In immeasurable terms, governments, businesses, families & individuals are coming under immense economic pressure following the global pandemic – Covid-19. In response, governments are leading the charge and implementing bold Covid-19 economic stimulus plans targeted at businesses and families especially the vulnerable. Businesses have also been very swift, changing business strategy, deploying new ways of work, managing the increasing workforce expectations among others to survive. Whilst all these efforts do not guarantee immediate successes for businesses, many during this time are also failing and shutting down.
Yes, we are not in normal times. The outlook for the coming years is fraught with too many uncertainties but the determination of the human race against this virus creates hope. It creates new opportunities, new ways of work & life, amplifies the use of technology, research, science, data and isunlocking new approaches to investments/funding especially by governments and international organisations.
On the business front, many Startups are going through survival battles. The disruptions to their operations were unexpected. Unending survival toolkits are being developed and or being implemented as the future of Covid-19 remainsunknown at least for now.
Startups and their nature
Understanding Startups and how they navigate in this difficult time will offer great lessons for the development of our country’s Startup ecosystem. It will be difficult to offer an acceptable definition of Startups. However, Neil Blumenthal, co-founder and co-CEO of Warby Parker gave instructive pointers of which type of businesses constitute Startups. He described a Startup as – “… a company working to solve a problem where the solution is not obvious, and success is not guaranteed”. From his idea of Startups, how long a business has been in existence may not be as important as its ability to succeed.
Neil’s definition also acknowledges the turbulent nature ofrunning a Startup – implying in normal times, uncertainties exist in its operation. It is therefore not surprising that the failure rate of Startups surveyed in Africa stands at 54.20% with Ghana having a shutdown rate of 73.91% according to the 2020 “The Better Africa” report published by GreenTecCapital Africa Foundation and WeeTracker Media (A report that traced the Success & Failure of African Startups from 2010 to 2018).
Nonetheless, Startups have the attribute of growth. To grow to become successful and have sustainable business operationsdemands great efforts and doing many things right including complying with the specific country’s business regulatory regime at the minimum. In Ghana, the laws regulating businesses have little or no provision for the needs of Startups. Invariably, all businesses are put on the same scale of regulatory compliance. Although challenging in normal times for Startups to deploy systems and structures that ensurefull compliance with regulatory requirements, difficult economic times like Covid-19 further impair their abilities.
Regulatory compliance offers operational advantages. To derive its full benefits, Startups must understand how to leverage these to unlock growth and attract new investments/funding in this difficult time of COVID-19.Regulatory compliance starts with maintaining a checklist ofindustry-specific regulations, timelines and what are required of Startups in the fulfilment of their obligations under thevarious regulations.
I shall now highlight some of these advantages and demonstrate how Startups can leverage them.
Incorporation, Registrations and Permits/Licenses
A sustainable vehicle for converting an idea into a product or service is through the formation of a company/business.Ghana’s business registration laws allow for the registration of various forms of businesses – Sole proprietorship, Partnership, Companies either as Limited or Unlimited Liability or Limited by Guarantee. The extent of distinct legal personality and liability protection available to the business owner(s) depends on the type of registration. Overall, suppliers/investors/funding agencies will prefer dealing with businesses registered as Companies than any other form.
Also, the registration as a company offers the avenue for putting together expertise which a Startup can leverage in difficult times if properly utilised. A competently constituted board of directors, the engagement of a qualified Secretary and operational Auditor can put at the disposal of a Startup the needed human resource to navigate this difficult time. The experiences of these officers could count greatly towards there-engineering of a Startup’s operations.
Further, complying with regulatory requirements such as filing of annual returns, renewal of registration etc give a positive outlook of a well-managed Startup and influences due diligence reporting for any investment/funding efforts.
Additional steps to acquire and maintain valid permits or licenses etc for a specified industry bolsters stakeholders’ engagement including clients, creditors, investors etc.
One of the reasons cited for the closure of many financial institutions (mostly Startups) as part of the recent financial sector clean-up exercise was non-compliance with theirlicensing requirements. Many that survived were emboldenedto undertake aggressive marketing campaigns to showcase their operational competencies, attract new customers and position themselves for growth.
Consistent regulatory compliance regarding business registration, permit or licensing etc are pivotal for the survival and growth of any Startup.
Money – Financing & Investments
Money is the lifeline of any business operation. Many Startups rely heavily on their cashflows to finance their operations and business expansion initiatives. With Covid-19, there are serious threats to projected revenues, profitability, liquidity and growth plans of businesses with many experiencing or anticipating unprecedented losses.
Traditional sources of funding or new investments for business either in the form of equity, loans or debts have been adversely affected by Covid-19. Governments are taking extraordinary steps to fill in the gaps by providing stimulus packages either as soft loans or grants to business toultimately prevent their economies from collapsing. In Ghana,the government has taken steps to minimise the impact of Covid-19 on businesses through the GHS600Million soft loans with one (1) year moratorium and two (2) years repayment plan at 3% interest disbursed under the Covid-19 Alleviation Programme (CAP) Business Support Scheme(increased by additional GHS150million due to the large number of applications) and the proposed GHC100Billion Covid-19 Alleviation and Revitalization of Enterprises Support (CARES) Programme. Additionally, banks have responded with reported loan restructuring, moratoria and new facilities of over GHS7Billion in the last four (4) months.
These unusual governmental involvements in providing direct cash support to businesses to stay afloat will continue into the immediate future as more business recovery programmes are anticipated.
The Finance Minister in his 2020 Mid-Year Budget reported that Tax Identification Number (TIN) registration jumped from 110,000 to 815,449 between the period of 19th May to 30th June 2020 in fulfilment of the eligibility requirements for soft loans under CAP Business Support Scheme. This piece of good news also highlights the level of non-compliance on the part of many businesses which have been operating prior Covid-19.
The global economic downturns imply Startups must adopt innovative financing arrangements. Whether through government stimulus packages or financial institutions, a certain level of regulatory compliance may be required – the advantages of cheaper financing cost under these arrangements cannot be overemphasised.
Generally, demand drives the revenue expectations of businesses. With low consumer demands following Covid-19, businesses are missing revenue projection. Startups withhigher concentration on Business to Consumer (B2C) are being compelled to undertake new channel development to include Business to Business (B2B) and Business to Government (B2G) to survive.
The increasing commitment by the government to procure its goods & services from local companies offers opportunities for new revenue streams for businesses. However, either through competitive bidding or sole sourcing procurement practices, Startups are expected to demonstrate compliance with some regulatory requirements. Startups must provide aside demonstrated competence, GRA tax clearance certificate, SSNIT clearance certificate, VAT registration certificate, evidence of registration with Pubic Procurement Authority among others. With a culture of non-compliance, a Startup cannot meet these standard requirements for private and government bids/business.
With limited consumer purchasing power, Startups must leverage their regulatory compliance for new channel development to survive.
At the marketplace, originality wins. It helps create a niche and drive economic value. The lifecycle of businesses involves innovation – innovate or die. Flowing from this are products and services deserving protection at law from unethical copying, reproduction or duplication without any economic benefit to the originator.
Although the intellectual property law regime is not mandatory, it offers protection for hard work, recognises originality and confers economic advantages. Either as trademarks, patents, or works, laws exist to offer protection to its creators.
To stay ahead of the competition in difficult times, make sure your works, products or services are protected at law to prevent imitation – as it offers the basis for legal redress for unethical competition.
A Startup’s ability to compete, grow and deliver on its mandate largely depends on the competence of its workforce. Recruitment, retention and exit policies and practices must reflect the requirements of law. A Startup must prioritise its workforce issues management in line with the Labour Act, ensure payments of SSNIT & other pension benefits, income tax etc. on behalf of its workforce.
A motivated workforce is one a Startup needs in difficult times, not an unhappy one. Losing your workforce to competition for non-compliance with labour laws should be avoided. Honour your commitments towards workers’ pension, motivate them and keep the team for the survival battle.
Contribution to National Development
We all have a role to play in developing our nation as natural or artificial persons. Good citizens perform their duties/obligations regardless of the times. Startups constituting a large business community must honour their obligations to the State in terms of revenue mobilisation. They must endeavour to collect all due taxes be it VAT/NHIL, Income tax, Tourism levy, etc and pay same promptly in full to the State.
Where a Startup meets the threshold for corporate tax payment etc, it must avoid the temptations of tax evasion.
Governments are demonstrating good faith amidst competing needs towards sustaining businesses and supporting their recovery plans. Startups must reciprocate this gesture by being good citizens by honouring their tax obligations so that other audacious development programmes can be undertaken.
Undoubtedly, the uncertainties of Covid-19 and its impact on businesses will continue into the mid-term. Startups given their nature will be the hardest hit. Many will shut down and others may survive. To those that have demonstrated compliance to the general business laws and regulations, they have the immediate toolkit to leverage. Further, it is not late for those who have for many reasons not complied with regulations to begin today. Covid-19 uncertainties will continue, new opportunities for businesses are emerging and one can leverage these with the advantage of a compliant business operation.
Writer is Richard Nunekpeku, a lawyer at E.L Agbemava Law Office and an Entrepreneur. He is reachable at Richard.email@example.com