In Nigeria’s bustling economic environment, small and medium-sized enterprises (SMEs) constitute about 96% of businesses and 84% of employment. But for Nigerian entrepreneurs, the journey is fraught with the need to navigate a 15.75% average inflation rate, fluctuating exchange rates, and infrastructural deficits that can hinder growth and innovation.

Financial management, a critical pillar for sustainability, demands more than just a cursory understanding; it requires a deep dive into the nuances of cash flow management, compliance, and strategic foresight. In Nigeria, where capital importation was reduced by more than 50%, and foreign direct investment fell by 33% in the last quarter of 2022, the ability to make informed decisions becomes even more crucial. Business leaders must harness their passion and expertise to decode customer needs and stay competitive, all while keeping a vigilant eye on the ever-evolving market dynamics.

This article aims to shed light on the financial management intricacies that Nigerian businesses must master to not just survive but flourish. It is a call to action for business proprietors to embrace the numbers, understand the statistics, and apply them to their business strategies, ensuring that the pulse of financial management beats strongly at the heart of their operations.

Budgeting and Forecasting

Businesses encounter a substantial challenge in creating accurate budgets and forecasts that align with strategic objectives.
This complex process requires a deep dive into the nuances of market trends, internal cost structures, revenue streams, and potential risks. For instance, the Nigerian Stock Market NSE-All Share has surged by 39.84% since the onset of 2024, indicating a bullish trend that companies must factor into their financial strategies. Moreover, with the tax-to-GDP ratio in Nigeria increasing from 5.5% in 2020 to 6.7% in 2021 and still growing over the years for every business sector, businesses must navigate the fiscal landscape with precision to align their budgets accordingly.

The initial creation of budgets is a detailed endeavor, yet the true challenge emerges in adapting these financial plans to the ever-evolving market conditions. Nigeria’s economic landscape is not immune to volatility; with an inflation rate hitting a high of 31.7% in February 2024, companies must be agile in adjusting their financial projections. The agility to recalibrate budgets in response to unexpected market shifts, economic uncertainties, or internal disruptions is paramount for business sustainability.

Read More: From Zero to Profit: Financial Tips for Startup Business Owners

Risk Management

Effective financial risk management gives businesses a strategic advantage.

Nigerian businesses face unique challenges, such as volatile market conditions, with the Naira’s fluctuation impacting both borrowing costs and investment returns. Operational risks are equally critical, with the Nigerian economy’s heavy reliance on oil exports making it susceptible to global oil price shocks, which in turn affect the operational costs and supply chain stability.

To navigate these complexities, Nigerian businesses must adopt a comprehensive risk management strategy that includes regular assessment and monitoring, diversification of portfolios and revenue streams, and adherence to regulatory changes.

Cash Flow Management

In Nigeria, the vitality of financial management cannot be overstated, especially for businesses navigating the delicate balance between immediate financial commitments and long-term expansion goals. A robust budget is crucial, as the absence of one can precipitate financial strife.

The FinTech sector, a burgeoning force in Nigeria’s economy, has not been immune to these challenges. Despite attracting 25% of the $491.6 million raised by African tech startups in 2019, the sector has witnessed companies falter under the weight of aggressive expansion strategies without prudent cash flow management. With over 200 fintech companies operating within the country, the stakes are high. The Nigerian business landscape demands a judicious approach to financial planning, where growth is pursued without compromising the liquidity necessary for daily operations and meeting short-term financial duties. This equilibrium is essential for maintaining operational efficacy and ensuring the financial well-being of businesses.

Read More: Effect of Multiple Taxation on Business Survival in Nigeria

Financial Reporting and Analysis

In any economy, the value of precise financial reporting cannot be overstated, as it is a foundation for business sustainability. The Financial Reporting Council of Nigeria emphasizes the importance of high-quality financial reporting in enhancing economic growth and investor confidence. Yet, many Nigerian businesses face the challenge of producing accurate financial reports, often due to complex operations or inadequate accounting systems. This can obscure a company’s performance, impeding strategic decision-making.

Statistics reveal that poor financial management practices are a leading cause of business failure in Nigeria, with 80% of small businesses failing due to cash flow problems. To mitigate these risks, outsourcing financial reporting to specialized firms like Stransact can be a strategic move. Stransact provides expert financial reporting, accounting, and audit services tailored to the Nigerian market, ensuring compliance and clarity in financial communications.
For inquiries about our services, reach out at [email protected].

Read more: How to Prepare for an Audit

Capital Budgeting and Investment Decisions

Nigerian businesses confront the intricate task of sifting through myriad investment opportunities, each with its distinct risk-reward profile. In 2022, the Nigerian economy witnessed a growth of 3.11%, yet faced an inflation surge to 18.60%, the highest in five years, influenced by factors like foreign exchange shortages and export and production problems. Investment decisions must account for such volatility, considering the long-term ramifications and potential costs.

The Nigerian Stock Exchange (NGX) was ranked as the 4th best-performing market index globally as of June 2022, with a return of 21.3%, showcasing the growth potential for well-calibrated investments. However, the market is not immune to fluctuations, as evidenced by the NGX’s drop to the 7th position by July 2022.

Navigating this requires a comprehensive financial analysis, balancing the scales of risk and return, and leveraging financial acumen to optimize investment portfolios amidst market uncertainties, regulatory shifts, and unforeseen economic challenges.

Cost Control and Expense Management

Businesses often fail to master cost control and efficient expense management. The pitfalls of overspending and ineffective allocation of resources pose significant challenges, potentially leading to a reduction in profitability and hindering the achievement of long-term financial sustainability. Effectively managing costs is essential for maintaining a healthy bottom line, and businesses must implement strategies to optimize spending and allocate resources judiciously. By addressing these challenges head-on, businesses can enhance their financial resilience and position themselves for sustained success in changing economies.

Read More: Creating a Culture of Compliance: Embedding Risk Management in Organizational DNA

How You Can Get Help

Stransact provides an array of services tailored to meet your organizational needs. From meticulous accounting and bookkeeping to reliable financial reporting, including income statements and cash flow statements, we ensure your financial records are accurate and up-to-date. Our expertise extends to tax planning and compliance, managing tax audits, and staying current with changing tax laws. Stransact conducts independent audits, instilling confidence in the accuracy and compliance of your financial statements. 

Moreover, our financial analysis and advisory services offer valuable insights into your organization’s performance, assisting in strategic decision-making. We go beyond by offering business advisory services covering mergers, acquisitions, financial restructuring, risk management, and internal controls. At Stransact, we pride ourselves on providing the value of a big firm with the personalized attention of a small firm, guiding your organization through complex financial challenges, and fostering growth while ensuring compliance with International Financial Reporting Standards (IFRS), and other applicable regulations.

For inquiries about our services, reach out at [email protected].

Managing Partner, Stransact Audit, RSM correspondent firm in Nigeria, Eben Joels, speaks with Justice Okamgba on the nation’s rising inflation, mounting debts, weakening naira, 2024 budget, among other issues

Some analysts have said Nigeria debt may not be sustainable with almost 90 per cent of its revenue going for debt servicing. What is your take on this?

I do not share this view. It’s unfortunate that most of the debts we take are not used for the purposes for which they were meant. They are stolen by office holders. If we plug the leakages, the infrastructure deficits we have are such that, if we channel our national debts to fix them, there will be a consequential quantum growth in our GDP that will make the borrowings more sustainable.

How do you think the government can unify our multiple exchange rates?

I believe the CBN policy reforms are ongoing, It does not appear that the CBN has applied all the fix they intend. Do not forget that the events in the CBN itself have dampened the confidence of the global community, and has held us out further as a country with very poor governance. It is a sad thing for the country for a CBN governor to be accused of all the things the last CBN governor is being accused of. I will like to stay neutral and hope that he’s not guilty of such reckless actions, the impact of which is on all of us. It will take some time for the CBN itself to gain the confidence the world had in it as a trusted regulator. But more importantly, our foreign reserves which were depleted severely, need to start growing again. Remember that the last time we moved closest to a convergence between the parallel market and official market forex rates, our foreign reserves was at an all time high. The amount we spend on importing petroleum and similar products was not what we have now. Hopefully as we stop spending our forex earnings on importing petroleum, the Naira will gain significant mileage. However, I seriously fear that if those in charge of governance do not act quickly, our economy is at the risk of being completely dollarised. We hope to see those days when global events that push the price of crude oil to very high levels, translate to a windfall for Nigeria rather than hardship for Nigerians as it is right now.

World Bank has said 130 million Nigerians are facing multidimensional poverty. What is the way out to reduce this number?

I saw a report recently that said there was a marginal reduction in the number of people in absolute poverty in Nigeria in the last six months. We cannot reduce poverty if people do not have jobs. In certain societies, jobs are as important as life itself. In the Japanese society, a man’s right to work is as important as his right to life. These are societies with enough social cushion for those at the risk of poverty. It will take us a while but we should do more about small businesses who are the largest employers everywhere in the world. Our small businesses here get aesthetic support from government. We need to borrow a leaf from the US Small Business Administration (SBA). If there’s no actionable program to spur the growth of small businesses, the government and big businesses by themselves cannot lift enough people out of poverty.

Do you think the government can actually do anything to reduce the Japa wave? What can be done?

The government should start governing rather than ruling us. Like I said previously, it does not take a lot to please Nigerians. Many Nigerians leaving the country are forced to that decision. It is not an easy decision. For every 10 people that left Nigeria, there are probably more than 50 per cent for whom things became way tougher such that their friends and relatives in Nigeria never here from them again. It is particularly tougher for those forced out of Nigeria in their middle age. If you leave Nigeria as a successful doctor in your mid 40’s for example,   and you are forced to become a caregiver because you are not eligible to practice medicine in that jurisdiction, how do you think such a person will fare mentally? What do you think it will do to the person’s self esteem? We need a country where there are consequences for judges who sell judgment to the highest bidder, for politicians who snatch or stuff ballot boxes, for public officers with eye popping assets that they clearly never worked for. We need a police station that does not charge a fee to track a crime. We need public health emergency services that work. We need a community policing system where every village has a functional police and patrol team. We need public schools that work as well as the ones we attended. If we get this over the next 4 years, Japa will reduce.

The country’s economy is obviously in a parlous state, with the excruciating cost of living, dearth of infrastructure and low productivity. What can the government do to refloat the economy and get it back on even knee?

The government should undertake major structural reforms.  For example, this country is long overdue for a Federal Personal income Tax. It is sad that all the egg heads are unable to see this obvious fix.  It is even more sad that the most recent public corruption case in Nigeria is that of funds meant for humanitarian and poverty alleviation activities.  To steal directly from the less privileged appears most callous to any enlightened person.  We can fix this by simply requiring every individual adult of a certain age and above to file a tax return to the center and they get any poverty alleviation payments through their banking and other official information submitted in a tax return.  This is how it works in other advanced societies where stealing of public funds is not as ubiquitous.  There are many other obvious fixes, but the issue is that politics and state capture has been the biggest industry in Nigeria since 1998 when we returned to democracy. There is no genuine intention to fix this country by a critical mass of its political leaders and its people.

Read more: From Zero to Profit: Financial Tips for Startup Business Owners

Corruption remains a drainpipe on the economy, how well can this administration tackle the issue?

President Tinubu started well, he dissolved all non-statutory boards to select new ones. To be candid, the fight against corruption in the country can only be won if there are consequences for official corruption.  The recent actions of the government that includes sanctioning a Minister in a so called juicy ministry is a good step in the right direction.

Judging by the number of political appointees, a bleeding economy, poverty index and other unnecessary cost components. This administration is accused of running a profligate government. What do you think?

The biggest issue we have is the absence of industry and enterprise. There are few motivations to be entrepreneurial in Nigeria when you can make more money and live an easier life by taking a political office. Until the incentive for political office is no longer the opportunity to acquire wealth and power, we would all continue to wallow in our poverty.  There will be only a minimal amount of Foreign Direct Investment (FDI), if there are are no examples of big brands that have come into Nigeria and prospered.

Talking about big brands coming into Nigeria and FDI, how did you convince RSM international, one of the largest accounting networks in the world, to come to Nigeria through your firm Stransact?

According to the United Nations, the population of Nigeria could reach 730 million inhabitants in 2100. The country’s growing young population means that public infrastructure is stressed but this presents opportunity for future economic growth under the right political environment. It was not difficult to let RSM see the importance of Nigeria if the network intends to deliver on its strategy to be a leading global accounting, tax and consulting organisation globally. RSM has been around for over a century. They are the fifth largest accounting firm in the USA, the world’s largest economy.  RSM is also probably number 5 in Germany in terms of revenue after Ebener Stolz, Germany’s 6th largest firm joined our network.  What is important for the network is the commitment of the member firms to certain values which we call the RSM DNA. Upon interaction with RSM 4 years ago, the network was convinced that Stransact is a firm that shares its DNA. We built our firm on values. Unleashing the human potential is why we exist.  We are still improving our processes and methodologies and as soon as our internal quality attains the global standards set by RSM, we shall be rebranding as RSM in Nigeria.

The 2024 budget is over N22tn with a large chunk of it planned for capital expenditure. Do you think this revenue projection by the government is achievable, given the lingering economic crisis bedeviling the country?

There are a lot of leakages in the system that can release some of the deficits in the budget. Priority should be placed on accountability, exploring diverse revenue sources, and fostering an environment conducive to private sector participation. While the emphasis on capital expenditure is commendable for infrastructure development, careful monitoring and efficient utilisation of funds will be critical to ensure that the allocated resources contribute substantially to economic growth and long-term sustainability and does not end up in private pockets or in funding political activities.

Read more: Partners at Stransact (Chartered Accountants), Charge Nigerian Auditors on Professional Conduct

This administration wants to achieve a trillion-dollar economy, and has indeed set machinery in motion by putting certain things in place. Do you think the size of the economy matters so much, as the impact on the socioeconomic growth in terms of macro and micro economy?

Such targets are a good start. It is good to have good dreams and to set ambitious targets.  While the ambition to achieve a trillion-dollar economy is commendable, it’s essential to recognise that the size of the economy alone may not be the sole determinant of national prosperity. The emphasis should be on the qualitative aspects of economic growth, focusing on improving the standard of living for citizens and fostering inclusive development. More importantly, the government should harness the UN’s Human development indices and build a program around them.

What do you make of the news of Dangote Refinery finally coming on stream after many false starts? Do you think that would make any difference in terms of cost of PMS and other petroleum products in the country?

The commencement of the Dangote Refinery represents a milestone for Nigeria’s energy sector, promising to reshape the nation’s petroleum industry. As one of Africa’s largest refineries, its successful operation holds the potential to significantly boost local refining capacity, diminishing Nigeria’s reliance on imported petroleum products.  Hopefully we will never see fuel queues again. It contributes to our energy security  and presents an opportunity for substantial savings on foreign exchange, positively impacting the country’s economic dynamics.

What other measures can the government put in place to galvanise the economy in the short, medium to long term?

In the short term, immediate measures to galvanize the economy should include targeted fiscal stimulus packages aimed at specific sectors most affected by current challenges. These can be tax incentives, grants, or subsidies to encourage businesses to retain employees and invest in operational efficiency. Additionally, expedited infrastructure projects can provide quick employment opportunities and inject liquidity into the economy.

In the medium term, the government should focus on enhancing the ease of doing business to attract foreign investment. Implementing regulatory reforms, streamlining bureaucratic processes, and ensuring a stable and predictable policy environment can significantly boost investor confidence. Medium-term strategies should also include comprehensive skills development programs to equip the workforce with the capabilities needed for emerging industries.

Looking to the long term, fostering innovation through research and development initiatives is crucial. Investing in education and technology infrastructure can create a knowledge-driven economy, positioning the nation for sustained growth. Moreover, the government should actively pursue sustainable development goals, emphasising environmentally friendly practices and promoting industries that align with global trends.

Strategic partnerships, both domestically and internationally, will play a pivotal role in all phases of economic revitalization. Collaborations with private enterprises, research institutions, and international organisations can bring diverse expertise and resources to support comprehensive economic growth.

What’s your forecast for 2024 in terms of the economic outlook?

The economic outlook for 2024 is contingent on proactive economic policies and global dynamics. A comprehensive strategy addressing inflation, exchange rates, and security challenges is crucial for steering the nation towards sustainable economic growth. Overall, I can say that the economy will be better this year, though not a total transformation but it will be better. The local economic environment will be better than 2023, this is tied on the gradual phasing out of the current impact of petrol subsidy and FX reforms on the non-oil sector, and higher crude oil production relative to 2023 levels amid supportive oil prices.

If CBN is able to have a better grip on inflation and exchange rates, it will be positive for the economy. If inflation continues to trend downwards globally, then it will be good for the economy because it will reduce the extent to which imported inflation will affect local prices.

Credit: PUNCH NEWSPAPER