Rising sales do not mean business has enough cash – Michael Soetan - THISDAYLIVE

Former Access Bank Relationship Manager and finance professional, Michael Soetan, has warned Nigerian business owners against using rising sales as the sole measure of business growth, noting that a company can increase its revenue and still struggle to meet its financial obligations.

Soetan, who has worked across commercial banking, finance management and consulting, said many businesses fail to understand the difference between profitability and actual cash availability.

“A business can record higher sales every month and still struggle to pay its bills,” Soetan said.

According to him, revenue is often the first figure entrepreneurs celebrate when assessing growth, but higher turnover does not necessarily translate into stronger financial health.

“A company may be profitable while simultaneously facing a cash shortage,” he said, explaining that the timing of payments can determine whether a business has enough money to sustain its day-to-day operations.

Soetan illustrated the situation with a distributor that records ₦50 million in monthly sales but allows customers 60 days to pay while its suppliers demand payment within 15 days.

“In that situation, the business may show strong sales without having enough cash to meet its immediate obligations,” he said.

He identified inventory as another area where businesses can tie down significant amounts of cash, particularly when companies purchase more stock than they can sell within a reasonable period.

“Excess inventory means money that could have been used elsewhere is sitting on shelves, in warehouses or in transit,” Soetan said.

He also advised businesses to pay closer attention to customers who purchase on credit, stressing that increased sales to slow-paying customers can put pressure on a company’s liquidity.

“Selling more to customers who take longer to pay can increase reported revenue while weakening the company’s liquidity,” he said.

Soetan said entrepreneurs should equally scrutinise operating expenses as their businesses expand, noting that increased revenue should not automatically result in expenses growing at the same rate.

A business owner, he said, should be able to answer a basic question before approving major expenditure: “Is this expense helping the business generate, protect or improve cash flow?”

He further warned against the practice of mixing personal finances with business funds, saying that undocumented withdrawals can make it difficult for entrepreneurs to determine the company’s actual financial position.

“When business owners regularly withdraw money without recording it properly, the company’s actual financial position becomes difficult to determine,” he said.

Soetan recommended that businesses maintain a forward-looking cash-flow forecast covering expected customer collections, supplier payments, salaries, taxes, loan obligations, rent and major planned expenditures.

He said such forecasts allow business owners to identify potential cash shortages early enough to take corrective measures rather than waiting until they become emergencies.

“An entrepreneur who knows that a major payment is due in three weeks can negotiate with suppliers, accelerate collections, postpone non-essential spending or arrange appropriate financing before the pressure becomes severe,” Soetan said.

He added that Nigerian businesses face additional pressure from rising operating costs and currency fluctuations, making close monitoring of margins, receivables, inventory and cash commitments increasingly important.

Soetan said the ability to convert sales into usable cash should be treated as an important measure of business performance.

“Growth should not be measured only by how much a business sells. It should also be measured by how effectively it converts sales into cash, protects its margins and uses that cash to sustain operations,” he said.

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