Case Study · Business Consulting
Scaling a Nairobi MSME from Startup to Investment-Ready
A growing Nairobi logistics business can look healthy from the inside and unfinanceable from the outside. The gap is mostly records, concentration and structure, and it can be closed in a sensible order.
At a glance
- Lenders and investors test the evidence before the ambition: records that reconcile, tax standing, unit economics, and dependence on a few customers or on the founder.
- Since 1 January 2024, expenses without a valid eTIMS or TIMS invoice are not deductible for income tax, so a supplier who cannot issue one is now a cost problem.
- Sequence matters. Stabilise the records, prove the unit economics, then prepare the raise. Pitching before the books reconcile spends the first impression.
About this article. It follows an illustrative Nairobi courier and last-mile delivery business to show the work involved in becoming investment-ready. The business is a composite built for teaching. It is not a description of a named client, and no figure here is a client result.
Picture a courier business in Nairobi four years after its founder left a corporate job to start it. It has a dozen motorbikes and a few vans. Its customers are small online sellers who pay through M-Pesa, plus two corporate accounts that settle invoices in two to three months. Orders are growing and cash is always short. The founder dispatches, negotiates and does the books at night, and a friend has just said it is time to raise money.
That is where the surprise usually arrives. The founder expects questions about the market and the idea. Investors and lenders ask instead for years of records that reconcile, proof that the business is in good standing with the Kenya Revenue Authority, and an explanation of what happens to revenue if one customer leaves. The idea was never the problem. The evidence is.
What follows is the order in which we would close that gap, and why the order matters.
The starting point is a very large and mostly informal sector
The most recent comprehensive count of Kenya's small businesses is the 2016 MSME survey by the Kenya National Bureau of Statistics. It estimated about 7.41 million micro, small and medium enterprises, roughly 1.56 million licensed and 5.85 million not, employing around 14.9 million people. Those figures describe activity in 2015 and 2016, so read them as a marker of scale and not a current count.
What matters for investment readiness is that most enterprises in that population never face an investor's checklist. They trade in cash and mobile money, keep records in notebooks or phone messages, and are owned and run by one person. That is a workable way to operate a business and an impossible one to finance, because a lender has nothing to underwrite except the founder's word.
What a lender or investor actually needs to see
Funders weigh things differently, but their questions overlap. The figure sets them out as a ladder because each rung depends on the one below it. A unit-economics model built on records that do not reconcile is not evidence of anything.
Figure The evidence ladder for a logistics MSME
Standing
Registration current, KRA PIN and tax compliance in order, licences held, eTIMS in use.
Records
Monthly books that reconcile the M-Pesa till, the bank account and the ledger.
Unit economics
Contribution per vehicle per day, by route and by customer type.
Concentration and cash cycle
Share of revenue from the largest customers; days to collect; days to pay riders and suppliers.
Structure
Clear shareholding, documented roles, and a second person who can run the business for a month.
Start with the records, because everything else depends on them
For a business that takes most payments through mobile money, the first task is unglamorous: making the M-Pesa till statement, the bank statement and the ledger agree. Payments arrive in small amounts all day, riders are paid in cash or by transfer, and fuel is bought at stations that give a receipt or do not. Reconciling that flow every month, and keeping the reconciliation, is what turns a story into a record.
Tax records now belong to the same discipline. Under the Finance Act 2023, expenditure not supported by an invoice generated through KRA's eTIMS or TIMS systems has not been deductible for income tax since 1 January 2024, with exceptions for items such as emoluments and imports, according to KRA's own guidance. KRA has also said publicly that it intends to check returns against eTIMS invoices and other records. For a courier business that buys fuel, tyres and repairs from informal suppliers, this changes the arithmetic of doing business. A supplier who cannot issue a valid electronic invoice is a supplier whose bills may not reduce the tax the business pays.
From a lender's point of view, books that agree with eTIMS data are more credible than books that do not, because a third party can check them. That is worth more than any amount of polish in the accounts.
Two practical moves
- Move supplier spend towards vendors who can issue eTIMS invoices, and record the exceptions deliberately.
- Separate the founder's personal transactions from the business till, with a written drawing or loan agreement for any money that moves between them.
Unit economics, vehicle by vehicle
Logistics businesses are easy to describe and hard to price. The number a funder wants is the contribution of one vehicle for one day, because it shows whether growth adds profit or only adds activity.
Figure Contribution per vehicle-day, built from costs the business already incurs
Contribution per vehicle-day
(deliveries completed × net revenue per delivery)
− rider pay
− fuel
− maintenance allowance
− insurance and licence allocation
− cost of downtime
The formula is simple. The work is in collecting each input honestly. Net revenue per delivery differs between a small seller paying per drop and a corporate customer on a contract rate. Maintenance is lumpy and usually under-recorded. Downtime, the days a motorbike is off the road, is a real cost that rarely appears on any line.
Once contribution is known by vehicle type and customer type, decisions that used to be instinct become arithmetic. Some routes lose money once rider pay and fuel are counted. Some customers are larger than they are profitable. A founder who learns this before meeting an investor is in a much stronger position than one who learns it during due diligence.
Concentration and the cash cycle
Two features of logistics businesses worry funders. The first is concentration. If a large share of revenue comes from one or two corporate customers, the business is a contract renewal away from a crisis, and a lender will price that risk. The second is timing. Riders and fuel are paid daily while corporate customers pay in weeks or months, so the business is lending to its own customers without charging for it.
Growth that is funded by customers who pay late is a loan the business did not agree to make.
Several responses exist and none is free. Payment terms can be renegotiated at renewal, which requires knowing your own margins well enough to walk away. Working capital can be financed against invoices, which costs money but matches funding to the delay. Vehicles can be financed as assets. Kenya's Movable Property Security Rights Act, 2017 allows security interests in movable assets such as vehicles and receivables to be registered, which favours businesses whose asset records are clean and whose ownership is clear. The right mix depends on margin. A business with thin contribution per vehicle cannot carry much financing, and a funder will see that at once.
Structure, governance and the founder
Funders read structure as a proxy for durability. A business owned by the founder and two relatives with no written agreement, a shareholder loan recorded nowhere, and no one but the founder who knows the customer relationships is hard to value however well it trades.
The practical steps are modest. Confirm the shareholding and record it properly with the Registrar of Companies, including beneficial ownership information, which companies in Kenya are required to file. Document the work only the founder does, starting with dispatch rules and customer pricing. Name a second person who can run the business for a month. Agree who signs what. None of it is glamorous, and all of it appears in due diligence.
Sequencing the work
The figure groups the steps into three stages. They overlap in practice, but the order of the first items should hold.
Figure Three stages to investment readiness
Stage 1
Stabilise
- Reconcile M-Pesa, bank and ledger every month.
- Confirm registration, KRA PIN and licences.
- Move supplier spend towards vendors who issue eTIMS invoices.
- Separate personal and business money.
Stage 2
Prove
- Build contribution per vehicle-day by route and customer type.
- Measure days to collect and days to pay riders.
- Decide which routes and customers to keep, reprice or drop.
Stage 3
Prepare
- Size the ask against the real cash gap.
- Choose between debt, asset finance and equity.
- Assemble the data room: statements, contracts, shareholding, policies.
- Rehearse the concentration question.
A common mistake is to begin at the third stage. A polished pitch deck resting on unreconciled books invites the first difficult question and has no answer to it, and the first impression with a funder cannot be repeated.
Regional expansion, which founders often raise early, belongs after the second stage. Opening in another city or country before contribution per vehicle is proven in Nairobi multiplies the number of things that are unknown.
What advisers can and cannot do
Advisers can shorten the path and prevent avoidable mistakes. They cannot create demand, and readiness does not guarantee that money will follow. Some businesses will find, once the numbers are clean, that debt suits them better than equity, or that they do not need outside capital at all and should grow from cash flow. That is a good outcome and a real one.
The cost of readiness is real too: a part-time finance person or an outsourced bookkeeper, adviser time, and the founder's attention over several months. Weigh it against the raise the business is aiming for before starting.
Talk to us about where your business stands on the ladder.
If the founder in our example does the work in this order, the conversation with a funder changes. It moves from whether the founder can be trusted to whether the terms are right.
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