Why Africa is an Entrepreneur’s Paradise

Entrepreneurship in Africa
Jambiani Beach, Zanzibar, Tanzania

The African continent has been getting a lot of attention lately by entrepreneurs. Many economic forecasters has pivoted the continent as the new frontier for growth in almost every sector imaginable. While the continent still has many challenges, it is growing and expanding in many ways. A number of African leaders are starting to implement polices that make their nations attractive places to do business.

Market Potential

Africa is probably home to the most fertile business prospects on the planet. The continent is trying to catch up with its more developed counterparts. Yet, many African nations still lag behind in infrastructure development. This makes the continent a goldmine for entrepreneurs who are willing and ready to contribute to the dynamic growth of the continent.

Almost every major market has untapped potential on the continent. Only a few business sectors are saturated in Africa. This also makes the continent prime real estate to sell quality goods and services. So for almost any business endeavor that you can think of you can probably find a dozen or more countries in Africa to do business in. Most African nations have fertile ground for sewing the seeds of entrepreneurship.

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Low Start-Up and Overhead Costs

The cost of living in most African countries is much less expensive than the average developed nation. This means that it will cost much less to establish and maintain most businesses on the continent. It is fairly easy and inexpensive to lease or own property in many African nations. Salary and wages are also much less than in most developed regions of the world. This means that financing your entrepreneurship dream on the continent can easily become a reality.

Burgeoning Middle Class

Africa’s middle class is growing at a fast rate. On the other hand the middle class in most developing countries is experiencing slow growth or disappearing altogether. Africa’s middle class represents the rise in professionals and entrepreneurs that are taking the continent by storm. A number of African college graduates who left their home in search of a better life are migrating back home. Many others send money to their loved ones in an effort to help restore the economy of their home lands.

As this trend continues, more businesses now enjoy the ability to cater to more discerning customers on the motherland. Middle class and affluent Africans desire luxury goods and high quality services. This dynamic has created a growing demand for new businesses, especially those that are designed to serve westernized tastes. So now is the time to establish or relocate your start-up or franchise to the continent. Doing so can help you can gain more exposure and realize greater capital potential.

Social Transformation

As I write this post, many African nations are undergoing drastic social transformation. The youths in these nations are not satisfied with business as usual. They are frustrated with the corruption and infrastructure issues that have plagued Africa for so long. And they are doing something about it.

The youths in a number of African nations are beginning to demonstrate against their governmental representatives. They are also beginning to hold these politicians accountable for their actions. They are demanding a better socio-political structure and the entire globe is starting to take note.

Social transformation in Africa

Thousands of people march to Parliament in Cape Town, South Africa, to demand that the President of South Africa, Jacob Zuma, step down immediately because of his corrupt rule on April 7, 2017.

As governmental leaders start to rise to the occasion many of these nations are subsequently experiencing significant socioeconomic development. So if you decide to transition to this entrepreneur’s playground you can easily realize your vision. You can also simultaneously help many Africans realize the social change that they need.

Need more help developing your business plan for African entrepreneurship? Contact us and we will gladly assist you.

Should I Be Debt-Free Before Starting My Business?

Debt and Entrepreneurship

I often get this question from my coaching clients who are starting a new business. Usually they are referring to revolving versus non-revolving debt. Revolving debt is the kind of debt that is associated with lines of credit issued to credit card holders. Non-revolving debt is associated with mortgages, vehicle and student loans, and other debt that involves fixed payment schedules.

I believe in entrepreneurship because I believe that this is one of the best ways to achieve financial independence and freedom. However, one of the first steps you should take toward financial freedom is to eliminate or decrease interest-bearing revolving debt. And if at all possible eliminate or decrease non-revolving debt – though this may be unrealistic for the average entrepreneur.

Reducing Revolving Debt

Your goal should be to eliminate revolving debt that you carry from month-by-month. This type of debt generates interest and fees that add more debt to your debt. It’s okay to maintain revolving debt as long as you pay it off in full by the due date each month. It is also best to maintain a 30% or lower credit utilization rate. In which case you don’t incur any interest and you are able to build your credit more efficiently.

However, anything beyond this will be a financial burden on you as you try to build your business. This is why I absolutely recommend starting a business free of revolving debt. You should also maintain a manageable amount of non-revolving debt. Doing so will take a great deal of stress off of you as start your new business venture. This way you can concentrate on building your business without the pressure to perform just to pay off debt.

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Obtaining START-UP CAPITAL

I recommend establishing business credit from the start of your business venture. However, I also recommend limiting the amount of money borrowed for business start-up. If you need to borrow money for your business be sure that you can pay off your debt in a timely manner. Only borrow what you can comfortably pay back each month and be strategic when making business purchases.

This is my general advice before starting any new venture that involves finances. Whether you are buying a new house or vehicle, or tying the knot, it is best to start with as clean a slate as possible. This way when unexpected expenses related to your new purchase or venture arise you won’t be caught completely off guard. So if at all possible, you should clear all interest-bearing revolving debt and as much non-revolving debt before starting your business.

Need more business coaching advice? Contact us and we will gladly assist you.

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4 Ways to Fund Your Start-Up

Financing Your Start-Up Business

One of the first things that prospective entrepreneurs must consider when starting a new business is funding. Without the right amount of start-up capital, growing your business can be much more complicated and cumbersome than necessary.

There are many effective ways to secure the right amount of money to start your business. Here are a few ways in which entrepreneurs can get the funding that they need for their business endeavors.

Savings and Investments

Savings is probably one of the most common ways that new business owners finance their start-ups. This is one of the simplest ways that the average business owner can accumulate venture capital. It doesn’t require approval from a third party and the ability to save is completely within the entrepreneur’s control. It may take longer to save enough cash to start your business but the benefit is that you will not owe or be obligated to anyone in the long run.

If you decide to save for your start-up, it is best to place your money in a high yield savings account. These types of accounts can offer annual yield rates (AYR) of up to 2% compared to the average 0.09% AYR offered by regular savings accounts. This means that you could potentially grow your money up to 9 times faster in a high yield savings account.

Investing in the stock market is another viable, loan-free way of accruing venture capital. Gains from dividends can add up a lot quicker than savings, yet this method is also riskier than stashing money in a savings account. Though, there are less riskier investment options like certificates of deposit, bonds, and bond funds – these methods yield low and slow returns.

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On the other hand riskier options like individual stocks, exchange-traded funds (ETF’s), and index funds can yield higher and quicker returns. However, with these options there is a higher likelihood of losing some or all of your investment. But if you invest wisely the gains usually outweigh the losses.

Grant Opportunities

Grants are great ways to fund your business. Government and private organizations, agencies, and institutes offer a number of grant opportunities on an ongoing basis throughout the year. Most grants have specific eligibility criteria and defined deadlines for submission. However, if you meet the qualifications and deadline requirements you can possibly secure a grant to finance part or all of your start-up costs and future expenses.

The major benefit in receiving grant money is that it is free. There is no requirement to pay back grant funds. Another benefit about receiving certain grants is that they can enhance your company’s reputation and credibility and increase your visibility. Additionally, individuals in certain minority groups or protected classes such as women, and Native, Hispanic, and Black Americans, and veterans can qualify for specific grant opportunities geared toward underrepresented groups in the entrepreneur space.

Some of the disadvantages about applying for grants is that the process can be long and tedious. Usually grant applications require surmountable time and effort that can be prohibitive to new entrepreneurs who are focused on their business operations. In addition to this element, grants are very competitive. There are often many applicants vying for the same grant opportunity which makes them a less dependable financial resource.

Also, grants tend to come with specific stipulations. Grant recipients have to spend funds according to the rules or guidelines of the grant issuer. You cannot use grant funds in any way you choose. Though there are a few disadvantages to grant funding, there are a number of inherent benefits that make grants worthwhile sources of start-up capital.

Crowdfunding

Crowdfunding is another beneficial tool for securing start-up capital. This funding option requires you to solicit prospective investors or donors to finance your business or project. There are a few common crowdfunding models available to business owners which include the following:

  • Investment-Based: Individuals, groups, or organizations invest in your business in return for future dividend payouts.
  • Loan-Based: Individuals, groups, or organizations lend you interest-bearing loans.
  • Donor-Based: Individuals, groups, or organizations give you money with or without the expectation of something in return.
  • Reward-Based: Individuals, groups, or organizations give you money in return for a finished product or defined service linked to your business.

Depending on the model you choose and your ability to secure sound investments, crowdfunding can be a very useful financial tool for your business. You can raise all or most of your venture capital and long-term buy-in from investors. This is also a great way to promote your products or services to future customers.

However, there are also a few disadvantages to this method. If you set up an investment-based model you are essentially selling part of your business. If you use the loan-based crowdfunding model you will have to pay back the money you receive and oftentimes with interest. Once you choose the reward-based model you are entering into a quid-pro-quo relationship, which puts more pressure on you to deliver. If you elect the donor-based model you may receive less funding.

Additionally, you may have to pay subscription, platform, processor, or other fees when using popular crowdfunding platforms. If you set up your own website, you may have to pay money for hosting and/or promoting your website. Additionally, your reputation is as stake when you crowdfund. You have a lot more pressure to deliver on a product or service if you choose this funding option.

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Borrowed Money

One of the more common ways of start-up funding is through borrowed money. This may be in the form of a business loan, credit card, or line of credit. You can borrow money from a number of sources including family, friends, and banks and other financial institutes. Borrowed money generally requires you to repay funds on a monthly basis with interest.

The benefit of borrowing money is that it is generally a straightforward process that usually takes a matter of hours to a few days. If you have good to excellent credit it is fairly easy to get approved for credit cards. And if you have stellar credit and decent sources of collateral it is fairly easy to get a business loan or line of credit.

On the other hand, it is generally difficult for new business owners to get loans from financial institutions because they don’t have an established credit history. Also, business loans bear interest. This means that you will repay more than the amount that you borrowed. Credit cards are a little better in this regard because you only pay interest on balances that you carry from month to month. Repayment of loans, credit card, and line of credit debt usually begins within 30-60 days after you borrow the funds.

These terms and conditions can add to a new business owner’s stress level. Repaying money when you have little to no business cash flow can result in anxiety. This can subsequently adversely impact the performance of your business. You may end up cutting corners, compromising your integrity, selling yourself short, overextending yourself, etc. trying to pay back money that you don’t have.

So I always recommend borrowing money as a last resort for new business owners. This includes money borrowed from family or friends. Because even if not repaying such loans has no bearing on your credit score, this can adversely impact your personal relationships and possibly your reputation.

Need more business coaching ideas? Contact us so that we can help you along your journey.

Should I Quit My Job to Start My Own Business?

I am a staunch advocate of following your dreams and achieving your life goals. I feel that everyone should wake up happy and excited to start their day. This is the main reason that I started my coaching business – it energizes and excites me when I help people discover and pursue their passions.

At the same time, I am a staunch believer in not making impulsive decisions that can have a long-term adverse impact on your finances and overall quality of life. This is why I think that the pursuit of our passions should be founded on the principle of wisdom. You need to understand the how, when, where, and why of executing your plan of action before you dive in.

As much as I love doing what I do, I would not be able to do it without the foundation that I built from working a full time job. I worked for many years building my business while remaining employed at a fairly demanding job. There were many times that I thought about quitting my job and starting my own business during my transition phase.

About a year before I left my last full time job I was completely burned out but I kept going because I wanted to set a firm foundation for my business before leaving. I was not in the financial position that I wanted to be in during the early phases of my business start-up. So I stuck with my full time gig until it was the right time for me to leave.

Of course, my situation doesn’t apply to everyone so I never answer this question with a one-size-fits-all answer. Ultimately, it depends on your situation and your career goals. So I always challenge my clients to consider these three questions when they contemplate quitting their job in favor of entrepreneurship:

Are You Financially Prepared?

Generally, I recommend that you have at least 6-12 months worth of living expenses in savings before you voluntarily leave your job. This may sound excessive, but it can be a life-saver especially if you do not have another source of income. No one knows what tomorrow will bring so it is better to be prepared than to be sorry later.

Think about some of the individuals who left their jobs to be a full time entrepreneur within a few weeks of COVID-19 being declared a pandemic. A few of them probably made impulsive decisions to leave their jobs and had little savings in the bank to carry them through a few months. They were fired up and ready to give their business their all and out of nowhere the entire globe was forced into an economic shutdown.

So, what does that look like for them now? Number one, because they voluntarily separated from their employer they can’t access unemployment benefits right now. Number two, they also don’t have access to employer-sponsored healthcare benefits. This means that they may have to delay or forgo treatment if they experience health concerns.

Number three, unless their business provides essential products or services they probably won’t make many sales right now. Because consumers tend to primarily buy only essentials in a down economy a number of businesses that provide non-essential goods and services are suffering right now.

Therefore, more than likely these individuals have unnecessarily fallen on difficult economic times due to poor preparation. And believe it or not, I actually know someone who is in the exact situation at present. This is why I strongly advocate for financial preparedness when starting a business endeavor.

Even in an up economy, the average business owner typically has more expenses than revenue in the first year of their business opening. For some, this may be the case for the first two to five years. This means that you may not be making a profit while your business gets off the ground. Therefore, you need a financial cushion to keep you afloat during these times.

Do You Have an Economically Viable Business Strategy?

Is your business tried and true? By this, I mean have you tested the market and seen if your business is profitable for you? Generally this requires that you start building your business while working a full or part time job. That way you will have a better understanding of how much you can anticipate making from your business once you transition into it full time.

Taking a tiered approach to full time business ownership also helps you make less costly mistakes. You can take your time to see what works well for your business operations and what doesn’t while you still have a viable income scream. You can easily write off losses and lessen your tax liability while not breaking the bank if you strategically plan your transition.

Do You Have a Backup Financial Plan?

If you plan to leave your job, do you have have another viable means of income to sustain you through the transition? This could include income from other income earners within your household, alimony or child support payments, pensions, annuities, royalties, investments, lottery winnings, etc. This source of income can be in addition to or a replacement for the earnings from your employment.

It is very important to have a steady scream of income flowing while you start your business, if at all possible. Having a backup financial plan will help ease tension and anxiety from business losses or slow growth. It can also be an extra source of business capital in times of need. So think about how you plan to live as you grow your business before you leave your job.

Summary

After you have taken time to diligently consider the impact of leaving your job in favor of starting a business, you should strategically plan your course of action. You should never make an impulsive decision by simply quitting your job in the heat of frustration or excitement. No matter how tired you are of your employer or how burn outed you may be, impulsivity is rarely the best plan of action when it comes to financial matters.

Even if you decide that quitting right away is the best option for you at least follow proper protocol. Tender your resignation according to your employer’s guidelines and be diplomatic throughout the resignation process. You never know if you will need your job again in the future or if you will meet up with your former supervisor, colleagues, or customers in a different capacity.

Also, try to wait for the most opportune time to leave even if you are ready to walk out the door right away. For instance, if you work in education generally the best time to leave is in between terms or during the summer break period. This gives your employer enough time to replace you and you aren’t leaving your customers in a difficult situation. After all, your customers from your current employment may be your business customers one day. So you should always try to resign in a graceful manner.

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