When I started working over 10 years ago, my dream was to one day own a company, make money and get it listed at some point. I worked hard at the bank, made some money, invested unwisely, and after three years, resigned to start a business.  I did not have savings, but the business made money that kept operations going every day.  The business plan existed in my head and that made it easy to adjust depending on the situation.  

Crisis taught me that I had to rethink my strategy, put down my business plan on paper and come up with policies and procedures. It was a bad way to plan, but I learnt the hard way. Because I did not prepare for the crisis, I found myself engaging in firefighting, trying to contain a situation that had escalated from bad to worse. Consequently, I missed my dream of get my business listed on the exchange.

Fast forward to the years in consulting for Small and Medium Enterprises (SMEs) and a lot has changed. Every day, I meet SMEs that are so complacent with the status quo: They have no business plan; they have over-diversified their product range; they have unnecessary overheads and terrible customer service among other challenges. These same entrepreneurs will speak highly of their businesses, highly of  their big plans for the future – yet  they have no clear cut structure on how they plan to get there.

Any business, irrespective of the sector, will face turbulence at one point or another partly due to the entrepreneur’s inability to strike a balance between capital and growth plan.  This has given rise to the three step approach; a 90 Day Plan, the 15 Month Accelerated Growth Plan and finally, a Listing Stage.

On the onset, there must be a ’90 Day Plan’ that should set the ground for thorough review, strategizing and identification of the company’s quick wins from within its resources/prospects.  The 90 Day Plan should see the company appropriately allocate its resources to the opportunities at hand in order to fully maximize gains.  90 days is a fairly short time and an entrepreneur should not expect any change in the bottom line but instead see it as an opportunity for future gains.The 90 days should help realign personnel qualities with roles, appoint the right people to the board, realign the capital structure, formalize any loose contracts, licensing, registrations, etc.

Once the 90 days have helped achieve the desired level of formality, the entrepreneur must come up with a ’15 Month Accelerated Growth Plan” which should seek to give the company a complete turnaround of its financial ratios in anticipation for long term growth.  The plan should among other things seek to achieve a sustainable growth rate for the company, define the company’s niche product/service and ensure full  productivity of the company’s assets. It is during this period that the company absorbs the right amount of funding to ensure a full blown scale up within the niche product line.  

Once these two stages have been achieved successfully, it is only time to work on a high level growth plan which among other things entails growth in volumes, reputation and brand management and finally maintaining a growth momentum.  It is at this point that I believe that the company must change its level of competitors, and go on an aggressive onslaught on competitors.

It is time to look beyond the bottom line, beyond the money and think more about governance, corporate social investment and high level financial reporting.  It is time to think about a more responsible model that adapts to international best practice. Luckily for the Kenyan market, the Nairobi Securities Exchange has made it possible for SMEs to improve their brand awareness, raise capital and take their operations to a whole new level. 

When the Nairobi Securities Exchange created the Growth Enterprise Market Segment (GEMS) in 2013, its goal was to create a market place appropriate for younger companies. Therefore, a more relaxed and practical approach to regulation, in comparison to the other market segments was needed. It recognized that in order to be able to provide this facility at a cost which was acceptable to the companies it wanted to attract, it would not be able to provide the same team of regulators which monitor the companies on the other markets. Therefore the GEMS Company was outsourced to a new type of advisor: the Nominated Advisor.

The primary function of a NomAd is to ascertain whether a company is suitable for listing at the GEMS market. The NomAd owes a duty of care to the Nairobi Securities Exchange to ensure that the company does not adversely impact on the reputation and integrity of the GEMS market in the Nairobi Securities Exchange (NSE).

The NomAd should advise and guide companies at every stage of the process, and will ensure that the directors fully understand the obligations and responsibilities that come with being on the board of company listed in the GEMS. Further, the NomAd will coordinate and assist in the drafting of a Listing Statement and even after the company has listed it must continue to comply with the GEMS rules and regulations. Some of the benefits of listing on the GEMS include:

• Fund Raising and exit route to investors
• Ready marketability of the security
• Ability to raise further capital
• Fair price for the securities
• Timely disclosure of corporate information
• Collateral value of securities in that listed securities are acceptable as collateral for credit facilities.
• Better corporate governance

The company acting in the capacity of a NomAd will ensure that the company has sufficient systems and procedures in place to allow this to happen. The NomAd will provide guidance on how and when to announce company news to the market and also the appropriate level of corporate governance. Good corporate governance brings with it many benefits that include:

• Risk reduction as Board of Directors play a more significant role in risk management
• Stimulation of performance by focusing on performance as well as conformance
• Improved access to capital markets as investors value good governance and risk management compared to companies that have weak processes
• Enhancing marketability of product/services by creating confidence among stakeholders
• Improved leadership
• Demonstrating transparency and accountability

I believe that any entrepreneur who plans to grow his business beyond the ordinary must plan to do things right and pursue listing as an opportunity to unlock value and attract the right clientele.

By Michael Musau

The author [email protected] is  Consultant- Corporate Finance.