How to Save Money to Start a Business in Nigeria

how to save or get the money to start a business

Establishing a business either small or big can be a challenging task, especially when it comes to the case of how to finance it. The thought of raising capital or funds, and managing expenses, while also ensuring a stable financial foundation can be overwhelming. Moreover, with effective strategies and the right mindset, you can overcome these pressing challenges, thereby bringing your business idea into reality. It is essential to be proactive and creative in your task of raising money and managing costs in a country like Nigeria where access to funding can be limited and challenging. 

You can position your company for success and realize your entrepreneurial objectives by implementing practical techniques to cut costs, accumulate savings over time, and raise cash. This post will discuss how to get capital for a business, practical ways to cut expenses while it’s getting started, and long-term money-saving techniques to help you avoid debt. Regardless of your level of experience, this guide will give you the skills and information needed to be successful as an entrepreneur. 

How much money should you save to start a business?

Several factors, including the type of business you want to start in a country such as Nigeria, the size of your company, and what industry it operates in, determine how much money is required to save up. For example, you may require an initial investment of approximately ₦500,000 to ₦1,000,000 to start a small retail business on the local market. The costs of rent, inventory, and licenses shall be covered by this amount. On the contrary, it may take up to a higher investment of between ₦5,000,000 million to ₦10,000,000 million in terms of equipment required, software, or team recruitment for an early-stage technology startup.

In addition, it is also important to consider factors other than permits, licenses, and equipment costs when assessing the cost of starting a business. For example, obtaining a business registration certificate from the Corporate Affairs Commission (CAC) costs around ₦30,000 to ₦50,000, while obtaining a tax clearance certificate from the Federal Inland Revenue Service (FIRS) costs around ₦10,000 to ₦20,000.

It’s essential to conduct thorough market research and create a comprehensive business plan to estimate the initial investment required. This will help you identify potential costs and develop a realistic financial plan.

Some estimated costs for starting a business in Nigeria include:

·         Registering a business with the CAC: ₦30,000 to ₦50,000 

·         Obtaining a tax clearance certificate from the FIRS: ₦10,000 to ₦20,000

·         Renting a small office space in Lagos: ₦500,000 to ₦1,000,000 per year

·         Purchasing equipment for a small manufacturing business: ₦500,000 to ₦1,000,000

·         Hiring a team of 5 employees: ₦2,000,000 to ₦5,000,000 per year

Lady saving money in a piggyvest

How to Raise Enough Money to Start a Business

Raising enough money to kick off a business idea requires you to find a way to raise money or to find alternative funding options. This process can include personal and business loans from loan apps, crowdfunding platforms, and angel investors. In addition, you can consider seeking financial support or assistance from family and friends, or government-backed small business loans made available to the public. Another option you can consider is to also reduce costs by leveraging free or low-cost resources which include online marketing channels, social media, and open source software.

As an entrepreneur, another approach is to bootstrap your business by starting small, and as time goes on you begin to scale up as revenue increases. In doing this you can consider starting with a Minimum Viable Product (MVP) and taking out time to test the market before solely investing in more expensive equipment or thinking about hiring a large team. It is advisable to consider leasing equipment or outsourcing certain tasks to freelancers or contractors instead of fully employing someone to reduce overhead costs. This is why you will need to be creative and flexible in your approach to be able to raise enough funds to turn your business idea into a reality. 

Due to the funds involved in starting a business, it is important to be adequately prepared before venturing into it. Saving money to start a business can encompass both saving funds over time to have the capital needed to launch a business and finding ways to reduce costs during the startup phase. Let’s start with the latter: 

It is also essential to have a solid business plan in place to help guide your fundraising efforts. This should include a detailed financial projection, market analysis, and marketing strategy.

Effective Strategies to Reduce Costs When Starting a Business

When starting a business, especially in Nigeria which can be challenging because of access to funds, there are effective strategies that are needed to reduce costs and secure the necessary funding required for your business. 

1.    On Getting Funds to Start the Business

There are different ways of sourcing funding that can help you bring your business idea to reality. Examples of such ways to consider are:

Personal and business loans from loan apps: You can secure loans for your personal needs or for business using the Sycamore NG app which offers flexible repayment terms and relatively low interest rates. For instance, a small business owner in Lagos can secure a loan of up to ₦15,000,000 to cover startup costs for their business. 

Angel investors: There are several companies who are willing to invest in your idea of business. They are referred to as Angel investors. We have like the Lagos Angel Network and African Business Angel Forum which provides funding for startups with high growth potential. They offer capital in exchange for equity. This is an alternative to traditional bank loans which some find difficult to access. 

Ask family and friends: You can consider seeking financial support from family and friends. This can be a viable option, especially for small-scale businesses. This option often comes with flexible repayment terms and minimal interest rates or none.

Bank loan: There are possibilities of getting bank loans from institutions like the Bank of Industry Limited (BOI) which is Nigeria’s oldest, largest, and most successful development financing institution (DFI), Smart Business Loan by Standard Chattered Bank that gives loans of up to 20 million, or the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) which offers funding options for businesses. They often require collateral and have stricter repayment terms but can provide larger loan amounts. 

2.    Marketing and Promotion

Effective marketing and promotion are key to running a successful business in Nigeria. In achieving a successful business, here is how to make the most of your marketing efforts:

Optimize advertising channels and strategies: You will need to Identify the most effective advertising channels  for your business such as social media, print, or outdoor advertising. Device direct or target strategies to reach your audience, like using Google Ads or Facebook Ads to target specific audiences and their demographics. This will help you market your business to those who need your services at that time. 

Use low-cost online marketing methods: You need to leverage on the use of social media platforms like Twitter, Instagram, and Facebook to engage with customers and promote your business. Optimize your website for search engines (SEO) to improve visibility and drive organic traffic. You can also use email marketing campaigns to nurture leads and drive conversions with the people who are potential customers for your business.

Leverage word-of-mouth and referral programs:  After offering your service to your customers, there is a need for you to engage them especially when they are satisfied. With that, you should encourage them to refer their family, friends, and enemies in exchange for incentives. These incentives can include implementing a customer loyalty program to reward customers for referrals. You can also use customer testimonials and case studies to build credibility and attract a good number of fresh customers.

Spread your wings: You should endeavor to attend industry events and conferences related to your line of business to network with potential customers, partners, and investors. There are also online communities and forums on the various social media platforms related to your industry to help you stay up to date on industry trends. Also, try to utilize business listings that include Nigeria’s Business Directory to make yourself more visible and to reach a wider audience in no time.

3.    Employee Management

It is crucial to take into cognizance effective employee management for businesses in Nigeria and anywhere in the world to optimize productivity and reduce costs. In achieving this, you can consider strategies such as: 

Lease employees to save on benefits and administration costs: When starting a business, due to financial costs you should consider the initiative of staffing solutions. You could consider working with temporary or contract workers to fill labor gaps if that is possible in your industry. This approach will help you save on benefits, training, and administration expenses. The money saved here can then be channeled  into other areas to grow your business.  

Hire interns to save on labor costs and provide learning opportunities: Hiring interns is another idea to consider. You can tap into interns both graduate and undergraduate who are ready to work with you for free or stipend. With this idea, you can hire interns who will bring fresh ideas and energy to your business. Interns in business are known to be committed. This will also help you as a business owner to save labor costs while providing valuable learning experiences for the graduates or undergraduates. It will be a win-win situation for both parties.

Use independent contractors instead of full-time employees: As a business starter, you could consider engaging freelance professionals or consultants to execute your projects or tasks, thereby avoiding paying for full-time employee salaries. This step will help you reduce costs, benefits, and training expenses while still growing your business. 

Commission your sales force to reduce overhead: When dealing with people you are working with, another alternative you can consider is a commission-based sales structure to help sales performance and reduce fixed overhead costs.  Implementing this idea can align sales performance with your business revenue and help you gain more profit. 

4.    Office Overhead and Equipment

One challenge that business start owners face is the management of the office overhead and equipment costs which is something very crucial for businesses in Nigeria. This, if done properly can help businesses optimize expenses and improve profitability. Here are some strategies to consider achieving this:

Buy used equipment like computers, copiers, and office furniture: Due to limited finance or a plan to save costs, you can consider purchasing refurbished or second-hand equipment to reduce costs. For example, a small business in Lagos can buy used computers from reputable dealers or online marketplaces. That will serve you at the early stage of your business. You can thereafter consider getting new ones when you begin to make enough revenue and profit.

Get free or discounted software through online trials and promotions: There are free and discounted software offers online. You should take advantage of free or discounted software offers, trials, and promotions to reduce costs. For instance, a startup in Abuja can use free accounting software like Wave or Zoho Books.

Purchase supplies in bulk and negotiate discounts with suppliers: As a business owner, one strategy for reducing costs is to endeavor to buy supplies needed in bulk. When you buy in bulk, there is an opportunity for you to negotiate with the seller to get it at a lower price. For instance, to purchase stationery and printing material in Lagos State, the stationery when bought in pieces can cost 100,000 naira, but when bought in bulk can be bought for 80,000 naira, which is an opportunity for you to save 20,000 for other expenses.

Keep your office online and use co-working spaces for physical meetings periodically: You should embrace digital communication tools and cloud-based services to reduce the need for physical office space. You can use online software like Zoom, Slack, Google Meet, etc. You can even consider using meeting rooms occasionally for physical meetings, like co-working spaces such as Eridan, Ventures Platform, etc. 

5.   Reducing cost on Professional Services and Consulting

Negotiate with consultants to reduce costs and seek out suggestions: Because of the need to engage with consultants from time to time to grow your business, you should negotiate costs with them based on business needs. Endeavor to always seek their suggestions and recommendations to help you improve your operations.

Learn new skills instead of paying professionals: Always invest in new skills for yourself and for employee training to reduce reliance on external professionals. This will stop you from paying extra money to professionals for what you or somebody on your team can do. For instance, you can learn  graphic designing, which will be useful for designing logos for advertising your business instead of paying an external graphic designer to do it for you. Going through this route will help you save on overhead costs.

Learn basic business planning and accounting hacks: You should acquire basic knowledge of business planning, accounting, and tax compliance to reduce reliance on external professionals. You can learn these skills online through Google or YouTube Videos

6.    Reducing costs on Technology and Software for your business

The effective management of technology and software costs is crucial for businesses in Nigeria to optimize expenses and improve profitability. Here are some strategies you should consider:

Analyze your Technology Costs: You should endeavour to optimize technology expenses by simplifying software licensing and switching to cloud-based solutions. For instance, a small business in Abuja can switch to Google Workspace or Microsoft 365 for cloud-based productivity software. This will reduce the need for budgeting for expensive hardware and software maintenance. 

Review Software Usage: If not always, try to once in a while assess the software your employee uses and adjust user numbers to match team size. For instance, as a startup, you can review your employees’ software subscriptions and cancel unused licenses to reduce and save costs.

Actively seek out free tools and resources: Not every software needed for your job is paid for. Some are free. You should try to utilize free tools and resources to reduce software costs. For example, in designing logos or design for your business you can make use of designing tools like Canva or GIMP instead of paying for expensive Adobe Creative Cloud subscriptions. 

How to Save Money to Start a Business

By saving over time, you can avoid taking on excessive debt or financial stress when you launch your business. It is an important step in entrepreneurship, especially in a country like Nigeria where access to funding can be limited. By saving over time, you can avoid taking on excessive debt or financial stress when you start your business.

For instance, as a young entrepreneur in Lagos, you can start saving a portion of your monthly salary or income from freelance work to build up your startup capital. Similarly, as a small business owner, you can set aside a portion of your profits each month to expand your operations or launch a new product. By doing so, you can ensure a stable financial foundation for your business and set yourself up for success.

  1. Set Clear Financial Goals

As an entrepreneur, you should set clear financial goals to successfully start and grow your business. When you define your business vision and establish a realistic financial plan, you can be sure of a stable financial foundation and avoid mistakes made by others. In setting clear financial goals, here are some tips to guide you:

Define your business vision and the costs associated with starting a business: Have a clear picture of your business idea, target market, and revenue streams. You should be able to estimate the costs associated with starting the business. For instance, as a caterer, you may need to budget for foodstuffs, cooking utensils, and marketing expenses to launch your brand.

Calculate the initial startup costs (e.g., permits, equipment, marketing, inventory): As someone who has a taste for business, you should carry out research and estimate the costs of starting your business, including one-time expenses like permits and equipment, as well as ongoing expenses like marketing and inventory.

Establish a savings target and a realistic timeline for reaching your goal: You need to set a specific savings target and a realistic timeline for reaching it. Make your goal specific. Break down your goal into smaller, achievable milestones. Constantly take time to review your progress.

  1. Create a Budget

You should always cultivate the habit of creating a budget. Creating a budget is important to saving money to start a business. You should not operate blindly. By tracking your expenses and income, allocating a portion of your income to savings, and monitoring your budget regularly, you can ensure a stable financial foundation for your business. Some of the steps you can follow to create a budget are:

Track your income and expenses to identify areas for potential savings: Many businesses have run down because they do not keep records of how money comes in and goes out. You should always keep records of your monthly income and expenses to understand where your money is going. In doing that you can carefully know the areas you can cut costs and channel that money towards other areas of your business and saving.

Allocate a portion of your income to savings for your business: You should set aside some specific amount each month for your business savings. Such will not be touched except for emergencies. This could be a percentage of your profit or income.

Monitor and adjust your budget as needed to stay on track: Regularly review your budget to ensure you’re on track to meet your savings goals. Adjust your spending habits or savings amount as needed to stay on track. For example, as an entrepreneur, you can review your budget quarterly and adjust your spending habits to ensure they’re meeting your savings goals.

III. Automate Savings

Automating your savings in business is a simple and effective way to ensure consistent progress toward your business savings goals in Nigeria. By setting up automatic transfers to a dedicated savings account, you can make saving easier and less prone to being neglected. Here are some key steps to automate your savings:

Set up automatic transfers to a dedicated savings account for your business: You should set up a savings account that is specific to your business and set up automatic transfers from your main account. 

With the Sycamore NG app, you can set up your automatic savings deductions to be done daily, weekly, or monthly, depending on your income type and savings goal. For instance, you can decide to set up a monthly transfer of diverse amounts for several savings purposes. 

IV. Stay Disciplined and Accountable

The attributes lacking among business startups are discipline and accountability. These attributes are important in achieving one’s business savings goal and even outside the business world. By keeping your goals in mind and avoiding purchasing impulses you can keep up with the motivation and focus to succeed. To be disciplined and accountable, here are some steps that can help you: 

Keep your savings goal in mind and avoid impulse purchases: Always remind yourself of your business savings goal and avoid making impulse purchases that can derail your progress. You can have such a vision as a reminder on your phone or even a sticker pasted in your room to keep the goal clear and plain to you.

Celebrate milestones and achievements to maintain motivation: All seriousness is needed at the starting stage but that should not stop you from taking time to celebrate your progress and achievements along the way. This will be a motivating factor, and also a factor of encouragement. It could be a simple treatment of going for a meal or sharing your progress with a colleague, role model, or business mentor. 

Where to save money to start a business

Wondering where to save money to start a business? To some people using their traditional bank account may seem like the right choice but it isn’t. Saving apps like Sycamore NG are the best ways to save money to start a business because they allow you to set it as a goal and provide automatic and flexible saving deductions to make the process seamless. Moreso, fintech savings apps offer better interest rates and other benefits, such as Sycamore’s offer of 3% cashback on bills paid via its app for those saving towards a goal on its app.  

So, saving money to start a business requires discipline, patience, and the right strategies. By following the tips outlined in this article, you can raise enough money to launch your business and set yourself up for success. Remember to stay focused, adapt to changing circumstances, and keep your eyes on the prize – turning your business idea into a thriving enterprise.  

Ready to start contributing towards reaching your goal to buy or build a house? Sycamore is built for this. Get started, download the app here.  

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