As a business coach, I sometimes marvel to see some very promising small and medium-sized enterprises (SMEs) fail despite some efforts from third-party stakeholders such as banks and other financiers to resuscitate such businesses and ensure continuity.
This has happened too often in Ghana due to the current rising inflation, high exchange rate and the colossal economic impact brought about by the COVID-19 pandemic. Reducing SME failures remain extremely important to the health of the Ghanaian economy.
It is important for business owners to understand the foremost reasons behind SMEs' failures and steps to find solutions to the problem in a sustainable way.
The biggest issues as I see with Ghanaian SMEs are related to lack of financial literacy and is a matter of urgency for policymakers and educators to strive to address immediately.
Financial literacy I believe, enables entrepreneurs to take responsibility for every cedi, dollar, or euro and to maintain a sharp focus on their spending, expenses and managing their cash flow which are critical in maximising a small business chance of survival.
When a person is starting business, sound financial management, an updated record management system for tax and audit purposes are vital aspects for a business of any size to succeed.
As a small business owner, you don’t have to run all of the financial side of things, but gaining a degree of financial acumen means that you will at least be able to manage some of the businesses finances and in the process give yourself the best chance of building a business that can thrive.
Forgetting or ignoring the core business has made a lot of Ghanaian small businesses go under.
To diversify or not to diversify is a perennial question many businesses have, irrespective of their size.
But compared to a large business house, a diversification failure can be the end of the road for a small business, whereas a big business, in most cases, has the ability to move forward absorbing the loss.
It is important not to spend time and money in something you don’t understand or believe.
I have also noticed that one of the most challenging decisions a company can confront is the rewards and risks that come with diversification.
I believe diversification involves uncertainty and business owners must ask what their company can do better than any of its competitors in its current market.
Family and Management skills
Most entrepreneurs have started their business with a family member and friends from the scratch and are doing very well.
At one stage or the other, the SMEs business owner has to think about succession and the required management skills, knowledge and temperament to run the business.
This is one of the reasons why some entrepreneurs whose businesses have survived to this day, gradually took their family members out of the business day to day-to-day operations and gradually transferred such responsibilities to professionals who are better equipped and with the required skills while they have a strong grip on ownership.
Having a board of advisors with the talent and capacity in line with your future vision for the business is also key to overall strategy and sustainability.
Access to financing (Debt, grant, loans)
Although access to finance still remains a problem for SMEs, some financial institutions are willing to lend based on solid business plans and sometimes collateral.
There are some government initiatives and funding organisations that are also supporting entrepreneurship initiatives in Ghana. So, with improved access to finance, I keep asking myself why many SMEs fail or discontinue their operations midway.
I believe there are things out of the control of the SMEs, which include sudden changes in import and tax policies, new rules, and regulations by government from time to time such as what we are experiencing now which is causing some SMEs to scale down their operations or completely close down.
Another key reason contributing to a higher rate of SME failure in Ghana is lack of market research before venturing into the world of business. Many entrepreneurs tend to forget the pre-planning part of starting a business as they get immersed in the post-planning part.
Before starting a business, key questions need to be answered include pricing model, competition, among other things.
The post-panning includes sales, customer services, and product market fit.
The writer is a lecturer, University of Professional Studies, Accra