How not to run and manage a company in Nigeria
One of our clients, Mr. Tony Olosho, owns and operate an IT retailing services in Lagos, V-TU Limited.
The company was set up after Tony left his job at KWG Plc as Business Development Manager; having spent 10 years with his employer.
To Tony, he understands the whole value chain in the industry and is willing to explore the market by opening his own business. For his pockets, this was a tall order, overrated ambition and quite impossible.
“The only thing that prompt me was the burning desire to have a business of my own. I thought to myself, the end of the retail game is to continuing building sales.
Thus, I see myself having an edge given my connections with clients and suppliers”, Tony told MarketForces in an executive chat in Victoria Island, Lagos.
“I have the chance to leverage on my contacts; many of whom I have developed personal relationship with as Business Executive Managers & Developer. If I don’t take the chance, I may have to be here and wait to be retired or even sacked. More often than not employees are often first target when a company want to reduce cost”, he added.
V-TU limited was doing well up to a point when certain issues started cropping up. Like many owners own businesses, there is no rule about doing things right the first time and doing the right thing. For the first 3 years, Tony ran a profitable business, did millions of Naira in revenue and profit.
But one day, the Titanic hit the iceberg! Until such point, many business owners look at themselves as almighty in their various segments – Too knowledgeable to fail. They often forget there is always a rule to the game. What happened to V-TU IT reseller is normal thing that was not provided for.
First, the company was growing at a level that its capital cannot sustain its customers demands. The energy Tony was putting into the business at early stage appeals to the clients. Some customers by nature don’t care how a Business Development Executive that has been relating with their company under a name they were used to change to another company.
Such transition doesn’t really mean much to them as long as you are properly registered as one of their suppliers.
Tony didn’t know that the more the company grows, the more the capital that needs to be injected. V-TU limited was growing faster than its capital base.
Then, because orders could not be fulfilled Just-In-Time as agreed in various Purchase Order, some customers started sending queries and frown at how V-TU Ltd is degenerating into abysmal performance.
Overdraft and short-term loans could not solve the issue due to the magnitude of the purchase order and value involves.
Equity injection is not feasible, as Tony would really love to go alone. Going alone can make decision to be faster. However, at the expense of other strategic variables.
There is no hard and fast rule. As for getting loans, almost all Nigerian banks see risk in the business, not opportunities. Banks default setting is to say no to long term loans necessary to build buffer for the business operations. It was a dead end!
Unfortunately, V-TU Ltd was negotiating from weak position. This is because the company is in direct competition with bellwether IT resellers with networks, experience and deep pockets. And the suppliers could only offer standard credit policy with net, 90 days max when customers want 120days lifeline.
This is easy because average resellers are making twice the market profit margin to close gap in cost of financing as a way to compensate for lose credit policy.
Raising short-term funds was compounded due to lack of proper record keeping in the company. Many sole proprietors are yet to grasp why their business accounts should be separated from their personal accounts. That’s one of the areas where Tony goofed as an entrepreneur.
Funding from third party became tough, as there was no reasonable record to assess the performance of the business over the period. And, financiers don’t take business owners words without discounting its face value. They see each statement as sales pitch instead, they get down to work by looking at the numbers.
Then, Local tax authority knocked at the door. V-TU limited as a value reseller has obligation to collect value added tax on behalf of the government. Inside the company, many things were not right. From sheer ignorance to complete unethical practice, combine with attempt to evade tax.
V-TU invoice include 5% VAT, but the company won’t just file return as at when due for years. Tony thinks getting an account officer with relevant experience will cost the company more. But he was wrong. Not getting an experienced accounts officer cost far more.
Again, the company was maintaining poor records for its withholding tax certificates. Many times, WTH would not be collected from the company’s customers. Many times, many of this would not be found and when the company income tax obligation matures, instead of using some of its WHT, the company would instead use cash. Sometimes, an overdraft from a bank.
At the relevant tax office, V-TU ltd often found itself begging for tax cut or engaged in some underhand deals. Many members of staff at the tax authority have their clients that they are watching their backs. If you can’t meet up your tax liabilities, there is always a way out. Without proper direction from Federal Inland Revenue Service, V-TU settled its case at local tax office. But it doesn’t always last long before another officer knocks…Again? V-TU limited turned to punching bags.
In summary, Tony said, “After getting my hands dirty handling these issues in my business, I think the lesson will make me a better Chief Executive Officer in my next ventures. My advice for business owners is to put their eyes on things that matters. Rules can be bend, Principles don’t fail. The thing is, those mistakes I made didn’t really worth it at all. They are avoidable and I have learnt that growth could mean Greed – sometimes!”