Small Businesses after COVID Crisis.

Many businesses have not survived the long lock down that saw them forcefully close hence not doing any business. Many are struggling to get capital to start a fresh having found themselves without a penny after months of not doing business.

This however has a lot to do with the way most people (small business owners) do business in this country. The reality is most people running businesses are actually in self employment rather than running businesses. You must be wondering the difference between doing business and being self employed. In the simplest of descriptions, when you’re self employed your “business” literally runs around you and everything is about you and meeting your personal demands first is the business’s primary objective. A business is a systematic and structured operation that focuses on the business first before every one and every thing else.

Let me give an example, many people run shops down town dealing in various things. When they make money say 6M a month they will use say 3M to cover the costs of operation i.e rent, salary, rubbish, electricity and whatever remains is theirs to spend. What happens is they will deposit 2M on a plot of land they’re trying to acquire and then will spend the 1M on their day to day living expenses. This means at the end of every month they have nothing left. Many of who been operating this way didn’t survive the lock down because their operations are dependent on making money every month so the months they’ve spent not making money have been a nightmare and have affected most beyond repair if am to literally say.

This model of operation is not sustainable because it’s dependent on you making money monthly putting too much stress on the business. The business is always a month away from closure if it doesn’t make money since every thing that comes in goes out. Truth is when you start a business your working in, your an employee of the business and only become a shareholder entitled to dividends (share of profits) at the end of the year. Business profits are shared at the end of the year not monthly as they come in. That’s why I encourage small business owners to pay themselves a fixed reasonable salary. If you say your business will pay you 2M a month that’s all you should take out of the business and live on even when the business makes 100M in one of the months of the year. Keep paying your self 2M and at the end of the year whatever you’re left with is what you can partake on.

If after the end of the year the business is left with 100M after all costs you can decide to take 60M and leave 40M in the business. It’s at that point that you can start planning on buying a plot of land, a car, wedding and stuff well knowing the next year you have something to start with even if you don’t make money for a long period of time. Running business whilst taking out all the capital assuming even next month you’ll make money any is akin to living a fisher man’s life. Even tommorow there will be fish in the lake so let’s spend all we made today. The problem comes when you fail to catch fish tommorow.