Twitter account.
— MSME Survival Fund (@SurvivalFund_ng) January 6, 2021
What you should know
- The Payroll Support Program by FG under the Survival Fund initiative was created to provide an adequate buffer against the impact of the COVID-19 on the stream of income of MSMEs.
- This, however, is an offshoot of the Survival Fund initiative, established to support and protect small businesses from potential vulnerabilities brought about by the COVID-19 pandemic.
- In line with the mandate of the programme, the government will support MSMEs with staff salaries for 3 months.
- It is important to note that the COVID-19 pandemic and other regulatory actions of the Federal Government affected the core segments of SMEs, as well as the revenue and income vehicles of Small businesses in Nigeria.
- According to a survey by NBS, it became public knowledge that the total number of Micro, Small and Medium Enterprises in the country was about 41.5 million, as of December 2017, with significant employment contribution running to millions.
- In the light of this, it is plausible to say that the Payroll support programme is not inclusive enough, as the recent move by FG to support MSMEs leaves millions of MSMEs and their employees out of the radar.