REGAL REPORT WEALTH NEWS
13 TH ISSUE: 1ST REPORT 2017
Let’s help you start your wealth journey today!!!
When you think, "I need to organize my finances", you're probably just referring to updating your budget and arranging your bills. However, you can take this a step further by organizing your financial, insurance and tax records, as well as other documents related to your financial security, such as wills and property deeds. Organizing these financial records will help you protect your security and that of your family. Let us help you create the ultimate financial journey to help sustain your family for generations to come.
CONTACT US TODAY!!! LET US BEGIN YOUR FINANCIAL JOURNEY TOGETHER Regal Africa Group 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya P.O. Box 40187, Nairobi 00100 Tel: +254 0714 009 065 www.regalafrica.co.ke info@regalafrica.co.ke
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Report Created BY: D.Gaitha Creative Studio www.dgaitha.com
Word from the C.E.O Journey to My Financial Freedom Money Market Analysis Are you equipped to handle your finances Equity funds Analysis The rising Importance of Equipping employess with Financial Literacy Bond market Analysis Balanced Funds Analysis Investing in Real estate How to access funds for your business
WORDS FROM C.E.O “We can all be WEALTHY, It takes a Plan, Discipline and Execution to achieve your Financial Freedom� We are excited to Relaunch the Regal Report as a Quarterly Publication. We begun 2017 with the goal of providing our clients with as much information as we can, to ensure that they achieve their financial goals and with this in mind The Regal Report was rebranded. As an advisory firm offering Financial, Investment and Strategic advisory services to Individuals and Businesses, we are excited to share a well rounded publication. As the CEO of Regal Africa, I can assure you that we are constantly working to help YOU Plan, Manage and Grow your Wealth and attain your financial goals. This is our mission and promise. For the last two years we have set up the platform to offer independent advise and we hope to continue being successful and to work with our clients who entrust us and ensure that we are part of their Wealth Journey. This month we focus on PesaPlan our personal finance advisory services where we offer advise on Investments, Pensions and Insurance to individuals and families. We hope you are inspired to start on your Wealth Journey
Wambui Gaitha
Founder and CEO of Regal Africa
regal africa Creating Wealth
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JOURNEY TO MY FINANCIAL FREEDOM
e all want to be wealthy, we all dream of striking it big and living a comfortable life, that is why we all do what we can to ensure that we have the right tools and skills to get a job, so as start on your journey to prosperity. Now that you are making money, how can you ensure that you create wealth and attain financial freedom? The only secret to ensuring that you achieve financial freedom is by starting your journey NOW. You start by taking the recommended steps needed to achieve your ultimate financial goals. When you start your journey towards your financial freedom, I believe the first step is to know where you are before you can figure out how you are going to get where you want to be. This means that you would need to calculate your financial net worth. Your current net worth is what you OWN (Assets) minus what you OWE (Liabilities). Once you figure out your net worth, you are now able to set up a plan to get to your financial freedom. Cash flow management – this is very important when starting your journey to financial freedom. Great management of your Finances ensures that you are spending less than you make. Setting up a monthly budget is a great way to keep track of your finances to make sure you are on track. When you are figuring out your budget, you should begin by approximating how much you make monthly. Once you know this, you are to list down all your fixed expense i.e. Rent/Mortgage, Insurance (Auto, Home, Medical, Rental), Loans (Auto, Secured) and then your necessary variable expense like groceries, utility bills, transportation costs. Once you deduct these costs from your income, the rest of the funds can be devoted to savings, investments and discretionary spending. Once you set up the cash flow management system, then the next step to make to attain financial freedom is to pay yourself first. This means that you need to Save, Invest, Invest and Invest. You work very hard for the money you make, therefore it is only right to take care of yourself and pay yourself first, so as to save for a rainy day. Having a couple months of savings in an emergency fund is very crucial. As many families have experienced in the last couple of years, a job is no longer guaranteed. Things can change in a moment; therefore you need to be prepared by planning ahead of time and putting money aside that you can tap into during hard times. No longer can people depend on credit cards, the credit limit can be reduced at any time and if you do not have the funds to pay the bill at the end of the month, you will be paying interest that can take you years to pay back in full. The question I get asked a lot is how much to save and when is the best time to start saving. The best time to start saving is NOW. How much you put aside is based on your budget, but best practice is to put aside 10% of your take home income for short term savings and an additional 10% for long term investing. If this is too much for you right now, that’s ok start small but plan to work your way to attain the 20% figure. The best cushion of funds is 3 – 6 months of monthly expenses, thus ensuring that you have ample time to go out and find a job if you are laid off, or time to implement a business idea if that is the plan you have. Once you take this initial steps of cash flow management, then you are well on your way towards financial freedom.
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We know that you work very hard for your money and that’s why at Regal Africa, we advise our clients to Save, Invest, Invest and Invest. We think it is only right to take care of yourself and pay yourself first. Now before you start thinking about investing for the future and how your wealth will grow, we encourage you to look at your debt to see how it will affect your investment goals. Managing your debt is crucial on your journey to financial freedom, for the younger generation who can easily get credit cards, it always seems like a good way of getting something now with the intention of paying it back in the future but what most people don’t take into consideration Is the interest you pay and the length it will take to pay off the debt. We believe that getting credit cards or loans are not a bad thing but they have to be used wisely. There is good debt and bad debt. Bad debt is when you get something on credit and you pay a high interest rate on something that will not appreciate in value. i.e. using debt to pay for groceries, shopping, entertainment, vacations e.t.c. unless you plan to use your credit card and pay off the amount before the grace period ends so you do not have to pay the interest, or if you have a payment plan where you plan to pay off the debt in a specific time frame, we do not recommend using your credit card. We believe one can use debt wisely and benefit in the long run by taking on good debt. This include mortgage, land loan, business loans, auto loan e.t.c. Now many financial advisors defer on what good debt i,s but for us at Regal Africa, we say that if you are able to get a loan and invest it wisely where you are in a better position than before, then go for it with a plan to pay it back in good time. We recommend our clients to get a mortgage if they are looking to buy a home but they do not have all the cash on hand (Not all of us can inherit large sums of money or win the lottery) in that case most people take on a loan. The mortgage is a good way to finally own your primary residence or get a loan for investment property. It usually makes sense to buy a home if you are planning to live in it for a long time and in Kenya the government gives an incentive to encourage home ownership where the government allows homeowners to deduct up to 150K of their loan interest and this can be used as a tax planning tool to help reduce your tax obligation. While you are paying down your mortgage, you can anticipate the equity growth on your real estate investment thus increasing your financial net worth. Getting a loan to grow your business is also another good debt that we see and it should only be taken if the business owner has a plan on how they will use the loan processed wisely and how they will be able to pay it back. An auto loan can also be viewed as a good debt if the owner of the vehicle requires it to commute for business or work and it helps them perform their duties well and it is structured to be paid off in a short interval. There are other options for good debt and you can speak to your financial advisor or one of our advisors at Regal Africa who can advise you based on your unique situation. Once you are on track with managing your debt, then you can go on with investing for your long term investment goals. Our next topic on your Journey to financial freedom, will be on how you can prioritize your debt repayment plan and how to start investing. Regal Africa encourages you to get out of debt so that you can be well on your way on your wealth journey. (Extracts from PesaPlan - Journey to your financial freedom Book coming soon) If you would like to get one on one financial advice, you can contact one of the Regal Africa financial advisors at info@regalafrica.co.ke
Article wtitten by:
Wambui Gaitha
CEO Regal Africa pg 5
EXPAND YOUR INVESTMENT PORTFOLIO Are you looking to invest Part of your income this year or do you have a lump-sum saved up to start investing ? Regal Africa would like to work with you to acheive your goals. We will facilitate the best investment vehicle that is specific to your needs, having factored in the investment amount, risk tolerance and time horizon. We provide an array of investments options and each of them is concluded upon evaluation of the three mentioned factors. Investments are a means to help you secure a better future, so start investing wisely TODAY.
CONTACT US TODAY!! LET US GET YOU STARTED... Tel: +254 0714 009 065 www.regalafrica.co.ke info@regalafrica.co.ke AGRIBUSINESS
REAL ESTATE
STOCK MARKET Regal Africa Group 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya
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P.O. Box 40187, Nairobi 00100
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Q1 2017 MONEY MARKET ANALYSIS The money market’s were relatively stable in the first quarter of the year due to improved liquidity as indicated by the decline in the interbank rate to 3.8% from 8.2% as at the end of the previous quarter. However, a spike in inflation from 6.35% as at the end of the previous quarter to 10.28% as at the end of March was the biggest concern for investors. At 8.719%, the rate at which the 91 day T-bill closed March at means that investors are earning a negative real return. The Central Bank stuck to its low interest rate policy and rejected the high bids investors placed at T-bill auctions to counter the increase in inflation. The Central Bank also cancelled the 182 day T-bill auctions in March citing the need to spread concentration risk evenly across the 3 papers following high subscription of the 182 day paper in January and February. The 364 day T-bill closed the quarter at 10.914% from 10.475% as at the end of the previous quarter. The Monetary Policy Committee (MPC) of the Central Bank in its bi-monthly meeting in January and March held the Central Bank Rate (CBR) at 10% despite inflation moving past their upper bound target of 7.5%. The main reason they held the rate constant was due to slow credit growth which stood at 4% in March from a high of 21% in August 2015 which poses a risk to economic growth.
Money Market Funds’ Return in Q1 2017 The graph below shows money market funds return for the 5 best performing funds in Q1’2017
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Money Market Funds Return for the past 6 months. The graph below shows money market funds return for the 5 best performing funds in the past 6 months.
Money Market Funds Return for the past 12 months. The graph below shows money market funds return for the 5 best performing funds in the past 12 months.
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Money Market Outlook for Q2’ 2017 The Money market yields are expected to remain uncertain given that investors feel that money market yields should go up in the short-term while the Central Bank has a contrary opinion. We therefore urge investors to invest in short-term investments such as money market funds or short term papers as the uncertainty in interest rates clears up.
Regal Africa is proud to partner with Green Pot Enterprises Let’s build wealth and safeguard the enviroment through Agribusiness ...
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ARE YOU EQUIPED TO HANDLE YOUR FINANCES?
INVESTMENTS Majority of people don’t really understand the difference between saving and investing. Clarity in this distinction can greatly impact one’s financial well-being. Savings are low risk funds that must be liquid (available) when you need them. The reason for saving money is that you can have it for specific purpose within a short time frame. Investments on the other hand are for wealth building, and will not be needed for many years. Investments involve greater risk but yield higher returns when left long enough in the market. It is important to note that saving doesn’t increase one’s wealth but investments if well thought out does. However, it is financial prudence for one to set up an emergency fund to put savings before putting all the money in long term investments. Many people ignore savings because they have great investment plans to their own detriment and this problem mainly affects men. Majority of the women are able to balance savings and investment.
There are simple ways one can start investing SACCOS When we make the decision to start investing, we should not wait until we get a lot of money to get started. While we are waiting “to get money” so as to start investing, we recklessly spend small amounts of money every day without realizing their value or alternative use of the money. These small amounts put in a good SACCO can enable one access higher amounts in terms of loans for investments of their choice in the future.
INVESTMENT GROUP “CHAMAS” One can join an investment group with friends and agree on an amount that everyone in the group is comfortable with and slowly grow a large pool of m oney. This will enable members acquire properties, start a business or carry out other investment options that would otherwise take more time for an individual doing it alone.
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BONDS These are means by which government or corporates borrow money from the public. The government bonds repayments range between 1-30 years and have high rates than money in the bank. However, the rates change with the economic trends.
UNIT TRUSTS With as low as kes 2,500 per month, one can be able to invest in unit trusts that have annual returns of up to 10% p.a. and are liquid as one can dispose them within a period of 6 months to one year.
STOCKS/SHARES These are more risky and require long term commitment for one to get maximum financial benefits. The investor benefits both from dividends payments and capital gains when the company shares value increase.
Article wtitten by: The Regal Africa Team
TRUST
Regal Africa is proud to partner with Sanlam in order to make your Financial lives better
CONVINIENCE
EMPOWERMENT
regal africa Creating Wealth pg 11
ARE YOU IN A CHAMA AND WOULD LIKE TO GROW INTO AN INVESTMENT GROUP?
Regal Africa presents to you “The Regal Chama ” that offers an array of Investment Opportunities for your Investment Group. Investment Options: Professionally managed investments Real Estate Agribusiness Talk to us today and find out how we can make your chama the next BIG THING #RegalChama. Regal Africa Financial Services Ltd. 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya P.O. Box 40187, Nairobi 00100 Tel: +254 0714 009 065 www.regalafrica.co.ke info@regalafrica.co.ke
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Q1 2017 EQUITY MARKET ANALYSIS The equities market closed Q1’2017 in negative territory with January performance negating the positive returns posted in February and March. The NSE 20 Share and All Share Index shed 2.1% and 2.3% respectively, with performance of some large cap stocks dragging down the market. Turnover in Q1’2017 was up by 40% when compared to Q4’2016 as investors increased their participation to reap from the attractive dividend yields due to the depressed stock prices. Foreign investors remained net buyers with net inflows increasing to KES 17.3 million from KES 9.1 million in Q4’2016..
The table below shows the 10 best performing stocks at the NSE in Q1’2017;
Sasini Tea and Coffee Ltd Umeme Limited Kenya Commercial Bank Total Kenya Standard Group Limited TPS Eastern Africa (Serena) Ltd Standard Chartered Bank Kenya Ltd KenGen Equity Group Holdings Ltd
31/12/2016 19.20 13.50 28.75 17.00 16.50 20.50 189.00 5.80 30.00
31/03/2017 26.00 16.95 34.75 20.50 19.50 TH 24.00 215.00 6.55 32.75
Q1’2017 Return 35.42% 25.56% 20.87% 20.59% 18.18% 17.07% 13.76% 12.93% 9.17%
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The table below shows the 10 worst performing stocks at the NSE in Q1’2017;
KenolKobil Ltd Eagaads Ltd Kenya Power Home Afrika Ltd ARM Cement Ltd Mumias Sugar Company Ltd Deacons (East Africa) Plc Housing Finance Company of Kenya Car & General Uchumi Supermarkets
31/12/2016 14.90 27.25 8.10 1.20 25.50 1.30 6.05 14.00 27.00 3.95
31/03/2017 12.30 22.00 6.45 0.95 19.9 0.95 4.20 9.70 18.00 2.35
Q1’2017 Return -17.45% -19.27% -20.37% -20.83% -21.96% -26.92% -30.58% -30.71% -33.33% -40.51%
TThe graph below shows the return of the 5 best performing equity funds in Q1’2017.
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EQUITY FUND 6 MONTH ANALYSIS The graph below shows equities funds return for 5 of the best performing funds in the past 6 months.
EQUITY FUND 12 MONTH ANALYSIS The graph below shows equities funds return for 5 of the best performing funds in the past 12 months.
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Equity Stock Market Outlook for Q2’ 2017 The performance of shares at the NSE is expected to decline further in Q2’2017 due to the approaching August General election, book closure of majority of the announced dividends and announcement of poor Q1’2017 results by banks. However, the market will present an attractive opportunity for long term investors to pick certain shares at highly discounted prices.
coming soon ... regal africa online academy
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“Equip yourself with financial knowledge that will enrich you and your family”
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REGAL REPORT 13
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THE RISING IMPORTANCE OF EQUIPPING EMPLOYEES WITH FINANCIAL LITERACY
As the Kenyan economy becomes more diverse and embraces global trends, it is increasingly important for businesses and individuals to remember lessons learned. Organisations embracing the 21st century ideals are no longer running their businesses the same way. The importance of the employee as a key stakeholder, an internal customer and key factor of production has never been more important than it is at this moment in time.
ant first step. Teaching employees how to interpret financial information, whether that is through monthly lunch lessons or weekly team meetings as long as it reaches everyone will provide a collective path to growing the organization.
Performing organisations are very conscious over how they treat their employees. As a result, many of us are learning ways to better manage our money. What resources are available for employees to learn how to handle their finances? And, I’m talking about the basics – making a budget and Organisations that implement financial literacy programs sticking to it, setting aside savings and evaluating spending. realize a return on their investment. While on the surface, That’s why work is becoming a place to provide education as this appears financially daunting to implement, employers employees experience life events: home purchases, retirehave a strong incentive: studies show that there is a strong ment planning, family changes, and health changes. Using correlation between financial stress and an employee’s the workplace as a financial education classroom is a productivity, which in the long run has a higher cost to the company. And most plan providers offer this service for free. tremendous opportunity to increase productivity, engagement and loyalty. Financial literacy is the ability to use knowledge and skills to There are several steps businesses can take to help employmanage financial resources effectively for a lifetime of financial well-being. For many young professionals, they are ees become more financially literate. The first step is to put the right programs and systems in place. Becoming finannot receiving a financial education. Financial literacy isn’t cially literate means understanding how to manage your something that happens overnight. It takes time and effort. Making sure our employees get good information is the first income and expenses, handle debt responsibly, save and invest, prepare for the unexpected with the right insurance step. Human resources professionals are starting to recogand, lastly, create an estate plan that details your wishes nize the importance of financial literacy in the workplace. should something happen to you. The more prepared Let’s face it, when employees manage their money well, employees are to adapt to changes in their financial lives, everyone wins. the more financially fit they will become. Organisations do better when everyone has a solid financial Martin Onyango literacy foundation. Developing a strategy to start addressHuman Resource Manager pg 17 ing the financial knowledge of your workforce is an import Afro Neurotech Systems Limited
INVEST IN YOUR EMPLOYEES FINANCIAL HEALTH.
FINANCIAL WELLNESS PROGRAM FOR YOUR EMPLOYEES We offer financial wellness programs to corporates as part of their employees benefits program (Regal@work). This group presentation ensures that all your employees have the basic financial knowledge to make the best financial decisions and have a positive effect on the company and its bottom line. We also offer group events i.e. workshops and seminars to individuals, entrepreneurs and professionals.
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Q1 2017 BOND MARKET ANALYSIS The bond market in Q1’2017 was characterised by investors bidding higher rates in bond auctions due to a high level of inflation and low subscription rates due to the Central Bank terming investors bids as expensive and way above the market. Bond turnover in the secondary market rose by 39% to KES 428bn with investors showing preference for medium term papers. The FTSE Government Bond index which tracks the performance of government bonds was down 0.4% as yields remained relatively unchanged. The graph below shows bond funds return for the past 3 months.
BOND FUND 6 MONTH ANALYSIS The graph below shows bond funds return for the past 6 months.
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BOND FUND 12 MONTH ANALYSIS The graph below shows bond funds return for the past 12 months.
Bond Market Outlook for Q2’ 2017
We urge investors to hold short to medium term bonds in their portfolios given the uncertainty present in the interest rate environment.
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Q1 2017 BALANCED FUNDS ANALYSIS The graph below shows balanced funds return for 5 of the best performing funds in Q1’2017
BALANCED FUND 6 MONTH ANALYSIS The graph below shows balanced funds return for 5 of the best performing funds in the past 6 months.
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BALANCED FUND 12 MONTH ANALYSIS The graph below shows balanced funds return for the past 12 months.
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Regal Africa is proud to partner with Alpha Africa to offer wealth management services. TH
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WE ARE THE BEST IN CUSTOMIZING A WEALTH MANAGEMENT PLAN TAILORED FOR YOU
Regal Africa Wealth Management provides financial planning , wealth advice to individuals, families, family offices and businesses. We offer a high touch, high quality and customized service. We believe that finding the right wealth adviser is critical to attaining your lifetime financial plan. Our aim is to help our clients to make the right financial decisions to attain their financial and investment goals as we assist them to plan, grow and manage their wealth.
Regal Africa Group 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya P.O. Box 40187, Nairobi 00100 Tel: +254 0714 009 065
www.regalafrica.co.ke info@regalafrica.co.ke
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introducing regal law Regal Africa aspires to be the financial trusted partner to the legal industry in East Africa, we aim to provide financial strategies for lawyers and their firms. We offer advisory services from banking, access to credit and investments, we work with lawyers to assist them to achieve their financial goals. We assist law firms with their financing needs, management of funds and investments. Enabling firms to expand Regal Africa comes up with financing strategies to help law firms to expand, relocate, build, invest and operate. Our offering includes treasury management services, linking you to banks that offer overdraft facilities and term loans. Opportunities for lawyers Our customized financial strategies evolve with your needs throughout your legal career. We can help you to address your cash flow, real estate, investments, pension and education planning and financial estate planning requirements. We can identify financial trends, opportunities and best practices for your law firm.
let’s partner with your law firm “ regal law”
We would like to introduce to practicing lawyers ”RegalLaw” the financial advisory service for lawyers. We will discuss about our Treasury Management service for funds entrusted to your law firm and our Corporate Wealth Planning services covering your business and personal financial plans. Regal Africa Group 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya P.O. Box 40187, Nairobi 00100 Tel: +254 0714 009 065
www.regalafrica.co.ke info@regalafrica.co.ke
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INVESTING IN REAL ESTATE In Kenya majority of us understand Real Estate; we understand the need to own a home, own a shamba somewhere and for those of who are in business we understand what it means to have an office space(commercial property). It is on this high demand for home ownership that we have so many upcoming housing projects that vary in price and location.
According to a survey conducted by Geopil, a digital research firm amongst the youth aged 18-35 years old here in Kenya showed that people invest their resources with 3 major aims; to further their studies (35% of their income), to own a house (20% of their income , for emergency funds(18% of their income) while the rest include purchase a car and travel with 7% and 5% of their income respectively. This research goes to show the huge appetite in home ownership; it is a priority. Whether you prefer building your dream house from the ground up or buying a ready built house. Owning a home is a wise investment option as with time you can sell the house or opt to rent it out depending on the market value or even use it as collateral in business; it’s an asset, your asset. In regards to payment options, most of these house projects have provided different forms of payment plans that are very flexible to home buyers; in addition to that, the capping of bank interest rates in 2016 has seen to it an increase in home purchase. What are some of the benefits in investing in a home (regardless of whether it’s buying or building it?) • • • • •
Houses appreciates in value overtime Gaining equity Tax deduction Gaining control over your living space Etc…..
The above mentioned are among the many benefits that you enjoy when you own your own home. Stop procrastinating and work on your finances to secure your dream home.
Article wtitten by: The Regal Africa Team
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WELCOME TO THE BESPOKE REAL ESTATE SERVICE EXPERIENCE
Gami Global Properties is part of the Gami Global Investments Limited Group and is a company that offers Real Estate services in East Africa from its head office in Nairobi, Kenya. We focus on finding great opportunities in the Real Estate industry and we have demonstrated experience in advising clients on real estate opportunities, which requires practical experience and an intimate knowledge of what works in East Africa
Address: 4th Floor Top Plaza, Kindaruma Road P.O. Box 40187 -00100, Nairobi, Kenya Phone: +254 0795 502 877 Email: info@gamiglobal.com www.gamiglobal.com
GAMI GLOBAL PROPERTIES
OUR TRANSACTION ADVISORY SERVICES ARE UNMATCHED
Regal Africa Advisory is a corporate finance boutique firm that offers transaction advisory services in East Africa. We are an independent firm with a network of investors, lending institutions and other partners, which helps us provide the most optimal cost of capital for our clients. We ensure that our financial recommendations are based on the best options in the market. We are an independent and globally connected advisory firm , we are able to provide comprehensive strategic and advisory solutions to our clients. Our ability to deliver the best solutions is based on our highly experienced team and our global networks and partners. We specialize in bespoke creative approaches to clients needs as each project assignment is unique. Our approach is solutions focused and a customer centric way of doing business. Mergers & Acquisitions Capital Raising Corporate Restructuring
Regal Africa Group 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya P.O. Box 40187, Nairobi 00100 Tel: +254 0714 009 065
www.regalafrica.co.ke info@regalafrica.co.ke
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OUR MANAGEMENT CONSULTING APPROACH IS SOLUTION FOCUSED.
We work with highly scalable businesses to plan for and achieve growth. This always requires a customized approach – we tailor our work based on individual business requirements in order to achieve the best results in the most cost effective way. Practically speaking, we help businesses identify, answer and solve difficult questions and engage for the long-term, helping to implement solutions. Company Strategy & Innovation Company Restructuring Business Succession Planning Executive Training
Regal Africa Group 4th Floor Top Plaza, Kindaruma Rd, Nairobi, Kenya P.O. Box 40187, Nairobi 00100 Tel: +254 0714 009 065
www.regalafrica.co.ke info@regalafrica.co.ke
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HOW TO ACCESS FUNDS FOR YOUR BUSINESS
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esearch shows that the MSME sector is growing by 10% and less than 70% of these businesses make it their 3rd birthday. Among the reasons cited as the cause of this failure is access to finance. In my work with entrepreneurs I have however observed that finance is available but often time the entrepreneur is not ready or well prepared to absorb the finance. Many small business owners have knowledge of the product or service they are selling but lack basic financial literacy. Without the basic knowledge of how to manage finances, it will be very difficult to attract more money. As a business owner seek financial literacy classes so that you can understand how cash is coming in and out of your company. The good news is that there are many digital inexpensive systems one can use today. I am not asking you to be an accountant but to be literate about finances so that you can know whether you need working capital, asset finance or money to scale up. So where can you get money to finance your business. This list is by no mean exhaustive.
Bootstrapping: This is normal at idea stage where the business owner should start with what he or she has. Very few people will be willing to give you money when you start especially when you have not put any money of your own. It is more honorable to start with what you have, test the idea and see if it can even sell, before you start looking for money from others. When you ask for family or friends for money and state that you are stuck because you don’t have money, its normally not a good sign. If you care about the idea and believe in it enough you will find the money. You will sell something, you will sacrifice something so that you can create some money. People find money for the things they really want even if it means doing a job that you don’t like for a season.
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Angel Investors: These are individuals who are willing to invest $10,000 to $1m of their own money. This can be someone who believes in you and your idea and is willing to take the high risk in your start up and expects a high return if at all they get their money back. They normally have other investments but are persuaded that your idea can grow their money. They invest in early stage businesses and the investment is based purely on relationship and your credibility.
The Bank: Many small business owners do not like banks because the banks have rejected them and they don’t understand why. This is what I tell small business owners - Banks are not in the business of giving money, they are in the business of lending money. And before you lend money to anyone you have to be sure they can pay you back. So banks also have a mechanism of ascertaining a business owner’s credibility which will normally reject most business owners because of reasons cited earlier – lack of records to show the viability of the business, lack of financial literacy of the business owner making the banker doubt if the money borrowed will be used wisely or even be repaid. Banks ordinarily finance businesses that have been around for at least 3 years with audited accounts and showing a profit. They can also lend one money if one has business or personal collateral. It is also important to establish a relationship with the bank as early as possible when setting up a business. And this means channeling all your sales through the bank so there is a record. If you use mpesa it is better to have a lipa na mpesa account whether paybill or till number which has a separate statement and helps you separate your money from that of the business. The bank needs to see that there is consistent cash coming in to be able to determine how much you can pay monthly.
Venture capitalists: These are professional money managers who raise money from limited partners and put together funds of $100m and over to be invested in multiple companies which are normally more established and have high growth potential. Your business will be eligible if it is scalable and is a good fit to the venture capitalists area of interest. They also like to see that you have a management team and that you are not a one man show enterprise. Accessing finance to grow your business is a possibility if you have a plan that you follow so that you know when you will need extra money and start looking for it earlier. Article wtitten by:
Frida A. Owinga
Founder- PassionProfit ltd www.passiontoprofit.co pg 30
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