Ask An Expert Archives - SME Finance

Business Records Keeping

Owning a small business comes with a lot of paperwork. Sometimes, it’s hard to decide which documents to keep, especially when they pile up in your office. You need to keep several kinds of records to stay compliant with laws and measure your progress.

A business record is written evidence summarizing a transaction carried out by a person in his business at a given time or over a given period. Business records are normally kept in books in an organized form. Business records can also be maintained in electronic format.

Business record keeping is a systematic procedure by which the records of an organization are created, captured, maintained, and disposed of. This system also ensures their preservation for evidential purposes, accurate and efficient updating, timely availability, and control of access to them only by authorized personnel.

Why Keep Business Record?

Good record keeping is an essential part of running a successful business. The foundation of solid business record keeping is learning to track your expenses effectively. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return. Right from the beginning, you should establish a system for organizing receipts and other important records.

Types of Business Records

A business entity should keep business records which provide sufficient details on all transactions undertaken at any given time. These records should be based on documents containing primary information on each transaction carried out in the business. The documents should also be properly and safely kept. Generally, business records include the following:

1. Accounting Records: Keeping track of money flows and having a good basis in accounting makes good business sense for owners of both small and large businesses. Accounting records document your business’s transactions. Section 331 of the Companies and Allied Matters mandates every company to keep accounting records. By law you must keep accounting records for a minimum of six (6) years after the record is created. Non-compliance with this law is an offence which carries a maximum prison term of six (6) months or a fine of N500 (Five Hundred Naira).

Accounting records help you to manage your business better by:

• planning and monitoring your business transactions and the corresponding income and expenditure.
• identifying easily and correctly whether your business is making a profit or loss at any given time on basis of facts and records.
• following up consistently on your obligations with business partners (suppliers and customers).
• providing a basis for mobilizing additional capital from banking or cooperative institutions.
• providing a basis for preparing meaningful statements of accounts for the business and for carrying out audits.
• separating private transactions from that of the business undertaking.

Accounting records also help you to manage YOUR TAX AFFAIRS better by providing basis for:
• computing correctly your tax liabilities by yourself.
• filing your tax returns accurately and on time.
• paying only the fair tax.
• claiming your lawful entitlements under the tax laws e.g allowable expenses, capital allowances on assets in use in your business as well as tax credits and tax refunds where applicable.
• avoiding tax assessments raised by the Tax Authority using other methods under the laws that may not necessarily be favourable to you as a taxpayer.
• avoiding protracted tax disputes.
• avoiding contravention of the tax laws.

2. Fixed Assets Records: Fixed Assets are permanent or long term assets which a person acquires to use in running the normal business but are not part of his trading stock such as building, land, plants, equipments etc. For each fixed asset, record the date, type, details of supplier or buyer, quantity, price and value of the assets bought, sold or written off.

3. Expenditures Records: They are used for recording expenditure on the day-to-day running of business e.g stationery, maintenance costs, travel, utilities (water, power, telephone etc). For every expenditure, record the date, type or class, quantity (where applicable) and value of expenditure item.

4. Bank Statements: These are records of all your accounts with the bank. These accounts might include records of your savings, investments, and credit cards. You can reconcile bank statements with your accounting records. Comparing bank records to your financial records helps you see mistakes in your books. If your bank statements do not match your accounting records, there might be an error.

5. Legal Documents: Every duly registered business is expected to keep proper record of its legal documents such as incorporation documents (memorandum and articles of association, registration form etc), post incorporation documents (register of members, proof of annual returns filings etc). Also, you should keep track of your company’s minutes of meeting, employees’ contract, general contract and any document giving rise to legal entitlements and/or obligations.

6. Business correspondence: This means the exchange of information in a written format for the process of business activities. Business correspondence can take place between organizations, within organizations or between the customers and the organization. The correspondence refers to the written communication between persons. Hence oral communication or face to face communication is not a business correspondence. All business correspondences whether in-house or otherwise should be properly kept.

Keeping Business Records for Tax Purposes

Various Tax Laws of Nigeria require a taxpayer to keep proper records, books and accounts of all business activities which are adequate for the purposes of taxes. Some of the tax laws provide further that failure to maintain the record, books and accounts that are adequate for the purpose of taxes is an offence and attracts penalty accordingly. This implies that:

• The records, books and account should reflect a true and fair view of the business to support any declarations made by a taxpayer for tax purposes.
• There are fines and penalties associated with a taxpayer failing to comply with the requirement to keep records, books and accounts.

• It is mandatory for you to keep proper business records.

We know that running a business can be overwhelming sometimes but a good record management could help simply the process. You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success. Furthermore, good record keeping allows an organisation to document and retrieve information that can be used for the purposes of reporting, assessing, planning, monitoring and reviewing. Keeping accurate records is also a legal requirement, and poorly kept data could result in a penalty from Federal Inland Revenue Service (FIRS).

In a nutshell, a good record is beneficial to the business entity in ensuring good understanding of the affairs at any given time.

If you have any enquiries about this article or require further information, please contact the writer – [email protected]

RELEVANCE OF INTELLECTUAL PROPERTY TO SME

Along with human creativity and inventiveness, intellectual property (“IP”) is all around us. Every product or service that we use in our daily lives is the result of a long chain of big or small innovations, such as changes in designs, or improvements that make a product look or function the way it does today. Take a simple product for example, a pen, Ladislao Biros famous patent on ballpoint pens was in many ways a breakthrough. But, like him, many others have improved the product and its designs and legally protected their improvements through the acquisition of IP rights. The trademark on your pen is also intellectual property, and it helps the producer to market the product and develop a loyal clientele.
This would be the case with almost any product or service in the marketplace. Take a CD player. Patent protection is likely to have been obtained for various technical parts of a CD player. Its design may be protected by industrial design rights. The brand name is most probably protected by a trademark and the music played in the CD player is (or has been) protected by copyright.
So, How Does this Affect Your Business?
Regardless of what product your enterprise makes or what service it provides, it is likely that it is regularly using and creating a great deal of intellectual property. This being the case, you should systematically consider the steps required for protecting, managing and enforcing it, so as to get the best possible commercial results from its ownership. If you are using intellectual property that belongs to others, then you should consider buying it or acquiring the rights to use it by taking a license in order to avoid a dispute and consequent expensive litigation.
Almost every SME has a trade name or one or more trademarks and should consider protecting them. Most SMEs will have valuable confidential business information, from customers’ lists to sales tactics that they may wish to protect. A large number would have developed creative original designs. Many would have produced, or assisted in the publication, dissemination or retailing of a copyrighted work. Some may have invented or improved a product or service. In all such cases, your SME should consider how best to use the IP system to its own benefit.
Remember that IP may assist your SME in almost every aspect of your business development and competitive strategy: from product development to product design, from service delivery to marketing, and from raising financial resources to exporting or expanding your business abroad through licensing or franchising.
Furthermore, Intellectual property rights are currently a very important element that SMEs which engage in exporting all types of goods or services should take into account. There are two major reasons for this. On the one hand, it might be important to register a certain type of innovation or new work or process that is being used so that it won’t be copied by competitors. Otherwise, other companies may take advantage of the efforts made by the SME in developing this new idea. On the other hand, it is critical for SMEs to be acquainted with the intellectual property system to avoid getting involved in activities that border on illegality. For example, a fruit producer that is acquainted with the intellectual property system will avoid using patent-protected seeds without paying the pertinent license; otherwise, it may incur legal problems.
Why are Intellectual Property Rights Important for SME’s?
IP is a key consideration in everyday business decisions. It helps stimulate innovation and growth, bring in monetary returns, build brand visibility and ensure organizational growth. SMEs can rely on IP to boost productivity, earn licensing fees and even get royalty. Furthermore, IP helps create monopoly and offers protection to the business, preventing others from commercially exploiting their innovation.
The gains of IP cannot be overemphasized. Businesses may come and go, but some brands last forever. They become recognizable icons that engrained into each generation. Some of them have grown into empires that outlive the creators and become a part of history. Let’s use Coca-Cola brand to illustrate this point. With a brand value worth of about $179.3 Billion USD as of June 2018, Coca-Cola one of the most valuable brands in the world, remains the bestselling carbonated soft drink beverage company in the world. John Pemberton, a medicine inventor and a morphine addict, created the formula of Coca-Cola in the late 19th century. Since then, they have ruled the soft-drink market. The success of Coca-Cola lies in its secret recipe. Coca-Cola Company instead of using patent legislation to protect its business interest opted for trade secret protection and decided to keep the recipe of their product as a secret to safeguard its advantage over other competitors. And this brilliant idea turned the fortunes of the company in a way that very few could have predicted at the time.
In summary, intellectual property is created by most companies, whatever business they are involved in. For many of these organisations, intellectual property is even their most important asset. Safeguarding this possession is therefore vital and can offer SMEs many opportunities. It is therefore essential that SMEs consider protecting their creations through intellectual property and efficiently manage these assets to reap the most from their investment.
If you have any enquiries about this article or require further information, please contact the writer – [email protected]

Corporate Restructuring By Eki Durojaiye

In today’s business environment, the only constant is change. Companies that refuse to change with the times face the risk of their product line becoming obsolete. When the economy becomes unstable, small businesses often feel the effects first. Similarly, changes within a small business’s industry, such as a new competitor or weaker demand, may cause its profits or productivity to decrease. In such cases, a small business may try to restructure its operations to improve efficiency or prevent the company from falling.
Restructuring in the context of corporate management is the act of reorganising the legal, ownership, operational or other structures of a company for the purpose of making it more profitable or better organized for its present needs. Corporate restructuring can be driven by a need to reposition an organisation for competitive advantage, incorporate new technology, resuscitate an organisation’s financial status amongst others.
Types of Restructuring
1. Financial Restructuring: It involves reorganising the assets and liabilities of corporations, including their debt-to-equity structures, in line with their cash-flow needs to promote efficiency, support growth, and maximize the value to shareholders, creditors and other stakeholders. There are several reasons that may trigger the need for financial restructuring, such as, inability to fulfil financial obligations, business expansion etc. In distressed situations, a recapitalization can stabilize a company’s capital structure and cash position. There are several methods of financial restructuring but a few will be discussed here.

2. Operational Restructuring: This form of restructuring is the identification of the causes of operational underperformance and the development of a strategy to achieve improvement. That is, operational restructuring focuses on the profitability of operations. It aims to extend the scope of action for a company and to give confidence to its stakeholders, especially lenders, as well as employees and suppliers by helping to solve the problems of suboptimal performance. It does not address the capital structure or financing structure of a company. Operational restructuring plan will usually cover the following areas:
• Review of products and markets to assess their contribution to profit;
• Alignment of costs with revenues and making appropriate cost reductions;
• Rationalisation of operations and facilities to improve efficiency and release cash;
• Disposal of underperforming and non-core businesses;
• Identification of skills and resource gaps in the management team.
Methods of Restructuring
1. Rebranding: It is the process of changing the corporate image of an organisation. It is a market strategy of giving a new name, symbol, or change in design for an already-established brand. The idea behind rebranding is to create a different identity for a brand from its competitors in the market. There are several reasons for corporate rebranding. Companies often rebrand in order to respond to external and/or internal issues. Rebranding could also be deployed as a marketing tool for competitive advantage. It could be utilized as a means of hiding malpractices of the past, thereby shedding negative connotations that could potentially affect profitability. Rebranding is also a way to refresh an image to ensure its appeal to contemporary customers and stakeholders. What once looked fresh and relevant may no longer do so years later. There are several elements of a brand that can be changed in a rebranding these include the company name, the logo, nature of business, and the corporate identity.

2. Recapitalisation: This is another strategy that can be deployed to stabilise or shore up the capital structure of a company. If a company believes that its existing equity and debt ratio is proving to be a problem, then recapitalization is the way to get to the right ratio. Recapitalization is the financial reorganization of a company’s debt and/or equity. The goal can be to improve a company’s capital structure or realize a liquidity event for an owner who wishes to sell a portion of his business and realize some of the value they have created. Essentially, the process involves the exchange of one form of debt or equity for another, often times whereby an equity owner (business owner) sells a portion of equity to an outside party who takes a minority or majority stake in the business. By raising debt or equity, a company consequently increases the available liquidity that may be needed to finance further investments, or perhaps an owner’s partial or full exit.

3. Mergers and Acquisition: These are one of the most common methods of corporate restructuring. Though mergers and acquisitions are sometimes used interchangeably, they do have some distinctions. Generally, a merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed. This rationale is particularly appealing to companies when times are tough. Stronger companies will usually buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. The goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term.
4. Takeover: It is virtually the same as an acquisition, except that “takeover” has a negative connotation, indicating the target does not wish to be purchased. When an acquiring company makes a bid for a target company, it is called a takeover. If the takeover goes through, the acquiring company becomes responsible for all of the target company’s operations, holdings and debt. When the target is a publicly traded company, the acquiring company will make an offer for all of the target’s outstanding shares. The procedure for takeover is provided in sections 131 to 151 of Nigeria’s Investment and Securities Act, 2007.

5. Arrangement on Sale: This is one of the internal reconstruction methods towards the survival of an ailing company. Here, the members of a General Meeting are empowered to resolve by way of special resolution that the company should be wound up and that the liquidator appointed and authorized to sell the whole or part of its undertaking or assets to another corporate body. The consideration for the sale may be cash, shares, debentures or policies which should then be distributed in species amongst the members of the company in accordance with their rights in liquidation. The main difference between the liquidation process in corporate restructuring and that of dissolution of the company lies in the fact that the winding up process embarked upon in corporate restructuring usually results in the purchase of the assets and liabilities of the insolvent company by another corporate entity. On the other hand, the winding up for dissolution of a company brings the company to a permanent and the assets are distributed in accordance with its Articles of Association. The guide to embarking on arrangement on sale is provided in sections 538 to 540 of Nigeria’s Companies and Allied Matters Act (CAMA) 2004.
Benefits of Restructuring
Just as there are many reasons companies might restructure, there are many benefits of restructuring a company and they include:
• Reviving a declining business
• Increasing the net worth of the company
• Gaining competitive advantage
• Repositioning for growth
• Business expansion
In Summary
Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. A company that has been restructured effectively will hypothetically be more efficient, better organized and better focused on its core business. Through restructuring, a company can eliminate financial harm and improve the business. Restructuring forms are powerful tools that can only achieve the desired outcome when handled by competent hands. In order to realize the ideal outcome, we would recommend seeking advice from experienced advisors who have been through the various restructuring process countless times before.
If you have any enquiries about this article or require further information, please contact the writer – [email protected]

* Eki Durojaiye is Senior Counsel at lawBrief (Solicitors & Advocates).

Do You Know?

Do You Know

Do You Know, Did You Know
Do You Know
  • Firstly, that non-payment of debt is a civil matter.
  • Also, the judiciary (court) is the only institution that can coerce a debtor to pay his debt.
  • Furthermore, the Nigeria Police Force and other security outfits do not have jurisdiction to entertain debt recovery matters.
  • Even more, the use of police to threat, arrest and detain debtors and force them to sign undertakings to liquidate their indebtedness is illegal, an abuse of institution and flagrant intimidation of ignorant debtors.
  • A creditor that uses the police to threaten, arrest and detain a debtor is liable to assault, battery, false imprisonment and damages way above his debt.
  • Lawyers are authorised recovery agents.
  • It is better, faster and cheaper to appoint a lawyer as your recovery agent.
  • Finally, other authorised recovery agents may eventually engage the services of a lawyer in the event of litigation.

 

Read more at www.smeefinance.org

Managing Compliance With Regulations, By Eki Durojaiye

Managing compliance with regulations
Managing compliance with regulations

Managing Compliance With Regulations!

The impact of law on business activities is quite huge. This ranges from registration to recruitment, employees’ welfare, operations, management, regulatory compliance, third parties relationships, amongst other.
Small and Medium Enterprises (SMEs) are not, generally, founded by legal experts. Even if they were, it’s highly unlikely that compliance with legislation would be top of mind for the entrepreneur. The Small Business Owner or Independent Professional is most likely to be interested with winning new clients and establishing a reliable flow of cash into the business.
However, ignoring the law as it affects starting, running and growing a business will, at best, seriously hamper your business’ growth (and your peace of mind) and, at worst, sink your fledgling firm.
Section 572 (1) of the Companies and Allied Matters Act, Cap C20, 2004, mandates a company, SMEs inclusive, to be registered with the Corporate Affairs Commission (CAC).

 

Moving Forward
After registration, the company is required to obtain a Tax Identity Number from the Federal Inland Revenue Service (FIRS). Also, it is mandatory for the company to file monthly Value Added Tax (VAT) returns. Even more, the company must pay its taxes as and when due. It must also file annual returns with CAC. Then, it should obtain an operating license (where applicable) and conduct its activities in compliance with relevant rules and laws.
Corporate Compliance is therefore imperative for the smooth operations of a going concern. Companies of all sizes stand to benefit when they implement and maintain effective ethics and compliance programmes.  In business parlance, compliance refers to a company’s adherence to relevant rules and laws regulating its activities.
The objective of compliance is to ensure that corporations act responsibly. Corporate compliance involves keeping a watchful eye on an ever-changing legal and regulatory environment and adapting to the changes necessary for the business to continue operating in good standing within its industry, community, and customer base.
In a broader sense, corporate compliance extends beyond mere legal and regulatory conformity and into the realm of promoting organisational ethics and corporate integrity. Violations of compliance regulations often result in legal punishment, including fines, withdrawal of operating licenses, etc.
Why is corporate compliance important for a business, particularly SMEs? It is, for the following reasons:
Avoidance of punitive sanctions:
This is one of the most important benefits of Corporate Compliance. As the saying goes, prevention is better than cure. It is better and cheaper to comply than to default.
Not too long ago, the Nigeria Communications Commission (NCC) exercised Section 20(1) of the Telephone Subscribers Regulation (TSR) law on Mobile Telecommunications Network (MTN), for not meeting the deadline set up by the Mobile Network Operators (MNOs) for disconnecting Subscribers Identification Modules (SIM) with improper registration.
The compliance audit carried out by the NCC on MTN revealed that 5.2 million un-registered customers’ lines were not deactivated. This caused NCC to impose a fine of N350 billion on MTN. Several businesses in Nigeria have been forced to shut down due to heavy penalties imposed by FIRS for failing to fulfill their tax obligations.
Having a robust ethics and compliance programme can prevent or mitigate adverse legal action and financial penalties. No business wants to face criminal charges for not adhering to the law.
There are several regulations and laws governing business operations in Nigeria, and proper compliance management can help a company stay on the right side of the law. To keep track of the various compliance requirements, it is important for a business to either have an in-house compliance officer or external consultants.

 

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Building a Positive Reputation:
The success of your business depends on its public image. When a company starts facing several court cases, the public will lose their trust in the company, and Sales of products and services will eventually drop.
Compliance ensures that a company upholds a positive image and builds consumer trust. This also promotes consumer loyalty, since customers are more likely to return to a service or product from a company that is considered to be trustworthy.
This also helps a business with sponsors, advertisers and government requirements. A business that fulfills regulatory business generally attracts patronage quickly and easily whenever needed.
Higher Productivity:
Internal compliance with safety, wages, employee benefits, compensations and employee protection will create a positive environment in the work area. Employees are more enthusiastic to work when they feel compensated for their efforts. It is important that internal compliance is adhered to, since it will ensure that employees are satisfied and that complains or issues are monitored and addressed before they have a negative effect on the company.
In conclusion, companies and the people who run them are subject to an increasing range of laws and regulations. And, just as significant, a compliance programme can demonstrate to a company’s employees and the community that it is committed to doing business the right way. For these reasons, companies doing business in Nigeria can greatly benefit from having an effective compliance and ethics programme.
* Eki Durojaiye is Senior Associate at LawBrief (Barristers and Solicitors).

For more, visit www.smefinance.org

Ask A Lawyer

Ask A Lawyer!
Dear Eki,
My name is Ade Wahab.
Firstly, after making the necessary research, I went to the Corporate Affairs Commission (CAC), Alausa, Lagos to register my company.
Also, I took along my Memorandum and Articles of Association, Form Co 2 and Form Co 7 and filing fees. However, to my surprise, they refused to collect my documents! However, they said registration is now done online. They also said something about having the name approved first.
Please, I don’t understand this, because I’ve been doing business with my company name for a while.
Please, guide me through this process.  I am anxiously waiting to hear from you.
Dear Ade,
Company registration in Nigeria is a little bit complex. I will try to explain it as simply as possible.
The Companies and Allied Matters Act, 1990 (CAMA) is the law regulating the incorporation of business entities in Nigeria. Section 1 of CAMA established the Corporate Affairs Commission (CAC). CAC is solely responsible for the incorporation of business entities in Nigeria.  Before now company registration was mainly done manually. However, effective September 1, 2016, CAC made online registration the only platform for company incorporation.
This mode of incorporation is applicable only to “start to finish” branches, that is, branches that can start and finish the process. Alausa is one of such branches.
The procedure for online registration is as follows:
1) Visit Corporate Affairs Commission  website
2) Click ‘create an account’ on the home page.

3) Complete the forms on display.

Ask a lawyer
Ask a lawyer
FOR GENERAL USERS

the website will display the pre-entered ”USERNAME” and the auto-generated ”PASSWORD.”

Accredited users are mailed their ”USERNAME” and ”PASSWORD” after approval at the back end of the website.
4) Access the Company Registration Portal (CRP) after account creation,
5) Conduct availability search: You have the option of entering a maximum of two names.
6) Complete the registration form. You will be asked to select the branch to handle the registration.
7) Pay the filing fee: You can pay online or at the bank.
8) Pay for e-stamping online.
9) Download documents.
10) Print and sign appropriately.
11) Upload the registration documents and accompanying documents.

12) Collection of certificate and accompanying documents at the selected branch.

Please note that you are not permitted to do business with any name without registration. So, you will have to run availability search on your “company” name.  If available, lucky you! If otherwise, you would have to keep entering different names until you get an approval.

I hope you find this helpful. Should you need more information or further clarification, feel free to contact me.
Do you need clarifications? Ask A Lawyer today.

 

To learn more about how to set up your business, visit www.smefinance.org 

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