MICRO – ENTERPRISE TRAINING [Notes for participants] Notes about training needed for running a micro – Enterprise for income generation Phil Bartle [2013 - 2015]
MICRO ENTERPRISE TRAINING Notes for Participants by Phil Bartle, PhD Workshop Handout
Notes about training needed for running a micro enterprise for income generation
Skills Needed for Generating Wealth: Almost anything necessary to run a business can be included in the list of skills needed. The kinds of skills needed can be put into several categories: Credit skills: borrowing money, dealing with banks or other creditors, interest; Financial skills: keep accurate records, make budgets, calculate profits and losses;
Planning and Management skills: to manage people, physical resources, finance;
Communication skills: speaking, writing, reading;
Marketing skills; research, sales, entrepreneurship; and
Technical skills: the applied physics, chemistry, biology, craft and artisan skills of a chosen profitable and productive enterprise.
This handout identifies and briefly describes some of those needed skills.
Credit Skills: Skills are needed to be a customer of a bank. A bank can appear be a very threatening and fearful place, until you become familiar with it. The customs and expected procedures may look like they are 2
foreign and incomprehensible, until you become familiar with them. You need to learn about the nature of credit, the institutions that provide credit, and the people in those institutions. The skills you need are the understanding of credit, principle, interest, service charges and all the methods and procedures for borrowing and returning money. You will practice all these through the Umbrella Group. As with most other skills, the best method of learning about credit is by doing.
Financial and Accounting Skills: Unless you can always know your financial position, and calculate their income and costs, they can get into serious financial trouble. The range of accounting and budgeting tasks that you need depends on the size and complexity of your enterprise. The most essential skill (and habit to be encouraged) is in keeping a daily accounts ledger, no matter what the size of your business. The first training in accounting, therefore, will be in financial records. You should have a business planned and, during the accounting workshop, you will prepare financial documents specific to your planned or ongoing enterprise. These will start with recording (eg ledger) exercises, and go on to reporting (eg financial statements) exercises.
Planning and Management Skills: You must know how to manage your business. You must know how to mobilize resources (inputs). You must know about people; not staff at first, if you are starting very small, but suppliers, family members, customers, investors, authorities. Skills in human interaction are necessary. Many management skills were described in Management Training. 3
Management and planning skills include the identification of needs, the generating of goals and objectives, locating of resource, identifying constraints, devising possible strategies, choosing the most effective strategy, and determining important details such as budgets, monitoring methods, clarifying roles and tasks, devising work plans, and making changes in response to evaluation. These need not be very elaborate, sophisticated, or written down, but you must discuss and consider them. You must demonstrate that you have considered all these issues and made realistic decisions.
Communications Skills: It is impossible to run a business without knowing how to communicate, sending and receiving. If you can not read or write, and a relative is helping you by reading this to you, then basic literacy would help. Functional literacy means that you learn only what you need to use. This is not the place for Shakespeare. See Literacy. If you can read (this) and write, you need to ensure your skills in filling forms, writing records, and reporting, are adequate. Further, communication skills include the ability to inform, and to listen. You need to be able to listen to what your suppliers and customers are saying, and communicate well to them.
Marketing Skills: It is useless to invest your resources in producing something of value, and then not be able to sell the product. Sales provide the cash for repaying the loan and any other debts, paying yourself and others a fair wage, and paying for all the other costs of production before taking a fair profit. Marketing skills include knowing how to find interested customers (including research skills for finding them), and how to present the product in a manner attractive to buyers. 4
No matter how enthusiastic and optimistic you may be, your business will not be viable if you cannot sell her product. You need a realistic marketing plan and strategy. See Marketing.
Technical Skills: The most needed productive activity in poor countries is the initial processing of agricultural products (e.g. pressing seeds to make oil, making soap, preserving fruits and vegetables). For you to run a successful business, then, you must know a sufficient amount about the processing; technical knowledge. Small scale enterprises in the following sectors are encouraged: off-farm agro-processing (milling, baking, fish-smoking); artisans (farm equipment repair and fabrication; brick-making, weaving, construction, tailoring, carpentry), food preparation and petty trade or marketing. Visit operating processes and enterprises, different kinds and sizes; talk to owners and workers. Teach yourself how to process the product.
Beyond the Skills: Beyond this set of skills, which can be taught by others and learned by you, there are some more important things for you to have ─ values. These are: integrity, honesty, dependability, willingness to do hard work, reliability, desire to sell a quality product and replace it if it is defective. They cannot be taught but need your willingness to practice them. ––»«––
Training Workshop; Banking Procedures and Skills:
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MICRO ENTERPRISE TRAINING 6
by Phil Bartle, PhD Facilitator's Notes
How do you organize the skill training for micro enterprise?
Organizing Training in Business Skills: You have a community organization set up for distributing credit to low income individuals who will each choose, plan, and manage a micro level business. See the "Building a Credit Organization" module. How do you go about training them in the skills that they will need to be successful? You are caught between two opposing and contradictory situations. On one side you have the tendency of individuals with an attitude that they simply want the loan, and say that they know all they need about running a business. They will say that no training is needed. On the other side you have many small educational and training institutions who teach business skills; they are expensive and do not always focus on the precise skills needed by your clients. What to do? Neither. You set up your own training programme, a curriculum (i.e. plan) based upon the needs of your clients, on what you expect will be useful to them, and with trainers that you personally recruit, select and train as your business skill trainers. First, familiarize yourself with the skills needed to successfully run a small enterprise. They are listed above and some of the documents in this module describe them in more detail. Then you challenge your clients, at a meeting of the credit organization that you have set up. "Can you do this?" "Can you do that?" "How do you do such and such?" "Do you know what may or will happen if you do or not do this thing or that?" Ply them with questions, so that they will begin to form a picture of the range of training that they need. Do not passively accept their answers, but challenge them to demonstrate whatever skills they claim to have. 7
Use a modified brainstorm session to identify (in the group) all the topics that they will need. With them, set priorities in terms of which topics should be covered first, then later. You need at least enough knowledge of the topics to be able to guide them in designing their own curriculum. Do not attempt to conduct the training yourself, unless you are particularly skilled in one or more of the topics, and have had practical experience. Identify, recruit and select persons who are skilled at each of the topics. Then train each specialist in participatory methods of presenting their material. Do not necessarily choose a professional instructor, unless she or he shows potential and willingness in using the participatory methods that you practice in community mobilizing. When briefing and guiding the specialists, explain how you expect them to use participatory methods. Explain how you will also participate in the training as a team-teacher with the specialist. Explain that detailed and advanced skills are not needed by the participants. Only the elemental skills are needed for beginning entrepreneurs, many of whom may be illiterate, and most of whom do not have the time or resources for advanced courses in business management. Give yourself enough time to complete the whole process: 1. introducing to the credit organization participants the kinds of training you think they might need (listing and describing all that are in this module); 2. obtaining by brainstorming methods a list of the training desired by the participants, including the time needed and the timing of the delivery, 3. negotiating with and training specialists in each topic, ensuring they can and will use participatory methods; 4. carrying out the process of training in micro enterprise skills, cotraining or team-teaching with each topic specialist; and 5. keeping your own monitoring records of the training, how it is being conducted and its effects upon the participants. 8
As with all your mobilizing activities, you need to plan and pace our work, and you need to keep records, concentrating not on your activities as such, but on the results of your activities. ––»«––
Planning the Training for Micro Enterprise:
CHOOSING A MICRO ENTERPRISE Facilitating Entrepreneur Decision Making by Phil Bartle, PhD 9
Facilitator's Notes
A major factor in enterprise success is the choice of activity
Introduction: This document for facilitators and trainers accompanies, "Choosing a Micro Enterprise," for participants. Whether you conduct the session yourself, or have hired a specialist in business management whom you have trained and briefed on participatory methods, the main approach here is to challenge each of the participants in becoming aware of the questions and to make the decisions that should lead to each client entrepreneur choosing a business that will be viable (profitable). In this training, the overall method in this topic is to challenge your clients, participants in the scheme, and members of the credit organization that you have set up, to make choices and to be able to justify their choices. Where this document advises you to "Put this up on the wall," the best method is to prepare large newsprint (i.e. from a flip chart) with the list, and tape it up on the wall with masking tape. This document is not about making general management decisions, as in Management Training, but is about obtaining information and making calculations to determine if an enterprise will be viable (profitable) and therefore worth pursuing. Use the issues raised in this and the accompanying facilitators'' Notes, to challenge your participants in choosing the most viable micro business they can. All participants must understand the business they wish to operate. They should be able to know that every business undertaken might not necessarily result in a profit making venture.
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People in low-income communities or rural areas are already engaged in income generating activities, so the choice of one enterprise against another has always been profit, based in terms of social or monetary gains. Post this list up on the wall:
Farming: growing crops and rearing animals; Fishing, hunting, trapping;
Agro-processing: milling, fish-smoking;
Farm equipment repair, fabrication;
Weaving, sewing, dressmaking, tailoring;
Brick-making, charcoal making;
Hair-dressing, barbering, beauty salon:
Food preparation, chop bars, restaurants;
Carpentry, blacksmith, masonry; or
Petty trade, marketing.
In developing countries, in the first two categories listed here, the majority of the population is producing non monetary wealth for consumption by the family rather than for sale. The vast majority of agricultural wealth is subsistence production. It is not produced for cash or for barter, and is not available to be used by the economy of the nation as a whole. By the laws of supply and demand, then, there is a deficit of products resulting from initial processing of agricultural products (they are in short supply and their prices are too high). The sector which is most encouraged in low income countries, because it shows the most promise for sustainable development, is potentially most viable for micro entrepreneurs, and fills the most necessary niche in the economy, is the initial processing of agricultural products.
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Many entrepreneurs believe they can only succeed with more money or loans but often the problem can be solved through better management of resources (human, materiel and financial) that are already available. Considering the following will enable beneficiaries to assess whether the micro enterprise is desirable, viable and environmentally friendly. Whatever the level and size of the enterprise, your clients must always analyze the following: Marketability of goods and services; Availability of raw materials, tools and equipment;
Location of the enterprise;
Production processes;
Production costs and benefits;
Sources of financing; and
Management.
And as facilitator, it is your job to ask about each of them to challenge your clients to consider them.
Product or Service: We first consider the product or service. This can be a new product or one already being produced or sold. Consider whether their product or service will be: Cheaper? Higher quality?
A completely new product?
On sale more regularly?
On sale in different quantities? and/or 12
Sold in a place where more customers would be?
Marketing: To find possible customers (how much they want and at what price), participants must find answers to the following questions: What price will be offered for their product? Who will buy or who are the customers and where do they live?
How often and for how long will they buy; will they be prepared to buy every market day, continuously after 3 months?
Are there any competitors? and
Where will raw materials come from and at what price?
Looking for answers to the above questions is known as a "market survey" or "market analysis" which must be conducted to determine whether your product or service will sell. Are there any potential competitors and what are their strengths and weaknesses? The market survey is a good way to find out what customers are willing to buy and pay, and can be conducted by: (1) visiting and observing customers in a market; and (2) talking to people who are interested in the product. Part of the training you offer, then, should be to arrange several such "market survey" visits for the group.
Skills Training: This is the time to find out if your clients have the skills needed to produce the product or services or if the skills can be learned. Can the members in the group learn how to make the product or provide the service? You need to challenge them on each of the following questions: You and they need to know: What type of skills is required? Do the participants have the physical ability to do the tasks required? 13
Is the individual or group interested in learning the needed skills? Does someone in the group or in the local community already have the necessary skills and the capacity to teach it to others?
How long will the training be? and
What will it cost?
Materials, Tools and Equipment: Next you need to ask to ask if each member can obtain the raw materials, tools and equipment which will be used in the business. It is especially important that the materials needed can be obtained locally as often as they are needed. If something like equipment is to be imported, then it must be well known and arrangements for purchase and maintenance are made. To get spare parts from another country can take a long time and may be very expensive. We should try to use tools and equipment locally available and appropriate to the needs of the business.
Identifying a Work Place: When carrying out a micro enterprise it is important to have a good place to work. Entrepreneurs should find suitable places in which to work. Put this list up on the wall and discuss each item with the group:
Workplace or location which is easily accessible; Space to work;
Space to store raw-materials;
Space to store finished products;
Adequate security, doors and windows that lock;
Availability of facilities (e.g. water, electricity, telephone); and
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A selling place where many customers will come.
The conditions needed depend on the type of business planned. A manually operated rice hulling machine does not need electricity; a vegetable growing business might not need a building. You and your group should together visit several possible places where their enterprises are to be located, and check which of the conditions listed above are in place.
Selling Place: Ask your clients if they have place to sell their product (1) in a local area only, (2) elsewhere (i.e. export); (3) or in both a local and in a wider area. Most businesses find it best to start selling in a local area and later think about expanding outside the community when your business is running well. Put this list up on the wall:
At a local weekly market; At a town daily market;
On a roadside where many people pass;
To a wholesaler
To a marketing board;
To an institution (school, hospital, office); and
In rented commercial premises.
Production: The main concern is for your clients to discover how the micro enterprise operates from beginning to end, i.e. how each product is produced, or bought and sold. Put this list up on the wall: 15
What is the production cycle (daily, weekly, bi-weekly, monthly)? What quantity is produced (level of production)? What do we use in production (raw materials) and are they readily available?
Who will assist? and
What special skills do you need and how do you acquire them?
This will help to determine the ways and means as well as the raw materials that will be needed to achieve high output.
Production Costs (Expenses): All costs related to any micro enterprise must be explored and considered. Even the long term expenses relating to equipment, like annual depreciation, should be worked out so that the full costs are known by the entrepreneurs before venturing into business.
Identify all the items (inputs) needed to produce or sell; Calculate the cost of getting them for the production of a specific quantity: Identify Production Inputs: (write this on the board or put on a paper on the wall) 1. Raw materials: These are items required to produce a product; 2. Equipment: These are the tools, implements and machinery required to produce a product; 3. Labor: This is human effort directly involved in the production process. All salaries and wages, including the family plus other expenses on workers should be included in this cost; 4. Transport: This consists of the cost of transporting raw materials for production and finished goods to the market or to buyers; 16
5. Other expenses: These are all other costs that cannot be classified with the above and include: utilities like water, fuel, repairs, and interest on loans.
Calculate the total production cost. o Total cost of producing or selling will be arrived at by getting total of 1-5 i.e. o Total cost = 1+2+3+4+5
Cost per unit = total cost divided by number of units produced.
Production Income (Sales): It is important to remember that money we get from selling the product or service must pay for three things: All production costs; Labour expenses; and
Maintenance and replacement costs for tools, equipment and machinery.
When added together, these three are called recurrent expenses. Every year sales must at least be equal to recurrent expenses, or the enterprise will lose money and the business will collapse. When starting a micro enterprise, there are also start-up costs. These are costs that will have to be met before any product or service is sold. Start-up costs usually include cost of tools, machinery and furniture as well as any goods. It usually takes six months from the time someone starts a business until she is able to make a profit. To ensure that the money we receive from sales will be enough to cover their costs plus profit, we must consider the following:
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What have they to sell? What is the quantity is to be sold? and At what price are we selling it? Put this equation on the board when going though these topics with the participants.
SELLING PRICE = TOTAL COST + PROFIT Before they do their pricing, remind your clients of the following questions they should be able to answer: (1) Total cost? (2) How much are buyers prepared to pay? (3) Who are their competitors and their prices? (4) What is the level of demand for the product or service? and (5) What is the quality and nature of their product? What is the "profit" or "margin?" This is the difference between sales revenue and production costs. Also put this equation on the board:
PROFIT = SELLING PRICE - TOTAL COSTS The profit margin is usually a percentage of the total cost and may range between 10-100%.
Conclusion: Selecting the Most Suitable Enterprise: After going through all the above, then your client may decide whether the enterprise is worth the efforts put in. Among the available alternatives, you should be able to choose the best enterprise: Look at the micro enterprise that will make the highest profit. Do you think it is a good micro enterprise to embark on?
If not, look at the micro enterprise that will make second highest profit; 18
Finally, make a choice; then Check with others so that other groups and individuals in the community are not intending to start the same micro enterprise to avoid competition. ––»«––
Productive Activity; Soap Making:
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CHOOSING A MICRO ENTERPRISE By Phil Bartle, PhD Participants' Notes
Notes for entrepreneurs in training; how to choose a business
Introduction: This document is about obtaining information and making calculations to determine if your micro enterprise will be viable (profitable) and therefore worth pursuing. Every business undertaken might not necessarily result in a profit making venture. How do you choose one that is? You have many choices about what business will be profitable. Use the tips in this document in choosing a viable business. Here is a selection of possible businesses: Farming: growing crops and rearing animals; Fishing, hunting, trapping;
Agro-processing: milling, fish-smoking;
Farm equipment repair, fabrication;
Weaving, sewing, dressmaking, tailoring;
Brick-making, charcoal making;
Hair-dressing, barbering, beauty salon: 20
Food preparation, chop bars, restaurants;
Carpentry, blacksmithing, masonry; or
Petty trade, marketing.
In developing countries, most people fish and farm for their own consumption. This does not contribute to the national market economy. In contrast, there are not enough products made from initial processing of agricultural products (they are in short supply and their prices are too high). While you can choose from among the entire list on the left, we recommend that you most consider initial processing of agricultural products (like making oil out of seeds). This is most likely to sustain a good income for you, and contributes most to the growth of your national economy. Petty trade, in contrast, is easy to get into, but contributes little to the national economy (no new value is added by production; petty trade merely distributes things already manufactured). Whatever the level and size of your enterprise, you always need to analyze the following: Marketability of goods and services; Availability of raw materials, tools and equipment;
Location of the enterprise;
Production processes;
Production costs and benefits;
Sources of financing; and
Management.
Product or Service: What is your proposed product or service? This can be a new product or one already being produced or sold. What are the reasons why you have decided to choose that as a business? Can you make a profit from it? Have you seriously considered the alternatives? Can you defend your decision? 21
Consider whether your product or service will be: Cheaper? Higher quality? A completely new product? On sale more regularly? On sale in different quantities? And/or Sold in a place where more customers would be? The Facilitator may ask you to defend your choice in a meeting of the group.
Marketing: To find possible customers (how much they want and at what price), we must find answers to the following questions: What price will people offer for your product? Who will buy or who are the customers and where do they live?
How often and for how long will they buy; will they be prepared to buy every market day, continuously after 3 months?
Are there any competitors? and
Where will raw materials come from and at what price?
To find out what customers are willing to buy and pay, you can visit and observe customers in a market, and talk to people who are interested in your product. Are there any potential competitors and what are their strengths and weaknesses? See Marketing.
Skills Training: Do you have the skills needed to produce the product or produce the services? If not, can you learn them? Can you learn how to make the product or provide the service? You need to know: What type of skills is required? Do you have the physical ability to do the tasks required?
Are you interested in learning the needed skills? Does someone in the group or a person in the local community already have the necessary skills and does s/he have the capacity to teach it to others? 22

How long will the training be? and

What will it cost?
Materials, Tools and Equipment: Can you obtain the raw materials, tools and equipment which will be used in the business? It is especially important that the materials needed can be obtained within the locality as often as they are needed. If something like equipment is to be imported, then it must be well known and arrangements for purchase and maintenance are made. To get spare parts from another country can take a long time and may be very expensive. We should try to use tools and equipment locally available and appropriate to the needs of the business. Answer the following questions: 1. What raw materials will you always need? 1. (a) ______________________________ 2. (b) ______________________________ 3. (c) ______________________________ Examples: o If we make furniture, we will always timber and nails. o If we make farm tools, we will need iron and charcoal.
2.
What tools will be needed for purchase sometimes? 1. (a) ______________________________ 2. (b) ______________________________ 3. (c) ______________________________ Examples: 23
o If we make furniture, we need hammer and planer. o If we repair bicycles, we need spanner and air pump.
Identifying a Work Place: When carrying out an income generating activity it is important to have a good place to work. Entrepreneurs should find suitable places in which to work. To carry out a micro enterprise, there are minimum conditions needed: Workplace or location which is easily accessible; Space to work;
Space to store raw-materials;
Space to store finished products;
Adequate security, doors and windows that lock;
Availability of facilities (e.g. water, electricity, telephone); and
A selling place where many customers will come.
The conditions needed depend on the type of business planned. A manually operated rice huller machine does not need electricity; a vegetable growing business might not need a building. Visit (with other members of your group) possible places where your enterprise is to be located and check whether conditions listed above are in place.
Selling Place: Can you find a suitable place to sell from? You may want to sell the product: In a local area only; Elsewhere (e.g. export); or In both a local and in a wider area.
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Most businesses find it best to start selling in a local area and later think about expanding outside the community when your business is running well. Here are some possible places to sell. You may think of others also.
At a local weekly market; At a town daily market;
On a roadside where many people pass;
To a wholesaler
To a marketing board;
To an institution (school, hospital, office); and
In rented commercial premises.
Production: Your main concern is to find out how your micro enterprise will operate from beginning to end, i.e. how each product is produced, or bought and sold. You need to know the following: What is the production cycle (daily, weekly, bi-weekly, monthly)? What quantity is produced (level of production)?
What do we use in production (raw materials) and are they readily available?
Who will assist? and
What special skills do you need and how do you acquire them?
This will help to determine the ways and means as well as the raw materials that will be needed to achieve high output.
Production Costs (Expenses): All costs related to any micro enterprise must be explored and considered. Even the long term expenses relating to equipment, like annual depreciation, 25
should be worked out so that the full costs are known by the entrepreneurs before venturing into business.
Identify all the items (inputs) needed to produce or sell; Calculate the cost of getting them for the production of a specific quantity: Identify Production Inputs: (write this on the board or put on a paper on the wall) 1. Raw materials: These are items required to produce a product; 2. Equipment: These are the tools, implements and machinery required to produce a product; 3. Labour: This is human effort directly involved in the production process. All salaries and wages, including the family plus other expenses on workers should be included in this cost; 4. Transport: This consists of the cost of transporting raw materials for production and finished goods to the market or to buyers; 5. Other expenses: These are all other costs that cannot be classified with the above and include: utilities like water, fuel, repairs, and interest on loans.
Calculate the total production cost. o Total cost of producing or selling will be arrived at by getting total of 1-5 i.e. o Total cost = 1+2+3+4+5
Cost per unit = total cost divided by number of units produced.
Production Income (Sales): It is important to remember that money we get from selling the product or service must pay for three things: 26
All production costs; Labour expenses; and Maintenance and replacement costs for tools, equipment and machinery.
When added together, these three are called recurrent expenses. Every year sales must at least be equal to recurrent expenses, or the enterprise will lose money and the business will collapse. When starting a micro enterprise, there are also start-up costs. These are costs that will have to be met before any product or service is sold. Start-up costs usually include cost of tools, machinery and furniture as well as any goods. It usually takes six months from the time someone starts a business until she is able to make a profit. To ensure that the money we receive from sales will be enough to cover their costs plus profit, we must consider the following: What have they to sell? What is the quantity is to be sold? and
At what price are we selling it?
SELLING PRICE = TOTAL COST + PROFIT Before pricing, be mindful of the following: Total cost; How much buyers are prepared to pay;
Who are your competitors and their prices;
Level of demand for the product or service; and
Quality and nature of your product.
What is the "profit" or "margin?" This is the difference between sales revenue and production costs. 27
PROFIT = SELLING PRICE - TOTAL COSTS The profit margin is usually a percentage of the total cost and may range between 10-100%.
Selecting the Most Suitable Enterprise: After going through all the above, then you may decide whether the enterprise is worth the efforts put in. Among the available alternatives, you should be able to choose the best enterprise: Look at the micro enterprise that will make the highest profit. Do you think it is a good micro enterprise to embark on?
If not, look at the micro enterprise that will make second highest profit; Finally, make a choice; then Check with others so that other groups and individuals in the community are not intending to start the same micro enterprise to avoid competition. ––»«––
Workshop: Choosing Viable Enterprises:
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PLANNING MICRO ENTERPRISE ACTIVITIES By Phil Bartle, PhD Training Handout
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Good planning will increase potential for success of a micro business
Introduction: A micro enterprise will not prosper unless its management (however modest) looks ahead to the future. New opportunities arise; changes take place in the environment which makes it necessary to adapt. What is profitable today may not necessary be profitable tomorrow. So an entrepreneur needs to plan. Business planning means thinking and working out what to do about something in the future, to start and to improve on your income generating capacity. Planning a micro enterprise, therefore, involves, among other things, forecasting costs, inputs, outputs, sales, profits and cash flows. Recall "How to make a Work Plan" for community mobilizers. There are four reasons why a person engaged in a micro enterprise should make a plan: 1. A plan shows you if your enterprise can expect to make a profit in future; 2. A plan shows you which part of your micro enterprise can improve; 3. A plan shows the creditors (banks, NGOs, finance organizations, individuals) how well your micro enterprise can expect to do in future; and 4. A plan shows you what money you can expect to come to and go out of your micro enterprise.
Why Plan? Business planning is necessary because: Prices and availability of inputs may change; Customers change their consumption habits;
Machines and equipment wear out and need replacement;
Machines and equipment may become out of date; 30
New competitors; and
Decision is needed about direction the business should grow.
Planning a micro enterprise is like planning a journey. Ask yourself: Where am I today? Where do I want to go?
What am I going to do there?
How do I ensure that I get there?
How long will it take me to get there?
Recall the four key questions of management training.
How to Make a Plan: There are two kinds of plans useful for your micro enterprise: 1. A sales and costs plan, a forecast of your sales and costs per month. This indicates how much profit to expect in a specified period of one month; and 2. A cash flow plan: This helps to ensure that the enterprise does not run out of cash at any time. When you make plans: Make them simple, easy to use and achieve; Choose the most suitable period;
Divide them into weeks or months; Make them before you need to use them, don't wait until one plan is finished before you begin the next plan (roll over your plans); and Look for information, do not guess.
Steps in Making a Plan: 31
Steps for making a sales and costs plan for your micro enterprise: 1. Forecast indirect costs for each month of next year; 2. Forecast direct material costs per item; 3. Forecast sales for each month; 4. Calculate total direct material costs; and 5. Complete your sales and costs plan. Note: indirect costs include: rent, transport, licenses, insurance, stationery, electricity and water, repairs and depreciation. Month ─> Item:
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Sales Direct Materials Costs Gross Profit Direct Labour Costs Indirect Costs Net Profit
A Cash Flow Plan: A cash flow plan is a forecast which shows how much cash to expect to come into the enterprise and how much cash to expect to go out of the enterprise each month. A cash flow plan helps an entrepreneur to make sure that the 32
Dec
enterprise does not run out of cash at any time, (i.e. this is a projection of expected incomes and expenditures in a stipulated time period). The micro enterprise should not run out of needed cash. The cash flow plan can be used to make sure that the enterprise always has enough cash to pay for costs. An enterprise can make a good profit in a year but still run out of cash during that year. There are several reasons why a micro enterprise may run out of cash. For example:
The business must buy goods or raw materials before it sells anything. This means cash goes out before cash comes in; If the business gives credit to its customers it does not get paid immediately. The business will often have to buy more goods or materials before these credit customers pay; and The business needs cash to buy equipment. The equipment will help the business to make a profit in the future. But the business usually has to pay cash for the equipment now, before it has earned the profit.
When you plan your cash flow: You get a warning in advance about future cash shortages; You have more control over the flow of cash;
You can solve or avoid problems before they happen; and
You can have cash ready when you need it.
How To Make A Cash Flow Plan: To make a cash flow plan, you forecast: How much cash will come in; and How much cash will go out.
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Cash Flow Plan
Month: Jan Feb Mar Apr May Jun Total In Flows: Cash at start of month: Cash in from sales: Any other cash in: Total cash in: Out Flows: Cash out for direct material cost: Cash out for direct labour costs: Planned investment in equipment: Any other cash out: Total cash out: Net (In-Out): Cash at the end of the month: ––»«––
Exercise: Prepare a Cash Flow Plan South Side Women's Group Maize Mill project, with seven members, had cash on hand at the beginning of January totaling 20,000/=. The enterprise makes average sales of 150,000/= per month. It receives members' monthly contributions of 15,000/=. It spends 70,000/= every month to purchase 2,000 kg of maize. The monthly pay for workers is 20,000/=. The enterprise spends 12,000/= every month to pay for transport. Note: In Uganda and Kenya, the currency is in shillings, and the currency sign, placed at the end of the amount, is: /= Prepare a cash flow plan for South Side Women's Group Maize Mill project for six months and show: 34
Total cash in; Total cash out; and
Cash at the end of every month.
Do this as an exercise, using the previous table as a model.
A Planning Workshop:
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FINANCIAL TRAINING TOPICS By Phil Bartle, PhD Curriculum
What financial training is needed for participants in micro enterprise income generation?
Introduction: In both kinds of strengthening (capacity development), 1. of the executives of community based organization undertaking construction and maintenance of communal facilities, and 2. of individuals undertaking the creation and running of viable micro enterprises, Some skills in elementary accounting (financial recording) and reporting (financial statements) are needed. The larger and more elaborate the enterprise or project, the more of the following skills will be needed. You as a mobilizer should use this as a check list on needed training. The following indicate a range topics that could be in the training, from which you choose which are appropriate.
The Principle Behind Double Entry: Perhaps the most important conceptual point to make in the training is that every transaction represents two elements: one party gives an amount of money, and another party receives that amount of money. That duality is represented in the principle of double entry accounting. Every line of the ledger should indicate an amount of money coming in and going out. Once that principle is established (and it could be done by role 36
playing, where two people are needed in order to pass money from one to the other), then double entry book keeping can be explained.
The Basic Documents: The purpose is for the CBO or micro-enterprise to both record and to report on its financial transactions. To do so, the participants should be introduced to the basic documents. These should include first and foremost the ledger book. More about that in detail later. It should include other financial instruments and documents, such as a receipt, a financial statement, and a budget outcome, the design and purpose of each. It may be advisable for larger projects to keep a set of ledger cards, but that should be optional according to how complex the project may be.
Elements of The Ledger Book: Lines and columns. Debit. Credit. How to enter a transaction into the ledger book. How to open and how to close. Totals. Practical examples. Variations.
Budget Lines: How to record each type of payment according to the project budget lines.
The Cash Book: What is a cash book? Why, when and how to operate a cash book.
Recording a Transaction: What constitutes a transaction? How it is recorded. How it relates to the total amount.
Balance on Record and in Reality: 37
How cash on hand (and in the bank) as recorded in the ledger book must accurately reflect the amounts of cash (and bank balance). Reconciliation.
Budget Outcome: The non-official record; how the balance reflects and currently relates to the budget. The balance of each budget line.
The Importance of Receipts: Invoices and receipts. Why each transaction needs a record other than on the ledger book. What is a receipt?
Petty Cash: The how and why of keeping a petty cash account. Advantages and disadvantages.
Recording on Day of Transaction: The importance of keeping the ledger book up to date.
Keeping the Books Balanced: How to calculate sums in the ledger.
The Financial Statement: The official account of the project funds. Income and expenditure. How the statement must reflect the ledger book. How to set up a statement reflecting double entry accounting. How to enter totals according to budget line. Distinguishing between different sources of income (from UN, from Government, from cash contributions, from valued donated labour and gifts).
Non Monetary Contributions: 38
Calculating the value of donated goods and labour. Making records to serve as receipts. Entering the value of donated labour or gifts. (This topic is more appropriate for CBOs constructing communal facilities than for individuals creating micro enterprises).
Distinguishing Between Sources: Ensuring that each source of income is recorded separately. Showing different source amounts on the financial statement.
Matching Accounts to Inventory: The importance of showing where items purchased are deployed. How to do it.
Public Scrutiny of Accounts: The reason for transparency. The right of community members to examine the ledger at any time. The community ownership of the project and therefore of the accounts. The distribution of financial statements. Verbal reporting to community meetings.
Audit of Accounts: The legal requirement of audit. Informal audits. The list of topics above can be used as a checklist.
Conducting the Training: The training should be as useful as possible for empowering communities and ensuring transparency and accuracy. The simplest procedures must be taught, but sufficiently inclusive to ensure that the community project accounts are kept to the required standard. 39
It is rare to find a skilled and experienced community worker who also has all the above skills. It is equally rare to find an accountant, even one with experience in training, who has experience in working with communities, community groups, or with participatory and facilitative training methods. Since financial recording and reporting are vital to the success of community projects (because of the importance of financial transparency, and as necessary information for making community decisions), it is important to ensure that the skills are taught, understood, and practiced. Training of trainers is therefore necessary: (1) training your mobilizers and coordinators in the above skills, and/or (2) training accounting specialists in participatory methods of working with communities. That goes beyond the scope of this module. It is a topic of another module; meanwhile it is important to say that this must be included as an essential element in any programme of strengthening low income communities. ––»«––
Financial Training Workshop:
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41
BUSINESS RECORDS By Phil Bartle, PhD Training Handout
What business records training is needed for participants in micro enterprise income generation?
Introduction: Any persons engaged in wealth generating activity, whether small or big, need to know and remember what is going on in the business at any time. Owners of micro enterprises must therefore write down everything that is done for future reference. This document is complemented by Financial Recording and Reporting Topics.
What is Record Keeping? To keep business records means to write down:
How much money your micro enterprise receives; and How much money your micro-enterprise pays out.
Record-keeping is a way of writing down chronologically all transactions involving money coming into your enterprise and money going out of your enterprise. A transaction is any exchange of money for value (something). Money comes in and goes out of the micro enterprise through transactions. Micro enterprises mainly receive money mainly by selling goods or services. Money goes out of micro enterprise by paying for goods, raw materials, labour, utilities (eg water, electricity). Keeping records will therefore help remember such basic things as:
What did I buy? 42
When did I buy it?
How much did I pay?
When and what did I sell?
How much did I receive?
Did I buy on credit or sell on credit?
Inventory of what is in stock (raw materials, products);
What monies do I receive every day (every week, every month, every year)? What monies do I pay out every day (every week, every month, every year)?
What is the surplus and what did I do with it?
Am I making progress? and
How much money does the micro enterprise have available to spend?
When records are kept on all the above it will help the owner of the micro enterprise to know how much money s/he needs to run the micro enterprise from time to time (ie working capital and where it will come from). Neat and accurate records will also help to judge if as much profit as expected is being made. Perhaps too much money is being spent on wages or on raw materials. Perhaps someone is stealing from the micro enterprise, either cash or physical goods. So good records will help you solve problems in your micro enterprises and be able to plan the future by seeing clearly what mistakes have happened in the past and show others how your micro enterprise is doing. Most micro enterprises especially those owned by women do not record their business transactions because of illiteracy. They should be assisted by their children at school or literate husbands or any trusted literate person in the 43
locality.
Types of Records to Keep: For good record keeping you need to write down all your business transactions in an orderly manner. You need something to show that you received or paid out money. You need proof of every transaction, even for small amounts such as transport by boda-boda, envelopes, soap. Some examples of written proof are:
Receipts or invoices you get when you buy goods or raw materials, pay rent, water and electricity; or Copies of receipts you give to customers when they buy from you.
If there is no written proof, you must write down the details about the transaction yourself. You can use an exercise book to write down the information you need. It is important to write down what happened:
Date when the transaction took place; Who was involved in the transaction;
What the transaction was all about; and
How much money was involved in the transaction.
In record-keeping, receipts and any other proof of transactions are called "vouchers." Always keep your vouchers safely, in a lockable box or cupboard. They are the only proof that your records are correct.
A Simple System of Keeping Records: Ms Somo, who runs a small retail shop in South Side argued with a customer about the number of kilograms of sugar he had bought on credit. They could not agree on the number of kilograms given on credit. Ms Somo realized that 44
she had these problems because she did not keep records at all. She knew that she needed business records, but she did not know which records to keep, how to keep them or how to use them. Ms Somo went to see Ms Nalongo Chow for advice. Ms Nalongo Chow owns Nalongo Grocery and she has much experience in keeping and using business records. Ms Nalongo Chow showed Ms Somo how to record and keep vouchers for everything his business buys or sells either for cash or credit. When you start an enterprise, you spend money and later when sales start, you receive money. Every time you buy or sell something, write the details in a book called "cash book."
Cash Book: The cash book can be made from a school exercise book. Money In ( + )
Money Out ( - )
From which source do you receive money into On what do you spend money from your your micro enterprise?
micro enterprise?
income from sales;
gifts from spouse;
other gifts;
raw materials; wages;
grant from NGO;
transport;
loan;
medicine,
group savings
fees;
taxes;
food and clothing;
church fees;
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
paying back loan;

paying interest on loan
Note: all money that comes in is written on the left. All money that goes out is written on the right.
Date Day you receive money?
Money In Source of money?
Amount
Date
Money Out
Day you pay
How much?
money?
Total
Amount
Money was spent on
How much?
what?
Total
Balance
[Total money in] - [total money out] = [balance] Use the cash in hand in (+) column as the balance to begin next page.
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Training Workshop:
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MICRO-ENTERPRISE MARKETING by Phil Bartle, PhD Reference Document
What training in marketing is needed for participants in micro enterprise income generation?
Introduction to Effective Marketing: This document is not a full course on the principles and skills of marketing, but sketches the important aspects with which the field mobilizer should be familiar, and should aim at training participants in the target group. The target group includes low income community members whom the mobilizer is organizing into groups for purposes of training, and channeling credit to start and develop very small (micro) scale independent enterprises for the creation of wealth. The whole series is aimed at low per-capita income nations. You, the mobilizer, want to assist your target group in starting or developing their own small scale business. Apart from being able to produce a product, they need a market to sell it in. This requires effective marketing. They need to (a) research the market to find out necessary information about it. Then they must (b) have a product that is in demand, (c) a suitable place to sell it in, (d) a price that is not too high or too low, and (e) they must promote their product. You, as their mobilizer, must train them in these concepts and skills, and or arrange for them to get training. This appendix has six parts to it: 1. Introduction to Effective Marketing, 2. Research, 3. Product, 4. Place, 5. Price, and 6. Promotion. 48
What is Marketing? Marketing includes all business activities involved in the flow of goods and services from the point of initial production until they reach final production and the final consumer. Skills in marketing are needed by entrepreneurs, even those who own and run micro-enterprises. Whether they provide a physical product or a service, they cannot do so unless they get paying customers. Getting customers to purchase the service or product is the purpose of marketing.
Effective Marketing: Production and marketing are important for satisfying customers’ needs and so to enable entrepreneurs to make some profits. Successful marketing activities involve: Finding out what people need; Providing the products or services to meet this need;
Selling them in places where people can get them to buy;
Setting prices that people are willing to pay; and
Informing and attracting them to buy your products or services.
The message that you, as mobilizer, want to get across to your target group is: "Customers are the most important people to your enterprise. If you do not provide what they want, at prices they are willing to pay, and treat them with respect, they will go somewhere else. Without customers there will be no sales and your enterprise will have to close down." Furthermore, you want to let your participants know: "Satisfied customers will come back and buy more from your enterprise. They will tell their 49
friends, neighbours and others about your product or services." More satisfied customers mean more sales (higher turnover) and therefore sustainable profits. The word "effective" means that it produces the desired results. An entrepreneur may engage in classic marketing procedures, and pass a degree in business or commerce, but that is meaningless unless the marketing activities help to sell the product or service.
Learn About Your Market: To a producer, the "market" is the sum total of all potential customers. It is important to know as much as possible about your customers and what they want and need. Learning about the market can be called "market research." Although this sounds sophisticated, it is as important to the micro entrepreneur as it is to the huge multinational corporations. The principle that you, as mobilizer, want to demonstrate to your target group is: "When you understand your customer's needs you can decide what products or services to provide." As mobilizer, you need to get the following messages across to your participants. In order to increase your sales:
Find out who your buyers are; Find out how large your market is; and
Make sure your market gives you a reasonable profit margin.
Find Out Who Your Buyers Are: You can start your research by asking yourself: Which different kinds of customers am I trying to sell to? What products or services do they want? Why do they want/them?
What prices are they willing to pay? 50
Where are the customers and where do they usually buy?
When do they buy?
How often and how much do they buy? and
Who are my competitors? How well do they perform?
Finding answers to these questions is called "market research." Market research is very important for your enterprise. It means getting information about your market. Market research can be done in many practical ways. Here are some examples:
Talk to your customers. Ask them, for example: o Where do they usually buy from? o
If they are satisfied with your goods and services;
o
If there are other goods and services they would like;
Listen to what your customers say about your goods and services;
Find out why some customers do not stop to buy from you; and
Study your competitors businesses.
Research your competitors to find out about:
Their products or services, quality and design; What prices they charge;
How they attract customers;
What customers say; and
Why customers buy from them.
Ask other producers and distributors:
Which goods sell best; 51
What they think about your products; and
What they think about your competitors products.
Satisfy Your Customers: To satisfy your customers, increase your sales and make a profit, you need to find out:
What product or service your customers want; At what location your micro-enterprise should be so that you can reach your customers;
What price your customers are willing to pay; and
What promotion activities you can use to inform your customers and attract them to buy your products or services.
These are collectively called the "Four Ps" of marketing: Product; Place;
Price; and
Promotion.
These are the essential tasks that help a producer to reach a customer. All the four go together and if no attention is paid to any one of them the business is bound to fail. It is like a chair with four legs. If one breaks, the others cannot support the chair. In setting up a training programme for potential micro entrepreneurs, consider having at least one, low cost, half day workshops for each of the four topics (and one day workshop on market research after that). Let us look at them each in turn.
Product: 52
As mobilizer, you need to let your target participant entrepreneur know the following: "To be successful you must have products or services which your clients want. Product is the first foundation stone to reach the customers. Therefore it is important to find out what your customers need. Produce a product that is wanted." Many of your target group, when they first consider going into business for themselves, think of retailing merchandise. Of course, you, as a mobilizer, should not dictate to them what sector to choose, or to avoid. You may, however, let them know that the market is glutted with too many small scale merchants, those who buy wholesale (or from shops) and sell in retail in smaller quantities (e.g. in stalls or walking on the streets). What wealth do they create? Little; just part of the service of delivering the goods to the final customer, and selling in smaller quantities those low income customers can afford. Without dictating, you should let your participants know the reasons why they should consider avoiding petty trade. Wherever possible, encourage your target group members to choose activities of production, such as the repair or manufacture of needed items, or the initial processing of agricultural products. These are where the greatest economic needs are in developing countries, and where micro enterprises are most likely to prosper and be sustained, and where they will contribute the most to economic development.
Place: This is the third foundation stone in marketing. "Place" means location. "Place" also means the different ways of getting products or services to your customers.
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This is called distribution. Micro-enterprises should be located near to where customers are or where customers can get easy access to the service or product. You the mobilizer must help your target group to decide on a place where the product will sell best, and then consider:
Different categories of buyers; Transport costs;
Storage facilities and costs; and
Delivery process: direct or through intermediaries.
In your function as mobilizer, set up training sessions where your participants can discuss this fully, provide suggestions to each other, and share ideas with one another. Do not dictate to them.
Price: What prices should you charge? Price is the second foundation stone to reach your customers. Setting prices can be difficult, but is very necessary. Your target group's enterprises may have good products or services, but if their prices are too high, they will not sell much. When prices are too low, the business may fail for lack of profit. When entrepreneurs work out a price on a product or service, they need to know how price cost, and profit work together.
[COST] + [PROFIT] = [PRICE] [900/=] + [100/=] = [1000/=] Total profit from sales depends on:
How much profit is made on each product or service; and How many of each product or service is sold. 54
The number of items sold, multiplied by profit per product, equals total profit. In your mobilizing activities, you might set up some exercises in calculating profits, estimating different prices and quantities sold, during half day workshops on pricing.
Promotion: How do entrepreneurs get people to know about the product and attract them to buy? They might have the right products, the right prices and be located in a strategic place. Will they prosper? "Promotion" is the last element of marketing (discussed here) for entrepreneurs to reach their customers. Let your target group (beneficiaries, participants) knows the following: "Perhaps your enterprise may be in a strategic place, with good products, at prices acceptable to buyers but sales may still be low. Why? Maybe the entrepreneurs do not tell people about their products and services. Entrepreneurs should not sit and wait for customers to come to them; promotion is needed. As mobilizer, your message to your target participants is: "Sell more, and increase your profit, by: Advertising, making customers interested; Sales promotion, getting customers to buy more;
Publicity; getting free promotion;
Improving your skills as a sales person;
Correct packaging; and
Correctly calculating costs."
You need to get this message to the participants: 55
"Advertising is giving information to your market to make people more interested in buying your goods and services. Interest them in buying your goods and services. This can be through signs, posts, or price lists display." Sales promotion is everything one does to make customers buy more when they have come to the premises. This is done in many ways (eg display, encouraging people to buy more or try new products, selling products that go together {eg bread with margarine}, publicity).
Conclusion: As a mobilizer, you have organized groups of low income persons, and want to assist them in starting or developing their own small scale business. While they may be able to produce a product to sell, they need a market to sell it in. This requires effective marketing. To market their product, they must (a) research the market to find out necessary information about it. Then, to ensure they can sell their product, they must (b) have a useful and demanded product, (c) they must have a suitable place to sell it in, (d) they must have price that covers their expenses but is not so high that no one will buy, and (e) they must promote their product. ––»«––
Petty Trade:
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57