My wines and spirits businesses have left me broke and with defaulted loans, how do I recover?

My name is Wesley. I own two wines and spirits businesses upcountry. One is operated by my wife. The money we make caters for our household basic needs which amount to Sh25,000. We pay rent for three houses (home, and the two businesses). I had taken a bank loan and a Sacco loan to fund these businesses. But business has not been so good. We are constantly bribing different authorities to stay open and many similar businesses have also mushroomed, increasing competition and affecting our revenues. I have been in default for nearly a year and I’m currently listed on the CRB. I have had to borrow from friends and family to keep stocking the business. Recently, I thought about applying for a second loan from a different bank in hope that I could repay the pending two loans and remain with one. I was however denied because I am on CRB. I am now facing the threat of auctioneers. What do I do?

 Dominic Karanja, a financial and investments consultant

You are in a challenging financial predicament, and it’s commendable that you’ve recognised it, and are seeking assistance. Before embarking on any business venture, it’s crucial to identify the problem your business aims to address. Conducting thorough market research is essential to gauge the size of your target market. Additionally, crafting a business plan is necessary as it provides a blueprint for your business operations.

Your business plan should cover key aspects such as location, legal structure, unique selling points, market analysis, competition, products, pricing strategy, marketing, operations, finance, and risk analysis. You may have overlooked factors like funding for working capital, profit margins, and potential competition when you started your wine and spirits business. When exploring business financing options, it’s important to carefully assess factors such as initial capital requirements, working capital needs, and available funding sources.

To address your current financial challenges, begin by evaluating your present financial status. Compile a comprehensive list of your income streams and expenditures, including loan repayments, living expenses, and any optional spending. Gain clarity on where your finances are allocated and identify areas where you could potentially reduce costs. Carefully examine your business expenditures and seek opportunities for reduction, such as renegotiating rent agreements, consolidating shops or streamlining staffing levels.

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Explore strategies to enhance revenue, such as introducing fresh product lines, implementing promotional campaigns, or targeting alternative customer demographics. Maintain transparency with your suppliers and explore their willingness to extend payment terms or offer discounts. Communicate openly with your employees and consider adjustments to work schedules or compensation as needed. Look for ways to streamline operations by optimising inventory management to minimise waste or find creative marketing strategies to attract more customers. Improve customer service to retain existing customers and attract new ones. Ensure ongoing dialogue with all key stakeholders involved in your business operations. Although you have already received financial assistance from relatives and acquaintances, you can still explore further avenues for support. Consider a pivot strategy if the going concern of the wine and spirit business is in doubt.

Given the difficulties your business is facing, consider broadening your sources of income. Explore alternative prospects or endeavours that match your abilities and passions. This move could offer supplementary financial security and lessen dependence on your existing enterprises. Seek advice from a financial expert or business advisor who can offer assistance tailored to your individual circumstances. They can help you create a realistic budget, improve debt management, and develop a plan to improve your financial situation. you could also join business communities or groups where you can gain insights from others who have confronted similar obstacles.

Be proactive by reaching out to both the bank and Sacco from which you have borrowed funds. Some lenders may be willing to collaborate with you to restructure your loans or provide temporary relief. Provide the lenders a sincere explanation of your circumstances and demonstrate your readiness to collaborate on finding a resolution as well as providing your business financial records and future forecasts. Since you were denied a second loan due to being negatively listed by the Credit Reference Bureau (CRB), consider pursuing a loan repayment arrangement that aligns with your existing income. This could entail extending the loan duration to reduce your monthly instalments. Since you are confronted with threats of auctioneers, it’s essential to comprehend your rights and investigate the legal avenues accessible to you. Consider seeking legal counsel to grasp the consequences and potential solutions for your predicament.

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Keep in mind that you are not facing these challenges alone, and there are resources available to help you navigate the financial difficulties. Maintain a proactive approach by reaching out for support and exploring all available options. It is crucial to prioritise both your well-being and that of your family during this challenging time. Stay optimistic, lean on your loved ones for support, and do not hesitate to seek assistance when necessary. Cease any practices of bribing authorities, as this not only depletes resources but could also lead to further legal complications. Remember, overcoming debt distress requires perseverance and dedication. Do not be discouraged. Instead, focus on making gradual, consistent progress.

I’ve been broke my entire life, now I have a Sh1 million reward, how do I invest it?

My name is Ibrahim. I am a 22-year-old university student in Nairobi. I live in Kariobangi and I have been broke all my life. Some years ago, I showed someone some kindness when he was in the streets. Last month (after he became wealthy), he gave me Sh1 million. I need a smart way of investing this amount, excluding Sh250,000 for which I have a business plan. I'm thinking of MMFs, Saccos and Crypto but I don’t know what the pros and cons are or what returns I will get and if they will be enough to pull me out of Kariobangi. Please advise.

Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm

Coming to a fortune after a long period of being broke and barely earning a living can be a blessing only if one’s mindset is ready to manage such a huge sum of cash. Many have blown up huge payouts as they elevate their lifestyles to match the new status. Tales of jackpot winners, victim compensations and retrenched staff who blew their fortunes in less than three years are well documented. Being ready for the windfall means having solid financial plans that entail sustainable cash inflows from investments over the long term. It also accurately captures allocations to different investments that are well thought-out and match an individual’s risk profile.

Huge temptation

In this case, one should invest in something he or she understands, lest disappointment sets in and is forced to ditch an investment at a loss. As one used to living on less, it can be a huge temptation to go all out merry-making, scattering your fortune to the four winds as you seek validation from new-found friends and “associates” eager to relish in your largesse. This is the time to exercise a lot of caution. Your company could be your greatest downfall. You will get all manner of unsolicited advice as all seek to win your favour and profit from you.

Poorly researched forays could also result in huge losses. You need to engage a financial advisor to study your Sh250,000 investment business plan and do a SWOT analysis. The business you intend to start should be within your familiarity radar to avoid early disappointment. As you do not have a family yet, build your asset base while thinking of that future responsibility. Look at asset classes that allow for both income and growth prospects.

You may also want an assurance of liquidity in interest-earning accounts to meet short term and medium term needs. The balance of Sh750,000 may not be a lot to do different investments that you can live on in a year or less as these options suggest.

a) Increase your business capital to Sh1 million. If your business plan is foolproof, you can scale it up gradually for increased income if you can dedicate your time to grow it.

b) Invest Sh750,000 in a treasury bond issue, with 16 per cent annual interest rates. You will get gross payouts of Sh60,000 every six months since coupon payments are made twice a year.

Explore cryptocurrency

c) Put Sh750,000 in a money market fund with net interests at 12 per cent per annum. This will give around Sh7,500 a month.

d) Put the funds in a Sacco BOSA account if you seek to access credit to grow your business. You may have to find a Sacco that is favourable for SMEs. In most top-tier Saccos, you will earn Sh70,000 a year as interests on deposits. You may also consider splitting your investments amongst option a, b, and c. The income generated by your business can then go towards boosting these three investments to scale up your returns.

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e) You could explore cryptocurrency for capital gains. Take time to learn about it and consult a qualified and professional expert in this area. Apart from Bitcoin, there are other traded coins like Ethereum, Tether (USDT), Binance Coin, Solana and XRP.

You did not give your monthly expenditure. From the bond and MMF options, estimating your monthly budget at Sh20,000 (as you are still a student and assuming you’re self-reliant) means you have a deficit of about Sh12,000.

This could go higher if you are paying your university fees by yourself. Can your business generate Sh40,000 to take care of your personal and college fees obligations? If not, look at the first option. At your age, with the right business knowledge, coupled with fewer demanding responsibilities, you can scale up your business to generate a profit you can live on. It is also important that you maintain your academic pursuits. At your age, it is paramount that you acquire the academic knowledge and skills for proper adaptation in the fast-changing world, and for your future career prospects, employability, and income acceleration capacity.

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.