Super Eagles won the silver medal at the just concluded AFCON 2023, we conceded the least goals , had arguably the best defensive record in the tournament and just today as I write this we have been elevated to third position in Africa and twenty-eighth in the world FIFA rankings ,jumping fourteen positions representing the highest improvement of any nation on this round.
This all takes its roots in a three-man central defence, with the all-attack, all-defence wingers, In the 3-4-3 or 3-4-2-1 formation that was used in the final ,this formation proved formidable and gave us the best outcome we have seen from the eagles in a while.
The best CEOs see business as a game , the market is the playing field and the resources are the players that get work together to get the goals! (profit) , one of the core players of every business is Finance,it can be used offensively or defensively, every business must have a Finance Formation
The players that make up this formation are, Cash , Capital and Debt. The understanding of the latent potential of these three and their deployment is the beginning of business wisdom.
Let’s start with cash, the member of this formation that is used to cover current expenditure and operations.
It started with “Cash is King” of recent seemingly coming from an epiphany it graduated to “Cashflow is King” and this has become a cool “Mantra” amongst mostly SME business owners. While this has some element of truth in it , following just this can be misleading and can make a business either grind to a halt (when competition, entry of new and better products , sudden changes in government policies come up) or be stuck in a loop until it eventually winds down.
For a petty trader or a business at its early stages , generating that cash flow is lifeblood , knowing when the other players in the financial formation are to step up and charge is expedient , if you don’t intend to scale that business by all means work with “Cash Flow is King”, you may win with it. But if you wan’t to scale you must look towards the other two members of this formation;
Let’s now review Capital, which the member of this formation required for growth, scaling , and deploying Innovation
“Innovate or Die” is another mantra that gets to be known as you climb up the entrepreneurial ladder , it is a known phrase to those who have attended business schools or are exposed to those who have, the initiates at this level know that innovation is mostly powered by capital!, your innovation which brings in growth and scale willl not see the light of the day without new capital. Capital allocation (Investments) produces new income which also is a source of cashflow thereby creating a circle. Organizations at the medium and large level understand this and adopt it,that is why a bank can raise capital to build a high-rise headquarters , use only three floors and rent out the rest, the cashflow generated from the rent can then be channeled into operations, this is a sustainable approach to cashflow, going beyond immediate product or services to getting operational inflow from assets. To be succinct, your business ability to raise external capital is a validation of its model. If people cannot review your business and its finances and give you money with a dispassionate believe that they will make money from investing in you, know that that business is not scalable and will eventually die. To survive the mortality metrics of the businesses in Nigeria ,the business must grow faster than its problems both internally and externally , and new capital is the catalyst.
There are two major ways by which companies (deliberate choice of word; company not trades) get in new capital , it is either through equity financing or debt financing, the latter is common and easier.
Let’s talk debt! If you felt a pang of fear when you heard the word ,don’t worry you are not alone a lot of our african home training conditioned us to see debt as a bad thing, something you pray against, the narrative was debt is embarrasing because it is a consequence of having to beg freinds and family for money to solve immediate family problems , we saw the pain that caused and carried it on to adulthood and entrepreneurship, meanwhile the gap was just “Financial Literacy”, although we hate to admit it but most of our families were morally upright but financially dysfunctional, the outcome of this is the release of morally sound but financially disabled offsprings. One of your greatest fights as an african entrepreneur is to get healed from financial disability! Greatest of which is seeing debt as a bad thing!
Growth is a focus of companies that attempt to execute Innovation, Growth in any form requires stretching , so companies at this are stretched beyond their immediate capabilities when it comes to resources ,this is a friction that the “Use of Debt” can fix. Hence Savvy entrepreneurs are able to position and navigate their companies to attract “debt” to fix these frictions
Institutional Creditors that provide debt financing usually have stringent conditions and if your company is able to surmount these conditions to be qualified to attract debt finance, it is a litmus test to your organizational structure and system. The rule is, debt should go into investments that will yield sufficient income to cover the cost of servicing the debt and with a good balance remaining from that income ,that goes to say that debt should not be used to fund recurrent expenditure , it is bad practise , there are however exceptions to that rule,for instance debt can be used for initial required operational expenditure for a capital investment , such as production inputs for a new factory or production line.
As a CEO, you are a gaffer and having a fluid “Finance Formation” that you can manoeuvre based on the immediate objectives is a game winner.
Next time, we discuss the more technical means of raising capital “Equity Financing”
Shalom.
