How poor financial reporting is blocking Nigerian SMEs from accessing finance -Expert

By Rita Okoye

Poor financial reporting is preventing many Nigerian small and medium-sized enterprises from accessing the funding required to expand their businesses, according to finance professional and Chartered Accountant, Michael Soetan.

Soetan, a former Relationship Manager with Access Bank and Financial Consultant, said many SMEs have viable businesses but struggle to attract funding because they cannot provide reliable financial information to lenders and investors.

“Many businesses do not struggle to raise finance because they lack potential. They struggle because they cannot present reliable financial information that gives lenders and investors confidence,” he said.

According to him, financial statements should not be viewed merely as documents prepared for regulatory or tax purposes, as they provide important information about the health and performance of a business.

“Every business tells a story through its numbers,” Soetan said.

He explained that proper financial reports enable lenders, investors and business owners to determine whether a company is profitable, generating sufficient cash flow, controlling costs, managing its debts and creating sustainable value.

Soetan said his experience reviewing businesses in commercial banking and consulting had shown him that some entrepreneurs have an inaccurate picture of their own financial performance because of weak record-keeping.

“I have encountered business owners who were convinced that their businesses were performing well. However, after reviewing their financial records, it became clear that rising operating costs, unpaid customer invoices, and poor inventory management had significantly reduced their profitability,” he said.

He added that a business could generate significant revenue without achieving sustainable growth if its costs, receivables and inventory were not properly managed.

“The business was generating revenue, but it was not generating sustainable growth,” Soetan said.

The finance professional said the quality of financial information also influences how banks and investors assess businesses seeking capital.

“Banks rarely approve loans based on ambition alone. Investors also do not commit capital simply because a business owner is passionate about the business. They look for evidence,” he said.

According to Soetan, reliable financial reports can also help entrepreneurs identify which products generate the highest returns, where costs are rising and how cash moves through their businesses.

“Businesses that understand their numbers are better positioned to make sound decisions because they rely on facts rather than guesswork,” he said.

He said the economic environment, characterised by rising operating costs and exchange-rate volatility, has made accurate financial reporting even more important for Nigerian businesses.

“Businesses with strong financial reporting are generally more resilient because they identify problems earlier and respond more quickly to changing economic conditions,” Soetan said.

Soetan also pointed to the growing availability of accounting software, digital payment platforms and bookkeeping applications as tools that SMEs can use to improve the quality of their records.

He, however, said technology alone would not solve the problem if business owners failed to recognise the importance of maintaining accurate financial information.

As a Financial Consultant, Soetan said accountants should also go beyond preparing financial statements by helping entrepreneurs understand their numbers, strengthen internal controls and use financial information in strategic decision-making.

“Financial reports should not end in a filing cabinet. They should become part of every important business decision,” he said.

Soetan said stronger financial reporting could improve lenders’ ability to assess risk, strengthen investor confidence and help SMEs demonstrate their capacity to manage external capital.

“Better financial reporting can unlock billions of naira in financing for Nigerian SMEs,” he said, adding that transparent and financially disciplined businesses are better positioned to attract funding and manage growth.