Saturday, January 7, 2017

LOANS, CAPITAL & DEBTS: A GUIDE FOR ASPIRING ENTREPRENEURS by Kukogho Iruesiri Samson

Whenever I see young people with marketable talents and I tell them “live your dreams” or “turn this idea/skill into a business,” the first thing they say is, "I don’t have MONEY/CAPITAL.” Each time, I take a deep sigh and share my experience while building Words Rhymes & Rhythm Ltd, my social media pet project that I am gradually transforming into one of Nigeria’s foremost publishing and literary organizations.

Yes, every business needs a capital to exist. But there are many capitals involved in a business. The idea and its development is a capital, the time put into it is another capital, then the big one – money.

It is true that many people do not have the money to become entrepreneurs. So they either discard the idea or go on whining about not finding an investor, a benefactor. They pursue another direction and become a failure before even starting the race.

But the plain truth is no one wants to invest in an 'IDEA' that has not been developed. As an individual, if your friend comes to you and says “guy, give me N200,000 to start an make-up business”, a lot of questions instantly come to mind. Above all, you'll want to know if the money will ever come back to you (with profit!). That is the same way any investor will think. And that is why no one will give you money for an idea you only nurse in idle time.So, if you think a idea is valuable, start something small with it.
When people see the emergence of a PRODUCT from your IDEA and the potential VALUE, they will rally round (to help or to steal it). Investors put money into products and (potential) value.
Let’s take the example of a youth who learnt shoe making. He is skilled and wants to start making formal shoes. He lives near a corporate environment sand thinks he can turn the people who work there into his customers. That is an idea, a good one. But there is a problem. He has no money to buy equipment and materials for the work. and decides to ask for investment/loans to start.

To him, all he needs is MONEY. But he needs more than money, if he intends to start and SUSTAIN the biz. Sustenance is key.
The question is – how do you make a biz last beyond the initial capital? If you don’t answer the question before investing a (loaned) capital, you’re in deep shit.

The business will go to bust and, if you have unpaid loans, you become a debtor too. What then is your gain?

So how do you go about it? What capital do you have that you can afford to lose without running into debt? Time. Yes, invested time fueled by your belief (passion) in your idea is the way to go as a small starter. Start your business with your own investment: plenty of TIME supported by whatever FUNDS you have, not LOANS.
With your own (small) money and time, you can afford to make mistakes, learn and unlearn, strategize and restrategize, all on the job, while growing slowly.
With a loan, you can’t afford to make mistakes or learn and the pressure of (paying back) the loan and accumulating interests will stifle your creativity. It is enough to kill whatever motivation you have.
Aside that, no one gives you a substantial loan and sits back to watch you experiment. The investor will at some point interfere. So you stand the risk of losing control of the idea you so love.
As a matter of indisputable fact, the more dependent your business is on LOANS the less CONTROL you have. In many cases, by the time the biz breaks even, you would have become an employee not the owner of the business. If it doesn’t break even, you are tied to a debt – double loss.
So let’s go back to our shoemaker guy. He takes an N1m loan (from an investor/bank/friend etc) and spends it on renting a shop and buying (high end) equipment and raw materials with prospective customers. The biz starts.

The LOAN payback time starts counting before sales begin. By the time he is renewing his rent he is yet to make any substantial sales, and by extension he has no profit. He has not made sales because his big shop is not enough to convince the big customers he had his eyes on. They don’t trust him yet. They do not patronize him much. He is broke. So he needs another loan.
His debt piles up and he has yet to break into the market. A few years later, he closes shop, sells everything at half price and goes home to sulk about the unfairness of life.
Could he have done it better by starting the biz without a loan? Yes, I suppose. He could have gone about it differently by calling on his two capitals – TIME and SOCIAL CAPITAL. Time Capital is time invested in the business while social capital is input from social connections invested into the business.
So I ask: could he have done better by starting small and turning members of his social circles into CUSTOMER and stay that way until he has build a reputable BUSINESS PRESENCE, noticeable and 'trustable' to those clients he originally had in mind?
The advantage of a SOCIAL capital, business built on people around you (social media, work, church, mosque etc) is that they give precious instant FEEDBACK which is important for GROWTH and LEARNING. FEEDBACK from your first customers will help you REPOSITION your business strategies for (maybe) SLOW and (certainly) STEADY growth.
This is like FREE consultancy from different people (agencies) which you can cross-reference. How cool is that?
When you have built a reputable BUSINESS PRESENCE with an identity, then you can seek investors and take that LOAN – if you really do need it – with a clear plan. Remember: you take the loan if you really do need it. I have not taken a loan yet and WRR is doing fine.
Now, the question is, do you really need a loan, knowing very well that EVERY loan you take compromises your position in a way and puts you under pressure? Yes? No?

So what is d alternative to a loan where you need a base MONEY capital to start up? If you ask me, I will say get a job. Any job. This brings the question many people have asked – Pursue Your Passion or Get a Job?

Many millionaires/billionaires today raised their first capitals by literally sacrificing a few years of their lives in a job they may or may not like.

For example, the shoemaker guy can decide to add a low-paying clerical job to his part-time shoe-making and SAVE. It might take him years (like me) to save capital to match the N1m loan he would have taken. But there is a marked difference between the loan and the money saved:
  1. he has no interest to pay on his savings turned capital
  2. his business has over the years been growing on the side
  3. skills gotten from doing other jobs will come in handy
  4. he still has total control over the direction of his business 
Permit me to conclude by stating that loans are not bad. On the contrary, they can actually be all a business man needs to move to the next level. However, the decision to borrow funds should be based on tested and trusted strategies, not wavering ideas.
You can start your business today. The question is: what capital will you call upon?

3 comments:

  1. Enter your comment... Thanks sir KIS. I'm highly motivated.

    ReplyDelete
  2. Enter your comment... Thanks sir KIS. I'm highly motivated.

    ReplyDelete

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