Cash, capital and debt. The understanding of the latent potential of these three and their deployment is the beginning of business wisdom.
As a devoted fan of the Super Eagles, I was captivated by their performance at the last AFCON. We didn’t just win a silver medal; we played with a formidable three-man central defense that gave us the best defensive record in the tournament. That tactical formation, be it the 3-4-3 or 3-4-2-1, was a game-winner.
It got me thinking: the best CEOs see business as a game. The market is the pitch, and our resources are the players. To score the ultimate goal—profit—we need a winning financial formation.
The players on my team are Cash, Capital, and Debt. Understanding their potential and deploying them at the right time is the beginning of business wisdom.
The Cash Player: The Lifeblood
The mantra “Cash is King” has evolved into the more nuanced “Cash flow is King,” a popular mantra among SME owners. And while it’s true that cash flow is the lifeblood for a petty trader or a business in its early stages, relying on it alone is a mistake. It’s a formation that can’t handle pressure. When competition, new products, or sudden government policies change the game, a business that only plays with cash will either grind to a halt or eventually fade away.
If you don’t plan to scale your business, by all means, stick with cash flow. But if you want to grow, you must look to the other two players on the field.
The Capital Player: The Engine of Growth
As you climb the entrepreneurial ladder, you learn another crucial mantra: “Innovate or Die.” The truth is, innovation is powered by capital. Without new capital, your boldest ideas will never see the light of day. When you strategically allocate capital, you generate new income, which in turn becomes a new source of cash flow. This creates a powerful cycle.
This is why large organizations can raise capital to build a high-rise headquarters, use only a few floors, and rent out the rest. The rent becomes an operational cash flow from an asset, a far more sustainable model than relying solely on product sales.
In short, your business’s ability to raise external capital is a validation of its model. If investors can’t look at your business and confidently believe they will make a profit, your business is not scalable and will likely fail. To survive the tough Nigerian business environment, a company must grow faster than its problems, and new capital is the catalyst.
There are two main ways for a company to get new capital: through equity financing or debt financing. The latter is more common and, often, easier to secure.
The Debt Player: The Growth Accelerator
I know what you’re thinking. The word “debt” might make you feel a pang of fear. That’s a feeling many of us share, conditioned by years of African home training that taught us to see debt as a bad, embarrassing thing. We grew up seeing the pain of having to beg friends and family for money to solve problems. This narrative, born from a lack of financial literacy, has created a generation of morally sound but financially disabled people.
One of our greatest fights as African entrepreneurs is to heal from this disability, and a big part of that is learning to see debt as a powerful tool for growth.
Growth, by its nature, requires stretching beyond your current capabilities. Debt can fix this friction. Savvy entrepreneurs know how to position their companies to attract debt financing to solve these problems.
Institutional creditors have stringent conditions, and if your company can meet them, it’s a testament to your strong organizational structure. The golden rule is simple: debt should be used for investments that will generate enough income to cover the cost of servicing the debt. It should never be used to fund recurring, daily expenses.
As a CEO, I see myself as a gaffer—a coach. Having a fluid financial formation that I can maneuver based on our immediate objectives is a game-winner.
Shalom.