Why failed business ventures lead to choking debts
Stephen Okoth, 25, ventured into a chicken business in Nairobi only for things to go south months later, leaving him in huge debt.
“I was encouraged by a friend of mine who was doing well financially. He was operating a chicken business in one of the slums. I took a loan and decided to venture into the same business without understanding the challenges,” he told Nairobi News.
Only for the business to crumble after two months.
Okoth is not the only one facing such challenges.
Many people venture into business without proper knowledge.
Starting a business appears the most rational and accessible solution to address the prevalent unemployment crisis in Kenya.
Many individuals opt to initiate small-scale enterprises in an attempt to alleviate their financial constraints.
While embarking on a startup may seem like a safety net for some, the majority soon confront the harsh realities of business demands and operational expenses. Many venture into business with limited capital or rely on loans, often with the hope that their enterprise will flourish, essentially placing all their hopes in this one business endeavor.
Every year, hundreds of businesses are established in Nairobi, yet most of them fail to endure beyond three months due to financial limitations.
A significant number of individuals fail to conduct thorough research on the type of business they’re entering into and the choice of location.
Although many understand, in theory, the significance of a business’s location, they often neglect to implement this knowledge.
Entrepreneurs often argue that financial constraints should never be a limiting factor, but the reality is that a substantial number of Kenyan startups shut down due to insufficient awareness about the challenges and financial constraints. Some believe that a good idea alone will guarantee success.
The food industry, in particular, seems to attract many entrepreneurs who subscribe to the notion that one can never go wrong with food.
Only a few individuals seek expert advice in the industry before embarking on their business journey, while many advocate for starting small with grand aspirations. However, the majority of startups initiate operations on a small scale and subsequently close within six months due to financial inadequacies.
Although the closure of a business and financial losses may seem like a typical challenge, many find themselves burdened with loan repayments from failed ventures. Some have even lost their assets through auctioneers who come to collect outstanding debts from these ventures.
To fund their businesses, many individuals resort to taking loans, hoping that their enterprises will generate enough revenue to sustain themselves, a scenario that often results in financial distress and debt after a business failure. Many enter the business world as newcomers with no prior experience in managing a business, and some hastily hire employees they cannot afford to pay, perpetuating the struggles of startups.
Furthermore, the absence of financial support from lending institutions, which exercise caution when investing in startups, exacerbates the challenges faced by many promising but ultimately unsuccessful ventures. According to data from the Registrar of Companies, 2,540 entities closed in 2021, a substantial increase of 1,255 closures compared to 2020.
Also read: Man charged with drugging, stealing from businessman who lost Sh313,000 in Kasarani