HOW TO START A BUSINESS IN KENYA

The first and most important step in starting a business is to identify the area of business in which you want to venture, broadly identify the opportunity, and why you would be able to sell/serve and make a profit in this segment. A broad-brush business plan or appreciation of your vision is important to aid a selection of the way you would like to set up. So is an idea as to the ownership structure you want to adopt.

The second step is to acquire all the necessary legal documents from the government in order to operate legitimately. If you fail to put in place these legitimizing measures, you will be at risk of being shut down quickly or find yourself prey to exploitative but corrupt opportunists who offer to “fix everything” for you. Either way, you will probably careen quickly towards the dustbin of businesses that do not make it beyond the early phase. To avoid this, understand all the requirements and attend to them. The below is an attempt to list out most of them, but please be sure to check with your specific local authorities if anything else is required. Our list is representative of the time it’s being made but may not be exhaustive for all locations and for all times.

The following is an elucidation of business setup requirements in Kenya.

Business Set Up Requirements

• Business Registration

The first important step in establishing a legitimate business is to look for a suitable name and register it with either the Registrar of Business names or the Registrar of Companies.

• Business Name Registration

This is the simplest form of business under which one can operate, it is not a legal entity, it simply refers to the person who owns the business and is personally responsible for its debts according to the Kenya Business Registration Service (BRS). It is also referred to as a sole proprietorship.

Requirements

• E-Citizen Account
• 3 proposed business names for search and reservation
• Nature of business
• Full names of the proprietor (As per the national ID)
• The proposed physical address of the business
• Postal address for the business name
• Copy of ID or Passport of the Proprietor.
• Passport photo of the Proprietor/s.
• The email address of the Business is distinct from that of the proprietor.
• Residential Physical address of the proprietor.
• KRA PIN for the proprietor(s)

The business name registration process takes place online, on the E-citizen platform at a cost of Ksh 950, which is paid via mobile money, credit, or debit cards. After successful registration, one is issued a Certificate of Incorporation after 1 working day.

• Partnerships

The second type of business registration form is a partnership. This is where there is more than one person who desires to own and operate a business jointly as opposed to a sole proprietorship. A partnership is a business (name) that is owned jointly by several people- minimum 2 and maximum 20.

To register a partnership, you will be required to prepare a Partnership Deed which a lawyer can help you craft. The partnership is legally an extension of the activities of the individuals who constitute it therefore assets and liabilities (e.g., debts owed and owing) by the partnership are also assets and liabilities of the individuals constituting it. Partnerships are registered at the Business Registration Service (BRS). There is a more recent type of partnership called the Limited Liability Partnership (LLP) which is different from the regular partnership in that, the liabilities of the partners are limited to their capital contribution, similar to limited companies (see below).

• Requirements for registration

Registration of a partnership requires that a partnership deed – which governs the relationship between partners and their rights and duties and normally contains the following particulars- is prepared and presented for registration together with the rest of the documentation.

• The name of the firm or partnership
• The names and addresses of the partners
• The nature or type of the business
• The duration of the partnership.
• The amount of capital to be contributed by each partner.
• The amount and nature drawings that can be made by each partner.
• The interest is to be allowed on capital and charged on drawings.
• Rights and responsibilities of partners.
• Duties of partners.
• Remuneration to partners.
• The ratio of the profits or losses shared among the partners.
• The basis and rationale for the calculation of goodwill during the time of admission, retirement, and death of a partner.
• The keeping of proper books of accounts and the preparation of the Balance Sheet.
• Settlement of the amount upon the dissolution of the firm.
• The procedures and processes to be adopted in the case of disputes among the partners.
• An arbitration clause in case of dispute or disagreement.

The rest of the list is the same as the one for a sole proprietorship.

• E-Citizen Account
• 3 proposed business names for search and reservation
• Nature of business
• Full names of the proprietor (As per the national ID)
• The proposed physical address of the business
• Postal address for the business name
• Copy of ID or Passport of the Proprietor.
• Passport photo of the Proprietor/s.
• The email address of the Business is distinct from that of the proprietor.
• Residential Physical address of the proprietor.
• KRA PIN for the proprietor(s)

Company Registration (Private or Public Limited Company)

The third type of business registration is a Limited Liability Company (also called a Limited Company). Limited Companies have a separate legal existence from their owners, therefore the process of creating a company is called incorporation, being effectively the birth of a new legal person in the country involved. A Limited Company can either be Private or Public. At the point of starting a company, most companies will start as Private companies and only convert into public companies when they are much bigger through floatation on the stock exchange.

A private limited company needs to have a minimum of 2 owners and a maximum of 50, and before incorporation, a memorandum of association (defining the basis of existence, purpose, ownership, etc.) and articles of association (defining the way the company will operate and be managed internally) must be prepared and filed with the registrar of companies via the BRS by at least 2 people, called the promoters of the company who will also normally be shareholders and directors of the company although not necessarily. The Articles and Memorandum of Association can be drafted by your lawyer, or you can adopt the model Articles included in the Companies Act.

Below is a fuller list of requirements

Requirements

• Copy of IDs for the Director/s
• KRA PIN for the Director/s
• Passport-size color photo for each of the Directors
• Name of Company (as reserved)
• Memorandum of Association
• Articles of Association
• Notification of Directors residential address
• Statement of nominal share capital
• Registration can be done online on the E-citizen portal. Upon successful registration, a certificate of incorporation is issued within 3 – 5 working days.

Acquisition of a Tax Personal Identification Number PIN

Once your business is registered, the next step is to acquire a PIN from KRA if yours is a partnership or a limited company. Sole proprietorships continue to use the individual’s PIN- you can consult the KRA website if you don’t have one and how to do it. The process of business PIN acquisition requires the business registration certificate, the ID, and PINs of the Shareholders and Directors of the company. You can either visit a KRA office near you or apply online on the Itax portal, though you may still need to visit a KRA office to submit the documentation for verification. We expect that with time everything can be done online so check the latest on the itax portal at the time you are reading this.

County Government Licenses & Permits

Once registration is completed, the next step is to acquire county government licensing to carry on business in the chosen locality. Requirements will depend on the county and specific type of business, but the following are generally applicable.

Business Permit

The county government requires anyone planning to start a business, to apply for a business permit. You will need a business permit that allows you to operate the stated activities in the locality concerned.

• Copy of National Identity Card
• Copy of Registration Certificate of the Company or Name
• Plot Number
• Physical address
• Renewal-Business number
• Cost: Depends on the category of business

A Fire Safety Certificate

This is another mandatory requirement for business operations. This document certifies that your business has complied with the requirements of fire safety precautions in the County concerned. You can apply for this online, through the e-citizen platform where you will be required to fill in the Fire safety application form, pay through your preferred method then download the generated provisional permit. That is what you present to the county fire offices so that a county officer is assigned to come over to your business location for inspection for compliance to fire safety standards after which the Fire certificate is automatically generated by the system.

You can then download and print it out to get a hard copy that you can then display at your business. This will cost you about Ksh 4500 (but differs from year to year) and it is subject to renewal annually. In line with this, you will also be required to have a fire extinguisher.

Health Certificate

This form of certification is required for, and applicable to all businesses dealing with consumables, such as bakeries and hotels. After application, county officers inspect your premises before issuing you with one. Such businesses are periodically inspected by County Health officials to help ensure that food handlers are free from diseases.

Other licenses are Advertising and signage, which are issued to anyone using advertising signage to advertise their business. Food handlers’ certificate, issued to individuals who run food-related businesses. This subjects them to individual medical tests to ascertain that they are fit to handle food and sell it to the public.

We cannot exhaust the full list of permits and licenses because they differ depending on the industry you plan to get into but the above covers most businesses.

Be sure to check with your respective local authorities wrt specific additional permits that you will need for your specialized businesses.

Laws

To round it all together it is helpful for you at this stage to familiarize yourself with relevant laws related to operating a business in Kenya such as:

• The Employment Act (Cap. 226) – Deals with rules governing termination, health, leave, safety, and termination from employment.
• Trade Disputes Act (Cap.234) – these deals with the settlement of disputes that arise between traders
• The Workmen’s Compensation Act (Cap. 236) – provides for ways through which an employee who is injured when on duty may be compensated by the employer.
• Regulations of Wages and Conditions of Employment Act (Cap. 229)– Deals with issues relating to minimum wages for employees.
• The Factories Act (Cap.514) – deals with the health, safety, and welfare of an employee who works in a factory.
• Companies Act – deals with consolidation and reforms of the laws relating to the incorporation, registration, operation, management, and regulation of companies.
• Consumer Protection laws – to defend, promote, develop, and pursue consumer rights as guided by Article 46 of the Constitution of Kenya

Choosing a Business Location

Relatively early on when you are thinking about the type of business you want to set up, you will need to decide the location you will set it up at. Before you set about acquiring the county permits and licenses, you should have zeroed in on a specific location to set it up. But how do you go about deciding on a business location? We offer some thoughts and guidelines.

The factors to consider when choosing a location include:

• Nature and type of business in terms of the industry, will you be dealing with perishable goods? The food industry, car dealerships?
• The size of your business in terms of merchandise, number of employees, or number of offices you plan on having
• Your budget in terms of how much you are willing to part with to get a space
• Your target markets. It must be a place your target market can easily locate or visit you which also necessitates good infrastructure to make matters logistics easier and hustle-free.
• Consider the availability of parking space for your client
• Visibility to your target markets.
• Logistics – must be a place where both your clients and your suppliers can easily access by foot, motorbike, and by car.
• Security – is the place secure for both you and your stakeholders?
• Find out what kinds of businesses your neighbors are running lest they are all doing the same business which will force you to compete for clients.
• Understand zoning laws and avoid breaking them.

Once you are clear on all the above, you will then need to settle on a property for which you can get into a contract with the owner, to either lease or purchase.

Open a Business Bank Account

Transacting with your customers is one of the key reasons if not the main ones, for the existence of your business. For you to do this, you need to transact on a platform of either cash, electronic, or with a bank. In all cases, you will probably need a bank account that will be the central point of consolidating your cash resources and interfacing you with the wider financial system. You can open a business bank account with a bank of your choice- a good starting point may be the bank you already hold a personal account with but consider how versatile your chosen bank is to meet the specific requirements of your business such as cash deposits hence the location of the nearest branch, online banking, ease of financing and so forth.

Business plan for funding purposes

Next, identify how much money you will require to start and operate your business. Then you need to find the funds. Determining how much money you need and when is usually referred to as ‘creating a financial plan’, and finding the required funds is called ‘financing the business’. A business financial plan is a subset of a ‘business plan’ which in turn is a plan that captures much more than just the finances required. That said, the financial plan is very central to the business plan.

The business plan is usually asked for by people who provide financing for business and preparing it will therefore help you to access finances if you wish to secure funds from formal sources such as banks, Private Equity Firms or more sophisticated individual Investors.

The business plan defines a company’s nature of business, business model, goals and how it intends to achieve those goals. With a business plan, it is easy for entrepreneurs to have clarity on how much money they need to run their businesses based on the goals and timelines for the achievement of the same. This is also the document you present to banks, investors, or friends when you require funding for your business.

We have prepared an outline that will act as a guide for you to prepare your own business plan below:

Executive Summary

This is a summary of what has been captured in the body of this document.

• A brief overview of your company.
• The company’s product and/or service offerings.
• A summary of the target market and its demographics.
• The industry competition and how the company will capture a share of the available market.
• A summary of the operational plan including issues such as inventory, labor, and equipment needs.

Market Opportunity

• Competitive Landscape

Sales and Marketing Plan

Organizational and Human Resource Plan

Operations Plan

• Pricing and Revenue Plans and Assumptions
• Implementation Timeline

Funding Required and Preferences (Loan vs Shares vs Any Other Variation)

Appendices

Attach your full financial projections (profit and loss, balance sheet, and cash flow) in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include:

• Support for product description
• Market research and a summary of the target market
• Site locations
• Construction plans where relevant

In addition to being helpful for raising finances, a business plan is very helpful to you as it helps you to pull all your thoughts together and test their coherence, thus increasing the chances of success for your business. The level of sophistication of your business and financial plan should depend on how big your dream is- the bigger the business you have in mind, the more sophisticated the business and financial plans ought to be. The business plan can be as small as 3-5 pages for small business ventures but as comprehensive as several dozens of pages for big business ambitions. This is partly because financiers will require much more convincing to invest a large sum of money than to invest relatively small amount of cash.

Finally, let us briefly consider ‘financing the businesses’. You can source funds for your business from your own savings, from family members, or by borrowing or inviting other people to invest in your business. In all cases (except self-savings), some sort of a pitch will be required, the formality will defer depending on who you are approaching. The formal way to pitch for finances is to prepare a business plan including a funding plan and present this to prospective investors.

Having said all that, it is important to emphasize that you can also start a business with very little sums of money. We have included a few ideas in Appendix 1 of businesses that require very little cash to start, not to paint the wrong impression in this section that you can only start a viable business if you find lots of money from somewhere to invest.

How to Market your Business in Kenya

Finally, assuming you have now secured your funds to start the business, the immediate next tasks are to execute it. This logically starts with finding the customers you intend to serve and helping them find you i.e., marketing and selling. There are various ways to do this:

• Word of mouth – This is a very cost-effective method of marketing any business. It is the free advertising for your business that you get from satisfied clients. For you to fully benefit from this method, all you need to do is give the best to your clients. Once you have happy clients, they will not stop talking about your business in their circles or whenever they get to hear of anyone looking for your services.
• Have a website – Times have changed and so many people are spending time online. As a business owner, you should make it your business to be where most people are, online. A website is a collection of related web pages, containing related content that is identified by a single domain name. This is important because people can get information even way past working hours, the website will still be doing the marketing for you as it provides answers to most of the questions buyers might have. It will also help break geographical barriers and help you reach people who are far beyond your physical location. From as low as Ksh 10,000 you can have a website designed for you.
• Social media pages for your business – this is one of the most cost-effective methods of advertising your business and it’s also very easy to set up; you will not require to hire an expert to do this for you. This will help you reach a wider customer base beyond the walk-ins that visit your physical location. Some of the platforms that you can use include Facebook, Instagram, YouTube, Twitter, and LinkedIn depending on your target audience.
• Set up a Google My Business page –Google My Business (GMB) is a free business listing from Google designed to help promote local businesses online. This is another marketing method that is slowly becoming popular. It is also very easy to set up, either on a phone or on a PC. You will not need to hire someone to do it for you, you can just follow simple steps online and set it up for yourself. With this setup, it will be easier for people to find your business on search engine results. What’s more, you can also upload images to market your products and services, and add working hours and your contact information. With a GMB listing, your clients can easily review your business which is to your advantage because if you have many positive reviews, it will translate to more business for you. Negative reviews also help you work on the areas your clients are not comfortable with, by extension, improving your business. It also helps you get to see the number of views your business profile, photos, and posts are attracting, making it possible for you to know what to improve on.
• Internet/Business Directories – Make sure you get your business listed on local business directories. Getting listed in most of these directories is free and it will increase your visibility hence increasing your chances of selling. Some examples include yellow pages, Yalwa, Kenyaplex, and Pigiame.

How to Start an Online Business in Kenya

The gist of the guidance we have offered above is applicable to most businesses but has a leaning towards traditional businesses. The current trend is that internet-based businesses are as big a proportion of businesses being started, if not bigger. Therefore, we want to make some specific comments about this type of business.

To successfully run a business online, you will need a desktop, laptop, or Smartphone, a stable high-speed internet connection, and a stable power connection, preferably, with backup. It is advisable to have a special space in the house that is specifically designated for work. It does not have to be very complicated, just a simple upright or ergonomic chair and table or desk are enough. This is important because it ensures you are sitting upright during working hours and not lazily lying on a couch which might end up making you less fruitful.

The next step will be to identify what kind of business you would like to start and whether you have the necessary skills required to do well in that area. Another important thing is to research which online channels to capitalize on in your kind of business, ranging from YouTube, Facebook, and Instagram.

There are several types of online businesses that can be done in Kenya but not limited to:

• Air BnB – this is a business that deals with renting out spaces or accommodation. In case you have a space that you do not regularly use ranging from one room to several rooms, you have an opportunity to make some cash out of it. You simply tidy it up and make sure it looks presentable and homely keeping in mind that there are so many other people posting their listings and for yours to be chosen, it must stand out. Your price tag also must be competitive so that anyone interested to work with a budget close to that can contact you for accommodation.
• Online shop – this can be done if you have products available for sale but do not yet have a brick-and-mortar store, or you are not planning to get one in the near future. You can simply take good images of your products and post them online for people to have a look at and place their orders.
• Content creation – this is the process of producing content that will attract the attention of a specific group of people with the intention to gain a bigger following which extends to being recognized by brands as an influencer hence being paid for it. In Kenya, this business is fast growing, and we have quite a good number of people mastering the art and excelling in this. Content creation covers all kinds of topics ranging from Fashion and Design, Recipes, Lifestyle, Real estate, Leadership, and DIYs, you name it.
• Web design and development – this is the process of creating websites. If you possess the necessary skills required to perfectly do this job, you do not require a physical office. All you will need to do is have a website of your own and post samples of jobs that you have done for previous clients, client testimonials, or simply include your signature on websites that you have designed in the past and if the designs are impressive, people will look for you and contact you.
• Drop shipping – This is a type of retail business that does not require someone to have stock at hand to make sales. This way, this type of business eliminates costs for physical spaces such as a warehouse. Instead, what you will be required to do as a retailer is market products from wholesalers but with a retail price, then once a client expresses interest in any of those, you make arrangements for the wholesaler to ship the product/s to the client. This way you make money from the wholesaler’s business without having to stock up on their products.
• Write and Sell E-books – this is another quickly growing area. Most people are embracing e-books since they give them the flexibility of reading them from their phones, saving them the burden of having to walk around with a book. This, in turn, has encouraged people with the passion to write short stories on a myriad of topics, to take advantage of and sell their content online. Another advantage of this is that it saves you time and costs involved in delivery because once a client pays for the book, either through M-pesa, it is just sent the book to them through WhatsApp or email depending on their preference.

The same choices as to registration exist online as it does for other businesses. The main difference lies with the location where this can be done from home or an existing office.

Whether you are thinking of starting an online business or a brick-and-mortar business, we trust you now have an idea of where to start and how to proceed. If you need further assistance or consultation on your business startup efforts, we are happy to provide assistance with sharpening your business strategy, preparation of a formal business plan for fund-raising or other purposes, preparing and integrating your financial plan with your business plan, or any other related matter.

Please feel free to contact us at 0713601118, sales@stratexalign.com, or linkedin@stratexalign.com. You can find out more about our services at www.stratexalign.com.

Businesses you can start with small or no capital in Kenya

• House Call Businesses

House-call businesses are businesses that you can do by calling on people’s homes. All you need here is to identify what kind of skill/s you possess, and which people would benefit from the same. Examples are hairdressing, nail technician, barber, laundry skills, landscaping, and carpentry, to mention but a few. Once you are aware of your skill, the next step will be to market yourself by taking images of some of the work you have done and posting them on social media platforms such as WhatsApp status where interested people can view and contact you to go and offer the same and at the end of the day, you get a payment.

• Catering business

With this, you just need to be very good at making different kinds of dishes and whenever you do, do a proper presentation of the food on a plate or a serving bowl, take nice photos, and post them on social media platforms, people will see and reach out to you for business and gradually your business will grow as long as you keep posting and building your networks. Cake baking is also another business that can be done this way.

• Car Wash

This one does not need a lot of money to start; all you need is a reliable source of water, detergents, and skill. You can simply start by requesting the people who own cars around you to allow you to start cleaning for them, and if you do a good job, your clients will refer you to their friends and family. With this kind of referral, you can now rent a space and invest in a portable car washing machine to improve on your service delivery.

• Handwork/Artistry related jobs

These are the kind of jobs in which people use their hands and creativity to make attractive items for sale. These items include but are not limited to, hand baskets, African sandals (popularly known as Maasai sandals), bracelets, anklets, pedants, and shaggy floor mats, and the list is endless.

• Pudding business

You can buy fruits from wholesalers, make fresh puddings, pack in different container sizes to retail at different prices depending on the size and deliver to specific areas at designated hours either at lunchtime or in the morning. Alternatively, you can scout for a suitable location either close to offices or a hospital where the demand for fruits is high.

• Daycare Business

All you will need for this, is a license, a passion to take care of little ones, and a small space where you can start with a small number of children who are yet to reach the school-going age. The more you do a better job, your clients will do the word-of-mouth advertising for you, and with time your business will grow. There is a great potential of making good money in this business since there is also a high number of working mothers who might not necessarily prefer having a stay-at-home help but prefer leaving their babies at the daycare and picking them up once they are back from work.

Once you have set up your business, the other important thing you will need to do is start marketing it so that you can maximize your sales