THE JOURNEY BEGINS ... A story

about starting a small business ...Start Up 1Start Up 1

Come on.Take the

next step!

Step-by-StepWorkbook

Step-by-StepWorkbook

Dear Reader

Hello again! So you have decided to take the next step on the path to becoming a successful small enterprise owner and entrepreneur. Congratulations!

In the Start Up 1 comic story you read about the experiences of Dudu, Vuyo and Mam’Langa as they planned, prepared, started and managed their small business. The story introduced you to the language of business, to the steps that a person needs to follow when starting a business, and to the way that a successful entrepreneur needs to think.

And we’re sure it did get you thinking, and asking lots of questions like, “Why did they do that?” and “How did they work out all those calculations?”

Well, you’ve come to the right place for answers. The Start Up 1 Step-by-Step Workbook gives you more information about the things that happen in the story. It explains in more detail the steps that the Langa family took to start their business.

Dudu encouraged Mam’Langa to plan her business very carefully. She helped her to write up a Business Plan that described the business she wanted to start. And with help from Vuyo, who is good with figures, they worked out all the money calculations to make sure that their business would make a profit.

You need to do the same. The calculations are not difficult, though you may need to read them more than once to make sure you understand how to do them. You will then be able to prepare a Business Plan for your own business. There are blank Business Plan pages at the end of this book that you can use to do this.

Work through this Workbook one chapter at a time. Re-read Chapter 1 in the Start Up 1 comic story and then work through Chapter 1 in the Workbook. Make sure that you understand everything in that chapter before going on to the next chapter. And remember, contact your local seda office or other small business support organisation if you have any problems while going through the Workbook.

We wish you success and good fortune.

Mr Thandile Gubevu, Executive Manager: Products & Services

No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, or by photocopying, recording or microfilming, or stored in any retrieval system, without the written permission of the publisher.

Abdul RajahJunior Achievement

PO Box 61540,Marshalltown - 2017

Tel: (011) 832-2632Fax: (011) 832-2637abdul@jasa.co.za

STORYWORKSNeil Verlaque-Napper

STORYWORKSPO Box 146,

Muizenberg - 7950Tel/Fax: (021) 788-6444

Cell: 082-900-3459storyteller@icon.co.za

Start Up 1 is published by Junior Achievement South Africa

ISBN 0 9583890 6 3Copyright © 1998-2007

Junior Achievement & StoryWorks

Special thanks to the Eskom Development Foundation for financial assistance towards the development of this resource.

Hi again! Come on in! This is

where it all happens...

THE JOURNEY BEGINS ... A story

about starting a small business ...

Start Up 1Start Up 1Step-by-Step

WorkbookStep-by-Step

Workbook

CONTENTS1 Awukho umsebenzi! ENTREPRENEURSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . 1Maybe starting our own business... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 What are your reasons for starting your own business? . . . . . . . . . . . . . . . . . . . . . . . . . . 2... but what is Business? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The three different kinds of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3What makes an entrepreneur? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Characteristics of an entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Have you got what it takes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 Ideas! Ideas! Ideas! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 My five business ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Feasibility Study: Is the business idea a good one? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Speaking to people . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Now take a closer look at your ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Business Idea (number __ ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Do any of your ideas pass the feasibility test? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Naming Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3 “We have to crawl before we can run” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Planning your Business: Preparing a Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Part One of the Business Plan: Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Market: Who will your customers be? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Location: Where will you operate your business? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Product or Service: What will your business sell? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Resources: What does your business need? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Source: Where will you buy your product or raw materials? . . . . . . . . . . . . . . . . . . . . . 18Mam’Langa’s Business Plan: Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 A Mission Statement - a summary of your Business Overview . . . . . . . . . . . . . . . . . . . 20Part Two of the Business Plan: Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Using your Marketing Plan - Common Sense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Part Three of the Business Plan: Operations Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Part Four of the Business Plan: Staffing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Creating a Staffing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4 Making sure you're going to make a profit! . . . . . . . . . . . . . . . . . . . . . . . . 27Part Five of the Business Plan: Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Know your terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Making a Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Working Backwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28How much do you need to sell to make a profit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Calculating your margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Mam’Langa’s Business Plan: Margin per Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Mam’Langa’s Business Plan: Margin Prediction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Start-up Capital: How much do you need to start your business? . . . . . . . . . . . . . . . 34 Do you see how Vuyo worked out how much produce Mam’Langa needs to buy? . . . . . 35Mam’Langa’s Business Plan: Start-up Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Keeping your business pumping (Cash Flow) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Mam’Langa’s Business Plan: Cash Flow Prediction . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Keeping control of your money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Actual Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Keeping control of your stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Increasing your profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Get more money in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Let less money out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Ways to reduce my expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

5 Money Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47You and your Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47How to choose a bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 How to get a good ‘track record’ with your bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Getting a loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Where to get help . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 How to go about it . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Advantages and disadvantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

6 Marketing your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51What is Marketing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Marketing yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Success and Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Marketing your Product: Value Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 What are the kinds of values a product can have? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Added value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Supply and demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Below-the-line marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56"Let me help you" - Customer relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Supplier relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Networking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Your customer database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Selling skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Phase 1 - Making contact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Phase 2 - Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Phase 3 - Handling objections & The close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

7 Business Structure, Registration and Compliance . . . . . . . . . . . . . . . . 67Other issues of compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

8 My own Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Strategic Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 1. What Business am I going to start . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 2. Market: Who will my customers be? (People) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 3. Locations: Where will I operate my business? (Place) . . . . . . . . . . . . . . . . . . . . . 73 4. My Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5. How will I tell people about my business? (Promotion) . . . . . . . . . . . . . . . . . . . 74 6. Product or Service: What will my business sell? (Product) . . . . . . . . . . . . . . . . . 75 7. Sources: Where will I buy my produce or raw materials? . . . . . . . . . . . . . . . . . 75 8. These are the prices of the produce/product/raw materials I will buy (Price) 76Operations Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 9. Resources: What resources does my business need? . . . . . . . . . . . . . . . . . . . . . . 77 10. This is my plan to make sure my business runs efficiently . . . . . . . . . . . . . . . . 77 11. How will I keep control or records of my stock? (Stock control) . . . . . . . . . . . 78 12. How will I ensure quality control? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 13. What will I do with old and damaged stock? . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 14. How will I record everything I buy and sell? (Record keeping) . . . . . . . . . . . 78Staffing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 15. What staff do I need? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 16. Who will be in charge of the business when I’m not there? . . . . . . . . . . . . . . . 79Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 17. The selling price of my produce/product will be: . . . . . . . . . . . . . . . . . . . . . . . 80 18. Margin per Product/Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 19. Margin Prediction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 20. Margin per Product/Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 21. Sales Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 22. Cash Flow Prediction (Budget) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 23. Working Backwards - Margin Prediction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 24. Start-up Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859 My Personal Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Word Help (Glossary) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Awukho umsebenzi!

ENTREPRENEURSHIPMaybe starting our own business...

Do Vuyo’s words sound familiar to you? Unemployment is a reality for many people in South Africa. One of the reasons so many of us have difficulty finding a job is because there are too many people for too few jobs.

When there are so many people competing for the same jobs, employers choose those people with the most experience and the best qualifications. Many people in South Africa have not had the opportunity to get the qualifications and the experience that they need to qualify for a job.

One way to solve this problem is to start your own business. Starting your own business is one way of earning money when there are no formal jobs available.

And it’s not just money that you get from starting a business of your own! You also get the satisfaction of being in control of your life, of making a contribution to your family, and of seeing yourself learning and growing.

There are many reasons people think of starting their own businesses:

• Maybe you are employed but you want more control over your life and want to be your own boss. Some people want to start a business to make more money than they can make by working for a boss.

• Maybe you are bored doing what you are doing and are looking for a more satisfying challenge.

I am very frustrated!I’ve been looking

for work since I finished matric … for more than

two years!

I even did a course in basic bookkeeping

- but wherever I go: Awukho umsebenzi!

Maybe starting our

own business is the only way we can earn

the money we need.

There just aren’t enough jobs …

▼1

1

• Maybe you have discovered a product you believe people need or you have a talent and can provide a service that people are willing pay for.

• Some people want to start a business so that they can do the sort of work that they enjoy.

• Some people start a business of their own when they retire from their job.

What are your reasons for starting your own business?

I am thinking of starting a business of my own because:

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I hope that starting my own business will make my life better in the following ways:

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In South Africa there are tens of thousands of people who have created small businesses, or what we call small enterprises, that have become successful.

But there are also thousands of others who are still struggling to get their businesses going, and are not thinking clearly about the mistakes they are making.

... but what is Business?

Business is a process that takes resources and turns them into products or services that you sell to a market for a profit. That’s quite a mouthful! Let’s explain what each of these words means:

• What you do to run a business is called the business process.

• What you need to run a business are called resources.

• What you sell are the products or services of your business.

• Who buys your products or services is your market.

• The extra money that you make after you have paid for all the things that you need to operate your business is called profit.

Profit is the most important word in business. We’ll learn a lot more about this later on.

I can do this!

▼2

The three different kinds of business

If you make something your business is a manufacturing business. You take raw materials and make a product from them.

Examples are dress-making, peanut-butter manufacturing, atchar manufacturing, fence-making, brick-making and basket-making.

If you provide a service your business is a service business. In this business, you do not make anything. Instead, you provide a service which people pay for.

In a service business you are selling a skill, not a product. Examples of service businesses are hair salons, car washes, dry cleaners, shoe repairs, motor repairs, taxis and delivery services.

If you buy things and sell them again for a higher price, you have a trading business. In this kind of business, a finished product is sold. There are many examples of trading: tuck-shops, spazas, taverns, selling cigarettes, clothes, fruit and vegetables, and furniture. A trading business is also called a retail business.

Now that we have learnt what business is, and what different kinds of businesses there are, let’s look at what makes a business person (an entrepreneur).

What makes an entrepreneur?

Many people believe that what they need most to start a business is finance. You might be surprised to hear that finance is not the most important thing. Many people get finance from a lending institution, like a bank, or from someone who is prepared to help them... and they still fail.

The key to success is not simply about finance. It is about being able to see good business opportunities, about being able to plan your business well, and about being able to manage your business well.

If you cannot see the opportunities, plan and manage your business, then it doesn’t matter how much money you have. You will fail.

As you begin your journey it might be useful to be aware of some of the most common reasons that small enterprises fail? If you know these reasons from the beginning you can make an effort to learn how to avoid them.

▼3

Most businesses

fall into three categories.

He can’t be afraid of

taking risks.

She must be able to look after money.

He must have perseverance ... staying

power.

She must be creative.

She must have a

vision for her business.

▼4

Small enterprises fail because their owners:

• management cash flow badly;• are bad at writing and therefore cannot produce effective business plans and

proposals;• have had no training in business and management skills;• have not done a feasibility study for their business;• do not have the proper transport or distribution plan to get their product to their

target market;• have poor financial management;• have poor record keeping;• do not evaluate and change their business strategy effectively and regularly.

The Start Up 1 comic and this Start Up 1 Step-by-Step Workbook have been designed to help you start your journey and to avoid some of the mistakes that other small enterprise owners have made.

Entrepreneurship is a skill that anyone can learn. YOU can be an entrepreneur!

Starting your own business will bring many challenges - and many rewards. It means hard work and long hours, but it can also be very satisfying and financially rewarding. It also means being prepared to take risks, make mistakes and learn from your mistakes. You can make more money as an entrepreneur than you can as a paid employee, but the risks are also greater.

Characteristics of an entrepreneur

In a new business, you, the entrepreneur, are the most important person. So, it helps to have some entrepreneurial characteristics.

• To succeed as an entrepreneur, you must be committed to running your own business. Commitment means that you are willing to put your business before other things. It means that you are willing to risk your own money on the business. It also means hard work!

• A successful entrepreneur must be very motivated. Being motivated means wanting to be your own boss and have your own business.

• A successful entrepreneur must be very innovative. Being innovative means having new ideas and developing creative ways of running the business.

• Success in business also means that a person must have perseverance. He or she must keep trying and trying. A successful entrepreneur sticks with the business even when the challenges and problems seem great!

• You must be willing to take risks! You won’t succeed if you don’t have the courage to take any risks at all. But they must be reasonable - well thought-out - risks.

• As a successful entrepreneur you must have the courage to make important decisions that will affect the business. No one else can make these decisions for you.

▼5

Have you got what it takes?

So, what do you think? Have you got what it takes to be an entrepreneur?

Do you really want to be your own boss? .................................... ✔ .................................... ✖

Do you have a vision of the business you want? ........................ ✔ .................................... ✖

Are you creative? Do you have many ideas? ............................... ✔ .................................... ✖

Do you have perseverance? (the ability to keep trying) ............. ✔ .................................... ✖

Can you look after money? ............................................................. ✔ .................................... ✖

Are you prepared to take intelligent risks? .................................. ✔ .................................... ✖

Are you a hard worker? .................................................................. ✔ .................................... ✖

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▼7

Ideas! Ideas! Ideas!The fi rst step to starting a business is fi nding a business idea. Every business starts with an idea.

But how do you fi nd the right idea for your business?

In our story, Mam’Langa, Dudu and Vuyo think of ideas as they walk around their neighbourhood. They think about things - products and services - that people in their area might need or want. This is a good way to start thinking of possible business ideas.

• Always think about your market fi rst. Look around your area.

• Speak to people: ask them what they need and want.

• Don’t be impatient - it takes time!

• Don’t try to come up with the idea immediately. Sometimes ideas take time to develop and grow.

• Ask people to help you think about ideas - this can be a very useful exercise.

• Be as creative as possible.

• Try to fi nd an idea that matches what you are good at and what you enjoy doing.

My fi ve business ideas

Now, try this exercise yourself: Think of at least fi ve ideas for a business.

2

People need their clothes washed. Maybe we can start a

laundry service.

It’s so dusty here. Maybe we can do people’s gardens…

There are all these small businesses … I wonder if they need someone to

do their books?

People always need vegetables

and fruit. Maybe we can set up a stall...

First we need to

think of a business

idea. Think about

what people need

... and want.

Good idea, Vuyo. You see, it’s not so hard to think of business ideas.

immediately. Sometimes ideas take time

My five business ideas are:1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

▼8

Now you need to assess your ideas. In other words, you need decide if your ideas are good business ideas.

How do you assess your ideas to find the best ones?

Feasibility Study: Is the business idea a good one?

It is important to think carefully about the ideas that you have written down. The business idea must be able to become a successful business. It must be feasible. A feasibility study of your business ideas is your first step in doing market research.

Like Dudu in our story, you might be able to ‘throw out’ some of your business ideas if they do not seem to be feasible, before wasting too much time on them.

There are three important questions that you have to ask yourself about each of your business ideas.

1. Do you have a MARKET for your product or services?

You must ask yourself whether there will be enough people who will want or need your product or service. Remember, your market is those people who will buy your products or services at the prices you charge.

Go out and speak to people whom you think will be your future customers. Ask them what they think of your idea. Is this a product or service they need or want? Can you adapt your idea to meet their needs better?

Also remember to look at your competition. Are there other entrepreneurs selling the same product or service? Is there a way of making your product or service different and better than the competition?

2. Do you have the SKILLS needed to start the business?

Entrepreneurs need some skills to make them successful in business. Many of these skills can be learned. The entrepreneur needs to be able to manage his finances, to

The book says that once we’ve thought of some business

ideas, we need to do a feasibility study.

We need to work out if

our ideas are feasible, Mama.

Can theywork?

People do their own laundry here, so there would be no market

for that service.

And most people are not interested in fancy

gardens.

Anyway, we don’t have the skills to offer

a gardening service. And we don’t have the resources, like a lawnmower and gardening tools.

▼9

market his business, to buy wisely, to keep accurate records of the business and be able to sell. Sometimes, the business person needs technical skills (like dressmaking, hair styling, etc.), especially in a manufacturing or service business. You must ask yourself whether you have the skills to turn your business idea into a business.

If you don’t have the skills, can you learn them? Or, can someone else who does have the skills help you?

3. Do you have the RESOURCES necessary to start the business, or can you get them?

Resources are all the things you need to run your business. They include things like a secure place from which to run your business (also called a premises), money, labour, machinery and equipment, time, raw materials and products. Make a list of all the things that you will need for the business. If you do not have them, work out how much it will cost you to buy them.

Of course, all new businesses need some money to start. But if money is a problem, do not be discouraged. It is good to start small!

Speaking to people

Let’s have another look at how Vuyo, Dudu and Mam’Langa research their business ideas.

Vuyo goes out to small businesses in his area, and asks if they would be interested in having him do their books.

One of the entrepreneurs he speaks to is a shoe repair and leather goods manufacturer. This man says that he does not make enough money to need to keep books. (This entrepreneur is making a big mistake! No matter how small a business, it is important to keep books. You will learn more about this in later chapters.)

Another entrepreneur visited by Vuyo doesn’t believe that Vuyo has the skills or experience necessary to do his books.

Frustrated, Vuyo gives up his research.

What do you think about Vuyo’s attitude? Do you think he gave up too quickly? Do you think he might have found a market for his bookkeeping services if he had tried harder?

Dudu also does market research on her idea of making and selling grass baskets.

She discovers that there is a lot of competition in this business. This means that she will be competing against many experienced basket sellers who are already controlling the basket business opportunities.

She also discovers that the market for grass baskets is limited to certain types of buyers.

So little!?

My dear, many people are making these baskets. And I can get them even cheaper

from Taiwan. I’m sorry.

▼10

And Dudu also finds out that the price that shops will pay for the baskets is not enough to pay for her costs and the time it takes to make the products.

Her conclusion is that there is “definitely no market for our baskets!”

Mam’Langa does market research on her idea of starting a fruit and vegetable stall in town. She discovers that there is a lot of competition. There are many other entrepreneurs selling fruit and veg in town.

She also discovers that many of them are selling the same things. She thinks there may be an opportunity for a stall that offers customers a wider choice of products.

In addition to researching the market for her business idea, Mam’Langa also researches the source of supply for her business. She finds out where she can buy the produce that she will sell at her stall. And she also looks at the prices.

She discovers that the prices for fruit and veg from the wholesalers are good. But with so much competition in town, she doesn’t know where she should position her stall.

On her way home from town, Mam’Langa overhears other commuters talking about their frustrations with having to shop in town and carry heavy bags long distances.

Listening to people’s frustrations, Mam’Langa recognises a need - and a potential business opportunity! She asks her fellow travellers (representatives of her potential market) if they would buy their fruit and veg from a stall in the township.

Mam’Langa gets very positive feedback on her idea of setting up a stall in the township. She spends some time near the taxi rank watching the commuters returning from town. Many of them are carrying bags of fruit and vegetables bought in town.

There is some competition. Mr Mnisi already has a stall at the taxi rank. But she hears that “... his vegetables are like him: old and dried out”!Mam’Langa also sees Mnisi being rude to his customers. She feels confident that she can offer people a better service.

Mam’Langa’s business idea seems to be a good one. It passed the feasibility test!

I’ll give you R100 for 50!That’s my best offer.

But it takes a whole day to make one basket …

… and it’s fresh every day.

Everybody knows me for my discounts.

So, we have a market, and we have the skills to buy and sell

fruit and vegetables …

And with the money Wilson sent, and my small savings,

we have the money to start.

▼11

Now take a closer look at your ideas

“Throw out” impractical ideas if there are any. Then study the feasibility of your ideas using the product, market, skills and resources test below.

Business Idea (number: ......)

ProductWhy would people use this product?

What are the qualities of this product? Does it have some practical use? Will people buy it

because of its beauty or the way it looks and feels? Does it have any special meaning for people?

..........................................................................................................

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MarketWho will be the market for your product or service?

Write down who will buy your product and service? Give as much detail as you can.

..........................................................................................................

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SkillsWhat skills do you need for this business?

Write down all the skills you think you will need for this business idea.

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Do you have these skills, or can you get them?

Write down the skills you have, and where you will get the skills you do not have.

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ResourcesWhat resources do you need for this business?

Write down all the resources you think you will need for this business idea.

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Do you have the resources, or can you get them?

Write down all the resources you have, and where you can get the resources you do not have.

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▼12

Use as many of these forms as you have ideas you want to test.

Some of you may not enjoy writing down your ideas and working out if you have the product, market, skills and resources needed to make your business a success. But remember that market research is essential to planning a business. And planning is essential to ensure that your new

business becomes a success. If you find writing difficult, ask someone else in your family to help you.

Business Idea (number: ......)

ProductWhy would people use this product?

What are the qualities of this product? Does it have some practical use? Will people buy it

because of its beauty or the way it looks and feels? Does it have any special meaning for people?

..........................................................................................................

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MarketWho will be the market for your product or service?

Write down who will buy your product and service? Give as much detail as you can.

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SkillsWhat skills do you need for this business?

Write down all the skills you think you will need for this business idea.

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Do you have these skills, or can you get them?

Write down the skills you have, and where you will get the skills you do not have.

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ResourcesWhat resources do you need for this business?

Write down all the resources you think you will need for this business idea.

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Do you have the resources, or can you get them?

Write down all the resources you have, and where you can get the resources you do not have.

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▼13

Do any of your business ideas pass the feasibility test?

If one or more of your ideas seem feasible - great!

If none of your ideas seem feasible, there’s only one thing to do: Start the process again!

If at first you don’t succeed, try and try again! Remember that an important characteristic of a successful entrepreneur is perseverance. A person who becomes successful is not a person who gives up easily!

Naming your Business

An important part of planning your business is deciding on a name. Many business owners decide to work under a business name that communicates something special.

Choosing a name is an interesting experience and is an important part of your business’s image. The name you choose will create pictures and feelings in the minds of people when you use it, so be careful when choosing a name. You might try out a number of different names on your family, friends and colleagues before you select one.

Some suggestions for naming a business are:

• it must be interesting,• it must be unique,• it must be simple,• it must be easy to remember,• it must clearly communicate what you do and what it is you are.

Legally, you can adopt a ‘trading as’ (or ‘t/a’) name such as Ralph Sibande t/a Ralph’s True Film. You will need to inform your bank so that you can deposit cheques made out to this name in your account. You must in any case have a separate account for business and a separate account for your personal needs. Later, as you grow your business and turnover, you can always transform your t/a name into a Pty company or a cc (close corporation). Speak to your lawyer or accountant about this when the time is right.

Make a list of least 10 alternative names for your business.

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You must have perseverance ... staying power.

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▼15

3“We have to crawl before we can run”

If, like Mam’Langa, you think you have found a business idea that can work, you can’t just rush off and start! There are still many questions that you have to ask yourself about your business idea.

Once you have a feasible business idea, you need to think about planning your business. You will need to think about each part of the business process, so that you can plan each step in detail.

Planning your Business: Preparing a Business PlanEvery business, however small, needs a Business Plan. Not all entrepreneurs write down their business plans, but it is a very useful exercise that will help you plan, start and run your business. Once you have finished working through this Step-by-Step Workbook you should be able to write the first version of your Business Plan. Don’t worry about completing it perfectly the first time. What is important is to show that you have thought carefully about all the different aspects of your business.

Your Business Plan should include the following: • a Business Overview (a clear description of your business idea),• a Marketing Plan, • an Operations Plan, • a Staffing Plan, and • a Financial Plan.

To help you with creating your Business Plan follow these steps:

• Write the above Business Plan headings on separate pieces of paper.

• As you read through the Workbook you can start to make notes under each heading.

• By the time you have finished reading the Workbook you should have enough ideas for a basic Business Plan.

I’m going to town to withdraw all my

money from the post office. I’m going to buy the fruit and

vegetables.

You’re moving too fast, Mama!

We have to crawl before we can run.

▼16

• Write out your basic Business Plan.

• Take this basic Business Plan to a business advisor at seda and ask them to help you develop it further.

Most small enterprise owners only work on a business plan when financing is required for some new idea. This is not the most effective use of a Business Plan. A Business Plan should be used like a map to guide your thoughts and actions on a daily basis.

Once you have a business plan that clearly maps out your business strategy you can also use it to help you write proposals for funding. Many businesses fail because their owners cannot write good proposals.

Think about everything you will need to do, and everything you will need to have, to start and run your business. You can use the information from your feasibility study to help you.

Part One of the Business Plan:BUSINESS OVERVIEW (a clear description of your business idea)

A Business Plan always begins with a clear description of your business idea. Because you have completed a feasibility study you can now put what your business is into words.

Here are some questions to help you write a clear description of your business idea.

Market: Who will your customers be?

Without customers, you won’t have a business! Think very carefully about who your market will be. What age are your customers? How much do your customers earn? Where do your customers live?

The questions you need to ask about your customers will depend on the type of business you are thinking of starting. For example, if you are thinking of starting a business selling second hand music CDs, your customers will only be people who own CD players.

Location - Where will you operate your business?

For some businesses, location is just as important as market. Many trading businesses, for example, must be close to their markets. Mam’Langa’s business needs to be close to the taxi rank, where it is easy for people coming home from work to buy from her.

Different businesses need different kinds of location. If your business employs workers, it will need to be near public transport. If your business needs electricity for machinery, you will need a location that has electricity. If your business needs water for cooking, you will need a location that has access to clean water.

First question is: Who will your market be?

Well, we’ll put our stall at the township taxi rank. So, I’ll be selling to local people on

their way to and from work.

▼17

You also need to think about storage. Does your business need space to store raw materials, machinery, or finished products? Does this storage space need to be at the same location as, or near to, your place of business? Remember that the place where you store your goods and equipment must be safe and secure.

If you need to rent premises, be sure that you can afford the rental.

Competition is also something you need to think about when you plan the location of your business. Are there other businesses similar to yours in the area? Can you compete with them, or should you find another more suitable location?

Product or Service: What will your business sell?

You can sell a product that you have made (manufacturing business), or bought (trading business), or you call sell a service (service business). Your business might be a combination of these different kinds of business. For example, if you have skill in working with leather, you might repair shoes, which is a service, and you might also sell belts, which you manufacture.

Once you have chosen your products, you need to think about how much stock to keep. You also need to think about what range (different types) of stock to carry. This is important. Your range should not be too narrow - too few different items - or too wide - too many things.

Resources: What does your business need?

The resources you will need will depend on the business you are starting. Look at the ‘Resources’ list you made for your business idea in the last chapter. Be sure that everything is 100% necessary.

Don’t spend money on anything that isn’t essential to the business. See what you already have at home, instead of buying some new things. Remember that the aim of the enterprise is to make money, not to spend it!

If you do not have some of the resources, such as equipment, that you will need for your business, research where you can get these at the cheapest price. Shopping around for the best price is a good habit to get into.

So, you’ve decided on the local taxi-rank?

Yes, there’s a real need for a stall here in the

township.Maybe later I can think of a second stall in town ...

And: What will you be selling?

Yo! All these questions!I’ll sell what people use every

day. Tomatoes, potatoes, onions, cabbage, apples,

bananas ...

▼18

Sources: Where will you buy your product or raw materials?

It is very important to compare prices! Remember to compare the same size or weight of product.

Try to fi nd your product or raw material closest to source. This means that you should buy the product closest to where it is made. You might buy from a wholesaler or, better still, from the factory or farm where it comes from. Remember that each ‘middle-man’ between the source of the product and you will add something to the price of the product.

Now let’s look at Mam’Langa’s answers to all of the above questions.

Mam’Langa’s Business Overview

Dudu helps Mam’Langa write down her Business Plan. Below you will see how they describe the parts of the business we have discussed so far.

In the following sections you will see how they plan the other important parts of their business.

And, Mama:Where will you buy

your stock?

From the wholesalers in town. Their produce is good, but I don’t know who has the best prices

...

We must go and find out.

We need to know what the produce costs, and what the

packaging, transport and storage will cost. I’ll come with you,

Mama.

▼

1. What business am I going to start?

Describe the business you are going to start.

I am going to start a fruit and vegetable stall. People struggle to

carry heavy bags from town to home. There is a need for such a stall

in the township that sells good quality produce at reasonable prices.

2. Who will my market be? Describe the people who will buy from you. Who will your customers be?

My market will be people from the township. Everyone needs fruit

and vegetables!

3. Where will I operate my business?

Describe the location you will choose for your business, and say why you believe this is a

good position for your business. Where will you store your produce or raw materials? Is there

competition at the location you have chosen for your business. How much will you have to pay

for these premises?

I will operate my stall near the taxi rank. This is where all the people

pass on their way to and from town.

▼19

There is competition at the taxi rank, but his produce is not always

fresh and people do not like his manners.

I will store my produce at home.

4. What will my business sell? Describe the product or service you will be selling.

My business will sell the fruit and vegetables that people need every

day to feed their families: tomatoes, potatoes, cabbages, onions,

apples and bananas.

5. What resources does my business need?

List the resources - equipment, materials, transport, etc. - that your business needs. Say which

of these you already have and which you still need to get. Write down the cost of the resources

you still need to get.

My business will need a table and chair for the stall. And I will need

somewhere to store these near to the taxi rank.

I will need to transport the fruit and vegetables from the wholesaler

to my home. I will also need bags to pack the fruit and vegetables.

I will need a cart to carry the fruit and vegetables to the stall.

6. Where will I buy my produce or raw materials?

Describe the source for your produce or raw materials. Explain why you have chosen this

source. Write down the costs of the produce or raw materials you will be buying.

I will buy my produce from Patel’s Wholesalers. The quality of his

produce and his prices are very good. He will deliver to my home for

only R10.00 per delivery. And he will supply me with free bags free.

These are the prices of the produce I will buy from him:

Tomatoes (40 per box) R10.00

Potatoes (60 per bag) R15.00

Cabbage (10 per bag) R10.00

Onions (80 per bag) R10.00

Apples (120 per box) R36.00

Bananas (200 per box) R40.00

Now that you have seen how Dudu and Mam’Langa describe these parts of their business, go to page 72 and write your own Business Overview as the fi rst step of your own Business Plan!

▼20

A Mission Statement – a summary of your Business Overview

Sometimes a Business Overview is summarised in the form of a Mission Statement. A Mission Statement should be a short paragraph that says exactly what product or service your business aims to provide, who it aims to provide it to and how it aims to provide it. A mission statement is the business goal which guides and inspires you. It usually says how your business is going to impact on the community. A mission Statement is a useful way of representing your business to a potential partner, a bank, a loan institution or your employees.

Part Two of the Business Plan:MARKETING PLAN

A Marketing Plan is that part of your Business Plan that describes:

• your market research• your marketing strategy

Market ResearchWhen writing about your Marketing Research you need to describe how you did your feasibility study and summarise what the results of that study were.

Marketing StrategyYour Marketing Strategy is the plan you are going to use to promote yourself. Much more on this in Chapter 6 on Marketing your Business.

Using your Marketing Plan - Common Sense

A Marketing Plan is a five-step, common sense process. The steps are:

1. Market Analysis – also known as a Feasibility Study.

2. Developing a Marketing Plan based on your analysis.

3. Putting your Marketing Plan into writing.

4. Executing your Marketing Plan. (Do what you said you were going to do.)

5. Evaluating the results – decide where you can make changes in your Marketing Plan that improve your results.

It’s important to note that the process repeats continuously. Evaluation leads back to analysis, which leads to re-evaluating the Marketing Plan, which leads to updating the Marketing Plan, and so forth.

Think about the big picture and a long-term planSuccessful business owners and marketers work to a plan – a long-term plan! It is no good having a plan that only helps you make it to the end of the month or the end of the year. You need a plan that helps you keep succeeding the rest of your life.

This plan may change many times during your life, but unless it is a vision of the future

▼21

it is only survival now. Planning ensures that you effectively use all of your available energies and resources.

We often believe that time controls the way we think, but the way we think controls our experience of time. How far does your plan extend into the future?

StrategyA successful marketer has a strategy and is disciplined enough to stick to that strategy. If you have an effective strategy it should help you make the best use of your energies. If you become undisciplined when executing your strategy you will waste precious energy and time.

Evaluate the results(Decide where you can make changes in your strategy that improve your results.)

How will you know when you have succeeded? This is an important question you should be able to answer before you begin implementing your strategy. It is as important as: How will you know when you have failed?

Most people learn through failure and not through success. So, failure should not be feared. It is the way we learn. It is important to be honest about your failures, understand them and find ways to improve – adapt! While a successful marketer has a strategy and is disciplined enough to stick to that plan, he or she is also able to adapt the plan when necessary.

One of the secrets of success is knowing when to stop practising a strategy that is failing you. When should you stop?

• When you have enough information to prove your strategy has failed.

• When the energy you put in is less than what you are getting out.

• When your business needs new strategies before it can grow further.

One of the traits of a successful marketer is knowing when to change strategy. A strategy is not a set of rules you have to follow, no matter what. A strategy is only worth the degree to which it works - in other words, its ‘returns’.

Part Three of the Business Plan:OPERATIONS PLAN

An Operations Plan is that part of your Business Plan that describes:

• what you have done to ensure the smooth running of your business on an everyday basis,

• all the role players (staff and external service providers) and how they relate to each other,

• your manufacturing and distribution process, and how you will ensure that it works efficiently,

• how you will ensure the quality of product that you want.

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Mam’Langa had to solve many practical problems in the process of getting her business up and running. She had to sort out a deliveries with her supplier, Mr Patel, and storage space for her stall equipment with with Mrs Ndlovu.

Vuyo helped her solve the problem of transporting her products by designing and used Thabang’s father’s welding machine to make her a special cart. She also had to create shade to protect her stock from the sun.

These are all the kinds of practical solutions and processes that go into the Operations Plan of a Business Plan. Remember how Dudu came up with the idea of delivering fruit and vegetables directly to people’s homes. To make this idea work, Vuyo and Thabang used Thabang’s father’s welding machine again to make a delivery vehicle.

The operations plan describes how your day-to-day business processes work. Retailers like Mam’Langa will also have to ask practical questions like: “How will I keep records of my stock?” In other words, “How will my stock control system work?” She also needs to ask, “How can I ensure quality control?” All these practical solutions will be recorded in her Operations Plan.

To manage things like stock control and quality control Mam’Langa will have to work out reliable and predictable systems that she can easily teach

everyone in her business. Systems are supposed to make your life easier. They should be written down. Effective systems stop you from worrying and are easy to apply again and again.

Manufaturing businesses will have additional questions to answer like:• How is each product made? • What equipment and materials do I need? • What are the things that could affect production?• What should my factory floor layout look like? • What will my workflow processes and schedules look like? • How is the manufacturing process administered, from receiving an order to sending

out an invoice?

The operations plan should also help you to work out the cost of the whole business operation.

What resources would you need?

Thabang and I will make a delivery vehicle … Look, we’ve designed a bicycle

with a side cart.

We did well today. You sold nearly

everything!

Thank you, Dudu.I’ve got all the money here, just like Mrs Langa told me.

And I’ve written down all the things that I sold in

the little book.

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My business has really grown. Now I am employing someone … and I’m opening a new stall

here in town!

Part Four of the Business Plan:STAFFING PLAN

A Staffing Plan is that part of your Business Plan that describes:

• the staff you need to run your business,• who you are going to employ in your business and

how you are going to employ them,• what and how you are going to pay your staff, • how you will care for your staff’s needs.

This is what is known as your ‘human resource strategy’.

Mam’Langa used her own family as staff. Working with family or neighbours has a lot of advantages for small businesses. People usually trust family and neighbours more. There are already established relationships between people. Family members are more likely to stay committed for a long time. Because it is a family business they can’t just walk away, they have to try and make the best of it.

There are disadvantages to employing family and friends however. For example it is not always easy to fire a family member!

It is important to employ people because they are the right person for the job. Look at how Vuyo’s bookkeeping skills helped them all get started. He had the right skills. When it comes to unskilled labour you still need to consider a person’s personality, how they communicate and how they are going to work with the rest of the team.

Whether you are employing family members or non-family members you need to be clear about what people will get in exchange for their time, their effort, their skill and their knowledge. It is very important that this is understood up front and that the exchange is considered to be fair by everyone involved.

And just because you are employing family or neighbours doesn’t mean you should neglect important aspects of a Staffing Plan like job descriptions, contracts and a system of strict performance management.

Creating a Staffing Plan

Look at your Operations Plan and work out how many people you will need to get the job done. Think very carefully about how much of the work you will be able to take on yourself and plan to delegate as much as possible as soon as possible. Many business owners take on too much for too long and have problems delegating.

A Staffing Plan should answer questions like:

• How many people do I need? How many should be full-time, part-time or contractors?

• What should their skills, experience and personal qualities be?

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• How will I advertise the position?

• How will responsibilities and tasks be divided into job descriptions?

• Who should report to whom?

• How much will salaries amount to?

• Are there minimum wages or a collective bargaining council agreement that govern my industry?

• What kind of training will I carry out and how much will this cost?

• What other costs are involved?

• What administrative system will you use to make deductions from their salary to pay their income tax (also known as Pay-As-You-Earn or PAYE), their Unemployment Insurance Fund (UIF); and the Skills Development Levy (SDL)?

• What kind of legislation is there protecting the rights of employees?

• Can I outsource certain functions rather than employ staff of my own? How much will this cost? For example, should I do my own bookkeeping and accountancy?

What you need to do before taking on an employeeYou will need to prepare:

• A job description that includes the job title, job purpose, duties, main responsibilities and hours. Decide if you need a full time, part time or temporary worker;

• A person specification that outlines the qualifications, experience, skills and motivation of an ideal candidate; and

• A competitive salary offer and any additional incentives.

Advertising for staff In South Africa, most small enterprise owners recruit staff by word-of-mouth, starting with their immediate family, extended family and then neighbourhood. This is fine, especially if you don’t need highly skilled or specialised workers.

Written contract of employmentThe Basic Conditions of Employment Act requires you to give new employees a written contract of employment when they start work. This contract needs to include the following information:

• Your (employer) details, as well as the employee’s details - employer’s full name, employer’s address, the employee’s name, and the employee’s occupation (or a brief description of the work);

• Employment details - place of work, date that employment started, working hours and days of work;

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• Payment details - salary or wage (or the rate and method of calculating wages), the rate for overtime, any other cash payments, any payments in kind (and their value), the frequency of payment, and any deductions from their payment; and

• Leave details - any leave to which the worker is entitled, the period of notice required for termination (or period of contract).

The law also requires you to keep a record of certain information on each of your employees:

• Employee’s name and occupation;• Time worked;• Pay received; and• Date of birth (if under 18 years of age).

Managing staff This is a demanding aspect of running a business, and can be best approached with some basic planning and documentation:

• Draw up a personnel policy document to give employees clear and easy access to information about your (and their) responsibilities in the workplace. This doesn’t need to be long or complicated, but should just set out the ‘ground rules’ so that simple misunderstandings can be avoided;

• Hold regular appraisals (every week for new employees, and monthly for others) to keep in touch with employees and give them feedback on their performance. Make a point of scheduling appraisals in advance so that they happen as a matter of course, rather than just in response to problems; and

• Get some form of management skills training; to ensure that you have a few basic pointers to build on. There are no hard and fast rules, but time management and making people accountable are among the important skills to develop.

Further reading

Department of Labour: The Department of Labour has useful guides on its website

that explain, in a fairly easy-to-understand way, the most important things that you

as an employer need to know and do when employing people in your business. Go

the department’s home page on the internet www.labour.gov.za and click on the

heading called ‘Basic Guides’.

SA Revenue ServicesThe SA Revenue Services also have a limited number of guides that you can read or

download from their website at www.sars.gov.za

Commission for Conciliation Mediation and Arbitration (CCMA)

The CCMA is a commission that helps to sort out serious disagreements between

employers and employees. It is very useful to know about what they offer. See their

website at www.ccma.org.za

Employment equityThe Employment Equity Act protects people from unfair discrimination in the

workplace. Employers may no longer discriminate against employees on the grounds

of race, gender, sexual orientation, pregnancy, marital status, family responsibility,

ethnic or social origin, colour, age, disability, religious belief, political opinion,

language or HIV status.

No one should receive privileged treatment and no one should be prejudiced against.

Examples of discrimination include: sexual harassment; advertising an age limit for

the job; and forcing people to test for HIV.

To find out more about Employment Equity go to the Department of Labour’s

website at www.labour.gov.za

NOTES

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Making sure you’re going to make a profit!Part Five of the Business Plan:FINANCIAL PLAN

Know your terms

Vuyo uses some business language that, as an entrepreneur, you should also learn. Before working out your Financial Plan let’s look at some of the terms that you will need to know.

Selling price:When you sell a product or a service to a customer, the price you ask is the selling price. Your selling price is not the same as the price that you have paid when you bought the product or raw materials from the wholesaler or supplier.

Buying Price:The price that you buy the product or raw materials for from the wholesaler or supplier is the buying price. Buying price is also called cost price.

Margin:The amount that you add to the buying price or cost price to make the selling price is called the margin or mark-up. Margin is not the same as profit, as we shall see in the next chapter.

Expense:An expense is money that you spend on your business, or money moving out of the business.

Income:Income, on the other hand, is money coming in, usually from sales. A business can also get income from the interest it earns on money it has in the bank.

Making a profit

The most important word in business is profit!

Many businesses, particularly very small businesses, operate without making a profit. These entrepreneurs work hard, year-after-year, making just enough to survive. But they never grow because they never make a profit!

You need to be able to calculate how much money you are making. And you need to be able to work out how much of that is profit.

There is no point in starting a business if it isn’t going to make you money!

Profit equals total income less total

expenses.

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4

Working Backwards

To make sure that your business makes a profit and grows, you need to do some basic financial planning. You need to “look at the numbers”!

Mam’Langa is lucky that she has a son who has been on a basic bookkeeping course and can help her. But even if you have no training in bookkeeping or accounting, you can easily do the financial planning needed to make sure your business will make a profit. Here’s how!

Do you remember how Vuyo explained ‘profit’? Profit equals total income less total expenses.

This sounds easy enough. All we have to do is look at both of these things separately: total income and total expenses. And, working backwards from these, we can see what our profit will be.

But before you start your business - while you are still planning it - you don’t know what your income is going to be! So, how can you work out what your profit is going to be?

There’s only one thing to do: You have to imagine (or predict) what your income is going to be. This is like writing a story about how you think your business is going to do in the future.

There are only two steps you have to think about:

Firstly, if profit equals total income less total expenses, the first thing we need to work out is: What are our total expenses going to be? This we can easily do because we have found out the costs of all the things we need for our business.

Secondly, once we know what our total expenses are going to be, we can work out how much income we will need (how much we need to sell and at what price) to pay all these expenses, and how much extra income we need in order to have money left over (to make a profit).

Expenses

Typically, when people start thinking about a business, especially a trading business, they only think about the cost of the product they are going to buy, and then sell. For example, they say to themselves that they can buy a pocket of oranges for R5.00 and sell those same oranges for R10.00 so, they think, they will have made a profit of R5.00.

But is this true? Is that R5.00 really their profit? No, it is definitely not!

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Looking at these numbers, this business can make a nice profit.

Work it out MonthlyMany of the expenses we have to pay, for our businesses and in our personal lives, are monthly expenses (telephone accounts, water and electricity, salaries, etc.). For this reason, most people do their financial planning on a monthly basis. The examples we use in this chapter are all calculated on a monthly basis.

Why not? Because there are many other expenses that any business has to pay in addition to the cost of the product it buys (in the case of a trading business) or the raw materials it needs (in the case of a manufacturing business). For example, the person who buys a bag of oranges for R5.00 also has to think about expenses like transport costs to and from the place where she buys the oranges, the bags she needs to pack the oranges for resale, etc.

Looking at Mam’Langa’s business, we know that she has to pay rent to Mrs Ndlovu for the space to store her table and chair. She also has to pay herself a salary.

These costs are called fixed expenses. Because they have to be paid every month,they are fixed.

The other cost we know Mam’Langa must pay is the cost of buying her produce. These are called a variable costs because they change (vary) according to the amount of business she does. The more she sells, the more she will have to buy.

So, fixed costs and variable costs are the two types of expense that a business has to think about.

But wait! Aren’t there other fixed costs that we have forgotten about?

Like what, Dudu?

Like the cost of telephone calls when you phone Mr Patel for a new order.

Yes, and the business will be using space in the house to store its produce, so it should pay a part of the cost of rates and services, and electricity.

It would be fair if the business paid one third of these costs.

Let’s write down all the fixed costs.

Yo! Are you saying that I have to make R530.00 a month just to cover my fixed costs?

Yes, Mama. And that is not all. You also have to pay for your produce - your variable costs.

And we still haven’t made any profit! If we want the business to grow we need to make even more than R530.00 a month. We should aim to make at least R600.00.

You’re right Dudu. If Mama makes R600.00 a month, she will have a profit of R70.00.

My children, all these numbers are giving me a headache! Just tell me: How much produce do we need to sell to make a profit?

▼29

How much do you need to sell to make a profit?

This, as they say in Hollywood movies, is the 64 million dollar question! But before you can answer this question you need some more information.

Let’s look back at what we have just learnt:

• We know that every business has certain fixed expenses that have to be paid.

• We also know that every business has variable expenses for the raw materials (manufacturing business) or produce (trading business) that it needs.

• And, of course, everyone knows that a business sells its products or services for more than it costs that business to make them (manufacturing business), or buy them (trading business).

The big question is: How much more? How much bigger should the selling price be than the cost price. In other words, what is the margin?

This then is the information you need before you can work out how much you have to sell to make a profit.

You need to know:

1. The cost price of the product (or service).

2. The selling price of the product (or service).

3. The difference between the two - which is called the margin.

Let’s look back at our example of the bag of oranges. The cost price was R5.00. The selling price was R10.00. So, the margin is R5.00.

This margin is not profit because there are all those fixed costs still to pay! But the margin you make on each product you sell helps pay for those fixed costs. And, once you have made enough to cover all your fixed costs, any additional money you make is profit.

I understand that, Vuyo. But you haven’t explained one thing: How do we work out our selling price? How do we know how big to make our margin?

Good question, Dudu. We’ll work it out together.

Mama, what is the cost price of a box of tomatoes?

A box of tomatoes costs me R10.00.

And how many tomatoes are there in a box?

It depends ... But let’s say there are 40 in a box.

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The margin is the amount you

add to the cost price of your

product to get the selling price.

Okay. And how many do you sell in a packet?

I’ll put 5 tomatoes in each packet.

And how much will you charge for a packet?

I’ll charge R2.00 a packet.

How did you decide on that price, Mama?

That’s the price everyone sells them for! If I charge more people won’t buy from me.

But are you sure you will make money selling them at that price?

There must be money!Other people ...

Well, let’s work it out and see.

First, we need to know the cost price of your product. And, in this case, your product is a packet with five tomatoes in it.

40 tomatoes cost R10.00. If we divide R10.00 by 40 we will get the cost price of one tomato, which is 25 cents.

There are 5 tomatoes in a packet. Five times 25 cents equals R1.25. So, the cost price of a packet of five tomatoes is R1.25.

And Mama said the selling price of a packet of tomatoes is R2.00. So, if we take the cost price of R1.25 away from the selling price of R2.00, we’ll get our margin.

That’s right. And the margin is 75 cents.

So, I’m making 75c from each packet of tomatoes I sell.

Yebo, Mama!

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Pricing and CompetitionMany small businesses decide on the price they charge for their product by seeing what other similar businesses charge. This is definitely not the correct way to work out the selling price of your product (or service). Even if, like Mam’Langa, you are in a business with a lot of competition - and you know that your customers will not pay more - you still need to work out your margin and make sure that you will make a profit.

Remember that there are many small businesses that just survive from day-to-day, but never grow because they aren’t making a profit.

Each type of business is different and, in each case, there are different things you need to think about when deciding on the price you charge for your product or service.

So, we’ve answered one question. We know that Mam’Langa will make money (75 cents) on each packet of tomatoes she sells. But we still don’t know how much produce she has to sell to make a profi t.

If Mam’Langa was selling only one product, tomatoes for example, all she needs to do is work out how many 75 cents she needs to make up R600.00. (Do you remember why she needs R600.00? She needs R530.00 to pay for all her fi xed costs, and she wants at least another R70.00 profi t to help the business grow.)

If we divide R600.00 by 75 cents we will get the number of packets of tomatoes Mam’Langa needs to sell every month. The answer is 800.

But, of course, Mam’Langa is not only selling tomatoes. She is also selling potatoes, cabbages, onions, apples and bananas. The margin for each of these products might be different, so she needs to work out her margin for each one. She does this in the same way that she worked out the margin on a packet of tomatoes.

Calculating your margin

Calculating the margin for each of your products (or services) is an essential part of your business plan. See how Mam’Langa has worked it out for her business, then turn to page 80 and work out your own margins.

Now Mam’Langa knows the margin for each of the products that she is selling. She can now work out how much of each product she needs to sell to pay all her fi xed costs and make a profi t.

To do this, she needs to imagine how much she will sell of each product. This is called making a prediction.

Like all businesses, some of Mam’Langa’s products will sell faster than others. And, like all businesses, some of her products have a bigger margin than others. (For example, she makes R1.00 margin on a packet of potatoes, but only 50 cents on a packet of onions.)

Before Mam’Langa starts her business it will be diffi cult for her to say exactly which products will sell more than others. As she gets more experience in the business she will have this information and her monthly predictions will become more accurate. But for now, in this planning stage, she needs to make a prediction based on information she has.

Mama, what product do you buy the most of for your family?

Well ... we use tomatoes and onions nearly every day.

We should try and sell the bananas. They’re very cheap at the moment, and we can make a bigger margin.

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Mam’Langa’s Business Plan

Margin per Product

Product Selling Cost Margin

Price Price

1. Tomatoes . . . . R2.00 . . . . . . . R1.25. . . . . . . .R0.75

2. Potatoes . . . . . R4.00 . . . . . . . R3.00. . . . . . . .R1.00

3. Cabbage . . . . . R1.50 . . . . . . . R1.00. . . . . . . .R0.50

4. Onions . . . . . . R1.50 . . . . . . . R1.00. . . . . . . .R0.50

5. Apples. . . . . . . R2.25 . . . . . . . R1.50. . . . . . . .R0.75

6. Bananas . . . . . R2.00 . . . . . . . R1.20. . . . . . . .R0.80

Mama, how many packs of tomatoes do you think you can sell in a day?

Well, with all those people passing every day, I should be able to sell at least 20 packets.

And how many packs of potatoes?

Not everyone buys potatoes. Let’s say 5 packets a day.

And how many cabbages?

Let’s say 5 a day. Some people might only buy half a cabbage.

And how many packets of onions?

Onions will sell well. 20 packets a day.

And how many packets of apples and bananas?

It’s still a bit cold. People will buy more fruit in summer. Let’s say 4 packets of apples and 5 packets of bananas a day.

Vuyo writes down Mam’langa’s predictions for each product (see next page). First he writes down how much she will sell each day. He multiplies the margin for each product by the number of products sold. This gives him the margin that the business will make each day (R39.50).

But, as you will remember, most of the fi xed costs of a business, as well as our personal expenses, are monthly costs. So, Vuyo works out how much margin the business will make in 5 days (R197.50) and in 20 days (R790.00).

▼33▼

Cost Price Calculations (cost of final product)

Before you can work out your margin you need

to know the cost price of each product you are

selling. If you sell your product in a different

‘pack’ size to the way you bought it, you will

have to work out the cost of each ‘pack’ that

you sell. Below see how Vuyo works this out

for each of Mam’Langa’s ‘packs’.

Five days and 20 days

Some businesses are open every day - 7 days a week.

The reason we have used five days and 20 days is to

‘be on the safe side’, and to make it easier to work

out the predictions. Mam’Langa might work more

than 20 days a month. If she does, and she sells as

much as she hopes to sell each day, her profit at the

end of the month will be even more!

Tomatoes:R10.00 for a box.40 tomatoes per box.Each tomato costs 25 cents.Sold 5 in a packet.5 x 25 cents = R1.25.

Potatoes:R15.00 for a 10 kg bag.60 large potatoes per bag.Each potato costs 25 cents.Sold 12 in a packet.12 x 25 cents = R3.00.

Cabbage:R10 for a bag.10 cabbages per bag.Each cabbage costs R1.00.Sold individually.1 x R1.00 = R1.00.

Onions:R10.00 for a 10 kg bag.80 onions per bag.Each onion costs 12.5 cents.Sold 8 in a pack.8 x 12.5 cents = R1.00.

Apples:R36.00 for a box.120 apples per box.Each apple costs R0.30.Sold 5 in a packet.5 x 30 cents = R1.50.

Bananas:R40.00 for 20 kg box.200 small bananas per box.Each banana costs R0.20.Sold 6 in a packet.6 x 20 cents = R1.20.

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See how easy it is!Remember: the Business Plan forms where you can work out

your margin and profi t are on page 81.

Vuyo, what is this R790.00?

Mama, if you work 5 days a week for 4 weeks, and if you sell as much product as you hope to sell every day, you will make R790.00.

Wow! And if our fi xed costs are only R530.00 ... That means we’ll make a profi t of R260.00!

I can’t believe it!

But remember, you might not sell as much as you planned. But ... you might sell even more! Only time will tell.

Oh, Mama, I’m so excited!

We’ve done our planning well. The volumes you plan to sell seem realistic. As I said before, looking at the numbers, this business should make a nice profi t.

Start-up Capital:How much do you need to start your business?

Many people think you need a lot of money to start a business. This is not always true. Many businesses can be started with quite a small amount. But most businesses do need some money.

There are many ways you can get the money you need to start a business. You might have some savings, you might be able to borrow from members of your family, or you might get together with other people and combine your money. There are also places where you can get a loan to start your own business (more about this in Chapter 5). In Mam’Langa’s case she has some savings of her own, and she has the small amount of money that Wilson sent her.

See how easy it is!Remember: the Business Plan forms where you can work out

Mam’Langa’s Business Plan

Margin Prediction - per day, per week, and per month

Product x 1 Calculation x 5 Calculation x 20 Contribution

Margin day days days to fixed costs

Tomatoes R0.75 20 20 x R0.75 = R15.00 100 100 x R0.75 = R75.00 400 400 x R0.75 = R300.00

Potatoes R1.00 5 5 x R1.00 = R5.00 25 25 x R1.00 = R25.00 100 100 x R1.00 = R100.00

Cabbages R0.50 5 5 x R0.50 = R2.50 25 25 x R0.50 = R12.50 100 100 x R0.50 = R50.00

Onions R0.50 20 20 x R0.50 = R10.00 100 100 x R0.50 = R50.00 400 400 x R0.50 = R200.00

Apples R0.75 4 4 x R0.75 = R3.00 20 20 x R0.75 = R15.00 80 80 x R0.75 = R60.00

Bananas R0.80 5 5 x R0.80 = R4.00 25 25 x R0.80 = R20.00 100 100 x R0.80 = R80.00

TOTALS Per day: R39.50 Per week: R197.50 Per month: R790.00

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But the big question is: How much money does she need to start her business?

Let’s list all of the things she needs and how much they cost.

Oops! We need to do some more calculations fi rst. We need to work out how much it is going to cost to buy the produce that Mam’Langa plans to sell in her fi rst week of business.

To work out how much money Mam’Langa needs in order to buy her produce for one week, Vuyo uses the list of how much she plans to sell. He then works out how much she needs to order of each product.

Start-up Capital needed to buy produce

Product Volume sold (A) Total (B) Number Calculation (C) How (D) Cost Total

and number number in box from (A ÷ B) much to price from (C x D)

per pack needed wholesaler order wholesaler

Tomatoes. . . .100 x 5 . . . . . 500 . . . . . . 40 per box . . . 500 ÷ 40 = 12.5. . . 13 boxes . . . . R10.00 . . . R130.00

Potatoes. . . . .25 x 12 . . . . . 300 . . . . . . 60 per bag . . . . . 300 ÷ 60 = 5. . . . .5 bags . . . . R15.00 . . . . R75.00

Cabbage . . . . .25 x 1 . . . . . . 25 . . . . . . 10 per bag . . . . . 25 ÷ 10 = 2.5. . . . .3 bags . . . . R10.00 . . . . R30.00

Onions. . . . . . .50 x 8 . . . . . 400 . . . . . . 80 per bag . . . . . 400 ÷ 80 = 5. . . . .5 bags . . . . R10.00 . . . . R50.00

Apples. . . . . . .20 x 5 . . . . . 100 . . . . . 120 per box . . 100 ÷ 120 = 0.84. . . . . .1 box . . . . R36.00 . . . . R36.00

Bananas. . . . . .30 x 6 . . . . . 180 . . . . . 200 per box . . 180 ÷ 200 = 0.90. . . . . .1 box . . . . . . R40 . . . . R40.00

R361.00

Do you see how Vuyo worked out how much produce Mam’Langa needs to buy?

Let’s look at one of the products: tomatoes.

Mam’Langa says she can sell 20 packets of tomatoes a day.

We are doing our calculation saying that she will work 5 days a week.

So, we need to multiply 20 packets by 5 (days) to get the number of packets she will sell in 5 days. 20 x 5 = 100.

There are 5 tomatoes in each packet that Mam’Langa sells.

100 packets multiplied by 5 tomatoes equals 500 tomatoes. So, we know that she needs to buy 500 tomatoes.

How does she buy the tomatoes from the wholesaler? In boxes of 40 tomatoes per box.

So, now we have to divide the number of tomatoes she needs (500) by the number of tomatoes in a box (40). This will tell us how many boxes she needs to buy.

500 divided by 40 equals 12 and a half (12.5).

She can’t buy half a box, so she will need to buy 13 boxes.

Each box of tomatoes costs R10.00. So, 13 boxes will cost R130.00.

Like Mam’Langa, you will need to do this exercise for each of the products, or raw materials, you need for your business.

▼36

Right! Now that we know how much Mam’Langa’s produce for one week is going to cost, we can list all the other expenses she has to pay for before she can start her business.

Starting SmallWhat would Mam’Langa do if she didn’t have R431.00? What if she only had R200.00? Could she still start her business? Yes, she could! She could use the little money she has to buy enough produce for one or two days.

Don’t be discouraged because you only have a little money. Find a way. Make a plan!

Keeping your business pumping (Cash Flow)

You have probably heard the expression, ‘Keep your fi nger on the pulse’. This means checking a patient’s pulse to see how well they are doing - how healthy they are.

Well, in business you have to ‘keep your fi nger on the pulse’ all the time! And cash fl ow is the pulse of your business. It is what keeps your business pumping. If your cash fl ow stops and there is ‘no water in your bucket’ your business stops!

Like a good doctor who looks at both preventing and curing illness, a wise entrepreneur both predicts the business’s cash fl ow and watches it day-by-day.

Predicting the business’s cash fl ow - also called budgeting - is similar to what Mam’Langa did when she was thinking how much she hoped to sell every day. The difference is that with a cash fl ow prediction you look at what comes in (income) and at what goes out (expenses).

Mam’Langa’s Business Plan

(Part 4)

Start-up Capital

So, Vuyo, What is this Cash Flow?

Imagine the business as a bucket, and the money as water ...

▼37

But why do I need to do a cash flow prediction? We already know that the business is going to make money - if we can sell as much as we planned.

Mama. A cash flow prediction will show you, day-by-day, how much money is coming in and how much is going out. And it will show you when you need money for big expenses, like buying more produce, or paying fixed expenses at the end of the month.

Vuyo, are you saying a cash flow prediction will show us the level of water in the bucket at all times?

Yes, Dudu. And another thing. You can compare your actual cash flow, the money that comes in and out every day, with your cash flow prediction. This way, you can change and adapt quickly to the situation.

Vuyo. I don’t understand!

Well, Mama, your cash flow prediction sets goals for what you plan to sell each day, and it shows you how much money you need in your bucket at certain times of the month.

If you are watching how much you actually sell each day, you can see if you are going to meet your goals.

And if we are falling behind, we can see straight away, and we can make a plan to catch up. Right?

Exactly!

Okay, Vuyo, I see how it will help my business. Now explain to me how to do it!

▼38▼

Mam’Langa’s Business Plan

Cash Flow Prediction

Date Details Money Money Balance(Day) In Out

0 . . . . . Start-up capital . . . . . . . . . . . . + 431.00 . . . . . . . . . . . . . .R431.000 . . . . . Cart to transport produce. . . . . . . . . . . . . . . . - 50.00 . . .R381.000 . . . . . Rent to Mrs Ndlovo. . . . . . . . . . . . . . . . . . . . . - 10.00 . . .R371.000 . . . . . Delivery charge (Patel) . . . . . . . . . . . . . . . . . . - 10.00 . . .R361.000 . . . . . Produce bought (Patel) . . . . . . . . . . . . . . . . . - 361.00 . . . . .R0.001 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R116.502 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R233.003 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R349.504 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R466.005 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . R582.506 . . . . . Delivery charge (Patel) . . . . . . . . . . . . . . . . . . - 10.00 . . .R572.506 . . . . . Produce bought (Patel) . . . . . . . . . . . . . . . . . - 361.00 . . .R211.506 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R328.007 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R444.508 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R561.009 . . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R677.5010 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R794.0011 . . . . Delivery charge (Patel) . . . . . . . . . . . . . . . . . . - 10.00 . . .R784.0011 . . . . Produce bought (Patel) . . . . . . . . . . . . . . . . . - 361.00 . . .R423.0011 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R539.5012 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R656.0013 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R772.5014 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R889.0015 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . R1,005.5016 . . . . Delivery charge (Patel) . . . . . . . . . . . . . . . . . . - 10.00 . . .R955.5016 . . . . Produce bought (Patel) . . . . . . . . . . . . . . . . . - 361.00 . . .R634.5016 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R751.0017 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R867.5018 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . . .R984.0019 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . R1,100.5020 . . . . Sales . . . . . . . . . . . . . . . . . . . . . . .+ 116.50 . . . . . . . . . . . . R1,217.0020 . . . . Salary for Mam’Langa . . . . . . . . . . . . . . . . . - 400.00 . . .R817.0020 . . . . Rent to Mrs Ndlovo. . . . . . . . . . . . . . . . . . . . . - 10.00 . . .R807.0020 . . . . Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30.00 . . .R777.0020 . . . . Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20.00 . . .R757.0020 . . . . Rates and Services . . . . . . . . . . . . . . . . . . . . . . - 30.00 . . R727.00

Okay, Ma. Let’s make a Cash Flow Prediction for your business.

The first figure is the Start-up capital that you put into the business. Just below that you can see how that money is spent: the cart to transport the produce, rent to Mrs Ndlovu, Patel’s delivery charge, and the produce for the first week.

❻

❺

❹

❷

❸

❶❶

▼39

Now let’s look at your sales - R116.50 a day!Do you know how I got this figure?

Look at the Margin Prediction on page 34. This is where we wrote down how much we hoped to sell of each product every day. I took those same numbers (20 packs of tomatoes, for example) and multiplied them by your selling price. This gives us the Total Sales per day.

how much we hoped to sell of each product every day. I took those

Total Sales per day

Product Selling Volume Calculation Total

Price

Tomatoes . . . .R2.00 . . . . . . . . 20. . . . . . 20 x R2.00 . . . . . R40.00

Potatoes . . . . .R4.00 . . . . . . . . 5 . . . . . . . 5 x R4.00 . . . . . R20.00

Cabbages . . . .R1.50 . . . . . . . . 5 . . . . . . . 5 x R1.50 . . . . . . R7.50

Onions . . . . . .R1.50 . . . . . . . . 20. . . . . . 20 x R1.50 . . . . . R30.00

Apples . . . . . .R2.25 . . . . . . . . 4 . . . . . . . 4 x R2.25 . . . . . . R9.00

Bananas . . . . .R2.00 . . . . . . . . 5 . . . . . . . 5 x R2.00 . . . . . R10.00

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R116.50

❷

At the end of your first week of selling you have R582.50 (if you sold as much as you hope to sell). Why is this figure important? What happens the next day?

Yes. You have to buy your produce for the next week, and pay for the delivery. It’s very important to make sure that you have enough money ‘in your bucket’ to pay for this.

❹

As you can see, I have only worked out sales income for 5 days - to be ‘on the safe side’. If you find that you have not sold as much as you hoped to sell in those 5 days, you can decide to work another one or two days that week.

❸

The next important figure is R1,217.00. This is the amount of money you have at the end of the month from your sales. But what happens the next day?

Yes. It’s the end of the month and you have to pay all your fixed expenses. Included in these fixed expenses is your salary.

❺

After you have paid all your fixed expenses you have R727.00 ‘in your bucket’. But is all this your profit for the month? No! Only part of it is profit. Remember you put R431.00 of Start-up capital into your business.

So, can you take your Start-up capital out of the business now? No, you can’t. Because if we take the R431.00 Start-up capital away from R727.00 you are left with only R336.00. And this is not enough to buy your produce for next week. You could take some of your Start-up capital out of the business now, but not all.

❻

You can find a blank Cash Flow Prediction on page 83.

Keeping control of your money

Keeping control of your money is one of the most important disciplines of any business. Recording the money that comes into the business (income) and the money that goes out (expenses) is a habit that every entrepreneur needs to get into.

It is a good idea to get into the habit of writing down everything to do with the money coming into and going out of your business.

SalesMany businesses will produce invoices, or receipts, for everything they sell. Their invoice book, or receipt book, is then a record of all the things the business has sold.

Some smaller businesses, like Mam’Langa’s stall for example, might not give their customers invoices or receipts, so they need to record their sales in other ways. Keep a little Basic Sales Book in which you write down all the sales for the day. This way, you won’t forget what you have sold when you write up your Actual Cash Flow.

PurchasesWhenever you buy something for your business keep the invoice, or receipt, you get from the seller. If the seller does not give you an invoice or a receipt, write a note so that you don’t forget what you spent that money on.

MiscellaneousIt is often the small things that get forgotten: the money you took to buy yourself a cold drink; the money your cousin borrowed; the sale you made on credit to your neighbour, etc. Write a note every time you take money out of the business. This way you will always know what is going on in your business. Be in control!

▼40

Mama, you must write down the day’s sales ...

Yes, we must work out how much money

we made!

Okay, Mama. I’ll help you.

I’ve written down all the things that I sold

in the little book.

Basic Sales Book

Date Product Number

Sold (packs)

1 August . . . . . . . . Tomatoes . . . . . . . . . . 2

1 August . . . . . . . . Onions . . . . . . . . . . . . 1

1 August . . . . . . . . Potatoes . . . . . . . . . . . 1

1 August . . . . . . . . Tomatoes . . . . . . . . . . 3

1 August . . . . . . . . Onions . . . . . . . . . . . . 3

1 August . . . . . . . . Apples . . . . . . . . . . . . 1

Actual Cash Flow

At the end of every day (or every week, depending on your business), you need to write up your Actual Cash Flow.

These are the steps you should follow:

• Count the cash in your cash box.

• Write down (record) all the sales for the day (from your sales book, receipt book or invoice book).

• Record all the purchases and other expenses for the day.

• The cash in your cash box and the balance on your Actual Cash Flow sheet should be the same.

▼41

Actual Cash Flow

Date/Day Details Money In Money Out Balance29 August . . . . . . Start-up capital . . . . . . . . . . . . . . . + 431.00 . . . . . . . . . . . . . . . . . . . . . . . . .431.0029 August . . . . . . Cart to transport produce . . . . . . . . . . . . . . . . . . . . . . . - 50.00 . . . . . . . . . .381.0029 August . . . . . . Rent to Mrs Ndlovo. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10.00 . . . . . . . . . .371.0031 August . . . . . . Delivery charge (Patel) . . . . . . . . . . . . . . . . . . . . . . . . . - 10.00 . . . . . . . . . .361.00 31 August . . . . . . Produce bought (Patel) . . . . . . . . . . . . . . . . . . . . . . . . - 361.00 . . . . . . . . . . . .0.001 September . . . . Sales . . . . . . . . . . . . . . . . . . . . . . . . . + 87.50 . . . . . . . . . . . . . . . . . . . . . . . . . .87.501 September . . . . Sales (on credit to Mrs N) . . . . . . . + 15.00 . . . . . . . . . . . . . . . . . . . . . . . . .102.501 September . . . . Loan (to Vuyo) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10.00 . . . . . . . . . . .92.501 September . . . . Purchases (cold drink) . . . . . . . . . . . . . . . . . . . . . . . . . . - 2.50 . . . . . . . . . . .90.00

SalesThis is the total amount of sales for the day, taken from all the sales recorded in the Sales Book.

There is a special entry for a sale on credit. If you do sell on credit, it is very important to write down each sale so that you remember to collect the money.

LoanVuyo has borrowed some money from the business. It is important to write down any money taken out of the business. Vuyo will have to pay this money back to the business.

PurchasesMam’Langa has made a note of the R2.50 she took from the business to buy herself a cold drink. Is this a business expense, or should it come out of Mam’ Langa’s monthly salary?

Paying yourselfIf you need money more regularly than once a month, pay yourself weekly instead of monthly. But always make sure you have enough at the end of the month for those regular monthly expenses. (See Personal Budget on page 87.)

Keeping control of your stock

Stock Control means knowing how much stock you have at any time. You need to know how much stock you have bought, or manufactured, and how much you have sold.

There are a few basic steps to good stock control:

• Decide how often you are going to count your stock. Every day, every two days, every week ...

• Use a separate Stock Control Sheet for each product.

• Write down (record) the number of products bought, or manufactured, on a particular day.

• Record the number of products sold on a particular day.

• Add the purchases to the balance and deduct (take away) the sales.

• It is also important to record spoilage. Spoilage is any type of damage to your products. This might be caused by things like breaking, being damaged, or - in the case of fresh produce - things going bad.

• The balance on your Stock Control Sheet should be the same as the number of products in your store.

▼42

I took a packet from

...

Hau, Mamazala!We must keep the business

stock separate from our food for the family.

Hey, you can’t do that! The book says we must keep very strict control of our stock.

Okay, Sisi. Sorry. I

won’t do it again.

STOCK CONTROL SHEET: Tomatoes

Date Purchases Sales Spoilage Balance

31 July. . . . . . 520 . . . . . . . . . . . . . . . . . . . . . . . . . . . 520

1 August . . . . . . . . . . . . . . 120 . . . . . . . . 3 . . . . . . . . 397

2 August . . . . . . . . . . . . . . 145 . . . . . . . . . . . . . . . . . 252

Increasing your profit

Dudu’s idea for a delivery service came from her understanding of customer relations. She saw a need - that some people don’t have the time, or the energy, or the desire to shop for their fruit and vegetables - and she saw an opportunity for a business.

When she was thinking about the feasibility of her idea, she saw that the delivery service could:

• Increase the number of customers for fruit and vegetables.

• Reduce the cost of the produce as they could buy in bulk.

• Increase the profit of the fruit and vegetable business.

There are many ways in which you can increase your profit. Let’s have a look at some of the common ways.

Get more money in!

There are two ways to increase the flow of money into your business. You can increase your sales income by doing more business, and you can charge more.

Increasing your sales incomeSell as much as possible. This will increase you sales income. (But remember that it will also increase your variable costs).

Find new ways to promote your products or service. Let as many people as possible know about your business. The more people who know about your business, the more people will buy from you or pay for your service.

Increasing your margin by increasing your selling priceIf you increase your selling price then your margin will be bigger. If your margin is bigger then your profit will also be bigger.

But you need to find the balance in your pricing. If your margin is too big, then your selling price will be too high and people will not buy from you.

Let less money out!

Allowing less money to go out of the business can be achieved by buying the product from the supplier for less, and by minimising the expenses of the business.

▼43

We can get more customers ...

... and we can make more money!

Increasing the margin by decreasing the buying priceYou can increase your margin (and your profit) by making the buying price of your product or raw materials lower. This means getting these items at a cheaper price. If you can get the same articles cheaper, and still charge the same price, then there will be more money in your business.

It is always important to try to reduce your buying price. Shop around for the cheapest supplier. Don’t buy from the first supplier you find.

Wherever possible, you should try to get your products from a wholesaler. It is even better to get it straight from the factory or farm because then there will be fewer people in-between who add their own margin to the price. This is what it means to get closer to the source - closer to where the product originally comes from.

You should also try and get a discount whenever you buy from your supplier. One way to get a discount is to buy in bulk. But you should be careful here: Don’t buy too much stock because if your market doesn’t want to buy your products you will make a big loss.

Reduce all expensesYou have to spend money if you want to make money. You can’t expect to run a business and grow it unless you spend money. For example, you might want to spend some money on marketing.

But we have already learned that you need to try to keep all expenses - fixed and variable - as low as possible.

There are many ways to do this. For example, you can save on water and electricity if you use these in you business. Keep your rent low if you pay rent for your business premises. Keep wages low, including your own.

Remember that every cent that you pay on expenses is one cent less profit that you will have. Always think twice before you spend any money.

Mam’Langa uses an old table and chair in her business. She doesn’t spend money unless she has to. Vuyo fixes an old bicycle to make Dudu’s delivery vehicle.

Ways to reduce my expenses

Write down all the ways you can think of to keep the expenses in your business as low as possible.

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Money Matters

You and your BankAs Mam’Langa’s business grows she develops another very important relationship - with her bank.

There are many useful services that a bank can offer a small business, and there are many advantages to developing a strong relationship with your bank.

• Carrying a lot of cash on you can be dangerous. Putting your money in a bank will keep it safe.

• The bank will pay you interest on the money in your account. The more money you have in your bank account, the more interest it will earn, and the more it will grow.

• Pay your accounts with a cheque, instead of carrying around large amounts of money. To save time (and, remember your time is precious) you can also arrange to transfer money directly into another business’ account.

• Putting your business money into a bank account helps you to keep control of it, and to keep it separate from your own personal money.

• The bank statement you receive from your bank each month helps you to see what money went into your account and what went out.

• By using a bank account you develop a banking ‘track record’. The bank can see how you manage your money, how much comes in and how much goes out. This can be very useful if you want to borrow from the bank (a loan or an overdraft), or if you want to get credit from another financial institution.

How to choose your bank

• Choose a bank that is close to where you work or live.

• Choose a bank that respects you as a valuable customer.

• Choose a bank that offers the facilities you need. For example: - does it have an ATM nearby? - can it transfer money to other banks?

• Compare the fees they charge with the fees charged by other banks in your area.

• Does this bank offer good customer service? (Ask other people where they bank and if they are satisfied with the service.)

▼47

Hello, Mrs. Langa. Business is good! This

is a big deposit.

Yes, Jabile, it is. I never knew business

could be so good!

5

How to get a good ‘track record’ with your bank

• Always make sure you have money in your account, or stay within your overdraft limit.

• Always keep enough money in your account to pay any cheques you write, bills or accounts you pay, or money you spend.

• Always pay your instalment purchases on time every month.

• Always talk to your bank if you have a problem - they will help you.

Getting a loanMost businesses need some money to start. If you can’t raise the money you need from your savings or by borrowing from your family, you can approach a lending institution for a loan.

All lending institutions require the same information before they grant you a loan. They want a well researched and well presented Business Plan that covers all the points that we have been through in the previous chapters.

The lending institutions that do not require security for their loans usually give smaller loans, and they are most interested in helping very small businesses.

Where to get help

The Department of Trade and Industry (the dti), through its enterprise development arm, the Small Enterprise Development Agency (seda), provides non-financial business support services to business owners throughout South Africa.

Their vision is ‘To be a centre of excellence for small enterprise development in South Africa’. To fulfil this vision, every district in South Africa has a seda branch. Each seda branch is a walk-in centre where small enterprise owners can receive:• Information, advice and referrals;• Tender information and advice;• Import and export training;• Trade information;• Business assessments;• Technical support;• Business mentoring;• Market access;• Business linkages.

▼48

So, Vuyo. You and Thabang doing okay?

Great, thanks.The orders are coming in fast!

I’ve brought the Cash Flow Projections for the next six

months.

seda also supports enterprise information centres (EICs) in every municipality, where business owners can be referred to good business support services.

seda also assists small businesses with access to bridging finance through the National Empowerment Fund, Khula and the Industrial Development Corporation.

Business owners can call seda’s National Information Centre for more information – 0860103703.

You can also contact the seda Head Office at (012) 441-1000 or visit their website at www.seda.org.za

The seda website is a mine of information about starting and running a business, and provides links to business advice agencies, finance providers and other relevant government and private sector organisations that entrepreneurs need to know about.

Once a year, seda hosts a National Small Enterprise Summit to review the progress made in small business development, and to share best practice in this field.

Small Enterprise Development Agency Small Enterprise Development AgencyThe dti Campus PO Box 56714Block G Arcadia77 Meintjies Street 0007SunnysidePretoria0002

How to go about it

The best way to apply for a loan is with the guidance of an advisor from seda or a local business training organisation.

The advisor will help you to think through and to plan all aspects of your business, and help you to prepare your Business Plan.

The advisor can also help you to choose the lending institutions to which you apply for a loan. The advisor will know which lending institution is best for the type of business you want to start.

If there is no business training organisation near to where you live, you will need to phone or write to the lending institutions in your area. Ask them to send you all their information on applying for a small business loan, as well as their Business Plan and Loan Application forms.

Follow the steps we have been through in this Workbook and write up your own Business Plan in as much detail as you can. It is always useful to get someone with experience in writing Business Plans and in applying for small business loans to look at your plan and your application. Once you are satisfied that your Business Plan is the best it can be, send it to the lending institution.

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I’ve read your Business Plan closely and it’s very impressive. You’ve been very

thorough.

I’m sure your loan

application will be successful.

If your application is thorough and your business idea looks feasible, the lending institution will most probably invite you for an interview to explain your Business Plan. They will then let you know if your application has been successful.

Check ListWhen applying for a loan, you need:

• An Application Form from the lending institution.

• Your Business Plan. (The lending institution may have a Business Plan form of their own that you will need to follow. The sections of the form will be similar to the Business Plan you in this Workbook.)

• Your business Cash Flow Prediction. (This is very important information for the lending institution. They usually want a Cash Flow Prediction for 12 or 24 months.)

Remember that it takes some time for the lending institution to make a decision about granting you a loan.

Advantages and disadvantages

Getting a loan may be the only way you can start your business, or it may help you to achieve your business goals sooner.

But remember that borrowing money costs you money. You will have to pay back the money you have borrowed, and you will have to pay interest on it as well.

Different lending institutions will charge different amounts of interest for the money they lend you, and they will have different requirements for how you must pay the money back. Find out how much interest they will charge and how they want the money paid back before you finalise your Cash Flow Prediction. Most lending institutions will want you to pay back the loan on a monthly basis, so you will need to have this expense in your Cash Flow Prediction.

As a general rule, if you plan to borrow the money for one year, you can expect to add at least one quarter of the money you borrow as interest. If you plan to borrow the money for two years, add half of the loan amount as interest.

Before applying to a lending institution:

• Find out whether they fund new businesses or existing businesses.

• Find out what types of businesses they prefer to fund.

• What interest rate they charge for lending money.

• Over what period of time you must pay back the money they lend you.

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Marketing your BusinessYou need to let people know about your business. Tell them where your business is located and what it is that you sell, make or do. Let them know what is special or unique about your business. The more people know about your business, the more likely they are to buy from you.

What is Marketing?

Marketing is about making money and providing value to your customers at the same time. To be a successful marketer you must want to make money and you must want to add value for your customers. Having just one of these desires is not enough.

Successful marketers generate regular sales and a satisfying income stream for years to come while helping their customers. Does this describe you? If not you may need to employ a marketer or outsource your marketing to someone who has the skills. Most small enterprise owners have to do all the marketing themselves.

Marketing is also about creating perceptions of your product. It is about helping people to see you and your product in a way that they haven’t seen before.

Marketing yourself

It is very important to understand that the most important product you will ever be marketing is yourself!

Whenever you see a customer, you must understand that what you are selling is yourself. So, how would you like your customer to see you?

Write down as many words as possible that describe the way you want your customers to see you.

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6I was hoping

we’d sell everything ...

Well, the book talks about the need to promote

our business.

Yes, we need to tell people about

our stall.

What do you think you need to change before your customer sees you in this way?

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Success and Satisfaction

Successful people are committed to being the best they can possibly be. Why? Simply because they find it highly satisfying. You could say that success is the ability to use all your resources in a way that is most satisfying to you.

Successful people see themselves as successful and expect success. Some people may view this strategy as arrogant or deluded, but it works. Successful people speak as if they are successful. They talk about themselves as being successful by using words and language that express success. They are even able to describe the most negative circumstances in an empowering, positive way.

Make a conscious effort to listen to what it is you are saying and how you talk when you interact with other people. Are you coming across as successful? Is what you are saying and how you are saying it a true reflection of who you are? How does what you say create the image people have of you?

Successful people also want and expect more from their lives. They are committed to continuous learning and growth, and they see failure as a way of improving themselves.

Are you spending your time and energy in an efficient way? How could you spend your time and energy in more efficient ways? How would you feel if you were able to channel your energies in a more positive way?

Successful people mix with and learn from other successful people. Enjoy being with and communicating with all kinds of people because you can learn from them.

Do you fit the above description of a successful person? Are you doing the things successful people do?

Remember, you are selling yourself above anything else. You may think you know how you come across but your customers will perceive you based on these factors:

• Your appearance• Your professionalism• Your confidence• Your listening skills and willingness to understand and help a customer• Your knowledge of your product

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Great marketers are also:

• Results Focused – As a marketer of your own business, you have a tremendous amount of freedom in how you use your time. In return, you must be able to stay focused on the big picture and not let small problems or dramas distract you. If you are not focused on results, then you are not in business.

• Brave & Daring - Great marketers are brave and daring. They are able to act and move forward even when they are a little insecure. They are driven by their dreams and the ‘big picture’.

• Have High Energy - Top performers consistently demonstrate that they work both hard and smart. They get things done and display boundless energy that ensures the job is done. In short, you must be able to do ‘Whatever It Takes’ to reach your dream.

Marketing your ProductValue Engineering

Have a look at some paper money and ask yourself: What is this? This piece of paper has no value in itself. It cannot feed anyone. It cannot build houses. It cannot cure disease. It cannot teach you anything. So what is it?

Money represents something else – value. Money is a symbol of value. If you do something that someone values they will give you money for it. If they won’t give you money for it, it is either because they genuinely do not have the money or because they do not value what you are trying to give them. If you give them something they truly value … and they have the money … they will pay.

What does this mean for you? If you are able to convince someone of the value of your product, and they have the money, they will pay for it. This is the simple rule of marketing. How you identify people with money and how you convince them of the value of the product is the key.

What are the kinds of values a product can have?

Functional value: This has to do with the practical values of a product – what a product actually does. Mam’Langa’s products feed you, give you energy and help your body to heal. This is a functional value. The functional value of the paper packets Mr Patel offers Mam’Langa for free is that they can carry things. The functional value of a knife is that it has a sharp point and blade for piercing and cutting.

Artistic value: This is all about how something looks and feels. You might value a certain type of cushions because they match the colour of your curtains. You might choose to buy one car over another because of the way it looks and makes you feel. This is an artistic value. It is also about that very difficult-to-define thing we call ‘personal taste’.

Economic value: This is all about good value for money. The economic value of some products increase if you buy many of them and get a discount.

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Value of meaning: This is all about what something means to you. The meaning could be cultural or personal. Am example of a product with a cultural meaning is traditional medicines or a rugby shirt. An example of a product with a personal meaning is something that reminds you of a wonderful experience you had in the past.

Write some of the values you hope people will see in your product(s) or service(s).

What are some of the things people will value about my product?

Functional value:

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Artistic value:

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Value of meaning:

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Remember, you are not just selling the product. You are

selling all the values the product has.

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Excuse me, Mfowethu. I’m

thinking of starting a Fruit and Veg Home Delivery Service. Would you use such a service?

Yes, sisi. It would be very

useful. I won’t have

to carry these bags

all the way from town!

I’m not sure. Will it cost

extra?

Yes, especially at weekends!

Added Value

Added value is when you add something, some service or extra product, which makes the original product even more valuable. An example of this is when Dudu comes up with the idea of delivering fruit and veg directly to people’s homes.

Supply and demand

Before any product can be sold there has to be a demand for it. Not just a need for it – a demand!

Sometimes clever entrepreneurs will even create a demand, by persuading people that their lives will be more valuable, more comfortable, more efficient and more interesting if they buy the product. Once a demand has been created for a product, its supply is often controlled in order to increase its value.

For example, if someone patents a product, no one else is legally allowed to produce it for a specified number of years. Another strategy is to limit the availability of the products released into the market so that people see them as rare. All markets operate on the dynamics of supply and demand.

Advertising

In our story, Vuyo uses a pocket of oranges to promote his mother’s business. He gives away the oranges to the taxi-drivers and asks them to advertise Mam’Langa’s stall. This was a very clever strategy. And it worked!

There are a number of ways in which you can advertise your business:

• You can advertise your products or service to your customers. Tell them about the business and what you do by word-of-mouth, pamphlets or advertising sheets. If your business grows much bigger, you can advertise in newspapers, on radio and even on television.

• You can let people know about your business through publicity. For example, if you sponsor events, you can display the name of your business at the event.

• Depending on the type of business you have, you can paint your business name on a delivery vehicle or outside your place of business.

• It is becoming cheaper to create your own website. While there is an initial cost, websites can save you a lot of money in printing. If all the information that people need about you and your events is on your website you can just give them the website address.

Remember to include the cost of promotion in your fixed costs, if you are going to promote your business on a regular basis.

Or, if you only spend money on promotion from time to time, remember to write down the cost as a business promotion expense. Below-the-line marketing

Effective marketing does not always require big budgets. One of the most cost effective methods of raising awareness is called ‘below-the-line marketing’.

Examples of below-the-line marketing are:

• Attractive displays of your product at the point of sale or at other businesses close to your point of sale.

• Speak to other businesses in your area and make a deal with them that you will promote their products if they promote yours.

• Get a local artist or art student to design and create an interesting notice board or poster. You can offer some kind of exchange of products or services.

• Many newspapers will publish articles and interviews about interesting people and events. This is not an advert in the usual sense, but it still promotes your business if you can tell an interesting story about it or yourself.

• You can even write the article yourself and submit it to your local community newspaper. If you do this try to stress the experience of the community and their response to your product or service. It is also a good idea to take as many photographs as possible and keep these (preferably in a digital form) for newspaper articles.

• Create newsworthy events and sets of activities that will promote your product and services and promote these events through press releases.

• Many community radio stations will do an interview for free if they think the event you want to speak about is interesting enough. You may suggest some competition with a small prize that the radio station could run in connection with your screening.

• Advertise through schools. A single announcement at a school assembly, or a single poster in a school yard, can reach many homes.

• It costs you nothing to attend, and be seen at the special events of community projects or conferences. Do exhibitions at conferences, workshops, music concerts, sports events, etc. Let it be known that you are genuinely interested in networking. Be generous with community organisations and other local businesses. Go to the trouble of offering them products that are appropriate to their event.

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Remember, the best below the line advertising is word of mouth. Tell everyone you know. Make a habit of networking wherever you are.

“Let me help you” - Customer relations

Second only to having a good quality product (or offering a quality service), is developing good relationships with your customers.

A good public relations strategy is very important, especially when you have a service business. If a customer is satisfied with your service, he will tell a few other people about you. If he or she is not satisfied, then that person will also tell many other people!

Here are a few tips to help you develop good relationships with your customers, and help you to sell more!

• Be friendly to your customers.• Try to remember your customers’ names - especially your regular customers.• If you know your regular customers you should be able to anticipate their needs.• Be genuinely interested in the customer• Ask intelligent questions• Listen carefully to their issues and needs• Recommend various ways of addressing the needs• Make certain the customer is happy• Ensure the customer refers you to more business

Dudu’s home delivery business is a good example of a business based on customer relations, satisfying customer needs, and friendly service.

Remember, your customers will come back to you again and again if you give them what they want.

What is a customer worth?What is the value of each customer? The answer to this question will determine what you are prepared to spend on each customer, and what loosing a customer will cost you.

To calculate the value of a customer ask the following questions:

• If you continue to provide acceptable service and quality, how long will the customer keep buying your products or services?

• How much will the customer buy in the average year?• How much of that is your profit?• How many referrals will that customer get you?

Now that you know a customer’s worth. What are you prepared to do to keep them? Are you going to offer a discount or something special to customers who are worth a lot?

Remember all customers have the potential to become customers of great worth. So make the investment!

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Oh, this is too heavy for an old man like me ...

Tata, let me help you carry it home.

Customer ChecklistGo through the following checklist and answer honestly whether you believe these statements and whether your behaviours support your beliefs:

1. I have the utmost respect for my customers.

2. I try to see things from my customer’s point of view. I frequently check to ensure I have understood them correctly.

3. I listen carefully and patiently to my customers.

4. When my products can’t fulfil a customer’s need, I always try to refer them to someone else who can help them.

5. I see my role in selling as influencing and facilitating more than convincing and hard selling.

6. I will not push my products if they do not meet my customers’ needs.

7. I am unwilling to sacrifice the longer term relationship with a customer to achieve short term sales.

8. I know that what I do adds value.

9. I smile a lot.

10. I treat others in the way I would like to be treated by them.

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Supplier relations

Business is a chain of relationships. Your customers rely on you. You rely on your suppliers. Your suppliers rely on their suppliers, who rely on farmers or miners, etc. And if there is one weak link in the chain ... you know what happens!

Mam’Langa certainly knows what her customers will do if she gives them low quality goods: “They’ll never buy from me again!”

Just as it is important to develop good relations with your customers, so you also need to develop good relations with your suppliers.

If you are not satisfied with the service or the quality of goods that you receive from your suppliers, go and talk to them. As we all know, discussing a problem is the best way to solve it.

If your supplier is not willing to solve the problem, then find another supplier! Strong relationships are based on mutual interest - where both parties understand that the relationship is good for them.

A good relationship - when professionally managed - can generate many more relationships for you. Each of those relationships can yield more relationships and more sales and so on…..

The more you interact with people, the more your people skills improve. It is your people skills, positive outlook and your genuine love of helping people that will make people want to be with you – partner with you, service you and buy from you.

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Mr Patel. I am not satisfied with your service. And some of the produce you sent was damaged!

Mrs Langa. I’m so sorry. It won’t happen

again. Trust me.

I’ll replace all the damaged goods.

I really want to keep your business.

Thank you, Mr Patel.

You know, the more my business grows, the more your does too.

Of course, Mrs Langa. You’re right.

Networking

Networking opportunities exist almost everywhere. It’s likely that you‘re already doing it without realizing what it is called. Networking means using any contact you have to introduce you to other contacts who may either generate business or further contacts for you. Networking is a valuable social skill. You can practice it anywhere groups of people gather for work or for play.

Whenever you meet someone, you need to be asking yourself, ‘How can this person help me get to where I want to go?’ Are they:

• a potential partner or investor, • an employee with the special skills I need, • a reliable supplier, • a service provider with technical expertise,• access to a new market, • an opportunity for marketing my business, • a caterer for a business promotion event, or • a potential client.

Anyone who might possibly introduce you to a new opportunity should be treated like your champion and praise singer. Do not forget to acknowledge their role in helping you!

Networking is a learned skill – if you are a really good networker, you will be able to:

• ‘Tell your story’ and show your skills, abilities, knowledge, background and goals• Show you are genuine -- your motives need to be trustworthy• Demonstrate active listening skills• Maintain good eye contact• Deliver a firm, confident handshake • Respect people – not just for what he/she can do for you• Introduce yourself effectively• Be open to people

Your Customer Database

A successful marketer knows the importance of correct information about their customers. In the work you do, you’ll be meeting a number of different people. It is important that you keep track of them, their interests and their particular needs. For this purpose, you may wish to build a database of customers and potential customers. This sounds very big and impressive but the technology is very simple. And you don’t even need a computer to run the system efficiently!

• Get hold of some cardboard cards – around ½ the size of an A4 page.• Acquire a box in which the cards can be securely stored.• Use the cards to record information about your customers – one card per customer.• Use the cards to identify particular needs, issues and problems of the customers. • Use the cards to note any promises you have made to customers and ENSURE YOU

FOLLOW UP as you have promised to do.• You may wish to use colours to identify customers who are hot prospects and those

customers who have the potential to refer you to new business.

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• Each time a customer refers you to new business, make certain you let him or her know how important their help is to you.

• Record categories of customers – as you work with the database, add additional categories. This is important in your marketing efforts as certain types of customers will have very similar needs. Understanding needs like this will show the customers that you are serious about solving the customers problems.

Depending on your kind of business you may want to record each interaction with your customer in your database. It will give you a history of your contact with your customer along with details of the person’s special needs and situation.

An important impact of the customer database is that each time you make contact with a customer, you will be able to refresh your memory about the customer and be able to provide the kind of information that shows you are serious about helping them. Your customer database will help you maintain and grow a one-on-one relationship with each of your many customers for years to come.

One clue about how to use the information from the customer database comes from a veteran marketer who keeps notes about his customers’ birthdays. Each year, they get a call or card wishing them a happy birthday. This only costs a couple of cents but the rewards are excellent.

ComputerisationIf you are thinking to computerize your customer database, please remember that unless you are computer literate, you will need to make a large investment in hardware, software and your time. Unless you are a committed, professional marketer with a good track record, we recommend you keep with your cardfiles.

The NotebookOne of the greatest tools of great thinkers is the paper-based notebook. If you have an idea for marketing, write it down. If you meet someone who could be a useful contact, write down his or her details. If you learn an interesting bit of information that you can use in the future, write it down.

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NAME: Steve BaloyiADDRESS: 147 Main Street, Bethlehem

TEL: 083-232-0000BIRTHDAY: 22nd November 1958

INTERESTS: Wants to collect African Film

COMMENTS: Has 3 kids – Andre, Francois and Dale

– he is worried they watch too much television and it is

damaging their brains. He wants them to learn about true

African Culture.CONTACT HISTORY: 23rd July, 2003 - Said he wanted to buy a film next

month.25th August, 2003 - Purchased ‘History of Afrika’.

Selling skills

The Sale is the culmination of all your hard work and effort. This is the test to see if all your work and effort will yield results.

The secret to effective communication is to:

KNOW WHAT YOU WANTKNOW WHAT THEY NEED

andMAKE THE CONNECTION BETWEEN THE TWO

You might wish to remember the following points for whenever you are trying to make a sale.

• Let the customer feel that you respect them.• Help the customer think – lead the customer through the thoughts that are necessary

for them to have if they are going to buy your product.• Wherever possible do not tell the customer things – instead, ask them questions that

lead them into the way you want them to think.• Answer every objection the customer makes with a reason to buy the product.• Help the customer make the decision to buy at the moment when they have agreed

that they have good reasons to buy.• Do not keep selling the product once they have agreed to buy it – once they have said

‘Yes’ close the deal and move on.• If they clearly do not have the money to buy your product do not waste your time

and theirs trying to sell it to them.• If they do say ‘No’ once, it does not mean they will say ‘No’ when you approach

them the second or third time – don’t treat any ‘No’ as final

Each of your customers is a goldmine. Treat them accordingly.

The process of selling usually involves three phases:

• Phase 1 – Making Contact• Phase 2 – The Presentation• Phase 3 – Handling Objections & The Close

Phase 1 – Making Contact

Note that it is much easier to approach someone as a result of a recommendation from one of his or her friends. This is known as a ‘lead’. If you have a lead, follow it up quickly.

Most marketers use a technique called ‘cold calling’ or ‘cold canvassing’. It is a kind of selling process most marketers find scary. In cold calling you will approach people without a lead and without their own request (a request that may be based on your media). You will meet them face-to-face, going door-to-door and try to make a sale out of the blue. Cold calling cannot be done effectively on the telephone. You can make appointments on the phone but leave the sale to the face-to-face encounter.

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The initial contact making phase can be described as:

• Make contact with customer – normally by telephone but this could also be as a result of a chance meeting, a referral or an encounter at your display stand.

• State in a simple, interesting and easy-to-understand way what you do and how you can help them solve their problems or add value to their life. For example: ‘I like to show you how I can make your shopping experience easier, cheaper and a lot more fun …’

• Ask if it is a convenient time to talk. If not, ask when would be a convenient time. Make sure that you call back at the appointed hour.

• Setup a time and date for the appointment.

Your goal in the phase 1 of contact is not to sell anything over the phone. Your goal is to get interest and to get a time for an appointment.

If the person you call is clearly uninterested or has no time, note this in your database. Ask them if they would like to receive information about your product in the future and ask them for their advice on who else you might be able to contact. This might seem like a cheeky approach but it has often resulted in some valuable leads.

Only spend time and energy on the call if it appears to be a solid lead. Never try and force someone into a meeting. You will only be wasting your time. There are some wonderful, inexpensive technologies available to facilitate your contact with customers. For example, you might wish to send a customer an SMS message on his or her cellphone. Or you might wish to use email to send multiple messages to customers.

Did you know that most customers will only buy on the 3rd or 4th attempt to sell to them? Now, does it make sense to discard a customer if he or she has said ‘No’ only once? 20% of marketers access 80% of customers because they are the ones who go back even after a ‘No’.

Remember that you are in competition with all of those things which are trying to attract your customers’ attention. For you to get and hold your customers’ attention, you need to be interesting.

Phase 2 – Presentation

This is the actual face-to-face contact with your customers. This is where you have a chance to shine when telling the story of what you and your products have to offer.

Answer any questions that the customer has about your product or service. To do this you must know your product well. Then you can give the customer good reasons why he or she should buy what you are selling.

Know your product. Know your customer’s needs. Make the connection between the two. Try to make the connection between what your product has to offer and what your customer is saying.

You haven’t listened until you can show you have listened. Play back a summary of the facts. For example, ‘Mr Baloyi, I understand now how important it is for you to buy regularly in small amounts, because you don’t want the fruit to go off.’ If you don’t get it right, the customer is usually happy to help you try again.

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Here are some success secrets to help you ensure that all your work bears fruit.

• People love talking about themselves and their problems. Your goal is to listen carefully to what the needs, issues and problems of your customers are. You can obtain this information by careful questioning.

• Listen carefully to the customer’s story.• When the customer is finished, use your understanding of your product to tell a story

of how it can meet your customer’s needs. Be creative and interesting. Remember, the customer is buying you and confirming that they value the relationship with you.

• Suggest various options that would meet your customer’s needs.

This leads us into the most delicate part of the sale. The close.

Phase 3 – Handling Objections & The Close

The Close is the most important moment in the sale. This is the moment you get the customer to agree to part with their money and buy. You have spoken and listened to the customer. You understand the customer’s needs. You have linked their needs to your product. Now, you need to make the sale.

One effective way to do this is to assume that the sale has been made and to start taking down their details and the options they have chosen. You could say something like: ‘Will you be paying by cash?’ or ‘This is the list of the options that seem to meet your needs. Which ones will you be paying for now?’

Putting this kind of pressure on people helps them to make any objections they may have about price, or needing time to think, or not having enough money, or needing to check with their superiors or partner.

Listen to the customer’s buying signals. If the customer says “That looks good”, or “It would be nice to have that”, then he or she is interested in buying the product.

Close the sale carefully. For example, if the customer is looking at the bottles of body lotion you are selling, don’t say “Do you want one?” The customer can always say “No”. Then it is difficult to change his or her mind. Rather ask a question that doesn’t require a “Yes” or “No” answer. Ask something like “Which size bottle would you like?”, or “How many would you like?”

When people make objections you need to be able to answer them in a way that promotes some aspect of your product or service. If you hear an objection make the objection more specific by asking a few probing questions. You need to understand the real concern behind the objection. Play back the objection in a word or two. When you don’t know what the customer is talking about, you don’t know what you’re talking about. Don’t make promises you cannot keep, but try to accommodate your customer as far as you can. Ask, ‘Suppose we were able to resolve this issue. I know it’s not resolved right now, but just suppose we could. Are there any other issues standing in the way of our doing business?’ Get clarity. Then offer a solution that includes them buying your product.

Your discussion must lead to a point where you both agree on what action should happen next. Are you going to call back? Are they going to pay a deposit? Are they going to only buy one product as an experiment to see what they think of your business?

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Remember, this is the part of the process where you have seduced the customers into parting with their hard earned cash. Close too early and you might lose the sale. Close too late and you might also lose the sale. You have to time this just right.

There is one school of thought in sales that suggests you need to get customers to answer ‘yes’ to 3 questions in a row. When these questions have been answered, it is very easy to get the close. The best rule of closing is: Use a closing technique that is natural to you. Close when you feel the time is right.

The right timing of the close is all about sensing and knowing the point at which the customer

has agreed to all the reasons why they should buyand you have offered solutions

to all the objections they made for not being able to buy.

Steer the customer to your way of thinking. In other words, he or she has no choice but to move in the way you want him or her to move. One way to do this is to ask closed-ended questions. A closed ended question forces someone to answer ‘Yes’ or ‘No’. In this way you can close on the ‘Yes’ and answer the objections on the ‘No’. This technique gives you a lot of control. Examples are: ‘Do you think this product could be an answer to the challenge you have been telling me about?’ ‘Does that sound like a good deal?’ ‘Do you know of any other business that does that?’

Another technique is to ask questions that get the customer to give you information specific to a sale. Examples are: ‘Which of these options do you like?’ ‘Are you paying with cash?’ ‘Who should I make out the invoice to?’

Write down a list of really interesting closed-ended and sales specific questions you could ask people that would make them compelled to listen to your sales pitch.

Practice makes perfect. So why not select someone either at work or at home to practice your sales ‘pitch’ on? Maybe you can also switch roles and try to see what it feels like to be a particularly difficult customer.

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Business Structure, Registration and Compliance ComplianceCompliance means bringing your business practice into line with the laws and regulations that help to govern business in South Africa.

Compliance is more than just a lot of red tape. It helps to build professional integrity and better relationships between business owners and employees.

RegistrationThe first step towards compliance is registering your business. You need to decide what the most useful structure for your business will be – a sole trader, a partnership, a close corporation or a company.

You need to register this structure as a legal entity with the Department of Labour. Below are brief descriptions of each.

Sole traderThis is the easiest structure to set up and requires the least amount of compliance to business laws and regulations. You don’t have to register anything apart from registering as a tax payer.

As a sole trader you will conduct business under your own name and you will be the only one making business decisions.

The one drawback of this structure is that you will be personally responsible for all the debts of the business.

PartnershipPartnerships are also relatively easy to set up and do not have to be registered. It is useful to draw up a formal partnership agreement between partners so that no misunderstandings occur.

Each partner should make some form of contribution in money, property, labour or skills.

In a partnership business decisions are shared. This is a potential source of conflict, but it is also an opportunity to combine experience, finances and expertise.

Close CorporationA close corporation (CC) is ideal for a small enterprise that does not want to have a complicated legal structure.

You do have to register a CC. It is not difficult to register, but it does have more business laws and regulations that it must follow than the first two options.

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7

The first step towards registering a CC involves reserving a name. You cannot do anything else until you have reserved a name (on a CK7 form) that no one else is trading under. Within two weeks of reserving the name you will have to hand in a founding statement and the official registration forms (called CK1 forms) to the Registrar.

A CC requires 1 – 10 members who are the owners of the CC.

A main advantage of a CC is that it is a legal entity separate from its owners. This means that the owners are not personally responsible for the debts of the business.A CC does not have to be audited but it does have to produce financial statements once a year. These have to be reviewed by a professional accounting officer.

There are more growth options for a CC. For example, a CC can continue to exist even if the owners change over time. This is called ‘perpetual succession’. The business community is more likely to take a CC seriously. CompanyIt is not easy to register a private or public company. It has to comply with the Companies Act. It is unlikely that a small enterprise will take this form, so we will not go into a lot of detail here.

Companies require at least 7 members and at least two directors.

As with a CC, a company is a legal entity separate from its owners and the owners are not held responsible for the debts of the business.

A company also enjoys perpetual succession. In other words, it can continue to exist even if the shareholders change over time.

It can sell shares to the public and may have a listing on the stock exchange.

A company has to be audited every year. The tax burden becomes heavier as the company is taxed on profits and dividends taxed in the hands of the shareholders.

NGO, NPO or Section 21 CompanySome people choose to start a not for profit organisation like an NGO (non-governmental organisation), NPO (non-profit organisation) or Section 21 Company. This kind of structure is usually focussed on development projects like establishing food gardens in communities, or supporting local artists by providing them with business skills, or providing a service to victims of crime and violence. In such a business structure profits can be generated but they have to be poured back into the projects of the business. Profits cannot be divided amongst any of the members.

The real advantage of registering this type of structure is that it connects to sources of donor funding that other kinds of businesses cannot access.

This kind of structure is also freed from most tax obligations.

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Where do you register?The Companies and Intellectual Property Registration Office (CIPRO) is the office that controls business regictration.

You can contact them on 0861843384 or www.cipro.gov.za.

Other issues of compliance

Department of LabourIf you are employing others, it is very important for you to become aware of what their rights are and what your rights are. The Labor Relations Act and the Basic Conditions of Employment Act protect South African workers. They specify working conditions, work hours, basic salaries, vacation time, sick leave, and the worker’s rights. If you are employing people, it is a good idea to consult with a labour law officer to make sure that your employment contracts include the minimum requirements and that the correct procedures in terms of retrenchment and dismissals are followed.

Depending on the kind and size of your business you might need to comply with health and safety regulations. The Occupational Health and Safety Act of 1994 governs the safety of employees while they are at work. According to the act, an employer must take steps to reduce the risk of injury at the workplace. You may need to prepare a health and safety policy for your business. All accidents at the workplace must be reported.

You need to be aware of employment equity. Discrimination on the base of gender, religion, or race in the workplace is strictly prohibited. As a small enterprise you do not need to have an affirmative action plan, but you do need to be aware of how employing people from previously disadvantaged communities and employing women gives you an advantage when tendering or seeking funding.

You need to contact your regional office of the Department of Labour for more details.

Receiver of RevenueThe office of the Receiver of Revenue is very efficient, so it is not advisable to avoid registering for the kind of tax you and your business are responsible for. You need to find out whether you need to register for VAT, employees tax and income tax.

Trading LicenceIf you have the following types of business you will need to get a trading licence:

• a business that serves food, provides take-aways or delivers meals (whether from business premises or from the roadside);

• a health facility, like a gym or a massage parlour; • an entertainment facility, like a cinema, nightclub, games arcade or a casino;• any business with 3 or more vending or slot machines;• all hawkers.

For more information on the process of applying for a licence contact your local municipality.

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NOTES

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8

My own Business

Plan

Now it’s your turn!Good luck.

Strategic Focus

1. What business am I going to start?

a. Describe the business you are going to start.

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b. Write your Mission statement

A mission statement should be a short paragraph that says exactly what product or service your business aims to provide and how it aims to provide it. A mission statement is the goal, which is inspiring you.

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Marketing Plan

2. Market: Who will my customers be?(People)

Without customers, you won’t have a business! Think very carefully about who your market (customers) will be. What age are your customers? How much do your customers earn? Where do your customers live?

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3. Location - Where will I operate my business? (Place)

Describe the location you will choose for your business, and say why you believe this is a good position for your business. Where will you store your produce or raw materials? How much will you have to pay for these premises?

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4. My Competitors

Is there competition at the location you have chosen for your business? Do you know your competitors products and their prices? Show how your business will be different from your competitors?

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Your Product Your Price Competitors’ PricesLowest Price Highest Price

5. How will I tell people about my business (Promotion)

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6. Product or Service: What will my business sell? (Product)

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7. Sources: Where will I buy my produce or raw materials?

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8. These are the prices of the produce/products/raw materials I will buy: (Price)

Produce/Product/Raw Materials Price1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.26.27.28.29.30.31.32.33.34.35.36.

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Operations Plan

9. Resources: What resources does my business need?

List the resources – equipment, materials, transport, etc. – that your business needs.

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10. This is my plan to make sure my business runs efficiently.

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11. How will I keep control or records of my stock? (Stock control)

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12. How will I ensure quality control?

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13. What will I do with old and damaged stock?

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14. How will I record everything I buy and sell? (Record-keeping)

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Staffing Plan

15. What staff do I need?

Looking at everything I need to do above, can I manage to run the business on my own or do I need to employ staff? If I need staff, how many staff will I need to help me with my business? What skills will each of them need to do the job properly? Will they work part-time, full-time or on contract? How much will I pay each of my staff?

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16. Who will be in charge of the business when I am not there?

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Financial Plan

17. The selling price of my produce/product will be:

Cost of Product

Transport Cost

+ Labour Cost + Fixed Costs = Total Cost per unit

+ + =+ + =+ + =+ + =+ + =+ + =+ + =+ + =+ + =

Product Total Cost/Unit Mark Up Selling Price% Amount

18. Margin per Product/Service

Product/Service Selling Price Cost Price Margin1.2.3.4.5.6.7.8.

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19. Margin Prediction (per day, per week, and per month)

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Prod

uct/

Serv

ice

Mar

gin

Sale

s x

1 da

y

Cal

cula

tion

(sal

es x

m

argi

n =)

Sale

s x

5 da

ys

Cal

cula

tion

(sal

es x

mar

gin

=)

Sale

s x

20

days

Cal

cula

tion

(sal

es x

mar

gin

=)

Con

trib

utio

n to

fix

ed c

osts

Tota

l per

day

R...

......

......

......

....

Tota

l per

wee

k R.

......

......

..To

tal p

er m

onth

R...

......

...

20. Margin per Product/Service

Product/Service Selling Price Cost Price Margin1.2.3.4.5.6.7.8.9.10.11.12.13.

21. Sales Forecast

Taking into consideration demand (the number of people who said they will buy from me) and competition, at what level of sales do I expect to operate?

A business should be based on a realistic sales projection. It is upon this sales projection that one can gauge whether the business will be profitable or not. As a matter of caution, a new business should start small and build up slowly. That way, if something goes wrong, the loss wiII not be too big. Following this rule, one should usually aim to start a business that is at most equal to the average competitor in the market.

Month Sales Volume (in units) Sales Amount (in Rands)

NB: Do not forget that these sales projections would be reflected in both your Cash Flow and your Profit and Loss Statements.

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22. Cash Flow Prediction (Budget)

Date (Day)

Details Money In (Debit)

Money Out (Credit)

Balance

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23. Working Backwards - Margin Prediction

See questions 18, 19 and 20 of this Business Plan for your calculation of the profit margin per product.

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Prod

uct/

Serv

ice

Mar

gin

Sale

s x

1 da

y

Cal

cula

tion

(sal

es x

m

argi

n =)

Sale

s x

5 da

ys

Cal

cula

tion

(sal

es x

mar

gin

=)

Sale

s x

20

days

Cal

cula

tion

(sal

es x

mar

gin

=)

Con

trib

utio

n to

fix

ed c

osts

Tota

l per

day

R...

......

......

......

....

Tota

l per

wee

k R.

......

......

..To

tal p

er m

onth

R...

......

...

24. Start-up Capital

Expenses Amount

Total Start-up Capital needed: R..............................

I have R.............................. to contribute towards my business.

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NOTES

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▼87

My personal Budget

Trying to manage your money without a personal budget is like trying to drive a car without a steering wheel!

9

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Being in control of your money

Knowing how you spend your money is the first step to taking control of your money.

A budget shows INCOME - the money that you earn - and EXPENSES - the money that you spend.

INCOME is the total amount of money you receive every month: your wages or salary, any rent you receive or any interest you receive on your savings.

If you are employed by a company, your wages or salary is divided into GROSS income and NET income. Your GROSS income is what you earn before deductions. NET income is what you get after deductions.

Deductions include SITE (Standard Income Tax on Employees) or PAYE (Pay As You Earn) Tax, Pension or Provident Fund contributions, UIF (Unemployment Insurance Fund) contributions, and medical aid contributions.

EXPENSES are all the things you spend money on each month. These expenses can be divided into ESSENTIAL and NON-ESSENTIAL expenses.

ESSENTIAL expenses are things you have to pay. These can be fixed expenses, like rent, or changing expenses, like food and telephone.

NON-ESSENTIAL expenses are things you choose to spend your money on, like entertainment.

You should always make place in your budget for SAVINGS and INVESTMENTS. This will help you plan for the things you want in the future.

NOTE:The budget on the following page is an example. If you have different expenses, then change the list to suit your personal needs.

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DEDUCTIONS & INCOMEGross (monthly) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SITE or PAYE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Pension or Provident Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .UIF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Medical Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ESSENTIAL FIXED EXPENSESRent/Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rates and Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Car . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Short-term Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Car . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

School Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SAVINGS & INVESTMENTSSavings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Life Assurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ESSENTIAL CHANGING EXPENSES

Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Clothing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Petrol/Transport Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Car Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Electricity/Gas/Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Telephone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .NON-ESSENTIAL EXPENSES

Clothes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Hairdresser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Alcohol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .House Helper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SUMMARY

Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .BALANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CREDITOut

DEBITInBUDGET

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WORD HELPWordsadapt . . . . . . . . . . to change something so that it works bettercategories . . . . . . . groups or typeschallenges . . . . . . difficultiescontribution . . . . . what a person gives to somethingcommitted . . . . . . willing to do everything possible to succeedcommuters . . . . . . people who need transport to get to work each daydefinition . . . . . . . a statement explaining the meaning of a wordentrepreneur . . . . any business person, or a business person with imagination and drive who has good

ideasemployee . . . . . . . a person who works for someone elseessential . . . . . . . . necessaryfeedback . . . . . . . . information that a business gets back from people about its service and/or products frustrations . . . . . the things which make it difficult to achieve our goalsincome . . . . . . . . . money coming into a businesslocation . . . . . . . . the place where a business operates frommargin . . . . . . . . . the amount that a retailer adds onto the price of something when he/she sells itmarket . . . . . . . . . all the people to whom a business sells its products or servicesmiddleman . . . . . a trader who buys goods from producers and sells them to retailers or consumersmotivated . . . . . . wanting to do somethingpremises . . . . . . . . the building or place from which a business operatesperseverance . . . . staying power or the ability to keep tryingproducts . . . . . . . . the things that are made in a businessprocess . . . . . . . . . a series of actions for making or doing somethingprofit . . . . . . . . . . . the money made by a business after all expenses (total income less total expenses)range . . . . . . . . . . the number of different kinds of things, or the variety of goods that a business keepsresources . . . . . . . the things you need to have to be able to make or do somethingrisks . . . . . . . . . . . chances that a person dares to take seminar . . . . . . . . a meeting to share informationskill . . . . . . . . . . . . the ability to do something wellstock . . . . . . . . . . . all the goods that a business keepswithdraw . . . . . . . take outwholesalers . . . . . businesses that buy goods in bulk from factories and sell them to shops

Phrasesbusiness plan . . . . . . . . . . . . . . . . . . . . an outline of a business idea with detailed information about how it

will work both practically and financiallycost price . . . . . . . . . . . . . . . . . . . . . . . . what it costs to get, make or buy things to then resellentrepreneurial characteristics . . . . . . qualities like ambition, drive, imagination, and business sense that

make someone a good business personfeasibility study . . . . . . . . . . . . . . . . . . research that shows whether something is possible and has a good

chance of succeeding or notformal experience . . . . . . . . . . . . . . . . . what a person has learnt from being in a jobformal jobs . . . . . . . . . . . . . . . . . . . . . . . work in government, business or a formal institutionmanufacturing business . . . . . . . . . . . a business that makes goodsmarket research . . . . . . . . . . . . . . . . . . finding out what kinds of goods or services people will buyoverhears . . . . . . . . . . . . . . . . . . . . . . . . to hear what people say when they are talking to other peoplepotential market . . . . . . . . . . . . . . . . . . all the people who might or could buy from a business raw materials . . . . . . . . . . . . . . . . . . . . the things (e.g. cloth, cotton, flour, sugar, wood, metal) needed to

manufacture somethingselling price . . . . . . . . . . . . . . . . . . . . . . the price that a retailer sells something for once he/she has added

on their marginservice business . . . . . . . . . . . . . . . . . . a business that does something instead of making or selling goods

(e.g. banks, taxi drivers, hair dressers, appliance fixers)source of supply . . . . . . . . . . . . . . . . . . the place (factory, farm, person, business) from where a business

person buys the things they need to run their business trading business . . . . . . . . . . . . . . . . . . a business that buys and sells goods