Just sell your boutique if it can’t repay its three loans

My name is Alice. I am a teacher by profession and I have a TSC number. I am, however, not employed as a teacher. I am a wife and mother of one.

I have been running a boutique business which I started in a small stall with a capital of Sh80,000. The amount I have injected into it has increased to over Sh200,000.

Most of this extra money has come from loans I have taken with micro-lenders. I pay Sh15,000 rent for the stall (which is inclusive of power and access to washroom facilities in the building). I also spend about Sh100 every day on transport to work. I work on Monday to Saturday from 8am to 7pm. I also spend Sh100 on lunch.

The business generates a profit of about Sh30,000 per month, which leaves me with Sh9,600 after deducting the expenses. This has not been enough to pay my loans.

I have defaulted on three separate loans of Sh40,000, Sh15,000, and Sh50,000. I am only servicing one loan of Sh5,000 monthly payments which will end in September this year.

Sometimes I have dug out business money to help at home to avoid conflicts of not contributing to the household expenses, yet I have a business.

What am I doing wrong? How can I break even? Am I in the right business? Should I employ someone to look after the business and seek formal employment myself?

I don’t want to involve my husband in this as I cherish my independence and want to ensure that I can do this by myself. Please assist.

Rhina Namsia, the founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory, says:

On your first question on whether you’re doing something wrong, the answer is yes. It seems that you are mixing business and personal money here. The first step you need to do is to separate the boutique money from your personal money.

Once you do this, you will be able to know how much you can pay yourself. You will also know the actual financial status of your business and whether it can still remain operationally viable once you draw a salary out of it.

Having Sh200,000 and above in loans – especially from micro-lenders – can easily wipe out your business due to the terms and interests associated with the repayments and the capability of the business to repay. But since you already took these loans, it is your time to cross the bridge as you have arrived at that point.

For your business to break even, you have to make net profit every month that will accumulate to total capital injected in the business over time.

Assuming you injected Sh200,000 and you continue in the same trajectory of making a net monthly sum of Sh5,000, you will take a minimum of about three years to break even.

However, with the prevailing circumstances, you may never run this business beyond one year from now. So, what do you do? You will have to make some sacrifices and make moves that may be uncomfortable for you now.

The first one is to involve your husband. Let him be aware of your current financial and business situation. Involving him does not necessarily mean that you let him run the business, but rather that he gives you the grace to take a break from contributing to the household budget as you fight to steady your ship.

And, who knows, he may end up graciously coming in to help either in repaying the loans or covering the boutique expenses. After all, the business directly affects your household at the end of the month.

Secondly, you need to talk to your financiers, if possible. This will be to either restructure your loans and reduce what you pay every month or give you a grace period to recover and continue paying at affordable interest rates. Defaulting on loans will only increase the cost of paying them up.

Thirdly, you may need to consolidate your loans. This means taking up one major loan and paying off all the other loans. You will then remain with one loan. This can bring you peace of mind and allow you to concentrate on making money to pay the single loan.

If the rates from your existing lenders are expensive, as they are likely to be, you might want to explore more formal ways of consolidating by approaching a bank or Sacco where rates and terms will be more affordable.

Is the business viable? This you will need to determine by assessing if it’s a profit- or loss-making business. Your business is almost a loss-making entity because you have already defaulted on three loans currently and only make Sh5,000 a month.

You may need to think about dissolving it, selling your assets and stock and paying off your loans and reset to determine if you will do it again or not.

You can also start running your business online and save the money you pay on rent worth Sh15,000 and reduce also on transport expenses. There’s no business that cannot run online nowadays. 

Mark you, by running your business online, you can seek formal employment and do your online business as a side hustle.
Employing someone to go find employment may make things worse. You do not even have the money to pay someone for employment.

Lastly, evaluate the time you spend at the boutique versus what it brings in. Working 8am-to-7pm is more than a full-time job. Time is money. Ask yourself if the time spent at the boutique is worth it or you can reduce that time and commit it to something else — not forgetting the effects of the opposite as well.

If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column