Cash is king especially in Nigeria. Whether you run a retail shop in Abuja, manage a bakery in Port Harcourt, or import electronics in Lagos, understanding cash flow is essential to keeping your business alive and thriving.
In this guide, we’ll break down everything you need to know about cash flow as a Nigerian entrepreneur: what it is, why it matters, how to calculate it, and most importantly how to improve it in today’s unpredictable economy.
What Is Cash Flow?
Cash flow refers to the movement of actual money in and out of your business bank account over a specific period. It’s not about profits on paper it’s about the real naira (or dollars) you can access to run your operations day-to-day.
📥 Cash Inflows:
- Payments from customers
- Loans from banks or microfinance institutions
- Capital from investors
- Sales of business assets (e.g., a delivery van or used equipment)
📤 Cash Outflows:
- Rent, salaries, and wages
- Utility bills (PHCN, diesel, internet)
- Inventory purchases
- Taxes and levies
- Loan repayments
Your net cash flow = Cash Inflow – Cash Outflow.
If the result is positive, you’re in a good position. If it’s negative, your business might be heading for trouble.
Why Cash Flow Is Crucial for Nigerian Businesses
Nigeria’s business landscape is full of challenges unpredictable inflation, FX fluctuations, power outages, and changing government policies. Amid all that, cash flow remains the most important financial indicator.
Here’s why:
- You need cash to pay salaries and rent even if your business is profitable on paper.
- You need cash to restock inventory especially if you import goods or buy in bulk.
- You need cash to survive during “ember month” spikes or January sales slumps.
Put simply: you can be profitable but still go broke if you don’t manage your cash flow well.
How to Calculate Cash Flow (Simple Formula)
The basic cash flow formula is straightforward:
Cash Flow = Total Cash In – Total Cash Out
Example:
Let’s say your business:
- Received ₦2,000,000 from sales and customer payments in May.
- Spent ₦1,400,000 on expenses (stock, salaries, bills, transport).
Cash Flow = ₦2,000,000 – ₦1,400,000 = ₦600,000 (positive cash flow)
That ₦600,000 could be used to expand operations, invest in marketing, or cushion future slow months.
Fast Growth Can Hurt Your Cash Flow (Here’s Why)
In Nigeria, businesses often grow quickly during festive periods or when demand spikes. But this rapid growth can be risky if not managed carefully.
Imagine a fashion brand in Lagos:
- Orders flood in for new Ankara styles.
- The business rushes to buy fabrics, pay tailors, and handle delivery costs upfront.
- Customers are slow to pay (especially wholesale buyers on 30-day terms).
Result? The business may be running low on cash even though it’s making huge sales.
Lesson: Growth eats up cash before the profits show up. A proper cash flow forecast helps you see this coming and plan accordingly.
Cash Flow vs Profit: Don’t Mix Them Up
Many Nigerian entrepreneurs confuse profit with cash flow and it’s a dangerous mistake.
🔹 Profit:
- Calculated from sales minus expenses.
- Includes credit sales (even if the money hasn’t entered your bank yet).
🔹 Cash Flow:
- Tracks real money you’ve received and spent.
- Only includes actual deposits and withdrawals.
Example:
You sell a generator for ₦500,000 on credit (payment due in 30 days). You record a profit, but no cash has come in yet. Meanwhile, you’ve already spent ₦300,000 on stock and ₦50,000 on delivery.
Without proper tracking, your business looks profitable while your bank account is nearly empty.
What Is Burn Rate and Cash Runway?
These two terms are important, especially for Nigerian startups and growth-stage businesses:
🔥 Burn Rate:
The amount of cash your business spends monthly while not yet profitable.
Example: You spend ₦800,000/month on operations and earn only ₦300,000. Your burn rate is ₦500,000/month.
🕒 Cash Runway:
How long your business can survive with the cash you currently have based on your burn rate.
If you have ₦2,000,000 in the bank and your burn rate is ₦500,000/month, your runway is 4 months.
How to Improve Your Cash Flow: Nigerian Context Tips
Here are smart, local strategies to protect and grow your cash flow:
1. Collect Payments Faster
Offer discounts for early payments. Use POS machines or bank transfers to avoid “I’ll pay you tomorrow” excuses.
2. Invoice Upfront
Ask clients for part-payment before service delivery, especially for large orders or custom products.
3. Negotiate Better Payment Terms
Push for “net-15” instead of “net-30” agreements with customers, while negotiating 30-60 days from your suppliers.
4. Avoid Overstocking Inventory
Too much unsold stock ties up cash. Restock based on demand patterns and sales forecasts, not assumptions.
5. Delay Non-Essential Expenses
Before spending on branding or office upgrades, ask: “Does this directly impact revenue or customer satisfaction?”
6. Get a Line of Credit
Consider a flexible overdraft or short-term loan from your bank or fintech lenders like Carbon, FairMoney, or Renmoney. Just don’t rely on loans to fund losses.
Must-Know Cash Flow Terms (Quick Glossary)
| Term | Meaning |
|---|---|
| Cash Position | The total cash your business has right now. |
| Cash Flow from Operations | Cash generated from your core activities (sales, services, etc.). |
| Cash Flow from Investments | Money used or earned from buying/selling business assets. |
| Cash Flow from Financing | Money from loans, equity, or repayments. |
| Burn Rate | How much cash you’re losing monthly if you’re not profitable. |
| Cash Runway | How many months you can survive with current cash reserves. |
| Accounts Receivable | Money owed to you by customers. |
| Accounts Payable | Money your business owes to suppliers. |
Cash Is Still King in Nigeria
In an economy where access to funding is tough and expenses rise unpredictably, cash flow can make or break your business.
Even with high inflation and erratic customer behavior, Nigerian entrepreneurs who master cash flow can scale confidently, stay liquid, and weather any storm whether it’s a currency devaluation or a surprise tax hike
