Starting a business in Kenya ....Step 3!

Following on from step 2!

Value your business. In most cases if not all, no one but your parents would be willing to advance you any monies towards a business idea if you have not already started. For Equity bank and many other SMEs, they would want you to be operational for say 6 months. The financial institutions would like to be sure that you are in a position to repay any monies advanced. As such they would like to see the statements you would have drawn to determine if your business is profitable/viable or not. Whilst professionally drawn up accounts aren’t necessary, basic records clearly showing sales and expenses should be expected. Don’t be tempted to understate the costs, after all not many businesses are profitable in the first 2 years of operation. Understatement of costs may signal your naivety in business and could work to your detriment.

For the Cooperative bank of Kenya, the minimum period of account operation prior to advancement of loan is 6 months. They would also need to see that the account is active; as such you need to make daily drawings and deposits. It is advisable to start the business on a small scale until you are able to have some orders/customer to present to the bank. You don’t need to start the biggest spa treatment in town to make it. The trick here is to deposit all your daily takings even though it means you go to the ATM and withdraw the following morning. This way the business development manager in the bank can see that you have actually been making sales and that you are not just claiming to be in business.

For Co-op bank the relevant bank account is Haba na Haba to qualify for an SME loan. Even though you dont need a loan, you might want to take a small amount at the start, this will cost you interest rate but it will earn you credit worthiness with the bank for future loan reqirements.

Starting a business in Kenya ....Step 2!

Step 2

Planning stage; in this stage as the potential business owner you would need to translate the passions for the business and the outcome of the idea research in stage 1 into cash flows and projections. You might need to get someone not heavily invested in the idea emmotionally to look at the figures. Please note that you will need to seperate your passions and ambitions for the business with the actual reality as determined by the market research. Having conducted a thorough market research would make this stage more comprehensive. Don’t leave out any costs including paying your own wages. By including all costs you would ensure that you don’t under fund your business leading to cash flow problems. A common trap in this stage is not to set aside you passion for you business idea and the reality.

Start off with the fixed regular costs such as business licence, rent, wages and domain registration from online businesses. To work out the Wages, you would need to research how much a person in a similar job is paid, don’t underpay your employees just because the job market is flooded by unemployed youth. Be sure to get the best staff for the job and compensate them fairly to minimise the possibility of high labour turnover. Obviously the first employee of the business will be you. Whilst you might want to pay yourself, you need to do so more so for tax purposes. If the business cannot pay your efforts and time, you would need to reconsider the model.

You would also need to have defined a business model at this stage. In the recent years there is a move towards social enterprising where your products are bought at a premium if they are produced fairly. For social enterprising you might want to publicize your operations with a blog or some other online means. The customers tend to be westerners who would rather buy the products than give cash aid which might not be spent in their intended ways.

Lelgut farm.....new take on farming!

When and why did you decide to start the farm?
I started farming in 2009. My parents have been farming for as long as I can remember; I grew up in the farm. My university fees in Strathmore were paid by sales proceeds in the farm and that made me realize the true potential of farming.

What are the challenges you faced when starting the farm?

Oh, there are many challenges in farming even for the seasoned farmers. For a start the cost of feeds and medication is both unstable and very high. Secondly there is lack of good qualified professional vets and AI personnel. In animal farming you just cannot afford not to have access to these two, this could mean death of your animals or no breeding for an entire season both of which affect your bottom line significantly. Thirdly, we receive very poor prices for our milk from the processors. I mean we get paid 25 shillings a liter of milk, whilst in the supermarket ½ liter goes for 45 shillings. Fourthly, the poor infrastructure and farmer training is also a great challenge we face in general. And finally, there are the usual suspects, lack of credit facilities, seasonal food prices, lack of strong farmer’s cooperatives to voice the farmer’s opinions and lack of policies that are geared to making farming an easier trade.

Heifer, you can purchase or order from Lelgut farm!

How do you mitigate these problems?

Lelgut geese!

Well, we do offer training in our farm for those who may be interested in farming and don’t know how to start. The information can be found on our webpage http://lelgutdairyfarm.kbo.co.ke/ and on our Facebook page

Where do you see your farm in 5 years?

In 5 years we see ourselves to be a model farm, able to provide one stop shop to all farming. We want to be able to have all the fodder crops on our farm ready for our animals as well as seedlings for those who may be interested. We want to be in a position of mentoring young and upcoming farmers. But most important we want to be able to have solved most of the common farming problems such as dealing with draught, having better vets and AI access and dealing with animal diseases and productivity.

How do you deal with drought?

We preserve feeds from the rain season by silage making and preserving hay. We have also been experimenting with planting root vegetables such as lucienne, Beet roots. Fodder sorghum that is also a very drought resistant crop. The most important thing is planning, knowing you animals’ nutritional needs and forecasting how much you might need when the times aren’t so good.

Starting a business in Kenya ....Step 1!

I have been researching and documenting the steps of starting a business. In the next couple of weeks I will be blogging about all the 5 steps. These are my findings but then again there is no one agreed formular on how to start a business.

For most of us, the ideal dream is to be own boss if we aren’t already there. However, having the passion to start a business and actually getting the business going are two very differing aspects. Below I list the steps into starting a business. 

Step 1

Idea and product formulation phase; in this stage, you should come up with an Idea which you perceive as unique and one capable of making a business. Don’t fall into the trap of following the band wagon like most of us Kenyan do. Don’t buy a plot just because your friends have. Do substantial research around the idea, the proposed market and target customer to determine the viability of the idea. A good starting point is in a line of experience. For instance for someone who works for a bakery, knows of the business models and the costs and revenues involved could be better suited to start own bakery delivery bread or cakes at a cheaper price rather than investing in Jewel cutting for instant. Don’t hesitate to start a competing business as your employer; chances are they too started their business in the same way. Don’t be afraid to ask other traders, you might find a solution to their problems. Also remember, whilst we envision our business to be successful making a lot of money you must watch all your cost whilst not compromising on quality. Don’t invest in a saturated business area, for instance don’t open a mobile phone or clothing boutique in Moi Avenue not unless yours is very different. However, you could become a wholesale in the same area targeting small start-up or businesses which might not be able to raise enough cash to bring in a big load from the suppliers (for the case of imported supplies). Don’t be afraid to trail other blogs to see what other aspiring entrepreneurs are in search of.

Next week -----------------Step 2

Wool Business......there is money to be made!

Knitting Needles and Knitting wool

Moro, Kinangop and other cold places are key zones in the country for wool production. Having visited a couple farmers in Nakuru area I do know that the wool business is big in Kenya. If you go on Alibaba you will find 3 or so adverts on Kenyan wool which is greasy and at best doesn’t look appealing. The fact is, this is the minority of the market segment in wool trading in Kenya

In Nakuru I have discovered than Indian Merchants are controlling the wool trading and market. They sponsor middle men who then buy the wool from the farmers at low prices; they wash the wool and sell it to large wool yarns and carpet manufacturers abroad without using Alibaba. The middle man sell the wool at 200 shillings a kilo in the black market (this is where I get my wool from) so the farmer get at most 100 shillings a Kilo. This amounts to less £1 per kilo of wool. The same kilo is then sold at $10-$20 once shipped out. This is more like 800 Shillings for a kilo.  The Indian merchant sells the wool in tons. For a single ton (1000 kgs) he stands to make a profit of approx 700 shilling a kilo and less the shipping of say 50 shillings a kilo, he would still make 650,000 per a ton of wool. Now this is some good money for an investment of 200,000 shilling. Clearly you do need to obtain some documentation such as the Certificate of Animal health from the ministry of agriculture – but that only costs you 50 shilling a shipment. With the shipping cost being approx £4 a kilo by air and $600 per m3 then the guys do make even much more money that they are putting in the system.

As a result of this practice, they not only export the jobs abroad but also make it impossible for fair competition for wool in the country as they have a tight grip of the wool producing area.

A kilo of Merino wool goes for £12.20 wool off www.alibaba.com from China - and this is the cheapest in the market. Of course this is degreased, washed and combed wool ready for spinning and felting etc. Just think of it unwashed raw wool in kenya is going for £1.00 from the brokers meaning you can get it cheaper than that off the farmers directly ......i admit am crazy about wool, so this might not be for everyone.

combed wool socked in vinegar for 30 minutes ready for dyeing

raw washed wool ready for combing or carding.

The end product, hand dyed wool ready for spinning or felting

Have a look at www.etsy.com to find out how much wool goes for in UK and USA for the big demand by the hobbists.

also check out my other blog www.spunandknittedwool.blogspot.com on inspirations on how to process wool for the hobbist market.

Naivas ....'saves you money'!........clearly NOT!

The price of extension leads in Naivas

I don’t know how I feel about Naivas. I know that you need money to make money and these guys clearly do have some money. There is Naivas everywhere you turn in Nairobi.

The shops are overstaffed and their staff don’t wear uniform. I personally think that supermarket staff should be uniform for easy of identification by customers. Imagine if you were to go ask a fellow shopper where you can locate a bar of soap and she happens to be Wanjiku from Nyeri? Anyway, this is how Naivas like to do

As part of my own amusement I like to look at certain item prices and blog about them for no apparent reason. Last week I went shopping for a mosquito Net. The cheapest was 450 shillings whilst the most expensive was 2,050 shilling. I am not sure what the difference is apart from the fact that one is medicated and blue whilst the other is non-medicated and white. The fact is that such price differential is just unjustified; the quality looked the same. The cheaper one (which I bought) was made in Kenya whilst the other was sourced from China. It begged the question how come some Charities advertise in the UK media that it costs £10 (1,300 shillings) to buy a net for a disadvantage poor African? I wonder why cannot they buy the nets from the Kenyan Companies and am sure if they bought in bulk they would get each at 300 Shillings.

The other item of interest was the power extension cables. Each go for 1,500 shillings and if you are lucky you can get one for 2,400 shillings. I cannot help but think that I buy the same thing in IKEA at £4 less than 600 shillings. As the taxes are higher in UK than they are in China and Kenya I would expect the same item to go for less than 700 shillings; but I am sure Mr Naivas pocket are well lined with the shillings.

Anyway there is my rant at Naivas – ‘saves you money’ is the tag line!