Question:
What in your opinion turns an
investor on and off in any business venture?
Answer:
Below are what Turns Investor on
(1)
Evidence of Customer Acceptance – Investors like to know that a
company’s new products have already being used.
Even if only on a trial or demonstration basis.
(2)
Appreciation of Investors Needs – Investors usually want to recoup
their investment within three or seven years.
So they want to see some evidence that entrepreneurs have thought about
how to make this possible.
(3)
Evidence of Focus – Investors want to feel that a
company’s funders know which one or two things the firm does first and
concentrate their efforts on them.
Investors know that company’s trying to do too many things won’t do any
single thing well enough to allow for fast trade growth.
(4)
A Proprietary Position - Exclusive rights to a product or process
usually comes in the form of patents: they also may be obtained by copyright or
trademark protection. A company with
such protection has an advantage over its competitors.
What Turns Investors Off
For danger sings stand out most to
financiers:
(1)
A product Orientation – This refers to a situation where
there is a single cause of excessive entrepreneurial optimism. It is infatuation with the company’s product
rather than with the market for it.
Business plans that devote more space t o describing the product than to
detailing who will buy it and how it will be sold make investors suspect that
the company is really just playpen in which the founders can fiddle with their
latest toys.
(2)
Projections that Deviate Excessively
from Industry Norms -
each industry has a range of accepted financial results. If a company’s
business plan projections that differ sharply from acceptable ranges in an
industry, investors will worry that the entrepreneur has not done his or her
home work or is being unduly optimistic.
(3)
Unrealistic growth projections – Entrepreneurs tend to have
aggregated expectations of long-term growth.
Investors know that and expect it.
But when the projections begin losing touch with reality, all kinds of
alarms go off in investor’s mind. Unless
the speculator projections are explained and argued convincingly in the
business plan, investors are likely to be skeptical.
(4)
Reliance on custom or applications
work - When a
company’s basic product needs to be altered or especially designed for each
customer, potential investors see high costs and low profits. Specially designed goods or services may be
successful, but entrepreneurs forming companies of this type should expect
resistance when they try to raise investor’s funds.
Question:
Succinctly discuss the problems associated with small business operations
in Nigeria.
Answer:
There are numerous problems which are the cause of small business
failure. Among them are the followings;
a. Under Capitalization: - money matters are not matters of fancy. Virtually, all business needs capital for its
operations and growth. But many of the
small and medium scale business units are undercapitalized. This problem of finance is in three
dimensions;
o
The
need for start-up capital, working capital and expansion capital. Long-term capital is a particular need for
small and medium concerns. This capital
is obtained by personal investment or by long term borrowing.
o
Borrowing
large sum of money to be paid back over a period of years is difficult for
small firms because of the limited access to capital market, borrowing from
relatives or friends presents problems in that in those cases in which it is a
possibility, the relative or friend often expects some voice in management of the
business and there may be instances which this type of credit would jeopardize
the relationship of both parties. Accepting
partners on the other hand, may involve surrender of absolute control over the
business, which the small owner-manager may not be willing to do.
o
Commercial
banks which were expected to launch – pad for the development of small and
medium scale industries through the provisions of loans have failed to give
adequate support to them. Stiff
collateral security demanded by banks often means small scale industrialists
are unable to meet these provisions consequently losing the chance to obtain
loans. In addition, high interest rates
charged on loans have scared off potential small and medium scale enterprises.
Banks
on their own part, have argued that they are discouraged to lend to this
sub-sector since may potential and existing small and medium scale
entrepreneurs draw up feasibility reports that are not viable, lack managerial
skills and do not maintain adequate financial or accounting records about their
businesses. High percentage of default
on repayment of loans are among the reasons that led to this sub-sector to be
regarded as a high risk area for ending purposes.
b. Poor Business Accountability: The financial problem of small and medium scale enterprises
is rarely only financial. Often, it is only a symptom, the diagnosis of which
reveals other weaknesses. Business
finance and stock are mixed up with personal finance and stocks required for
personal needs. Cash and stocks are taken at will for personal use whenever the
need arises without accounting for such withdrawals. This makes it difficult to assess the
operating results of the business and at times starves the firms of its liquid
resources.
c. Poor Record Keeping: Some small and medium scale industrialists believe that the maintenance
of book of accounts and other business records is costly and unnecessary. They
feel they can defer the keeping of notes on important businesses transactions
such as amounts due to be paid to suppliers and amounts due from
customers. Some people feel that keeping
proper records of accounts is inviting trouble from the tax authorities while
some others feel that keeping records will be a source of leakage of business
secretes to others. It is not realized that keeping accounts help the business
to present the information required by banks and other lending agencies to
appraise and evaluate the credit worthiness and standing of the business as
well as its ability and capacity for growth if financial assistance is
provided. If for the purpose of avoiding tax, profits are manipulated and shown
to be at the minimum, it may achieve the objective of tax saving of a small
value, but would undermine credit worthiness since lenders go by study and
analysis of the accounts of the business.
Also in the absence of production records and books of accounts,
business efficiency cannot be ascertained.
The success of the business depends on proper planning. Planning is possible only when data is
available. In fact, many small and
medium scale business operators do not understand the intricacies of
maintaining adequate business records or of preparing financial
statements. Financial data may be
available but the manager may lack the necessary knowledge of appreciation of
their value to interpret and use them effectively.
d. Lack of Enterprise: This relates to lack of experience in the line of business which the
small and medium scale business owners enter.
They may have experience in one line of business and not in another due
to his unfamiliarity with the specific problems of the particular new line of
business.
e. Lack of Business Knowledge: Knowledge consists of
facts and theories that enable people to understand phenomena and to solve
problems. Various methods have been
found useful in acquiring knowledge in the bid to solve problems. These are habit, trail about error, authority,
tradition, institutions, expert opinions, personal experience, education and
induction, etc. a small or medium scale
business owner who has not acquired enough knowledge about business may likely fail if he enters
into it.
f.
Poor/Wrong Location:
Where a business is sited is called its location. The factors which usually influence the
location of business include; nearness to raw materials, market, source of
power and access to supply of labour and transport facilities etc. Too often, a
location is selected for some superficial reasons such as the availability of a
building to rent or buy, closeness of the facility to one’s home etc. these factors do not account for business
success. Good location is extremely
important as a factor for business success.
Poor location has caused the downfall of many small and medium scale
enterprises. One mistake some people
make is to rent a store in a location that has a history of failure. They often feel they will be able to turn the
situation around. The small businessmen
must analyze their unique situation before choosing the town and the actual
site for the business. Some of the checklist
suggested include competition, traffic flow, transportation, packing
facilities, unfavourable characteristics, and the availability of business
services, among others.
g. Inadequate Planning: Planning is defined as determining in advance what to do, how to do it,
when to do it, who is to do it, and even why you should do it. It encompasses
setting objectives as well as making day to day decisions on how these
objectives can be achieved. It involves
the determination of both ends and means.
Therefore, planning a business begins with gathering and evaluating data
on resources requirements, operation costs, potential markets and sales
competition, supplier’s relevant government regulations etc. unfortunately, however, many eager small and
medium scale business owners push ahead impulsively, without paying attention
to planning, and thus business failure. One of the problems of small and medium scale
business is the lack of strategic planning. It should be noted that sound
planning precedes sound decision making.
Most small and medium scale businesses see planning as a luxury which
could be afforded only by a large corporation.
Even when they plan, the tendency is that they concern themselves only
with short term plan while they shy away from long term plan. The lack of the use of modem method of
gathering and analyzing data constitutes a weak point in the small or medium
business strategic planning effort.
h. Unplanned Expansion: Once a business becomes successful, there is a tendency to expand it in
order to make it grow bigger. However,
there is a limit to which a small or medium scale business would grow beyond
which it becomes unproductive or inefficient if appropriately planned expansion
was not carried out. Therefore,
expanding rapidly sucks up sorely needed working capital. It is therefore quite easy for a business to
expand itself right out of business . Too
often, businesses that have a good chance of making it fail because of
liquidity problems caused by unplanned and premature expansion.
i.
Inadequate Credit Control:
A common problem facing small or medium scale business owner is whether
or not to extend credit. Those firms
that do grant credit must protect against the practice of extending too much
credit. But at times, some of them possess
poor credit granting practices. Credits
extended to friends and relations are often times too hard to collect in times
of need. This therefore, increases the
financial predicament of the small or medium scale business owner.
j.
Neglect and Time Pressure:
Since most small and medium scale business owners are usually managers,
they must guard their business against personal neglect. Common reasons for neglecting his business
include bad habit, poor health, laziness, marital problems or apathy. Others include devotion of too much to
community activities or in Politics.
These tend to conflict with business profitability objectives. However, some problems of business neglect is
caused by time pressure. The problem of
time pressure is attributed to the fact that the owner manager is saddled with
a lot of functions which he must perform within a short period of time
otherwise he lives to reap the consequences of non-performance. This lack of
time to managers is accentuated by participation in civic affairs and by time
devoted to the family, hobbling and other recreational activities. Time budgeting and reasonable restraint has
been suggested as one way to overcome part of the total time pressure that
confront the small and medium scale business entrepreneurs.
k. Incompetence of Management: The major hazard of a small or medium scale business is the
incompetence of management. A small and medium scale business owner may know
all the management principles and theories, his management practice may
jeopardize his business. He may not
possess the leadership qualities, be unwilling to delegate authority, lack
appropriate human relations ability and may not possess the appropriate skills
of management. Such a business operated by this small and medium scale business
owner is likely to fail. However, in a
very small business, the entrepreneur is a one-man management team. Top level decisions together with all the
lesser tasks of management that the assistant cannot accomplish devolve on the
entrepreneur. Unfortunately, this
requires a diversity of talents and no individual has superior ability in all
areas of management. Lack of management
ability, on the part of the small or medium scale business manager has been one
serious cause of failure. Good
management ability is a pre-requisite for success in both large and small
business firms alike. Concretely this
means skill in handling men, money and inventory along with the ability to
formulate wise policies, select proper methods, merchandize aggressively and create
good relationships with employees, customers and the general public.
l.
Lack of Proper Inventory Control: Since the small or medium scale
business manager is a generalist, he may lack an understanding of the
importance of proper inventory control.
An inadequate inventory means that goods are unavailable for delivery to
customers when they are demanded; or too large an inventory which creates
problems such as the owner’s money being tied up or waste through spoilage and
lack of proper stock of goods that are in high demand. This may affect sales negatively and hence
the income of the business. Income for
the business is generated by sales and without income the business collapses.
m. Disaster: There are certain circumstances over which
the small or medium scale business owner may have little or no control. Natural disaster such as thunder, flood,
etc., or accident or sudden death of the owner may wipe out the small or medium
scale business enterprise.
n. High Rate of Loan Diversion and Defaults: Both Loans Obtained from government,
banks and individual persons, are used to promote personal aggrandizement
instead of the corporate objective of the business, and hence failure to repay
the loan plus interest may lead to the failure of the business.
o. Inadequacy of Infrastructural Facilities:
water, electricity, Accessible road, and other means of communication is
a sine qua – non to the efficient performance of small and medium scale
enterprises. The absence or inadequacy
affects negatively the efficient performance of small and medium scale
businesses.
p. Lack of Skilled Manpower: Owners of the small and medium scale enterprises are people
of average means with no specialized skills or expertise. Because of financial constraints, they are
unable to hire the services of specialists on part time or full-time
basis. As a result efficiency and
productivity are low and hence cannot survive stiff competition.
q. Lack of Good Advice Cum Unwillingness to Accept Good Advice: The small and medium scale business owner does
not share his problems with others nor does he get advice in order to find
solutions to his problems. This results
in high cost and/or unprofitable operations.
At times when he is given a good advice, he may not be willing to accept
it.
r. Poor Competitive Position: A frequently alleged
problem facing small and medium scale enterprises in Nigeria is intensity of
competition from large companies. Some
small and medium scale companies are far greater innovators than large
companies, but their innovation sooner or later face intense competition. Reid and Hazel: Too often a small company
pioneers a new product, a new process, does the research and planning, sweats
through proving and the launch, does it all well on a modest scale. Then the big boys move in, skirting parents
if necessary and steamroll the small companies into obscurity.
s. Poor Education and Lack of Required Skills; Poor education and lack of required
skill was cited as another cause of business failure in Nigeria. Many small and
medium scale industries in Nigeria are owned by proprietors who have neither
adequate education nor the required skill to manage such enterprises.
Consequently, the management of such businesses is on the basis of trial and
error which ultimately leads to business failure.
t.
Lack of Preparedness: Another cause of failure is
unpreparedness of small and medium scale business owners. Some launch a new venture without adequate
start-up capital. Some people put their
heads in a cloud and start businesses with less capital than they
estimated. This is a sheet lunacy. It is far better to delay the start until you
have saved or borrowed from friends. Do
anything, but get what you need before you start.
u. Wrong Choice of Product or Services: Probably, one important variable affecting the
survival and success of a small and medium business concern is the choice of
product or service to be offered.
v. Problem of not conducting feasibility studies: The difficulty in conducting
cynical, market and financial analysis of projects before embarking upon them
is another problem facing small and medium scale business owners. The difficulty in undertaking product, process
and market research is serious problem facing the small business man. This difficulty arises principally from the
demands for money and specialized talent necessary to conduct feasibility
studies: The entrepreneur is seriously handicapped in these areas of
demands. It also takes the time and
ability of someone to keep abreast of developments in methods, processes and
products. This difficulty in undertaking
feasibility studies may make the advent and the usefulness of viable marketing
formation remain long unknown to the small and medium industrialists. The
problem of research is less true of big business because it has necessary
capital and trained experts to undertake product and market research on a large
scale.
w. Government policies and regulations: Another problem facing small and medium scale
enterprises in Nigeria is the effect of government policies and regulations,
some of which bring distortions in the structures and management of these
businesses. Small enterprises will
thrive if they are economically efficient without the plethora of government
interventions. Thus, the small and
medium scale enterprises are not exempted from the vagaries of business control
as experienced by other established business units. They must operate in accordance with the
federal, state and local government laws.
They must obey the monetary and fiscal policy measures some of which
negatively affect their operations.
x. Problems of management succession: further still, the
small and medium scale business entrepreneur has a unique problem in arranging
for the management succession. When a
proprietor dies for example the heirs may reorganize the business and continue
operations. Some heirs may be untrained and unequal to the
management task. Even if the owner has
sons and daughters, there would be difficulties. These heirs could create a partnership but
such partners would not necessary be either able or compatible. A son might be disinterested in business,
sell it in order to follow his own career interest and so waste the father’s
effort. Such a son might be unequal to the job of running the business with the
result that he runs it into bankruptcy.
y. Problem of Acceptability of Nigerian Made-Goods: Another problem starring horribly
into the faces of the small and medium business enterprises in our country
today is the demoralizing effects of our peoples’ actions and reactions towards
the locally made products. Our small
scale business do not produce goods of big quality and cheaper prices as those
imported from the more technologically advanced countries. This has resulted in unsatisfactory attitude
of most Nigerians towards Nigerian goods (which they normally refer to as “Igbo
made” “Nnewi proper” or “Aba made”) hence their preferences for foreign
imported goods. A host of other reason
for the failure of small and medium scale enterprises abound.
They
include catastrophes and disasters, economic and government changes, geographic
changes, industrial actions, death and domestic crisis, bad debt losses,
shortage of key materials, fraud, loss of agency, machinery breakdown, lack of
insurance for measurable risks, excessive fixed assets and many others.
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