How to Save Startup Capital for Your Business

KES 33,000. Nanjala wrote the number on the inside cover of her diary in February, after pricing a second hand chest freezer at a shop in Kakamega town. She works as a cashier and braids hair on weekends, and she wanted a business selling cold drinks and ice lollies outside the secondary school near her home. The number looked enormous next to what she could spare each week.

Knowing how to save startup capital is mostly about turning a big, scary number into a weekly one you can keep. Nanjala did it by pricing every item, cutting the total, matching her saving to her income and testing the idea before the money was complete. Each of those steps has its own section below. Together they took her from a number in a diary to the full KES 33,000 in 21 weeks.

Start with an exact target

"I need some money for a freezer" is a wish. "I need KES 33,000 by July" is a plan. Before you save a shilling, list every item and price it with at least two sellers. Nanjala's list had only three lines:

The list also stops you spending the savings on something else. When a friend suggests a better freezer for KES 45,000, the list reminds you that the plan said 28,000. Every new idea has to fight its way onto the list instead of slipping quietly into the budget. That keeps the target fixed, which keeps the weekly amount fixed too.

Shrink the target before you start

Every shilling you cut from the target shortens the time you have to save. At Nanjala's pace, a cut of KES 1,500 saves a full week. Small cuts add up quickly when you are saving week by week. Look at each line and ask three questions:

1. Can it be second hand? Nanjala's freezer was already second hand. She had a fundi test it for KES 300 before paying a deposit.
2. Can it come later? A branded umbrella and a sign can be bought from the first month's profit.
3. Can you start smaller? Could a cool box and ice test the idea now, before the freezer?

That last question changed her plan, as you will see below. A cheap test can answer the biggest question about any business, which is whether people will buy. It can also bring in money that goes straight back into the goal. Nanjala's test did both.

Choose a saving rhythm that fits your income

Nanjala's cashier salary pays rent, food and her son's school costs. She decided early not to touch it. Instead, she saves everything she earns from weekend braiding, about KES 1,500 a week. Keeping the salary out of the plan meant her household never paid for the business.

There is more than one way to reach KES 33,000. A fixed amount every week is the simplest, while the savings challenges change the amount from week to week. The right choice depends on whether your income is steady, rising or about to fall. Here is how three rhythms compare:

The 52 week challenge, where you save 25 in week one, 50 in week two and so on, starts very easy but finishes hard. After 26 weeks it has built only KES 8,775, about a quarter of the target. It suits someone whose income will grow during the year. For someone who needs the money by mid year, it is the slowest of the three.

The reverse version, starting at KES 1,300 and falling by 25 each week, saves KES 11,875 in the first ten weeks. It suits someone with more money now than later, such as a person whose contract ends mid year. The large early weeks build much of the money before the income drops. Nanjala's braiding income is steady, so she chose the fixed KES 1,500 a week.

Find money you would not otherwise miss

Startup capital is easier to build from money that is not already spoken for. Money taken from rent or food will be needed back, and the plan will break. Money from new or forgotten sources can go into the goal without anyone at home feeling it. Look for these:

• Side income. Like Nanjala's braiding money, it can go straight to the goal.
• Windfalls. A bonus, a gift at a wedding or a refund can go in whole.
• Small cuts. Walking one stage instead of taking a matatu, or packing lunch twice a week, frees a few hundred shillings.
• Selling what you do not use. An old phone or clothes you have outgrown can add to the pot.

Write down where each deposit came from. When the goal is reached, you will know which sources worked, and they can keep feeding your business later. Nanjala's main source was braiding, and her test sales became a second one. Knowing that, she can keep both going once the freezer is running.

Test the idea while you save

Instead of waiting 22 weeks to find out whether students buy cold drinks, Nanjala tested it with her sister's cool box. First she checked with the school and the county office that selling at the gate was allowed. Then her sister sold there on four Friday afternoons, two crates of 24 sodas each Friday, bought at KES 55 a bottle, kept cold with a KES 50 ice block per crate and sold at KES 80. Here is what each crate brought in:

Eight crates over four Fridays brought KES 4,400 in profit, which went straight into the goal. That left KES 28,600 to save from braiding, about 20 weeks instead of 22. Two weeks off the plan is worth more than it sounds, because each week of saving is a weekend of braiding. The test itself cost little more than four afternoons, because the cool box was her sister's.

The test also taught her things no plan could. Students wanted cold water more than sodas on hot afternoons, and lollies sold out before anything else. She adjusted her first stock list before buying a single item with the freezer money. Without the test, her first KES 4,000 of stock would have leaned toward the slower sellers.

Make the money hard to touch

The biggest danger to startup capital is not a bad week. It is a good reason to spend it, such as a relative's hospital bill, a school trip or a phone that breaks. Every one of these is real, and every one can empty a goal. Protect the money by putting it where you cannot reach it on impulse:

• Lock it until a date. A goal that cannot be opened before July removes the temptation to dip in "just this once".
• Keep a separate small emergency fund. Then a true emergency has its own money and does not raid the business goal.
• Tell one person. Someone who knows the target will ask how you are doing, which helps on weak weeks.

On Nyanyuka, a savings goal has a target and a date, and the money is locked until that date. You can save from KES 10 by M-Pesa, and a weekly saving plan shows your streak. The app also runs the 52 week challenge, the reverse challenge and a fixed weekly challenge, showing what to save this week and whether you are ahead. Any of the three rhythms in Nanjala's table can be run that way.

When you miss a week

You will miss a week. Braiding customers cancel, a child falls sick, prices rise. Missing one week does not end the plan, but giving up does. What matters is how you return the following week.

When Nanjala missed a week in April, she did not try to double up the next week. She added one extra week at the end and moved her date by seven days. Keeping the habit mattered more than keeping the exact date, and she reached KES 33,000 in week 21, still a week ahead of her first plan. Doubling up would have meant KES 3,000 in a single week, far more than one weekend of braiding brings in.

Once your capital is ready, the next questions are how to combine it with other sources and how to run the business. See how to fund a small business in Kenya for combining savings with a chama. Read how to grow a small business in Kenya for what comes after opening day. The habit that built the capital is the same one that will keep the business stocked.

Part of: How to Fund a Small Business in Kenya From Your Own Savings

Frequently asked questions

How much startup capital do I need?

You need the total of everything required on day one, with each item priced by at least two sellers. Add a first stock and a small reserve. Then remove anything that can wait for profit, and that total is your target. Nanjala's came to KES 33,000 for a freezer, a first stock and a socket.

How long should it take to save startup capital?

It should take as long as the target divided by an amount you can save every week without hurting your household. If the answer is longer than a year, shrink the target or find a smaller way to start. A target you can reach in four to eight months keeps most people motivated. Nanjala's plan of KES 1,500 a week came to 22 weeks, about five months.

Is the 52 week challenge good for saving business capital?

It works if your income will rise during the year, because the weekly amounts grow from small to large. It builds slowly at first, reaching only about a quarter of the total by the halfway point. If you need money sooner, a fixed weekly amount or the reverse challenge may suit you better. With a unit of KES 25, the full challenge saves KES 34,450 over 52 weeks.

Where should I keep my startup capital?

Keep it somewhere separate from your daily spending money and hard to withdraw on impulse. A locked savings goal with a date works well. Keep a separate emergency fund so a crisis does not empty your business savings. Telling one person your target also helps on the weeks when you are tempted.