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Nigerian small and medium-sized enterprises (SMEs) risk worsening existing business problems if they access debt financing without first strengthening their financial records, cash-flow management and internal structures, Founder and Chief Executive Officer of SME Mall, Muyiwa Kwesi Femi-Pearse, has warned.
Femi-Pearse, who spent nearly two decades in the banking sector, said access to finance remained a major challenge for SMEs, but funding alone could not guarantee productivity, expansion or long-term survival.
He said businesses must first establish reliable financial records, separate personal and business finances, improve governance, strengthen operating processes and have a clear plan for deploying capital before seeking additional funding.
According to him, giving a poorly structured business more money could simply make its existing mistakes bigger.
“If a business receives ₦10 million today, but the owner does not know the true gross margin, cannot separate personal expenditure from business expenditure, has no reliable sales records, does not understand cash flow, and lacks a clear deployment plan, the capital has not solved the underlying problem.
“It may simply make the mistakes larger,” he said.
Femi-Pearse spoke in an interview in Lagos on the structural challenges facing Nigerian SMEs, the role of financial management and technology, and the need for better financing models.
He said many Nigerian SMEs attempted to grow without the systems required to support expansion, leaving entrepreneurs to spend most of their time responding to immediate problems rather than building sustainable enterprises.
He identified weak financial records, poor separation between owners and businesses, inconsistent processes, weak governance, limited management capacity, low technology adoption, infrastructure costs and difficulty accessing larger markets as major constraints.
He added that high energy, logistics, inflation, regulatory and financing costs had further increased pressure on smaller businesses.
Femi-Pearse said SMEs needed to follow a progression of understanding their businesses, fixing major weaknesses, establishing financial visibility, improving operating discipline and only then introducing appropriate capital.
He said financial records were particularly important because many entrepreneurs confused cash in the bank with profit.
“A firm can record strong sales and still lose money, or show paper profitability and run out of cash due to unpaid invoices,” he said.
He advised business owners to maintain dedicated business accounts, consistently record sales, expenses, inventory, debtors and creditors, and monitor revenue, gross margin, operating expenses, cash balance, receivables, payables and break-even points.
He also recommended maintaining cash-flow forecasts, including a simple 13-week projection, to help businesses identify potential shortages early.
On technology adoption, Femi-Pearse said Nigerian entrepreneurs were already comfortable with smartphones, social media, WhatsApp, mobile banking and digital payments, but adoption remained weak in areas directly related to business management.
He cited the Small Firm Diaries Nigeria study, which found that more than 74 per cent of sampled firms used smartphones for business, while only 22 per cent of smartphone users reported using them for record-keeping.
He said the challenge was therefore not necessarily resistance to technology but whether entrepreneurs could see its immediate business value.
Femi-Pearse also identified regulatory compliance as another obstacle to SME growth, saying the cumulative burden of multiple requirements could discourage formalisation.
He called for clearer information, digital processes, reduced duplication and greater coordination among government agencies.
On access to finance, he said lenders should move beyond relying heavily on fixed collateral and consider cash-flow and transaction-based lending.
According to him, SMEs without landed property may still demonstrate creditworthiness through consistent turnover, digital payment histories, valid invoices, inventory movements and corporate purchase orders.
He also called for financing products tailored to different business models, noting that short-term loans with immediate repayments may not be suitable for businesses purchasing equipment or operating with long production cycles.
Femi-Pearse said women-owned businesses faced additional barriers, particularly around collateral, access to markets, networks and unpaid care responsibilities.
He said support for women entrepreneurs should therefore go beyond grants to include financial management, market access, mentorship, technology, governance and investment-readiness.
He argued that the ultimate objective should be to move businesses from informality to structured operations, then to bankability, market readiness and investment readiness.
“CAC registration is useful, but registration alone does not make a business institution-ready,” he said.
Femi-Pearse urged governments, banks, development finance institutions and private-sector organisations to create stronger support systems that connect SME diagnosis, capacity building, financing and market access.
He said Nigeria also needed a broader financing ladder covering working capital, asset finance, invoice discounting, credit guarantees, patient debt and equity, depending on the growth stage of each enterprise.
He said the success of SME interventions should no longer be measured simply by the number of businesses that received grants or loans, but by how many became stronger, more productive, formal, bankable and sustainable employers.
