Investment experts believe that one of the best ways to achieve business growth, most especially in this part of the world, where conditions on loans to small-scale businesses are too stringent, is through retained earnings.Retained earnings, according to investopeadia-an online financial dictionary, is the percentage of net earnings not paid out as dividend but retained by the company to be reinvested in its core business or to pay debt.Business owners in Nigeria, especially small-scale business owners, do not see profit as what should be reinvested. This, according to some experts, is responsible for the failure of some businesses in times of recession.In terms of growing a business, experts argue that it is preferable to invest part of the companys profit back into the business, rather than introduce a loan. In developed economies, companies retain their earnings in order to invest them in areas, where they can create growth opportunities, such as buying new machinery and opening new branches. Big businesses also use retained earnings to carry out more research and development for the purpose of consumer satisfaction and market penetration.However, experts point out that though the culture of ploughing back profit holds much hope for the survival of small businesses, many businesses in Nigeria have yet to adopt this strategy, especially small- scale businesses.This situation, according to them, is responsible for the collapse of many small businesses no sooner than they take off. Records show that Small and Medium-scale Enterprises have provided employment for an estimated 60 per cent of the Nigerian workforce, thus making the sector the highest employer of labour. The sector has not only created employment opportunities, it has also performed other vital roles, which include adding value to the economy; accelerating rural development; stimulating entrepreneurship; mobilising private savings; harnessing them for productive purposes; and contributing to domestic capital formation. The importance of the sector has made successive administrations to put in place various policies with a view to fast-tracking development, setting the pace for industrialisation of the Nigerian economy, increasing access to credit and creating employment opportunities. Most of these, according to finance experts, have not achieved the desired result. Mr. Moses Olorunsola says, "Nigerian small business owners have yet to explore the economic benefits of retained profits. This ignorance has led to the voluntary winding up of many businesses and has also retarded the transformation of others into big businesses." He says since capital is the soul of any business, entrepreneurs need to consider how to increase funding, while setting up or expanding existing ones. Apart from the fact that small businesses may not be able to meet the loan conditions set by banks, Olorunsola contends that the associated costs attached to banking loans readily make the option unpopular to small-scale entrepreneurs. This, according to him, explains why internal source of funding is prominent among small-scale business owners in Nigeria. He says, "The culture of ploughing back profit, as a means of engendering business growth, is the easiest and most reliable form of sourcing for funds internally. To achieve this, business owners must adopt a principle known in accounting as the entity concept. This concept stipulates that a business is separate and distinct from its owners. "It is this principle that will enable a businessman to reinvest a part of his profit for growth and expansion, rather than consume it." He, however, frowns on the growth rate among small businesses in the country, which he describes as being marginally small because operators in the sector are unable to detach themselves from their businesses. This situation, according to him, has been largely responsible for their collapse in most cases. Also speaking on the need to retain earnings, a business developer, Mrs. Anthonia Adaeze, says the concept is not popular among small-scale operators because of the pervading level of poverty in the country. She notes that most people go into businesses for their daily survival, rather than the intention to growth, adding that their level of consumption is very high in relation to savings. Adaeze also argues that most entrepreneurs depend on their business earnings for their daily survival, rather than their own earnings in the business in form of wages and salaries.
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