STARTING AND RUNNING YOUR OWN BUSINESS IN NIGERIA
KABIR MOHAMMED AHMED (Kahmed)
? Course number and name: 5001 Starting and Running Business in Nigeria
? Programme/major: PhD Business Strategy
th? Submission date: 19 January, 2008
? Date course was started: December 7,2007
? Date programme was started: December 6,2006
? Type of course: Research
? Practical problem: Assembling data within Nigeria.
? Number of words in the body of the course: - 5235
? Number of hours spent on the course – 95 Hours
? Advisor: Professor Alan Guinn
? Date of last editing: January 17, 2008 / Laurel Barley
? English spelling used: UK English
? Permission to publish on Rushmore website: Yes
? Resources: Same as in reference
? Reasons for taking the course: To help move the economy of Nigeria forward
and to impact positively on the economic wellbeing of humanity, especially the
people of Africa.
EXECUTIVE SUMMARY
Nigeria is the most populous Black country in the world. One out of every five blacks
is a Nigerian. The country occupies one of the largest landmasses on the African
continent and is endowed with human and natural resources, for example, it is the sixth
largest producer of crude oil in the world. Various types of agriculturally related
industries could easily be established on the rich agricultural land all over the country.
The Atlantic coastal area stretching the length of the southern part of the country is
rich in petroleum resources while the middle belt is rich in solid minerals, especially
iron ore, which is ready to be converted into iron and steel.
To achieve its dream of being one of the twenty best economies in the world in 2020,
Nigeria needs to establish many small, medium, and large scale industries all over the
country, with appropriate service companies to take care of the business environment.
Nigeria offers many benefits to expatriates: its tropical climate, hospitable people,
cities of historical interest, cultural diversity and, of course, and its enormous
economic potential. Above all, the Nigerian public, entrepreneurs and foreign investors
need to know as much as possible about the establishment of business in Nigeria. It is
hoped that this paper will be useful reading for them.
INTRODUCTION Alhaji Sanusi Tsanni, a tall, handsome, unassuming man of Hausa/Fulani descent,
completed his Higher School Certificate (HSC) from the famous Provincial Secondary
2007 Course 5001 Starting and Running Your Own Business in Nigeria Kahmed
School, now Government College, Katsina, and decided to use the large sum of money he inherited from his late father to found a general transport business. His son, Sambo Sanusi, obtained a Bachelor in Business Administration degree from the well-respected Ahmadu Bello University in Zaria City and followed this with a Master’s degree in Business Administration from Katsina University, a modern, successful university, established and funded by the people of Katsina State. It has achieved an excellent reputation for the modern courses it offers and the highly qualified and intelligent lecturers from all over the world. In the three years since then he has been overseeing his father’s business; he has done well, especially with support
and encouragement from his father.
Sanusi was able to supervise the movement of goods from the major Nigerian seaports of Lagos, Port Harcourt and Calabar on the southern coast to most of the 17 states in the southern parts of Nigeria and, in addition, to all the 19 states of Nigeria as well as Abuja, the federal capital. He made sure that he owned a garage and a warehouse in every state where the transport business had customers.
Within the last year, Sanusi Transport has extended its business as far as the Atlantic coast of Nigeria, Benin Republic, Togo, Ghana, Burkina Faso, and Côte D’Ivoire and to Mali, Niger, Chad and the northern part of Cameroon, to the east of Nigeria. THE DREAM OF ESTABLISHING A MODERN BUSINESS
Alhaji Sanusi was not a graduate but was progressive in nature and, like all Katsina people, had immense love for education and advancement. He encouraged Sambo to read for a Master’s Degree and to oversee his business for three years with the
intention of preparing him for a bigger task ahead. Sambo was groomed to manage a proposed large dairy farming and dairy food production company to be established in his home village of Tsanni, a few kilometres south of the walled city of Katsina. Alhaji Sanusi was contented with the level of progress of his transport business; Sambo, his son, is well trained and Alhaji had enough money to establish the dairy farming company. He also had two large farms in Katsina State and another big one in Kaduna State with an average of one hundred cows on each farm. Alhaji Sanusi had many acres of land located strategically on the Katsina to Kano expressway, in his home village of Tsanni, where he built the headquarters and plant of his dairy food production company in anticipation of the registration. It was also in the same place as the headquarters of his transport company.
NEW BUSINESS NEEDED FOR PERSONAL AND NATIONAL GROWTH
Alhaji Sanusi had reasons to go into modern dairy farming and dairy food production, which involved farming and a dairy food processing company for the production of cheese, butter and yoghurt, all packaged in various quantities. His objective is to help provide enough dairy food to meet the demand from both Nigerians and for the hundreds of thousands of tourists who visit Nigeria annually. In Nigeria’s tropical
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climate, relaxing with chilled yoghurt would be a good way for tourists to restore their energy. Dairy foods processed to international standard, as intended by Alhaji Sanusi, would be in high demand in Nigeria.
Alhaji Sanusi intends to create farm settlements on all his three farms and introduce modern farm machinery to boost agricultural production. His plans for the company include producing various sized cans of beef for local consumption and export. These farming and agricultural production plants would go a long way in reducing unemployment and attracting specialised expatriate labour to run the machinery, to the eventual benefit of Nigerians. With 800 million Naira, the equivalent of US 5 million dollars, set aside for the project, Alhaji Sanusi instructed his son to register Sanusi Dairy Farms with the government and clear the way for the company to start operations.
THE BUSINESS PLAN
Sambo Sanusi is a professional, and not to be rushed into registration of a new business despite a favourable feasibility study. He knew that the most important part of establishing a new business, after a feasibility study, is the business plan. One of the most important conditions Sambo ensured in his business plan was the uniqueness of Sanusi Dairy Farms; Sambo believes in clear thinking to make an innovative difference in product, service, trading method or any other aspect of the business an integral part of the business.
In his business plan, Sambo took cognisance of market size and the potential growth in the demand for the intended dairy food products. He estimated the number of possible rivals and found that there was no serious rival to the business at that time, but the business plan must cater for possible future competition since a serious competitor could emerge from anywhere, especially if the business becomes highly profitable. Sambo’s business plan took care of customers’ needs. He knew that the modern marketing concept is customer oriented and took all steps to ensure his customers’
satisfaction. In his business plan, Sambo did not underestimate the importance of information technology in the new business; he took care of its development in phases. REGISTRATION OF SANUSI DAIRY FARMS AS A BUSINESS
Nigeria: Business Opportunities:
Sambo was quite satisfied with the result of both his feasibility study and business plan, which took him six months to complete. He has confidence in Nigeria. The country has a vast expanse of land suitable for agriculture, irrigation, and establishment of different types of industries and that was what encouraged his father, Alhaji Sanusi, to found a modern agricultural company that would be beneficial to the country. To the south, the country borders the Atlantic Ocean, making it relatively easy to move imported raw materials and spare parts to the new business and to export the company’s finished goods.
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Sambo has often had cause to explain to foreign business associates how committed the Nigerian government is to attracting foreign investment. He used to tell them that the Nigerian government has very liberal investment incentives for foreigners wishing to establish businesses, including the repatriation of 100% profit and several tax holidays. Sambo encourages foreign investor friends coming to Nigeria to deal only with persons or bodies recognized by the authorities. He explains that although the Federal government incentives are more lucrative to the foreign investors, states and local governments have their own incentives for investors willing to set up business in their areas.
AN IMPORTANT STEP TO REGISTRATION OF SANUSI DAIRY FARMS
Since his undergraduate studies, Sambo has come to know that a person or group of people wishing to establish a business in Nigeria should first decide on the structure of the business. An individual is the owner and operator of a sole proprietorship for a profit; a partnership is two or more persons sharing direct ownership and responsibility; a company is an association of persons carrying on a commercial or industrial enterprise. Sanusi Dairy Farms has chosen to become a company.
Sambo could remember a debate in his undergraduate class on the most useful of the three business structures just mentioned; the debate showed that there are good reasons for choosing each of the structures. A sole proprietorship is easy to establish, the owner has total control of income, the satisfaction of being the proprietor as an owner / manager, privacy, confidentiality of business secrets, and the business is easy to wind up. The disadvantages are that there is unlimited liability should the business collapse, there is no continuity should a sole owner die, many potential owners lack managerial skill and, by the nature of the business, it is difficult to raise additional capital for expansion.
Sambo was happy his father wanted him to supervise a project bigger than a partnership. Partnerships are classified according to how the partners participate in the management of the firm.
There is a principal partnership, in which the Senior Partner has a large share in the firm and therefore an unlimited liability. There is the dormant or sleeping partner who does not take part in the running of the business and the public does not know him as a partner. There is the nominal partner, who is regarded by outsiders as a partner in the business but has no investment or shares in the business and lastly, we have the silent partner who is known to the public but does not take an active part in the management of the business.
Partnership is good for managerial skills and the pooling together of partners’ experience and knowledge. Large capital resources could be pooled, the services of valuable employees retained by making them co-partners in the business and lastly, a partnership is easy to set up.
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What more could Sambo ask for? He would be proud to show the world what a progressive difference an MBA degree holder could make in running a business. His lecturer in the undergraduate class had told him that a company was often referred to as a business that has been incorporated; there are a number of steps to the incorporation, but once incorporated the company has the legal status of a person. Sambo recalled some of the advantages of a company, among which are that members enjoy limited liability, in that if the company fails the owners are liable to only the extent of their investments, the corporate nature of the business allows greater specialization of management, a large amount of capital can be raised through the sale of shares, and there is continuity as the death of the owners does not lead to termination of the enterprise.
For Sambo, the most interesting aspect in forming a company is the security of ownership. It is easy to transfer ownership through the transfer of shares and a company can sue or legal action be taken against it. The disadvantages include the absence of business secrets, as a report must be made to the Corporate Affairs Commission at least once a year, and the separation of ownership and control may lead to increased organisational expenses.
ESTABLISHING THE SANUSI DAIRY FARMS
In Nigeria, business is established through the Corporate Affairs Commission, set up by the Companies and Allied Matters Decree of 1990 to regulate the formation and management of companies in Nigeria. The Corporate Affairs Commission is in Abuja, and Sambo had to drive for five hours from Katsina to reach Abuja for the registration of the new company.
The undergraduate courses in business administration at the Ahmadu Bello University had dealt well with the Companies and Allied Matters Act [CAMA] and he had quoted from the Act in his research work at post-graduate level, so he was thoroughly familiar with it.
The Corporate Affairs Commission, among other functions, regulates and supervises the formation, incorporation, management and winding up of companies, and establishes and maintains a registry of companies and offices in all the states of the Federation. It also arranges and conducts investigations into the affairs of any company where the interests of the shareholders and the public so demand, performs such other functions as may be specified by an act or enactment, registers business names and incorporated trusts as well as providing a wide range of ancillary services, and such other activities as are necessary to give full effect to the provisions of the Companies and Allied Matters Act.
It is worth mentioning that the Nigerian parliament has set in motion the process of revising the Companies and Other Matters Act (CAMA). The process may be slow but the result should benefit Nigerians and business as a whole.
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Sambo arrived in Abuja on Sunday evening, and later that night went through the
Corporate Affairs Commission’s Directory of Incorporated Companies thoroughly. It
contains a list of companies incorporated in Nigeria since the colonial era in 1912
when the first Nigerian company was incorporated. Having made all preparations,
Sambo started the process of business registration the next morning, as follows:
1. He checked the availability of the proposed company name with the Corporate
Affairs Commission. This took about two days and he had to pay an application
fee.
2. With his company/business name cleared, he then prepared the requisite
incorporation documents and paid the stamp duties. This exercise took seven
days. Sambo also requested and filled in the form ‘CAC COL’ that was for the
declaration of compliance with the demands of the Corporate Affairs
Commission. He paid a small fee to the Commission and the processing of the
form was completed.
3. The next and the most important step was the registration of the company with
the Corporate Affairs Commission. This process took eighteen days. Sambo
paid for both the incorporation forms and the incorporation process itself. The
Corporate Affairs Commission is on line and all its functions are electronic, so
a person wishing same day processing could pay additional fees. There is 1.5%
stamp duty on capital and an additional fee for the Memorandum of
Association and Articles of Association, as well as a small fee for a certified
true copy of particulars of shareholders. Sambo submitted the following
incorporation documents to the Corporate Affairs Commission:
i. Name Reservation/Availability Form
ii. Two printed copies of Memorandum and Article of Association,
stamped by the Commission for stamp duties.
iii. Notice of registered address (Form CAC 2.2)
iv. Particulars of directors (Form CAC 2.3)
v. Statement of share capital (Form CAC 2.4)
vi. Return of allotment of shares (Form CAC 2.5) Once the documents were approved by the Corporate Affairs Commission, Sanusi
Dairy Farms Limited was registered. The company then had permission to engage in
lawful business not only in Nigeria but in the whole world, and the company could sue
and be sued. However, Sanusi Dairy Farms Limited was yet to complete the full
process of its establishment. There were still demands from the Federal, State and
Local Government, as follows.
OTHER GOVERNMENMTAL DEMANDS FROM A REGISTERED
COMPANY.
With the mandatory registration with the Corporate Affairs Commission complete,
Sambo now moved to satisfy the two other demands of the federal government, then
the requirement of the state government where he would locate his company in Nigeria.
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i. He registered with the Federal Board of the Inland Revenue Service of the
Ministry of Finance for Income tax purposes. The process took four days, but it
could have taken longer, depending on the complexity of processing and the
availability of a notary. There was no charge for this exercise.
ii. Sambo had to register for Valued Added Tax (VAT). It took two days but
there was no charge.
iii. Sambo then commenced the process of registration for Personal Income Tax,
the Pay as You Earn (PAYE) for the workers. It took seven days to effect but
there was no charge, and it could be done simultaneously with the two
procedures mentioned above. This is the requirement of the State where a
company is to be located.
iv. Having completed the tasks at the state level, he then visited a local
government inspection officer to obtain a business licence. The process takes
seven days and is undertaken at the same time as the other three procedures and
again there is no charge for this exercise.
He then paid the local government advertising fees for company signboards at one of
the designated banks, a process that took only one day. The advertising fees vary from
small to large-scale businesses and there is a fee for initial registration of the
advertisement. The registration is renewed each year, for which another fee must be
paid.
Samb wrote a letter to the authority responsible for Value Added Tax, which would be
acknowledged with a reference number for the company. Although the company is
allocated a VAT number (for the company to charge VAT where possible), the VAT
certificate, which the company should display, may take up to 30 days to arrive.
There are differences between the rural and urban area for the registration of an
advertising signboard. The local government inspector visits the company’s premises
to determine the size and ensure that it is in an area where business activities are
neither restricted nor prohibited by law. Inspection is usually done after application,
but the business could operate before the inspection.
A demand notice, stating the cost of the licence, mode of payment, the receiving bank
and due date, is issued by the local government. After payment, the company has met
all its obligations. The local government checks payment and enforces court action,
from time to time, on any default.
Both state and local governments determine (through physical inspections) which
businesses are operating within their jurisdiction and issue various assessments,
charges and levies for payment by the company. Failure to pay charges and levies
could lead to court action.
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ROYAL BLESSINGS MARK THE BEGINNING OF OPERATIONS OF THE
NEW COMPANY.
Alhaji Sanusi was highly elated when his son, Sambo, returned to the state from a successful working visit to Abuja and told him that all the requirements of Katsina State Government and Tsanni Local Government for the start-up of the new company were met.
In Nigeria, traditional rulers are regarded highly so Alhaji Sanusi led a team of the directors of the new company to pay homage to the Emir of Katsina and to give him the good news of the successful registration of the company. The team consisted of the directors who are Alhaji Sansui’s rich and educated close friends with three of his other graduate sons, with Sambo Sanusi as the Managing Director and Chief Executive Officer.
Alhaji Muhammad Kabir Usman, the Emir of Katsina and the traditional ruler, prayed for and blessed the new company as a royal signal to start operations. Zumunta Radio and Television Services, a private media services company based in Katsina City and covering the six states making up the north-west geo-political zone of Nigeria, covered the visit live.
Alhaji Sanusi returned from the palace to his office at Morawa, the headquarters of his large transport business, and handed over the affairs of the newly registered company to Sambo and his team in a short but well attended ceremony.
SANUSI SAMBO MAKES A FINAL STRATEGIC REVIEW
Sambo understood the challenge after his father’s formal handover of the new company; he must build a stable foundation for a company that he believed would soon break even and start to post huge profits within six months of operation. Honest and dedicated staff, who would be well paid and well motivated, would run the company; it would be a company with a respected market and a listening ear for the customer. He decided to think strategically and draw up final management tools before flying out to Denmark to purchase equipment for the food processing division of the company.
Sambo knew that a person or company starting a business must have his own business strategy, so he used a SWOT analysis to assess where he was and plan where he wanted to go. Sambo knew his objectives must be clear, challenging, measurable and realistic. The new company must decide what to offer to the market, but Sambo had an MBA so he knew that it is always advisable to do what one knows best. He will have few questions to ask because he understands financial statements and ratios, can read accounts and, above all, had developed his business plan even before he registered the company.
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Since his undergraduate days, Sambo had admired the Boston Box as a strategic management tool and had been praying for a chance to use it to the fullest. Now he had the chance, and he reviewed the tool as follows.
THE BOSTON BOX
? Cash Cows
? Stars
? Dogs
? Question mark Sambo remembered his lecturer in the undergraduate class telling him that the question marks are for new products, as there is uncertainty whether they will succeed; that stars are the developing products/services with a growing market share, while the cash cows are mature products with full market share – milk them for all they are worth
According to the lecturer, the dogs are products or markets in decline, but they could still be profitable. The lecturer finally advised Sambo that the secret of success in using the Boston Box is to keep a blend of all the four features of the box.
6.0 THE NEW BUSINESS ENTERPRENEUR AND THE FUNCTIONAL
AREAS OF BUSINESS IN NIGERIA:
Sambo embarked on a tour of the six geo-political zones of Nigeria and Abuja, the federal capital, to meet the State Chambers of Commerce and Industries to inform them about the launch of the new company and to open sales outlets, especially where his father had warehouses and garages. He knew that sales and marketing are important for the entrepreneur in Nigeria so he established areas where he would position his products or service, remembering well the four Ps. Sambo was cautious with regards to operations and logistics ? the processes by which the product would be
created and delivered. Human capital development was important to Sambo because he needed to ensure that trained and competent personnel were performing all the necessary tasks.
Sambo Sanusi returned to the headquarters of the new company in Tsanni after a successful business trip around the country. He quickly set out for the second leg of the introductory visit to Benin Republic, Togo, Ghana, the Côte D’Ivoire, all on the West African Coast, and Niger Republic, Mali and Chad, Nigeria’s neighbours to the north.
On all his visits, he discussed the company and the establishment of sales and marketing outlets with the representatives of the chapters of the Nigerian Chamber of Commerce, Mines and Agriculture as well as the business communities in the areas. During the few weeks before his travels, he had been giving leadership courses to the members of the management team consisting of the senior management team below the rank of directors. In the four weeks he had been engaging the directors, he had covered marketing management, operational management, human resources
management and business strategy.
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This week he was taking them on a refresher course in financial management, before his trip to Denmark to procure dairy foods processing equipment. Sambo Sanusi, as the Managing Director of Sanusi Dairy Farms Ltd., told the senior management staff of the company that finance is the most important aspect of the functional areas of business.
He told them the wisdom behind habitual book keeping and updating of financial records and deciding what systems must be put in place to provide complete and accurate information on the business.
Sambo told his directors to be ready to use information to support all financial systems. He said that business start-ups must consider future sources of funding although, like Sambo, most founders provide the initial capital. Sambo informed the gathering that funds in the form of debtor’s equity are taken as a loan from founders or banks, and the business plan should address this. He pointed out that despite his father’s initial
financial backing of the company, after a successful launch and possible need for expansion, bank funding will be needed.
Sambo reminded the directors of the new company that complete and accurate information is needed at all times. They needed to be aware of the volume of daily transaction, the data base, the trial balance, the Gross Margin, and the Net Margin. The Profit and Loss Account, Balance Sheet, Budgeting and Cash Flow were all important financial statements, and they should be analysed carefully.
EQUIPMENT PROCUREMENT AS LAST PART OF START-UP
Sambo has been to Copenhagen three times and has succeeded in negotiating for machines for the production and packaging of Sanusi cheese, Sanusi butter and Sanusi yoghurt in various quantities. Within the same period he estimated the capacity needed for the processing plant, calculated the number of line staff that would take care of the production, ensured that such staff were hired, and training was started. The equipment ordered from Denmark arrived at the factory within six months from the date of the registration and it took the engineers thirty days to install the machines and complete the line staff training on the equipment. Some test runs started immediately after . Initial introduction of the products to Katsina city and the neighbouring Kano city has produced a lot of interest, with orders in large quantities reaching the headquarters of the new company.
Five hundred head of cattle have been ordered from Denmark and will be allocated equally among the three farms. Veterinarians have been employed and a clinic has been opened in each of the three company farms. Sambo has arranged to go to Zimbabwe to discuss the idea of farm settlements on the three farms owned by the company.
FOREIGN INVESTORS SHOW INTEREST IN ESTABLISHING BUSINESS IN
NIGERIA.
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