Focus on net profit, not just revenue — Expert advises entrepreneurs

By Solomon Nartey Tetteh

Business and financial expert Beware Narh Kugblenu has advised entrepreneurs to focus on their net profit margins when making decisions, rather than relying solely on gross revenue.

Mr. Kugblenu said this common oversight is a key reason many Ghanaian small and medium-sized enterprises (SMEs) struggle with sustainability.

Speaking on Business Breakfast on Zed101.9FM, Mr. Kugblenu explained that gross revenue only reflects a business’s total income before deducting any expenses.

He warned that building business plans based on gross figures alone can lead to costly financial mistakes.

“In business, gross revenue is what you make before taking out expenditures. If you build your plans entirely on that, you may end up making mistakes,” the financial expert said.

Mr. Kugblenu stressed that entrepreneurs must first subtract essential costs including rent, salaries, utilities, communication, and advertising before determining their actual earnings.

According to him, true financial health lies in the net income, which shows how much remains after all expenses are covered.

“Once you’ve taken out all necessary bills, then you can confidently say, ‘This is what I’ve made.’ That’s the money you have in your pocket, that’s the bloodline of the business,” the financial expert explained.

Mr. Kugblenu advised business owners to use net profit as the basis for reinvestment, recommending that entrepreneurs reinvest at least 50 percent to support growth.

While gross profit can be useful in some financial analyses, he stressed that sustainable decisions and long-term planning should always be rooted in net profitability.

The financial expert also cautioned against viewing budgeting as a burden, emphasizing that businesses without clear financial planning often lack direction.

He described a proper budget as a “roadmap” that helps guide spending, assess risks, and make sound decisions.

Mr. Kugblenu further warned against borrowing money to launch a startup, citing the accounting principle of prudence. This principle encourages cautious planning in light of uncertainties.

However, he clarified that already-operational businesses with a solid understanding of their finances can consider borrowing as part of a growth strategy.