The increasing cases of the Covid-19 pandemic, which present a health crisis, also comes with significant economic, business and commercial impact on Small and Medium Enterprises (SMEs).
The pandemic is causing significant harm to the economy. The collapse of customer demand, significant regulatory modifications, supply chain interruptions, massive layoffs and unemployment, economic recession, and increased uncertainty are some of the many problems arising from the pandemic.
Very small businesses, particularly those operating on low-profit margins, are especially vulnerable, because they lack the cash reserves to survive a long period of economic uncertainty, in the absence of access to financing.
One way SMEs can survive the pandemic is by raising working capital. The Central Bank of Nigeria (CBN), commercial banks and lending platforms, are offering loan facilities to help businesses stay afloat during this period. Some loans are targeted at specific sectors of the economy. Business owners and entrepreneurs are simply required to meet the criteria to access these facilities. The caveat is for applicants to seek the most business-friendly terms.
To be credit-ready, one condition precedent is for SMEs to improve their record-keeping and financial accounting.
SMEs are notorious for poor financial accountability. They often have very poor liquidity management, credit management, internal recording system, and asset management as they do not prepare financial statements and do not do data analysis.
In many cases, SMEs are found to rely on single entry, manual, and unsystematic accounting practices. Except for statutory demands, SMEs hardly give serious thought to the process of sound accounting.
These things make it hard to sustain the business and ensure growth and sustainability. Lenders only deal with businesses that have sound accounting and a good credit score. For SMEs to thrive, financing and accounting are two important activities for building the business.
The message is clear: SMEs must make themselves light to carry, by approaching financing sources with clean and up-to-date financial records of their trading activities.