My name is Martin.
I am contemplating starting a long-distance heavy-haul trucking business. I would like to acquire a truck and trailer at a cost of Sh4 million to Sh4.5 million. This will be a Mercedes Benz Actros MP4 at a cost of about Sh3 million and a trailer at a cost of around Sh1 million. I want to buy this cash. No loans. Actually, currently, I have no loans. This trucking business will be a side hustle which I intend to do alongside my other informal jobs since I have the heavy trucking certifications and licenses. I will nonetheless have a part-time driver and have already identified a reliable individual for this.
Currently, my net income is around Sh120,000 while my overall household expenses total Sh30,000 upcountry. I live in my own house and don’t pay rent. My spouse is employed by the county government and also runs her own clothing and cosmetics business. My expected net income per month from this new venture is about Sh100,000. Even as I settle for this business, I have also considered whether to invest in bonds or rental houses instead. However, I am concerned that the returns might not match the investment and may leave me cash-poor (low liquid cash capacity). If I go ahead with the trucking business and manage the net of Sh100,000 income, how should I invest this money to break-even as fast as possible? Please advise me on the best way forward.
Dominic Karanja, a financial planning and investments consultant, says:
You have monthly disposable income of Sh90,000 that you can allocate towards investments. Investment comes with certain levels of risk, and I would encourage you to consider a diversified approach. Diversification helps to reduce risks by spreading across different investment options.
It’s important to consider your risk profile and the timeframe of your investment. You need to have clear financial goals and a financial plan. Start by setting up an emergency fund that can take care of at least six months of your expenses. Based on your current expenses you need to create an emergency fund of at least Sh180,000 and I would encourage you to invest your emergency fund in a Money Market Fund (MMF).
You have indicated that you have heavy-tracking certifications and licenses, implying you already have ideas about the opportunities, challenges, and risks of investing in the trucking venture. Apart from buying the truck and the trailer and recruiting the driver, there are also several factors that you need to put into consideration before starting the business because some factors like insurance and regulatory compliance will require you to spend more money. All factors held constant you expect to be earning a net income of Sh100,000 per month from your investment of Sh4.5 million which is approximately a return on investment of 2.22 percent per month or 26.67 percent per year which means It will take you three years and nine months, to recoup your initial investment. I hope you have factored in taxes in calculating your net income. Your investment plan should also consider how you would want to scale your business in future and an exit plan should it fail.
There are various sources of passive income you can invest in. Passive income refers to earnings generated with little to no effort on the part of the investor. Passive income will provide a means to diversify your income sources and thus reduce dependence on a single job or business. You need to invest time in learning and researching different passive income opportunities. Passive income can be derived from rental income, dividend income, interest income, and capital gains among others. I would encourage you to start saving with a Sacco and always remember to capitalize on your Sacco dividends.
Saccos are a good source of development loans to scale your business because they can advance you a loan amount that is three times your savings, however, your income sources need to be adequate to afford the monthly loan instalments. You need to consider investing the extra funds in an MMF. I recommend that you consult a financial advisor on the best MMF you can invest your money in.
You need a minimum of Sh100,000 and Sh50,000 to invest in treasury bills and treasury bonds respectively, however, for the infrastructure bond, you will need a minimum of Sh100,000. Government securities returns are on the rise with the latest treasury Bills average interest rate above 14 percent and the latest two-year and five-year treasury bonds paying coupon rates of 16.9% and 17.9% respectively.
Real estate requires a lot of capital and long-term commitment with returns ranging from 20 to 30 per cent for property developed for sale, while rentals will yield on average six to eight per cent return per year. If you are a risk taker and you don’t mind holding your money in long-term investment you can consider investing in stocks. For the transport business to make business sense the expected returns should be higher than the passive income you would expect from various investment options available.
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