How female entrepreneurs can scale small businesses

How female entrepreneurs can scale small businesses (Photo: iStock)

Research shows that, of every ten start-ups in Kenya in a given year, at least 70 per cent collapse within that year. Professor Ng’ang’a Gachara explains how female entrepreneurs can avoid this pitfall.

How can female entrepreneurs assess whether their businesses are financially ready to scale?

A business is financially ready to scale when it has achieved organic growth for a period of at least 18 to 36 months. If revenues, after covering supplies, can also cover all operational costs, then the business is ready to scale its financing. However, it’s important to consider market availability, supply chains, the cost of borrowing, and fiscal policy.

What financial steps should they take when considering scaling?

Financing choices are determined by the age and size of an enterprise. When a business is less than a year old, it should be financed through personal means, such as salary, savings, donations, or the sale of an asset. Entrepreneurs can scale up the financing model once the business becomes established and stable, seeking short-term loans from Saccos, microfinance institutions and banks at affordable rates.

How can they balance maintaining financial stability during the scaling process?

Financing for scaling should always be informed by a business’s financial stability. Any business should prioritise stability in terms of management, revenues, and market before scaling financing. Some financing models can place severe strain on a business’s cash flows.

How can they create an effective financial forecast for their businesses?

Female entrepreneurs should create an effective financial forecasting model that includes revenues, incomes, expenditures, and general market dynamics.

What funding options do you recommend for female entrepreneurs looking to scale their businesses?

Any financing model choice should be informed by affordability, accessibility and flexibility in terms of repayment. On this front, Saccos, microfinance institutions and banks generally fit these criteria well.

How should a business owner decide between taking on debt or seeking equity investment when scaling?

Self-financing is the most secure model. This model is recommended at the early stages and for risk-averse entrepreneurs. However, with good growth prospects, businesses should balance between equity and borrowed funds to revitalise business growth.

What are the pros and cons of using business loans versus venture capital to finance scaling efforts?

Business loans involve borrowing from a financial institution as an individual or as a distinct business entity. Venture capital is where a business secures financing from venture capitalist firms, often with conditions on business management structure or shareholding until debt repayment. The pros and cons depend on individual preferences, business scale, financial and business risks, and the amount needed. With business loans, entrepreneurs maintain business ownership and control but bear all the risk. Venture capital can provide shared risk burden, business skills, adequate finances, and significant market and business growth.

How can they pitch to investors or lenders when seeking funds to grow a business?

A profitable enterprise with good management and promising growth prospects stands a better chance of securing financing from any financier.

How can women ensure their business has an increase in profits when scaling up?

With visionary business leadership coupled with discipline, focus, and enterprising habits, they can achieve exponential growth. Scaling financing alone doesn’t guarantee growth, but those who seek business mentorship, have the right human capital, and are disciplined are more likely to succeed.

What are the financial risks associated with scaling a business too quickly?

A business can collapse due to cash flow traps and the intense strain of loan repayments.

How can women use networking to gain access to funding?

In networking forums, women can access a ready market, knowledge, and expertise to scale their business growth and position themselves for potential funding arrangements.