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Artisans Must Balance The Books

Artisans Must Balance The Books

The boy was 11 years old when his father took him to live with a kinsman, a businessman with many shops in Lagos, Nigeria. He later spent 12 years with this master, learning a trade, and understanding many aspects of business. At the end of his apprenticeship, his family and the master pooled resources and graduated him. They got him a shop, bought shop items, and gave him money. He was now a man. He must live independently, and go back to the village, find another boy, and become a mentor himself.

Unfortunately, after five years, he headed to the village, not for good. His business had collapsed. He started very well, but as soon as his cash flow improved, financial burdens from family systems stifled his operations. As more people depended on him, he spent his working capital, and the business failed.

When I founded the nonprofit African Institution of Technology, I initially focused on helping African entrepreneurs or artisans, especially those with only primary education, develop new skills and market opportunities. But with time, I observed that most of the artisans were closing shops, and returning to villages, not because of lack of skills or market opportunities. Rather, they were abandoning their businesses because of bad bookkeeping.

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Lack of simple bookkeeping experience destroyed many of these businesses. When artisans have no understanding of their cash flows, they fail prey to spending a big percentage of their working capital, without meaning to, on non-business issues that usually cripple their operations.

Most African artisans do not bank because of the fees associated with operating current accounts. You pay a fee for withdrawing your money in most African banks, thereby discouraging many from banking. The alternative is to keep the cash in the shop, usually in a drawer. It is customary for them to dip into that drawer for family and non-business issues.

During a recent workshop, an artisan told me that, had he known that money was running dry, he would have cut his non-business expenses. He was on a second act after his friends called him back from the village to try again. He explained to me that his business failure was sudden. He had no knowledge of his cash flow, because he was not keeping any record.

Across Africa, many unemployed men have managed small businesses, at least once in their lives. Their families made plans for them. But as soon as they began, the communal power of African extended family system weighed on them. Eventually, most collapse. There are many reasons this happens, but, over the years, I have observed that lack of basic bookkeeping is a major factor.

Organizations that move into developing nations to help small technical businesses, must help those businesses manage their finances. People need at least a rudimentary understanding of finance to become good entrepreneurs or artisans. If they understand cash flow, they will make better decisions and stay in business. As you enter a developing market and invest in the locals’ technical skills, do not neglect to invest in their cash flow management.


originally published in Harvard Business Review


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