‘Why 80 per cent of small businesses fail’

By Adelowo Adebumiti |   20 March 2020   |   1:34 am  

A financial expert with PricewaterhouseCoopers (PwC) Nigeria, Bola Adigun, has said 80 per cent of Small Business Enterprises (SMEs) that collapsed in the country failed due to cash flow problems arising from poor financial management practices.

According to her, studies from the United Nations Industrial Development Organisation’s Investment and Technology Promotion Office in the country shows that only 20 per cent of SMEs manage to survive.

Adigun, who is the company’s Director of Corporate Finance, stated this at the Business Growth Seminar 2020 organised by the Enlite Global Services in Lagos.

While noting that over 80 per cent of companies failed in the first 18 months of operation, Adigun stressed that a company’s size does not create immunity to failure as precedence shows that large companies are also susceptible to failure from poor financial management.

Delivering a paper titled: “Adopting best practices for financial management”, she said financial management is an ideal practice for controlling the fiscal activities of an organisation such as procurement of funds, utilisation of funds, accounting, payments, risk assessment and every other function related to money. She explained that it involves decision-making elements such as investment, compliance, financing and dividend to drive activities.

She, however, said the first step in financial management was to understand the source of funds available and how each aligns with company’s business goals.

Adigun said a good financial management system seeks to effectively utilise funds to increase the overall wealth of the business and its investors.

She explained that its benefits include aid in fund acquisition, effective use of acquired funds, increase overall firm value and providing economic stability among others.

Adigun urged SMEs to have clear business plan, monitor their finance position, have knowledge of day-to-day cost, maintain accounting records, meet tax deadlines, control overheads, manage inventory levels and get the right funding while advising them to tackle problems as they arise.

Head of KoboCare and Founding Partner, Kobo360 in his presentation on “Ensuring Operational Efficiency,” emphasised the main elements involved in operation process, which are people, process and products.

He stressed the importance of putting up an effective process to ensure growth in business. Co-Chair of the event, Olufemi Awoniyi, said the forum was to discuss particular risks and mistakes that most commonly affect growing businesses and practical solutions to solve them.

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