David Owoyemi: Who moved my CASH?

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You need to see the gifts my sister got for her birthday three days ago (June 14). From two big cakes to a hand bag to books to cash and much more that I don’t know of. Mine was in February and I got a gift from only one person despite throwing a small party to celebrate. Yes, I feel jealous right now. There is no doubt that women are great cash movers. They just attract gifts and cash with ease.

 

Check out the flow of cash on a typical valentine day and you might be tempted to wish you were a lady (for guys). For example, the National Retail Federation estimated that Americans would spend around $18.6 billion on Valentine’s Day this year. According to estimates, men spend twice as much as women on Valentine’s Day. I wish we knew the statistics for Nigeria. I guess that women would have received at least 70% of the money spent on Valentine’s Day. (If you disagree, please send me your statistics.) But for love, we can pardon the ladies for this.

 

Unlike in relationships, indiscriminate spending in business is unforgivable. Entrepreneurs and managers must make the most of the resources at their disposal in achieving their goals and objectives. They must pay attention to the cash movement, especially cash outflows, in their organizations.

 

In my dealings with businesses with respect to their Accounting, I have come across at least three (3) cash movers that could drain the life out of a business:

1)      Excessive spending on necessities

The CEO of Company A kept complaining that he didn’t have enough money, that in spite of his income he could barely pay himself after other staff had been paid. But I noticed that he usually spends so much time and money on calls than is necessary. So one day, we decided to calculate his telephone expense and we were surprised to discover that he spends an average of N3,500 on recharge card every day. That amounts to over N100,000 every month. Talk about being generous. In Company B, there seemed to be a preference for taxi cabs for transportation within and outside Lagos. BRTs and Danfos were just not representative of the company’s brand. Of course, that meant a high cost of transportation.

Of course, the need for communication and transportation in business is justified, but could these companies have made better use of their resources in meeting these necessities? Yes.

 

2)      Personal spending

Most ‘one-man’ businesses in Nigeria are guilty of this. Company C was quite big and withdrawing one or two millions once in a while seemed to have no effect on the company. Until I was called upon to prepare the final accounts and then we discovered the drawings was just slightly lower than the overheads. I had to subtly point out the need to manage the drawings, and as a proactive owner-managers, they responded immediately.

 

For Company D, it first appeared that the company had been defrauded. There was a N2 Million reduction in its net worth within one month. The business owner was beginning to lose his calm. Then I re-examined the accounts and discovered that it was as a result of the man’s drawings. it was the end of the year and there was a lot of spending and celebrating. So, he had ‘moved his cash’.

 

Of course, there should be a symbiotic relationship between an organization and its owner. Afterall, most business owners have to pump in fresh funds from time to time. What is wrong in getting back from the business? A business is like a child that keeps collecting, but what it could offer per time depends on its capacity and level of growth. Also it is better to setup a proper structure for the financial reward expected from your business.

 

3)      Un-strategic spending

I haven’t heard about the word ‘un-strategic spending’ myself. I just coined it so its meaning is defined by my explanation. Spending in business is targeted at specific objectives which yield benefits. But, where resources are expended on something that has little or no direct or indirect benefit to the business, it is unstrategic. (You are free to quote me if you want).

 

In case you didn’t get my explanation, consider Company E that had been in business of providing IT solutions for a few years without any accounting. The first thing I noticed when I tried to prepare a financial report based on the available data was that the bulk of the spending was not directly impacting on the company’s income. For example, a few millions was spent on the renovation of an office building that is hardly being used.

 

Of course, no entrepreneur or manager sets out to spend money without making much thought of it. But sometimes spending decisions are based on inadequate knowledge. One of the relevance of Accounting to business is the provision of financial information to enhance decision making. You could see the role that accounting and the lack of it played in all the examples I gave. Accounting not only allows you to keep track of your spending, and aid future spending decisions, but it also aids in investigating misuse or loss of resources. In all, it helps you account for the resources at your disposal.

 

So next time you are wondering who or what moved your cash, check your Accounting.

 

PLS NOTE that the examples cited are from real companies but the scenarios do not portray current realities as the leaders in these organizations have taken proactive steps in addressing the situation. Hence I do not intend to spite them but to share these lessons for others to also learn from.

 

 

David Owoyemi is the Managing Partner of OWO Consults Ltd, a firm that provides a range of outsourced accounting services to businesses, recruits and trains accounting personnel and provides financial advice to entrepreneurs/managers.  He could be reached through [email protected] and  08180025256

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