We have established that starting a new business is tough and 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.
Mixing personal and business expenses
Money and time are the biggest investments in a startup, and often business and personal expenses become indistinguishable. This can be one of the major sources of confusion when taxes are filed and, in some cases, can lead to income authorities cancelling various deductions on an ad hoc basis and, as a result, higher tax expenditures are levied. Therefore, startups must have a financial account from the beginning and separate records as well.
Not registering your name
If you intend to be a sole proprietor or a corporation, you must ensure that no one else is using the name you have selected for your firm. Make sure the name is available before making a logo, designing a web app, or printing business cards.
Not having a nondisclosure agreement
While exploring how to start your business, you are most probably talking to many people in the industry you wish to operate in—talking to professionals and sharing a lot of information about your business idea while trying to hire people, get advice, get estimates and retain professionals. A confidentiality agreement, or non-disclosure agreement, will help ensure that the information you share with others remains private. Also, stipulate consequences for violation of rights stated therein.
Accepting handshake deals
Never, ever work without a written contract. Too often, entrepreneurs value speed over accuracy when it comes to detailing relationships with partners, vendors, customers and even employees. They might accept “handshake deals” or verbal agreements. In theory, an oral contract may be enforceable in court if it’s a short-term contract. In practice, however, you’re going to end up in he said/she said fight and there’s no guarantee you’ll get a good outcome. A written contract, on the other hand, forces both parties to consider every aspect of the deal and helps make sure everyone understands what they’re signing on for. A clear contract can help you avoid the kind of disputes that turn into legal troubles in the first place. And if you do end up in court, a clear contract will help make sure that the deal is enforced.
Unfortunately, there are more than a few horror stories of novice entrepreneurs believing verbal agreements are set in stone. No matter the case, put it in writing. Contracts should be well-defined and signed by all parties involved—whether that means outlining roles and ownership with a co-founder, making an offer to an employee or drafting business points with a vendor.
Engaging professionals only after a problem arises
A good accountant or lawyer will be able to advise you of the best way to structure your business to achieve your business goals. It may initially cost some money to get this right, but it is one of the best insurance policies you will take. Understanding the pros and cons of being a sole trader, company, trading trust, limited liability partnership is vital to know at the beginning of a business’s life. By far the biggest mistake of all is becoming an “emergency entrepreneur” — someone who puts off all legal issues until he or she is being sued.
The time to engage with a legal professional is not when threatened with a lawsuit. Healthy people see the doctor or dentist for preventative care; healthy businesses should take the same approach, and establish a relationship with a good lawyer early on in a business’s lifecycle. Knowing more about the legal pitfalls and landmines out there will help keep any business entity on a solid foundation. This way, entrepreneurs can focus on the reason they started the business in the first place.
Expanding too soon
Expanding your business before it has the key resources (cash, access to equity, access to credit) or key structure in place can lead to disaster. Don’t underestimate organic growth. It may appear slow at first, but it is solid growth.
Failing to adapt to change
Multi-generational companies (i.e., companies that were handed down from father to son, or grandfather to son to grandson), with the newer generation failing to adapt to the changes in their industry. Instead, they adopted the thinking of the previous generation which is: “that is how we always did things.” Now with the rise of the digital age, businesses that fail to embrace technology or to see how to exploit it in their businesses are falling behind.
Reliance on one key customer
This can be deadly, especially if that one key client is the government. This is because a change of government or government policy can mean the end of your business. Outside of government, if your one key customer fails in their business dealings, it almost inevitably means that you too will fail. Not to mention that business analysts see reliance on one key customer as ‘high risk’.
[READ ALSO: What to do when interest rates are low in 2020)
Failure to manage cash flow
Cash flow is vital for all business operations. Cash can be likened to blood within our bodies. When you run out of blood, you die. It is all very good to appear profitable in your accounts, but it is not good if those profits don’t convert to cash in your bank account.
Let’s wrap up
Starting a new business is pretty exciting and challenging, and your business has a plethora of growth potential, but there is also the possibility of making quite costly mistakes as you start. If you learn to avoid the most common mistakes made by startups, your startup can run smoothly from the beginning and your business is better prepared to be successful and profitable in the long term.
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.