Formalise your business

He was a professional who was at the top or near the top of his game he got into business and clients flocked to him because they had either experienced or heard about his good services. Five years down the line, the business had grown in terms of the number of customers and employees. But something else also grew with the enterprise the number and intensity of headaches that the entrepreneur had to contend with.

In the space of three months, the business faced these major headaches: a client cancelled a contract due to delayed delivery even after paying 40 per cent of the contract fee another client was loudly claiming that she was being given poor quality service the bid for a new contract stalled because the firm could not get a tax clearance certificate due to non remittance of sales tax (VAT) returns. A walk around the operations and management of the business revealed the following facts.

No clear list of servicesEven though the business had several clients, there was no comprehensive list of services it offered. When asked, it took a bit of time for the manager to come up with the list. He had not taken time to write them down in categories that would be easy to explain to would-be clients. This little detail affected sales and marketing because no one in the firm could talk about the menu of services that it offered.

No documentation of procedure Another revelation was that the firm had no documented procedure for anything. Repeat clients of the firm behaved like customers in a barber shop, if you do not find your usual barber you do not sit down to get a haircut from any other person because the quality of the haircut is very much dependent on using a person who knows the shape of your head.

There were major service quality headaches which the manager tried to address by looking through every single project before it was delivered to a client. He said many times it felt like he did every piece of work a second time after his staff had completed it. The staff were also frustrated that they were not trusted to do a good job, something that dented their motivation and innovation.

DebtsIn the course of walking through the money collection process, the manager showed a long list of clients who owed the firm money. Some of the debts were more than two years old. Some clients had been with the firm for a long time, these ‘faithful’ customers were given credit whenever they asked.

One faithful customer had five whole unpaid invoices. Some clients paid in cash but the only money reflected on the bank statement where the cheque payments because the cash was usually taken by the managing partner as his pocket money.

The business had no written accounting procedures. The staff employed as an accounts assistant had been reduced to a tea maker and spent the rest of the day jumping from one social media platform to the next.

As a result of the lack of accounting procedures financial records were in a poor state, expenses were neither documented nor prioritised, not all income was receipted, pricing of services was done at the whim of the manager and statutory obligations such as Value Added Tax, Pay As You Earn and submission of annual returns to the business registry were not up to date.The scenario described above is imaginary but it unfortunately mirrors what is happening inside many businesses.

The enterprises are too informal and are threatened with collapse by this very fact.If you have an informal enterprise, it is about time you enrolled for an entrepreneurship course or hired the services of a business consultant to get you on to the path of formality, sanity and sustainable profitability.

The writer is the team leader of Akamai Global, a business and finance consulting firm. Email:

SOURCE: Daily Monitor

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