My name is Regina. I am 30. I run a small kiosk in Naivasha where I sell fruits and vegetables, and offer ‘mama mboga’ services in the evening. I have two kids who are in Grade 6 and Grade 3. I am not married.
My profit fluctuates depending on how good or bad the day is. I make a profit of between Sh400 on a bad day and Sh1,000 on good days. My most notable expense is rent at Sh10,000. I handle the rest of the expenses as the month goes by. I have Sh36,000 savings in my M-Pesa.
I would like to expand my kiosk and start selling cereals like rice, beans and ‘kamande’. I would also like to start cooking lunches for sale (‘githeri’, chapati and beans, ‘mukimo’, ‘njahe’) and I am thinking of borrowing Sh100,000. Since I don’t have a bank or sacco account, I am thinking of taking this money from micro lenders like Platinum Credit or Mogo. I am afraid though because this will be the first time that I will be taking such a huge amount. Is this the right decision? How do I go about it? Please help me.
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of ‘Mastering Your Money’.
At 30 years, you are in the age of financial take off or expansion phase, which requires prudent financial management skills and wealth creation. To address your financial challenges, you need to review your financial situation, assess the viability of your business plans, borrow small amounts and be wary of micro-lending shylocks.
1) Review your financial situation: Your daily profit ranges from Sh400 to Sh1,000 (translating to Sh12,000 to Sh30,000 per month) with an average of Sh700 per day totalling to Sh21,000 a month if you work 30 days without resting. You have itemised only one major expense, that is, rent at Sh10,000 (47 percent of the average monthly income).
This expense implies that you are not keeping track of your money and do not spend with a budget. The amount is rather too high and surpasses the recommended range of 10 percent to 20 percent (Sh2,100 to Sh4,200). When you subtract Sh10,000 from Sh21,000, you remain with Sh11,000.
The disposable income is hardly enough to cater for food, school fees, transport, stock top ups and repay the anticipated loan. By supposedly saving Sh36,000 in a year, you are approximately saving Sh100 per day. You intend to take a loan of Sh100,000 from micro-lenders like Platinum whose repayment could be around Sh5,000 to Sh8,000 or even more.
Some charge an exorbitant interest rate of 5 percent to 10 percent. Suppose you pay an average of Sh6,500 per month, you will remain with Sh4,500 to cater for other basic needs. Ideally, the loan amount is far beyond your current cash flow.
2) Assess the viability of your business plans: Ask yourself some pertinent questions. Can your business generate enough money to cover the loan repayments (principal plus interest) but still support your family? Are you prepared for the repayment pressure if business slows down or fails to take off? Explore possible business opportunities. Option one would be selling cereals. Use about Sh15,000 to Sh20,000 to start the business.
For instance, you can start with the following stocks: rice Sh5,000, beans Sh5,000, kamande Sh3,000, maize Sh3,000 totalling to Sh16,000. Some of the advantages of this business include: cereals do not spoil fast, people buy them daily, you can sell in small quantities, and you do not need any specialised equipment to start it. Option two is to start small and progress gradually. Use your Sh36,000 savings to test the cooking or lunch menu.
Cooking food is usually profitable but risky if you rush the process. Consider selling meals at least three days a week. For example, you may cook githeri on Mondays, beans and chapatis on Wednesdays and mukimo on Fridays. Start with Sh2,000 to Sh4,000 capital per cooking day.
Assess the kind of people who buy from you, the time they buy it, and the kind of food that sells off very fast. Once you sell meals for at least three months, you can gauge the profitability and viability of the business before you can think of borrowing to expand the business.
3) Borrow small amounts and be wary of shylocks: After three to six months of selling cereals plus alternate cooking or meal days, borrow Sh30,000 to Sh50,000 (not Sh100,000) from a chama of mama mbogas or a growing sacco for business persons within Naivasha. Chamas and saccos charge a lower interest rate than micro-lending firms like Platinum, or Mogo. You do need a big loan that will exhaust your constrained income.
Your savings can give you a financial head start but replenish it once the proceeds start streaming in. The shortcomings include: micro-lenders charge exorbitant interests, penalise late payments heavily, can harass you with calls and texts, damage your credit score, and trap you into a vicious cycle of bad debts.
Above all, learn to track where every shilling goes, spend with a budget, keep clear financial records that show your business cash flows, pay yourself a salary as a worker in your business and separate your money from the business money. Practice prudent personal and business financial management to reap optimum results.
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