18 Jul SIX COSTLY MISTAKES INVESTORS MAKE DURING BUSINESS START-UP IN GHANA
1. Several objects; one company
Many foreign investors and generally several business start-ups begin their commercial enterprise with the view of
using one entity as a launch pad to invest in several areas of business.
The company’s code 1963, Act 179, Section 27 (1b) requires that all persons incorporating a business to clearly
indicate the objectives of the business. It is common to see companies incorporate one business entity in
Ghana with several activities as its objectives.
For example a company can have mining, tourism, manufacturing, general trading, import, export and
many more as its objectives. It is mostly the view of the project promoters to explore opportunities in a number
of these investment areas, thereby adding-on several additional objects under one company. The resulting
effects on their business compliance is high cost and bottlenecks in the processes. All businesses in Ghana
depending on their objectives or nature of business have peculiar set of compliances, authorizations and permits
to obtain before business commencement. Adding-on several objectives therefore means that you will be
required to comply with several other compliances, meet a higher capital threshold and have a higher tax
assessment than you would have ordinarily met if it had been just your main project (one or two projects/areas of
investment you intend to start with). In our consulting and compliance experience, we have realized that in most
cases when people indicate 3 to 4 different projects or sectors of investment in their company objectives,
they are most likely equipped to start with only one project, and then later expand into those other areas.
Our advice is, before you incorporate your business in Ghana; clearly outline the business you want to do.
Streamline the activities so that they are inter-related, possibly in the same value chain in the same sector,
rather than several different activities in several sectors.
Also, have different companies for different activities in different sectors.
This will help reduce bottlenecks, cut down cost, lower capital threshold, lower tax assessment etc.
2. Transferring equity into personal account
Some years back, one of our foreign clients had come to Ghana to invest in an already operational resort,
came to us requiring our services to register his business with the Ghana Investment Promotion Centre (GIPC).
During the early years of his project, he had done a lot of transactions during the land acquisition, construction and
civil works phases using his own personal accounts for the inflow of the foreign equity transfers. He converted a chunk of the equity
inflows outside the banking system and did several other transactions through third party accounts. You can only imagine the
frustrations he had, trying to get the money spent to be registered as his initial capital.
Eventually we managed to help resolved this issue but it wasn’t without delay in the project and increased cost of the project.
Take note, transfer all your equity contributions, whether new investment or re-investment equity
through your corporate account set up with any of the Ghana licensed Banks and always convert your foreign
currencies at the bank so that your investment can dully be confirmed and recognized by the Bank of Ghana. This
will guarantee you safety and ease of transferring your investment out through liquidation, sale or repatriation
3. A promise to buy is not a sale
For you exporters, importers, manufacturers, manufacturer’s representatives I bet your dream is to
have a good reliable distribution network in Ghana and across the West Africa region. Before you sign off the
deal, confirm the shipment or rent your warehouse in Ghana you definitely should know that in Ghana, similar
to any other country, promises are not the same as actualsale. People generally have generous comments and
show excitement and their readiness to purchase products upon seeing product samples during the market
research stage or when scouting for distributors. A sale is not the same as lofty promises. People promising to buy
this quantity or that are not the same as actual sale.
So next time a potential buyer tells you how great your product is, wait a moment and don’t over-commit,
it could be a mere promise rather ensure there is sufficient commitment on the side of the buyer.
In Ghana, people promise more than they can deliver. Always get an order first before you commit heavily.
4. Undocumented and non-contractual agreements, non-receipted payments
In the initial stages of the business, the typical investor may come across persons who appear to have lofty ideas,
willing to help and present themselves as key project supporters. People therefore proceed based on
trust without properly documenting or making agreements contractual.
It is absolutely critical that every facet of the business decision be documented and well contracted.
People make several promises and for that matter you have to be mindful of this.
Avoid third party financial transactions; insist on receipts to reduce payment of illegitimate fees.
5. Reliance on influence instead of logic and respect for system and process
Many foreign investors arrive on the shores of Ghana eager to get their projects moving and the only thoughts
they have is how to obtain the necessary approvals, winsome projects and get their business rolling.
In as much as relationship and network with key persons is important and vital in navigating the business
landscape, investors must respect and follow processes, procedures and systems that pertains to doing business in Ghana.
You are better-off filing proper documentation than being charged for evasion and improper filings.
6. Due diligence
Due diligence is a timeless advice and cautionary guide for all especially before you say YES, Sign off the
agreement, make that funds transfer.
Take time to ask relevant questions, engage the right authority, avoid backdoor, do proper background checks
and engage more than one service provider to compare information received, before you hire or sign off the
agreement. As simple as this sound, it can save you time and money.