Why Many Manufacturing Businesses Struggle After Factory Setup

A factory is usually financed as though the machines were the expense. They are not. They are the part you can see.

What closes new plants is the money that leaves every month afterwards, before the first invoice is paid, and the honest answer is that most founders never counted it.

The gap between setup capital and running capital

Most projects raise enough to buy equipment and fit out a building, then treat working capital as whatever is left over. That order is backwards. The plant has to pay suppliers, wages, rent, diesel and maintenance for months before revenue arrives in any useful quantity.

If you budget two months of buffer and sales take five months to build, you do not have a slow start. You have a closed factory with good machines in it.

Here is roughly what a mid-size plant spends in a month. The figures are illustrative and every line will differ for your operation, but the shape holds.

That is over eleven million naira a month before a single product is sold. Raise fifty million and you have four months, not a year.

Plan on six to twelve months of full running costs in hand, and assume revenue builds slowly rather than switching on.

Power is the line that surprises people

Energy is usually the second largest cost and the most volatile.

It is worth doing the arithmetic rather than assuming. Diesel has been running around 907 naira a litre, and a reasonable generator produces roughly three to three and a half kilowatt-hours from a litre at sensible load. That puts self-generated power somewhere near 260 to 300 naira per kilowatt-hour.

Band A grid power sits at 209.50 naira per kilowatt-hour across most distribution companies, and 160 on EEDC.

So the grid, when you can get it, is cheaper than your own generator. Not dramatically, but on an extruder or a compressor running continuously the difference compounds into real money over a year. Many factory owners assume diesel is simply the cost of operating here and never compare the two.

What this means in practice is that your generator should be sized properly and maintained properly, your tariff band is worth knowing, and fuel belongs in your product pricing rather than in your surprises.

Output is never what the machine claims

The second budgeting error follows the first. Revenue is projected from the machine’s rated output, and no factory achieves it.

Manufacturing measures this as Overall Equipment Effectiveness, which combines how much of the planned time the line actually ran, how close it ran to rated speed, and how much of what it made was saleable. A world-class plant reaches around 85%. The typical manufacturing average is nearer 60%. A new plant on unstable power with inexperienced operators sits below that in its first year.

A line rated at 100 kilograms an hour over a 16-hour day promises 1,600 kilograms. At the industry average you get 960. Build your revenue forecast on the brochure figure and you have overstated your first year by roughly 40% before anything goes wrong.

People cost more than the wage

The national minimum wage is 70,000 naira a month. Semi-skilled operators typically earn more, and technicians and engineers considerably more.

The wage itself is rarely the problem. Turnover is. Training an operator takes months during which output is low and waste is high, and losing that person means paying the cost twice. Budget for the learning curve honestly, expect low productivity early, and treat retention of the few people who actually understand your machine as a commercial priority rather than an HR matter.

Inputs, and the delay you did not plan for

Most raw materials and nearly all spare parts are imported, which exposes every input to the exchange rate and to the clearing process.

Importation requires Form M through an authorised dealer bank and a Pre-Arrival Assessment Report before the goods land, with SONCAP or NAFDAC certification depending on the product. Duty is assessed on CIF value, with VAT at 7.5%, the ECOWAS levy at 0.5% and CISS at 1% on top. Paperwork errors add weeks, and weeks of a stopped line cost more than the materials did.

Hold buffer stock of anything critical, accept that it ties up cash, and identify a second supplier for every input you cannot run without.

Compliance takes longer than building

Company registration, tax registration, environmental clearance, product certification through SON, and NAFDAC approval where the product requires it. Each has its own timeline and none of them run quickly.

Start these before the building is finished, not after. Three to nine months is a realistic allowance, and a factory that is physically ready but legally unable to sell is burning every cost in the table above for nothing.

Produce to orders, not to capacity

A plant running at 30% while it builds a customer base is not a failure. It is a plant conserving cash.

Overproduction converts working capital into stock, and stock does not pay wages. Match output to confirmed orders, add capacity as the order book justifies it, and watch inventory as closely as you watch the bank balance.

What to watch every month

Capacity utilisation against what you planned. Gross margin per unit. Monthly cash burn and the runway it leaves. How long stock sits before it sells. Orders in hand against monthly capacity. Hours lost to breakdowns.

Six numbers, reviewed monthly, will tell you a plant is in trouble long before the bank balance does.

Where this goes wrong first

Almost every problem above is created during planning and discovered during production. The machine was sized against a brochure figure, the runway was calculated on setup cost, and the import timeline assumed nothing went wrong.

That is the stage we work at with clients, before the order is placed, on what the equipment genuinely has to do, what the whole thing costs delivered and running, and whether the business behind it holds up. Details at venocipal.com.