‘My Man’ – Thursday

Today I want to share a story of a man very close to my heart. He is a trader and has a small but flourishing shop. He was so successful that he would take young boys as apprentices, teach them the secrets of the trade and after some years, give them some start up capital in return for their services. But gradually, the time came when he could no longer afford to take the boys. He had to manage the business alone. That was the formal beginning of the failure, not the end yet, of the shop. Why was this so?

There are three broad stages in a business – the beginning or growth stage where investment in terms of assets and cash are pumped into the business. The maturity stage where the business brings in return like a cash cow; and the decline stage where the business gradually or rapidly plummets to square one (zero if you choose). Prudent businessmen, whether big or small, know that they cannot, except deliberately, allow their business to get to the latter stage. Rather with foresight, they see it coming and stop it by re-branding and repackaging and/or with aggressive marketing, etc.

Granted, the man’s business was in the decline stage. Like Mr. Butler Lumber in the case study, the man was making some profit. But he almost never had cash. Remember, profit is not the same as cash. At first I thought he was squandering the money on other matters, instead of pumping it back into the business. At least, if he has a mind to spend the cash, I and the others can help him do that. But no! He is a gentleman. He didn’t look beyond his better half. He didn’t spend the money over the bar counter with ‘friends’ nor did he smoke or gamble. He was clean, through and through. He didn’t even spend it ministering to others’ needs and wants as was his wont in years past because he simply didn’t have the cash to give them. Plenty of his time he gave them but cash, no. As a last resort, I almost believed the common answer – witchcraft. Perhaps someone didn’t want his progress and had ‘him and his shop bound hands and foot’. What was the problem?

Here, Kayode Omoregie, faculty member of LBS, comes in. We had two sessions with him on ‘financing needs’ on Thursday. Judging by my criteria of funny and practical, his was the best {and the only} session of the day. Now I am neither a masculinist, if there is such a word, or a feminist. I try to be a realist – full stop. He led the class following the Butler Lumber case.

Back to our man; what was the problem? It could have been any of Butler’s problem.

The current ratio of his business was probably not just substandard but decreasing. {Current ratio = assets: liability and standard current ratio is 2:1}. What this translates to is that though profits are being made, liquidity {cash} is low and getting lower. A vicious cycle sets where to boosts cash, the man borrows. Thus his interest rate keeps increasing while his current ratio continues decreasing. There is less and less cash until the owner practically falls headlong into trouble. Now our man is really not the bank-borrowing-pay-with-interest sort. Since his business is small scale, he makes do with what he gets from family and friends mainly without interest. So cash is pumped in to keep the business breathing; profits are made but they are not visible, that is, no cash still. One additional info; our man is the jolly good fellow who gives a credit line, however small, to any customer that asks. He doesn’t keep any accounts, not even of these credits. He depends on the good will of his customers to get paid back. Though some never pay back, he is not deterred from continuing the good work.

Let’s stop here and wrap up with the thread that ran through our about three hours discourse on financing needs. All you nascent business men and women, keep your books. This line from the poem Logging out by Amaka Anozie expresses it well;

‘Balance your accounts, don’t delay; not just your business, but your way’

And if you can’t keep those books, spend money paying a good accountant to keep them for you. It’s in your best interest to do so. How about getting to know more about these matters? Or are you suspicious of your accountant(s)? {This is not a good sign for the business I think}. Well then register for one of the courses in LBS or if you fall in the age and education bracket, watch out for ViMP early next year.

And now watch out for the most exciting ‘session’ of Thursday – the presentation on ‘Nigeria – opportunity in crisis?’






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