The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Small businesses will have to drive economic growth for the next two-three years, a leading accountant said yesterday, arguing that he did not see “any significantly large business coming to the Bahamas” post-Baha Mar.

Craig A. ‘Tony’ Gomez, managing partner at the Baker Tilly Gomez accounting firm, said that while small businesses and entrepreneurs were the Bahamian economy’s lifeblood, their fragile nature meant they were “never out of the woods”.

Noting that gross profit margins were typically one-third of a company’s annual turnover, Mr Gomez said that based on 2011 Business Licence Office data, more than 80 per cent of Bahamian companies typically had just over $16,000 left after paying fixed/variable expenses.

Having disclosed the razor-thin difference between survival and failure for some 15,455 companies, if the Government’s data is accurate, Mr Gomez said most Bahamian start-ups had to contend with the fact they were under-capitalised.

Unable to access traditional forms of debt and capital market financing, Mr Gomez conceded that most Bahamian small businesses were operating on “a tightrope” - a situation not unique to this nation.

Urging Bahamian entrepreneurs and small business owners to keep their business and personal finances separate,and resist the temptation to regularly dip into the cash register, Mr Gomez also suggested they share the management/operational burden with key staff.

Noting that this would prevent a business from grinding to a halt due to the owner’s prolonged absence, Mr Gomez also warned budding entrepreneurs - semi-jokingly - to make sure their wives were “on the team” before starting or acquiring a business.

Failure to inform spouses before embarking on such a venture, he added, could lead to divorce - something he has seen before.

Pointing to the vital economic role small businesses had to play, even though government data suggested they accounted for just 1.4 per cent of Bahamian economic activity, Mr Gomez said they were set to platy an even more important part.

“I don’t see any significant large business coming to the Bahamas over the next year or two,” Mr Gomez told a small business seminar organised by the Bahamas Entrepreneurial Venture Fund, which his firm administers.

“Baha Mar is in progress, but where’s the next big hotel, the next BORCO, the next Syntex? I don’t see it.

“I believe the growth of the Bahamas over the next two-three years will be people like yourselves [small businesses]. The alternative is sitting and waiting for the next Baha Mar to come. Unless some of you know something I don’t, I don’t see it on the horizon. Development has to start at the small business level.”

Drawing on statistics from the US, Mr Gomez said 85 per cent of small business start-ups typically failed during their first year in existence. Some 45 per cent failed in their fourth year, and 35 per cent in their fifth.

Using this to emphasise that small businesses “are never out of the woods” when it comes to their survival, Mr Gomez said their trading characteristics made it difficult for them to seek bank or capital markets financing.

Taking the Government’s $50,000 annual turnover VAT registration threshold as a benchmark, and setting this against traditional 33 per cent gross profit margins, Mr Gomez said based on this, more than four in five Bahamian companies were generating just over $16,000 per year once fixed and variable expenses were paid.

Out of that latter sum, these companies had to pay the likes of staff costs and Bahamas Electricity Corporation (BEC) bills.

Suggesting this indicated that these companies were mainly involved in cash-based businesses, Mr Gomez said their often-precarious existence was exacerbated by undercapitalisation when they were formed.

“Upfront, you never get the money the business needs,” Mr Gomez said. “You are always operating on a tightrope, a short line. This is not unique to the Bahamas.

“Most of our businesses are under-capitalised, so you’re starting off in the hole. You don’t have a prayer because you’re not starting off on the right foot.”

Calling on all entrepreneurs and small business owners to recognise that cash did not equate to profit, Mr Gomez urged them not to “dip into the cash register” for personal expenses, as this interfered with the company’s cash flow.

Calling on small businesses to get away from ‘key man’ problems, where they foundered if the owner’s absence was enforced, the Baker Tilly Gomez managing partner urged entrepreneurs to take their wives and families with them when they went into these ventures.

“If you sit down to open your business, make sure everyone’s on the same team,” he added. “I’ve seen too many instances of people opening a business and telling no one else in the family, so when issues of strife and ‘no cash’ happens, she, being on the team, will understand a lot of it.

“No woman will understand all of it, but at least being on the team she will understand some of it.”