Lesson 14. Avoiding loss & calculating a budget

Anchor scripture:

• 1 Peter 5:8: Be alert and of sober mind. Your enemy the devil prowls around like a roaring lion looking for someone to devour.

Specific learning objectives: As a result of this session, participants will be able to:

• Differentiate between profit and loss • How loss occurs and how to mitigate

What is profit or loss?

When we talk about the profit or loss of the business, we mean how much money the business has made or lost in total on a specific transaction or for a period of time.

Loss can happen when: How does a trader prevent loss?

a. A business manager sells his goods at a lower price than he paid for them Buy goods when prices are low and sell when prices are high b. Goods get spoilt in the shop and have to be disposed (illustrate with eggs not being stored properly) Factor in the methods of storage for all the goods he sells (illustrate with egg trays) c. If a business manager uses his business money for household needs and cannot replace it Plan expenses wisely and only take what you can make back in a short period. d. if thieves steal money or goods from the trader Stay alert to the activities in the business and effectively manage the business. e. if the trader gives credit to a customer and the customer does not pay for the goods Avoid selling on credit. Only give credit to customers who have proven faithful. f. Unavoidable circumstances like floods or accidental fires Trust and pray every day for God to keep your business safe

Six ways to waste money

• Amount paid as penalties due to bad payment. • Walking with a large amount of money which is unplanned. • Lending someone without a written note • Untrustworthy among family members where the money/properties are kept. • Buying unplanned items. • Spending money more than your actual income.

Some root causes of serious loss or poverty

• drunkenness/Adultery • having a big number of children you can’t manage to care for • War • ignorance • floods • Luxury- money that can’t construct a house is used for body construction. • Lack of self-esteem and not getting the right advice • long term sickness • lack of satisfaction and comparing yourself to others • use of drugs

• proudness • lack of enough knowledge on the project you want to do. • lack of savings. • trauma. • theft/banditry • not giving value to the job you do • laziness • over complaining • mismanagement of your finances

How to calculate profit or loss

Read aloud: Byukusenge put Rwf20,000 into his shoe making business when he started, and has made Rwf10,000 in total profit since he started. He has a stock of leather that he paid Rwf30,000 for, and no cash. He now works to turn the leather he bought into nice sandals for selling, and then goes to the market. But he can’t get a good price for his sandals that day. However, he needs money to buy food, so he has to sell them, even though the price he gets is not high. He sells all the sandals for Rwf10,000.

Ask participants: Did Byukusenge made money, or lose money? Why?

EXPLANATION: Write the calculations on the flip chart to show how he made a loss. He lost Rwf20,000 because he bought the leather for Rwf30,000, and sold the sandals for only Rwf10,000. The previous profit in the business of Rwf10,000 disappears and turns into a loss of Rwf10,000. To find out whether you are making a profit or a loss, check the following: In what way does money go out of your business to produce your goods (or provide your service)? Consider all the things that go into the cost of your goods as mentioned in lesson 3. • What materials do you buy; • What services do you pay for;

• How much do you pay for wages; • How much do you need for replacements and repair of your tools and equipment. How much do you receive by selling the same goods (or providing the service)? The cash book in lesson 9 will help you to remember how you have spent the money that has gone out of your business and how much money has come in from your sales.

How to calculate a simple budget

Once you are calculating your profit or loss, you can add this information to the information you have in your cash book and about your expenses, to make a simple budget. A budget can help you manage your finances better and run your business better by telling you what you should expect each week or month as far as your bills, your income, and what you might have left over. It’s okay. Let’s take the same example of a shoe business man. Let’s think of the different type of expense categories he might have in his life. Let’s think on average, for a month’s worth of expenses. Write the example on the flip chart.

Expenses

Household/family expenses Rent/mortgage on his home Food

Utilities School fees Subtotal: Household/family expenses Business expenses Purchase of goods or supplies Salary of workers Rent of shop or stall Taxes, fees, market charge

Transportation of goods Payments on business loan or other loans Subtotal: Business expenses

Amount

60,000

80,000 25,000 30,000 195,000

200,000 50,000 100,000

30,000 20,000 65,000 465,000

Total 660,000

When we add up all the expenses, we can see the total amount of money needed for the month. Now, to see if this shoe salesman will have enough money for the month, let’s add up all his sources of income.

Income

Income from business Any other income (other family members, or from another job)

Total Amount

700,000 280,000

980,000

If the total income comes out to more than the expenses in the budget, then we can say that overall, the businessman is making a profit. This is the amount that he can save each month, or reinvest in his business to help it grow. If the amount he is making in income each month is less than the expenses in the budget, then he needs to either increase his income or review his budget closely to find places he can spend less money.

If you are regularly coming up short each month, you can be in the position of needing to borrow money from others or being behind on your bills. By making a budget and making sure your expenses are less than your income, you can have more control over your situation.