Editor’s Note: This post was originally published in 2016.
Saving has always been a challenge for me. While I continually applied the self-pay principle to my finances, I struggled to meet my budget.
So when I wanted to start a cake decorating business, I needed another way to cover my startup costs. I preferred not to ask for an interest loan.
A coworker suggested starting a sou-sou.
What’s that? Are you wondering? Well, keep reading.
What is a Sou-Sou?
A sou-sou is a simple savings plan.
The West African tradition, which is also popular in the Caribbean, requires a group of people to contribute a fixed amount of money either weekly, biweekly or monthly to a group account, with one member responsible for collecting the cash.
The group conducts a random drawing to determine the order in which each person will receive the lump sum payment. However, once each person receives their cash, they still have to contribute until everyone is paid.
A sou-sou can last six months or up to a year; it all depends on how many people participate in it. Sou-sous continues until everyone receives a payment at least once.
How I used a Sou-Sou to start a business
This is how I started a sou-sou to help me earn enough money to get my cake decorating business off the ground.
Determine how much cash you need to start your business
I created an inventory of the supplies I would need and then calculated the total cost of purchasing them. This helped make sure I could get started once I received my payment.
Next, I looked for the best prices and asked vendors about a discount for buying in bulk. It never hurts to ask! It helped me save 20% of the original cost when I finally bought everything.
Find cash in your budget and earn extra money
I needed to free up some money for my sou-sou, so I decided to remove an invoice from my monthly budget.
I compared my cable and internet bills to see which one was costing me the most, and then canceled my $ 50-a-month cable service.
To earn extra money, I sold cakes at community events at a reduced price.
Consider how you could earn a few extra dollars a month for your business. Consider this list of 43 ways to save money fast.
Form a group
Everyone in my department had previously been involved in a successful sou-sou, and since we were all working toward financial goals, it was easy for the team to participate.
A total of 10 colleagues joined the sou-sou, but you can start one with any number of people. Ask your co-workers, family members, and church or gym members if they want to get in.
Choose a cash collector
We nominate my supervisor as a cash collector and put our money in a locked box in his office. Two people had to be present when money was deposited or credited.
Since we all earned monthly salaries, we decided to set a deadline for everyone to pay.
My supervisor was also in the sou-sou. If the person collecting the cash is not involved, sometimes each member pays them a percentage. If my supervisor had not been a member, she would have received 5% of our earnings for managing the sou-sou.
Decide on a reasonable contribution
We considered our ultimate goals and unanimously decided on a realistic amount that each person would pay.
With 10 members, we decided to each contribute $ 100 per month, which means that each would get a payment of $ 1,000.
Some members were unable to contribute the full amount, so they teamed up with another member to each contribute $ 50 per month. When their pay time came, each person received $ 500, a 50% payment.
I decided to double my contributions and pay $ 200 a month, which means I would get two payments of $ 1,000 to help fund my business.
We suggest that each person in the group be accountable to another member to ensure that they spend their money in meeting their goals.
For example, I chose a responsible partner who would make sure that I invested my $ 1,000 in my business.
If I didn’t, I would have to pay my partner 20% of my payment, a large amount that we choose to help motivate me.
How my Sou-Sou worked
Our sou-sou started in January and I received my payment in May. Since I doubled my contributions, I received another payment in November, which I also earmarked for my business.
The group’s initiative was a big part of my motivation, and everyone agreed that having the support of other members of the sou-sou was crucial to our success.
My decision to use a sou-sou instead of borrowing paid off. I did not owe money to the bank and saved $ 200 that I would have paid in interest.
With the help of friends or family, save money to start a business. it is possible. Making contributions of $ 100 or $ 200 may not seem like a lot, but over time, it could be enough to get your business off the ground or help it expand without a loan.
Kerry McDonald is a contributor to The Penny Hoarder.