What you need to know:
My plan is to acquire a slightly used Toyota Hiace that has a capacity of 16 passengers on cash terms.
Since my work is part-time, I would like to be the one to run the vehicle as the driver
My name is Peter. I have two digital jobs from which I earn a combined net pay of between Sh90,000 and Sh100,000. I save a minimum of Sh50,000 every month while the rest of the money goes to my monthly expenses. I am considering getting into the long-distance matatu business as my third hustle. My plan is to acquire a slightly used Toyota Hiace that has a capacity of 16 passengers on cash terms. Since my work is part-time, I would like to be the one to run the vehicle as the driver to eliminate unnecessary expenditures as well as have a better grasp on maintenance. I assume that even by working half the month in one of the busy long-distance routes (Starting from Nairobi to Lower Eastern, Mount Kenya or Central Rift), I will have added quite a substantial amount to my monthly income. Is this a viable option or am I throwing my money down the drain? Please help.
Dominic Karanja, a financial planning and investments consultant.
You are currently able to save half of what you are earning, and I am pleased that you are thinking of how to invest it. Start by setting up an emergency fund that can take care of at least six months of your expenses. You need to create an emergency fund of at least Sh300,000 in a Money Market Fund (MMF) that is interest payable.
Also read: What should your children know about money?
Before venturing into any business, you need to first identify the problem that you intend to solve with your solution. You need to firm up the route your matatu will be plying. Matatu business has unique risks and challenges that you need to consider. Start by researching the potential of the business so that you can identify routes that are underserved and have high demand. In my opinion, a used vehicle is not the best option for long-distance routes.
You need to consider other factors like passenger capacity, fuel consumption, licenses, the distance to be covered, maintenance costs, matatu SACCO joining fees, Insurance cost, and motor vehicle inspection fees among others. Regular maintenance of the vehicle is essential to keep the vehicle running smoothly and for passengers’ safety and thus you should expect to spend more on repairs for a used vehicle.
Your research findings should be able to inform you of the exit strategy should your business fail. Remember you are investing in a depreciating asset and thus it is important to consider how you are going to recoup your investment if things don’t work out. There is an opportunity cost of investing in the matatu business, and so you need to compare the expected returns from the matatu business with other investment options. You have not indicated the amount you intend to invest and the expected returns. However, a vehicle within your specifications and condition should cost you around Sh3 million. Now, the expected returns should be higher than the passive income you would expect from other investment options.
To allay your fear of losing your investment I would urge you to first understand the initial capital required, the running costs and the expected returns. Matatu business is a cash business, however you shouldn’t confuse cash flow with profits considering that this sector has many stakeholders and each one of them would want a piece of the pie. The sector has several cartels and thus you need to be ready to incur some costs to survive in the business.
On you being the driver, you need to be very careful not to kill the goose that lays the golden egg by spending most of your time and effort on the new venture at the expense of your current job. As much as you want to venture into a new business, you need to consider how you can scale up your current job so that you will have more money to invest in the future. Separate your new venture and your current job as you will continue to survive on your job should your new venture require more capital or fails.
Staffing is also an issue you will need to consider. You must be ready to conduct due diligence on the staff who take over from you.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.