As small business owner for Naija, sometimes you go see plenty numbers for your book, and you no sabi wetin to do with them. E dey feel like big grammar Wey dem use confuse person. But trust me, these numbers, them dey important well well for your pocket and for how your business go grow. If you sabi read am well, you go fit take better decision wey go make your money full.
Wetin Be Your Profit and Loss (P&L)?
Understanding Your Income and Expenses
P&L, or Profit and Loss statement, na like diary for your business money for a period, maybe one month or one year. E show you how much money come in (your income) and how much money go out (your expenses). The difference between the two na your profit or your loss.
Why P&L Na Important?
If your P&L show say you dey make profit, e mean say your business dey waka well. But if e show say you dey loss money, e mean say something no dey correct. You need to check wetin dey cause am. Maybe your price too low, or you dey spend too much on some things. For example, if you sell pure water for ₦30 but you buy am for ₦25, your profit per sachet na only ₦5. If you sell 1000 sachets, na ₦5000 profit. But if you dey spend ₦10,000 for generator fuel that month, that profit don scatter!
Cash Flow: The Lifeblood of Your Business
Tracking Money In and Money Out
Cash flow na about the actual cash Wey dey enter and leave your business account. E no dey the same with profit. You fit make plenty profit on paper, but if customer no pay you on time, your cash flow go suffer. Imagine say you sell goods worth ₦100,000 on credit to someone wey go pay you next three months. On paper, you don make profit, but for your pocket right now, that money no dey.
Why Cash Flow Na Critical?
You need cash to pay your workers, pay your suppliers, and even buy more materials. If cash no dey flow, your business go seize up, no matter how much profit you dey claim. A good tip na to always try and collect payment quickly or offer small discount for early payment. For Nigeria, especially for small businesses, collecting payment on time with mobile money or transfer na very important.
Balance Sheet: Your Business Snapshot
Assets, Liabilities, and Equity Explained
Balance sheet na like a photograph of your business at a specific time. E show wetin your business own (assets), wetin your business owe people (liabilities), and wetin remain for the owner (equity). Assets fit be your shop, your generator, your stock, and even the money for your bank account. Liabilities fit be loan from bank, money wey you owe supplier, or even unpaid salaries. Equity na wetin remain for you after you pay all your debts.
Reading Your Balance Sheet
The balance sheet must always balance – Assets = Liabilities + Equity. If e no balance, something wrong. This statement dey show you if your business dey strong financially or if e dey on shaky ground. For instance, if your assets na ₦5,000,000 and your liabilities na ₦4,000,000, then your equity na ₦1,000,000. This means say your business well-grounded.
Key Financial Ratios: Your Business Health Check
Simple Ratios Wey You Fit Use
Ratios na like a quick health check for your business. Them help you compare different numbers and understand trends. Some simple ones wey you fit use:
- Current Ratio: Current Assets / Current Liabilities. E show if you fit pay your short-term debt. For Nigeria, a ratio of 1.5 to 2 na usually good.
- Gross Profit Margin: (Gross Profit / Revenue) * 100. E show how much profit you dey make from selling your goods before other expenses. If you sell fabric and your gross profit margin na 30%, e mean say for every ₦100 fabric you sell, ₦30 remain for you after you pay for the fabric itself.
- Net Profit Margin: (Net Profit / Revenue) * 100. This one show your final profit after all expenses. If e na 10%, e mean say for every ₦100 you sell, ₦10 na pure profit for your pocket.
Using Ratios to Make Better Decisions
If your current ratio too low, maybe you need to collect money from debtors faster or reduce your short-term borrowing. If your profit margin dey drop, you need to check your pricing, your cost of goods, or your operating expenses. Small businesses for Lagos or Abuja wey dey sell food, for example, need to watch their food cost and their rent closely to maintain good profit margins.
Conclusion
Understanding your business numbers no be rocket science. E be like learning to count your money well. By regularly checking your P&L, cash flow, balance sheet, and key ratios, you go sabi wetin dey happen for your business and make better decision. This go help your pocket grow and make your business stand strong for this Naija economy.
