Six Ways Ghana’s SMEs can Cure Self-Inflicted Wounds


A common complaint against SMEs in Ghana is inadequate bookkeeping – always a sure sign to investors that a business is not properly managed.

Difficulty gaining access to financing, whether from banks, equity investors, and other lending institutions, creates significant operational and growth impediments for Ghana’s small to medium sized enterprises. In many cases, the challenges around access stem from systemic issues, like lack of adequate collateral and credit history. Also, due to high default rates, loan underwriters follow stringent guidelines and often have to deny applications from very promising entrepreneurs who fail to meet those standards.

The systemic issues notwithstanding, many of Ghana’s SMEs, which contribute about 70% of the country’s gross domestic product (GDP) and account for 75% of employment are too often victims of their own self-inflicted wounds – avoidable infractions which make them unattractive to lenders and investors.

Following are six practical ways entrepreneurs can cure those infractions and attract lenders and investors.

1. Have a Clear Business Plan
It is impossible to overstate the importance of having a clear, written business plan that defines an SME’s goals in the short, medium and long term. An ideal business plan spells out growth targets, expansion opportunities, and succession plans. At the very least, it should contain a clear response to this question: What are you offering to whom, and why will they be prepared to buy it?

2. Hire Capable Professionals
The shrewdest investors put their money in people, not just the business. The more qualified and experienced your team is the better your chances of convincing an investor or lender to trust you with their money. This means, even for a family run business, ensuring the people in key operational positions have industry and technical expertise to do the job, and the track record to prove it. Remember, a small business owner is not expected to be an expert in all aspects of the business. The ability to delegate key functions to qualified professionals, such as accountants, bankers and lawyers, is a hallmark of a good entrepreneur.

3. Proper Accounting Matters
A common complaint against SMEs in Ghana is inadequate bookkeeping – always a sure sign to investors that a business is not properly managed. This is a rather common infraction because many times SME owners and managers tend to focus more on operational issues at the expense of regular monitoring cash flows and budgets. Rather than wait until the end of the year or quarter to discuss financing, it is important to hold regular meetings with the heads of accounting to ensure they are paying meticulous attention to all the numbers. Reputable SMEs typically hire an outside auditor to provide an independent audit of all financings.

4. Seek Independent Advice
Many of the most successful SMEs have advisory boards, consisting of professionals who are not on the executive team, to provide unqualified and independent advice. Advisory boards not only provide independent oversight in areas such as compliance and risk management, but can also bring creative expertise in areas like marketing and branding. It is important to have board members with varied expertise covering all aspects of the business. It is best to pick individuals who are not timid about sharing their views or challenging management’s views, strategies and decisions.

5. Comply with the Law
Lenders and investors frequently conduct an independent background check on the individuals responsible for running the enterprise and the enterprise itself. This may include a criminal background check and a review of historic business practices from legal and other government records. Regardless of how profitable a business may be, unscrupulous sales activity, cheating on taxes, or overstated qualifications of principals, such as fake doctorates, are major red flags for lenders and investors.

6. What is the Exit Strategy?
Investors, particularly equity investors, want a quick return on their investment and prefer to invest in SMEs that are able to articulate how this can be achieved within a reasonable time frame. An exit strategy shows an entrepreneur’s long-term, strategic vision for the business, and includes any plans to sell the business, transfer ownership, or take it public. Succession plan is a crucial element of this discussion since it could have bearing on the terms of the loan or investment. For example, an investor may want to time the duration of the loan with the planned transfer of control to a less familiar or new management.

Lending and investment criteria vary significantly by institution. Generally, SMEs with a track record of performance, a minimum of three years of sustained profitability, are more attractive candidates. Proof of innovation, as in what new products and services are being developed, and a healthy sales pipeline are very crucial elements.

Overall, a loan or investment has a greater chance of being approved if the lender or investor has clear insight into an SME’s operation and business practices. With limited transparency, investors and lenders are forced to demand significant collateral or impose unstainable repayment terms, making failure inevitable for the SME.

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