Your job as an entrepreneur is to maximize your chances to succeed in business.

LEGAL REQUIREMENTS FOR STARTING A BUSINESS

• The primary law governing companies and businesses in Nigeria is the Company and Allied Matters Act (CAMA). It deals with the various types of company structures, eligibility, process for registration, and rules for operation.

• The regulatory body that is in charge of implementing the provisions of the CAMA is the Corporate Affairs Commission (CAC).

• The various business structures allowed in Nigeria are – registered business name, company limited by shares, company limited by guarantee, unlimited company (all companies may be private or public), and incorporated trustees.

IMPLICATIONS FOR BUSINESS STRUCTURES

TYPES OF REGISTRABLE ORGANIZATIONS IN NIGERIA

Registrable business organizations in Nigeria include:

• A company limited by shares (Ltd or Plc)

• A company limited by guarantee (Ltd/Gte)

• An unlimited liability company (Ultd)

• Any of the above companies may be a Private Company or a Public Company.

• Business Name (registered as Sole Proprietorship or Partnership)

• Incorporated Trustees (usually formed for not-for-profit or charitable purposes)

Doing Business Provisions in the Companies and Allied Matters (Repeal and Re-enactment) Bill 2018

The Senate of the Federal Republic of Nigeria passed the Companies and Allied Matters (Repeal and Re-enactment) Bill 2018 on Tuesday, May 15, 2018

Some of these provisions include:

Single Member Companies: It will now be possible for a single person to form a private company, which is the first of its kind in Nigeria. This provision is consistent with what is obtainable in several other progressive economies such as the United Kingdom, India and Singapore.

Limited Liability Partnerships: This creates a new form of legal entity known as Limited Liability Partnerships. The essential feature of a Limited Liability Partnership is that it combines the organizational flexibility and tax status of a partnership with limited liability for its members.

Company Rescue Provisions: These provisions seek to create an effective insolvency regime in Nigeria and has a dual aim: to save viable businesses, and to ensure that non-viable businesses can quickly exit the market, allowing deployment of assets to more productive firms. It will see to the following benefits: lower costs of credit; increased access and availability of credit; improved creditor recovery; strengthened job preservation through reorganization and business rescue; promotion of entrepreneurship; and other benefits for small businesses.

Reservation of name: This provision provides for the submission of applications for reservation of names through electronic means. It codifies one of the key ease of doing business reforms of the Corporate Affairs Commission (CAC), which can now be done in less than 4 hours. This amendment brings the provision in line with the technological solutions of the 21stcentury.

Optional use of common seal: Companies can now authenticate documents by means other than the use of a common seal. Other means include: having principal officers of the company execute documents on the company's behalf, having a principal officer act in conjunction with the company secretary or by having the signature of the principal officer witnessed by a third party. It creates multiple options for companies to execute documents, as opposed to just one option. As such, companies may choose not to fabricate a common seal for their business operations.

Introduction of e-signature for business registration: These provisions will permit the use of electronic signatures for company registration documents. It will make the entire business registration process fully automated.

Introduction of a form for statement of compliance: This provision will eliminate the current Declaration of Compliance Form and replace same with a new Statement of Compliance Form which can be signed by the Business Owner without the need for notarizing the Form before a Notary Public or a Commissioner for Oaths.

ACTIVITY 6A

• List the reasons why businesses fail.

SOME REASONS WHY BUSINESSES FAIL

• No business management skills and unwillingness to learn - Acquire and develop the skills to manage your business.

• Inability to build a winning team – a good team is key.

• Inability to create systems – develop systems that will enable your business scale and grow.

• Inability to pay bills – controlling cash flow is key.

• Offering something people are not willing to pay for – confirm market before developing a product.

• Failing to attract paying customers – market your products in a cost effective way.

Business idea

• What is your business idea?

• Does it solve a problem?

• Do you have a passion for it?

• Is there a market for it?

• Can it make money?

• How do you develop your marketing strategy?

Your skill sets

Finance

INPUTS TO PREVENT BUSINESS FAILURE

DEVELOP YOUR MARKETING STRATEGIES

A successful business starts with a considered, well- informed marketing strategy.

Developing a marketing strategy is vital for any business. Without one, your efforts to attract customers are likely to be haphazard and inefficient. The focus of your strategy should be making sure that your products and services meet customer needs and developing long-term and profitable relationships with those customers. Marketing strategy;

• describes your business and its products and services

• explains the position and role of your products and services in the market

• profiles your customers and your competition

• identifies the marketing tactics you will use

• allows you to build a marketing plan and measure its effectiveness

Activity 6B

• Select a business and apply the input test above on your business choice.

BUSINESS/OCCUPATIONS FOR RETIREES

• Consulting

• Public Speaking

• Blogging

• Lecturing/tutoring

• Distributorships

• Daycare/nursery/school

• Uber, Taxify, Car rentals

• Dry cleaning/Laundry

• Cold room

• Farming – animal and crop

• Small manufacturing

• Food processing

• Waste management

• Transportation, haulage and logistics

• Real estate

• Politics

BASIC ACCOUNTING

This section will introduce you to some basic accounting principles, accounting concepts, and accounting terminology.

It will also show why two basic accounting principles; the “revenue recognition principle” and the “matching principle”, assure that a company's income statement reports a company's profitability.

Basic Accounting terms:

• Revenues

• Expenses

• Assets

• Liabilities

• Income statement

• Balance sheet

• Statement of cash flows

ACTIVITY 6C

• Define each of the Accounting terms

CASE STUDY

Kola Idowu wants to start a Dry-cleaning and Laundry services business after retirement. He has prepared a business plan that shows the viability of his new business.

Kola has also met with a lawyer to register as a limited liability company and calls his business Clean Delivery Nigeria Limited. The Lawyer has advised Kola on the various permits and government registrations needed for the new company.

Kola assumes he will use some accounting software, but wants to meet with a professional accountant before making his selection. He was introduced to Sarah by his banker, an accountant who has helped many of the bank's small business customers.

At his first meeting with Sarah, Kola asks her for an overview of accounting, financial statements, and the need for accounting software. Based on Kola's business plan, Sarah sees that there will likely be thousands of transactions each year. She states that accounting software will allow for the electronic recording, storing, and retrieval of those many transactions. Accounting software will permit Kola to generate the financial statements and other reports that he will need for running his business.

ACTIVITY 6D

• Write down 5 examples of transactions Kola’s business would make

Case Study Continued

Sarah gives him five examples of transactions that Clean Delivery Nigeria Ltd will need to record:

• Kola will no doubt start his business by putting some of his own personal money into it. In effect, he is taking up shares in Clean Delivery's common stock.

• Clean Delivery will need to buy a delivery vehicle.

• The business will begin earning income

• The business will begin invoicing customers for washing and ironing their clothing.

• Salaries will be paid, expenses for using a lawyer and an accountant, expenses associated with the delivery vehicle, advertising, etc.

All of the day's business transactions should be entered into the computer by Kola/his staff, so that they can print out the financial statements whenever they need to.

1. Revenues

• The main revenues for Clean Delivery are the income it earns from dry-cleaning and laundering clothes.

• Revenues are recorded when they are earned, not when the company receives the money (revenue recognition principle).

2. Expenses

• Income statement should show expenses incurred during the period regardless of when the company actually paid for the expenses.

E.g. If Kola hires a temporary staff in December and agrees to pay him in January, that payment has to be shown on the December income statement (matching principle).

ACTIVITY 6E

• List the accounting principles so far identified in the case study.

ACTIVITY 6F

• On December 1 Clean Delivery borrows N50,000 from Kola's aunt and the company agrees to pay his aunt 6% per year in interest, or N3,000 per year. This interest is to be paid in a lump sum on December 1 of each year.

  • How will this be recorded under the accounting principles stated earlier?

3. Assets

• Assets are things that a company owns. These are reported under their respective account headings. E.g. Vehicles, Cash, Supplies, and Equipment.

Recall that earlier we had a situation where Kola had bills for December that were paid in January. These are known as Accounts Receivable.

4. Liabilities

• Liabilities are obligations of the company; they are amounts owed to others as of the balance sheet date.

E.g. loan received from Kola’s aunt (Notes Payable or Loan Payable), the interest on the loan he owes to his aunt (Interest Payable), the amount he owes to the supply store for items purchased on credit (Accounts Payable), the wages he owes an employee but hasn't yet paid to him (Wages Payable).

• Another liability is money received in advance of actually earning the money (prepayment).

There are 3 main financial statements:

• Income Statement

• Balance Sheet

• Statement of Cash Flows

5. Income Statement

An income statement will show how profitable Clean Delivery has been during a certain period. This period of time might be a week, a month, a quarter, six months, or ayear

The income statement involves two things:

• the amount that was earned (revenues)

• the expenses necessary to earn the revenues.

6. Balance Sheet

This is a financial statement that reports the amount of a company's

(A) assets, (B) liabilities, and (C) stockholders' (or owner's) equity at a specific point in time. For example, if a balance sheet is dated December 31, the amounts shown on the balance sheet are the balances in the accounts after all transactions pertaining to December 31 have been recorded.

7. Statement of Cash Flows

The third financial statement is the Cash Flow. A company can continue in existence as long as there is cash to spend. Cash flow shows at a glance the cash generated and used by his company's operating activities, its investing activities, and its financing activities. Much of the information on this financial statement will come from Clean Delivery's balance sheets and income statements.

Case study Continued

Prepayments

Sarah brings up another less obvious asset—the unexpired portion of prepaid expenses. Suppose Clean Delivery pays N1,200 on December 1 for a one year insurance premium on its vehicle. That divides out to be N100 per month. Between December 1 and December 31, N100 worth of insurance premium is "used up". The expired amount will be reported as Insurance Expense on December's income statement. The remaining N1,100 of unexpired insurance premium would be reported on the December 31 balance sheet in an asset account called Prepaid Insurance.

Cost Principle and Conservatism

• Each of the company's assets is recorded at its original cost. This is the result of another basic accounting principle known as the cost principle.

• Although accountants generally do not increase the value of an asset, they might decrease its value as a result of a concept known as conservatism. If the net realizable value of his inventory is less than the original recorded cost, the principle of conservatism requires the accountant to report the lower amount as the asset's value on the balance sheet.

Depreciation

• Depreciation is required by the basic accounting principle known as the matching principle. Depreciation is the allocation of the cost of the asset to Depreciation Expense on the income statement over its useful life.

• Land is not depreciated, so it will appear at its original cost even if the land is now worth one hundred times more than its cost.

• The balance sheet reports only the assets acquired and only at the cost reported in the transaction.

RECORDING TRANSACTIONS

• Double Entry System: Accounting records are based on a procedure called double entry. Each of a company's transactions will result in an amount recorded into at least two of the accounts in the accounting system.

• The Chart of Accounts: This is a detailed listing of all the names of the accounts that Clean delivery Nigeria Ltd may need. It will help select the accounts that are involved in any transaction.

ACTIVITY 6G

List five accounts that could be found in each of the following headings:

• Assets

• Liabilities

• Income

• Expenditure