Seven Reasons Why Small and Medium Businesses in Nigeria Often Close

The high rate at which small and medium-sized businesses are closing in Nigeria has highlighted the issue of the Government’s sincerity in ensuring that the renewal of the economy is given top priority.

The reasons behind the collapse of these businesses can be attributed to the following reasons:

lack of capital

No business can prosper without sufficient funds to carry out its daily operations.

The situation is pathetic in Nigeria as most of the small businesses lack the necessary funds. Commercial banks are unwilling to release funds, and when these funds are available, the interest rate is so high that it discourages potential lenders.

epileptic power supply

The power sector in Nigeria has gone from bad to worse as most companies are now forced to resort to using gasoline or diesel generators to sustain their business. This has negatively affected the cost of running these businesses which are barely surviving. The current move by the Nigerian government to privatize the electricity sector is aimed at encouraging private investors to fully utilize the huge potential available in the Nigerian market.

under patronage

Some small and medium businesses are easily bankrupted due to low customer patronage. This low patronage may be related to the tough economic situation that has forced Nigerians to cut back on some luxuries.

Inexperience Management

This is a key factor in the survival of any small business. Management’s influence on business success cannot be undermined. Most small and medium-sized businesses are owned by individuals, and this can often affect the choice of who runs the business. The decision about who manages these businesses is often influenced by family and relationship ties with the use of experience and business ethics. Ultimately, this can prove disastrous in the long run.

Unsafety

The wave of violence in most of Nigeria has resulted in the closure of most small businesses. Militant activities, kidnappings and ethnic/religious crises have all conspired to ensure that the average business life in Nigeria is greatly reduced.

Government policies

The frequent change of government has also led to changes in government policies.

Some of these policies are not business-friendly as they tend to increase pressure on the limited resources of these small businesses. There are cases where multiple taxation is implemented and goods at ports are unduly delayed due to changes in government policies.

Lack of creativity

The creative ability of small business owners can become a survival weapon in times of depression. Most business owners lack this aspect, hence the high rate of business failures. Some creative entrepreneurs, having studied the economic tide, are forced to diversify their operation to counteract any adverse effects that would otherwise have some negative implication on the operation of their business.