Today makes it three days since payday and if you are like most people, you know the same pattern concerning your finances is going to repeat itself again this month. In just a couple of weeks (or even days perhaps), you will have less in the bank than you need to get you to the end of the month. The general price increases we have witnessed over the last 6 – 12 months, have made the salary that used to just get you by in the past, totally inadequate.
Food is way more expensive now. Everything is way more expensive now! Your children’s school fees seem to go up every September; you barely have enough to entertain yourself like you used to and God help you if you have an emergency situation that requires cash to solve it because you don’t know who else you are going to get the money from.
If this describes your condition, well, I won’t say don’t fret, but I would say, you are not alone. “Inflation adjusted salary increase” is not in the vocabulary of most HR managers and many people are getting by on their savings or other sources of income.
What your condition requires is quick evaluation and action because you can’t go on like this for much longer; you will derail your long term financial goals otherwise. In this post, I share a plan that will hopefully get you out of your rot and back on the road to financial freedom. You may already be familiar with some of what I will share but sometimes we all need a refresher.
You need to write down and track all your income lines and your expense lines for the month. If you are not doing this monthly, then frankly, you haven’t even begun to solve your money problems.
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Evaluate Your Situation.
When your spending constantly outstrips your income, you really have just two options: increase your income or reduce your spending. That answers the “how to?” question but the more important question to ask is the “why?”. Why are you always in this situation? Let’s keep the more obvious answers till later and tackle the root cause. Your “why” could be because of a new addition to your family or that you’re taking a distance learning course that requires you to travel more frequently. Sometimes, it’s a recent change and can be identified easily, other times, it requires some probing.
A gentleman who inspired me to write this post came to me for help recently with his financial issues and the first thing I did was to find out the why behind his issues. With a little probing, it turned out that the underlying reason for his condition was debt. Over the years, he had acquired a car, electronics and what have you, all on monthly payment plans. The total monthly repayments were within 30% of his monthly net pay and didn’t hamper his cash flow a year ago but the recent price hikes have gradually stripped away his very narrow buffer. So the answer to your problem may be to either increase your income or reduce your spending but you need to first know the “why” so you can make the best long term moves.
Know The Difference Between Need and Want.
Do you really need to carry around that internet Wi-Fi device that costs you N20,000 a month? Your excuse may be that you need to be online 24/7 but when it comes down to it, you spend most of the data watching TV series and movies. A 1GB data plan on your phone can provide you enough data to access your emails and social media accounts for the whole month. If you really need to watch movies, then you can watch with friends and save yourself some money.
You need to access everything you spend money one and consider whether you need it or want it. Paying for something may bring convenience but if you could live without it before, you can again.
Write It All Down.
This is s-o-o-o important. You need to write down on a sheet of paper or on a spreadsheet or better still in a budgeting software, all your income lines and your expense lines for the month. If you are not doing this monthly, then frankly, you haven’t even begun to solve your problems.
When you create a monthly budget before the month starts, you need to ensure that the expenses are lower than your income and then you save the difference.
Budgeting is step one. Step two, is to keep track of all your expenses. If you budget N80,000 for diesel every month, keep your receipts and track your actual spend versus the budget. This is the only way you will know whether N80,000 is a realistic amount or if there is room to tighten things to N50,000 the following month.
Writing everything down also shows you the extent of the income gap. If still have an income shortfall after you have cut out all the non-essentials and you are living like a cave man, well, at least you would have quantified the extent of your problem. You would know exactly how much extra you need in income every month to get by.
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Engage Frugal Mode.
This means pinch every penny and spend like it’s your last kobo. It means that you will seek out the absolute best deal you can get and still bargain for a discount wherever possible. This also means switching from your favourite breakfast cereal to a Nigerian brand or switching to boiled yam and fried egg outright. I use cereal as an analogy but I trust you get the point.
You will need to do this with your spouse though, over a long period for it to have real value. The generator won’t go off at 10 p.m. anymore but at 9 p.m. No more snacks and pastries but packed breakfast and lunch for everybody.
You will also need to get creative. A lady told me once, how she used to pass on her share of a bag of beans at the office during Christmas. Last Christmas, she insisted on her share and introduced beans into her family’s diet in a variety of ways that didn’t make them complain; akara, moin moin, porridge beans, gbegiri, ewa agoyin etc.
Enough Talk, Act Now!
Try to remember that you are in a temporary situation and you can plan your way out of your circumstances. In summary, you will need the following:
- Short term plan: Reduce spending and cut out all non-essentials.
- Medium term: Look for side hustles that fetch you some money to shore up the income gaps.
- Long term: find a way to grow your overall monthly income. This might mean getting a new qualification or switching jobs or even careers.
Follow Tunde via his blog on Talking Money
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What policy changes, other challenges hold for MSMEs in 2020 – Chief Economist, PwC
The startup companies are valued at over $1 billion because the uncertainties of doing business in Nigeria are quite high.
It is a given that 2020 has been one of the most trying years for business owners and entrepreneurs. Some businesses have been crushed completely, with some left barely breathing.
The year started with the announcement of the increased VAT rates, moved on to the coronavirus pandemic and its attendant challenges, the global oil crisis and its implications on national revenue, and just after the easing of the lockdown, the recent increase in fuel price. What do all these connote for Micro, Small, and Medium Enterprises that were already groaning under stiff economic policies and trying to survive the hard days? Your guess is as good as mine.
Taxation in the middle of a pandemic
Amid all of these challenges, the government (through its agencies) trying to widen its tax net and improve revenue, with more duties and tax options being imposed on Nigerians. Just recently, as courier and logistics business operators were still trying to grapple with the implications of the increased NIPOST license fees, when NIPOST and FIRS went on a social media war of words over which agency is constitutionally justified to collect the Stamp Duties.
There is also the recent rental tax announced by the government, a move still being protested by unions who have argued that this pandemic period is a time for the government to give out palliatives, not widen its tax net.
What do the multiple changes and challenges in 2020 mean for MSMEs?
In a recent tweet on his handle, Partner & Chief Economist at PwC Nigeria, Andrew Nevin (Ph.D.) noted that the current circumstances will stifle the entire economy and constrain MSMEs from growing, as it is quite difficult to grow in an economy that is not growing.
“… The complexity and cost of governance and the fiscal crisis is leading to a situation where successful companies in the tax net are subject to more and more taxes, which means they cannot grow and some companies in the formal economy will try to move back to the informal economy, further compounding the issue,” Nevin tweeted.
… the complexity and cost of governance, and the fiscal crisis is leading to a situation where successful companies in the tax net are subject to more and more taxes, which means they cannot grow …
— Andrew S. Nevin, PhD (@nevinomics) August 7, 2020
Nevin also noted that even though the SMEs employ over 80% of the country’s workforce, the startups in Nigeria hardly get to the point where they are valued at over $1 billion. And this is because the uncertainties of doing business in Nigeria are quite high. Gokada, for instance, had a thriving business environment and was set to break even when the new policy was introduced banning motorcycles across major routes in Lagos. This, he said, shows the uncertainty of the business environment in Nigeria.
… a very good example is GoKada … they invested heavily in Lagos, and the Governor was supportive .. then for perhaps very good reasons security requires that the business is banned … and the GoKada investment has been lost …
— Andrew S. Nevin, PhD (@nevinomics) August 7, 2020
In addition, attracting global capital to scale a unicorn requires more money than are readily available for risky companies in Nigeria. The challenging business environment and the ‘reputation’ associated with the Nigerian flag makes it very hard to get sufficient external capital.
According to him, SMEs entering the formal sector means higher productivity and monitored payment of taxes. Yet, entry into the formal sector is still a choice most small businesses do not want to embrace due to the economic environment.
“… if the cost and complexity of entering the formal sector is too high, then the SME will elect to stay in the informal sector with all the attendant issues, including that they can be subject to harassment by the authorities,” he said.
He noted that the large SME sector arises partly from unemployment and people rushing into entrepreneurship as a means of livelihood; as well as the difficulties to grow a large and strong business.
“These type of statistics always tell us the sector is huge but it is huge because it is too difficult to grow big companies, so this is not a sign of strength. The best structure for the economy is to have strong large companies that then create room for SMEs to be part of their ecosystem.
“Large companies raise standards (look at quality of Dangote companies for example) and raise productivity and create opportunities for others so large SME sector is sign that business is too difficult because if Nigeria was functioning correctly, we would have 100+ Dangotes in the Economy,” Nevin tweeted.
Explaining the challenges of MSMEs in Nigeria, Chairman and Managing Partner at Ofuani Maidoh & Co, Clement Ofuani, noted that small businesses in Nigeria have more pressing challenges to deal with than the government-imposed fiscal burdens.
Ofuani told Nairametrics in an interview, that the harsh and hostile operating environment makes for a more serious challenge for small businesses.
“Epileptic electricity power supply, inefficient transportation system and insecurity impose more operating costs on MSMEs than the fiscal taxes listed,” he stated.
Ofuani, who served as Senior Special Assistant to President Umaru Musa Yar’Adua on Policy, explained that the Finance Act waives income tax for companies with turnover below N25 million, thus granting fiscal reliefs to most small businesses.
“The stamp duty on rental agreements and other agreements are additional burdens as is the increase of VAT to 7.5% but the below-the-table taxes paid by MSMEs in form of unreceipted ‘taxes’ to the security personnel along the transportation corridors, and to bureaucrats for normal government services are the greatest frustrations that make Nigeria uncompetitive in global commerce and as an investment destination,” Ofuani stated.
Amid all of these formal and informal challenges, it becomes very difficult for the small start-up to grow beyond its startup stage and become a big company.
The on-going pandemic and recent policies have done little or nothing to address these challenges and despite the palliatives, loans, and support schemes being launched by the government at various levels, most of these small businesses will still find their growth stunted by some of these “unreceipted taxes”.
Payback and Return on Investments
To calculate payback, the cash flow or return from the investment needs to be known.
In previous articles, we have explored various methods of fundamental analysis, including cash flow and earning. Two key questions every investor asks are — How much will I make from this investment? How soon can I get returns? These questions are broadly Return on Investment (ROI) questions and there are lots of ways to calculate it, including Breakeven Analysis and Internal Rate of Return. Let us look at their ROI tools in detail starting with Payback
Payback is how long it takes for an investment or business to recoup its initial investment. With Payback, the shorter the number, the better. Look at it this way, if you got an offer to build a railway from Lagos to Ibadan and you will get payback in 5 or 8 years, which would you prefer? 5 of course.
Payback analysis is useful where the investor wants to know if the project is work the time and investment capital it is also easy to calculate. A shorter payback also means the project has a shorter time to be exposed to volatility and risk however this does not mean it eliminates risk, it just determines time frame during which the investment is subject to higher volatility without a full return of invested principal. Payback is like Breakeven calculation, but payback is focused on time while breakeven is focuses on time as a unit.
To calculate payback, the cash flow or return from the investment needs to be known. For instance, A company wants to set up an online platform to receive online orders. It estimates the project will cost N5m in total and will increase sales by N1.5m every year. The company projects that the equipment will be depreciated at 20% meaning it will last 5 years. What is the payback for this project?
To calculate payback, we divide the total cash sum by the cash returns for the project. In this case, 5,000,000/1,500,000 that equals to 3.33. Note the company estimated the project equipment will last 5 years
Payback does not talk about profitability, rate of return or if the company investing will remain as a going concern. The calculations are simply focused on when the initial investment is repaid. From the example above, the N1.5 the earned from new project 1.5m is not profit, its cash received because of the new online ordering system. Payback does not also consider Time Value of money, thus again from our example, the Present Value of N1.5M received is not considered. This Payback is often used as a gateway analysis tool to determine if a project should be considered.
To enhance Payback calculations, many analysts will integrate time value calculation with discount rates to match the future cash flows to today’s cash outlay. This is known as Net Present Value (NPV) which is the present value of the cash flows at a discount rate compared to your initial investment. Thus, NPV compares future cash to today’s cash outlay to determine If project is viable. Eg you discount all future dividends from stock using a discount rate back to today and compare it with a market price to determine if you should buy the stock. If NPV is positive, then the project or investment is good, a negative NPV means the future cash flows are worthless, thus not a good investment. The main problem with NPV in my estimation is the assumption of the discount rate to use. A discount rate that too high or low will skew the results of the NPV and render the output false.
The last ROI calculation I want to review is the Internal Rate of Return (IRR). Technically the IRR is the rate of return that makes all cashflows rates of return equal to zero, in other words, it is the rate of growth investment is expected to generate annually. The more positive the better. IRR integrates the elements of payback and NPV and is also use in comparing different options and picking the option with the highest value.
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Today, all these formulas are available on Excel sheets and financial calculators on our mobile devices you do not have to be a math’s geek to implement ROI, but I remain a useful tool in comparing projects.
GEEP provides COVID-19 palliative microloans to 87,614 traders
The loans were in line with the government’s policies to reduce poverty and boost productivity.
The Federal Government of Nigeria, through the Government Enterprise and Empowerment Programme (GEEP), has provided a COVID-19 palliative relief loans to about 87,614 traders across twenty states. This was disclosed earlier today through a brief press statement that was made available via the government’s official Twitter handle.
According to the disclosure, the microloans have helped to reduce extreme poverty and encouraged productivity following the easing of the lockdown. Part of the statement said:
“In line with the vision of the Nigeria Government to curb poverty and boost productivity in different parts of Nigeria, GEEP has provided palliative microloans to 87,614 petty traders hit by COVID19 pandemic in 20 states of the country in the first phase of disbursement.
“These palliative microloans have helped petty traders revive their businesses, as the government eases lockdown measures nationwide. The second phase of the disbursement will target 412,386 petty traders across the country.”
In line with the vision of @NigeriaGov to curb poverty and boost productivity in different parts of Nigeria, @geep_ng has provided palliative microloans to 87,614 petty traders hit by #COVID19 pandemic in 20 states of the country in the first phase of disbursement.#GovtAtWorkNG
— Government of Nigeria (@NigeriaGov) August 10, 2020
The Federal Government also announced that the second phase of the loans would be disbursed to a 412,368 trader across the country in a bid to restart economic productivity as the government eases the economic lockdowns that have heavily affected the informal and formal sectors.
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The palliative schemes under the GEEP scheme include FarmerMoni, TraderMoni, and MarketMoni.