There are uncountable entrepreneurs who are doing good business. Patronage is not one of their challenges, they have clients coming in and going out in droves. As far as observers are concerned they are making great returns. Likewise they themselves think until after some time they begin to wonder about the invisible fingers that is putting hands into their cash tills to make away with their money. What is left as gross profit after several weeks of doing business, with traffic of customers coming and going, is too surprising to believe. Gregory has been doing business for quite some time and he had experiences of ups and downs he could rely upon to prove that doing business is not a tea party. But one thing he is also aware of: despite all tricks he knows about how to make money in his line of business, the figures were not just adding up.
Gregory is very sure he knows everything about doing business and there is nothing more to learn. Whenever we get talking, he is quick to say there is nothing new someone like him needs to discover about how to run a successful business. Customers are coming to buy everyday and he keeps embarking on trips to buy products to resell. As far as his business is concerned, there is never any dull moment. However, notwithstanding the volume of sales he makes daily, he could not understand where the money goes. It has become an issue and a burden he had come to accept – only talking about it whenever we meet but believing nothing can be done about it.
Meanwhile Gregory is thinking about starting a new line of business and he gave me a call to ask when we can meet to discuss. With what he knew about me, he believes he shouldn’t start the new business without my input. We started discussions to plan every phase of the new business. On our fifth meeting, we were to discuss and identify the possible costs the new business may incur. I asked Gregory: “by the way what are the expenses you think this new business may incur in the course of doing it?” Without hesitation he answered, “There is no strange cost other than I travel to buy the products, I pay transport fare to bring the goods to my shop and I had N100 to the purchase price of each item as my profit”. “Is that how you do your present business”, I asked. “How else; that was the way I learnt business; and not only me, that is the way we do it”, he responded. “Oh, no wonder you are always complaining that you don’t know what is happening to your business”, I quipped.
To show Gregory where he had been making mistakes in his present business, we spent some time to identify expenses that the business incurs before I asked him to tell me his average sales per week and per month. Not only is Gregory not having proper record of his business activities, his sales was below the total expenses I forced him to identify. Without allowing me to say anything he exclaimed, “aaaah, now I realise I don’t know anything in business!”
It was clear to Gregory that he had been making loss for years doing business. So far, he is able to keep running his business because he could get his suppliers to supply goods on credit and he has many of them. He has been using the money meant for a particular supplier to pay the other while giving excuses, ‘business is not moving well’, to those he is yet to pay. My friend was sober for the first time. He had just discovered the source of the problem he has been running up and down to solve for years. If he had known, he would have adjusted one or two things in his business instead of running about in the night and during the day looking for solutions to his business troubles. Gregory, my friend, who was reluctant in agreeing to pay for helping him plan the new business is now willing to ask for what I am going to charge to help put all his businesses in good order. “Ola, I am ready to pay your bill now. Please let me know what the charge is”, he volunteered.
Proper capturing of all costs and expenses your business incurs will allow you to exercise good control over your business. Not only will it enables you to know how much each item of your products should be sold and who should you target as customers, it will help you to overcome the challenges of efficiency and effectiveness in your business operations and process, and to discover ahead of time the minimum level of performance expected of your business. Proper costing allows you query some expenses and take meaningful decisions to help move your business to desired height.
Ola Emmanuel is a business planning and cooperative consultant