Over the years, I have worked with hundreds of Small and Medium Enterprises (SME’s). In some cases, We have experienced many successes and some failures. However, overall our experience has been profitable. If you are interested as an African SME funder, you can avoid some of our mistakes by reading the some of the key points below. It is risky enough to fund an SME in your immediate location. It has even more challenging to support an SME half way round the world. Yes, the internet makes it easier, but still, there are principles to follow that will reduce chances of making a loss and increase chances of profitability.
- 1- Look for track record. Some people are pretend entrepreneurs. They simply can?t get a job and hence find things to do to keep themselves from being idle. This is not a bad idea; however, the challenge is that some of these people might still be looking out for a job. Hence money sunk into their enterprises can easily be wasted when they jump ship into something else. Track record makes the difference. True entrepreneurs will stay at it and continue until they succeed.
- 2- Ensure there is some form of security, i.e. something that you can hold unto if the business fails, something to sell off and cut your loses or turn into a different product.
- 3- Ensure that the entrepreneur is aligned to a system that supervises him/her. Such supervision ensures that the funds are properly spent, and the business well run. In a big business that would be a board of directors. For a small business it would have to be a consultant, agency or other entity within the locality. It has to be an entity that commands respect, does not replace sentiment for good business, has the skills and offers early warning if there is trouble. A coop, a bank, Consultants, accounting firm, an experienced person, etc.
- 4- Ensure the entrepreneur signs up for education and continuous mentoring. No learning, no funding. Enterprise success requires a lot of skills that can only be learned.
- 5- There has to be a proper business plan. It does not have to be sophisticated, it can be just three to five pages, but it needs to clearly lay out the business.
- 6- There should always be provision for a separate salary for the entrepreneur. Many SME?s fail because the entrepreneur has to survive on the proceeds from the business, i.e. living from hand to mouth. This eats into the profits of the business and prevents growth.
- 7- Have an agreement in place that locks the entrepreneur in from abandoning the business.
- 8- Invest in a good enterprise that empowers, adds value. DO NOT be part of anything illegal. When a business empowers community, you gain personal satisfaction even if the business fails.
- 9- Plan to refinance the business at some point. Enterprises always need capital to grow.
- 10- Holding equity in the business means you can add value and eventually sale your equity at a premium when the business grows.
Every bit of support given to an African SME creates jobs, reduces poverty and increases the chances of achieving a developed Africa.
Using Bizconnect Africa?s tools and network of contacts, consultants, cooperatives and other partners across Africa, you can empower an African business while ensuring you make some decent returns.