Small Business Owners Advised to Avoid Wasteful Spending Upon Receiving New Funding

In the Uganda market, a business turning five might be an overwhelming accomplishment. It’s from this backbone that experts have urged small business owners to avoid unnecessary spending when obtaining new capital either from an investor or loan from any commercial facility.

On Wednesday speaking during the roundtable chart on how SMEs can first track for the coming international conference taking place next year in Spain, Commissioner Mutambi Joshua who represented Minister of Trade Francis Mwebesa hinted that the government has implemented numerous initiatives to support Small and Medium Enterprises (SMEs). Still, he occasionally finds himself surprised by how small business owners alter their financial behaviour when such funds appear in their accounts.

“You get loans to run and boast your business pieces of machinery but when they drop on your accounts, you start using it for other things that’s not business. Let’s be true to ourselves, why would spend money on making your office lavish than making your product ready to compete in the international market,” he said.

He added that successful entrepreneurs have one thing in common knowing why they entered into such and such a business, “Don’t overspend because you have got money, why would employ new people of Shs5m because you have got money, remain at your scale and your enlarge your business muscles.”

According to John Walugembe, the head of the Federation of Small and Medium Enterprises, the majority of the time, the issue is not one of funding because, if certain SMEs that have been operating for more than five years without outside financing fail after receiving funding, there is another issue that needs to be resolved, such as financial literacy and increased entrepreneurial skills related to the goods or services that specific SMEs deal in.

He also pointed out most SMEs have the character of the inability to manage growth. “There is always a hassle to change their mindset to start recording their businesses, to start documenting whatever is taking place in the businesses because most of these SMEs started as family businesses so there is a great need to change their mindset and start running the business professionally,” he said.

However, Nsubuga Charles the CEO of SESACO limited noted that at times it’s not about disbursing money into a business but even investors must be involved in the business. “As financers give funds to these businesses they should not stop there, they need to go down and find out what more else we need to do for these businesses to go on. Sometimes even the professionalism brought in can be a challenge to these businesses maybe they don’t understand what they are supposed to do. Some even come to siphon all the money invested in so you find this business in more challenges than before it received money.”

SMEs defined as the ‘missing middle’ are the economic backbone of virtually every economy in the world and account for more than 50% of jobs and more than 35% of Gross Domestic Product (GDP) in many emerging markets. In Uganda, the 1.1 million MSMEs account for more than 75 per cent of the country’s GDP and 90 per cent of its private sector.

Despite all these benefits, SMEs remain significantly under-served by financial institutions. High interest rates, complex requirements and over-reliance on collateral constrains their access to finance. There is a need therefore for a joint effort between the banks, the Central Bank and the Government to innovate and enhance the capacity of Uganda’s private sector to explore other alternative ways of financing operations.