Book Title
BookBook
Title
Student’s
Student’s
Book
FET FIRST
Level 3
NATEDFET
Series
FIRST
Author
Level
3
Entrepreneurship and
Author
Business Management N4
Student's Book
Brian B. Brown
FET FIRST Entrepreneurship and Business Management N4
Student’s Book
© B. Brown, 2012
All rights reserved. No part of this publication may be reproduced,
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claims for damages.
First published 2012 by
Troupant Publishers [Pty] Ltd
Suite 10, Private Bag X12
Cresta
2118
Author: Brian B. Brown
Copy editing by Jeannie van den Heever
Proofreading by Jeannie van den Heever
Cover design by René de Wet
Typesetting by Golden Pear Desktop Publishing
Distributed by Macmillan South Africa [Pty] Ltd
ISBN: 978-1-920334-98-7; eISBN: 978-1-430802-52-5
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Contents
SYLLABUS GRID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Module 1: The challenges of entrepreneurship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unit 1.1 The roles of entrepreneurs and intrapreneurs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unit 1.2: Personal qualities of the entrepreneur. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unit 1.3: Personal resources of the successful entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unit 1.4: Economic importance of the entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Unit 1.5: The merits of entrepreneurship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Unit 1.6: Why entrepreneurs fail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Unit 1.7: How to avoid the pitfalls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Unit 1.8: Task –A self-analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Module 2: Creativity and idea generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Unit 2.1: Ideas and opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Unit 2.2: Innovation and creativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Unit 2.3: Generating ideas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Unit 2.4: Creativity methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Unit 2.5: Protecting your ideas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Unit 2.6: Turning ideas into opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Unit 2.7: Applying the creativity methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Unit 2.8: Selecting an opportunity for which to construct a proposed business plan . . . . . . . . . . . . . . . . . . . . 30
Module 3: Market feasibility study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Unit 3.1: Detailing a product in a feasibility study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Unit 3.2: Identifying the market position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Unit 3.3: Marketing information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Unit 3.4: Applying market research techniques to test the market potential of a product. . . . . . . . . . . . . . . . . 44
Unit 3.5: SWOT analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Unit 3.6: Competitive advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Module 4: Financial feasibility study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Unit 4.1: The importance of financial feasibility concepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Unit 4.2: Start-up costs, fixed assets and pre-operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Unit 4.3: Total operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Unit 4.4: Sales scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Module 5: Introduction to the business plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Unit 5.1: Elements of a business plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Unit 5.2: Where to find assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Unit 5.3: Naming the business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Unit 5.4: Completing the sections of a business plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Module 6: Marketing plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Unit 6.1: The marketing mix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Unit 6.2: Pricing for profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Unit 6.3: Promotion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Unit 6.4: Place or point-of-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Unit 6.5: Preparing a marketing plan for your business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Module 7: Management plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Unit 7.1: Types of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Unit 7.2: Which form of ownership?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Unit 7.3: Legal formalities for establishing a business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Unit 7.4: Owner involvement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Unit 7.5: Key personnel and responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Unit 7.6: Operating plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Unit 7.7: Equipment analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Unit 7.8: Supplier analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Unit 7.9: Office administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Unit 7.10: Preparing a management plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Module 8: Financial plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Unit 8.1: Sources of finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Unit 8.2: Financial management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Unit 8.3: Creating projected financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Unit 8.4: Loan requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Unit 8.5: Preparing a financial plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Module 9: Presenting and evaluating a business plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Unit 9.1: Presenting a business plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Unit 9.2: Evaluating a business plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Syllabus Grid: Entrepreneurship and Business Management N4
Page in
SB
Learning content
Learning objectives
Students should be able to …
Module 1: The challenges of entrepreneurship
1
1.Entrepreneurship
1.
1
1.1 The role of entrepreneurs and intrapreneurs
1.1 distinguish between the role of
entrepreneurs and intrapreneurs
3
1.2 Personal qualities of the entrepreneur
•• Confidence in their ability to succeed
•• Preference for moderate risk
•• Desire for responsibility
•• Energetic
•• Identify opportunities
•• Skill at organising
•• Urge to achieve
•• Desire for immediate feedback
1.2 name and briefly describe the qualities of
the entrepreneur and apply to case studies
of successful entrepreneurs; complete a selfanalysis
4
1.3 Personal resources of the successful
entrepreneur
•• Knowledge and skills
•• Contacts and friends
•• Finance (personal assets and liabilities)
1.3 name and describe their personal resources;
list their strengths and weaknesses, possible
assistance to their businesses and calculate
their net worth (assessing their investment
capabilities)
7
1.4 Economic importance of the entrepreneur
•• Developing of natural resources
•• Creates employment opportunities
•• Leads in production
•• Free market system dependant on
entrepreneurs
1.4 briefly discuss the economic importance of
the entrepreneur, especially with reference
to the South African situation
8
1.5 The merits of entrepreneurship
•• To gain control over your own destiny
•• To reach your full potential
•• To reap unlimited profits
•• To contribute to society and be
recognised for your efforts
1.5 name and explain the advantages and
opportunities of entrepreneurship
9
1.6 Why entrepreneurs fail
•• Management incompetence
•• Lack of experience
•• Poor financial control
1.6 name and explain the reasons why
businesses fail; discuss how they as future
entrepreneurs can overcome these
problems
10
1.7 How to avoid the pitfalls
•• Prepare a business plan
•• Know your business
•• Understand financial statements
•• Learn to manage people effectively
•• Entrepreneurial transition
1.7 name and describe the reasons why
businesses succeed
15
1.8 Task: Complete a self-analysis, as well as
listing personal strengths and personal
investment capabilities.
1.8 obtain a mark for this task which will
contribute to the practical mark for the
semester
define the concept entrepreneurship
Didactic directives
1. Enthusiasm for entrepreneurship must be inspired in students. Students should feel excited and motivated
about discovering their entrepreneurial potential, as well as the available opportunities and possibilities.
2. Students must complete a self-analysis as an entrepreneur, as well as listing their personal strengths
and weaknesses, possible contacts and personal investment capabilities (including personal assets and
liabilities).
3. Students must be enabled to apply this knowledge to case studies of successful entrepreneurs and in issues
of social responsibility and ethical standards.
v
Page in
SB
Learning content
Learning objectives
Students should be able to …
Module 2: Creativity and idea generation
17
2.Creativity
2.
17
2.1 Ideas and opportunities
2.1 explain the difference between an idea and
an opportunity
18
2.2 Innovation and creativity
2.2 describe the importance of innovation and
creativity
19
2.3 Generating ideas from:
•• Everyday activities
•• Other sources
•• Generic needs
2.3 name and explain the process of generating
ideas; provide examples and list the ideas
according to the three categories by
practically exercising the process in the
classroom
21
2.4 Creativity methods
•• Existing concepts
•• Attribute analysis
•• Problem redefinition
•• Forced connections
•• Mind mapping
•• Brainstorming
•• Metaphorical analogy
2.4 describe the various methods available
for creating ideas and opportunities; by
applying and practising the methods in the
classroom list examples of ideas generated
in groups; generate as many ideas as
possible from which to make their final
selection
23
2.5 Protecting your ideas
•• Secrecy
•• Patents
•• Trademarks
•• Copyright
2.5 name and explain the procedure for
protecting their ideas, products, patents,
etc.
27
2.6 Turning ideas into opportunities
2.6 list their ideas and turn them into
opportunities
27
(i)
(i) explain how the ideas can be tested against
their own abilities, skills, family needs, etc.;
practically assess their idea against these
criteria
28
(ii) Identify opportunities
•• will it be worthwhile?
•• will I make a profit?
Identify the good ideas:
•• match ideas to your personal resources
•• strengths, contacts and finance
Profit: Difference between the selling price and
the cost price. Multiply by the number of items
sold and subtract the expenses.
discuss the concept ‘creativity’
(ii) describe the process of identifying
opportunities; describe and explain the
concept of feasibility with the aid of a
checklist (identify the factors that are
critical to the success of their opportunities);
describe and calculate the profitability
29
2.7 Task: Apply the creativity methods to turn
ideas into opportunities for your small
business
2.7 obtain a mark for this task, which will
contribute to the practical mark for the
semester
30
2.8 Business plan: Students must select their
specific product or service
2.8 decide on an opportunity for which they will
construct a proposed business plan
Didactic directives
1. The practical functioning and application of the creativity process must be emphasized throughout.
2. Students must complete a task on the creativity methods to turn their ideas into opportunities.
3. Students must decide on an opportunity/business idea for which they will construct a proposed business
plan.
4. Students must be enabled to apply this knowledge to cane studies of successful entrepreneurs.
vi
Page in
SB
Learning content
Learning objectives
Students should be able to …
Module 3: Market feasibility study
33
3.
34
3.1 Product description
3.1 describe the concept ‘product’; and give a
detailed description of their specific product
or service
34
3.1.1Nature of product
•• Industrial products
•• Consumer products
•• Services
3.1.1 describe the nature of a product with
reference to the classification of products /
services
35
3.2 Identify the market position
•• Identify target market
•• Market description, age, income,
gender, education, location, occupation
and decision-makers
•• Market segmentation, target market,
methods of segmentation
•• Market share, or indicators of market
growth
3.2 describe their proposed market with
reference to prescribed items; explain the
concept ‘target market’; describe the market
with reference to market description; market
segmentation and indicators of market
growth
40
3.3 Marketing information
3.3 describe the need for market research
41
3.3.1 Collection of data
•• Primary data
•• Secondary data
3.3.1 name and differentiate between primary
and secondary data
41
3.3.2 Methods of collecting primary data
•• Surveys
–– questionnaire
–– telephone
–– postal
•• Observation
•• Experiments
–– test marketing
3.3.2 name and explain the methods of collecting
primary data with reference to the
prescribed items; test the potential market
through the practical application of the
prescribed methods
42
3.3.3 Developing the questionnaire
3.3.3 name and describe the type of questions
and the characteristics of a good
questionnaire; draw up a questionnaire to
test potential market
44
3.3.4 Collecting secondary data
3.3.4 name the important sources of secondary
data
44
3.4 Task: Students must apply the market
research techniques in testing; market
potential of their product/service
3.4 complete market research for business plan
and obtain a mark for the task, which will
contribute to practical mark for the semester
45
3.5 Assessment of the strengths and
weaknesses of the enterprise
•• Scan environment for opportunities and
threats (SWOT analysis)
3.5 describe what SWOT analysis is; complete
SWOT analysis for their product / service for
the business plan
47
3.6 Identification of competitive advantage
•• Analyse competition
3.6 describe competitive advantage and analyse
competition with reference to a checklist
Importance of a feasibility study
3.
define the concept; briefly explain the
importance of a feasibility study
Didactic directives
1. The practical application of the market feasibility study must be emphasised throughout.
2. Students must complete a market feasibility, as well as SWOT analysis on their ideas and opportunities as an
entrepreneur.
3. Students must be enabled to apply this knowledge to case studies of successful entrepreneurs and in issue,
about market feasibility studies.
vii
Page in
SB
Learning content
Learning objectives
Students should be able to …
Module 4: Financial feasibility study
50
4.
50
4.1 Importance of a financial feasibility study
•• Profit
•• Sales
•• Fixed costs
•• Operating costs
•• Break-even analysis
4.1 explain the financial concepts of a business
52
4.2 Start-up costs
4.2 determine start-up costs for their proposed
business as part of the financial feasibility
study
52
4.2.1 Fixed assets required
•• List of assets
•• Purchase price
•• Expenditure
•• Financing
4.2.1list assets required; describe and calculate
the amount required for the purchase of
fixed assets, the methods of financing and
the finance charges
52
4.2.2 Pre-operating costs
4.2.2determine pre-operating costs
54
4.3 Total costs
•• Fixed costs
•• Variable costs
4.3 explain the concepts and name examples
58, 59,
60, 61
4.4 Sales scenarios
•• Cost price of product / service
•• Suppliers
•• Competition
•• Selling price
4.4 determine the best and worst sales
scenarios, i.e. how much they would be
able to sell their product for and in what
quantities to determine financial feasibility,
taking into account the factors mentioned
58
4.4.1 Contribution per unit or gross profit or
profit mark-up
4.4.1describe and calculate the gross income per
unit for retail, service and manufacturing
businesses as applicable to their business
plans
58
4.4.2 Turnover for a specific profit goal
1.4.2calculate the number of units produced for a
specified goal
60
4.4.3 Break-even point
•• In units
•• Turnover
4.4.3calculate the break-even point
Financial feasibility study
4. explain the financial feasibility concepts
Didactic directives
1. The student must complete the financial feasibility study for his / her specific business to enable him / her to
decide on the viability of the business idea.
2. All possible information required to determine the costs of the business need to be gathered at this stage.
3. For examination purposes less emphasis will be placed on calculations.
4. Use examples for retailing concern. Each student should adapt information according to the specific needs
of his / her proposed business, whether it be manufacturing / service related.
Module 5: Introduction to the business plan
64
5.
64
5.1 Elements of a business plan
5.1 name the elements of a business plan
64
5.1.1Cover sheet
•• Business plan
•• Entrepreneur’s name
•• Address of business
5.1.1 describe the content; complete the cover
sheet
The business plan
5. describe the reasons for doing a business
plan
viii
Page in
SB
Learning content
Learning objectives
Students should be able to …
65
5.1.2 Executive Summary
•• Highlights of key materials in the plan
5.1.2 complete the executive summary after the
completion of Module 8 – should indicate to
financial institution the feasibility of plan in
brief overview
65
5.1.3 Description of proposed business
•• General description of the intended
product or service
•• Key objectives
•• Significant characteristics of the
industry
•• Unique features of the product or
service
5.1.3 describe the content; complete the
description
65
5.1.4 Marketing plan
•• Target market, key customers, the
competition, market share and
opportunities, competitive advantage,
locality, promotion strategies
5.1.4 describe the content; complete the
marketing plan, after completion of
Module 6
66
5.1.5 Management plan
•• Form of ownership, description of key
people’s skills and responsibilities,
organisational structure, operating plan,
administrative policies
5.1.5 describe the content; after completion of
Module 7 complete the management plan
66
5.1.6 Financial plan
•• Start-up costs, cash flow statement,
income statement, loan amount
required and repayment schedule
5.1.6 describe the content; after completion of
Module 8 complete the financial plan
66
5.1.7 Appendix of supporting materials
•• Credit reports, reference letter, legal
documents, resumes, copies of
contracts and leases
5.1.7 describe the content; complete the
supporting materials for their business plan
68
5.2 Where to find assistance
•• SBDC
•• Commercial banks
•• Small Business Advisory Bureaus
•• Institutions
•• Information on:
–– personal matters
–– productivity
–– insurance – legal matters
–– taxation – advertising
–– market research
–– franchise association
5.2 know where to find assistance for the
prescribed items
71
5.3 Naming the business
5.3 name and describe the simple rules in
selecting a name for a business; select a
suitable name for their proposed business
72
5.4 Task: Students must complete the cover
sheet and description of the business,
as, well as the relevant sections of the
marketing, management and financial
plans from the information gathered on the
feasibility studies
5.4 obtain a mark for this task, which will
contribute to the practical mark for the
semester
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Learning content
Learning objectives
Students should be able to …
Didactic directives
1. Enthusiasm for the implementation and creativity of the business plan must be inspired in the students.
2. Students must practically implement the elements of a business plan by completing sections of their
proposed business plan after each module, for final presentation to interested parties.
3. Students must be familiar with the assistance available in SA to entrepreneurs.
4. Students must be enabled to apply this knowledge to case studies of successful entrepreneurs.
Module 6: Marketing plan
74
6.
75
6.1 Product description
6.1 identify the nature of their product / service
and summarise its characteristics
75
6.1.1Packaging
6.1.1explain the importance of packaging and
packaging strategies; name and describe
types of packaging and labelling strategies;
choose packaging strategy for their own
products where applicable
77
6.2 Pricing for profit
6.2 describe the importance of pricing
77
(i)
(i)
78
(ii) Pricing concepts
•• Total costs = variable costs + expenses
+ fixed costs
•• Mark-up
•• Rand mark-up = retail price – cost of the
merchandise
(ii) explain and calculate with the aid of
examples the different classifications of
cost with reference to the behaviour of
costs in relation to the quantities sold; apply
relevant pricing technique for retail, service
or manufacturing business to their own
business; explain and calculate a mark-up for
their business
80
6.3 Promotion
6.3 explain the concept ‘promotion’
80
6.3.1 Goals of advertising
6.3.1name and describe promotional advertising
for an immediate sale, as opposed to
advertising for goodwill and to improve
image
81
6.3.2 Selecting advertising media
6.3.2name and explain how the advertising
media can be utilised, and their advantages
and disadvantages by using examples
82
6.3.3 Developing an advertising plan
•• Creating an advertising message
•• Effective advertising
•• Measure results
6.3.3name and explain the principles in creating
advertising messages, the characteristics
of effective advertisements, how to
measure the results, how to construct an
advertisement; develop an advertising plan
for their proposed business; practically
apply these concepts in the classroom as
well as developing an advertisement for
their proposed business
84
6.3.4 Preparing an advertising budget
6.3.4name and describe the factors to bear in
mind when establishing how much to invest
in advertising; name and describe the use of
public relations
87
6.3.5 Sales promotion
6.3.5name and describe promotional efforts to
‘hook’ customers
Marketing mix
•• Product, place, price, promotion
6. name, represent schematically and explain
the elements of the marketing mix
Pricing techniques
x
name and explain the pricing techniques
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Learning content
Learning objectives
Students should be able to …
87
6.3.6 Personal selling
•• Obtain the necessary knowledge
•• Develop a selling system
•• Sales letter
•• Customer relations and service
6.3.6 describe the concept ‘personal selling’
and explain what knowledge is essential;
describe how sales skills can be developed
and explain the different steps in a personal
sales transaction; name and describe the
contents of a sales letter with examples;
name and describe dealing with customer
complaints; list ideas and advice about
customer service
90
6.3.7 Turning slow moving inventory into cash
6.3.7 describe the techniques to increase
turnover of slow-moving goods
90
6.3.8 After-sales service
6.3.8 name and explain the various forms of
guarantees / warranties
91
6.4 Place
6.4 explain the concept ‘place’
91
6.4.1 Locality
•• Criteria for locating a retail and service
business
•• Criteria for locating a small
manufacturer
•• Describe how the type of
manufacturing business influences the
choice of a locality
6.4.1 explain the concept of locality; describe the
factors having a bearing on the locality of a
business with reference to the market and
the availability of suitable premises
92
6.4.2 Layout
6.4.2 describe and illustrate the layout of a small
business with reference to directives
92
6.5 Prepare the marketing plan of your
proposed business plan
6.5 complete the marketing plan for the
proposed business plan
Didactic directives
1. Students must practically implement the four principles of the marketing mix in the business plan of their
proposed business, whether it is retail, service or manufacturing.
2. Students must complete the marketing plan of their proposed business plan according to the elements of
marketing plan as in 5.1.4, for presentation to interested parties.
3. Students must be able to apply this knowledge to case studies of successful entrepreneurs and marketing
strategies.
4. Less emphasis should be placed on price calculations.
Module 7: Management plan
94
7.1 Types of business
•• One-man business
•• Partnership
•• Private company
•• Close corporation
7.1 differentiate between the types of
businesses; select the form of ownership
most suitable to their proposed business
96
7.2 Which form of ownership?
•• Size of business
•• Nature of product/service
•• Liabilities
•• Capital required
7.2 discuss criteria that need to be kept in
mind in the process of selecting the form of
ownership for their proposed business
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Learning content
Learning objectives
Students should be able to …
97
7.3 Legal formalities in establishing a business
•• How to get a trading license
•• Sole trade
•• Partnership
•• Articles of partnership
•• Private company
•• Companies Act
•• Registrar of companies
•• Close corporations
•• Registrar of close corporations
7.3 name and describe the procedure, as well as
the documents involved in the formation of
the business; refer to the role of the registrar
of companies, registrar of close corporations
and attorneys; name and explain the
procedure, the authorities and departments
involved; complete legal formalities as
applicable to their proposed business
99
7.4 Own involvement
7.4 describe their role as the owner of the
business in terms of responsibilities and
management
100
7.5 Personnel and responsibilities
7.5 describe the role of other employees in
the running of their proposed business
and describe shortly the duties and
responsibilities of each
101
7.6 Operating plan
7.6 give a detailed description of the process
that will be followed in the production of
the proposed product, or delivery of the
service, or functioning of retail concern for
their proposed business
102
7.7 Equipment /machinery analysis
7.7 list equipment / machinery required in the
operation of their business
103
7.8 Supplier analysis
7.8 describe the supplier analysis in respect of
reliability, proximity, service and number of
suppliers
104
7.9 Office administration
7.9 describe the requirements for efficient
administration of their proposed business
106
7.10 Prepare the management plan of your
proposed business plan
7.10 complete the management plan of their
proposed business plan for presentation
Didactic directives
1. Students must complete the management plan of their proposed business plan according to the elements
of the management plan as in 5.1.5 for presentation to interested parties.
2. Students must be able to apply this knowledge to case studies of successful entrepreneurs and
management strategies.
Module 8: Financial plan
107
8.1 Sources of financing
8.1 describe the sources of long-term and shortterm capital
107
8.1.1Capital
•• Fixed capital
•• Working capital
•• Growth capital
8.1.1 describe the employment of fixed and
working capital with examples; describe the
factors determining capital requirements
107
8.1.2 Equity financing
8.1.2 name and describe the methods of
obtaining equity capital
107
8.1.3 Borrowed capital
8.1.3 name and describe the facilities and
instruments for borrowed capital
109
8.2 Financial management
8.2 name and explain the functions of the
prescribed financial statements
110
8.3 Creating projected financial statements
8.3 complete the projected financial statements
for their proposed business and do the
calculations practically
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Learning content
Learning objectives
Students should be able to …
112
8.3.1 Projected cash flow statement
•• Forecasting, sales, cash receipts, cash
disbursements
8.3.1 complete the projected cash flow
statement for 12 months
110
8.3.2 Projected income statement
•• Develop sales forecast
•• Develop estimated monthly expenses
8.3.2 complete the projected income
statement for 12 months
113
8.4 Determine loan requirement
8.4 determine the amount of the loan required,
if any, from the projected financial
statements
114
8.5 Prepare the financial plan of your proposed
business plan
8.5 complete the financial plan of their
proposed business plan for presentation
Didactic directives
1. Students must use the principles underlying the financial statements of a business.
2. Students must complete the financial plan of their proposed business plan for presentation (refer to 5.1.6).
3. Students must be able to apply this knowledge in a practical application of the projected financial
statements of a new business and analyse case studies of successful entrepreneurs.
Module 9: Presentation and evaluation of business plan
115
9.1 Presentation of the business plan
9.1 present their proposed business plan to
interested parties for which a practical mark
can be accumulated
116
9.2 Evaluation of business plan
9.2 have the proposed business plan evaluated
according to the attached evaluation form
for practical work and presentation
Didactic directives
1. When awarding marks in evaluating the business plan lecturers may use the attached evaluation form.
xiii
Assessment forms
Evaluation: Assignments
Name of student:
Theme:
Assessment criteria
1. Mark allocation
Table of contents
10
2.Contents
2.1Introduction
10
2.2 Correct information
10
2.3 Logical exposition
10
2.4 Complete coverage of theme
20
3.Initiative
3.1 Originality
10
3.2 Presentation
10
4. General
4.1 Impression
10
4.2 List of references
10
Total
100
Remarks:
Signature (lecturer):
Date:
xiv
Mark obtained
Evaluation: Practical work
Name of student:
Theme:
Assessment criteria
Mark allocation
Presentation
10
Introduction
10
Preparation
10
Skill and technique
10
Correlation of information and activity
20
Organisation of working place (area)
10
Orderly procedure
10
Handling of aids
10
Summary and conclusion
10
Total
100
Remarks:
Signature (lecturer):
Date:
xv
Mark obtained
Evaluation: Business plan
Name of student:
Assessment criteria
Mark allocation
Front page and contents page
Name of business, address, logo
5
2. Summary
Highlights of key materials in the plan
10
3. Description of proposed business
Product / service, type of market, competition, SWOT
analysis, own involvement, location, type of ownership
25
4. Marketing plan
Market segmentation, market potential, product / service,
promotion strategy, competition, pricing, location / layout
40
5. Financial plan
Fixed assets, monthly profit and loss account, monthly cash
flow, balance sheet, finance required, own contribution
55
6. Operational plan
Purchasing, supplier analysis, inventory control, security,
office administration, insurance, legal documentation,
human resource plan
15
7. 10
1.
Conclusion
Why the business will succeed
Motivation for loan
8. General
Appearance, neatness, evidence of research, logical
approach
40
Total mark allocated for business plan
200
Remarks:
Signature (lecturer):
Date:
xvi
Mark obtained
Module 1
The challenges of entrepreneurship
Overview
When you have completed this module, you should be able to:
•Unit 1.1: Define the concept of entrepreneurship and distinguish between the
roles of entrepreneurs and intrapreneurs
•Unit 1.2: Name and briefly describe the qualities of the entrepreneur and apply to
case studies of successful entrepreneurs
•Unit 1.3: Name and describe personal resources; list strengths and weaknesses;
identify assistance to the business; and calculate net worth
•Unit 1.4: Briefly discuss the economic importance of the entrepreneur with
reference to the South African situation
•Unit 1.5: Name and explain the advantages and opportunities of entrepreneurship
•Unit 1.6: Name and explain the reasons why businesses fail; discuss how
entrepreneurs can overcome these problems
•Unit 1.7: Name and describe the reasons why businesses succeed
•Unit 1.8: Complete a self-analysis, listing personal strengths and weaknesses,
possible contacts and personal investment capabilities.
when large entities start subsidiary
organisations.
Unit 1.1 The roles of
entrepreneurs and
intrapreneurs
An entrepreneur is a person who uses his
or her personal creativity and hard work to
start, finance and grow a new or existing
business, usually with considerable
initiative and risk. The entrepreneurial
process can include starting a business
franchise, either as the franchisor or a
franchisee.
franchise: a licence granted by a company, called
the franchisor, to an individual, called the franchisee,
to conduct a specific type of business
An intrapreneur is a person employed
by a large organisation who takes direct
responsibility for turning an idea into
a profitable finished product through
assertive risk taking and innovation. This
process may include corporate venturing
Fig. 1.1 Entrepreneurs use creativity and hard
work to start a business
1
Fig. 1.2 Intrapreneurs are employed by large organisations
The roles of both the entrepreneur and
intrapreneur are to use their creativity
to turn ideas into successful business
ventures. However, there is a significant
difference between the two. This is the
impact of finance for the venture – an
entrepreneur takes the risk of raising,
and possibly losing, his or her own
finance, while an intrapreneur uses the
corporation’s finance and does not face any
personal financial risk. This is an important
difference because intrapreneurs can take
excessive risks, knowing that they will
not personally lose their own money. For
example, during the early 2000s, hedge
fund intrapreneurs took unacceptably
high risks that directly contributed to the
economic crisis of the times.
Class test 1.1Class assessed
1. Decide if the following statements
are true or false. If false, give the
true answer.
a)When Beauty started selling
fruit from a stall near the
taxi rank, she became an
intrapreneur.
2
b)Thabo became an
entrepreneur when he
obtained a bank loan to buy a
taxi.
c)Ayanda said she was an
intrapreneur when her
employer placed her in charge
of a community project it was
financing.
d)When Ben started a job with
a brand new company and
was responsible for getting the
business up and running, he
was an entrepreneur.
e)An entrepreneur can start
a charity by asking for
donations from the general
public.
f)A person appointed by
the government to run a
state-owned business is an
entrepreneur.
g)When Zainab bought some
equipment and started
providing hairdressing
services to people in their
homes, she became an
entrepreneur.
Unit 1.2 Personal qualities
of the entrepreneur
h)When Sonya opened a
Nando’s restaurant in her
area, she became a franchise
entrepreneur.
2.Look around your community
and identify an entrepreneurial
enterprise. Write one sentence
saying why you think this
enterprise is successful.
As mentioned above, entrepreneurs are
focused on creativity and ideas. Additional
characteristics of entrepreneurs include
the following:
•
Confidence in their ability to succeed:
This is usually linked to confidence in
the idea or venture in which they are
involved. Entrepreneurs have an inner
certainty that this is the right thing
to do and that their venture will be
successful.
•
Preference for moderate risk:
Entrepreneurs recognise the risks
involved in the venture and decide on
the level of risk they are willing to take.
Desire for responsibility: This is
•
usually linked with wanting to be your
own boss, but it is also a willingness to
take responsibility for employees and
for paying debts.
Energetic: Entrepreneurs are people
•
who are not willing to sit and wait for
something to happen, but rather want to
make things happen. They have energy
that they need to use by doing things.
• Ability to identify opportunities:
Most people are involved in events that
generate ideas for a new business, but
entrepreneurs are able to recognise
those opportunities and build their
ideas around those opportunities.
•
Organising skills: An entrepreneur
needs to be able to organise business
resources to achieve the business
objectives.
•
Urge to achieve: Entrepreneurs always
aim to be special – they are driven to
achieve their goals.
•
Ability to welcome feedback:
Entrepreneurs continually listen to
what people are saying and are willing
to accept advice to improve their
business.
We should not leave this subject without
mentioning tenderpreneurs. These are
people who start new businesses by
winning a government tender, often linked
to guaranteed payments. In some ways,
these individuals are entrepreneurial
although they would probably not start
the business without the tender and they
take little financial risk because payment
is already agreed, in some cases with predelivery payments to allow the business
to do its work. Therefore, tenderpreneurs
do not generally exhibit the creative,
innovative and financial risk factors that
determine a true entrepreneur.
Fig. 1.3 A tenderpreneur may be awarded a
government tender to pave the streets
3
town,’ he says. With this success under
their belts, Fats and the two Georges
decided to make their winner of an idea
available to more people so they opened
another Ocean Basket in Pretoria’s
Kolonnade shopping mall.
Source: Business Report, 31 March 2010. ‘Da’ brothers
had a dream. Special projects, Business success stories.
Class test 1.2Class assessed
Fig. 1.4 Entrepreneurs are confident, energetic
and organised people
1. In the following table, choose
the entrepreneur in Column A
that matches the description in
Column B:
As an example of the origination process,
we can use the well-known Ocean Basket
chain:
It all started when brothers Fats and
George Lazarides hooked up with
George Nichas to open their first Ocean
Basket restaurant. ‘Da’ brothers (as they
prefer to be called using their unique
marketing lingo) had always dreamed
of opening a quality, yet affordable,
seafood restaurant – most especially
since they were of Mediterranean
descent. Being in Pretoria – far from
the coast – the market was ready for
an affordable, yet quality, seafood
restaurant. Since George Nichas had
boatloads of know-how selling fresh
seafood, the three carefully planned how
they could start a seafood restaurant
where people could afford a simple, but
really good, meal. ‘We wanted to make
people aware of good seafood,’ Fats says.
‘We wanted to create a simple place
where people could enjoy a great meal
and great value; a homely place where
they’d get together with friends and
feel like they’re part of our family.’ Fats
and the two Georges opened the first
Ocean Basket in Menlyn Park where
they could squeeze in just 60 people.
The place soon became so popular that
customers would queue from early
morning to secure a table for lunch or
dinner. ‘Ocean Basket was da talk of da
Column A
Column B
a)Robbie Brozin
started Nando’s
i)started Fry Group Foods
to supply vegetarian
meals
b)Ocean Basket,
started by
the Lazarides
brothers,
ii)started by selling
records over the
telephone and went on
to own Virgin Airlines
c)Springbok Wally
Fry
iii)was a teacher who
wanted to design
and produce good
tableware
d)Carrol Boyes
iv)is an entrepreneurial
fish restaurant that
now enables other
entrepreneurs to start
franchise businesses
e)Richard Branson
v)after buying a recipe for
cooked chicken
2. Choose any well-known
entrepreneur and, in one sentence,
say what you think is the most
exciting and creative characteristic
of this entrepreneur.
Unit 1.3 Personal resources
of the successful
entrepreneur
In addition to the personal characteristics
listed above, entrepreneurs also call on
personal resources that they may have
available. The personal resources to which
4
entrepreneurs have access vary in quantity
and quality, but are generally identified
under the following headings:
•knowledge and skills
•contacts and friends
•finance in the form of personal assets.
words, they have the ability to talk easily
with people, ask questions, obtain other
people’s views and discover what people
are doing in the industry in which they are
interested. This ability gives them a broad
range of knowledge they can use in their
businesses.
In addition, successful entrepreneurs
keep records of people they meet who
might become useful contacts in terms of
customers, potential suppliers and sources
of business and professional advice. The
saying is that if entrepreneurs do not know
how to do or obtain something directly,
they know someone who can.
Let’s consider these resources in more
detail.
Knowledge and skills
This is an extremely important resource
to have at your disposal because it enables
you to start your entrepreneurial enterprise
with the confidence that you know what
you are doing. Knowledge and skills should
relate to the entrepreneurial business in
which you are involved and may comprise:
•experience gained from working in the
industry sector for your business
•skills gained through skills training
•on-the-job skills gained when working
for another business
•educational qualifications, such
as matric passes in mathematics,
economics, accounting, and technical
subjects associated with your business
•professional qualifications, such as
management and accountancy, or a
technical qualification associated with
your business.
Fig. 1.6 Successful entrepreneurs keep a record of
useful contacts
These contacts may be friends and friends
may be potential customers. However,
the saying that ‘it is best to keep business
separate from pleasure’ suggests that you
have to take care that you do not invite
a friend to become too involved in your
business unless that is what you intend.
This advice becomes even more true when
money is involved.
Finance in the form of personal assets
As mentioned above, entrepreneurs
usually take on the financial risks of the
business, often by investing all or most of
their money in the business. Entrepreneurs
can use finance from:
Fig. 1.5 Entrepreneurs must be knowledgeable
about their business
Contacts and friends
Most entrepreneurs have the ability to
network with other people. In other
5
•personal savings
•lump-sum retrenchment payments
•insurance payments.
Net worth
When you want to determine the financial
assets that you have available to use in
an entrepreneurial business, you can
calculate your net worth. Net worth is the
total value of the assets you own less the
total value of your liabilities or debts. Table
1.1 shows how to calculate your net worth.
They can also use personal assets, such as
a house, as security for a bank loan. This
means that they agree that if they are
unable to repay the loan, the lender can sell
the asset to recover its money.
Entrepreneurs may also borrow money
from friends and family members who
want to encourage and support them in
their new business. An advantage of this
source of finance is that friends and family
investors are more patient while waiting
for their money to be repaid and may
accept a low, or even nil, interest rate on
their investment. However, disadvantages
are that friends and family can become
more demanding when a business becomes
successful and they feel they should have
a share of it, or when a business fails and
they want their money back. The advice
of keeping business and pleasure separate
may be something you need to apply to
friends and family investments.
Item
Liabilities
Assets
Assets
Current value of house
800 000
Current value of car
9 000
Furniture and appliances
4 000
Jewellery
450
Other personal possessions
1 500
Liabilities
Mortgage bond
Car loan
3 500
Owing on credit card
1 300
Unpaid bills
Total
Net worth (assets minus
liabilities)
Table 1.1 Net worth
Fig. 1.7 Entrepreneurs can use their homes as security for a bank loan
6
580 000
700
585 500
814 950
229 450
Class test 1.3Class assessed
Everyone has strengths and weaknesses in all parts of their life. Think about yourself
as an entrepreneur. Copy and complete the following table by listing your strengths
that you could contribute to a new business of your choice, as well as your weaknesses
that you would have to take into account.
Name the type of business you would like to start
Personal factor
Personal strengths
Personal weaknesses
Confidence in ability to succeed
Willingness to take risks
Desire for responsibility
Willingness to apply high energy
Ability to identify business opportunities
Organising skills
Desire to achieve
Willingness to listen to feedback
Knowledge of the business sector
Technical skills related to the business
Range of useful contacts
Personal savings
Personal assets
Access to finance from friends and family
Note that you list assets at their actual
current value and then list loan amounts
owing under liabilities. You do not include
items that you rent. In Table 1.1, the person
has a net worth of R229 450. This is not
cash but ‘worth’ against which he or she
might be able to borrow money to start a
small entrepreneurial business.
entrepreneurs and small businesses create
employment, drive growth and transform
communities with the wealth they bring
back and the example that they set.’
Unit 1.4 Economic importance
of the entrepreneur
Most entrepreneurs start their own
businesses as a personal challenge. They
want to be independent rather than in a
job where a manager tells them what to
do. Starting a business is important to
them personally, but it is also extremely
important to the economy of the country.
In the magazine, The Big Issue, Sir
Richard Branson said, ‘Entrepreneurism
is a vital building block of any economy –
Fig. 1.8 Entrepreneurs create employment for
themselves and others
7
In an interview with the newspaper,
Business Report, he went on to say, ‘It is
incredibly inspiring to see the passion and
drive among this group of South African
entrepreneurs at Branson Centre for
Entrepreneurship in Johannesburg.’
The importance of entrepreneurism has
also been reinforced by President Jacob
Zuma who has pledged support for small
start-up businesses because of the benefits
they bring to the economy. Entrepreneurs:
•create new ideas for new products and
new production methods that help to
grow the economy of South Africa
•create employment for themselves and
others
•help to develop the natural resources
of South Africa by creating businesses
that use these resources
•encourage others to become
entrepreneurs
•improve local communities by
spending money, creating employment
and providing income
•reinforce South Africa’s free market
economy by creating demand for
labour and materials and supplying the
needs of South Africa’s citizens.
d)Entrepreneurs help their
communities by providing
(electricity/jobs/schoolbooks/
sports fields).
e)The Branson Centre for
Entrepreneurship is located in
(Cape Town/Port Elizabeth/
Johannesburg/Durban).
2.Write points on the benefits
that the entrepreneur who owns
the entrepreneurial enterprise
you identified in Class test 1.1
Question 2 brings to the local
economy.
Unit 1.5 The merits of
entrepreneurship
Entrepreneurs are important to the
economy and local community, but why
should you consider this as a possible
future career? Entrepreneurs have different
reasons for starting their own businesses.
The merits of entrepreneurship can be
broadly summarised as follows:
•In the absence of a job, starting a
business is the only option to generate
an income.
•They may have an idea for a product or
service that is not available locally.
•They may not want to be ordered about
by another person.
•They want to be independent and in
charge of their own future.
•They achieve the total financial benefit
of hard work.
•They achieve something special for
themselves.
•They push themselves to their absolute
potential.
•They want the opportunity to achieve
unlimited income in the future.
•They want to contribute to society and
the local community by providing jobs.
Class test 1.4Class assessed
1.Choose one of the words from the
brackets to complete each sentence
correctly.
a)President Zuma would like
to encourage more people to
become (ministers/pastors/
entrepreneurs/clerks).
b)Entrepreneurs are vital to
the (government/economy/
church).
c)Entrepreneurs are role models
for other (learners/teachers/
entrepreneurs/children).
potential: the best you can achieve
8
Unit 1.6 Why entrepreneurs
fail
While all entrepreneurs set out with
confidence and good intentions, it is an
unfortunate fact that many of them will
fail:
Of the at least 2,5 million small
businesses in SA, more than 50% could
be at risk, translating into over 1 million
Africans without income. … most small
businesses fail in the first three years and
hence this period is known as ‘the valley
of death’.
Fig. 1.9 Entrepreneurs contribute to their local
communities
Source: Business Day, 27 February 2009. Enrichment
programme aims to help struggling small businesses.
Thami Mazwai, Talking small.
For most entrepreneurs, the major merits
are being independent, reaping all the
rewards from the hard work involved, and
building something meaningful for the
future.
In April 2009, the newspaper, Business
Day, reported that business failures had
climbed at a rate of 70% over the past three
months compared with the same months
in the previous year. (Source: Mariam Isa,
Economics Editor, Business Day, 3 April
2009.)
There are four main reasons why a
business fails. They are as follows:
poor preparation of a business plan or
•
trying to start a business without first
identifying all the factors you will have
to deal with
• lack of experience, which might be due
to:
–not having the opportunity to have
a job
–working in a different industry
sector
–working in one business function,
such as administration, and having
no experience of other functions
such as technical production skills
•
management incompetence, which
usually means an inability to manage
all the different business functions
(marketing, administration, finance,
production, people) at the same time
and within the hours available
Class test 1.5Class assessed
1. Decide if the following statements
are true or false. If false, give the
true answer.
a)An entrepreneur usually
wants to work for someone
else.
b)A person who has an idea for a
new product often becomes an
entrepreneur.
c)A person might become an
entrepreneur if he or she does
not want to be bossed around
by someone else.
d)Entrepreneurs achieve the
total benefit of their hard
work.
e)If you want to have a chance
at unlimited income in future,
you should not become an
entrepreneur.
2.Write one sentence explaining
why you would like to be an
entrepreneur.
9
Unit 1.7 How to avoid the
pitfalls
•
poor financial control, which is usually
due to:
–not having enough money to start
the business properly
–a lack of basic financial skills
–not spending enough time on
financial matters to maintain
control over the business finances.
You can avoid the pitfalls mentioned
above by paying attention to the following
aspects of your business:
•Prepare a sound business plan.
•Understand your business.
•Understand financial statements.
•Manage people effectively.
•Plan for transition.
Preparing a sound business plan
There is a saying in business, ‘Failing to
plan is planning to fail’. To minimise the
chance of failure, it is absolutely vital that
any entrepreneurial business starts with
an effective business plan. Throughout this
book you may get tired with the number
of times we mention this advice, but we
do so because it is the rock on which your
business will stand or fall.
A good business plan includes the
following:
•the business concept: a full description
of your idea for the business
•
motivation: why you think your idea
will succeed
• personal resources: the skills and
experience you bring to the business
personally
• a competitor plan: a list of major
competitors and how you intend to
address the threat they pose to your
new business
a marketing plan:
•
–who your customers are
–why your product meets customers’
needs
–what price you intend to charge in
relation to competitor prices
–how you will distribute your
product to the place where
customers will buy it
–how you intend to promote your
product and how much you aim to
spend on advertising
Fig. 1.10 Many small businesses fail in the first
three years
Before we deal with how to address these
issues and perhaps avoid the pitfalls, we
need to define what we mean by the term
‘product’. Throughout this book, we will
use the term ‘product’ for any goods or
services that are produced by a business
for sale in order to make a profit. Products
therefore include:
•goods manufactured by the business
for sale
•goods bought from suppliers for sale in
a retail outlet
•personally produced goods such as
paintings, sculptures or other artwork
intended for sale to customers
•services provided by business owners
and their employees for sale to
customers.
10
Fig. 1.11 It is vital to prepare a sound business plan
–the total value of sales you intend
to achieve in your first year of
operation
•
people plan:
–the skilled people you need to help
you manage the business properly
including intended salary levels and
benefits
–the number of production workers
you intend to employ with details of
wages and benefits
• fi
nancial resource plan: where you
intend to raise the money to start your
business, including the purchase of
initial assets and stock, as well as the
cash you will need for materials and
wages to keep the business going until
you start to generate a regular income
• financial plan:
–list of resources, such as tools and
equipment, you need to start the
business with costs
–total income you intend to achieve
in your first year
–total cost of materials you will use
in the first year
–total cost of salaries, wages and
benefits for the first year
–other costs for the first year, such
as rents, leases, insurance, bank
charges and other professional fees
–calculation of total income, total
expenditure and projected profit for
the first year.
• e xecutive summary: this is a summary
of the main facts that you specifically
want someone to read because they are
vital to your business
• t imeline: here you will give an idea of
when you plan to implement each step
in setting up your business.
We will refine this list in future modules
but, as you can see, the process of
business planning makes you think about,
understand and prepare for every aspect
of your business so that you do not face
unpleasant surprises when you begin to
operate.
11
Remember that this is your business and
the more you know and understand about
it, the better your chance of success is.
There is no shame in making a mistake –
this is how we learn – although we try to
plan to avoid mistakes. There is great shame
in knowing you have made a mistake and
failing to do something about it.
Understanding your business
An understanding of your business concept
is often built up through experience and
training. Potential entrepreneurs usually
spend a few months or years working for
a competing business to gain experience
before starting their own business. This
enables them to understand how the
business operates in the marketplace and
the way in which things are done. It also
enables them to recognise ways in which
to improve the business operation to save
time or money and to help them compete
with other businesses.
However, if these opportunities are not
available to you, you can still start an
entrepreneurial business by harnessing the
skills of other people to supplement your
personal skills. You can do this by:
•starting the business with a partner or
partners who have different skills to
ensure you cover all the skills required
by your business
•employing people with the skills you
need
•finding a mentor who can advise you
generally about your business and
specifically about areas where you do
not have the necessary skills
•buying help from relevant
professionals, such as an accountant for
financial skills.
Financial control through
understanding financial statements
More good businesses fail through poor
financial control than for any other reason.
Good financial control means that you
must do the following:
•Keep a close watch on the delivery,
storage and use of all materials to
minimise loss through damage and
theft.
•Keep a close watch on employee
attendance and production output
performance.
•Send out customer invoices on the
same day you deliver your products –
customers will not pay if they do not
have an invoice.
•Chase non-paying customers quickly
and firmly – questionable customers
always pay their most persistent
suppliers first.
•Check supplier invoices to ensure they
are charging for the correct quantity
delivered and the correct price agreed,
and that the overall calculation is
mentor: an experienced and trusted adviser
Fig. 1.12 It is essential to understand your own business
12
correct – deal with any problems
immediately.
•Enter all invoices and other documents
into your accounts books every day if
possible, or every week at the latest.
Entering a few documents is easy, while
entering a mass becomes a problem.
•Identify errors and problems at the
earliest possible moment so that you
can deal with them quickly.
•Check your bank statement as soon as
it arrives and, at the very least, every
month – deal with any problems or
differences immediately.
•Pay your suppliers on due dates – this
not only ensures they will continue to
deliver your orders in future, but also
saves you time taking telephone calls
from them chasing their payments.
•If you cannot do it yourself, find
someone else to work out your profit or
loss every month.
By following the financial guidelines given
above, you will be able to understand and
prepare financial statements for given
periods, such as the following:
e income and expenditure account
• Th
records the money you generate for
your business and the money you
spend.
•The balance sheet records the longterm assets you buy, the origin of your
business finance, the money people owe
you and the money that you owe your
suppliers.
•The cash flow statement shows the
money you expect to receive and when
you will receive it, as well as the money
you expect to spend at different times.
•The annual budget statement predicts
the financial health of your business
in the next trading period, usually the
next year.
We will show you how to prepare these
financial statements later in this book.
persistent: take continual action firmly
Managing people effectively
Management incompetence, excluding
poor financial management dealt with
above, usually means failing to manage
your employees effectively. When you have
an effective business plan, you can identify
the objectives that you and every other
employee must achieve for your business
to be successful. Then you can:
•ensure that you employ the best person
with the best skills for every job in your
business
•explain to each employee exactly what
you expect him or her to do; do this
face-to-face so that you know that he or
she understands what you mean
•be prepared to train an employee in
skills that he or she does not have,
especially for new machines or systems
• delegate work tasks according to the
person’s ability to complete a task
successfully
Fig. 1.13 Take control of the finances of your
business
Financial control is about watching the
money that flows into and out of your
business. Imagine being given R1 000 and
leaving it on a table in a café, expecting it
to still be there when you return a couple
of hours later. Sounds silly, doesn’t it? Yet
it is surprising the number of business
owners who fail to look after their business
finances.
13