The profit paradox

Walk into any bustling business district in Lagos, Aba, or Kano, and you will see the same scene: shops teeming with customers, delivery vans loading up, and offices buzzing with the energy of a “successful” hustle. On paper, these businesses are winning. They are recording daily sales, signing new contracts, and moving inventory at a dizzying pace. Yet, behind the closed doors of the manager’s office, a silent and suffocating battle is often being fought. It is the paradox of being “busy but broke”. This phenomenon, known professionally as a liquidity crisis, is the single biggest killer of small and medium enterprises in Nigeria today. Many entrepreneurs find themselves winning the war of revenue but losing the battle of survival because, while profit is the destination, cash flow is the oxygen that gets you there.

A single, frustrating sentence often captures the painful reality for the Nigerian business owner: your receivables are hanging, but your payables are urgent. You might have a ₦5 million invoice sitting on the desk of a corporate client, but your staff salaries, office rent, electricity bills, and data subscriptions refuse to wait for that client’s “accounting process” to conclude. The gap between earning money and actually receiving it is where productivity suffers. It frustrates expansion plans, destroys staff morale when salaries are delayed, and weakens the very relationships with suppliers that keep the business moving. Before long, even the most optimistic entrepreneur begins to question where they went wrong, wondering how a business that looks so good on the outside can feel so empty on the inside.

This struggle is not unique to our borders, but the Nigerian environment adds a layer of complexity. In more developed credit economies like the United Kingdom or Singapore, a business with a solid contract can easily access “invoice discounting” or short-term credit lines to bridge the gap. In Nigeria, high interest rates and the healthy fear of debt among many business owners often result in the absence of that financial bridge. We end up stranded between maintaining a reputation of success and the cold reality of financial exhaustion.

To survive this, the modern SME owner must shift their focus from the “ego” of profit to the “reality” of liquidity. The first and most vital step is the absolute separation of business and personal finances. It is a common “wahala” in our climate to see a shop owner dipping into the till to pay for a family member’s wedding or a child’s school fees, promising to “replace it later”. This habit blurs the lines of reality and makes it impossible to know if the business is actually breathing. Beyond separation, the goal must be to build an emergency operating reserve. In an economy as volatile as ours, having three to six months of fixed operating costs tucked away in a dedicated account is not a luxury; it is a life jacket. It ensures that when a major client delays payment for sixty days, your lights stay on and your team stays motivated.

Managing the “hanging receivables” requires a mindset shift from being a “vendor” to being a “partner”. This means introducing strict payment terms and being unapologetically aggressive about following up. In many successful SMEs abroad, the use of milestone payments—where a client pays a percentage upfront and at specific stages of a project—is standard practice. We must adopt this locally to ensure we aren’t essentially giving interest-free loans to our clients while we struggle to pay our own bills. Furthermore, reducing unnecessary fixed expenses and renegotiating recurring obligations during lean periods can provide the breathing room needed to stay afloat.

Ultimately, the health of a business is not found in the total sales figure at the end of the month but in the movement of cash throughout the week. Proper accounting records and weekly cash flow projections are the only way to see a crisis before it hits. It is far better to have a smaller, more liquid business than a massive, profitable empire that collapses the moment a single large debtor fails to pay. Profit is a matter of opinion and accounting entries, but cash is a matter of fact. In the unforgiving terrain of Nigerian commerce, you can survive for a while without profit, but you won’t last a day without cash. Your mission is not just to make money, but to ensure that the money you make is actually in the bank when you need it most.

Dr Adeniyi Bamgboye, DBA, FCTI, FCA, FCCA, a dual-qualified chartered accountant, tax expert, and policy analyst, is the managing partner of Empyrean Professional Services, an audit, business, and financial advisory firm dedicated to enhancing its clients’ business value. 08060603156. [email protected]