LAST week we saw how some business entities have grown from single unit business outlets to several branches indicating the levels of business growth.
Today, I continue to look at the business growth taking the general inside view attributable to business growth and also look at some of the reasons that hinder other business to cross the mark.
A business is made to grow by using the funds that it has generated and business financial analysts refer to this as retained earnings.
However, other businesses are assisted to grow using borrowed funds also known as borrowed capital.
Retained earnings are funds that come into business by way of profits made by the business and instead of that money being withdrawn by business owners for personal use or distributed among the shareholders; the money is reinvested into a business to grow.
In this manner some businesses have been made to grow in magnitude diversifying into other businesses as we saw last week.
In this country there are businesses that started well in terms of business organisations but down the line the owners or rather the shareholders diverted from the original business intentions and the vision by withdrawing funds from businesses they run and constantly
applying funds to personal errands.
This is impervious to good financial advice. Some engage in buying personal vehicles, farms, building personal houses, buying of personal effects and terming this as business investments by directly withdrawing money from business current accounts
It is true that a business properly run is supposed to provide the above-mentioned assets to the business owners but the manner in which they are provided has to be with the full blessings of the business itself.
This should be by ensuring that it is not suffocated by the business owners by ignorantly withdrawing funds just because of the healthy business account held at the bank.
The approved way is to ensure that a business prepares genuine financial records which can indicate how much must be withdrawn in proportion to how much profits should be reinvested back for continued business expansion.
Mixing personal dealings with business and non-preparation of financial records to give the insight of business performance are some of the major hurdles Small and Medium Enterprises (SMEs) face to register growth.
The business owners become so rude to their own businesses such that when given business tips they simply answer that the businesses were founded by them, therefore, the outside advice is not welcome.
In this way, a business that looked with full of light at the end of the tunnel went under giving rise to a number of thoughts to the admirers who wonder what could have gone wrong.
Prudent business owners with good management team in place have looked at the light at the end of the tunnel and taken advantage of borrowing funds from banks and that money has been invested wholly in the business fixed assets.
This working capital (current assets less current liabilities) helps to grow the business and comfortably pay back the loan over the period of, say, five years without any struggle at all.
Borrowed capital is cardinal to disciplined business owners with the vision to grow the business because it helps with business growth if properly applied.
But other undisciplined business owners borrow funds from the bank totally misapplying it away from business, in the end landing themselves in serious problems.
They lose the collaterals which they put up as security when borrowing bank funds and end up poorer than they were before.
I have seen other business owners taking roles in the businesses they run, they become financial supervisors, marketing advisors, procurement managers and human resource officers.
Whenever they are not around nothing moves and this hampers business growth and frustrates other hardworking employees.
The business owners become insecure with their supervising systems not trusting anyone and making the business vulnerable to fraud and misstatements because of lack of better system control procedures.
Business resources according to the lessons from business schools state that a business can be able to raise the business funds from four sources such as,
•Borrowed funds
•Funds generated from its own business resources (profits)
•Sale of its own assets
•Money contributed from the owners
However, the best and safest way a business can raise money is generation from its own resources and this is the money that I referred to as retained earnings.
The only way a business can know that it has made profits is by preparing genuine business financial records.
However, my interaction with SMEs reveals that financial records are not a priority to them and it is not common to walk in these businesses and find proper financial records kept.
It becomes very difficult for business owners to know exactly whether the business has made profits or not.
The judgment made by them to look at the balance in the bank, the levels of stocks and money held in debts give them confidence that the business is doing fine forgetting the business obligations such as trade creditors, sundry creditors, unpaid taxes, accrued expenses etc.
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