I’ve lost my job but I have a small business. Should I fire my employee and take over?

My name is Paul. I am single. I have a small business that I started as a side hustle when I was still employed two years ago. I lost this job in December 2023 and have now been relying on this business for my livelihood. Unfortunately, I lost my job without any savings or investments to speak of because most of my income was going to expenses and stocking the business. My problem is that I now sometimes end up using money meant for the business. The business is not making a lot of profit, but it is able to pay its own rent of Sh15,000 and also pay the person I have employed there Sh10,000. The business account currently has Sh250,000. Should I fire the person employed and run the business on my own until I find another job? Should I withdraw the Sh250,000 and start a second hustle which I can run on my own and forget about going back to employment? 

Duncan Irungu, a personal finance and investment consultant, says: Your small business can generate a surplus of at least Sh25,000 every month over its operating capital. This translates to surplus revenue of Sh300,000 per year. In addition to this, the business has managed to save Sh250,000. It is important that you understand within what period the business has generated these savings as they appear to be the profit after expenditures. Once you figure this out, you will be able to know how much the business generated in net profit every month. However, it is important that you improve your bookkeeping to track the inflow and outflow of your business funds.

Read: I’m the bread winner earning Sh1,200 daily but I really don’t know where my money goes

Your current jobless status and the regular withdrawal of the operating capital means that the surplus income will gradually thin out. Without sufficient operating capital, your business will run out of stock and the ability to pay its rent and employee. Mark you, it will not withstand heat from competition. There are a few things you can do to mitigate your current predicament:

(1). I would not recommend that you fire your employee to run the business on your own. This will interfere with your business structure, especially since you do not have a total grasp on its day-to-day running. Instead, improve on its structures such as bookkeeping. Start by drawing a personal and business budget. 

These two must be independent of each other. In your personal budget, outline the essentials you need to pull you through your jobless season. Live within your means and set a mandatory emergency fund so that you don’t need to dig into business funds in future. Living within your means might mean doing an analysis of your day-to-day personal budget and cutting off expenses that are either too high for you to afford or unnecessary. For example, are you currently living in a house you can afford? What’s your entertainment budget and how does it correspond with your previous and current earning power?

(2). Do an analysis of your business. What was your start-up capital? How much is invested in the business to generate the Sh25,000 operating costs and the Sh250,000 saved? What is the room for expansion? The answers to these two questions will determine if the venture is worth it or not.

(3). Repay the debts you have taken from the business. The business funds you take from the business are debts you owe the business and which you will need to repay as soon as you are able to. Take note that whereas you are the owner of the business, you should always consider yourself as an employee without the right to withdraw funds for personal usage as you wish.

Read: I earn 50K as a Juakali broker, how do I pay back this Sh950,000 debt?

 This approach, while strict, will safeguard business survival from future withdrawals and “owner defaults”. Even as you search for a new job, don’t stay idle. You can boost your business revenues by offering to distribute your products or marketing your products with offers such as home deliveries. Every additional customer you get would be an added value to your venture.

(4). Before you pull out the Sh250,000 savings to start a business, you must be very clear on what type of business you want to start and its capacity for growth. If the business is an expansion of the existing one, you might want to consider if there is need for such expansion and whether your current business is mature enough for expansion. Note that the majority of start-ups collapse within the first three to five years. This implies that if you venture into an area you have little-to-no expertise in, chances of failure might be on the higher side.

 It is advisable, however, that you can consider going into consultancy if your previous job involved offering such services or if you have skills in that area. Consultancies are less capital-intensive. You can also consider going for the available basket of online jobs as a stopgap measure. Once you get a stable job, implement the 50:30:20 personal budgeting rule, and adjust as per your financial progress. This method should help you prioritise on savings, especially for an emergency to caution you for instances of job loss as you currently have.

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I am in my 20s, earning Sh21,000 net but I want Sh1 million to solve all my problems and move to Nairobi.

My name is Dorcas. I am 22 years old. I have a diploma and I earn Sh21,000 net every month. I am employed in Eldoret town. The money I earn is never enough. The only amount I can account for is Sh12,000 which I spend on rent, and Sh2,000 which I spend on transport. I have considered moving back to my parents who live on the town’s outskirts but I am afraid I will be retrogressing. I also don’t want to be mocked by my friends who all live on their own. I have fallen into debt and I am unable to save any money. All my money problems can be solved if I could lay my hands on something like Sh500,000 or Sh1 million. I can pay off my current debts, save, tithe and live a nice lifestyle in an upmarket residential area. In future, I would also like to transition into entrepreneurship. I would also love to own a small ‘kadudu’ car and relocate to Nairobi. What can I do to generate such an amount?

Josephine Murage, an investment banker and personal finance consultant, says:

It is commendable that you have managed to secure a job in a job market that is increasingly hostile to young job seekers. However, your ambitions are off the rail track. At your current age, your priority should be building up your skills and competitiveness to have a longer-lasting marketability.

For example, you might want to consider upscaling your diploma to a degree. In between, you might want to consider uplifting your soft skills by taking periodical masterclasses on career and money (especially on investments, Saccos, and money market funds). Remember, these skills will come in handy should you lose your current job or find yourself jobless down the line.

Read: I am 26 and earn Sh32,000; how do I open salon business for my new wife this year and own a home by age 35?

The list of items you want to achieve from Sh1 million betrays your intent to fit in with a certain social grouping. Whereas it is not wrong to have financial goals, your goals ought to be realistic, aligned with your earning abilities and designed to grow your net worth. The goals don’t have to be aimed at fitting into a certain social group or aimed at impressing the society.

Now that you are earning, start with the basics which involve planning a budget for your net income of Sh21,000. Track and list what amount goes to what expense. For example, come up with a table with two columns, one for your expenses and the other for the amounts allocated. These will include amounts such as rent, water and power, food and groceries, transport, entertainment, clothing and airtime. Each allocation must be trimmed realistically. For example, the amount you spend on housing is over half of your net earnings and you should consider moving to a more affordable place.

Since you live upcountry, you can easily get a good affordable bedsitter for Sh6,000 to Sh7,000. Better still, if your parents are comfortable to accommodate you, you may consider dropping your ego and taking a step back to your parents’ place for reboot. This will save you a whole Sh12,000 which will translate to Sh144,000.

Save this money in a reputable Sacco earning annual dividends of at least between 11 and 13 percent. At your age, these funds can help finance your degree studies, which you can pursue in the evenings and weekends whilst you continue working. You might find that your parents are willing to support your degree studies, which will save you some money.

At the same time, you will also save on food and groceries, an amount you can save in an MMF as your emergency kitty. However, to build up a sense of responsibility, it will still be nice to chip in at home.

Shelve your aim of relocating to Nairobi unless there is a compelling reason behind the relocation. Even in the event you get a job offer, you must contrast the net earnings and the cost of living which is on the higher side in Nairobi. For example, the amount you currently pay in rent might be higher in Nairobi; the salary you earn in Eldoret has more value than an equivalent earned in Nairobi.

Don’t rush to start a business such as a side hustle with the money you save. Stick to employment first and learn the ropes as you improve your knowledge and skill set. The experiences you get will give you the best feedback on whether you’re cut out for employment or entrepreneurship. Remember, you don’t always have to quit a job and start a business to grow wealth. Good luck.

If you have any money problems, send us an email at [email protected] and include your phone number. Money questions will be answered in this column.