‘Small businesses can execute big contracts without getting fleeced’

Uzo Nduka, chief executive, Domino Information Company Limited (DICL), speaks on how small businesses can execute large contracts without getting fleeced and take advantage of opportunities and challenges in an election year, in this interview with OLUYINKA ALAWODE.

Workshop

In giving back to society, DICL holds annual business planning workshops. This year, we have chosen the theme: ‘Business and politics in an election year: Opportunities and challenges for SMEs.’ At this period, large volumes of business activities will be taking place since all stakeholders will be spending a lot of money to get the products and services they need. Many small businesses will get the opportunity of handling very large contracts if they position themselves very well. But they need to get prepared to execute such huge contracts, if not, it could even be disastrous for their businesses.

For instance, a man I know has always run his business as a one-man business even though it is a limited liability company. Some months ago, he landed a very big contract of $40 million (about N6.2bn). He then approached his bank to grant him Advance Payment Guarantee (APG), which he got. With the bank guarantee, he was able to get 15 percent of the contract money as advanced payment from the owners of the project. This money was paid into the bank account but the bank refused to allow him collect the money because of the guarantee and insisted he take a loan from the bank to execute the project at about 30 percent interest rate.

The terms and conditions involve two of the bank staff having to follow the man to do procurement for the project. The bank buys first-class tickets for their staff and lodges them in expensive hotels, in addition to giving them travel allowances. All travel expenses is packaged and transformed into a loan for the man’s business and he has to pay compound interest. This is what small businesses often go through. As a result of all these costs and interests, the man’s business cannot execute the project and this is affecting his health. Without executing that phase of the contract, he would not be able to get fully paid.

He agreed to these terms because he is not a finance professional. He has not bothered or found time to make himself financially literate and he could not as a small business afford to hire a finance professional before that project. Most small business owners make such mistakes and finance professionals can and do prey on the inexperience and weaknesses of small business operators. What simply happened was that this business owner presented the contract document he signed with the client to the bank and the bank chose to give him advice that would favour them.

The business does not have a board of directors just like most small businesses and the owner(s) end up making decisions in fear. I have a lot of sympathy for SMEs because I have gone through the process of building a business from scratch as well.

So, in our workshop, one of the sessions will be, ‘The best contracting strategies or template for SMEs.’ It will be handled by a senior advocate of Nigeria, with seasoned businesspeople in attendance also offering their wealth of experience. We shall look at how as a small business, if you want to enter into a contract agreement to deliver goods and services or for goods and services to be delivered to you, how you should do it without getting into trouble. We will look at how to guard against any possible loopholes that any of the people or organisation that would be involved in your execution of the contract can take advantage of. The workshops will be holding in Lagos and Rivers State. The Lagos edition will hold in March.