The profits from small businesses

Government on March 12 said it is keeping an eye on employment opportunities created by investors in the face of widespread joblessness as the country simultaneously grapples with a high failure rate affecting new businesses.

Finance minister Matia Kasaija said continuous efforts are being made to understand how many jobs an investor, foreign or local, is creating for Ugandans before they guarantee his or her investment.

“We normally discuss with them on how many jobs they are creating for Ugandan citizens and the terms under which are Ugandans are being employed,” he said.

The minister further said government encourages Ugandans to take on innovations so that they don’t have to look for jobs, study marketable courses and join the collective effort against unemployment.

His views were complemented by Mr Aggrey Kibenge, the permanent secretary in the Ministry of Gender, Labour and Social Development, who pointed out the economic programmes that have been rolled out. 

“As a ministry, we have the Youth Livelihood Programme (YLP), Uganda Women Entrepreneurship Programme and Parish Development Model that aim to provide resources at parish level,” he said.

Under the YLP, interest-free capital was made available to youth groups, payable after three years. 

Industry experts have linked the early death of most new businesses in Uganda to poor planning, with owners also failing to understand the market.

Initiatives like government’s most recent poverty eradication policy measure, PDM, with its emphasis on agro-based businesses, is a potential growth area. Coming on the heels of the Skilling Uganda project through which young people are undergoing vocational training, PDM is also geared towards self-employment in business. 

But experts say challenges, including inadequate capital, prohibitive taxes and a litany of license fees are also responsible for the high failure rates, especially the current hostile economic environment. 

A successful business owner should also first understand how their chosen enterprise should be run, they caution.

“Once a business misses one of these vital steps, its success cannot be guaranteed,” Mr John Walugembe, the executive director of the Federation of Small and Medium-Sized Enterprises, told Daily Monitor yesterday.

“The problem is that most start-ups jump from conceiving an idea to the actual businesses without first researching to understand what they are engaging in.”

Four years ago, the Global Entrepreneurship Monitor (GEM) ranked Uganda as one of the most entrepreneurial countries in the world with 30 percent of Ugandans starting businesses annually. 

In the leading economies of the US and Japan, that figure stood at seven percent and 11 percent. 

Started in 1999 as a joint project between Babson College (US) and London Business School (UK), GEM researches entrepreneurship around the world. 

Its findings for Uganda are, however, marred by the reality that Uganda’s fluid and unpredictable entrepreneurial ecosystem means the country is also ranked amongst the top five countries in Africa with a very high failure rate for businesses.

A guide to running a business

Discovering yourself
The most ignored yet important step, according to experts, is for the intending proprietor to discover where their passion lies.

“This, if followed, will be the guiding principle that will help them remain resilient in case they finally actualise their dreams. These first-time proprietors need to understand themselves first,” Mr Walugembe said.

“Some people have been to school, some have not, some have a skill they learnt at home that they can monetise. So, I think the starting point for any person is to understand themselves; where they are and what makes them,” he added.

Developing an idea
Mr Thaddeus Musoke, the chairperson of Kampala City Traders Association (Kacita), advises that one conceives an idea which answers the market demand as opposed to what the proprietor desires.

Research
Upon developing an idea, the proprietor must then research the business. Mr Richard Ssempala, a senior lecturer at Makerere University’s School of Economics, counsels that the research should look into the location, required capital, the time lag to profitability and running expenses.

“Just because you have a good idea doesn’t mean other people haven’t also had the same idea. It is good that a person does background research on the kind of business he or she wants to start, learn from those who have already started so as to avoid the challenges they faced,” he said.

Planning
When Mr David Ssegawa found out that most people were trekking from Nansana Trading Centre to Kampala City to buy processed meat, he saw a niche in the market. He opened up a meat processing business under Malkas Investments Limited. 

“In specific terms, the plan must describe how your business is projected to pan out in its first three to five years. Your plan can start with the name of your business. At the very least, this name must be both catchy and easy to remember,” he said.

Securing capital
The most common sources of capital are personal savings or loans. However, Mr Ssempala strongly advises against borrowing initial capital.

“It is very rare [in Uganda] that one gets an external person willing to give them capital unlike in some countries abroad where there’s a venture capital industry which is quite advanced. Anyone counting on external capital to start is only prolonging his success journey,” he explains.

Mr Musoke recommends that one can instead approach potential partners to co-found, which is common. 

“To avoid conflict, you just have to make sure key items such as profit- and responsibility-sharing are clear in the founding agreement,” he said.

Formalisation
A study conducted by Makerere’s Economic Policy Research Centre showed that 28 percent out of 2.2 million businesses in Uganda are operating informally.

Mr Bashir Medhi Baguma, the director of Prime Auto Mobile Interiors, observes that formalisation helps a business compete more favourably as it takes advantage of mentoring, incubation and training opportunities available in the formal marketplace.

“While many may consider operating informally favourable, it cripples business access to international or even national recognition, business grants among others” he says.

By law, a formal business is one that has registered with the Uganda Registration Services Bureau (URSB), and registered for taxation with the Uganda Revenue Authority. It should also have a trading license issued by the local government where it is located.

According to URSB spokesperson, Mr Steven Baryevuga, formalisation begins when one gets a certificate of registration or a certificate of incorporation for a company. 

“A certificate of registration is issued where a business is registered in your own name or incorporated outside Uganda. A company is, however, issued its own certificate of incorporation since it is a separate legal entity with its own identity under the law,” he said.

By law, any entity engaged in an income-generating activity is required to register for taxes. One is expected to obtain a Tax Identification Number (TIN) from URA. 

A TIN is a 10-digit number that differentiates one tax payer from another.

About some taxes
A trading license enables operations and is usually valid for twelve months from the date of issue.

Once up and running, URA defines the size of businesses liable for Income Tax. A business with a gross turnover or annual total sales worth more than Shs10m, but less than Shs150m, must pay income tax. 

For a business whose total sales are more than Shs10m but less than Shs30m, one with records pays 0.4 percent of annual sales in excess of Shs10m, while an enterprise without records is liable for a presumptive assessment of Shs80,000.

A record-keeping business with total sales above Shs30m but which does not gross more than Shs50m should pay Shs80,000 plus 0.5 percent of the total sales in excess of Shs30m. If you do not keep records, the tax man will charge a presumptive levy Shs200,000.

And for a small business whose sales gross Shs50m but are below Shs80m pays Shs180,000 plus 0.6 percent of the annual total sales in excess of 50m where records are available, while without records Shs400,000 taken by the taxman.

If one’s sales are more than Shs80m but less than Shs150m and you keep records, the tax liability is Shs360,000 plus 0.7 percent of the annual total sales. The URA levies a presumptive tax of Shs900,000 where such a business does not keep records.

Staying afloat in business
After getting started, many business owners immediately focus on reaping profits, sometimes without paying attention to sustainability. 

“Don’t just bring what you offered 10 years ago to the market because it may not remain relevant, it’s important that whatever you’re offering is in response to the needs of the market,” Mr Walugembe advises.

The business owner has to keep track of every shilling, ensuring effective re-investment whenever possible. Additionally, at all times know your clients: have they maintained their purchases, have they referred the business to other customers…?

“Very many people think it is by expanding; ‘I have a branch here. I have a branch there’ but its sustainability; has the client come to you? Yes, but has the client stayed with you?” he said.

For Mr Ssegawa, a start-up must build the all-important customer loyalty.

What govt is doing to help
Although start-up failure may be due to capital limitations, owner inexperience, environmental factors can contribute to one’s success or collapse. Access to affordable credit is key. 

“If there were systems in place like soft loans whose terms and conditions are not as hard as they are currently with financial institutions, everyone would have hope,” Mr Baguma said.

Mr Ssegawa is a strong advocate for enabling economic policies like tax holidays for first-time proprietors.

In agreement, Mr Ssempala opposes the giving of interest-free capital to start-ups but sees a role for policy where re-financing or re-capitalisation of running and promising businesses is agreed as an incentive.

There is a growing feeling in the business community for a ‘Start-up Bill’, a law through which the government can offer incentives to young people to start businesses – especially in a country suffering from such high unemployment levels.

The State of Uganda Population Report 2022 indicates that the working age bracket of 15-64 years accounts for 53.4 percent of the country’s 49 million people. More than 80 percent of that statistical group are not formally employed.

The push for a start-ups’ policy is spearheaded by the Private Sector Foundation Uganda, with support from the MasterCard Foundation and is coordinated by the Ministry of Trade, Industry and Cooperatives.

While officiating at the 4th Business Expo and Forum in October last year, President Museveni promised to help young people access cheap credit through the Uganda Development Bank.

Days after Mr Museveni announced a Shs200b Small Business Recovery Fund (SBRF), the Ministry of Finance, and Bank of Uganda, in November 2021, issued operating guidelines, mainly to help small-scale businesses that had been hit by Covid-19 lockdowns.

Priority was to be given to businesses employing between five and 49 people with an annual turn-over of between Shs10m and Shs100m.

The uptake of the fund has, however, remained very low at just Shs8b reportedly disbursed. Several business owners have said the fund is inaccessible because partnering commercial banks are not cooperating.

Mr Richard Byarugaba, the executive director in-charge of finance at BoU, who oversees SBRF, acknowledged the criticism.

“We understand the commercial banks are not giving people who need this money when they apply and this challenge is being addressed,” he said.

He also revealed BoU is carrying out a mass sensitisation and asking those who have had difficulty in accessing the funds to contact them with a promise to punish culpable banks.

Mr Kibenge also said the ministry has rolled out the Grow programme for women entrepreneurs -- a five-year World Bank-funded $217m (Shs843b) programme under which women businesses access cheap credit with interest rates set at 10 percent. 

“There is also another programme under the Ministry of Finance known as Invite, which is going to give money to local investors where they can borrow about Shs500m … this investor will employ the youth,” he said.
Business stats
The January 2024 report released by the URSB indicated that 27,104 new companies were registered in the period ending June 2023, an increment of 28 percent increase from 18,614 companies registered in 2021/2022. 

The Uganda Bureau of Statistics reported in 2022 that youth unemployment in Uganda increased from 6.54 percent in 2021 to 6.58 percent. 

Real life stories
Low cost success stories
In this category, the popular opportunities are in hairdressing and beauty services (manicure, pedicure etc), market vending, laundry services, baking, digital marketing, fast food stands and selling clothes.

Used clothes
Rogers Lubega is into second hand women dresses, which he vends in makeshift markets popularly known as Butale Bwomubulo in different parts of Wakiso District.  He says the business has grown from Shs500,000 to Shs1.5m in two years. From St Balikudembe (Owino) Market, Lubega bought clothes worth Shs300,000, at Shs1,000 and Shs2,000 a piece, transported them to Nansana still in Wakiso where he sold them at double the wholesale price.

“Selling relatively cheap enables one to finish up stock quickly thus attaining reasonable quick income,” he said.

Hair salon
With Shs1.8m, Hussein Kimbugwe opened a hair dressing business in Kibwa-Lugoba, Nansana and today walks home with Shs70,000 on a busy day. His outlay included paying three months rent totalling Shs450,000,  two shaving machines each at shs200,000, a large mirror measuring 1.5-square metres at Shs170,000, a safe for Shs100,000, one salon chair at Shs250,000, and a waiting chair at Shs200,000, among other items.

“I save Shs10,000 for the business daily, spend Shs20,000 on meals and other small expenses and save between Shs20,000 and Shs30,000 depending…,” he said.

Washing wealth
Mr Christopher Carlos Ddamulira runs Amber Craft Laundry Services in Nalukolongolo in Kampala’s Rubaga Division where he offers general home, office and commercial cleaning.

Before he opened, Ddamulira had never been anywhere near a washing machine but took a leap of faith. With Shs5m, he got going after paying Shs150,000 in rent.

Furnishings were modestly priced: a counter at Shs150,000, waiting chairs at Shs160,000 and a receptionist seat at Shs80,000.

Ddamulira went shopping for a scrubbing machine at Shs3.2 million; cleaning detergents and carpet shampoo for Shs100,000, multi-purpose soap at Shs10,000, among others.

He printed business cards for Shs30,000 and stickers at Shs120,000 after which he went door to door promoting his operation.

“…the business brought in enough money to purchase a vacuum cleaner that washes chairs, vacuums dust and absorbs water. It cost Shs1.1 million. For a five-seater sofa wash, we charge Shs150,000 from which we earn Shs70,000 as profit. For a one-day roofing tiles wash, we earn profit of about Shs300,000,” he said.

Going bananas
In Nabweru’s Kizza Zone, Ms Jovia Nabukeera sells plantains (matooke and sweet bananas. It is a business that got started with Shs900,000 and thrives on produce bought from the busy farmers market in Kalerwe outside Kampala city centre.

She invested Sh270,000 in a display counter and stall. Her starting stock was sweet bananas worth Shs200,000 and matooke for Shs400,000. Today, the business stock is worth Shs1.6m.

“I earn profit of Shs150,000 weekly from sweet bananas and between Shs200,000-300,000 from matooke after every one or two weeks,” she said.

Her business is low risk. Nabukeera says over-ripe sweet bananas are turned into raw material for making pancakes, which she sells.

Juicing it up
Freshly-squeezed juice or juice bottled without colouring, flavours and preservatives is popular. Ms Rashidah Nakiryowa invested Shs2.5m in making juice for sale alongside other cold drinks.

She identified a location, paid Shs80,000 in monthly ground rent and the rest is history. Her kiosk is in Kibwa-Nansana and sits next to a motor vehicle repair shop, a mosque, and the Catholic and Anglican churches, making it ideal for the business. Juice is best served chilled so Shs850,000 went into buying a fridge. A juice blender left her Shs120,000 out of pocket.

“I use electricity of Shs30,000 monthly,” she said.

Her initial stock was sodas worth Shs500,000, sweets worth Shs100,000, water (Shs50,000), fruits (Shs15,000) and pineapple juice ingredients at Shs16,000. Nakiryowa’s average daily profit is Shs30,000 from passion fruit juice and Shs40,000  from pineapple juice.

The missed opportunities
Getting burnt in charcoal
Ms Erina Nakintu invested Shs1 million in charcoal trade, having built a basic store for Shs2.8m on a tiny patch of land rented at Shs90,000 for three months in Nabweru Town Council, Wakiso. It all ended in tears.

Although she partly blames herself for venturing into the business with zero experience, she also blames assorted fees and levies, along with high transport costs for the failure.

She added that the business was also threatened by the challenge of spotting quality charcoal.

With profits very low, Nakintu quit this year.

Cheated into failure
Ms Elizabeth Nanyunja earnings from paid employment could not meet her needs, and so the desire to start an electronics and mobile money shop stirred in her. With Shs3m, Nanyunja opened in Kawaala, Rubaga North Division after renting space for Shs450,000 over three months. 

Because she had to keep her day job, Nanyunja recruited a female employee to run the mobile money business.

Unfortunately, fraudsters robbed Nanyunja’s employee of Shs700,000 in the third week of operation.

“I had no choice other than closing the business in losses and lost hope,” said Nanyunja 

Spoiled juice tale
Mr David Lutaaya took the extra step of researching the business idea of banana juice production before establishing Solena Banana Juice. There were very few people in this market.

“So, it gave me a lot of hope that actually I’m going to hit the jackpot because the type of drink I was preparing was 100 percent natural, locally known as omubisi,” he said.

Lutaaya started small with a little advertising and the early signs were good.

“Actually, people liked it. I started with schools and some shops. At first it moved on very well and I started getting profits,” Lutaaya said.

Then something went wrong.
“It was the shelf life of my juice. Because it was 100 percent natural, I discovered that because of the high sugar content in the drink, it was not stable in high temperatures yet the shops I supplied placed the drink alongside artificial drinks on the open shelves,” said Lutaaya.

“…the juice was affected by direct sunshine and fermented quickly.”

Despite being a promising product, Lutaaya only lasted two years, including six months on research, recording a loss of approximately Shs7.5m.

“Natural sugars of bananas are not stable at all, it’s very hard to stabilise them and they need a lot of research which was beyond me and that is why there are a lot of imitation drinks.”

Additional reporting by Karim Muyobo