What Is Small Scale Business In Nigeria? Importance And Problems

Small scale business in Nigeria

In this article, we are going to emphasize what small scale business in Nigeria is all about including the nature and scope of small scale businesses.

Business is important in our society because we depend on it for survival. Meanwhile, Nigeria and many African countries with characteristics features of underdevelopment such as low levels of productive technologies, high unemployment rate, large unskilled population, and low level of aggregate demand, recently recognized the importance of small scale business in providing the engine for rapid economic growth.

Let’s look into the purpose of this article:

What Is A Small Scale Business?

What does it mean to talk about small scale business? we will use examples to illustrate what small scale business is all about.

A neighborhood bakery or restaurants are small scale business examples. But among small scale businesses, there is great diversity in size.

Being labeled a small scale business may convey the impression that the business is unimportant. That impression, however, would be incorrect. The significance of small scale business in today’s society is clearly expressed except for business week.

Above all, small scale businesses produce 14 times as many patents per employee as large companies do, and they are twice as likely to turn those inventions into successes according to a congregational report. Moreover, they account for half of the private gross domestic product, create more than 60% of rate new jobs each year, and pay 44.3% of the private payroll.

What Is Small Scale Business In Nigeria?

Small scale business in Nigeria is known as those businesses that can be done in Nigeria that requires low start-up capital and requires lesser labor. Is all about starting a business on a small scale or those businesses that can be started on a small scale.

Different Definition Of Small Scale Business

There have been many efforts to define the term small scale business. The definition of small scale business varies depending on the size of capital, number of employees, value of assets, and sales volume.

In this regard, no generally accepted or universally agreed on the definition. However, below are some of the different definitions of small scale business:

1. The federal government of industry defines small scale business as any manufacturing concerned with a capital not exceeding ₦150,000 in machinery and equipment and employing not more than 50 persons.

2. Central Bank of Nigeria defines small scale business as one whose capital investment (including land and working capital) does not exceed ₦5 million or whose turnover does not exceed ₦25 million annually.

3. Someone also defines a small scale business as one with a minimum capital outlay of ₦40,000.

4. Nigerian Bank for Commerce and Industry (NBCI) defines small scale business as a form of asset (including working capital but excluding land) that does not exceed ₦750,000.

5. Generally, a small scale business can be defined as a business that is owned and controlled by one or a few persons, with direct owners’ influence in decision-making and having a relatively small share of the market and low capital requirements.

One fundamental issue in the concept of small scale business is that the business is not limited to one man or small retail shops as believed by some people.

Types Of Small Scale Business In Nigeria

Small scale businesses can be run under the following categories in Nigeria:

1. Sole Proprietorship: A small scale business with a sole proprietorship is a form of business organization owned and directed by one person. The important characteristics of a sole proprietorship are the owner finances the business alone. It is called a one-man business or sole trader.

2. Partnership: A small scale business can be run under the partnership form of business. And partnership is a form of business in which two or more people contribute their resources together to carry on a business to make a profit.

3. Company: A company is known as an association of two or more persons formed to carry on a business. All the same, a small scale business also exists in the form of a company.

Characteristics Of Small Scale Business

Small scale business is dominated by simple management which distinguishes them from large scale business. They have been identified with the following characteristics:

1. Small scale businesses are particularly vulnerable to experiencing poor management.

2. Managers of small firms, particularly new and growing ones face the problem of small bank accounts and limited staff.

3. They cannot afford much in the way of marketing research.

4. The level of awareness or education of the owner is dominantly low with consequent low levels of business management and market information.

5. They lack adequate specialized professional staff.

6. The rate of business mortality is usually very high.

7. Small scale business has a small share of the market.

Importance Of Small Scale Business In Nigeria

1. Independence: Self-employed people are free of dull routines such as coming to work early and staying on duty until the official closing time.

2. Small scale business is very important because the owner of the business makes unlimited money, particularly when the business is successful.

3. Job Security: The ordeal of looking for a job, the feeling of insecurity, and the psychological worries associated with the possibility of losing one’s job are eliminated.

4. Small scale businesses aid in providing means of livelihood.

5. Personal Pride: The owner of the business derives a measure of pride and achievement which is a strong motivational factor.

What Are The Strength And Weakness Of Small Scale Businesses?

Strengths Of Small Business

1. Ability to fill limited demand in specialized markets
2. Personal involvement of the other manager
3. Efficient use of resources
4. Relatively low capital outlay
5. Flexibility to adapt to changing demands and conditions

Weakness Of Small Businesses

1. Lack of managerial specialization
2. Inability to attract high-caliber employees
3. Staff training
4. Small scale of operation
5. Product/service range
6. Competitive weakness

What Are The Causes Of Small Scale Business Failure In Nigeria?

Some causes of small scale business failure in Nigeria are:

1. Persistent negative cash flow
2. Mismanagement
3. Shortage of stock or inventory
4. Uncompetitive products or services
5. Premature resignation of prominent staff
6. Sales of goods and services at cost or below cost price
7. Poor business education
8. Management succession problem
9. Poor market analysis
10. Poor business connection
11. And lastly inadequate experience.

Problems Of Small Scale Business In Nigeria

1. Lack Of Funds: The major source of business capital remains personal savings. And banks and government agencies charged with the responsibility of financial assistance to small-scale businesses have not performed very well due to administrative reasons and dishonesty.

2. Poor Management: This is another major problem of small scale businesses in Nigeria. Many business operators are lacking the basic principles of management which will help them organize, plan and control their businesses.

3. Wrong Business Decision: This is when entrepreneurs do not know how to run the enterprise and so make wrong decisions which might lead to business failure.

4. Lack Of Effective Government Policies: The stunted growth experience in the small scale business industry is a result of a lack of effective government policies. Even where support policies appear to exist, it is only on paper.

The support from the government in many cases appeared to be lip service because not much action follows the policies.

5. Inadequate Infrastructural Facilities: The state of infrastructural facilities leaves much to be desired. The irregular power supply, inadequate telephone services, dilapidated road facilities or transport systems, and inadequate water supply.

However, small businesses that depend heavily on the infrastructural facility where they are not available or adequately supplied may lead to the winding up or folding up of many small scale businesses.

Solutions To The Problems Of Small Scale Business In Nigeria

Having highlighted the problems of small scale businesses, it is proper to mention how these problems can be avoided.

1. Know Your Business In Depth: This calls for being familiar with your line of business. It also entails having relevant experience and recognizing personal limitations and those of the enterprise.

2. Always Understand Your Financial Statement: To be able to ascertain the condition of your business at any point in time there is a need for you to depend on accurate records and financial statements. This means that you should have a basic understanding of accounting and finance.

3. Plan Prosperity: No business services prosper without adequate planning. But helpfully, good planning enables you to define the mission of your small scale business clearly, this in turn, helps to formulate good strategies, policies, and procedures for the success of your business or organization.

4. Be Health Wise: Ill health is a contributory factor to business failure. Therefore, you should monitor your health records closely including stress-related situations.

The problems of small scale businesses do not just result from factors that are exogenous to them, but also from their owners not doing some of the things they should have done.

Not everybody can run a business successfully and profitably because it requires time, money as well as self-discipline coupled with management skills. And also to sacrifice many short-run pleasures for possible long-run rewards.

Consequently, with careful study, running a business can be turned into an enjoyable experience.

What Are The Small Scale Business Ideas In Nigeria?

Here are some of the small scale business ideas in Nigeria:

1. Small-scale poultry farming
2. Popcorn business
3. Cosmetics business
4. Frozen food business
5. POS business
6. Phone charging business
7. Bakery business
8. Laundry business
9. Car wash business
10. Rental services
11. Photography
12. Grocery shop
13. Gym center
14. Boutique business
15. Barbing salon
16. Recycling business
17. Cybercafe
18. Logistics business
19. Ice block-making business
20. Foodstuff business, etc

How To Start A Small Scale Business In Nigeria

Here are 4 ways to start a small scale business in Nigeria:

1. Identify A Business Idea: Business idea identification is a very difficult task. That is to say that most good business ideas do not suddenly appear but rather result from alertness to possibilities or, in some cases the establishment of mechanisms that identify potential ideas.

Most times, consumers are the best source of ideas if you want to start up a small scale business.

It is critical to determine whether an idea for a business represents a good opportunity. In this case, you have to consider the market demand, the competition and also know if the idea is financially rewarding.

2. Develop A Business Plan: A good business plan must be developed to exploit the defined business idea you have chosen. This is a very time-consuming phase of the entrepreneurial process. Meanwhile, a business plan is a written document prepared that describes all the relevant external and internal elements involved in starting a new business.

Above all, your business plan should include functional plans such as marketing, finance, competitive analysis, and human resources. It should also address both short-term and long-term decision-making for the first three years of your business operation.

3. Determine The Resources Required: You must determine the resources needed for addressing the business idea. Perhaps, this process starts with an appraisal of your present resources to run the business successfully.

You also have to determine the amount needed to start up your business.

The next step in the process is acquiring the needed resources promptly. These resources include equipment, tools, materials, the location of your business, your products, shop/office rent, staffing, etc.

Probably, as your business develops, more funds will be needed to finance the growth of your venture.

4. Managing Your Business: After all the resources have been acquired, you then start implementing your business plan. That is after you must have launched your business. At this point, you establish a control system so that any issue arising in your business will be tackled and resolved as soon as possible.

If you follow the above process, you are good to start up your small scale business successfully.

What Are The Different Sources Of Financing Small Scale Businesses?

Finance is required for running a business, even goods and services are expressed in monetary terms which is “fund”. Therefore, you cannot run any business successfully without funds.

Nevertheless, below are two common sources of small business capital in Nigeria:

1. Personal Savings: Personal savings form a major source of business financing in Nigeria. And most people save to invest in businesses because of the difficulties in getting bank credit.

However, the major problems affecting personal savings are the low-income level of the working population.

2. Bank Loans: Another major source of financing small scale businesses is through “bank loans”. Banks grant loans to their customers for business activities.

Subsequently, commercial banks are popularly known as sources of loans for general businesses. And also bank loans may be short or long-term. However, a short-term loan is required to be paid back in less than 3 years while a long-term loan may extend beyond a period of three years.

How To Manage A Small Scale Business

There are two major ways of managing a small scale business and these are:

1. Functional Areas Of Management
2. Subject Matter Of Management

1. Functional Areas Of Management

This type of management in small scale business include:

Financial Management: Financial Management deals with how funds are procured and utilized. It includes budgetary control and management accounting.

Human Resource Management: This deals with the acquisition and utilization of human resources in the organization.

Maintenance Management: Maintenance management deals with the proper care and maintenance of your business enterprise resources.

Marketing Management: This is concerned with the marketing aspect of your business. It covers aspects like price determination, channels of distribution, market research, sales promotion, and advertisement.

2. Subject Matter Of Management

The subject matter of management includes managing your business in terms of planning, organizing, staffing, directing, and control.

Planning: Businesses start with planning. However, planning is a predetermined course of action to accomplish the set objectives. Nevertheless, planning gives a business organization its objectives and sets up the best procedure for reaching them.

Lastly, planning also enables you to prepare and manage in advance before putting your ideas into practice.

Organizing: This involves bringing together the manpower and material resources for the achievement of your goals.

Staffing: Staffing is also part of managing your business. It includes hiring helping hands for the growth of your business. The main role of the staffing function is to ensure the adequate availability of required human resources all the time in your business.

Directing: Directing involves telling your employees what and how they have to do the assigned tasks and jobs. Meanwhile, in terms of managing your small-scale business, it involves using supervision, leadership, delegation, training, and Influence to accomplish your business goals.

Controlling: This is the last function of managing your business. Controlling means to see whether the activities have been performed in conformity with your business plans.

It is necessary for managing your business because it reduces negative tendencies. And no matter the amount of money invested or the number of skilled employees hired, once control is lacking it is an express way to bring your business down.

Importance Of Marketing To Small Scale Business

1. Marketing is important to small scale businesses since it sells products or services and brings revenue to the business.

2. Marketing enables the consumer to improve their levels of consumption, this in turn helps small scale businesses to offer desired services/products to their consumers.

3. Marketing creates time and possession utilities of goods and services for the society.

4. Marketing also contributes to the development of small scale businesses.

5. And finally, marketing plays a vital role in the success of a business by creating employment, generating income, and creating visibility awareness of such business.

Ambassador Victor Chidera
Ambassador Victor ChideraAmbassador Victor Chidera is a business consultant, writer and a blogger. He provides lots of professional and expert advice to small businesses, entrepreneurs and organizations. He has many years of experience in business, teaching field, and research work. And his aim is to provide business articles that matters to you both nationally and internationally.
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