Chiedu Okonta
Chiedu Okonta, FCA, MBA (LBS), BSc accounting, a professional banker and an experienced Corporate Governance expert, is the chief executive officer of Rivergate Onyx Investment Limited, and the author of two books, Keys to Sustainable SMEs and Stamp Out Fraud From Your System. He can be reached on +234 (0) 907 9103 248; and chieduokonta1@gmail.com (texts/chats/email only)
Fundamental principles of accounting
One of the essential requirements necessary for the “Small and Medium scale Enterprise” (SME) to be solidly established for sustainable growth, is the adoption of the fundamental principle of accounting from the onset. The fundamental principle of accounting implies that every financial transaction must be duly recorded with a credit entry and a corresponding debit entry. The word “corresponding” here, means that it is the same transaction showing the same amount, narration, date, and transaction ID and it is duly captured in both debit and credit records of the SME.
Daily accounting summary
At the end of each day, each month, and year, the total of debit entries shall be the same as the total of credit entries. The core duty of accounting, which includes: recording, classifying, summarising, analysing and interpreting financial records for effective management decision making, is vital for the SME sustainable growth. It is thus highly advised that from the onset the services of an accountant should be sought to directly/remotely ensure the standard accounting records are maintained for the SME. There should be documented records of the business daily, monthly and yearly performances, which are necessary ingredients for quality business decisions.
Outsourced professional services
While it is important to maintain good accounting records from the onset, every SME need not have a chartered accountant in their employment from the beginning, but such services can be outsourced to suitably qualified professionals who can periodically provide the necessary guidance and supervision needed. The same can be applied for any other specialised services required in the business from time to time.
Excellent handling of Human Resources
To achieve sustainable business growth in particular, and sustainability as a whole, there must be conscious efforts to ensure objective handling of all human resources issues. This is due to the critical position of human resources in accomplishing every organisational success, growth, and sustainability. The crucial functions of human resources that must be handled effectively and objectively include:
- Recruitment,
- Compensation,
- Welfare, and training
- Performance management and
- Disciplinary process
Effective handling of human resources issues
The former prime minister of Singapore, Lee Kuan Yew, narrating the secret behind the aggressive transformation of Singapore from a Third World country to a First World country within two decades, explained that it was mainly due to ‘’meritocracy’’. This is the process of ensuring that the right person with cognate experience and qualifications is selected for every assignment; irrespective of all other sentiments and considerations. In addition to the principle of meritocracy, it is highly recommended that fair and commensurate compensation and treatment is meted to each staff according to their respective contributions and qualifications. This is very crucial for every SME that seeks to succeed and enjoy sustainable business growth.
Performance evaluation
Effective management of the entity’s human resources should also include proper and objective assessment of each staff performance. This should be done periodically, say bi-annually and the outcome of every performance evaluation should result in business decisions that aptly recognize and reward exceptional performers.
Ability to fire as and when needed
This is a human resources function that recognizes when to discipline and fire any defaulting employee. This is where it becomes inevitable for an employee to be separated in the overall best interest of the SME. It is a decision every business owner must know when and how to take. It must not be done out of emotion, nor a process for eliminating perceived enemies. Rather it should be in accordance with the entity’s established Human Resources Process and Disciplinary policy; for which the confirmed offenders should be treated fairly and accordingly.
Succession plan
One of the major causes of business collapse of well-established SMEs is lack of conscious efforts to nurture and set the necessary guidelines for business succession. As it is said; Today is the Tomorrow we were looking for Yesterday! Hence every SME needs to, as a matter of urgency today, set the necessary guidelines for its business succession Tomorrow! This should be followed with deliberate efforts to nurture the next generation; by providing the relevant education and practical training, that should sufficiently equip the prospective business successors to meet the challenges of Tomorrow! Successful management of any business is an art that must be learnt and imbibed more from practice than in theory.
Every business owner and indeed nation, should incorporate the right human resource practices of meritocracy, objectivity, and result oriented leadership in order to realise its full potential and sustain its business growth.
Appropriation of income
Every SME that would attain sustainable growth needs to develop the required discipline and knowledge on how to appropriate the surplus/income generated from its business on a monthly and yearly basis. The following general rules may be applied:
- For every $100 surplus generated from the business after taxation, at least $30 should be devoted to the business. This is necessary to continuously grow capacity that would keep the SME having competitive advantage over its competitors.
- It is recommended that any drawing by the owners from the surplus should be strictly in line with the Dividend policy of the company, say 10% or 15% of the SME annual surplus should be used for dividend payment.
- For every surplus of $100, it is advised that $30 should be devoted to Research and Development as well as structural development of the SME. This is quite necessary in order to build more capacity for future productivity, thereby boosting its competitive edge.
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