Sometimes I get the urge to write about something and I get right into cranking out words without knowing exactly where I’m going to use them. The post then sits in my “draft” folder, sometimes for a long time. Recently my friend and fellow author here on LIP wrote a great article full of advice on starting and running a business here in the Philippines by “remote control”.
Having business here in the Philippines while living abroad!
Often this is a dream and a labor of love of many Filipina-Foreigner couples, “Starting a Little Business That The Family Can Earn A Living From.”
Naturally I get plenty inquiries from readers regarding starting a business here in the Philippines. Countless more search anonymously via Google and other search engines and wind up here for answers to their questions.
Some are looking for a business they can start themselves, or wife their or girl friend to finance their day-to-day living here in the Philippines.
Others are on the search for a business they can set up their wife’s family in so that they can be independent and self-supporting.
How Does This Idea Usually Work Out?
Frankly, almost invariably, it turns out very badly. It just doesn’t work. My heartfelt advice after watching this continual soap opera unfold for more than 10 years is this:
- Figure out how much net profit you think the family can possible derives for this “dream’ business.
- Go in your own bank account, take out that much every month and transfer/wire that amount to them.
Plain, simple, forthright and budgetable. Over time this is by FAR the cheapest way for you to go.
Now I know that is not the advice many of you wanted to hear, but trust me, it’s the reality of the situation. Giving family members money to start a business and expecting people with little or no business acumen or training is akin to buying an old boat site unseen and expecting someone who is not a boat-savvy person to manage a restoration project. Many have called a boat a ‘hole in the water into which you pour money”. One humorous but often true definition of “boat” is “Break Out Another Thousand”.
Believe me, a small, family owned business like a sari-sari store, Internet café, tricycle service, taxi, Jeepney or some such is exactly like a long-distance boar rebuild while wearing a blindfold. “Break Out Another Thousand”.
The reasons are many and varied and this article is too long already, so I won’t go into many of the causes right now. I’m going to cover just two very common challenges every business faces, here on in the US, and how either or both of these problems will almost certainly “sink your boat”.
Two Common Hurdles Most Of These Business Must Clear
Conserving The Seed Corn:
Some of you will understand exactly what I am talking about here. Others may be a little unsure on the concept, especially since the business of raising corn for profit is way, way different than the ‘grass roots” methods which used to be common in back yards in the USA.
In general, you get started making money with corn by buying or leasing a suitable piece of ground, and buying (or borrowing) enough seed corn to plant in the ground at the start of the growing season.
If you work hard, follow all the practices of good farming technique and have good luck with the weather you will raise a very nice crop of corn which you can then sell or trade for something of profit.
In future growing seasons, just lather, rinse and repeat and repeat , and your farming income will continue so long as there is decent enough weather and family members willing to do the work.
With one important proviso. Seed Corn.
Every year when the harvest comes in, you have to first pay your existing debts, you have to do something to insure there is enough food for the family until the next year’s harvest comes in, and you absolutely have to save enough corn to use as the seeds for next years crops. Anything left over is profit.
You can fail to pay some of your debt … trading time for interest expense. You can let the family go a little hungry if need be and perhaps borrow money against next years crop in order to give them something to eat, but if you fail to save seed corn for next year’s planting … well you might as well blow all your remaining money at the casino or in buying lottery tickets, because without seed corn to start over again in the spring, you just are not going to stay in business. There will be no income next year.
Now many of you are wondering why I have gone off on such a ramble about raising corn. You’re thinking of helping Tita Tillie open a little sari-sari (variety) store. Tillie won’t be raising corn, so what am I talking about?
Simple. Any business, be it raising crops or selling cigarettes, beer and laundry soap, or baking cup cakes or cooking roast pig requires “seed corn” to replenish stock as it is sold, so that you can use the money to buy more supplies to in turn sell more supplies and keep things going.
Time and time again I have watched this vicious cycle issue come up in ventures my own family have been involved in, and in all sorts of ventures I have watched other foreigners get involved with. (and been begged for help with, when all else fails), *sigh*.
- Money gets invested to open the business.
- Sales come and money comes in.
- Money gets spent, and/or the children come home from school, hungry, and get fed snacks from the initially huge supply of candies and chips that initially line the store’s shelves, and everything is rosy. Rosy until the shelves are empty, and there is not enough money to buy replacement stock.
- When this happens, well there is nowhere to go but down.
Or, go deeper into debt (which is also a sure route to the end of the business, just takes longer and Is more painful).
You have to think this issue through in advance and figure out a way to proven tit happening before you invest even a single Pesos in getting the business started.
If you look at the advertisement I illustrated this article with, you’ll see that in the past, this lack of seed corn has even been a major problem at times in our good old, big and powerful USA. There is no doubt at all that it will overcome Tita Tillie’s sari-sari store just as easily unless you figure out how to prevent it from the git-go.
There is no good and easy to implement solution that I know of. Even if “your” family is scrupulous about never spending money on unnecessary trinkets and junk food, “need” in the Philippines always has a way of expanding to slight more than the money available.
If a child gets critically ill, are you going to say, “No, let him suffer, we have to conserve the business’s capital”?
If someone dies are you going to say, “hell no, don’t have a wake and a funeral and a burial”?
If so you are a stronger man or woman then me.
Suddenly, with no bad actions or intentions on anyone’s part, there a huge hole in your “boat”.
There’s one more almost universal problem you are going to face as well:
Utang.
Huh? How’s that again? What the heck is “Utang”, Dave?
Well I’ll tell you, very simply. Unsecured credit.
No matter what you are selling, from the day you first open your doors for sales, you are going to be plagued by “Wimpies”.
You know, the character in Popeye you is always looking for a hamburger on credit for which he will pay come Tuesday?
Or, more commonly here, on “Sweldo” (pay) Day.
Almost every business in the Philippines from large corporations to the tiniest neighborhood store faces this problem.
And there are plenty of people I have observed who make a kind of game out of finding out which neighborhood businesses are tight with their credit, and who will walk several blocks to another business who will let them buy food to cook dinner with, or let them while away the hours on the Internet “on credit”.
One reason for this is embedded deep in Philippines culture. One should never embarrass another person, to cause them to lose “hiya’ or “face”. Filipinos have a huge difficulty with saying “NO”.
The little sari-sari store behind my house where I have been a “regular” or “suki” for going on 8 years now is a good example.
They were having some “utang” problems.
One day I saw a rather large sign near the little “buying” window at the from of the store.
The sign had several dense lines of Tagalog, which started with the phrase, “Paki usap”, generally used as an expression whenever you are “making nice-nice” and asking a big favor. The sentences went on and on until finally they ended with the words “hindi utang”. Literally “No Credit”.
Below all those words was a line placed there for the benefit of English speakers like me:
“No Credit”.
There’s no shame in saying no credit to a foreigner, but to a fellow Filipino? Ah, well, that’s a much more delicate subject that will never be as direct as saying “NO”.
Saying No Credit Is Our Policy Isn’t Easy, But Enforcing It Is Even Harder
My friend Loida, the lady who runs that store took the time to explain some of the day-to-day difficulties with the “No Credit” policy.
There’s a neighborhood lady both Loida and I know who has a particularly difficult row to hoe. This lady has about 7 children, several of whom are quite unhealthy. She also has a husband (who helped make all those babies) and is frequently absent, sometimes for weeks at a time. He doesn’t work, has no intention of working, and when he does come home he takes all the money in the house to go and buy cheap booze and drinks .. enough to drink himself into a stupor if he can manage it.
If the mother tries to keep back some money for the children’s food, the husband will literally beat the crap out of her.
So let me try the test Loida (and your own business-operating family) will face every day.
If that lady showed up at the window of your store, with a fresh black eye, a crying, sick and hungry baby on her arm and said “Ate, (older sister) I am so ashamed to ask but my children haven’t eaten since yesterday. May I please a have a cup of rice and a small can of corned beef on utang so I can feed them tonight. I had the money to pay you but my husband beat me and took the money with him”.
Do you think Loida, with children of her own and shelves full of food can say “NO”?
Could you?
It Ain’t Paradise Here, My Friends
This is a little of the reality of “It’s more fun in the Philippines.” Are you SURE you think putting up a little business here is tailor made solution for you and your Filipino family?
You know many times people have lashed out at me saying I am some kind of “salesman” for living in the Philippines, and that I look at my world here through rose colored glasses. Do you think that’s true?
Dave,
Such a true to life article! I have had the same experience several times. Set up a sari-sari store, watch it drain our budget, wife gets tired of running it, sari-sari store closes. I usually put up with it because it gave my wife something to do. Now she has gotten over that having found that there’s no real profit in it and that, as I have told her, sari-sari stores are just public service businesses that have no way of making any real profit. If you are lucky you make just enough to “rollover” for the next restock and it is this tendency that kept our stores open. I am glad that experience is a good teacher and that my wife has moved on from these kinds of things. We just recently celebrated our 10th wedding anniversary and I am hoping for many more. Thanks Dave for the down to earth advice and explanation you give in your posts. I hope many people read them and understand as we do.
In the words of my adopted peoples here,
Daghang salamat po!
Tim
All of that is absolutely true..except its Walang Utang..not Hindi utang…LOL Well written.
Dave – Some hard but true facts you have presented. To me the harsh reality appears that circa 50% of the Philippine population get up each day and have to go out and find their survival for the day. When people think daily survival they act differently and often forget about keeping and planting the seed. Then a lot if foreigners find themselves marrying ladies that have relatives/friends from the 50%. It would almost always be a disaster to assist them to start business as you have suggested. By far a better idea just to budget assistance weekly. If it was going to be 1000php a week then give 800php which then allows an extra 10,000php a year for the other requests that will follow. I am not married to a Filipina and still get asked for money often. If the request is small and seems genuine and I can help I do. If the request is large and I have no personal relationship with the person asking I often don’t help, but will make an exception depending on circumstance and investigation. I often pay what ever need direct in person. Example if a hospital bill I would pay the hospital my assistance. If the request is large and I have relationship with the person asking I give a portion with in my capacity of the request. I never give everything as people need to learn to expand themselves in finance and by giving 100% of a need doesn’t always assist in growth financially for the person asking for help.
Such a common mistake among those who don’t speak Tagalog, Malcolm Mac. Same thing, of course in Bisaya with the Wala/Dili.
To Malcolm and Bob who both noticed the grammatical error I made. You are both correct and the error is mine, BUT I wish the store still had the sign up, they don’t, because I could really swear the Hindi utang phrase is what they posted on the wall.
Maybe I’m having a “senior moment” here. but I don’t think so. Just can’t rust everything you read these days … 😉
Actually, that was so long ago, Dave… as I recall, I don’t think I noticed the mistake, was just replying to what Malcolm said! 🙂
Very True Bob. Dave was spot on though about starting a business in Phills, I have seen it so many times.
Excellent article, Dave! You have described the problems so clearly! We have tried to help poor pastors have a livelihood over the years and have learned much. It has been an expensive but thorough education. Since we are not relatives, it is a bit different.
A fixed, monthly financial infusion for the wife’s family is actually the best course, however much it feels like ‘dependency.’ It IS dependency, but that is considered to be a normal situation between the’ haves’ and ‘have-nots’ in a family. I would also add that having some expectations as to how that money will be used can give you an ulcer. That doesn’t mean you cannot say, “This is for rice and electricity.” You should. But… As you have said, saying ‘no’ to family is almost impossible.
Everyone marrying into a family in the Philippines should read this article!!! SO well done!
Wow, AL, thank you so much. Means a lot to me because your experience in the Philippines and dealing with such “real” situations is so far superior to mine. I try to avoid them, you’ve been facing them head on for along time. High praise indeed.
You touched on another issue here which could easily have its own article .. or even a book. “I gave them money for electricity and rice…”
We Americans in particular have a great deal of problems with these situations. We seem to be wired to consider gifts “for a purpose” to be some sort of legally binding “deal” that insures what we gave the money for is what the money gets used for … but even the structure of the sentence tells a critical thinker that the “gave” came before the “purpose”. Once you “give”, well, you ‘gave” and it’s not your money any more.
What I have done a number of times, paying someone’s overdue electric bill to get their lights back on, paying school tuition and such is, avoid the whole potential anger and hurt feelings.
I pay the bill myself. Then I know where the money went, and the bill is paid, the family got the help they needs and there are smiles all around. It has worked well for me a number of times …
Dave,
That’s the best plan. Just pay the bill yourself or buy the items yourself that way you know the money is well spent.
Hi Dave – A funny little twist to your most true words concerning “utang-utang”: Our dear Auntie across the highway from us runs a tienda that we visit whenever we’re out of this or that. She insists that we, as good paying, cash customers, put our purchases “on the book,” and pay her at the end of the week (or, sometimes, two or three weeks). Though we’d rather pay up-front and not be owing others anything, we give in to her desire. So, utang has become a part of our lives.
I asked her one day just why she gave us this treatment. Her response was quite logical. We, as it is, are one of her “bank accounts.” She knows her money is safe with us, is easier to access than that kept in the “brick and mortar” chartered financial institutions, and she prefers the customer service she receives. With our utang, she doesn’t have any temptation to spend needlessly, and she schedules our “settling accounts” for days when she knows that vendors will be stopping by for a little account settling as well.
Don’t know if we’re unique, or if Auntie has a few such banks in the barangay. I do know, though, that she has always had utang problems, even with her “No Credit” policy. It’s just something that one just can’t get away from – “Utang -utang, po!”
Hi Paul,
I appreciate every comment I get .. even the critical ones … but I especially “groove” on the one I learn something interesting from .. and this certainly falls into that category. Thanks. What an interesting (and smart) way that lady has for managing the store’s receivables.
Immediately I read it an old quote came to mind, famously credited to Billy Sol Estes. (for you younger folk, a notorious Texas swindler whose technical expertise at fleecing the public was orders of magnitude above the likes of Madoff).
“That is why it is better to owe it to you, than cheat you out of it” *smile*
.
Paul:
We get the same here… We purchase daily, and she thinks it is easier than making change, etc. Siunce the lady who runs the sari sari here also collects our HOA fees, it is a breeze. Sometimes things still can surprise you.
Nothing to add, but spot on article, I agree with everything you said.
I have so many things to say about this article, but am unable to put all the thoughts in a response. I wrote a long article here and then backspaced all out.
Very good article Dave. We are moving there in May, I would feel privileged to have lunch and talk with you.
You see, we have a small farm(6 Hectares) in Bukidnon and are profitable.
Thanks
Robert
Good article Dave.
I like the Seed Corn example vs Cashflow.
Thanks for the great article albeit frank with a slant towards poverty
I am Australian although here agriculture is on a large scale.
Filipinos seem to do rice farming on one or two hectares
farmers even use a Carabao to plow fields
as you still see in SE Asia and India
they toil laboriously for a meager harvest
while the big countries grow on broad-acre farms with huge machinery
even using remote combine harvesters from control towers
as Rice and Sugar are grown in vast areas
in fact one sugar paddock here is 200 miles long
the article is great and Corn seed is a good analogy
written to create pragmatic and realistic common sense
still there seems little point in outdated subsistence farming
in some ways the backward life lacks aspiration and adventure
@ Timbo,
Thanks for sharing. I’m a little puzzled though by this statement::
The web is full of cheesy, life is always great, “feel good” articles about the actual reality of living here in the Philippines. I wish there were a lot _more_ “frankness”, personally.
I enjoy living here (or I wouldn’t be here), but it isn’t “paradise” and people need to understand that..
I also wonder what you are actually saying about the modern Australian “agribusiness” operations? Not much chance of that happening here, there is neither the spacious available land area nor the capital to make the investments.
There are actually some very large, advanced farming operations in Mindanao, run by international corporations … but investments like that only “fit” in certain locations.
Very uplifting article I am glad I read it! I just acquired one hectare of land and looking forward to farming it. I will post here as the project unfolds and compare it to the failures pointed out in your article. Of course it will not be “seed corn” as you mention as a framework analogy of failure to anyone opening a business but it will be more similar to that than a sari sari. Thank you for posting your experiences!