I have two digital jobs from which I earn a combined net pay of between Sh. 90,000 and Sh. 100,000. I save a minimum of Sh. 50,000 every month while the rest of the money goes to my monthly expenses.

I am considering getting into the long distance matatu business as my third hustle. My plan is to acquire a very slightly and privately used 9l Hiace diesel high roof that has a capacity of 16 passengers on cash terms. I think that this type of vehicle can fit long distance routes as I have seen some 9l Hiace vehicles servicing long distance routes such as Nairobi Mombasa and Nairobi Kisumu.

Since my work is part-time digital, I would like to be the one to run the vehicle as the driver to eliminate unnecessary expenditures as well as have a better grasp on maintenance.

I assume that even by working half the month in one of the busy long distance routes (Starting from Nairobi to lower eastern, mount Kenya or central rift), I will have added quite a substantial amount to my monthly income. Is this a viable option or am I looking for a quick way to throw my money down the drain? Please help.

Expert’s Take:

You are currently able to save half of what you are earning, and I am pleased that you are thinking of how you can invest the amount you have already saved. Savings is the amount of money you keep aside while investment is the process of converting the accumulated savings into productive use.

Start by setting up an emergency fund that can take care of at least 6 months of your expenses. Based on your current expenses you need to create an emergency fund of at least Sh. 300,000 and I would encourage you to invest at least 70% of your emergency fund in a Money Market Fund (MMF).

The MMF is a low-risk investment with guaranteed returns, your capital is preserved, you can grow your portfolio through regular savings and the funds are easily accessible in case you need to withdraw. The amount of money you have saved now should be earning you some interest even as you ponder on where to the invest the funds for better returns.

Before venturing into any business, you need to first identify the problem that you intend solve with your solution. You earn returns for solving a problem. You already have a business plan of venturing into a long distance matatu business. However, you have not firmed up the route your matatu will be plying.

Matatu business has unique risks and challenges that you need to consider before you invest in it. Start by researching the potential of that business so that you can identify long distance routes that are underserved and have high demand. You have indicated that you want to buy an already used vehicle, however in my opinion I don’t think that is the best option for long-distance routes.

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The choice of the vehicle to buy should not be pegged on cost alone and you need to consider other factors like passenger capacity, fuel consumption, licenses, the long distance routes to be covered, maintenance cost, matatu SACCO joining fees, Insurance cost, motor vehicle inspection fees among others. Evaluate if the 9l Hiace meets these requirements for the long distance routes you want to target.

Regular maintenance of the vehicle is essential to keep the vehicle running smoothly and for passengers’ safety and thus you should expect to spend more on repairs for a used matatu. Nonetheless, with a keen , lots of patience, and guidance from a motoring expert, you can find a good deal for a private, very slightly used van within your specifications.

Your research findings should be able to inform you on the exit strategy should your business idea fail.  Remember you are investing in a depreciating asset and thus it is important to consider how you are going to recoup your investment if things don’t work as expected.

There is an opportunity cost of investing in the matatu business, and so you need to compare the expected returns from the matatu business with other investments options where you can invest your savings. You have not indicated the amount you intend to invest and the expected returns.

However, a vehicle within your specifications and condition should cost you around Sh. 3 million.  Now, the expected returns should be higher than the passive income you would expect from various investment options available.

To allay your fear of losing your investment I would urge you to first understand the initial capital required, the running costs and the expected returns before you invest in the matatu business.

Matatu business is a cash business, however you shouldn’t confuse cash flow with profits considering that this sector has many stakeholders and each one of them would want a piece of the pie. The Matatu sector is one of the sectors that has several cartels and thus you need to be ready to be confronted by these cartels and also be ready to incur some costs to survive in that business.

You have indicated that you would prefer to be the driver of the matatu. However you need to be very careful not to kill the goose that lays the golden egg by spending most of your time and effort on the new venture at the expense of your current job.

In as much as you want to venture into a new business, you need to consider how you can scale up your current job so that you will have more money to invest in the future.

The importance of separating your new venture and your current job is paramount since should the new venture fail, you will continue to survive on your job, and should your new venture require more capital before it breaks even your current job will be able to support the business.

Staffing is also an issue you will need to consider that even if you take the role of the driver, you cannot be the one driving the vehicle all the time. You must be ready to conduct due diligence on the staff so that you hire people that have the necessary qualifications and licenses and people with good customer service since this is service business.

A version of this featured question was also previously published in the Saturday Magazine. The Saturday Magazine is a publication of the Nation Media Group. The answer to the question asked above on starting a matatu business with a 9l Hiace for long distance routes was provided personal finance and investment consultant Dominic Karanja.