How to Scale your Business in Africa: Financial Literacy and Growth Secrets

James (Host): Hello, you’re reading the takeaways from the webinar on financial literacy and growth, aiming to uncover the secrets to scaling a business in Africa.

You can watch a replay of the event on-demand on our YouTube channel here.

We have another webinar coming up on “How to Set up a Business Entity in Nigeria”. Save a spot.

My name is James, let’s meet our guests.

• Samy Chiba, COO at Bujeti, with extensive experience in running businesses worldwide.
• Kolade Adewoye, CEO and Founder at Fusion Intelligence.
• Gerald Black, a Tech Ecosystem collaborator and an experienced entrepreneur.

James: Let's start by understanding what financial literacy is and its importance. Samy, could you provide an introduction?

Samy: I see money and finances as the blood of the human body, and financial management as the heart of a company. Hence it is very important.

“Money and finances are the blood of the human body, and financial management is the heart of a company.” Samy Chiba.

Financial literacy involves understanding how to manage finances and is essential on three scales: analyzing the past, managing the present, and preparing for the future.

The first scale is analyzing the past. If you know how to look at financial reports, financial statements are like the storybook of your company. It helps to understand how the company is run, and you can analyze what can be improved. You can see the history, the story of a business through the financial statements.

“Financial statements are like the storybook of your company.” Samy Chiba.

The second scale is managing the present as well. Your financial management process should be a performance enabler. It must be a process that helps you to be more effective, to be more productive and to use your resources better on a day-to-day basis.

The third scale is the future. Financial management is also a way to prepare to anticipate the future. So it must help you to take decisions for the next level. The next step of your business so its key, It's essential for a business because it is here to help you to survive, to grow and scale.

James: Speaking from your experience of running a business, what are the typical challenges that businesses face, especially in the African market?

Samy: The challenges are quite common, not just in Africa but around the world. I see three main risks for businesses.

The first one is liquidity risk. If you don't have the right processes and tools to understand your current assets and liabilities, you may face a liquidity shortage.

The second is compliance risk, especially significant in Africa where compliance is not optional. Playing with compliance is a risky game, and it's crucial to have the right financial processes to stay compliant.

We have another webinar coming up on “How to Set up a Business Entity in Nigeria”. Save a spot.

The third risk is scaling risk. In an environment where fundraising is tough, scaling becomes challenging. I've seen businesses fail because they couldn't handle sudden success due to lack of funds. Having the right financial tools and processes is key to overcoming these challenges.

“There are three main risks for businesses; liquidity risk, compliance risk, and scaling risk. Having the right financial tools and processes is key to overcoming these challenges.” Samy Chiba.

James: Before we move on, Gerald, could you tell us why you are known as Gerald Black?

Gerald: Sure. Before joining Black OPS, I was already known as Gerald Black. It's not my official name but a brand name. I stuck with it because my friends teased me about always wearing black. It became a memorable brand, and I'm currently involved in ecosystem building and working with founders and operators.

James: Great. Now, Gerald, you had a business (Parkit) that was acquired by Fixit45. Could you share the financial strategies and considerations that played a role in that acquisition?

Gerald: Absolutely. From the beginning, our goal was acquisition, and we strategically chose the vehicle after-sale services sector. We considered various verticals within the auto industry but decided on vehicle care due to its lower capital intensity and the potential to make a significant impact. We were intentional about choosing one thing and excelling in it. Cars45 and a few other companies were the major players we considered for acquisition.

Starting with the end goal in mind, we positioned our brand, aligned our services with potential acquirers, and made intentional decisions throughout the process. Eventually, Cars45 became a customer of ours, bringing cars to us for maintenance and repairs before selling them.

We were meticulous about our financial records from day one. We kept simple yet comprehensive Excel spreadsheets, including income and expenses. This discipline paid off during the acquisition process. When Cars45 made an acquisition offer, we already had most of the required documentation in order, including audited statements. The entire process took less than a month, thanks to our proactive approach and thorough preparation.

“We were meticulous about our financial records from day one. We kept simple yet comprehensive Excel spreadsheets, including income and expenses. This discipline paid off during the acquisition process. The entire process took less than a month, thanks to our proactive approach and thorough preparation.” Gerald Black.

James: That’s quite impressive. Building with a goal to get acquired.

Now, moving on to the topic of managing finances, I would like to ask about the financial metrics and strategies businesses should prioritize for gauging their health and positioning for growth.

Samy: Certainly, if I had to choose one, it would be the working capital ratio. It's a simple yet powerful short-term indicator. This ratio helps businesses understand if their current assets can cover their current liabilities. It's vital to evaluate your assets, how you generate revenue, pricing strategies, and inventory management. Many businesses struggle to articulate how they make money, especially those with complex models. So, understanding current assets and liabilities is crucial.

“The working capital ratio is a key indicator of a company's financial health as it demonstrates its ability to meet its short-term financial obligations. The calculation is very simple: Current Assets / Current Liabilities.” Samy Chiba.

James: How about you Kolade?

Kolade: Transparency is key for us, especially with employees and coworkers. We openly share revenue, profits, and costs to ensure everyone understands the financial status. Runway is a critical metric for us, indicating how long we can sustain operations with the cash at hand. In our subscription-based model, Monthly Recurring Revenue (MRR) is significant. It helps us project profits based on current and future costs. Additionally, monitoring when expected revenue hits the bank is crucial to avoid situations where booked revenue isn't available in cash when needed.

James: Thank you both for sharing your perspectives on this.

Kolade, considering your experience in running various businesses, could you share how you've managed finances in different business contexts and any challenges you've encountered?

Kolade: Certainly, transparency remains a priority. In the absence of external capital, we rely on revenues to cover costs. Runway is our focus, indicating how long we can sustain operations with existing cash. MRR is crucial for our subscription-based model, giving a clear picture of expected revenues. However, we've faced challenges when expected revenues don't translate to actual cash inflow.

For instance, we had a situation where booked revenue didn't reflect in the bank, creating a cash flow crunch. Transparency and addressing these challenges collaboratively are key aspects of financial management.

I think the most important thing for me when managing finances is transparency. It's a policy of transparency with the employees, with my coworkers because it's a business with a lot of people, and people often make demands like, "I want an increase in money. I spend this and achieve this." So, the first thing, the most important thing that we do is always communicate our revenues, our profits, and costs to everybody, making it very clear.

Okay, these are the numbers, this is how much you are losing, and this is where we need to get X amount of money for you to spend.

So, after we've gone through that, the next important thing I often look at is runway. So, in the businesses I've had, the most important thing for me is always, "How long do we have cash in the bank before we can say we are going illiquid or we're going to grow?"

Most of the time, we don't get any external capital, so it is always from our revenues that we pay our costs to keep running. So, runway is the most important thing for us. Anything after that is just okay, a nice measure. Then the next thing we also look at is the MRR. That's the monthly recurring revenue. Let's say MRR is like five million right now. We need to get this amount of MRR so that we can have this amount of profit." That's important. It's extremely important because of the cost aspect of it.

So, while some businesses make money through transactions we make it via subscriptions, so we already know how much our cost is at the end of this month. We already know how much our cost is in the future, but with the fluctuating Naira and Dollar, it is hard to make predictions. But we already know how much is spent in this amount of time. So based on that and keeping in mind our run rate, we look at to know how much money we have left in the bank.

In case there's no revenue, we look at revenue figures to know that, "Okay, this is how much I expected at this time and this much came in." Then there's another very important aspect. A lot of times, businesses have a backlog. They are expecting money but when does the money hit your bank account? And that's worrying because we had a situation like this. Let me give a figure of like 40 million in accrued revenue for when salary was due for December. There was no money to pay salaries for December, and the reason for it was because there was no cash. So the clients had been booked on as revenue, but there was no money in the bank.

So those are the important things that we look at, and the most important thing is that transparency, let everybody into the business from the lowest to the highest know where the company stands financially. Because you are working with people, and this is Nigeria. If you do anyhow, you will see anyhow. You have to communicate.

“In the absence of external capital, we rely on revenues to cover costs. Runway is our focus, indicating how long we can sustain operations with existing cash. MRR is crucial for our subscription-based model, giving a clear picture of expected revenues.” Kolade Adewoye

James: This has been insightful, and I think my takeaway from that is transparency, which prompts the question I would like to ask: How do you maintain transparency? For your company size, what kind of tools do you guys use? Gerald mentioned that they keep it as basic as an Excel sheet to have all the statements in one place.

Kolade: You know, from my experience, we use a very basic Google Doc, and we look at four main metrics. We consider our revenues, costs, profits, and I also focus on our runway.

So every weekly meeting that we have, we document this information.

Then the last thing we include is our bank account balance so that we know, "Okay, this is how much the company has inside the bank account." and we communicate this during every meeting.

James: For businesses that are kind of dependent on exchange rates where you have suppliers, vendors, and even subscriptions that you need to pay in foreign currency (e.g. USD), what kind of advice would you give to them?

Samy: I would say, don't keep any Naira in your bank, just keep enough for your operations and the rest try to move to another currency. For the situation in Nigeria especially, it's really hard to tell. I think one simple thing that's important to do if you have multi-currency operations is to have a way to consolidate your accounts so you can have an overview of your finances in the different currencies that you have. It can help you plan, anticipate a bit, but while I think a lot of companies are struggling to make cross-border payments, and in Nigeria. We have now a lot of different solutions to do so. It's still hard to anticipate, but at least you have some tools to keep your Naira and make payments in different currencies so you can have cross-border operations.

But yes, I think this issue is more of a political one, and what we can do as an ecosystem maybe, is to put more pressure on our authorities to do something to ease our lives.

“Only keep enough Naira in your bank to cover operations, move the rest to another currency. If you have multi-currency operations, have a way to consolidate your accounts so you can have an overview of your finances in the different currencies that you have.” Samy Chiba.

Kolade: You can also find different insurance tools on the markets. Unfortunately, Nigeria is a bit difficult. In other countries, you have foreign exchange insurance that exists, so you can plan at one month, three months, six months, one year. Honestly, I don't know if the banks in Nigeria can offer that kind of services given the instability of the currency, but yeah, I think it is also maybe an opportunity, a new business opportunity in the fintech space and the fintech ecosystem to build that kind of solution because there is a need, there is a huge need to not play with the volatility but to cover the risk, and I'm sure we'll see a lot of different startups that will pop up to try to fix this issue.

James: So don't hold Naira. How about you Gerald?

Gerald: Yeah, I mean Samy is right. I just want to add something to what he said, and that is, you have to have dollars to even be able to pay in dollars in the first place, and a lot of people don't have access to foreign currencies, so we need to start thinking outwards.

You need to start diversifying, and one of the ways that you should consider doing that is by expanding to new markets. Markets that help you in foreign exchange, and if you know you don't have a product you're selling or you have a service, whatever it is, you need to start looking out for how you can get new international clients that can pay you in foreign currencies.

Originally I would have said plan ahead, but even with the rate of inflation, is difficult to plan ahead with the currency you currently have access to, which is the Naira. So if you are in a space where if you haven't raised, and you don't have any reserve somewhere that you can use in planning, you might want to start thinking about actively expanding your products to new markets or your services, or how you can de-risk because we have gotten to that point where everybody is starting to think outward and being very intentional about how we can earn these foreign currencies.

“Consider diversifying by expanding to new markets that facilitate foreign exchange so you can de-risk your business. Whether you're selling a product or offering a service, actively seek new international clients who can pay you in foreign currencies.” Gerald Black.

Kolade: Mine is a bit of a controversial take—I’m of the opinion that the weak Naira is actually a strength. For example, the very first thing we did was when we decided to raise. We did not raise dollars at that time. Raising dollars was very popular, but when we looked at the economic output — there was a new election, there was a new president coming in, the subsidy was unsustainable, so we decided to raise in Naira first.

Then the next thing we did was we started eliminating a lot of dollar costs. Something like Google Workspace, we switched to Zoho because Google Workspace is ten times more expensive than Zoho. The only dollar cost that we have at the moment is just our servers, and we are constantly looking at it like, "Okay, how can we reduce this? How can I restrict this?" All of our services running are being monitored so our costs do not rise significantly.

Just two weeks ago, we expanded into Ghana, and we are also expanding into about 10 other African countries by the end of H1. Because we are a SaaS product, we are not buying any licenses. Our competitors are pricing in dollars, so the Naira is a strength to us. We can price at $500 dollars where our competitors are pricing $1,500. So our costs are in Naira, and we are earning in dollars to offset our costs. I think this is the best way to deal with a dollar problem.

“The weak Naira is a strength for us. We raised money in Naira. We eliminated our dollar costs. Now we can price and earn in dollars, and still beat our competitors at pricing.” Gerald Black.

James: What would you recommend should be like the ideal financial stack at different stages of a company?

Samy: Your tools should be easy to use. If you use a new tool, it must be better than your current process. As I said before, financial management should be a performance enhancer, not a hard process that is lengthy and cumbersome.

“Your tools should be easy to use. If you use a new tool, it must be better than your current process. Financial management should be a performance enhancer, not a hard process that is lengthy and cumbersome.” Samy Chiba.

The second criteria is interoperability. You should not feel any friction in your financial process. I see a lot of companies that use Excel sheets for budgeting, Zoho for internal workflows like approvals and all, and then they go back to the banking platform to make payments, and you see a lot of friction. So, you need interoperability between the different steps of your financial process. I see a lot of SMEs that use SAP, and you need to have a PhD to understand how it works. It's not adapted to all scales.

The third advice, third criteria, is scalability of your tools. You should, from the very beginning, use a tool that can help you to grow with you, to support your evolution that evolves with you. So, when your processes are getting more complex, you can use the same tool because you have customized it enough to fit with the complexity of your processes.

Now, more generally, in terms of the financial system, the financial stack, in my opinion, we have also three main things. You need to have the right people, you need to have the right processes, and the right tools. So, the right people, if you are a big company, of course, you need to have a superstar CFO. But if you are an SME, you cannot, but well, you can find a way to have the right people. You need only one person who knows the lingo of accounting and finance, and then you find the right accounting firm or finance firm that will help you. So, you have your financial team and CFO outside of your company, and you have one guy as the middleman who can understand the lingo of these guys. So, you have the power of a big financial team without having to pay them directly. That's for people.

For processes, I like what you said, Kolade, regarding transparency. I think we can be a startup, an SME, big Enterprise; you need to create financial processes that are based on transparency and control. Transparency, you see it as showing your bank statement to your employees, but also for you to be able to understand exactly what's happening in your financial processes. Knowing how you're making money, how you spend your money. Transparency is the key. Every Naira you spend or earn, you know where it comes from, where it is going, where it's gone. So, transparency is key. Every error you spend or earn, you know where it comes from, where it is going, where it's gone. So, transparency and control, obviously. You need to be able to control everything. If an error goes out, you need to know it and be able to say yes or no with approval flows, with spending limits, with whatever that you need. These processes, and obviously the right tools, as I said, a tool that is interoperable, easy to use, and scalable.

“I see a lot of companies that use Excel sheets for budgeting, Zoho for internal workflows like approvals, and then they go back to the banking platform to make payments, and you see a lot of friction. A lot of SMEs also use SAP, and you need to have a PhD to understand how SAP works.” Samy Chiba.

Gerald: Alright. So, judging from my experience, when we started off, we kept it very simple. But then you begin to realize that just like what Samy mentioned, and you start getting a lot of friction, interoperability of these different platforms. Because, for us, when I started my company, we kept it very simple. All we did was we met with an account advisor who gave us templates for different things—for income, expenses, accounts, and all of that.

But as the company got bigger, and then, of course, you have to keep track of your invoices, and you have to keep track of other expenses, end to end, it becomes really difficult.

So you have to last start looking for tools that have the ability to connect and work with themselves. Actually, you can keep track of all the processes without having to have breakages or a lot of manual processes.

So, being very conscious about tools that have the ability to connect with each other and also being able to give seamless workflows.

Kolade: Keep it simple and effective. Because there are a lot of times when the financial planning tool you are using is now more expensive than the amount of funds you are planning, like what Samy said about some people using SAP.

If your organization has to spend two, three hours for you to be able to pay for your expenses, it's a waste of time and money because those two, three hours could be spent on something a more productive that brings you money.

In terms of the tools that we use, I mean Excel is everybody's best friend because you can never go wrong with Excel. You can start with it, and then from there, once the organization gets larger, once you have a lot more organizations, like when you have your accounting department as different from your procurement department, now, then you won’t be able to simplify the whole team.

“If your organization has to spend two, three hours for you to be able to pay for your expenses, it's a waste of time and money because those two, three hours could be spent on something a more productive that brings you money.” Kolade Adewoye.

James: Okay, so basically start with the simplest tool to make sure they are efficient and you're not spending too much money or time even trying to figure out how to use those tools and you can also use templates on excel, depending on your stage, and then when you have more departments, use Bujeti.

“Start with the simplest tool to make sure they are efficient, and you're not spending too much money or time even trying to figure out how to use those tools and you can also use templates on excel, depending on your stage, and then when you have more departments, use Bujeti (shameless plug).” James Praise.

James: We have a question coming from Israel. He says that hiring the services of a accountant could be expensive at the start of a new business, what digital tools can you recommend for financial accounting?

Kolade: It might be expensive, but I think you should do it. When we started, we had an Accountant, and we also had a Tax Consultant.

We could get some tax savings on our end and have a strategy when trying to scale the business. As much as you can use digital tools, there's a reason why the accountant, with their four, six, eight years doing the work knows more and can give you a lot of savings and insights that you don't have to figure out yourself.

So, if you can, just spend some money to get an accountant's time, maybe like one or two hours in a day or a month.

“As much as you can use digital tools, there's a reason why the accountant, with their four, six, eight years doing the work knows more and can give you a lot of savings and insights that you don't have to figure out yourself.” Kolade Adewoye.

Samy: I always say that if you are serious about your business, your banker, your accountant, and your lawyer should be your best friends, even if it's a bit expensive. These guys are really business partners, and you should choose them wisely, so they are really your business partners and not just service providers.

You need to invest in some things and don't play with accounting, don't play with taxes, don't play with legal issues.

We have another webinar coming up on “How to Set up a Business Entity in Nigeria”. Save a spot.

“Your banker, your lawyer, and your accountant must be your best friends. Choose them wisely, so they are really your business partners and not just service providers.” Samy Chiba.

Gerald: Yeah, so let me just add that, you know, as someone who bootstrapped at a very early stage, I know it can be a bit expensive, especially when you don't have the money and you use your personal funds. That's where building relationships now comes into play because I've always leveraged relationships. Anything I do, I always make sure I have a contact who knows one or two things about what I'm looking for. So, one of the ways you can navigate through your questions is by ensuring that you have someone you can always go to and direct you.

I mean, Excel is always everyone's go-to because emphasis is on new businesses. As a new business, you may not have the money to pay for services or pay for tools. But if you have the right templates, you can still effectively carry out some of the things that you're trying to achieve on free tools like Excel and the like. But it all goes back to the template. What really helped me at a very early stage was leveraging relationships.

“Leverage relationships. Anything I do, I always make sure I have a contact who knows one or two things about what I'm looking for.” Gerald Black.

James: You need to keep these people within your circle. Either they are your friends, or you're consulting with them, or you hire them, but you need the knowledge to navigate the complexities of running a business: the accounting side, the banking, and the compliance side, which includes your lawyer or your tax consultant. Definitely, you need to have them on hand if you're not any of these things. If you're not the banker or an accountant yourself.

Somebody is asking if Excel is truly free. There's Google Sheets, which is like a cousin of Excel, and is also basically free.

"You need the knowledge to navigate the complexities of running a business; the accounting side, the banking, and the compliance side, which includes your lawyer or your tax consultant, if you're not the banker, lawyer or an accountant yourself." James Praise.

James: We have another question: How do you manage an accountant and make sure they are adding value as a non finance person who is a CEO and also without knowing a lot of people in the finance sector?

Samy: It's hard to become a financial expert in two months, but the knowledge is here now. You don't have any excuses not to understand, at least, the basics of your finances. You have YouTube, you have the internet, you have everything to understand accountancy. You may not be able to do your books yourself, but you can understand what an accountant will tell you. So, if you don't have enough knowledge to master your finances, learn. The same goes for all aspects of your business. If you don't know how to sell, learn. If you don't know how to source your partners, learn. And yeah, my final advice, not only related to finance, is guys, you have all the resources that you need to learn to build your business, to think big.

Kolade: There are some fundamental questions an accountant needs to be able to answer. How much money are you making? How much is your cost? How much is your profit/loss? If your accountant can answer those questions for you on time, then you can continue with your accountant. That’s my rule of thumb.

“There are some fundamental questions an accountant needs to be able to answer. How much money are you making? How much is your cost? How much is your profit/loss?” Kolade Adewoye.

James: Final notes for business owners, entrepreneurs, founders that are trying to run businesses, especially in Nigeria. What do you think is the best advice you can give to them?

Gerald: I figured a follow-up question to what we had earlier mentioned about diversifying your income, especially looking outward, starting to basically de-risking your business. How do you do that without having to spend a lot of money? Because just like Samy mentioned, expansion is expensive, and having to go to new markets is also very expensive. So I think I just figured I should also add one or two ideas that people can consider when looking to get into new markets.

One of them would be specific use cases, because a lot of times even people who can afford it get burnt badly because they go to new markets without a plan. So, they are going with the intention of going to figure out what's existing in the market, as opposed to looking for specific use cases. So, seeking partners, building relationships with and thinking about what is that product integrate with, or partner I can do it with? For example, if you are in the fintech space, rather than getting a license which would cost you, you can find a partner.

If it's service-based, you can offer your service from anywhere in the world. And one of the key ways is for you to intentionally look for ways you can build a relationship with, people that can introduce you to new markets as well. So, for example, there are communities that exist that have coverage in these markets. There are platforms and events that you can attend to connect with locals in that market as well.

“When venturing into a new market, focus on specific use cases and find partners to help you save cost and avoid pitfalls. Build relationships, leverage communities, and attend events.” Gerald Black.

Kolade: I think the most important thing for entrepreneurs is not giving up, especially in this period in time. There is a period where you should definitely give up, however, if you really believe in what you are trying to do, and not just from your own perspective, you need to speak to other people that have you back, and you trust.

For entrepreneurs, it is just to keep on going because most times business is about who lasts longest, not who is the best.

"It is important for entrepreneurs to be resilient, but also know when to give up, or pivot." Kolade Adewoye.

James: Don’t give up, but also know when to give up.

Samy: Financial management is not a secondary activity. It is very key.

James: So, we'll end on these notes. Thank you Gerald, Kolade, and, and Samy for finding the time to share your knowledge with us.

We have put together simple Financial Management Tools and Accounting Templates that might be useful for business owners to manage their finances here.

If your teams are expanding, and you need to allocate resources efficiently, beyond making payments from your bank, you should definitely use Bujeti.

We have various tools and features that allow you to scale your business.

As Gerald mentioned, if you're building your company to get acquired, or if you're just building your company to make profits, and you need help — getting money from investors. They always want to see how you're managing the money you already have before they give you more.

You can do all of this, automated and simplified on Bujeti. In every metric you check — pricing, efficiency, ease of use, Bujeti is your best bet.

We have another webinar coming up on “How to Set up a Business Entity in Nigeria”. Save a spot.