Structured MSMEs and the ease of doing business with government

In today’s turbulent business environment, predominantly with the economic recession, inflation, and the disruptive novel coronavirus (COVID-19) pandemic, strategy becomes the main source of competitive advantage for businesses and organisations. However, for a strategy to be meaningful, a business must have a reliable and working business and organizational structure.

The fundamental problem that occurs in most businesses, particularly the nano, micro, and small-sized enterprises in the country is that they operate informally and how to establish a successful and profitable enterprise in a way to satisfy the common and personal interest is complicated. I am delighted to correctly inform you that this issue revolves around sound business structure planning. Hence, when a business and its activities are divided, organized, coordinated, and controlled without duplications and is hassle-free, it is said to be structured.

Organisational structure can be seen as ways in which responsibilities and power are allocated and work procedures are carried out in a business by operators and workers. From context observation, small businesses in Nigeria are rarely structured, usually, they have a small working group and face-to-face communication is frequent and this generally undermines formality, business growth, and productivity. A point to note is that this informal arrangement is prevalent in the country and is a worrisome culture amongst startups and small businesses.

Thus, this piece is to share the importance of business formalisation and the need to have organizational procedures, established rules, and responsibilities assigned, regardless of the business size, employee size, revenue generation, or the range of the business function. Having a business incorporated or registered at the Corporate Affairs Commission (CAC) and setting up a business account in a commercial bank are only the starting points of formalization of business, structure involves a whole lot more.

The idea of structure in a business is for efficiency and effectiveness because it affects the safety of assets, fundraising, taxation, customer experience, governance, and engagements. The smooth continuation of any business upon ownership change or succession and the financial information of the business is also affected by the structure in the business. Business requires structure, chiefly for continuity, growth, and profitability. In my view, the efficiency of a business can be measured by how well the business is structured.

Therefore, for a business, either large, small, or nano to fulfill its purpose and have a mechanism constructed to achieve the purpose, a functional structure has to be in place in the business. More importantly, functional structure affects business operations in two ways. First, it provides the foundation on which standard operating procedures and routines rest. Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the business operations.

To substantiate the perennial issue of informality and lack of structure among businesses, a survey was conducted on MSMEs in Lagos State, the commercial nerve center of the country — (the Computer Village Ikeja, Alaba International Market, and within some market associations (Auto Spare Parts and Machinery Dealers-ASPAMDA and Balogun Business Association) to get more insights. The survey revealed that a large percentage of close to 97.4% of the respondents who are business owners and SME operators have organic structure (no accountant, no operating software, no technology usage, no rules, and procedures) in their businesses. With the survey, a high number of poorly run businesses with little or no structure were identified and this is a huge challenge to business continuity.

Some of the issues they face as a result of this informality include high employee turnover, and hiring problems, low productivity, high number of low skilled staff, lack of bookkeeping, and in most cases, no accounting or customer/sales data. However, such data could be used to gain insights into sales, profitability, patronage, and for strategy, implementation to stay ahead of the competition. More so with such data sets (business and customers) if available, it can help to identify areas of weakness and strength of the business and also ensure no part of the business operation or customer experience is overlooked. With good structure, businesses can provide exceptional customer service experience and audited financial statements useful for government procurements, services and public contract qualifications.

For a business to have a good structure, these components; the board, the management, business goals, vision, operations, governance, accounting, bookkeeping, human resources, and technology usage have to be defined. Because they have significant effect on the way the organization performs its activities and if one component does not fit, the performance of the whole business will be hindered. For instance, improper accounting systems and bookkeeping can result in financial disaster for a small business or even cause a business failure. In addition, governance structures and leadership is equally important because it is the frameworks that can help businesses achieve long-term success for all their stakeholders.

Significantly, to improve the structure and efficiency of a business, the most central formalization tool available is the technology and the organizational chart. We live in an age of high technology development in various sectors and industries; this increasingly improves the adoption of automation for businesses and is, therefore, a more logical way to support business structure. Business structure with technology will reduce operational cost; provides standardized procedure, accountability, and clear reporting among others.

For several reasons, large firms may have a comparative advantage over small businesses, however, mainly on business and organizational structure. Nano, micro, and small businesses are poorly structured all across the country; therefore formality and adequate structure are advised for business sustainability and growth. It is also apparent that SME operators need to adopt good governance, prepare a financial statement as and when due, and keep proper records.  It will help such small businesses take other opportunities such as taking part in government services, procurements, Public Private Partnership (PPP) and contract exercises.

Recall, the government is the biggest procurer of goods and services, operating in the public sector space should be a target, however it requires adequate formality and structure. If this part of your business is sorted, it will be easy to identify and qualify for opportunities within the government and public space. This can provide a leverage considering the current economic realities. Other opportunity includes raising funds in the capital market, attracting foreign direct investment, seeking a loan from the bank, and so on. Raising long-term funds with low cost through the stock exchange should not be a daunting task for small businesses if a structure and good governance is in place.

In conclusion, to stem the tides of the effect of this current reality and harsh economic climate, businesses need to innovate from an organic structure to a functional structure and divide the organization into units, based on their function. When a business environment changes, organizational strategy needs to change, structure, roles, objectives, and functions should realign with the new realities. The big question is, has your business acted? If you have a structure, have you done a performance review or done a technology upgrade? If it becomes increasingly difficult to re-engineer or structure your business where necessary, the engagement of knowledgeable professionals can make a substantial impact on your business operations and for strategy advice. Good luck!

 

• Dr. Olubiyi Ph.D, an entrepreneurship, business management expert and investment coach sent this piece via drtimiolubiyi@gmail.com.

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