How to ensure you get paid for your goods, services

As an entrepreneur, it is possible to get lost in the euphoria of high turnover, but is your business profitable or are you giving your goods or products for free? OLUWAKEMI ABIMBOLA writes from the perspective of business owners and experts on how not to fall into the trap of running an unprofitable business

A fashion designer, Obiageri Odoemena, recounts how she was practically selling her clothes for free because she lacked basic business know-how.

Speaking at an event on the collaboration between the Tony Elumelu Foundation and Deloitte, Odoemena, who is an alumnus of TEF said, “I was one of those people who were winging it. I just knew I wanted to sell and make money. I was selling but I wasn’t making any money. At the end of the year, I would look at the bank statement and see millions of naira but I could not give an account of where the money went. I had no systems in place, I couldn’t track anything. My main goal was to get the funding because I wanted to put money into my business. I had been running around in circles for a while and I wanted to take my business up a notch. Joining the program was an eye-opener for me.  I was assigned mentors and learnt pricing and I realised that I had been selling my clothes for free.”

Odoemena, who is the founder of Zikorah added, “So, you are making N3,000 profit, you bought fabric for N2,000, sewed for N1,000 but I forgot that there were other expenses, other overhead costs, data, marketing, staff, even rent for where I was using to run the business, electricity, these are costs that should be factored into your cost price before you even know how much you are going to sell your clothes. I would close the year out and could not boast of N100,000 from my business. It was during the program that I learnt about pricing, staffing, and structuring. I learnt a lot of things and got the funding, so it was a win-win for me.”

Another alumnus of TEF, Ellen Woshi of Janvier Natural, also revealed that getting on the platform of TEF boosted her business skills.

 “Before the programme, if you asked me who my customer was, I would say ‘anyone who buys from me,’ but I have learnt about business models, financials and the best part, I was assigned a mentor,” she said.

Highlighting the importance of mentorship and guidance for businesses, the Chief Executive Officer of TEF, Somachi Chris-Asoluka, said it has an important role to play in the survival of the business.

She said, “I think what is even more critical for entrepreneurs starting their businesses is mentorship, guidance, and counsel. Through this partnership, we will have more skilled mentors give their valuable time and resources to support these small businesses to start and scale.”

One of the mentors to the entrepreneurs, an economist, Damilola Akingbami, highlighted some of the things to watch out for to ensure a profitable business.

Understand the sector

“First of all, you have to understand the sector that you want to play in, whether there is even a market for your business or your service,” said Akingbami, who is the Chief Economist for Deloitte West Africa.

“What’s happening in Nigeria has turned everyone into an overnight economist but a closer look can reveal that what is happening in the FMCG space is completely different from what’s happening in oil and gas, so understanding that alone is very important,” she added.

Structure your business

Going beyond understanding the sector that you are playing in, it is important for business owners to structure their business for success. Having a business plan helps in this regard.

A business plan helps an entrepreneur set clear goals and guidelines for how to manage their business. A business plan may also be needed to set employee goals, obtain funding or even sell the business in the future.

According to the Indeed Career Guide, having a business plan can help you know when to add new employees.

“As you expand your business and increase your revenue, you will need additional employees to assist with the daily tasks. But, hiring people before you’re ready to expand can reduce your profits. A business plan can help you evaluate the right time to bring on additional staff. It can also help with setting clear duties and expectations for each position. You can also use your plan to determine what skills to look for when hiring.

“Assists you in making important business decisions. Decision-making is an important task for an entrepreneur. Some decisions, like when to rent a new space or expand the business, are not always easy to make. With a clear business plan in place, you can determine the specific times or goals you must meet to make these important decisions,” said Indeed Career Guide.

A TEF mentor, Oghale Ariawhorai, speaking with The PUNCH hammered on the need to factor in overhead costs into pricing to ensure you are not hurting your business.

She said, “They need to incorporate overhead costs so that they can properly price their products. Overhead cost in terms of logistics. If you are starting a new business, who is already doing what you want to do, except you are doing something entirely new that nobody has done before but most times, people are starting businesses that other people are already doing. So, the question is, ‘who else is doing it and at what price are they offering it?

“Secondly, you need to understand your value chain. Some people when they start a business, just take the cost of production and forget to add other things like the cost of utility. Take for instance, you are a baker and you work from home, you may think, ‘This is my home, I don’t need to add the cost of electricity’ but you are wrong, you need to add those costs, the cost of the wear of your equipment and all those things.”

By the time you factor that into your cost of production and check what the competition is offering, if you find out that you are not competitive, you need to find out what’s going on in your value chain and you may decide that is not the business for you. That is the advice I will give anyone just starting a business.

Ariawhorai, who is the Senior Vice President (Customer & Success Partner) at Arnergy, added that a lot of people go into business without rudimentary knowledge or even know what they are doing only to find out down the link that the business is not profitable.

“Unfortunately, capital has been lost,” she said.

Other things to consider when starting entrepreneur is business registration, tax filing and registration with Federal Inland Revenue Service even if your business is not profitable, if you employ people, you need to have some more requirements.

Logistic firm, DHL, in a piece on starting a business advised enterprenuers to consider the risks before starting.

“We don’t want to be negative, but it’s inescapable that new businesses face many challenges. Around 20 per cent of start-ups go bust in the first year, whilst 50 per cent don’t make it past the five-year mark. But there are things you can do to minimise the risks. As the saying goes: by failing to prepare you are preparing to fail. At the start of each week, make a list of tasks to be completed, and use your business plan as a touchpoint to ensure you stay aligned with your objectives.

Finding yourself a mentor is a great tactic, too. A successful businessperson who can be on hand to guide you, give advice and insights is invaluable.

Another thing to consider is to keep costs under control. With the high rate of inflation in Nigeria, it is important to keep business overhead costs as low as possible.

Also, one of the leading reasons businesses fail is that they run out of money.

“To keep cash flowing, remember the key points: draw up a budget and stick to it. Prioritise outgoings – suppliers should always be paid on time. Keep setup costs to a minimum. A flashy office may be appealing but until your business is generating a good profit, your spare bedroom will have to do.

“Shop around suppliers. With a little negotiation, you’ll be able to find the best deals, especially if vendors know you are talking to competitors. Minimise time wasting. Time is money! Automating processes where possible will save your business lots of money. Use freelancers. It may be a while before you can afford to hire permanent staff; in the meantime, make the most of the flexibility of freelancers,” advised DHL.