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Saturday, October 18, 2014

Cents & Sense: Understanding Checkpoint 'moto' in the Business Cycle

Note: This post is based on The Business Cycle and Checkpoint Moto chapters in the book How to Win in the coming Jua Kali Boom, published by the Kenya Quality and Productivity Institute, 1993.

It is our considered opinion that the aforementioned book provides priceless insights into entrepreneurship and personal finance in the Kenyan environment. We therefore share the following in public interest and through fair usage.
We honestly feel, and subsequently recommend that this book be made compulsory reading for both Secondary and College/University students in Kenya.

The Business Cycle

In every business, the shilling (it may be a dollar, pound, yen, rupee etc) is always going through a cycle where it changes hands and gains value. All this can be simplified into four steps:
  • Buy
  • Process
  • Sell
  • Manage Money

These steps, or checkpoints involve the following:

At point buy,the business owner buys the goods which he or she will later trade in. It is at this point too where one spends to get the tools to be used in offering services for which you'll collect a reward (as opposed to selling goods).

Buy is always the first step.

At checkpoint process, you add value to your goods or services. This may be something as simple as transporting said goods or services from Nairobi to Nanyuki or moving vegetables from Kinangop to Wakulima Market in Nairobi.

Process also involves availing your services, with the requisite tools and skills to offer them, to those who need them. This may be opening your tailoring shop with a sewing machine, iron box, thimble, cutting board, scissors etc.

At point sell,goods are sold or services rendered paid for. It should be noted that the shilling gains value at this point too. Cabbages sold for Ksh 50, even at the same place from a wholesaler will typically be sold for more than Ksh 50 to the retail buyer or to yet another seller.

Manage Money
After selling, revenue has to be properly managed. At this point, simple decisions about how much of the business income should be reinvested, used to meet business or other needs as well as what to pay oneself all happen at checkpoint 'manage money'.

The shilling should again gain value at this point, but this rarely happens unless prudent measures are taken. For many businesses, this is the point that undermines the gains made in the previous checkpoints.
All said and done, the shilling cycle resumes at checkpoint 'buy'.

Why the Cycle and Checkpoints?

These checkpoints, indeed the entire process is necessary for at least three things in any business cycle:
  1. The shilling must gain the maximum possible value at every stage.
  2. The shilling should go around the cycle at the highest possible speed.
  3. The shilling should not leak as it goes around the cycle.

The detailed Business Cycle

The whole process from checkpoint BUY, PROCESS, SELL to MANAGE MONEY is fairly complex. The business cycle principally comprises the merchandise route and the cash route.
It can be broken down to many stages and in many ways as shown below:

Leaks in the Business Cycle

As mentioned above, the business cycle has both a merchandise and a cash route. Leaks can occur in both routes.
Essentially, a leak occurs when a shilling falls on the wayside as it goes around the cycle. Such a shilling is lost forever and this inevitably has an adverse effect on the business.

And why do leaks occur?
Well, leaks occur largely through the actions of the people managing the business cycle. In other words, leaks occur because management is not looking.

Some of the reasons leaks occur are:
  • idle employees
  • sabotage
  • poor accounting
  • acts of God
  • pilferage
  • negligence
  • ignorance

Preventing Leaks

Given that a business cycle is made up of a merchandise and a cash route, which are different. We also perceive them differently, inasmuch as they both involve money.The cash route has only one item (cash) while the merchandise route is very diverse.
This difference in perception leads to the difference in how management handles cash and merchandise.

For starters, cash is given a great deal of attention and is only suffers misuse.

The merchandise route on the other hand, lacks enough attention. But a closer look at this route reveals that many of the components have their value in time. The three main categories of time money are:
  • employees
  • rent of premises
  • machinery
Therefore, the best way to prevent leaks in the merchandise route is to manage time well.

Checkpoint Moto

Checkpoint Moto happens between the SELL and MANAGE MONEY stages. The Swahili word moto is aptly used here, for the situation at hand literally means fire.
Ironically, checkpoint moto is a black spot and is the graveyard of many businesses. This is for the simple reason that the money is in one's pocket.

From the book:
You are at checkpoint moto anytime you stand the risk of using money for a purpose for which it was not intended. You are at checkpoint moto every moment you have cash, a cheque book or a credit card in your pocket.

Checkpoint moto is a hidden spot. It stays hidden from view but the danger of temptation is constantly with any businessman.

There is an entire chapter dedicated to checkpoint moto but we shall sum it up with the following:
The requirement for you to have money waiting for some surprise to happen is a criminal act in business.

In business, you avoid problems by abiding to good business practices. Most crimes in business are committed in the bank and are detected at checkpoint moto. You avoid problems at checkpoint moto by studying your cash resources and the requirements of your business.