Recently, I have been involved in a lot of small and micro-business advisory. Aside from clients who retain my services as a business consultant, I also have friends who seem to have me on speed dial for those SOS calls.
The cases always vary from matter to matter. However, I have noticed that there are some issues that unfortunately seem to be reoccurring.
I want to discuss some pertinent issues one needs to bear in mind when running a small and micro-business in Lagos.
I always stress the importance of considering one’s choice of location when deciding to set up shop. I’ve seen people opening shops for businesses that don’t need a physical shop. I’ve seen people renting shops in Lekki Phase 1 when most of their customers are on the Mainland. I’ve seen people renting 70sqm shops with 20sqm worth of products.
Shop spaces, although advantageous, are a reoccurring expenditure; and I always stress that business owners must consider “how much sales revenue do I have to make to net my basic rent?” Whether home or abroad, we have many revolutionary businesses that don’t have physical spaces, and have utilized the money that would have been spent on one to perfect their digital marketing and logistics.
If you live on the island, you will notice the rate at which residential spaces are being converted into malls. It’s alarming.
I must stress the importance of knowing the exact terms of the services to be paid for. The service agreement should ideally be a separate agreement from the tenancy agreement, and you must understand the exact extent of the service provider’s liability before paying the rent.
Ideally, I would say, insist on splitting the total monies due for the service charge into quarterly payments. This way, no one can come back months later to say, “The money for diesel has finished.” Also, ask existing tenants if the premises has any historical issues with the provision of services. Ask about the type of generator being used, the hours of operation, the average monthly consumption, the average number of tenants, and what other services have been captured by the service provider.
I must emphasize that the service agreement is more important than the actual tenancy agreement, as service provision is entirely contractual, and not regulated by any statutory enactment.
I cannot stress the importance of this enough.
Registration Of Business Name Vs Limited Liability Company
One thing that is a reoccurring issue is small and micro businesses registering a limited liability company, when in reality what they really need is a registration of business name.
Below details the difference between a registration of business name and the registration of a limited liability company. You will see that running a registered business name is significantly more straightforward than running a limited liability company.
|Registered Business Name||Limited Liability Company
|Separate Identity From Owner||None – deemed as sole trader, thus owner has unlimited liability and can be held personally liable for the debts of the business.||Yes – company has a separate identity from owner, and may do all things possible of a natural juristic character.|
|Transferability Of Ownership||Transfer of ownership almost impossible, as business does not have a separate identity from the owner.||Easily transferable as company has continuous existence, even upon the death of the original shareholders.|
|Opening Bank Account||Yes.||Yes.|
|Tax Obligations||Deemed as sole trader, so liable for independent self assessment.||Audited company accounts must be filed with the Corporate Affairs Commission (CAC) within eighteen months of incorporation, and thereafter yearly reporting obligations.|
|Statutory Reporting Obligations||None.||Annual general meeting, board meetings, details of company secretary and audited company accounts must be filed with the CAC yearly, otherwise company liable to penalty. Company resolutions must be filed at the CAC.|
|Shareholders||None – however parties may enter into a partnership agreement for the running of the business.||Minimum 2.|
|Company Secretary||None.||Yes – director may also be a company secretary.|
The trademark registration of a business name is an often overlooked but very important step in protecting and distinguishing a business’s identity.
Many people are quick to register with the CAC, and then continue to build their brand without having the proper protection for their business identity.
A trademark is a recognizable name and/or design that is used to identify and distinguish a product or entity from others. Some of the trademarks that can be registered include name, slogan, domain name, shape, color and logo.
I recently consulted for a hotel in Lagos that has the same name as another existing hotel a few minutes away from my client’s hotel. These two business names are so confusing that people often go to one thinking it is the other. Unfortunately for the older hotel, they only registered a limited liability company, whereas my client registered the name as a trademark, and so has the sole legal right to use that name as a hotel, restaurant and lounge.
In this instance, even though the previous hotel has been in existence for slightly longer than my client, they have not properly protected their brand. A registered owner of a trademark may institute an action in court to block any infringement or unauthorized use of their trademarks.
I cannot stress the importance of social media in getting your message out there. Right now, I think having a strong online presence is even more important than a physical space.
This entails a dedicated staff for your social media postings, curating social media campaigns, paid advertising for the right content, and, if possible, celebrity collaborations. There are many startup visual communications companies who are able to professionally and successfully manage your social media page for as little as ₦20,ooo a month (this will vary, depending on how many platforms they are managing and the extent of their scope of work).
When I think of accountants, I think of one of my old bosses; he was quite a flippant character, often insulting partners in front of junior members of the staff. Although a socially awkward character, he was a good businessman, leader and a very successful lawyer.
I learned a lot watching him in action, understood how he thought. One thing that I noticed was the fact that he did not play with his accountant. Over the years, many members of his team came and went. However, the accountant remained. This man could call out anybody and was not moved by tears in any way, but he rarely insulted his accountant.
Truth is, how can one possibly intend to successfully make a lot of money if they do not know exactly how much money they are actually truly making.
I must stress that the above list is not conclusive, and there are many things I have not mentioned. However, I believe if you bear the above in mind, you will have successfully navigated some of the major pitfalls a lot of new businesses fall into.
We have seen, time and time again, that businesses do not fail due to a lack of funding, but rather, due to bad management. Funniest thing is I have seen a lot of businesses fail because of too much funding, thus no real drive to ensure the basics are covered. Please feel free to DM me should you have any questions.