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Intangibles in SMEs crucial to achieving Vision 2030

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By Shephard Majengeta

ZIMBABWE’S entrepreneurs have done the country proud.

They have led from the front.

Our entrepreneurs have filled in gaps and done much more than expected of them.

It is no secret that our economy, for the past decade, has been buoyed by entrepreneurs who have proven their mettle.

This sector is an indispensable engine driving economic growth.

Most of our entrepreneurs are small-to-medium enterprises (SMEs) and have contributed positively to the fiscus, alleviating poverty for the SME owners and their employees as well as filling in the gap left by large corporations.

These SMEs have absorbed thousands of formerly unemployed workers who are eking out an honest living.

Over the years, a lot of energy has been expended on helping SMEs improve their financial management, communication channels, marketing strategies, project planning as well as improving their product offering. 

It is heartening to note that most SMEs now appreciate sound financial accounting practices such as valuing their businesses and presenting that information in the form of balance sheets, accounting for the firms’ cash projections on the cash flow statements and even tracing the firm’s financial transactions using the profit and loss statements.

We are now at a stage where many small and medium business owners now have no problem accounting for their fixed assets, such as land and buildings, machinery, plant and equipment, since these are mostly required by financial institutions as collateral when one wants to access a loan. 

It is noteworthy that most SMEs have made efforts to improve their operations despite the debilitating illegal sanctions which have seen many small businesses crumble due to financial constraints.

Fortunately, we have quite a number of businesses riding on a crest of success; organisations that have been able to identify a gap in the market which they have stepped in to satisfy and make good their return.

But one aspect which has not been sufficiently zeroed in on is generating and accounting for an organisation’s intangible assets.

Most large firms define intangible assets based on criteria set out by internationally-recognised statutes, such as International Accounting Standards and International Financial Reporting Standards.

Intangible assets have no physical existence and basically depend on the value the owner of the firm attaches to the said asset, and this value is rarely transferable to alternative use or separable from the firm, even if it is separately identifiable.

In other words, intangible assets are identifiable non-monetary assets that cannot be seen, touched or physically measured.

Examples of intangibles are the firm’s research and development, patents, copyrights and trademarks, intellectual property and ‘know-how’ of a production process, exploration costs, the value of brands or generally the firm’s goodwill.

In simple language, intangible assets relate to the aspects of an organisation that relate to its established reputation, which has to be sustained and built over the years through the way the business conducts its activities.

Kugadzira zita, making a name, is a familiar phrase in the business world.

This is a bastardisation of the concept of intangible assets in an organisation, which, when established, have the propensity to increase the value of the firm in the event one wants to sell the business in the future. 

Firms that quickly spring to mind are Delta Beverages, Econet Wireless Zimbabwe, Dairibord Limited, LaFarge and Sino-Zim, among others.

The case for recognising and accounting for intangible assets on the balance sheets of SMEs is a strong one, mostly because these are some of the considerations that drive up the share price of companies when they are listed on the stock exchange.

However, it is a public secret that most local SMEs are mostly preoccupied with putting out bushfires and ensuring their survival rather than paying attention to growing the firm’s brand, which, ironically, is a certain way to ensure the small firm has growth potential.

Regrettably, most small and medium enterprise owners seem to have found comfort in revelling in the glory of being called a businessman/woman to the extent they have been small business owners for years and show no upward mobility initiative.

With such an attitude, it is difficult to develop your firm’s brand, let alone grow the business’s goodwill since time and resources have to be invested. 

It is high time our SMEs get to the point that they can account for their intangible assets and include them as part of their business’s valuation.

Vision 2030 of an upper-middle income economy will require professional outfits that will propel the nation to greater heights.

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