Why Nigerian Businesses Fail: Financial Mismanagement
This is the second installment in our latest series, Why Nigerian Businesses Fail. Read the first here.
2. Financial mismanagement
Businesses can go from high profitability to irredeemable bankruptcy in a short time, and that frightening transition can often be traced to a poor handling of finances. Many Nigerian entrepreneurs do not understand business accounting. And those who do are supposedly too busy to pay attention to the details of their finances. This is a recipe for business failure.
What does it mean to manage your business finances well?
Your revenue, expenditure and profit are figures you must always keep an eye on. Busyness is not an excuse for slackness, get your priorities right.
Record every transaction, no exceptions. There are apps and checklists to help you. If you cannot manage your business account yourself and you have cash to spare, hire an accountant to do it for you.
Never give in to the temptation to 'borrow' business funds for personal use. It's always the start of something bad. Discipline yourself.
Businesses bleed cash all the time without knowing. Invest in an external audit to verify the accuracy of your financial information, find leaks in your finances and fix those leaks before there's no business left to run.
Create a proper budget to keep your finances in order. It will guide your business decisions and financial projections, and it will help you manage expectations.
And don't forget to put money aside as a backup. The current economic recession in Nigeria caught a lot of businesses unawares and many closed shop. Deduct a portion of your profit automatically so you always have something to fall back on when you're in a tight spot.
Keep following the series as we look at more reasons why Nigerian businesses fail. If you have a comment, a tip or a question, post it in the comments section below or send it to firstname.lastname@example.org. We'll love to hear from you.