Sorghum growing in Uganda: beer and heaven?

sorghum

Outside Looking In

D E Wasake, FCCA

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

Please note: Our information on this sector does not just come from research, one of our recent clients has a 100 acre commercial sorghum farm and our role is to provide “managed services”. The Inachee team therefore has 1st hand experience.

The sorghum industry in Uganda changed a few years ago when the breweries started demanding more of this crop. Reason? Ugandan beer brands like Senator, Eagle lager, Chibuku are brewed using sorghum as a main ingredient. If you need to find out what these beers taste like, ask my Uncle Wamoka.

You will find him green wearing crocodile (or is it snake) skin shoes and dancing in a synchronized style to the Lingala sounds of Madilu system and Diblo Dibala after imbibing just one bottle of the brew – bought by me of course!

Jokes aside – in this article, we estimate that sorghum growing can give average revenue of about Shs. 73m per year and an average net profit of about Shs. 20m which gives a return on investment of 6.1years.

This profitability however hinges on having yields of about 4,000 kg per acre. To achieve these yields, we assume the “advanced thinking” farmer will use epuripur kind of sorghum for purposes of commercialization since it has high yields compared to sekedo.

Background

According to a few research reports, Sorghum is the 3rd highest consumed cereal grain in Uganda, behind millet and Maize; it occupies c. 373,000 ha of arable land and is commonly grown in the East, Northern and South Western part of Uganda. Besides food for human consumption, the crop is an important ingredient in alcohol, and Ugandan beer brands like Senator, Eagle lager and Chibuku are brewed using sorghum as a main ingredient.

To underline the importance of this crop in the brewing industry, Nile Breweries (a subsidiary of SabMiller) has encouraged production of Epuripur the beer variety of Sorghum to improve beer production. If you asked yourself why Uganda is ranked among the top consumers of alcohol in the world then ask no more Sorghum growing will give you all the answers!

So with the above introduction (and do please forget my Uncle Wamoka’s dance antics), how can you get investing in this sector in Uganda?

FIRST THE CONS….

1. Fluctuating prices

Sorghum has traditionally been grown seasonally during the rainy seasons of March to April and harvested for the 1st season between June and August, and then grown again during the second rains from August to September and harvested for the 2nd season between November and December. Sorghum is drought resistant and so it can also be grown in the dry season with irrigation or proper watering.

The prices of sorghum fluctuate significantly with low prices just after the traditional harvest season and high prices during “off seasons”. These fluctuating prices are also a result of market inefficiencies where there is lack of information on more suitable prices (for example export markets).

They’re however solutions for the “advanced thinking farmer” i.e. Market information Services (MIS) that have cropped up.

These disseminate information via SMS, radio and on the internet on their website etc. Examples include farmgain , agrinet and ratin which provide retail/wholesale prices for Kampala, other markets and Kenya.

2. Production Constraints

Constraints like pest and diseases affect the production of sorghum i.e. the Striga weed that attacks the sorghum is responsible for approximately 10% of the crop loss which affects the projected yield and sorghum is usually attacked by birds that normally feed on the sorghum head.

An “advanced thinking” farmer should be able to acquire a laser gun that will help with dispersing the birds whenever they are feeding on the sorghum to avoid loss in crop yields.

3.Poor marketing and transport infrastructure

When commodity marketing was liberalized in the 1990s, an inexperienced and poorly resourced private sector stepped in to try and cope. These new entrants into the sector (except Nile Breweries Ltd and its contract farmers) have yet to establish the kind of infrastructure that would encourage efficient marketing.

There are for example inadequate on-farm stores, and there are no rural warehouses except for the local granaries. The road net work especially off the main central government maintained highways are in a bad state and render produce that is more costly.

AND NOW THE PROS….

1. Free or cheap Technical support

Considering that sorghum is one of the key cash and food crops in Uganda, there is a significant amount of technical support available right from seed companies, NAADS (a government programmes) as well as Non-Governmental Organisations (NGO support. We would however recommend if possible identifying a suitable technical officer who is readily available to advice the farm on aspects like pests and diseases, soil fertility et al.

Nile breweries (who focus on the Epuripur variety) also offers support to out grower schemes and they have played a pivotal role in the sector where they have purchased 10,410,050 kgs of Epuripur over the years from the local farmers to use in Jinja and Mbarara.  It has to date spent c. Shs11.5 billion on purchasing from dealers, suppliers but with farmers getting the lion’s share of Shs 7.2 billion.

We recommend that the farmer affiliate themselves with a relevant co-operative society as in addition to the technical support, they could get access to cheap credit (or a grant).

2. Guaranteed market

For non-food sorghum there is a guaranteed market at a reasonable price by Nile Breweries Ltd. for its contracted farmers. This should provide some prospects for continued production albeit for a market that is limited and dependent on the breweries plans over which the farmers have little say, other breweries emulating Nile Breweries ltd in the near future would also increase the prospective market for sorghum.

Having a guaranteed market eliminates the costs of marketing and potentially transport to the market.

3. Good Return on Investment (ROI)

In our financial model we assume that the farmer will have 10 acres and thus be able to plant sorghum over a period of 2 seasons each year. We assume the farmer will plant Sekedo red sorghum or Epuripur. This variety of seed costs about Shs. 1,500 per kg.

Our model is summarized below:

Financial model for Sorghum

  • Startup capital (A): Shs.121,357,096
  • Profitability (B): 19,896,565
  • Return on Capital (A/B): 6.1 years

The detailed financial model is available for purchase here via our research databank.

The basics you must get right

1. Weed Management

The first 6 to 8 weeks after planting is crucial, weeds tend to compete aggressively with the crop. This is when the root parasite Striga Asiatia attacks the sorghum. This weed occurs mainly in low-input farming conditions; the parasite plant has a single stem, with bright red flowers. The seeds of the parasite are spread by wind, and remain dormant in the soil for 15 to 20 years. Rotation with groundnuts, cowpeas, and pigeon peas helps reduce Striga. Farmers should look out for this particular weed because it greatly affects crop yields.

2. Post-harvest handling

Sorghum to be used for silage needs to be harvested when seeds are in milk dough stage. For hay, tow five harvests may be needed per season. Hay products need several days of sunshine, a forage crusher assist in reducing the time.

In terms of seed harvesting, the crop is to be cut by hand, or mower, and if the land is large one can use a combine harvester.  After being cut by hand the crop must be left in the field to dry for 10 to 14 days, and then it is to be threshed, stocked. The seed is to be stored with 12-13% moisture content or less.  In terms of animal feed, the crop can be harvested at 80 to 120 cm tall and provided to as dry matter as animal feed.

3. Storage

Sorghum is stored as whole grain, and seed is stored with 12 to 13% moisture. Several factors can cause loss in viability i.e. mound damage, poor germination. The grain is stored for future processors in silos and simple containers can also be used to store the grain. A common preservation method that can be used by local farmers is sun drying.

4. Record keeping and annual accounts.

You need to be able to maintain proper records like yield per ha, fertilizer usage etc.

Likewise in order to have a high chance of accessing alternative sources of finance such as from venture capitalists, it is important that you can demonstrate proper records for various aspects of managing the farm.

We would recommend that you have a dedicated record keeper on the farm and if possible work with an accounting firm to prepare quarterly, annual financial statements (audited if possible).

This will help you, should you need to access additional funding as lenders often require seeing audited financial records.

5. Market information.

Market information can be obtained from various private providers of Market Information (such as farmgain ,agrinet and ratin) but in addition market information can be obtained from sources like the Uganda Bureau of Statistics (UBOS) which as part of its Consumer Price Index (CPI) report prepares a monthly survey of retail and wholesale prices in various regional markets of Uganda.

This information can help the farmer assess what the best market rate is for their produce and help them in planning purposes.

Final word

Growing sorghum should definitely be included in the portfolio of a serious Ugandan investor or entrepreneur.

Its diverse use not only for human food consumption but for animal feeds makes it a very important crop. In addition it has export prospects to our neighbors like Kenya and especially Southern Sudan.

While the period of 6 years might seem long, this is due to the high costs of mechanization but with the growing industry and demand, there is a possibility you can get a return on investment earlier. Our financial model is overly prudent in order to manage the issue of shocks and risks in the Uganda agriculture sector.

It is worth pointing out that tax incentives by the government means that farmers can easily improve their farming methods with introduction of mechanization in agricultural. This also increases their production credits which will help them easily access loans from banks to further develop their farms. With the rebirth of the East African Community farmers can also tap into the huge market from Tanzania, Kenya, Rwanda, and South Sudan and the COMESA market which would bolster the agricultural sector in Uganda.

Value addition in this sector is also something to consider, particularly with a rise of the middle class, then alternative dietary needs are a life style (such as vegans) – Sorghum bread anyone?

So are you ready to join me and Uncle Wamoka on the dance floor to celebrate this sector? We are in heaven! And I don’t mean because of the beer he is holding. I mean because of the client’s impending good harvest.

END

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

Share the article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join Advanced thinking. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page and the website is via email. In addition we regularly provide tips on marketing, corporate governance, accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business. Please click here to join the email subscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Transport sector and brokerage – are you experienced?

 truck image

 

Outside Looking In

D E Wasake, FCCA

About my guest contributors:

In the agriculture transport/brokerage sector

Ssebunya simon is a business man in Kyengera owning a whole sale shop at the same time a middle man transporting agricultural goods from the villages to the markets in town. He has been doing this business for over 6 years purchasing maize from Mubende and selling it to the maize milling companies.

In the construction transport/brokerage sector

Semwogerere Fred is a businessman in Kampala owning a whole sale shop selling building materials at the same time transports building materials from the selling point to the building site of his customers. He started in business as a lorry driver of a 22 tonne Tata for his boss.

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

In Uganda, the transportation of goods commonly construction material and agriculture produce is not often clear cut. Transporters are often brokers because the value chain is not yet advanced. With the absence of many large scale manufacturers/processors, Agriculture producers for example heavily rely on these independent transporters to get their produce to the market.

Likewise in the building construction sector, the concept of using a building contractor has not taken firm hold and so construction is often undertaken by the end user themselves. This means they heavily rely on the transporter to also do the purchase – hence the brokerage opportunity.

This sector is therefore not as “easy” as taking goods from A to B. In this article, we therefore have shown a blended model of transport as well as brokerage, the predominant model in Uganda.

We estimate that:

  • In the construction transport/brokerage sector, a starting investment of Shs 102m will give you a return on investment (number of years to get your capital back) of 4.49 years. Annual profits are estimated at Shs. 23m per year.
  • In the agriculture transport/brokerage sector, a starting investment of Shs. 78m will also give you a return on investment (number of years to get your capital back) of 1.72 years. Annual profits are estimated at Shs. 45m per year.

To achieve these estimates, the “advanced thinking” transporter has got to become experienced as a “musubuzi” (trader) – i.e get involved in brokerage or acting as a “middle man”. The margin made from combining brokerage and transport are higher this way. This however also requires higher working capital (to purchase produce/materials). This is the model we use in this analysis.

If you alternatively wish to stick to the traditional or conventional model of transport/logistics only, then in order to have sufficient income, you will need to enter into partnership with one of the following:

  • Large manufacturers/wholesalers – such as for beverages, alcoholics and Consumer Industrial Products (CIPs)
  • Large logistics companies – such as courier companies or even the e- commerce platforms (which require transporters to deliver to their customers).

We have not explored this aspect as the manufacturing, logistics sector in Uganda is overall still developing.

Background

If you are a regular reader of these articles, you will know that I often start with a personal story because I will have often dabbled in the sector or know someone close to me.

Unfortunately the closest I ever came to this sector is when as a child I was tasked by my mother with finding a truck driver to move house. In Ugandan speak this means to “shift” or “Kusenguka”. The rules were this:

  • The shifting was always in the night (at least after 7.00 pm) – thieves shouldn’t see your property as you move in!; and
  • You must haggle with the transporter because their initial prices are always inflated at least 25%.  That is the dance, and you must comply and do it for at least 5 minutes, otherwise, you are a rich fool (or a clueless foreigner). 

I however have a story from one of my team on this sector. Matthew initially thought the sector was easy until he got into it. He said this about his experience:

“Personally I have been a middle man purchasing chicken from the farmers and selling it to the high end customers in the hotels and restaurants and one thing I can say about this business is that it’s a venture to die for until both parties at both ends eliminate you from the middle and bridges that gap. At least that was my fate.

For the number of businessmen in the transportation business, take for example those purchasing agricultural produce from villages and transporting it to the capital city to be sold in the market areas that gap is nowhere to being closed. Customers whether farmers or manufacturers are always looking for that person to help them transport their purchased goods to their destination points since they can’t often afford to purchase vehicles for that one time need.

I have always thought of the transportation business to be one of the easiest. Simply buy the Lorries, get on the road and start making profits. I didn’t know that it’s such a complex business until I did a study on it. It’s a competitive space that involves using a lot of tactics to get customers.”  

The sector in Uganda

In Uganda, many entrepreneurs have realized that transporting goods from one place to another can be a very profitable venture. Because of the improvement in the road network, the transport industry has boomed. It takes shorter time and fuel to cover the same distance one was covering a few years ago when the roads were not tarmac and at the same time lower costs for vehicle owners to maintain their vehicles after a long drive. If you are planning to get into the trucking business, it is important that you know basic things required to operate a trucking business so that you don’t turn out to be another statistic of a small business failure.

Many businessmen (and women) are involved in commercial goods transportation transporting different items ranging from agricultural produce, building materials, fuel among others. For Semwogerere Fred (one of my guest contributors) a Kampala businessman owning a whole sale shop, the business of selling building materials has transitioned into transporting the same materials to the building sites for his customers while other businessmen like Ssebunya simon (my other guest contributor) enjoy the occasional transportation of agricultural goods from the villages to be sold in town and the neighboring markets to enjoy the benefit of making a good profit out of it.

Why engage in commercial goods transportation of agricultural goods and building materials in Uganda?

A good road network is a pillar of every economy. Any person who travelled on Uganda’s roads upcountry 10 years ago will find a marked difference if he moved on the same roads today. The Uganda National Roads Authority (UNRA) is delivering on its mandate since it was formed in 2008.  It is committed to delivering on its strategic objective of increasing accessibility across the country by improving the transport network, which is a cornerstone to national development.

Roads are critical to the transformation of all sectors of the economy because they facilitate easy and quick movement of goods and services from the source or point of production to the market. This is particularly critical in Uganda, where more than 80% of the population is engaged in agriculture (and often rural based), a good road network becomes even more critical (to transport the produce from the rural/production areas to the consumption areas in the cities).

In Uganda someone needs to bridge the gap between the farmers and the consumers as the farmers are not often able to absorb the other activities such as bulking, aggregation and transport after they have finished to harvest their produce. This shifts the task to the middlemen who specialize in this field to get the produce to the market.

On the other hand, businessmen involved in the transportation of commercial goods like building materials have resorted to brokerage as they not only get involved in transporting the building materials but they also purchase the materials on behalf of the builder. They have incorporated the price of transportation with the price of the material being transported to get a better profit margin compared to a situation where they only transported the goods alone.

Since they have been in the business for a number of years, they have managed to master the business dynamics and have bridged the gap between the seller and the builder hence becoming profitable middlemen.

So with the above introduction, are you really experienced (as a musubuzi)? Can you easily get into this sector?

FIRST THE CONS (WHAT MIGHT HOLD YOU BACK)

1. Access to financing (lease or working capital)

While there are many vehicle leasing and financing options available (as the vehicle is the security) a key requirement for many lenders is experience in the sector. DFCU leasing for example require 2 years’ audited accounts, a bank statement for 12 months, Tax documents. This means you need experience in the sector to get access to lease financing. It can seem self-defeating. How can you get experience without the loan/financing?

Another key source of financing you will need to consider when getting into this sector is a working capital facility. As an example, in the agriculture sector in our financial model, you need to purchase maize worth Shs. 148m from the farmers/traders.  Unless you are able to gain their trust (as our guest contributor did), you will need to consider some form of financing. Thus more reason to have proper corporate governance and books of accounts so as to be eligible for such facilities.

Our advanced thinking tips to counter this?

#1. Understand lender requirements. Our key “advanced thinking” tip is that at the start you need to have this awareness of what lenders often require. It is critical for you at the start so you can formalize your operations at the onset (such as incorporation, bank account, tax registration) – or if you are considering partnering with someone already experienced, you need to bear this in mind, they will need to be running a proper business to access financing.

#2. Advance payment. Another key tip in the absence of access to financing is for the “advanced thinking businessman” to get an advance payment from his or her customers (especially in the construction sector) to supplement on their revenues and then make a significant purchase that maximizes profits and in turn help to cover the operational costs.  Of course on the other hand the businessman can secure interest free or cheap financing from “the bank of friends and family”.

#3. Move up the value chain. As indicated in the introduction an “advanced thinking” alternative for the businessman would be to move away from brokerage and specialize in logistics only. You can do this by your vehicle(s) to Consumer Industrial Product (CIPs) companies (such as Hima Cement, Nile Breweries) to be used for transportation of their products (Assuming they don’t have sufficient own fleets).

A related key area of future growth and consideration is the rise of e- commerce and internet retailing. In Uganda online retailers (such as Jumia, home DUUKA, Kaymu or couriers like DHL by necessity rely on a logistics network and as e – commerce and internet buying increases, then this sector will become even more critical.

You will need to consider vehicle/fleet tracking solutions as a start in order to give them that assurance of delivery to their customers.   Moving up the value chain means you will have assurance of supply and hence no need to do brokerage.

2. Fluctuating fuel prices

No one can say with certainty that the fuel prices will be stable for a given period of time. The cost of fuel is a critical factor in the performance of the economy because alternative fuel/energy sources are not well developed in Uganda. In other instances, drivers have a tendency of stealing fuel from the trucks and this ends up leading to increased fuel costs to the businessman.

Our advanced thinking tips to counter this?

#1. Fuel reserve. With the unstable prices of fuel, the advanced thinking businessman would set aside some money to cover the unexpected costs derived from increased prices of fuel when they are making their budgets so that they are not taken up by surprise when the prices increase while they are in the middle of transportation of goods. This would involve monitoring fuel trends and making estimates of the cost say for the next 6 months. If need be, perhaps fuel reservoirs can be hired, particularly as your operations expand.

#2. Combat fuel theft. Install fuel sensors in the fuel tanks of the trucks. These help to monitor the amount of fuel consumption per truck in any given period of time. You can for example get the fuel sensors from FMS – Fleet Monitoring Systems Ltd.

3. Mechanical issues

It’s common for the vehicles to break down for one reason or another and this may cost the businessman a lot of money if the vehicles are not working.

Our advanced thinking tips to counter this?

#1. Fixed rate contract. It is recommended that you contract with a garage to service your vehicles at a fixed rate every month. This will save you from unscrupulous mechanics who want to rip you off by telling you they are fixing and replacing parts which are already working.

#2. Employee mechanic. Another alternative for the businessman would be to hire a permanent mechanic and place him on a pay role then contract with a shop selling genuine spare parts so that in case a vehicle breaks down and needs a replacement of a given part the businessman purchases the part and then tells the mechanic to go and collect it and fix it on the vehicle. This will enable you to get genuine parts for your vehicles if they need replacement and available mechanic services whenever you need then.

4. Seasonal business in the agricultural sector

Commercial goods transportation especially of agricultural produce is not a continuous business as it highly depends on the harvest seasons of the crop that you are dealing in. Let’s take an example of maize; it has traditional been grown seasonally during the rainy seasons of Mid-February or March to June, and second rains from Mid-August to December. As a result, the businessman only gets to purchase the product when the prices are low just after the traditional harvest season so as to maximize profits and hardly makes any purchase or makes no purchases at all when the prices are high during “off seasons”.

Our advanced thinking tips to counter this?

#1. Diversify. To counter this, the advanced thinking businessman will have to widen his customer base and revenue and deal in a number of produce such as beans, tomatoes, onions among others depending on the harvest seasons as opposed to most middlemen that precise in a given produce and only make purchases when those products are in surplus

AND NOW THE PROS (A reason to smile)

1. Improving transport network

Any person who travelled on Uganda’s roads upcountry 10 years ago will find a marked difference if he moved on the same roads today. The Uganda National Roads Authority (UNRA) has made it a point to tarmac many of the roads going up country to ease transportation in those areas. This makes it easy to transport commercial goods such as lake sand from the areas of Entebbe, Kamengo, Kasange among others to the building sites.

2. Ready market

There is a ready market for the agricultural produce that’s being transported from the villages to the markets in the different towns. Middlemen as traders offer to their customers an assortment of products acquired from various sources. The middlemen first secure the demand from their different customers in the markets and wholesale shops and then they get to know how much of the produce they are going to purchase. This gives them a guarantee of purchase when the purchased product finally reaches the market.

On the other hand, for the case of building materials there is a great need for the service of transporting building materials from the selling point to the building site as most of the contractors building residential and commercial buildings don’t have transportation vehicles of their own to transport the materials to the site after buying them. This is the opportunity to the businessmen involved in that sector.

3. Availability of agricultural produce

Farmers in Uganda's 2.5 million smallholdings and scattered large commercial farms produce the majority of their own and the rest of the country's staple food requirements. This means that the country can greatly rely on a constant supply of agricultural produce from the farmers. As a trader involved in transporting agricultural commercial goods you are guaranteed a continuous business all year round.

4. Return on investment

In our financial model, we estimate that:

  • In the construction transport/brokerage sector, a starting investment of Shs 102m will give you a return on investment (number of years to get your capital back) of 4.49 years. Annual profits are estimated at Shs. 23m per year.
  •   This is calculated as follows:

    • Startup capital: Shs. 101,684,000 (A)
    • Net profit: 22,645,000 (B)
    • Return on Investment (ROI) (A/B) = 4.49 years
  • In the agriculture transport/brokerage sector, a starting investment of Shs. 78m will also give you a return on investment (number of years to get your capital back) of 1.72 years. Annual profits are estimated at Shs. 45m per year.
  • This is calculated as follows:

    • Startup capital: Shs. 78,341,250 (A)
    • Net profit: 45,399,735 (B)
    • Return on Investment (ROI) (A/B) = 1.7255

In both models, the largest portion of the startup cost is in respect of the vehicle/truck purchase.  We have not factored in a working capital loan as this can be managed on a month by month basis but best practice suggests you will need to also have say 3- 6 months working capital.

It should be noted that the agriculture model appears to yield significantly better predominantly because of the “prospecting” around produce. You can buy it from farmers at low farm gate prices, store it till the scarce season and sell it higher or alternatively just transporting to the right market gives higher margins.

The construction industry will not have similar prospecting as clients often buy their own products especially the costlier ones and there is less bargaining power held by the transporter over suppliers.

The models are below:

Start up, revenue and profitability in the transport sector

P.S Clicking the above link will take you to a google docs links.

N.B: For prudence, the return on investment of 4.49 for the “poorer” performing sector of Construction has been used to rank with other sectors (rather than the agriculture one).  

The basics you must bet right before investing:

In the agricultural sector

1.Specialization

There are many types of agricultural goods from which to choose from, including but not limited to maize, beans, tomatoes, mangoes bananas among others. Each type brings with it its own challenges, so choose a crop that does not have a lot of competition in the market of transportation. Similarly, make sure you do your due diligence to ensure that there is actually a need for this type of agricultural crop in the market.

2. Customer acquisition

You need to acquire a customer base for the products that you going to deal in. since agricultural products are perishable in nature, there is need to sell them off as quickly as possible to the consumers to avoid the products getting spoilt in storage.

3. Sourcing the product

As a businessman involved in agricultural goods transportation, you will need to source the products you are going to purchase from the farmers. You will need to know which area grows which crop best and the preferred area for each crop for example people prefer bananas from Masaka compared to bananas from Mbarara. This gives you an upper hand compared to your competitors.

In the construction sector

1. Location

You must make sure your lorries are situated in areas that are selling building materials. This gives you an easy reach of customers who are looking for lorries to transport there materials to the building sites after purchase an example of such an area is shops located at Good shed opposite the fire brigade next to the Kampala city clock tower locally known as the “sawa ya queen.”

2. Drivers

Hire trained and licensed drivers with clean records who have had experience of working with other transportation companies and organizations. These drivers are well versed with company policies and follow traffic guidelines. In order to avoid your drivers paying out police bribes as a result of not adhering to traffic regulations, use experienced drivers – you will be saving a lot of money

Insights from my guest contributors

In the agricultural sector

Ssebunya simon is a business man in Kyengera owning a whole sale shop at the same time a middle man transporting agricultural goods from the villages to the markets in town. He has been doing this business for over 6 years purchasing maize from Mubende and selling it to the maize milling companies and he can tell you with certainty that he has no regrets though sometimes there are challenges here and there. The reason he  managed to succeed in this business is that he  managed to create a bond of trust with the farmers that he purchases from the produce and sometimes when he is short of capital they give him the produce on credit and once he has finished to sell the produce he sends them their balance on mobile money. He says he has come a long way studying the market and bending along its curves as well as understanding his customers and that is what has kept him going.

In the building sector

Semwogerere Fred is a businessman in Kampala owning a whole sale shop selling building materials at the same time he is in the transport business transporting building materials from the selling point to the building site of his customers. He is also involved in transporting other building materials such as sand, hardcore stones, aggregate stones and bricks among others. He has been doing this business for more than five years and he says he has enough experience to outstand the competition.

In his own words:

“I started this business as a lorry driver of a Tata the one of 22 tones and I was working for my boss transporting sand, hardcore stones, aggregate stones, bricks and other building materials. While doing the transportation business I learnt a lot of things including where I could get from cheaper materials. I then promised myself that one day I would own a lorry of my own and thank God here I am with three of them. The transportation business of building materials has changed now days we charge our customers a combined price consisting of the price of materials and the transportation price because we know where to get from the materials at a cheaper price and they charge us per vehicle and not per ton. We offer good prices to the building constructors and they don’t complain because they know the task of looking for them and transporting them to the site. “

Final word

The Uganda transportation sector will for the foreseeable future depend on the brokerage aspect (or being a “musubuzi”) owing to the bottlenecks where the many small subsistence farmers can’t get the large scale to transport their produce to the market. They therefore depend on the transporters. The same goes for the construction sector. Until the emergence of large scale independent contractors, the transporter has a critical role to play.

As a final thought, this sector will even be more important with the emergence of e commerce and internet selling where online retailers will be looking for a reliable logistics partner. This is an area to tap into.  

So are you experienced?

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

Share the article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join Advanced thinking. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page and the website is via email. In addition we regularly provide tips on marketing, corporate governance, accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business. Please click here to join the email subscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Plant nursery business, Where is the Calytunsi seed?

girl with flower

 

 

 

 

 

 

 

 

Outside Looking In

D E Wasake, FCCA

About My Guest Writer(s).
The two brothers, Kizza and Mukwaya have two things in common; the name John, and their passion for gardening. With the help of their wives and a few part time porters, these brothers run one of Kampala’s oldest and most successful plant nurseries – Sanyu Tree Nursery, which sits on a narrow piece of land adjacent to Naguru Police Station, along Ntinda road, has been in existence since the early 2000’s when Kizza left his job as a porter at the National Forestry Authority, to chase his dream.

As luck would have it, the said land had become a nuisance and the City Authority (then KCC) welcomed his idea of turning it into a green belt. So with a total savings of 500,000/-, he bought some polythene, soil manure, and seeds, to set the ball rolling. He started out with only eucalyptus seedlings but has since expanded his scope to include Terminalia, Grevillea, pine, and thorny apple which is commonly used for fencing.

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article Summary
One of the best ‘shoestring startups’ for anyone who enjoys gardening and landscaping, is starting a tree nursery.
So you want to be your own boss, working on your own schedule while retaining all your hard work’s fruit. Even better is that just about anybody can start this kind of business with only a minimal amount of capital. Growing plant seedlings is a great way to turn 50 UGX (the seed) six fold, into 300 UGX (the seedling), in the shortest time possible.

In this article, we explore the fortunes that lie in the Tree Nursery Business. With an initial investment of UGX 7,770,950 and average net sales of UGX 20,000,000 your estimated return on investment is 0.385 years.

Introduction

When people think of a plant nursery, the roadside potted plant center usually comes to mind. You’ll find small specialty plant nurseries ranging in size from tiny roadside sellers to giant wholesale nurseries, who supply such retailers (NFA, Kawanda, EA Seeds, etc.) That’s the beauty of the plant nursery business – there’s room for everyone – from part-timers hobbyists to the more serious large producers.

The nursery and landscape industry is in Uganda is made up of many individual and family-run businesses that grow, retail, install and care for plants and landscapes. it involves the production and marketing of various plants including, traditional food and cash crops, grasses, flowers, commercial and fruit trees.

Trees are not perishable like flowers or vegetables; if your flowers or harvested vegetables don’t sell, you are left counting your losses. Instead, trees just keep on growing, so you can sell them for more, at the right time.
When practiced more skillfully, nursery operations can also generate biomass in the form of pruning and culling waste, utilized for energy production, or converted to agricultural mulch.

In our advanced thinking tips, you will be advised to specialize in highly demanded plant varieties that can be container-grown to save space and water. You will also learn that investing a fraction of your earnings in free deliveries to your customers can give you an edge in this highly competitive, but underutilized market. You can also make good income by focusing on establishing a supply relationship for wholesale plant sales, and managed services to retail nurseries, home owners, landscapers and upcoming real estate projects around you.

Introduction to the sector

Plant Nurseries range in size from small hobby type operations that market a few trees to family and friends, -to profit oriented road side nurseries(such as Mr. Kizza’s found in Nakawa, opposite Spear Motors) , and even large-scale commercial operations with their own retail outlets(such as NFA, EA Seed, Victoria Seeds). Although many small producers specialize in only a single variety of stock like tree seedlings, there are those who choose to cast their nets wide; our research findings explain the risks in this.

The nursery business is driven by new home construction and healthy consumer spending, and the recent awakening to the desperate wails of our planet earth. Demand for sod (compound beatification grass) and flowers has in recent years been subdued by the revolutionary shift to commercial tree farming.

Even when taken up as a hobby, a nursery, just like any other business, requires proper management in order to remain sustainable and as a new entrant to the industry you need to equip yourself with the following basics:

  • Knowledge of the growing requirements of the various crops
  • The ability to maintain various irrigation, heating, cooling and production equipment
  • The skill to research products and services
  • The know how to develop marketing and sales plans
  • The ability to manage people
  • The ability to sell products and provide quality customer service
  • The knowledge to manage finances

Here Is What You Need/The Process
 

1. Training
Nursery crop production requires highly technical and specialized production skills, particularly with respect to propagation and germination. In addition to a fundamental and practical understanding of plants and how they grow, as a nursery operator, you require an understanding of the specific growing requirements of each crop and how these growing conditions can be managed to achieve efficient production.

2. Location

It is important that the site selected for the nursery has enough land to raise the number of seedlings needed, and if possible, room for expansion. A small nursery raising 65,000 plants in small polythene bags, and keeping the plants in a nursery for a year could require about 60m2 of land; this includes potting beds, 20 per cent extra for losses and damage, paths between the beds, soil storage, thatched shelter, and the compost-making area. The size of the nursery depends on the number of plants to be produced, the time they will remain in the nursery, as well as the quality and slope of the site.

Other factors to be considered in location selection include;
• Number of plants to be produced each year
• Species
• Type and size of plants

3. Water Supply
Growing Plants require an adequate supply of water which can come from a nearby pond, swamp, or private well. The ideal situation is where there is a perennial stream at a higher level than the nursery, and fairly close to it, so that water can be diverted from the stream to the nursery in high density plastic pipes (which should be buried 15cm deep).

You need to determine the best irrigation system and irrigation practices for their particular situation. Metered water will not be an option for a road side establishment because the local water management authority (NWSC) requires you to you possess a valid land title before you can think of extending piped water

4. Equipment
This can include anything from irrigation equipment to shovels, hoes, rakes, to an agricultural tractor, depending on the level of production you are aiming for. Because you will be making regular pickups of plants, soil and making deliveries, owning a small pickup truck is something you should consider along the way.
Other equipment that you might need:

  • Sprayers for control of weeds, insects and diseases
  • Office equipment
  • Potting equipment.
  • Wheelbarrows
  • Pruners

6. Purchase Tree Seeds

To ensure a good planting program, good nursery stock is essential. Major causes of seedling mortality on-farm include the wrong size or poor health of the seedlings at the time of planting or poor health of the seedlings at the time of planting. Poor seedlings are likely to have slower growth, to be less able to compete with weeds or drought, and to be more liable to damage by insects and pests.

Buying from a reputable seller such as NFA is vital, and considering that that you will be buying in bulk, you can plant as many seedlings as your space can allow, and in a couple of months, you’ll have many seedlings for sale to earn you a good profit margin.

Pros And Cons

For a better understanding of the pros and cons of this sector, it’s important to do a complete SWOT (strengths, weaknesses, opportunities, threats) analysis. Knowing the strengths and weaknesses of your competition will also allow you to position your plant nursery where your strengths prevail.

Strengths

  • Low initial investment and cost. It is a low-tech business that anyone can learn and can start with little more than a wheelbarrow and a shovel!
  • Quality of products. You can count on high quality products to win you more business.
  • Availability of the required equipment locally, such as packaging material and gardening tools.
  • Availability of affordable plant seeds. Since they are predominantly bought according to weight (kilograms) and sold as individual seedlings, you stand to benefit from the favorable pricing of most seed varieties. It gets even better! Once you’ve planted ‘mother’ stock, you can easily propagate more by cuttings or root division, to reduce your plant costs to zero.

Probable Weakness

  • Lack of technical support
  • Lack of knowledge
  • Lack of suitable transport means. (you will be hiring a vehicle in order to provide free deliveries for bulk purchases)
  • Lack of previous client base because we assume that you will be joining the industry fresh.
  • Lack of water resources. Living creatures, plants inclusive, have basic necessities for survival; steady water supply is vital for the good health of your plant nursery stock.
  • Land and suitable roadside location. Given the demand for easily accessible roadside land, it is nearly impossible for you to find a suitable unoccupied plot.
  • Lack of finances
  • Uneven sale / market periods… sales are predominantly seasonal; there is bound to come a time when you will have little or no sales at all. You should prepare means to get by and also provide the necessary care for the farm during periods of slow or no sales.

Opportunities

  • Availability of cheap labor
  • Market for seedlings
  • Opening up new markets in by organizations promoting environmental awareness, landscapers, homeowners in Uganda’s upcoming suburbs, etc.
  • The sudden shift in societal concern towards environmental conservation, hence the call for reforestation.
  • Opportunity to venture into professional landscaping, providing managed services to home owners and construction projects alike. This will open the doors to an entirely new world of exterior design.

Threats

  • Land & location. Kizza admits that he was lucky to be have secured KCCA’S permission to operate in the Kinawataka water-catchment area precincts; “finding a busy spot that can accommodate a similar venture, without making any enemies is impossible under the current situation.” According to him, the weak legislation and disregard for the environment has seen many scamper for what would have been mutually beneficial green spots in the city. (Memories of the failed attempt to have a Futon showroom developed along Yusuf Lule road, opposite garden city start ringing in my mind.) Additionally, he lives every day like it’s his last because he knows the implications of the temporary nature of his tenancy.
  • Unpredictability of demand
  • Pests and diseases.
  • Policy changes e.g. by KCCA which can decide to redeveloped particular land leading to eviction.
  • Isolated site leading to the risk of vandalism and theft. You would think that its close proximity to a police station, Kizza’s plant nursery is assured of security but that isn’t the case. The authorities at city hall are firmly against the idea of erecting a parameter fence, and the thought of hiring a private security guard sent us both laughing.

Marketing And Promotion
These will be the single most important (& costly) aspects of your nursery plant business and should be considered well ahead of growing any plants. In order to consider yourself a success, you need to be selling over 65,000 seedlings every season. One cannot simply rely on people to ‘’just ‘know’’ that you are a good grower; you have to make it known. With the proper marketing strategies it is possible to succeed in this business.

What marketing channels will work best for your situation, and what type of marketing and promotional tools will you use? What will be your market area? Will it include local, domestic or export markets? These are some of the questions that need to be answered.

Here are a few ‘Advanced Thinking’ tips for you…..as you consider this sector

  • Develop contacts with prospective buyers and maintain contact with existing clients.
  • Assess new trends in order to respond to changing consumer tastes and preferences.
  • Sort, handle, label and transport stock as required by buyers as an after sales service.
  • Provide required quantities as requested by large scale buyers.

The full article with additional information on the process, further advanced tips and contacts for purchase of items including seed prices from NFA are contained within our financial model below.

Our financial model of the profitability of the sector and return on Investment

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be downloaded after you register. and pay the requisite fee

Final Word
In this business, there’s essentially nothing substantial enough to different you from your competition, so in order to successfully develop an edge, you have to concentrate on product quality, selection, lowest price and fastest service. Now you have it, good luck in your endeavors, don’t hesitate to get in touch with us for any assistance in bringing your dream to life.
Please include any questions and queries in the comments section below.

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And now the disclaimer: While I/we have taken steps to research this information as well as based on our experience, you should not solely rely on the information given here to base your investment decisions.

You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Cosmetics business in Uganda – will the real black beauty come forth?

Juliana Kanyomozi

Outside Looking In

D E Wasake, FCCA

About My Guest Writer

Ms. Kongai Grace is a laboratory attendant at the Uganda Industrial Research Institute. 

She has witnessed a number of starts-up’s grow into fully fledged cosmetic companies from the Industrial research Institute Incubation lab. If you harbor any aspirations on making a mark in the beauty and cosmetology industry, chances are, you will most likely be pointed in  Her direction. Email: kongai@yahoo.com Tel: +256(0)706566845

About the Writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business.

Article Summary

“Mirror mirror on the wall, who is the fairest of them all?” “What is your beauty secret?” The immortal questions women of all shades and walks of life are often asking themselves in their strife for eternal beauty and youth.

This article looks at the cosmetics and beauty industry in Uganda and in particular how to set up a perfumed soap and petroleum jelly manufacturing entity.

In an industry dominated by international brands and further more local sector leaders it is critical that a niche is established coupled with stringent quality controls and extensive advertising/marketing to tap into this lucrative sector.

If you are successful, we estimate in our model a return on investment of less than 1 year.

Introduction

I’m certain you have heard the question being asked many times ‘What is your beauty secret?’ This is often at the marvel at a beautiful smooth skin, complexion, radiance and fragrance.

If you are a fan of the movies and cartoons, then you will remember the character of the evil queen in Disney’s ‘Snow white and the Seven Dwarf’s’ who always asked her magic mirror ‘who the fairest of them all was?’….The mirror always answered Snow white much to the anger of the queen!

Snow white and the dwarf’s aside, It’s only Natural that beauty speaks a lot about a person, it’s a known fact (of course unscientifically proven by our tireless team at Inachee) that women would swap anything or give anything to look beautiful, radiant and forever young….One such woman who we are certain never tires of hearing this is the octogenarian princess of Toro, former actress, lawyer, diplomat, model and former face of vogue magazine, the one and only Elizabeth Bagaya!

This article looks to create the perfect beauty secret and an answer to a long lasting, good fragrance and skin complexion by dwelling into the beauty and wellness industry that every woman would love to have.

So, mirror, mirror on the wall, who is the fairest of them all? Let’s find out how you can create the best petroleum jelly and soap with only 39 million.

However, you should note this; any new entrants into this industry must stand out and create a unique product, customer loyalty base and segmentation.

The industry as it is, is dominated by international brands like L’ oreal, Imperial carssons leather and Nivea et al that have penetration and pedigree world over, these are the big players your product will be up against.

Thus by establishing a niche, focusing on quality, extensive branding & advertising,  and venturing into virgin markets of locally manufactured lipstick and lip balm are some of the “advanced thinking tips” to getting you started.

Getting started

The beauty industry in the Middle East and Africa was estimated at about $20.4 billion in 2011. Of this figure, South Africa alone represented $3.9 billion, Nigeria was second and Kenya’s market totaling more than $260 million came third on the African continent.

Uganda in the last few years has seen considerable growth in the cosmetic industry with pioneers like Mukwano Group, Mwana Mugimu, Sleeping baby, Movit and the timeless Samona Jelly making progress and opening up the market space for other players.

The older reader might also remember Mekako , Jaribu and Sabuni kanga among the soaps.

The cosmetic and beauty industry is highly lucrative, but success is hinged on focus on target markets and categorizing of a particular product for sale. Note this, the industry requires a strategic plan that addresses specific needs and an audience, this is the break or make of any product in this industry.

There must also be a strong emphasis on brand creation, distribution channel development and quality of the product as the competition is high from well established brands as already noted above. It being a locally manufactured product, there are bound to be a number of challenges and consumer behavior perceptions that you will need to address first before reaping big.

One of the guarantees however is that once a niche has been created and a loyalty base formed, sales from customers are guaranteed to be continuous as cosmetic products belong to a specific category of goods that create a ‘ life long bond’ between the user and the product.

Once this is understood and placed into practice, like acquisition of a catchy name, use of exquisite packaging and advertising, marketing strategies, this should be enough to give you and the company a detailed understanding on how the Industry operates and the bottlenecks.

Creating the Perfect Beauty Product

There may not be such a thing as ‘perfect’ or the ‘fountain of youth’ product as some advertising campaigns in this industry may suggest(but advertising is very crucial on the other hand), but there is a good and user friendly product.

Thus, before getting started in mixing and boiling up stuff or rolling out the product to shelves, the first and most important steps would be;

  • Doing extensive research on the ingredients and mixing ratios;
  • Pre-testing and doing clinical trials of the products; and
  • Getting certification from the relevant bodies like the UNBS to certify the product et al

The Soap Making Process

A simple method called the cold process method is commonly used by small artisans to produce handmade soaps. The process involves mixing crude petroleum jelly with lubrication oils using a mixer.

The oils are then heated at room temperature until they melt into a liquefied form. Essential oils and fragrance oils are then added just as the mixture starts to thicken.

The batch is then poured into molds, kept warm and left to dry on specially designed trays for 12 to 48 hours during which time they harden. However for milk soaps or others for which sugar has been added, no insulation is required as the presence of sugar increases the speed of the reaction and thus the production of heat.

After the insulation period, the soap is firm enough to be cut into bars. In order to attain some degree of standardization, and unique design, it is important to have a specially built mold. It is from here that a design and logo are imprinted onto each piece of the cut soap using a custom design soap stamper.

During the mixing, avoid using wooden and aluminum and stick to stainless steel products as the latter does not react to the chemical ingredients like sodium hydroxide.

See, creating your own beauty soap couldn’t have been harder!

Making Petroleum Jelly

In order to make petroleum jelly commonly known in Uganda as ‘Vaseline’ ( which is simply a popular brand of jelly), the most crucial items you will need are bees wax and mineral oil (liquid paraffin).

Petroleum jelly is compounded in various ways to suit different purposes. It is simply a mixture of bees wax and liquid paraffin; the proportions vary according to your requirements. A thin version would be 10 gm of Bees wax to 100 ml Liquid paraffin while a stiffer version would be 30 gm bees wax to 100 ml liquid paraffin.

Warm both items slowly in a mixer, when the bees wax is not quite fully melted, stir thoroughly but do not entrap any air pockets, when there is no solid wax left, then pour into a cooling container and allow cooling.

The proportions can be adjusted to test for different outcomes of the product, try it yourself and then experiment with other ratios to see the effect.

With enough practice you will be able to create and mix different fragrances and scents to the mixture and other ingredients.

As a standard niche creation for both the jelly and soap products consider use of local ingredients like Vanilla and Moringa among some of the locally sourced products, this will give a unique touch to the final out-put of the products.

The Sector as it is currently

Never mind what media channel you will find yourself tuned into, not a day will go by that you won’t come across promotional materials for either Movit or Samona products. Such is the level of investment and resources that have been, and continue to be pumped by Uganda’s market leaders in the cosmetics and skin care industry.

One of the latest entrants (at the date of this article) in the beauty and skin market is AMAGARA who in a short time have launched a quality product with a wide range (using natural fruits and vegetables like vanilla, avocado et al).

With having rolled out successful household brands in soaps, detergents, cooking oil, bottled water, flour, et al Mukwano Group dwelled into the manufacture of bath (Meditex & Yeyo soap), and laundry soap varieties (Chapa  Nyota & Star).

The market is currently dominated by the above companies and many foreign brands such as Unilever and Proctor & Gamble et al.

In the recent past, there has been a decline of once-idolized brands like Mwana Mugimu and Sleeping Baby Jelly that were must haves for every household in the 90’s, and for which the catchy tune ‘silika wo baby’ was created by now retired artist Emperor Orlando.

Currently, the market is highly dominated by International brands as already mentioned above, but also newer entrants like Oriflamme have established themselves in Uganda, with local diva and tusker project fame judge Juliana Kanyomozi as the product’s brand ambassador.

Market entry strategy

There are two options for venturing into this business,

  • Option 1: Sell local and international brands( Acting as a middleman and agent)
  • Option 2: Create your own brand and product(the main emphasis of this article)

With the above, you will have to make a choice on production entry; whichever choice you make, will help or bring you a step closer to understanding and making money from this sector. However the emphasis of this article is for the aspiring entrepreneur…..

Now that you are all strapped and ready to indulge in creating beauty the gods would be proud of, note this, there are very few products on the Ugandan market that are considered of ‘international pedigree and standard’ that would give the international brands a run for their money.

This might explain the concentration of local players Samona and Movit on the mass market (lower classes) as opposed to the Middle and Upper class who purchase cosmetics on basis of prestige and luxury. This is something that you MUST get right before you make your first mixture, you must know who the product is being made for.

Option 1 – Being a Middleman and Agent

We are very certain you notice international brand names like "Olay" "L'Oreal", "Dove" "Nivea", "Avon", "Neutrogena" and "Mac" all too well. The first option therefore is to become a dealer or retailer for such products and earn a difference from the sales.

This is very easy to engage in and any beauty and cosmetology ‘wanna-be’ can get started with capital to purchase some stock. This not being a core area of interest, we shall not dwell into this very much.

Sourcing of products (from Kikubo, Miniprice et al) or internationally (from Europe, Asia, the Middle East et al) on a whole sale basis, for sale to final consumers. According to this article, Dubai (United Arab Emirates) has in recent times become a hotspot for African importers for jewelry, perfumes and cosmetic products.

It’s strength as a hub for African cosmetics importers is associated to its strategic location relative to other distant markets in Asia, Europe and the Far East, the UAE is also favored because of the existence of low-priced goods owing to the low-cost environment in terms of import related tariffs.

Depending on the quantity you aspire to purchase, you will require a significant amount of capital as well as a distribution point or shop. This is the key business model, having distribution and outreach capabilities to move the product.

The key advantages of this sub-category include;

  • No attention needs to be paid to manufacturing or quality
  • The business is not affected by factors of production like land, labor and capital et al
  • Starting up requirements can be flexible and less than conventional start-up costs

Option 2 – Creating your Own Product

With guidance of my guest writer and extensive research we have carried out, I recommend this because of the many prospects for expansion. She contends that starting small with only the simple products like petroleum jelly and basic soaps, is the wiser option as you will be able to grow your experience, brand and knowledge for future expansion into the more complicated products like body lotions and make up.

But before you get started, these are basics you must get right!

Have a knowledge and Education base

A formal education in cosmetology and beautification will equip you (or staff you employ for the purpose) with the necessary knowledge on various skin types and how they relate with the different products that you will be making. The last thing you would need is to create monsters with your products –  read destroying people’s skins and beauties…..

There are a number of local institutions like the YMCA Comprehensive Institute, Tiner International School of Beauty and Oriflamme’s beauty academy, which offer certificate, diploma and advanced diplomas in beauty-related courses.

You could also opt for the more practical approach by attending a short training course at the Uganda Industrial Research Institute (UIRI); they have a skin care section with a fully equipped laboratory and offer free hands on training.

It gets better; UIRI also runs an incubation program where startup businesses are nurtured and supported with advanced technology, equipment, legal advice, skills training, physical space et al.

For marketing and advertising training, Mr. Alex Tumwizere, also of UIRI would be the perfect person to speak to, please see the attached contacts list in our model for more information.

Sourcing for Quality raw materials and Mixing

All the ingredients for the products luckily for you are locally available in abundance and cheap. You will need to establish a relationship with a supplier to ensure consistency and reliability of quality products.

Simple products like clay facials and bath salts merely require measuring cups and spoons, mixing bowls, and spoons for stirring and adding the final product into your choice of packaging. Other products such as lotions, balms and soaps require additional equipment and supplies. When it comes to the high tech equipment and machinery, try www.soapequipment.com.

Ensuring Quality assurance and Pre-testing

Any person who introduces a cosmetic product onto the local market must ensure that it is safe for human use when applied under normal conditions of use and does not contain any poisonous, banned or restricted substance.

Different cosmetic products react differently to various skin types and age groups and many ignorant users have had their skins damaged due to ignorance on this. Given the risks associated, you have to invest in proper research to ensure that your products are safe for human consumption.

A sample of your product has to be tested by UNBS before you can be granted a license to begin full scale production.

As you will note, there is a certain section of people who will be critical on whether the product has been animal tested or not, the latter are a growing majority of animal rights lobbyists as seen here.

Having a cash cushion

This is an area that you can’t ignore to sustain production for the first one year at least and other variable costs.

Due to the high cost of advertising and promotion, your financials should be in check even before you start production; no retailer is going to stock your products if there is no demand for them – this means most likely at the onset they will use a consignment stock system – they stock your product but only pay you when a customer buys.

Unfortunately you may be limited to your own personal savings due to the high interest rates charged by banks on top of their demands to deposit security items like land and other assets.

Before approaching any of the funding sources you have in mind, you should put together a business plan with properly laid out projections and carry out feasibility studies of the Industry. See our sources of finance site should you feel you can consider alternative providers.

Create a Good Network through Friends and Family

Your friends and family will have a strong part to play in the success of your skin care products. Firstly, they are your best source of funding for the production and promotion of your products through low interest or interest free loans. Your friends and family will also most likely be you first clients and will offer important insight as a sample market cluster for your products; they will advise you on what doesn’t seem right. Use them as your test subjects before rolling out commercially.

Selecting the right Marketing Strategy

It is not by mistake that I have chosen to make mention of this more than once; the importance of marketing and promotion simply can’t be stressed enough.

Unless you have the patience to wait all those years before your product can be recognized, you better brace yourself for one hell (excuse the “French”) of a promotional campaign rollercoaster targeting the right person, through the right way and expecting the desired right outcome.

This is going to affect the direction the final product is going to take, hence the classifications of who the target audience is.

Once this has been established, then the marketing strategy and execution plan will naturally fit into this scope.

This also goes to aspects like selection of brand ambassador and representative of the product.

Hence it is no surprise Samona Jelly chooses to relate with artists like Mesach Semakula, Omulangila Suuna and Yoyo  who would appeal to their mass market audicene while Oriflame chooses Juliana Kanyomozi, who might appeal to the middle class.

Other international brands like Lancôme use Oscar award winner Lupita Nyongo

The Andrew Rugasira Good African Coffee story, is the inspiration here to follow especially when dealing with supermarkets and new clients. At times, there will be doors shut in your face, but each time this happens, remember the Andrew Rugasira story – it will apply to you.

Having a website

The cosmetics Industry require the highest level of interactive for all customers. This is in line with customers being able to view the latest products produced, quality assurance and ways of accessing the product.

As the world becomes more of a global village, and particularly for Uganda where the bulk of the population is Millenials who have grown up with the internet (or are used to i) the internet is a key driver in this, hence the urgency to have a well-designed website that communicates the power and message of the brand.

We recommend you read our views on a website strategy.

Choosing a Name

This is key to creating a memorable impression to your prospective customers. Whatever name you will pick, will from then on lead the brand on its way up or down. Just as a pointer, keeping the name brief, simple and memorable can be a starting point.

And Now the PROS…..

1. Raw materials availability

Most of the ingredients required for production are locally available here in Uganda as well as in neighboring Congo, Rwanda, Burundi and Kenya. Shea butter, Coconut oil and Aloe Vera are just a few of the many locally available ingredients that you can choose from as raw materials. Many more, especially of the herbal kind are yet to be discovered and fully utilized, with only Amagara among the few that have capitalized on this.

Many of the operational supplies like petroleum jelly, aloe Vera, coloring, perfumes and fragrances et al can be found at Boost House just before Mini Price in downtown Kampala, or at Platinum House overlooking the old taxi park.

Regarding the technical equipment like mixers and moulds, there are a bunch of options offered by the local artisans in Katwe, but be careful to strictly monitor their progress and ensure that the product achieves the desired outcome. Alternatively, you could also visit http://soapequipment.com/

2. Affordable Startup Costs

Despite public perception and lack of knowledge, startup costs as provided in this model will show that starting out this venture is relatively cheap and sustainable. The highest costs of this venture are the steel boiler and stainless steel Mixer, the rest of the start-up costs are for materials and office startup costs.

3. Local Un-tapped potential

After taking a walk through some of Kampala’s major super market stalls, my research team discovered that many of the hair and skin care products like conditioners, lotions, soaps, shower gels, hand washes, and petroleum jellies were all imported. This could be an opportunity for you to produce an unrivalled product. During one of their numerous tours around UIRI, they chanced upon one of the cosmetic incubation projects called Amagara Skin Care Products.

 It is from them that we came up with the affirmation that a quality product backed by superior packaging, and pricing will set you apart, and on your way to success.

That said and done, the Ugandan market will embrace and welcome a product that meets the International criteria and standards but one that is locally made. Because of this, there is a lot of potential for any local product that is of quality and standard to be appreciated.

4. Gateway to Other Products

The cosmetic business is about creating a good and recognizable brand. Once this has been established the company can venture into making of other products for sale.

Most cosmetic startups tend to manufacture products that are already popular overlooking untapped markets opportunities that are easier to break into. Even with the existence of a number of local producers, there is still potential for improved and more affordable shower gels, shampoos, liquid soaps and hand washes on the Ugandan market, despite their popular use and production simplicity, there are currently no commercial producers of perfumes, nail polish, lip stick & lip balm et al in Uganda, this is an area that is un tapped.

5. Government Support and Incubation Labs

Given the unique nature of this sector, there are a number of incentives that can be provided by the Uganda Investment authority and the private equity funders. This is an avenue that can be exploited by a prospective entrepreneur since this is a territory that has less penetration. See our sources of finance website for alternative funders.

The CONS …..

1. High Competition

As we have mentioned previously, there are a number of very many established International brands; this will be one of the key challenges and cons of the business. As the industry products are based on perception, it will take a lot of time to create a recognizable brand that will match and change the perception of the consumer. Thus, whatever is provided to the final consumer by the entrepreneur must be able to fulfill all the quality tests as well as have a creative advertising appeal.

There is bound to be an up hill task in changing the consumer behavior and endearing people to the new product and leave the old tried and tested cosmetic products. Hence having a product side to side with Nivea or L’oreal is and will always be the biggest challenge you will face.

2. Developing the right Marketing, Brand and Advertising strategy

If you haven’t been paying much attention, this is where you definitely ought to do so!

Bear in mind that the products you will be making are nothing new to the world, they have been experimented before! What this means therefore is that you have to spend a considerable amount of resources creating awareness for your product; and there is simply no way out of this.

The specific amount you choose to invest in promoting your product will have a direct association with your eventual sales; after all, nobody is going to buy something they have never heard of before or relate to.

That said there must be a considerable amount of investment or planning for a marketing and advertising strategy that should appeal to a specific target audience.

3. Taxation Policy

We advise all our clients to pay their taxes as it is a good corporate practice. However, we also note that it being the manufacturing industry, all products will be eligible for payment of VAT (Value Added Tax). This is a shortcoming on the other hand as a business being a start-up; taxes on profits will retard faster growth of enterprise.

The other taxes that will be levied on Imports of machinery as well as agricultural products are bound to increase the cost of doing business in the cosmetic industry.

There are no specific tax incentives for the industry.

4. Establishing a distribution channel

This is critical to ensure the product is accessed in all households world over! As a positive step towards better business development in Uganda, the East African Community and AGOA are being emphasized more for better trade and efficiency of doing business.

However, ensuring distribution and effective outreach has a significant cost as many established distributors with all the right networks don’t want to associate with a start-up or a brand that has not been tested and proven on the market. This is another challenge that you will have to face.

5. Accommodating Expansion and growth

There needs to be a cushion plan for expansion and growth of enterprise. This will be in terms of warehousing and factory space for manufacture of the products. Given the growth of the business, this space might be required sooner than later, hence there must be a contingency plan put in place for renting and warehousing.

Just how profitable is this sector?

On the basis of our model analysis and using a 5 year time projection, our estimates are as follows:

  • Startup Capital (A):  39,337,072
  • Av. Profit per year (B): 35,328,450
  • Return on Investment/Capital (years to get capital back) (A/B): 1.11 years

Our model is below.

Cosmetics manufacture model

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register.

SUMMARISING AND THE FINAL WORD

FINAL WORD

There is huge potential in this sector that is yet to be exploited and with one flick of brilliance and innovation, you will be on your way to creating the next big product from the pearl of Africa……so will the real black beauty come forth and conquer this industry?

 

END

 

 


With research and contributions by Donald Wasake and Matthew Owomukama, Inachee staff writers.

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Image: The image used is of Juliana Kanyomozi, a Ugandan singer and brand ambassador for Oriflamme.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions.

You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

 

Restaurant business – guess who is coming to dinner?

takeway ideas

Outside Looking In

D E Wasake, FCCA

About my Guest Writer

Mr. Fred Kizito is the manager of Mr. Tasty- a local fast food chain with 4 branches in the Kampala metropolitan business district. He has over 8 years of experience in the fast food business and has a wealth of experience in the sector from stints at KFC Kenya and the prestigious Formula One hotel. He can be reached on +256 775618587.

About the Writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in different sectors enables me to have a good understanding of this business.To see the full depth of my experience, please see my profile.

Article Summary

Despite catering for a basic human need, a fast growing youth and urban population who prefer fast food as well as the abundance of food in Uganda, why is it that many restaurants, including fast food restaurants continually fail? Worldwide trends indicate that 57% of restaurants fail within 1 year and only 20% of restaurants surviving beyond year 3!

Assuming you survive the 1-3 year curse, our analysis indicates that with an investment of Shs. 45m, you can get a return on investment of 0.34 years. This success however hinges on a few key factors including:

  1. Location, location, location
  2. Poor cash flows
  3. Poor controls and monitoring including over the critical area of stocks

Introduction

Writing this article has had a two-fold effect on me; one is that it is nostalgic. My business partner (my sister) and I decided to financially support a family member achieve a dream of operating a restaurant. It never lasted a few months and the investment failed (and I will tell you why), and secondly researching deeper into this sector has shown me that the failed restaurant could actually have succeeded – but then I was not physically present to have given this insight.

Family business aside, takeaways are places where most first (or is it fast?) dates occur. Well at least during my University days, that was the norm, who knows where children of these days have their first dates??

But then  we know campus girls (note the letter ‘c’) never change and they always enjoy the delights of being taken out on dates in restaurants where the 3c’s (chips, chicken and chaps) are served. It’s rumored in some circles that they love anything that starts with ‘c’ like cash, cute, car, crib, cuddling et al….This statement of course is merely tongue in cheek and doesn’t necessarily reflect on all girls eating out in restaurants.

On a more serious note, the growth of fast food restaurants, commonly known as ‘takeaways’ in Uganda have been rapid, especially around Universities and busy areas in the cities.

As per research findings, Wandegeya alone, for which Makerere University is in the vicinity, has over 30 restaurants that specialize in fast food, while Uganda Christian University, Mukono has around 21 as per time of writing.

Drawing from this experience, we present, the core activities and do’s and don’ts of operating this sort of business that is hinged on positive cash flows, customer care service, establishing a strong brand and identity.

As per industry stats, restaurant business has one of the highest failure rates in all businesses.

The industry average placed at 57%, with only two out of 10 restaurants (20%) making it past the three year mark!

With an ever increasing middle class and the highest youth population in the world, the demand for home food delivery and easier payment systems have resulted in the birth of unprecedented business models such as Home Duuka, which deals in online shopping and offers home delivery with an option for mobile money payment.

The customer now can enjoy the benefits of good food without cooking it, picking it up or cleaning up. This is the key reasons the fast food sector is poised to grow.

In addition, there are a number of franchises that have penetrated the Ugandan market like Nandos, Steers, Ranchers steak house, Javas and of recent KFC.

Thus, the question would be why franchises are more successful and are less likely to fail compared to stand alone fast food models?

In answering the above question and learning more about the fast food industry, we used the success model of Mr. Tasty an established fast food restaurant with 4 outlets in metropolitan Kampala (Freedom city, Ntinda, Ben Kiwanuka Street and Lugogo).

According to Euromonitor International, there was a 4.6 percent increase in the value of global consumer foodservice to reach an astonishing sales volume of $2.6 trillion dollars in 2013. The report further details that the Middle East, Africa and Asia Pacific led compound annual growth from 2008-2013 with 10.7 percent and 6.6 percent, respectively.

The above, would simply mean that there are increasingly more restaurants specializing in fast food operating in Africa.

Part 1: So, why do Uganda restaurants really fail?

Before, we look at why restaurants succeed or how established brands like McDonalds and KFC have been able to withstand the test of time, we need to look at the origins and what such companies did to ensure their survival past year one to become globally recognized brands.

Below is a summary of why our restaurant or any other start-up will fail;

1. Poor cash flows. This affects all businesses one way or another, but in the restaurant sector, it is highly critical to have enough money for the start-up and operations cash for the first 8-12 months at least to cover overheads like rent, salary, advertising and utility bills.

2. Location. This is double edged, as a good location will drive business, while a poorly located area will stunt its growth. Good locations in upscale malls have high rent costs that the start-up may not afford which increases the cost of doing business and increases the break even points for the company. Analyze all these above variables before making your final decisions to open up.

3. Lack of Inventory control and monitoring systems. The failure to reliably monitor food stock numbers, break-down of servings and control of the procurement and purchases work played a hand in our failure. It turns out, that often times, the boy who was charged with doing the purchases would hike the prices,  buy less items or wouldn’t buy anything at all and rely on left-over food to sell the next day. Thus as a basis, stock taking is a must on a daily basis.

4. Owner absenteeism. Tied to the need to have proper controls is the need to know key business ratios or averages. It is typical that the owner will be present, at least in the early days

In our case, the family member who was directly in charge for operations and administration was often absent and this created a vacuum that the unscrupulous manager took advantage of to bleed the business dry of its few profits. If he had actually been present and learnt a thing or two about cooking, calculating the food ratio servicing’s and book keeping activities instead of delegating this vital function, it would have still been open.

To avoid a similar fate, it is critical to physically be present and learn the trade, after which time you can then think about hiring a manager and also know where to put adequate controls in place.

5. Lack of an established Niche. All of the world’s most successful restaurants have a specialty or a niche (what they are known for).

KFC has the bucket specials with “finger licking good chicken”, Dominos for its Pizza and Uhuru restaurant serves the best pilawo rice in Kampala (whose recipe is still a secret).

For the restaurant to stand out, being unique is a must! However, be mindful of certain demographics like religion and culture before introducing certain items like pork and alcohol on your menu.

6. Customer care and service delivery. Good customer care is at the helm of any business, customer. Note that, for every one complaint received, there are about three others that have not been registered. It is therefore essential to train staff in etiquette, handling clients and efficiency especially when dealing with many customers at a time.

7. Other factors including:

  • Poorly trained staff
  • Lack of adherence to standards like health and hygiene
  • Short sightedness and lack of vision from proprietor
  • Poor tax compliance

Part 2: Getting started and Foreword

In getting started, you can either choose between franchising or setting up your personal business.

In case you choose the franchising route, it will involve paying someone else for the right to use their concept and brand. Even with advantages such as instant popularity, ready market and support from the franchise owner, you will have to cope with the interminable rules. These include, remitting a percentage of your profits, location restrictions, menu and design restrictions, and of course, the initial cost of purchasing the franchise rights

However, if you choose to go the independent route, there critical areas that you will need to pay attention to before operations can commence.

These are similar to the franchising model requirements, but since it will be a proprietorship, the efforts placed will be more; the critical areas to focus on in brief are;

1. Focus on building a brand and customer identity. This will help your business to relate with customers and for them to be a part of the service provided. This is critical and will ensure customer loyalty.

2. Location. As already mentioned before, location is a key component, be critical about the price, population spread, availability of utilities, parking space, renovation costs and fittings, competition analysis, landlord tenant agreements et al.  Considering undertaking market research combined with use of a broker to assist in this critical aspect.

3. Marketing Strategy. This is important in consideration to your budget and cash flows. Most conventional means of marketing and advertising like print, billboard or radio are expensive. Consider cheaper means that can fit into the restaurants start up budget like social media (Face book advertising) and the traditional word of mouth referrals (e.g nearby offices or buildings).

4. Special Recipe/ Niche/ What are you known for. That’s exactly what you need to be asking yourself? This is the difference between the amateurs and the professionals in the business…Pick a side!

5. Training and retention of staff members. Adding a personal touch of training and appraising, of your staff will mould them and equip them with skills to perform highly. Make training (accounting, marketing, customer care, stores management etc.) an essential element for your employees and set up incentives and rewards for exceptional performance.

6. Minimize wastage of food. You could sell the left-over food as animal feed for dogs and pigs. Use refrigeration to keep foods like chicken and meat for longer periods, however, don’t over-do it as some bacteria can grow on food and cause food poisoning.

7. Procurement and purchases management. If you are not in control of the actual dealings with the suppliers or actually stock counting, then your business is bound to fail. Establish a good working relationship with potential suppliers as there will be times when a credit extension will be required.

8. Doing food deliveries. Starting up a distribution network will ensure two things, one, the ease at which people will give you money and two, the speed at which you will collect the money while delivering food.

Part 3: PROS AND CONS

First the pros…

1. Tapping into the growing and emerging market

Since a lot of fast food is consumed by youth (especially students and single people) who don’t have the time or patience to cook and deal with the after math of dishes, this segment of the population is the biggest in Uganda. Setting up the restaurant around universities and busy areas will ensure constant flow of customers owing to this factor.

2. Increased operational hours

Additionally, operating the business at night will endear night revelers and Kampala’s party animals to have a bite before heading home. Hence incorporating and planning to have a 24hr operation manual is necessary to maximize profitability for the company.

3. Availability of cheap food and labor force

There is availability of most food varieties in Uganda. Consider, sourcing food from villages where it is cheaper. The current youth population is a contributing factor for a raw labor force.

4. Expansion potential into drinks, other services

Overtime you can grow your business to add the sale of a variety of items like coffee, alcoholic drinks etc. Other services can be inclusive of a delivery service, the likes of Nandos are already using this model.

However, addition of certain services will dilute your focus from the core values of your restaurant. A good number of “potential clients” will end up shunning the premises totally on religious and traditional grounds if you include items like pork and alcohol.

5. Increment in revenue during peak days

During peaks starting on Friday and ending on Monday, sales usually double and this can only mean one thing for the business, increased sales and revenue! It however consequently leads to an increased work load and the need for increased supervision from you the business owner.

6. Potential of Franchising

Banking on the annual profits volumes, more and more branches can be rolled out to replicate the success levels of the original branch. This will lead to increased revenue and sales.

….And now the cons

1. Managing Cash flows

I can’t stress this enough. Failure to manage cash flows is one of; if not the leading reason restaurants fail. Therefore, before you get into this venture, thoroughly examine your position and have a cash cushion. Sadly, this is to say, it is not a business for the regular Joe.

2. Getting a reliable and consistent supply chain management

My guest writer comments: “Strive to create and maintain a good working relationship with your suppliers. This will allow you the luxury of ordering goods and paying after sales have been made, otherwise you’re going to choke on the expenses.”

With that, supply on credit is bound to happen at least once during operations.

3. Retention of staff/ fighting off poachers

If you have trained and groomed your staff well, that is a good thing. But be wary of poachers or the staff themselves leaving for better offers and opportunities. Though this is bound to happen in every business, in a restaurant it’s a different for it would be equivalent to losing the engine of your vehicle if you lost your head chef who takes with him all your recipes to a competitor.

4. Menu Selection/ factoring in price changes/ fluctuations

The food industry is subject to price fluctuations which means you will have to deal with unstable operating costs especially for food items. Finding equilibrium on your menu will be something you have to watch out for. Customers wouldn’t want to be treated to a different price at every dining.

5. Monitoring and stock count

Every venture requires your time and constant monitoring and food service is not any different. Kiss your personal and social life goodbye because according to my guest writer, weekends and evenings are the busiest and most demanding times.

Set up control measures to avert the vice and if you suspect theft, investigate it fully and avoid  making false accusations as it could cast you as an enemy to your employees. After confirmation, involve the police and avoid taking the law into your own hands, as I presume you are aware of the Panamera tragedy.

6. Unstable power supply and high utility bills

Like any other service related business, restaurants require easily accessible premises which don’t come cheap. High rental fees will be the least of your problems as finding an available space in urban Uganda is fraught with difficulty. With the need for constant refrigeration, heating, lighting and water usage, high utility bills will send your monthly operational costs through the roof.

Part 4: But just how profitable is this sector?

On the basis of our model analysis:

  • Startup Capital (A): 45,108,000 Ugx
  • Average profit per year using five year projections (B): 129,380,744 Ugx
  • Return on Investment/Capital (years to get capital back) (A/B): 0.34 years

Our model is below:

Fast food restaurant model

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register. 

SUMMARISING AND THE FINAL WORD

The basics you must get right before venturing into this sector:

  1. Location is everything. Use a market research firm and/or a broker if necessary to ensure you choose an appropriate location.
  2. Cash flows. Ensure you have a reserve cash flow or enter into arrangement with suppliers to ensure you can manage your cash flows better.
  3. Controls over stocks and correlation to sales. You need to get firsthand experience of how the stocks and the sales ratios work (e.g how many sacks of potatoes translate into how many plates of chips?)
  4. Unique – What will your restaurant be known for?
  5. Customer service. “A hungry man is an angry man” – You therefore need staff with excellent skills in handling clients particularly during peak hours.

So in order to turn your cooking passion into an actual money making venture, I  couldn’t have made it much simpler for you.  Unfortunately for me, the ill fated family investment set me back and you are learning at this expense and that was not the last time I have suffered, how I suffered with those “bu campus girls” and their love of the 3 Cs – chips, chaps and chicken!

I promise, if I run a restaurant myself, they will “suffer” when I unveil my unique recipe of ‘the Campus girl special!’

END

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Subscribe now. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page is by joining “Advanced Thinking”. Please click here to join the email subscription list.

We regularly provide business tips for our over 500 subscribers on marketing, corporate governance; accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business.

And now the disclaimer: While I/we have taken steps to research this information as well as based on our experience, you should not solely rely on the information given here to base your investment decisions.

You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.