Running a business in Nigeria is not for the faint-hearted. Opportunities abound, but so do challenges. Less-than-adequate infrastructure, impermanent policies, double taxation, rampant inflation, and fluctuating currency exchange rates are just some of the troubles that bedevil SMEs in Nigeria. It sometimes seems impossible to budget for the future or make any real plans for tomorrow.
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However, you can certainly design and execute strategies for the coming months and years, even in such an unstable economic climate. A good number of businesses have managed to do this, so it’s possible. In this article, we will explain how you can go about this.
Start with Realistic Revenue Projections
Many entrepreneurs overestimate their business’s potential earnings, especially during good sales months. As a result, they get caught off guard when lean times arrive.
Instead of assuming income will always rise, you should budget using conservative estimates. For instance, if your monthly revenue ranges between ₦500,000 and ₦700,000, plan with the lower figure (₦500,000). This creates a safety buffer in case of slow seasons or unexpected disruptions.
Track Expenses Closely
Nigeria’s economic environment makes costs unpredictable. Things like diesel prices, rent, and logistics can change overnight. If you’re going to take care of these costs as best you can, you’ll need to categorise expenses into these categories:
- Fixed costs (rent, staff salaries, utilities)
- Variable costs (raw materials, transportation, marketing)
- Emergency/contingency costs (inflation hikes, policy changes, unexpected repairs)
This classification and detailing of costs make it easy for you to track your expenses. You can spot waste, negotiate better deals with suppliers, and switch to alternative resources (e.g., solar energy to cut generator costs).
Build an Emergency Fund
Every Nigerian business needs a cushion against shocks such as fuel, foreign exchange shortages or sudden policy shifts. There’s no telling when these sorts of things will hit, so it’s best to be prepared for them as much as possible.
Even if you’re just setting aside 5–10% of your monthly profit, it could build up into a robust fund that gives you some safety. With this in place, you won’t have to panic-borrow when crises arise. This fund can also cover late customer payments, which are common in Nigeria.
Separate Personal and Business Finances
One of the most common budgeting mistakes among small businesses is mixing personal expenses with business money. When this happens, it becomes nearly impossible to track true profitability.
You can prevent this confusion from arising if you use a dedicated business account besides your personal one. This ensures clarity and lets you build financial discipline. The clarity that it achieves will allow you to make better financial decisions, too.
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Account for Inflation and Currency Risks
Nigeria’s inflation rate is frequently in double digits, and the naira often loses value against foreign currencies. Both these things are a problem for businesses. It’s especially difficult for SMEs that source some of their raw materials from outside of Nigeria. Small businesses should factor this into their budgets. You can do this by:
- Adjusting prices periodically to reflect rising costs.
- Sourcing locally when possible to reduce exposure to FX volatility.
- Bulk-purchasing non-perishable supplies before further price hikes.
Plan for Taxes and Compliance
Too many small business owners ignore taxes until government agencies come knocking. This leads to penalties that could have been avoided. It’s always important to stay on the good side of the law with respect to taxes and fees charged by the government.
Your budgets should include a tax provision, whether it’s for personal income tax, VAT, or local government levies. You will find this easier to handle if you consult an accountant or use simple bookkeeping software.
Invest in Growth, Even During Uncertainty
There’s more to budgeting than cutting costs. It should also allocate funds for growth. This might mean setting aside money for digital marketing, staff training, or adopting technology that improves efficiency. If implemented judiciously, expenditure like this will spur growth at your organisation.
Businesses that continuously invest in growth are more likely to thrive despite uncertainties.
Revisit and Adjust the Budget Regularly
A Nigerian business budget is not something you create on a single occasion and forget. Things change quite rapidly in the world of commerce and industry. If you’re a business owner, you should review your budgets monthly or quarterly and update figures to reflect current realities. Flexibility and resilience should be your watchwords.
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Final Words
Small businesses need to budget for the future, regardless of how tough economic conditions are. As an entrepreneur, you should anticipate inflation, build safety nets, and invest wisely. Do these things right, and you’ll stand a much better chance of thriving in an unpredictable economy.
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