Why African Companies Erode their Profits and What Can be Done to Stop it

Businesses

VENTURES AFRICA – I have worked for over 22 years, in different parts of the world, and whether my role has been in-house for a global brand in the United Kingdom, as a freelancer for an organisation in the United States, or even externally as a business consultant for companies in Nigeria, I have observed the same types of mistakes in the way businesses are run and have heard the same complaints and concerns time and time again. There are myriad reasons why businesses bleed money but for me the top three are wasting time, poor financial management and inefficient communication.

Wasting time

It sounds obvious but the reality is that, other than those working in the finance, operations, business planning, marketing or strategy departments, very few employees within most organisations realise that the price of the product or ser- vice they are selling was originally calculated based on the costs of different variables, including manpower time, along with the more tangible cost of goods and logistics. When it comes to profitability, or lack thereof, every second literally counts. This is particularly true with companies providing services, where what they are selling is their time (to deliver their expertise). Every additional second spent on delivering a service that the client has not been charged for equates to a reduction in profit.

While it is true that additional time can sometimes be required for other reasons, for instance because the original estimate was unrealistic, this typically applies to less than eight percent of cases in Africa. Instead, the additional time incurred is a knock-on effect of delays caused by people in the value chain wasting time. Addressing, reducing and eliminating time wastage in Africa – where your average person still has not grasped the importance and financial impact of adhering to timescales with precision – is an unenviable but necessary exercise for businesses to prevent the damaging, instant and rapid erosion of their bottom line. As I point out to clients, especially SMEs, each business should ensure that, at the very least, it factors in all elements of manpower time when pricing its products and services in the first place and that it openly disapproves of time wastage while embracing time-efficiency.

Poor financial management

This broad title will bring tears to the eyes of many a self-respecting and hard-working accountant. From a lack of understanding the difference between revenue and income by staff (including senior management) to poor book keeping, and from under-pricing to repetitive errors in sales, the list is almost endless. Regardless of the source, size or location of the business, poor financial management tends to have the same impact: the business is not as profitable or financially healthy as believed on a day-to-day basis by the owner, CEO, staff, suppliers, customers, and other stakeholders.

Several parties often only reveal the true status after a thorough inspection of the books, both in-house and externally, which typically takes place in time to align with legal requirements, at which point spending non-existent profit has eaten into the revenue and consequently wiped out the real profit! The headlines of profit warnings, revised projections and so on from large public limited companies come every quarter, after their obligatory financial inspections. Smaller companies usually have to wait a whole year before seeing the true picture, by which time their bottom line has been seriously eroded. Mi- nor financial errors can quickly snowball into major profitability issues, so it is important to have a snapshot of your company’s financial state updated often – daily or at the very least, twice-weekly – if possible. The trick is to ensure that this snapshot is created and implemented correctly, updated and maintained accurately, and then placed in the optimal software interface for communicating with staff, so that a larger pool of people can easily identify errors and deviations from reality.

Inefficient Communications

Even though we live in an age of mass technology in a global village, over 35 percent of businesses across the globe still do not have a structured central information system (online or offline) and alas, this figure increases to over 90 percent in Africa. More than 40 percent globally do not have an agreed company process when it comes to crucial communications like sales enquiries, new business development or customer service, and sadly, this increases to more than 95 percent when it comes to Africa. Clients are often quick to point out the technology and infrastructure challenges they face (rapidly changing technology, high staff turnover, struggles to maintain structure in an unstructured environment and so on), and can provide the remnants of an existing-but-not-maintained-and-outdated information system or two. Adding structure to your communications in order to increase efficiency is a daunting challenge but one that is crucial if you are to avoid the devastating impact that inefficient communication can have on a business’s bottom line.

While there is no silver bullet that can fix each of these problems, a good place to start is to identify which most affect your company or business, and address as soon as possible.

 

 

 

 

 

Simi Belo is a director / business strategy and marketing consultant at liquid Businesses limited. She is a chartered marketer with over 22 years of experience gained in the UK, the US and Nigeria. She has particular expertise in strategic business growth and change management to increase profitability. Belo has received and been nominated for 13 awards, including ‘international Business Woman 2005’. www.liquidBusinesses.com.