Manual: Start Your Business

Start
your buSineSS
MANUAL
International Labour Office

Copyright © International Labour Organization 2015
First published 2015
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International Labour Office
Start your business: manual / International Labour Office, Enterprises Department. - Geneva: ILO,
2015
ISBN: 9789221287612; 9789221287629 (web pdf); 9789221287636 (set)
International Labour Office Enterprises Dept.
Enterprise creation / corporate planning / small enterprise
03.04.5
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About the Start and Improve Your Business (SIYB) Programme

The Start and Improve Your Business (SIYB) programme is a management-training programme
developed by the International Labour Organization (ILO) with a focus on starting and
improving small businesses as a strategy for creating more and better employment for women
and men, particularly in emerging economies. With an estimated outreach in over 100
countries, it is one of the world’s largest programmes in this field.
The programme has four inter-related packages - Generate Your Business Idea (GYB), Start Your
Business (SYB), Improve Your Business (IYB) and Expand Your Business (EYB).
The ILO implements the programme using a three-tier structure comprising Master Trainers,
Trainers and the end beneficiaries – potential and existing entrepreneurs. The Master Trainers
licensed by the ILO are responsible for developing the capacity of the Trainers to effectively
conduct SIYB training. Thereafter, the Trainers train entrepreneurs in SIYB packages. The ILO
plays a critical role in identifying and disseminating best practices, carrying out trainings,
monitoring activities, performing quality control and providing technical advice on the
implementation of the SIYB programme.
About Start Your Business (SYB)
Start Your Business (SYB) is a training programme for potential entrepreneurs who have a
feasible business idea for their own small enterprise. The training helps in developing a detailed
business plan and to actually get started. The training also provides an opportunity to test the
required entrepreneurial skills and the business plan in a simulated and safe environment.
The SYB training course usually delivered in five days using the SYB manual and business plan
booklet. The training uses an active, problem-centred learning approach which builds on what
the potential entrepreneur already knows. It challenges the entrepreneur by introducing new
market dynamics through, for example, short cases and graphic illustrations.
Authors and acknowledgements
The SYB manual is a result of a collective effort and reflects the experience and knowledge
gathered by implementing the programme for nearly three decades. In particular, the
contributions of SIYB Master Trainers and Trainers who have tested, designed and implemented
the programme in different countries over the years have been invaluable. There are many
colleagues from the network of SIYB practitioners, consulting firms and in the ILO, whose
experience, support and constructive suggestions made the publication of this training manual
possible.
This manual is based on the materials originally developed in 1996 by the ILO SIYB Regional
Project Office in Harare, Zimbabwe. The authors of the original version are Geoffrey Meredith,
Douglas Stevenson, Hakan Jarskog, Barbara Murray and Ulf Kallstig. The original manual was
subsequently revised by the ILO Youth Entrepreneurship Facility (YEF), whereby it was written
and reviewed by Milena Mileman and Sibongile Sibanda. Short contributions and other valuable
materials and ideas used in the YEF versions were provided by Julius Mutio, Marek Harsdoff,
Milan‘Divecha, Namsifu Nyagabona, Mike Oneko, Dorothy Katantazi and Stephen Kyalibulha.
The author team of the 2015 version, which revised the existing text and wrote new chapters to
include recent thinking in enterprise development and related fields comprises Phan Minh Tue
and Pranati Mehtha. Stylistic and language editing were carried out by Steve Raymond.
Many thanks are due to SIYB senior Master Trainers Dissou Zomahoun, Gemunu Wijesena,
Sibongile Sibanda and Walter Verhoeve for the review of the draft manuscript and suggestions
based on their training experience. A special thanks to the ILO colleagues- Marek Harsdorff from
the Green Jobs Programme of the Enterprises Department; Jurgen Menze and Esteban Tromel
from the Gender, Equality and Diversity Branch; Julia Faldt from the HIV and AIDS and the World
of Work Branch, Kristen Sobeck and Patrick Belser from the Inclusive Labour Markets, Labour
Relations and Working Conditions Branch, for their contribution to the content of the manual.
Short contributions, advice and assistance on integrating linkages to finance in the manual were
received from Cheryl Frankiewicz and Severine Deboos (Technical Expert in the Social Finance
Unit of ILO’s Enterprises Department).
The internal layout and illustrations were carried out by Le Nguyen Sang and the cover design
was developed by Maurizio Costanza.
The review efforts and technical contributions of the SIYB Global Coordination Team members
who provided invaluable support to the development and finalization of the manual is greatly
appreciated: Merten Sievers (Specialist – Value Chain Development and Business Development
Services), Eva Majurin (SIYB Global Coordinator) and Thokozile Newman.
Contents
INTRODUCTION......................................................................................................................i
1. What is this Manual about?..................................................................................................i
2. Who should read this Manual?.............................................................................................i
3. Objectives of this Manual.....................................................................................................i
4. How to use this manual.........................................................................................................i
PART I – ASSESS YOUR READINESS TO START A BUSINESS.....................................................1
1. Assess your entrepreneurial abilities...................................................................................1
2. How to strengthen your entrepreneurial abilities?..............................................................4
Summary....................................................................................................................................7
PART II – THE BUSINESS PLAN................................................................................................9
1. Why is Business Plan important?.........................................................................................9
2. Content of the Business Plan...............................................................................................9
3. Where to find information for your Business Plan?...........................................................10
Summary..................................................................................................................................11
PART III – REINFORCE YOUR BUSINESS IDEA........................................................................13
Summary..................................................................................................................................16
PART IV – THE MARKETING PLAN.........................................................................................17
1. Conduct market research...................................................................................................17
2. Make a Marketing Plan......................................................................................................22
2.1 Product......................................................................................................................22
2.2 Price...........................................................................................................................26
2.3 Place..........................................................................................................................30
2.4 Promotion..................................................................................................................32
2.5 People........................................................................................................................35
2.6 Process.......................................................................................................................36
2.7 Physical evidence.......................................................................................................37
3. Sales estimation.................................................................................................................38
Summary..................................................................................................................................40
PART V - STAFF.....................................................................................................................43
1. What staff do you need?....................................................................................................43
2. Staff costs...........................................................................................................................44
Summary..................................................................................................................................56
PART VI – ORGANIZATION AND MANAGEMENT..................................................................47
1. Form of business................................................................................................................47
1.1 The different forms of business.................................................................................47
1.2 How to select the right form of business?.................................................................49
2. Legal responsibilities and insurance...................................................................................52
Summary..................................................................................................................................56
PART VII – BUYING FOR YOUR BUSINESS.............................................................................59
1. Equipment..........................................................................................................................59
2. Raw materials....................................................................................................................60
3. Finished goods...................................................................................................................60
Summary..................................................................................................................................61
PART VIII – GREENING YOUR BUSINESS...............................................................................63
1. Your business and natural resources.................................................................................63
2. Increase efficiency and profits: reduce, reuse, recycle......................................................63
3. Classifying the waste..........................................................................................................64
Summary..................................................................................................................................65
PART IX – COSTING YOUR GOODS AND SERVICES................................................................67
1. What are costs...................................................................................................................67
2. Costing for a manufacturer or service operator.................................................................68
3. Costing for a retailer or wholesaler....................................................................................77
Summary..................................................................................................................................83
PART X – FINANCIAL PLANNING...........................................................................................85
1. What is financial planning?................................................................................................85
2. Make a Profit Plan..............................................................................................................85
2.1 Sales Plan...................................................................................................................85
2.2 Cost Plan....................................................................................................................86
2.3 Profit Plan..................................................................................................................88
3. Make a Cash Flow Plan.......................................................................................................89
Summary..................................................................................................................................94
PART XI – REQUIRED START UP CAPITAL..............................................................................95
1. What capital investments do you need?............................................................................95
2. What working capital do you need?..................................................................................97
Summary................................................................................................................................100
PART XII – TYPES AND SOURCES OF START – UP CAPITAL..................................................101
1. Owner’s equity.................................................................................................................101
2. Loans................................................................................................................................101
Summary................................................................................................................................104
PART XIII – STARTING THE BUSINESS.................................................................................105
1. Are you ready to start your business?..............................................................................105
2. Start or not?.....................................................................................................................106
3. Do you need more information to complete your Business Plan?...................................107
4. Presenting and defending your Business Plan..................................................................107
5. Action Plan for starting your business..............................................................................107
INTRODUCTION
1. What is this manual about?

There are many things to think about when you start a new business. This manual will help you to
organize your thoughts and to develop a plan for your business idea. After you have gone
through the manual, you will be able to assess whether or not your business idea has the
potential to evolve into a profitable enterprise and whether you should go ahead or you should
reconsider your original concept. If you then decide to develop your idea into a business, this
manual will teach you how to start.
2. Who should read this manual?

Start Your Business (SYB) is a manual for people who have a practical business idea and want to
start a new business. It introduces the proper steps for starting a business and creating a Business
Plan for the proposed venture.
3. Objectives of this manual

When you have completed this manual, you should be able to:
 Describe the content of a Business Plan
 Consolidate your business idea
 Translate your business idea into a completed Business Plan
 Assess your readiness for starting a business
4. How to use this manual

The SYB manual is accompanied with a SYB Business Plan booklet. The manual explains the steps
that you need to follow in order to start a business. The Business Plan booklet is to be completed
as you go through the manual.
In this manual you will find:
 Stories of businesses: Compare these examples with your future business and use them
to improve your plan to start the business.
 Activities: Practical exercises in the middle of each part that help you to proactively think
about the concepts and how to apply them to your future business.
 Summary: This is provided at the end of each part. Use it to review the key points.
 Action Plan: Fill in and use the Action Plan near the end of the manual. These will help
you to put your new knowledge into practice.
 Important notes: Each of these notes has important information. Use this information to
the best of your ability. You can find these notes in the middle of different parts of the
manual.
Introduction | i
Several icons are used within the manual to help guide your study. Examples of the icons and
their meanings are listed below:
When you see this icon, you have activities to do or questions to answer.
When you see this icon, it signifies that the information in this part is extremely important.
When you see this icon, you will know you have just completed one part and the important
ideas that were presented are being summarized here.
When you see this icon, it tells you where to find more information or what to do.
i |Start Your Business

i
PART I – ASSESS YOUR READINESS TO START A BUSINESS
Before you decide to start your own business, you should assess whether or not you are ready to
run a business of your own. The success of your business will depend on your entrepreneurial
abilities (personal characteristics, situation and skills) and your commitment to the environment
and community. You should consider which of your characteristics needs improvement and then
try to change your situation and skills.
1. Assess your entrepreneurial abilities

The following activity will help you find out if you have the abilities to successfully run your
business. Be honest in your assessment.
To help you decide if you have what it takes to be in business, think about each of the following
factors. Decide if each of these factors is a strength or an area in which you need to improve. For
example, if you have knowledge in business management, this is a strong point. But if you lack
such knowledge and you plan to hire someone else to manage your business and make decisions,
then this may be an area of improvement.
AREAS THAT
AREAS OF
PERSONAL CHARACTERISTICS AND YOUR SITUATION NEED
STRENGTH
IMPROVEMENT
Commitment
For your business to be a reality and to succeed, you must be

committed. Commitment means that you are willing to put your
business before almost everything else. Do you want to be in
business for a long time? Can you spend most of your time and
efforts on your business?
Motivation
Your business is more likely to succeed if you are very motivated to

try your business idea, create wealth and make your money work
for you. Do you know clearly why you want to have your own
business?
Part I – Assess your readiness to start a business | 1

Taking risks
There is no absolutely safe business idea. You always run the risk of
failure. Are you prepared to take risks? Are you willing to risk your
money to invest in your business?
Making decisions
You are in charge of your business, which means that you have to
make decisions that may lead to either success or failure. Important
decisions cannot be postponed or passed on to someone else. Can
you make difficult decisions by yourself?
Ability to handle stress
Entrepreneurs are subject to a lot of stress. Stress may be the result
of either difficult decisions that must be made, dealing with
stakeholders in the business or working long hours. Are you excited
about your business prospects? Do you derive a great deal of
enjoyment from your work?
Problem solving
Running your own business requires that you are able to solve
problems. Do you have the ability to solve the root cause of
problems in creative ways?
Goal orientation
One feature that differentiates an entrepreneur from an employee
is the ability to develop and achieve goals. You should be able to
envision where your business is headed and to see the bigger
picture, rather than just focusing on minor details. Have you drawn
a vision and set a goal for your business?
Social support
Running your business will take a lot of time and effort. It is
important to have adequate support from family, friends and other
business people. Do you have a social network of people and
organizations that will support the realization of your dream?
Financial situation
Access to financial resources to start your business is important.
Have you set money aside to get your business started? If you need
additional funds, do you have family or friends who might be willing
and able to lend you money, to use their assets to guarantee your
loan with a financial institution? Do you have a savings or credit
history with a financial institution that offers loans to new
businesses?
2 |Start Your Business

AREAS THAT
AREAS OF
SKILLS NEED
STRENGTH
IMPROVEMENT
Technical skills
Technical skills are the practical abilities you need for your business
idea to result in goods produced or services provided. For example,
if you want to start a cell phone service and repair shop, you need
to know how to repair cell phones. Do you have technical skills that
are necessary for your business?
Business management skills
Business management skills are the abilities to run your business
efficiently. Do you have skills in marketing, costing, record keeping,
people motivation, etc.?
Knowledge of your line of business
The more you know about your line of business, the more you will
avoid making costly mistakes. Do you have a detailed knowledge of
the specific type of business that you want to start?
Negotiation skills
Negotiation skill is the ability to communicate with others without
offending anyone. When you negotiate, you not only think about
what is in your favour, but you must be aware of things that are in
the other person’s favour also. Can you get what you want from a
negotiation in a way that both parties can benefit?
AREAS THAT
AREAS OF
ENVIRONMENTAL AND COMMUNITY CONCERNS NEED
STRENGTH
IMPROVEMENT
Your business and the environment
As an entrepreneur, you need to know the environmental issues
affecting your line of business. Do you know how to sustain the
natural capital or resources on which your business depends?
Commitment to your community
Your business needs to be community friendly. Entrepreneurs are
important members of the community and you need to have a
commitment to the advancement of the community as a whole. Do
you have a good relationship with the community?
Number of Number of
areas of areas that need
strength improvement
Count the number of areas of strength and the number of areas
that need improvement and write the total here. ………………. ………………………

Look at the assessment areas above and decide which ones that need improvement or growth
are critical for your business success. Note the number of needed improvements below:
CRITICAL AREAS NEEDING IMPROVEMENT AND GROWTH
2. How to strengthen your entrepreneurial abilities?

There are many ways to alter your characteristics, improve your business skills and situation and
also address the necessary environmental and community concerns. Here are some suggestions
on how to strengthen your entrepreneurial abilities:
Read: Research on books about businesses Attend training: Find and attend university
that can be found in most libraries; also read or privately funded training programmes in

business related articles on the internet, in business management, technical skills or
newspapers and magazines. motivation and entrepreneurship.
Learn from successful business people: You Seek help from others: Talk about the areas
should be able to find successful business that need improvement with your friends
people who will talk to you about their and family. You could also join a business
businesses. If they allow you to visit their association and discuss the issues with other
business locations, observe them as they members in the association.
work and learn from them. If possible, work
as an apprentice in a related successful
business.
You might want to think about finding a partner who complements your abilities, instead of going
into business entirely on your own. A partner might also be able to bring financial resources,
collateral or relationships with financial service providers that could be helpful if your business
ever needed a loan.
There are a number of successful business people who did not have much experience or practice
in a business situation before starting their businesses. What is important is to be aware of the
areas that need improvement and develop a plan of action to deal with these before they
negatively affect your business.
Complete the following Action Plan to help you think about ways to improve your
entrepreneurial abilities.

ACTION PLAN
My characteristics and situation What will I do to strengthen them?
My skills What will I do to strengthen them?
Environmental concerns What will I do to address them?
Community concerns What will I do to address them?
“Include these issues in your capacity development plan in the Action Plan at the
end of this manual.”
Now do you feel comfortable about starting your own business?  Yes  No
If you are comfortable about starting your own business and think that you will be able to work
on the areas that need improvement, you are ready to start planning. The following parts will
guide you in the process of creating an Action Plan to actually start the business.
If you have answered “No” to the question above, think more about what you can do to improve
your abilities as an entrepreneur. Remember, not everyone can run a business. If you still do not
feel comfortable about starting a business, maybe you should work for somebody else instead.

In Part I you have learned the following:
 Before you decide to start your own business, you should assess whether or not you are
ready to run a business.
 The success of your business will depend on your personal characteristics, situation, skills
and how well you address environmental and community concerns. The more
entrepreneurial characteristics, situation and skills you have, the more likely it is that
your business will succeed.
 You can make yourself aware of the characteristics that need improvement, change your
situation, address environmental and community concerns and acquire the skills needed
for the business.

PART II – THE BUSINESS PLAN
1. Why is Business Plan important?

Putting your ideas and information together is called making a Business Plan.
You need to prepare the Business Plan because it helps you to:
 Decide if you should start your business or not. Starting a business will change your life
completely. Therefore, you need to make sure that you make the right decision. The
Business Plan will help you to judge whether or not starting a business is the right
decision.
 Organize your ideas so that you will see how to start and run your business in the best
possible way. The Business Plan follows a standard sequence of relevant topics which will
help you to visualize the road ahead.
 Present your Business Plan to investors or to a lending institution, such as a bank or a
microfinance institution, to obtain a loan. By preparing the Business Plan yourself, you
will be able to answer most of the questions they may ask.
The accompanying booklet contains the outline of the Business Plan that you will complete for
your business idea.
“It is important to continually take the time to find new and better information. Feel
free to go back and change the Business Plan at any time as you work through the
manual.”
2. Content of the Business Plan

A Business Plan should cover all the important aspects to be considered before starting a
business.
Main parts of the Purposes

Business Plan
Executive The executive summary is an outline of your business idea. You will, therefore,
Summary need to complete all the other parts of the plan before doing the executive
summary. It must be clear and organized, because it is the first impression one
gets of your business idea.
The business idea All business plans are based on an idea. Part III helps you to think about the
concept of your business idea so that you can put your idea in writing at the
beginning of your Business Plan.
Part II – The business plan | 9

The Marketing Marketing is everything you do to find customers and satisfy their needs while
Plan making profit. Part IV helps you to think about and create your Marketing Plan.
Staff You need to think about staffing your business. Part V helps you to think about
all the jobs that need to be accomplished in your new business and to decide
who will do them.
Organization and Part VI explains the different types of businesses and helps you to decide which
Management type suits you best. Part VI also helps you to understand the legal requirements
of your business and shows you how insurance can provide a form of financial
security against risks.
Buying for your Whatever business you are in, you need to buy before you make or sell your
business products. Part VII will advise you on what you should consider when you buy to
start your business.
Greening your Different businesses depend upon and use natural resources in their production
business processes in different ways. Part VIII introduces the three “Rs” strategy: Reduce,
Reuse and Recycle to help your business have a positive impact on the
environment and be more profitable.
Costing To be able to set your prices and make a financial plan, you need to calculate the
cost of your products. Part IX shows you how to do costing.
Financial All businesses need to plan for the future. Part X helps you plan how to make a
Planning profit and how to handle the cash flow for your new business.
Required Start- To start a business, you need money for equipment, materials, rent, wages, etc.
up Capital Part XI helps you to calculate how much capital you need to start your business.
Sources of Start- When you know how much start-up capital you need, you have to figure out
up Capital how to source that amount. Part XII explains how you can get start-up capital
from both the owner’s equity and loans.
3. Where to find information for your Business Plan?

You can find some of the information on your own and use your own experience to do
many of the estimates and calculations. But some information may be difficult to find and
some estimates and calculations may be difficult to make. It is helpful to have someone
with experience in the business to assist you or to review your Business Plan.
The following list suggests possible sources of assistance:
 Business development services providers that offer different services, such as
management training, access to market information, access to financial information and
technical training. These could be government departments, consultants, specialist
projects or other non-governmental organizations.
 Industry specific associations that offer information on legislation, taxes, standards and
other industry specific developments that might have an effect on your new business.

 Accountants, lawyers and business consultants can assist with some parts of your
Business Plan.
 Financial institutions such as banks, cooperative societies or microfinance institutions
sometimes give assistance to entrepreneurs who apply for a loan.
 International organizations with special projects designed to assist entrepreneurs could
help you access information.
 Yellow pages are where you can find addresses of organizations handling things like
business registration, taxes and financial requirements for small businesses.
 On the internet, you can find most of the information that you will need to complete
your plan.
In Part II you have learned that:

 Putting your ideas and information together is called making a Business Plan.
 A Business Plan helps you to:
- Decide if you should start your business or not.
- Organize your ideas so that you will know how to start and run your business in the
best possible way.
- Present your Business Plan to investors or to a lending institution, such as a bank or a
microfinance institution, to obtain a loan.
 A Business Plan should cover all the important aspects to be considered before starting a
business. It is a guide for you to follow so that you do not overlook anything when
preparing to open your new business.
 You may find information for your Business Plan from the following sources:
- Business development services providers
- Industry specific associations
- Accountants, lawyers and business consultants
- Financial institutions
- International organizations
- Yellow pages
- Internet
Part II – The business plan | 11

PART III – REINFORCE YOUR BUSINESS IDEA
When you see a business opportunity, you need to develop your thoughts into a business idea. A
business idea is a short and precise description of the basic operation of the business. Your
business idea will tell you:
 What good or service will your business sell? Your business idea should be based on a
particular skill that you have. Maybe you have experience with or have been trained in a
specific line of business.
 Who is your business going to sell to? Will you only try to sell to a specific type of
customer or to everyone in an area? It is important to be clear about who you intend to
sell to.
 How is your business going to sell its goods or services? You can sell in many different
ways. A manufacturer can, for example, sell either directly to customers or to retailers.
 Which need will your business fulfil? Your business idea should always have the
customer and the customer’s needs in mind. It is important to find out what customers
want when you work out your business idea.
 What impact will your business have on the community and the natural environment?
Your attitude and people’s view on your business will determine your success. If you
exploit labour and damage the natural environment (waste generation, water wastage,
deforestation) people might avoid your business.
To make sure your business idea is concrete and feasible, answer following questions:
1. What good or service will your business sell?
2. Who will buy your good or service?
3. How are you going to sell your good or service?
4. Which needs will your good or service fulfil for which customers?
Part III –Reinforce your business idea| 13

5. What is the positive or negative impact your business will have on your community and the
natural environment?
If you are not sure about answers to the above questions, you may need to study the
GENERATE YOUR BUSINESS IDEA MANUAL.
Look at how these people have described their business idea:

BUSINESS IDEA
Name of business:
City Garbage Recyclers
The business is going to produce the following product:
Compost manure
The customers will be:
Small-scale farmers, greenhouse farmers, landscaping businesses, hardware stores and plant nurserie
The business will sell the manure by:
Delivering to hardware stores, plant nurseries and greenhouses
Having sales people go from door to door, which will entail distribution
Selling directly to customers from the business location
The business will satisfy the following needs of the customers:
Reduce the problems associated with the disposal of waste in the area
Help farm produce grow faster
Provide farm produce that is more marketable
Offer a product that is environmentally-friendly
CITY GARBAGE RECYCLERS
Prior to starting the business, John and Mary attended a training course on organic farming which
was conducted by a non-governmental organization (NGO). They believe that organic farming will
be touted as the best approach to modern farming techniques.
So they decided to form a partnership and start a business - City Garbage Recyclers
They decided to focus on producing and packaging organic manure.

BUSINESS IDEA
Name of business:
Tosama Cloth Bags
o produce the following products:
d other packaging materials
packaging materials, small businesses, vendors, farmers for storing vegetables in freezers, plus individual consumers who use bags for
he bags as follows:
to bulk buyers and individuals can purchase them from the shop.
fy the following needs of the customers:
onmentally-friendly bags
packaging materials of different sizes to meet the needs of the different business and individual consumers
carriage and storage of goods
TOSAMA CLOTH BAGS
Jane has been interested in environmentally-friendly products for a long time. While surfing the
internet and watching television, she noticed a demand for alternative packaging materials that
were not made from plastic. She has also become aware of businesses that are producing

different types of products from recycled clothes.
Jane visits one of these companies and asks the managers to make special recycled cloth bags.
She provides the company with the pattern of the bags she wants. Jane and the company sign an
agreement that the bags will be sold exclusively to her for the first five years.
Jane plans to sell bags that are produced from recycled clothes.
Think through your own business idea and write it down in section 1: “Business idea” in the
Business Plan booklet. The business idea will guide you as you write the rest of the Business Plan.

In Part III you have learned:
 When you discover a business opportunity you need to develop your thoughts into a
business idea.
 A business idea is a short and precise description of the basic operations of the business:
- What good or service will your business sell?
- Who is your business going to sell to?
- How is your business going to sell its goods or services?
- Which need will your business fulfil for the customers?
- What impact will your business have on the community and the natural
environment?

PART IV – THE MARKETING PLAN
Marketing is an important part of starting and running a business. It helps you to sell your goods
or services in the right way and to the right people.
Marketing is the ability to identify the needs of potential customers and to satisfy those needs
better than your competitors, in order to make a profit.
1. Conduct market research

It is important that you should identify the needs of potential customers and find out how your
future competitors have been satisfying those needs. This can be done by conducting a market
research. From your experience and from developing your business idea, you may already know
quite a lot about your market. But the more you know, the more capable you are to design a
good Marketing Plan.
You need to find out more information about the market from a variety of sources. List all the
sources that you are aware of.
Here are some examples of ways to find out more about your customers and competitors:
 Talk to potential customers. Ask them:
- What goods or services do they want to buy?
- What do they think about your competitors?
 Observe your competitors’ businesses. Find out about:
- What goods or services do they provide?
- What prices do they charge?
- How do they attract customers?
 Ask suppliers and friends in the business:
- Which products do they sell the most?
Part IV – The marketing plan| 19

- What do they think about your business idea?
- What do they think about your competitors’ products?
 Read newspapers, catalogues, trade journals and magazines to get information and ideas
about new goods or services.
 Surf the web to explore what others are doing and to get information about the goods or
services you want to provide, your competitors and new trends.
As you collect information about your customers, remember that potential customers do not all
share the same needs and wants. In order to be able to provide the most adequate good or
service, you need to identify different groups of potential customers that have clear and
distinguishable characteristics. This is called market segmentation. Grouping your potential
customers by their characteristics will enable you to collect detailed and specific information on
their product preferences.

When John and Mary have completed their market research, they write down what they found in
their Business Plan:
MARKET RESEARCH
Needs and preferences of Gaps(that competitors

Products Customers Competitors
customers have not fulfilled)
(1) (2) (4)
(3) (5)
Compost Small-scale Need various types of Cheap “home-made” Compost manure

manure farmers products suitable for the manure provided by should not be
various growth stages of farmers expensive because it
Greenhouse
the plants is easy to produce
farmers in the Other compost
area Need to ensure that the manure factories Current packaging is
product is clean and good whose brands have too big (30 kg) and
Landscaping
for the soil in the long gained a foothold in not convenient for
businesses
term the market individuals to buy and
Plant use
Look for competitively Chemical fertilizer
nurseries
priced products companies whose Some concerns about
Hardware products come in the quality of “home-
Need delivery to their
stores smaller packages and made” manure
locations
provide immediate
Need factory packed and effect on plant growth
labelled products, with a
competitive commission
TOSAMA CLOTH BAGS

When Jane has finished doing her market research, she writes down what she found in her
Business Plan:
Needs and preferences of Gaps (that competitors

Products Customers Competitors
customers have not fulfilled)
(1) (2) (4)
(3) (5)
Laundry Households The need for a pretty, Shops that The trend to be more
bags compact bag that can be sell plastic environmentally-
easily stored (as plastic bags and friendly, to use more
containers take up too containers of recyclable products and
much space) all sizes and to reduce the use of
designs bags and containers
Shopping Retail shops The need for reusable that are not good for
bags shopping bags that are Shops that
the environment
foldable (disposable plastic give away
bags break easily and are disposable The desire to have a
not environmentally - plastic bags to different lifestyle, to
friendly) shoppers avoid using bags and
containers that
Green Urban The need for strong everyone else uses and
waste households, storage bags that can be to want something that
garden hotels and used in multiple ways is more creative
bags restaurants, Good quality with
offices, etc. certification
Vegetable Small-scale The need for storage bags

storage farmers that keep vegetables fresh
bags and that come in various
colours or different
decorative patterns so that
different vegetables can be
stored in different bags
Do market research for your own proposed business by collecting information about your goods
or services, customers and competitors. The five columns in the Market Research form will guide
you.

Column 1: Think about and list each good or service you will sell.
Column 2: Think about the customers who want that good or service and are willing to pay for it.
Write all the types of customers.
Column 3: Think about and list the needs of the customer segments that the good or service may
satisfy. Also, list particular preferences that different customers may have about the good or
service, where those customers may wish to buy it, how the customers want to buy it and what
the customers are willing to pay.
Column 4: Describe the important information that you have learned about your competitors,
especially their competitive advantages.
Column 5: Write down the gaps that you notice in the needs of customers that competitors have
not fulfilled. This information is important for you to decide what you would do differently to
meet the unmet needs and how you would do it.
MARKET RESEARCH
Needs and Gaps (that

Products Customers preferences of Competitors competitors have not
(1) (2) customers (4) fulfilled)
(3) (5)

When you have finished the market research for your proposed business, write your findings in
section 2.1: “Market research” in the Business Plan booklet.
2. Make a Marketing Plan

The market research provides important information about customers’ needs and how your
competitors have been fulfilling those needs. Consequently, in your Marketing Plan, you need to
think about and describe how you will meet the needs that were not met by the competitors.
This will make your business different and stand out from the competitors. To clearly describe
what different methods you will use to serve your customers, write down the seven Ps of the
marketing mix:
 Product
 Price
 Place
 Promotion
 People
 Processes
 Physical Evidence
All of the seven Ps are equally important. They should work in unison and not contradict each
other to produce a synergy that effectively meets the needs of the customers.
2.1 Product
Product can mean more than a single good or service or a range of goods or services you offer.
You will attract more customers if your product is certified by reputable organizations, as you are
making them aware that your products are guaranteed to meet the high standards that have
been set.
You should not only describe your goods or services in general terms, but the more detailed the
description of your goods or services (i.e. their quality, colour, size, packaging etc.), the more the
customers will understand how you will satisfy their needs.

Describe your goods or services with as much detail as possible:
Now, check whether your product meets your customers’ needs:
Customers buy goods and services to satisfy their basic needs and their specific needs. Meeting
their basic needs is only the first step your business should take. Meeting their specific needs may
make your business more competitive and sustainable. The following are examples of how
companies can meet specific needs:
Products Basic needs Specific needs
Fresh Satisfy the need to consume food Vegetables that are cleaned, cut and ready for
vegetables daily cooking, satisfy a need to save time in the
kitchen.
Mobile phones Satisfy the need to communicate A mobile phone shop that offers a decoration
and to be entertained service for mobile phones satisfies the need
to be fashionable and stylish.
“Many customers even go beyond the need for a quality product. People are
increasingly aware of social and environmental issues and prefer products from
companies that do not use child labour or that do not adversely affect the
environment.”
Let’s see how the City Garbage Recyclers and Tosama Cloth Bags described their “Products”.

CITY GARBAGE RECYCLE
MARKETING PLAN
Product
Good, service or range of products
1. Super Organic compost 2. Organic compost 3. 4.
ty Compost with a high percentage of manure, Compost made from organic garbage, without
suitable for plants in the early stage to help any heavy metals and other toxins, suitable for
develop leaves and flowers soil regeneration before planting
ur N/A N/A
10 kg bags 20 kg bags
aging Ordinary recyclable bags Ordinary recyclable bags
fication Organic label Organic label

TOSAMA CLOTH BAGS
MARKETING PLAN
Product
Good, service or range of products
1. Laundry bags 2. Shopping bags 3. Green waste garden bags 4. Vegetable stora
ty  Strong stitching  Strong stitching  Strong stitching  Strong stitch

 Various patterns  Designed to carry goods  Various design patterns  Various desi
 Nice design comfortably patterns
 Easily folded and compacted
when not being used
r Multiple colours Multiple colours with drawings that Green colour Multiple colours
promote the “going green” trend
Small, medium and large Small, medium and large Small, medium and large Small, medium and
ging Two in one None None Three in one
fication Fair trade label Fair trade label Fair trade label Fair trade label

When you have thought about and decided what goods or services you will sell, complete section
2.2:“Product” in your own Marketing Plan in the Business Plan booklet.
2.2 Price
Price is the amount you will charge your customers for your goods or services. Price also includes
any discount you will give and if you are going to offer credit. There are many factors that you
must consider before setting your price.
List all the factors that may influence the price of your goods or services:
To set your prices you have to:

 Be aware of how much customers pay for a similar product and then decide how much
extra they would pay for fulfilling any specific unmet need supplied by your product.
 Know the highest and lowest prices charged by the competitors, so you will have a better
idea of the prices you can charge for your product.
 Know the cost of your products so you can set a price that is above your cost.
You do not always have to set a low price to be competitive. Instead, your price should reflect
your differentiation. For example, if you offer a high quality product, your price should be higher
than the price charged by the competitors. A price that is too low may not cover all the costs and
could be counter-productive, that is, customers may doubt the product quality.
In situations wherein you are selling a totally new product, it is impossible to compare with
competitors’ pricing. What should you do then? You should check with potential customers about
different levels of pricing and see how many of them would agree to buy your product at each
price level.

Once you have decided on your price, you might consider doing several promotions, offering
discounts and giving credit terms to increase sales occasionally. Make sure you have a clear
objective for each discount or credit decision, so that these decisions do not become
unprofitable.
“You have to know your costs before you can set your prices, so you cannot
finalize your prices until you have calculated your costs in Part IX: Costing your
goods and services. At this stage, gather all the information you can and decide on
a probable price, which you can come back and change later.”
See how City Garbage Recyclers and Tosama Cloth Bags set their “Price” on pages 28-29.
Decide what price you will charge, what discounts you will give and if you are going to give credit
to any customer. Fill your decision in section 2.3: “Price” in your own Marketing Plan in the
Business Plan booklet.
John and Mary spoke to potential clients and found out what prices the customers are willing to
pay and what prices their competitors charge. They think that setting a lower price will be one of
the best ways to compete with other companies producing manure. However, they will not
compete against the cheap “home-made” compost provided by individual farmers.

MARKETING PLAN
Price
(for manufacturers and service operators)
1. Super Organic compost 2. Organic compost
Cost $0.76 per kg $0.63 per kg
The price that customers are willing $1.2 per kg $0.8 per kg
to pay
Competitor’s price $1.1 per kg (offered by other factories) $0.7 per kg (“home-made” compost offered by
individual farmers)
Price $0.9 per kg $0.72 per kg
Reasons for setting this price To be lower than competitor’s price and still maintain a Meet the customers’ expectations in terms of price and
19% profit margin quality and still maintain a 14% profit margin
Discounts will be given to the Discount of 10% to hardware shops and plant Discount of 10% to hardware shops and plant nurseries,
following customers nurseries, free delivery to all other customers free delivery to all other customers
Reason for giving discounts Motivate retailers to stock and sell our products to end Motivate retailers to stock and sell our products to end
users users
Credit will be given to the following No credit will be given No credit will be given
customers
Reason for giving credit
Jane has no benchmark to use in order to price her bags as there is currently no product similar to hers in the area. However, customers perceive that

non-plastic packaging is more expensive than plastic packaging. She should educate potential customers about the benefits of her environmentally-
friendly product so that they will be willing to spend more money on her bags than they spend on the plastic bags.
TOSAMA CLOTH BAGS

MARKETING PLAN
Price
(for retailers and wholesalers)
Shopping bags Laundry bags Green waste garden bags Vegetable storage bags
Cost $6.15 $8.61 $8.61 $1.48
The price that customers are

A bit higher than plastic bags and containers
willing to pay
$1-$1.5 per small plastic container
$5 per reusable bag, free $5- $12 per plastic container,
Competitor’s price N/A (more convenient for meat storage
for disposable bags depending on the size and design
than vegetables)
Price $7/ piece $10/ piece $10/ piece $1.6/piece
The price is higher than plastic items, as it provides added value to customers. They look more trendy and more environmentally- friendly
Reason for setting this price
when using our products. It is also slightly more expensive to produce recycled cloth bags than plastic or paper bags.
Discounts will be given to the

Buy one product and get a discount voucher of 5% towards the next purchase (applicable for only the opening week)
following customers
Reason for giving discounts Promote customers to buy more

Credit will be given to the
No No No No
following customers
Reason for giving credit

2.3 Place
Place is a location for your business. If your business is not located where your customers are,
you need to find ways to get your products to the customers. This is called distribution. Choose
between direct distribution, retail distribution and wholesale distribution.
Direct distribution means selling your products directly to consumers. Direct distribution is the
most useful form of distribution for businesses that produce fairly expensive, specialized
products and have few customers.
Retail distribution means selling your products to shops and stores who then sell to the
consumers.
Wholesale distribution means selling your products in very large quantities to wholesalers who
then sell them in smaller quantities to retailers to sell to consumers.
Retail distribution and wholesale distribution are the most useful forms of distribution for
businesses that usually produce large quantities of goods, sell goods at low prices and have many
customers spread over a large area.
The City Garbage Recyclers need lots of space and a place near the source of the food waste and
chicken and goat manure which are the main ingredients for the compost.
Marketing Plan
Place
Location:
The business will be located on a plot situated 15 kilometres from the city centre.
This location has been chosen for the following reasons:
Its proximity to the raw materials, as it is near both a household and restaurant food waste collection plant and some small chicken and
Its proximity to neighbourhoods with unemployed youth needed for labour.
It is also located near some greenhouses.
Method of distribution:
�Direct� Retail
Wholesale Others
This form of distribution has been chosen for the following reasons:
The manure would be available to farmers who buy small amounts from the retailers and also those farmers who w

TOSAMA CLOTH BAGS
Jane’s business needs to be located in an area that has many affluent people who are aware of
environmental management issues. She has found space in one of the malls and intends to
partition the spot she has chosen to make it more appealing to the customers.
Marketing Plan
Place
Location:
I will rent a shop in the nearby mall, which is a shopping complex for affluent people.
This location is chosen for the following reasons:
All the potential customers have easy access to this location, complex is located in a wealthy neighbourhood.
Method of distribution:
�Direct Retail Wholesale Others
This form of distribution has been chosen for the following reason:
The target customers will be approached directly and get educated about environmental issues as well as the solu
Now decide where you should locate your business. Write down the location that you have
chosen in section 2.4: “Place” in your Marketing Plan in the Business Plan booklet.
If you plan to start a manufacturing business, decide which type of distribution you will use and
write it in your Business Plan booklet.

2.4 Promotion
Promotion means informing and attracting customers to buy your goods or services. There are
many different ways to inform and attract customers:
Direct marketing means communicating directly to the customers. Direct marketing may take
many different forms, such as direct email, telephone sales, text messages via cell phones,
emails, interactive websites, forums and fan pages.
Advertising is giving information to potential customers to make them interested in buying your
goods or services. Advertisements on newspapers, magazines, television, radio and outdoor
billboards can reach a large number of potential customers but are often quite expensive. New
types of media, such as blogs, websites, social media or pop up advertisements which are
relatively cheap but still reaches wide audience.
Publicity is gaining visibility with the public through sponsorship of some charity or organizing a
debate about environmental issues or an awards ceremony. In comparison to advertising,
publicity is inexpensive and more credible. However, it is difficult to control what the public says
about you. You should protect your business from bad publicity by maintaining a good reputation
with your customers.
Sales promotions are incentives to simulate immediate sales. Examples of sales promotions are
coupons, samples, premiums, point of purchase displays, contests, rebates and sweepstakes.

TOSAMA CLOTH BAGS
Jane plans to use a persuasive and informative promotion strategy. This is
MARKETING PLAN
Promotion
Means Details Costs

Advertising
Website Develop a website to share information about how recycled
cloth bags are environmentally-friendly and describe the $200
products
Online Buy banners on women’s forums (as they are the target
banners customers) to briefly introduce the environmentally- friendly $150 for 6 months
bags and link to the website
Leaflets Print leaflets with the location of the business and a
description of the types of bags that are sold, distribute the 1,000 leaflets, cost
leaflets to shoppers at the entrance of the shopping mall $150
Publicity/ Direct marketing

Educational Make a story telling how the use of cloth bags benefits both I will do it myself
story the customer and the environment, post it on a social
networking site
Sales promotion
Impressive The bags will be attractively arranged on shelves and stuffed N/A
display of with products that are appropriate to their types and sizes.
bags
Demonstration The shopkeeper will demonstrate new products to customers. N/A
Discount Buy one product and get a discount voucher of 5% on the next $100
purchase (applicable for only the opening week)
Total promotion costs for the year $600

As organic fertilizers improve water retention and soil

fertility, thus contributing to food security and productivity
in the long term, John and Mary plan to cooperate with
agricultural extension service providers to educate the
public about the benefits of organic manure. They will also
use sales promotions to encourage customers to use their
products. This is how they fill in the “Promotion” section of
their Business Plan:
MARKETING PLAN
Promotion
Means Details Costs
Advertising
Brochures Details about the company and the product 1,000 brochures
$200
Publicity/ Direct marketing
Display Display at agricultural exposition $ 500
Demonstration Provide demonstrations on how to use the compost manure Three demonstrations,
for crops, flowers and other plants; invite the target $ 600
customers and local newspapers and television journalists to
attend the demonstration.
Sales promotion
Discount 5% discount for all initial orders, applicable for the first $70
two months only
Total promotion costs for the year $1370
Think about the different methods you can use to promote your business. When you have
decided what methods you will use, fill in section 2.5: “Promotion” of your own Marketing Plan in

the Business Plan booklet.
2.5 People
Please refer to Part V for a discussion about staff in general. From a marketing point of view, the
term “People” refers to the question: “Who will develop the unique characteristic that
differentiates your product?” For example, if you decide to provide better customer service than
the competitors, you will need staff who are customer-oriented. It means they should be
responsible, patient, flexible, sympathetic and enjoy working with different people.
For your Marketing Plan, you will need to:
 Identify the key positions that could make a difference in your business
 Decide the criteria for recruiting people to fill those key positions
 Plan relevant training and coaching for people in the key positions
TOSAMA CLOTH BAGS
Jane is aware that the success of her business will

greatly rely on providing a unique design of the
bags and her ability to persuade customers to
purchase items that are environmentally-friendly.
Below is an example of how she completes the
“People” section of her Business Plan:
MARKETING PLAN
People
Position Recruiting criteria Training plan
Designer Creative part-time designer with N/A

knowledge and experience in
applicable art
Shopkeeper Someone who is presentable, patient Train the shopkeeper on the concept of
and has good communication skills the product, environmentally-friendly
living styles and customer service

John and Mary believe that sales staff play an

important role in their business. Sales staff should
be able to inform customers about the various
types of fertilizers and compost that are
available, make comparisons and give advice
about when to use the product and what
compost is good for each type of plant. They fill in
the “People” section of their Business Plan as
follows:
MARKETING PLAN
People
Position Recruiting criteria Training plan
Sales staff They must have a background in Train them on the various product
agriculture and good communication specifications and consultative sales skills
skills
Think about the key positions you need for your business. When you have decided what they
should be, fill in section 2.6: “People” in your own Marketing Plan in the Business Plan booklet.
2.6 Process
Process includes the various mechanisms and procedures that you use to get the product to your
customers. For example, if a customer goes to a pizza restaurant, he or she not only consumes a
pizza, but also enjoys going through the entire process. This includes easily finding convenient
parking, enjoying the ambiance of the restaurant, reading an attractive menu, getting information
on the menu items from staff and listening to good music while waiting for the pizza. Therefore
you should make sure that each step of the process is a pleasant experience for your customers.

While compost is a tangible product, John and Mary still believe that they should enhance the
customer experience by providing consultative service before and after the purchase. They
decide to create a hotline so that customers can call and ask for advice about how to effectively
use compost products.
Customers call the hotline Get advice Buy organic compost

Call the hotline again if needed
TOSAMA CLOTH BAGS
Jane thinks that the more time customers spend in her shop, the more chance she has to sell
them a bag. She, therefore, designs a process to make her customers enjoy their stay.
Customers stop
They
atare
Tosama’s
invitedThey
shop
to step
watch
in and
a cliptake
and
They
alook
seat
They
listen
at are
the
to bags
invited
the shopkeepers
onto
display
have a cup
whoof
explain
tea the benefitThey
of the
decide
bags to
orbuy
discus
Think about a process that would please your customers and make them decide to buy your
product. When you have decided on a process, fill in section 2.7: “Process” in your own
Marketing Plan in the Business Plan booklet.
2.7 Physical evidence

Physical Evidence is the overall appearance of your product or company. You should consider
what your customers should see and feel whenever they interact with your business or product.
Below are some of the many points of interaction between your business and the public:
 Office premises and interior decoration
 Internet presence and website

 Packaging
 Signage
 Employee uniforms
 Business cards
John and Mary would like customers to perceive their products to have a green image. They
decide to use the following physical evidence:
 Uniforms: Green technician style uniforms for the sales staff.
 Packaging: They use second hand bags with waterproof printing labels showing a picture
of a flower on the bags for the “Super Organic compost” and a picture of a freshly
ploughed field for the “Organic compost”.
TOSAMA CLOTH BAGS
Jane knows that the decoration of her shop should create an environmentally-friendly image for
her customers. She lists the following for the physical evidence:
 Shop decoration: Use brown and green colours, wooden display hooks, indoor green
plants and background sounds of nature.
 Shopkeepers: Wear light colours, simple styles and natural make-up.
Think about the key physical evidence that you would implement for your business. When you
have decided on the appearance you want to give to customers, fill in section 2.8: “Physical
Evidence” in your own Marketing Plan in the Business Plan booklet.
3. Sales estimation
For those businesses that use direct distribution, sales start low and pick up continuously over
time. If you use wholesale or retail distribution methods, sales may be quite good for the first
couple of months because you are sending a supply of your product to wholesale warehouses
and stores, where it is initially stockpiled or put on display before being distributed or purchased
by consumers. Sales may drop for a few months until the wholesalers or retailers sell the product
and place additional orders. Then sales will become more stable and reflect the actual amount of
purchases by the end users.

With their competitive pricing strategy, John and Mary expect to capture at least ten percent of
the compost manure market after six months. The current size of the local market for compost
manure is approximately 8,000 tons per year. They will sell about half directly to small farms,
greenhouses and landscape businesses and distribute the other half to retail hardware stores and
nurseries. Following is their projection of sales from their launch in June to the end of the year.
Total Total
Product Distribution Jun Jul Aug Sep Oct Nov Dec
(bags) (tons)
Direct 480 720 800 1,000 1,200 1,400 1,400 7,000 70

Super Organic
compost (10 Retail 1,600 2,000 400 600 680 800 920 7,000 70
kg bags)
Total 2,080 2,720 1,200 1,600 1,880 2,200 2,320 14,000 140
Direct 600 800 1,000 1,200 1,400 1,600 1,800 8,400 168
Organic
compost (20 Retail 2,000 2,400 400 600 800 1,000 1,200 8,400 168
kg bags)
Total 2,600 3,200 1,400 1,800 2,200 2,600 3,000 16,800 336
Total sales volume 476
Total sales in the market for seven months = 8,000 tons divided by 12 and that figure is multiplied 4,667
by 7.
Market share 10%
TOSAMA CLOTH BAGS
In the first 6 months, Jane intends to open one shop. All of her sales will be made through this
shop directly to consumers. Jane is conservative when projecting sales, as this is quite a new
concept. It will take some time for customers to be educated, to get excited about the idea and
then to actually buy the bags. She targets to gain about five percentage of the current size of the
plastic bags market in the first six months.
Total
Product Jan Feb Mar Apr May Jun
(pieces)
Shopping bags 100 200 300 400 500 500 2,000
Laundry bags 200 400 600 800 1,000 1,000 4,000
Green waste garden bags 300 600 900 1,200 1,500 1,500 6,000
Vegetable storage bags 500 1,000 1,500 2,000 2,500 2,500 10,000
Total 1,100 2,200 3,300 4,400 5,500 5,500 22,000
Total sales volume 22,000
Total sales in the market for six months 400,000
Market share 5%

Think about the sales volume that you could achieve and the market share that you could capture
within six months or one year. When you have come up with a figure, fill in section 3: “Sales
estimation” in your Marketing Plan in the Business Plan booklet.
In Part IV you have learned that:

 Marketing means identifying the needs of consumers and satisfying them better than
your competitors in order to make a profit.
 Your marketing starts with your business idea. Using your business idea, you need to
learn more about your customers and competitors through market research. The more
you know the better you will be at designing your Marketing Plan.
 The Marketing Plan will identify how to market your goods or services. One way of
organizing your Marketing Plan is to describe the seven Ps of the marketing mix.
 Product is the goods or services or range of goods or services you are going to offer to
satisfy the customers’ needs.
 Price means how much you will charge your customers for your goods or services. It also
means what discounts you will give and if you are going to offer credit. To set your price
you have to:
- Know how much the customers are willing to pay
- Know your competitors’ prices
- Know your costs
 Place is always very important because location must be convenient for the customers.
For manufacturers, place means the method of distribution you choose for your
products. Depending on your product, you have to choose between direct distribution,
retail distribution and wholesale distribution.
 Promotion means informing customers about your goods or services and attracting them
to make a purchase. Direct marketing often allows two-way communication between
you and your customers. Technology has recently provided many low or no cost methods
of direct marketing. Advertising is providing information to your potential customers to
make them interested in buying your goods or services. Publicity spreads news about
your business free of charge but you have a very little control over what is said. Publicity

can be either good or bad. Sales promotion provides added value or incentives to
simulate immediate sales when customers come to your business.
 People refers to the question “Who will develop the unique characteristic that
differentiates your product?” You should identify the key positions in your business and
create the criteria for recruitment and training.
 Process includes the various mechanisms and procedures used to get the product to your
customers. You should make sure that each step of the process provides a pleasant
experience for your customers.
 Physical evidence is the overall appearance of your good, service or company. You
should decide what your customers should see and feel whenever they interact with your
business or product.
 Based on the Marketing Plan, you should be able to estimate the sales volume you will
reach in the first six months or even the first year. Look at your market research to get
the total amount of sales in the market for a specific period and then estimate the share
of the market that you think you could get with your Marketing Plan. For your production
or purchase plan, you should also project the amount of sales you will have per month.

PART V - STAFF
When starting your new business, you may need to hire employees. If you employ staff you will
need skills to manage them. You should also adhere to the laws and regulations which apply to
the labour market.
The productivity of your business will largely depend upon the people you employ.
The IYB PEOPLE AND PRODUCTIVITY MANUAL goes into more detail about
how to recruit, motivate and manage your staff to achieve a higher productivity.
You can hire members of your family. To prevent conflicts of interest or resentments by other
employees, make sure that the family members you employ have the required skills and are not
employed just because they are family members. They should not be given special privileges and
should have the same working conditions as other employees.
1. What staff do you need?

Your business idea will help you to decide what skills your staff need. Follow these steps to
determine what staff you will need in your business:
1. List the tasks that will have to be performed; group similar tasks together
2. Decide which tasks you will not have the time or the skill to perform yourself
3. Determine what skills, experience and other requirements you need in the staff you hire to
do these tasks
4. Decide how many employees are needed to perform each task - this will largely depend on
the volume of business you anticipate and the time required for performing each task
5. Prepare job specifications for each position, where you describe the job title, tasks,
responsibilities qualifications and skills needed to perform the tasks
6. Develop staff policies, such as working hours, holidays, annual and sick leaves, etc.
When you are ready to start your business, you will then need to select the right people by
identifying possible candidates or by advertising the opening. Be careful to consider other soft
skills, such as attitude and commitment. Interview qualified applicants and choose the best
person.
All employees need to have a written contract that complies with the labour law and with
government regulations. In addition, your employees will need an induction programme that
makes them feel comfortable in their new working environment and describes how they are to
perform their jobs.
Part V – Staff| 45
2. Staff costs
Consider the costs associated with the staff that you have decided to hire. Your staff costs will
include their monthly salaries, as well as payments for statutory contributions such as insurance,
health services and allowances.
As the owner of the business, you should also determine the salary and other benefits that you
will receive. This amount should not be too low so that the capital of the business is not eroded
by personal or household needs of the owner. It should also not be very high because the more
profit is consumed by the owner, the less a new business can grow.
You may consider employing temporary staff to meet unexpected work demands. You pay
temporary staff an hourly wage, but they receive no other benefits like paid holiday entitlement
or sick leave payments. When you hire temporary staff, you must know in advance when you
need them and for how many hours.
This is how John and Mary decided on their staff requirements and the related costs:
At City Garbage Recyclers, John will be responsible

for the overall management of the business and the
administrative work, while Mary will be the factory
supervisor, responsible for all the production and the
sourcing of raw materials. They plan to use part-time
labour and only employ a few full-time staff. Mary
will need an Assistant Factory Supervisor. John will
need a Marketing Officer, two Sales Assistants and a
driver to manage deliveries. They need an accountant
to do the record keeping but Mary will do it at least
for the first six months.
For the full-time employees ten percentage of the

monthly salary must be contributed to the pension
fund and health insurance scheme.

STAFF REQUIREMENTS AND COST
Contributions to
Task Required skills and experience Performed Monthly pension fund and health
by pay insurance
Factory Manager Degree in commerce John $900 $90
Factory Science degree with a diploma in
Mary $800 $80
Supervisor administration
Diploma in veterinary science
Assistant Factory
from a recognized institution with Michael $450 $45
Supervisor
three years experience
Advanced diploma in sales and
Marketing Officer Joan $500 $50
marketing
Driver /general
Driver’s licence Alex $250 $25
handyman
Part-time Part-time
Certificate in organic farming $3/hour
labourers labourers
At least one year of experience Mark,
Sales Assistant selling compost manure to $600 $60
Mario
farmers
Total number of permanent staff 7 $3,500 $350
Total staff cost per month $3,850
TOSAMA CLOTH BAGS Jane plans to start small. She will perform all the
management duties herself.
She plans to start with only one shop assistant. If this is not
enough, she will employ another assistant later when the
business can afford it. Jane fills in the “Staff” section in her
Business Plan.
Part V – Staff| 47
STAFF REQUIREMENTS AND COST
Contributions to
Required skills and Performed Monthly
Task pension fund and
experience by pay
health insurance
Purchasing, stock
Business management and
control, administration Jane $600 $60
sales
and sales
Sales experience with some One full-

Sales and customer
knowledge of green time $300 $30
service in the store
products employee
Total number of staff 2 $900 $90
Total staffing cost per month $990
Turn to section 4.1:“Organizational structure” and section 4.2:“Staff requirements and cost” in
the Business Plan booklet. Fill in the form describing the tasks for which you need to hire staff,
the qualifications required of each employee, how many employees you need to hire and how
much you will pay each employee per month.
In Part V you have learned:

 Before you hire staff, you need to decide what skills are necessary. Based on that
decision, decide what type of people you are looking for.
 You should follow the laws and regulations which apply to the labour market in your
country.
 You may employ temporary staff, but you should know in advance when you will need
them and for how many hours.
 Staff costs include salaries as well as payments for statutory contributions such as
insurance, health services and allowances.

PART VI – ORGANIZATION AND MANAGEMENT
1. Form of business
Before you start, select the type of business structure that is best for your business. The choice of
the form of business is important and can make a difference with regards to the:
 Cost of a start-up and the amount of legal fees for registering the business
 Simplicity or complexity of starting and administering the business
 Financial risks for the owner of the business
 Possibility of having business partners
 Way decisions are made in the company
 Taxation of business profits
“The rules and regulations for different forms of business vary from country to
country. Find out exactly what rules and regulations apply in your country before
you decide what form of business you will choose. Do not let anyone persuade you
to select one form until you fully understand the advantages and disadvantages of
each structure.”
1.1 The different forms of business

Sole Proprietorship
As a sole proprietor, your business will be owned by you alone and you will have the authority to
make all the business decisions.
A sole proprietorship is an easy and cheap form of business to start. But it is also the most risky,
because you are personally responsible for all the debts of the business. If the business fails to
pay its debts, the creditors can legally force you to pay or they can put liens on any property you
may own until the debts are paid.
Partnership
If two or more people decide to start a business together they can form a partnership.
The procedures for starting a partnership are quite simple and the cost is relatively low. To start a
partnership, the partners enter into a partnership agreement. The partnership agreement should
be in writing to avoid misunderstandings. The partnership agreement should cover:
 A description of your line of business
 How the profit or loss is going to be divided by the partners
 The duties of each partner
The partners jointly make all decisions about the business, unless their partnership agreement
gives the authority to one person to make decisions. It is important to note that if one partner
makes an agreement on behalf of the other partners, the agreement is binding for all partners.
Part VI – Organization and Management| 49

The advantage of a partnership, as opposed to a sole proprietorship, is that it benefits from the
business skills and experience of more than one person and the amount of capital needed to start
the business is a shared responsibility.
Cooperative
A cooperative is formed by a number of people who decide to work together for a common
purpose. The common purpose can be for economic gain or to provide certain services for the
members of the cooperative. For example, these services can be advertising for the cooperative
or sharing the supply of raw materials. All the members of the cooperative have one vote each
when making decisions, but often they appoint a management committee to handle the daily
operation of the cooperative.
Each member of the cooperative buys shares and pays for membership. Profits are allocated
according to the number of shares that each member holds. The financial risks are normally not
very high.
Limited Company
A limited company is owned by one or more owners called shareholders. All the owners may or
may not work in the business or some owners may actively run the business, while others are
merely investors.
To start a limited company, you should follow these steps:
Step 1: The name you have chosen for your business must be approved by the Registrar of
Companies or a similar authority.
Step 2: After approval of the name, the Memorandum and Articles of Association for your
proposed company must be drawn.
Step 3: The Memorandum and Articles of Association are filed with the Registrar of Companies or
a similar authority.
Step 4: The Registrar of Companies issues a Certificate of Incorporation, which means that your
limited company is now formed.
The biggest advantage of a limited company is that there is less risk for each shareholder. In a
limited company, the shareholders are not personally responsible for the debts that the business
might incur.
Another advantage is that a limited company is often considered to be more stable and reliable,
which can be an advantage when dealing with creditors, suppliers and customers.
A limited company is quite complicated and expensive to form. You should always seek assistance
from a lawyer or legal expert to help you decide if a limited company is the right form for your
business.
To foster decision-making processes, the shareholders will appoint a board of directors that is
responsible for the management of the business. The board of directors can, in turn, appoint one
or more managers to run the business. The shareholders, board of directors and managers can be
the same people.

1.2 How to select the right form of business?
In the table on the next page you can see the main differences between the four legal forms of
business. Use it to assess which factors are important for you:
 If your business will have to borrow a lot of capital to buy equipment, it would be better
not to be personally responsible for the debts therefore a limited company would then
be most suitable.
 If your business will not have to borrow a lot of capital, a sole proprietorship or
partnership would then be more suitable.

Sole Proprietorship Partnership Cooperative Limited Company
Registration Must obtain a business Must obtain a business licence Must obtain a business licence and Must obtain a business licence
licence and register a partnership deed register as a cooperative and register as a limited
company
Legal cost of starting a The cost of the business The cost of the business licence Legal fees to write the Articles of Legal fees to write the Articles of
business licence and the registration fee for a Incorporation, the cost of buying the Incorporation, the cost of
partnership deed shares and annual membership fees various forms, stamp duty, plus
plus licence and registration fees licence and registration fees
Level of legal difficulty Simple Simple Complicated, requiring legal counsel Complicated, requiring legal
counsel
Number of owners One Two or more Many One or more
Financial responsibility of Complete personal Complete responsibility by the No personal liability by the members No personal liability by the
the owner for the responsibility for all future owners for all future debt for the debts shareholders for the debts
business debts debts
Decision-making in the All the decisions made by All decisions are made jointly by Every member has one vote. A The shareholders appoint the
business the owner all the owners unless other management committee is often board of directors who can
arrangements are written into the appointed to run the business. appoint managers to run the
partnership agreement business
Taxation The owner is taxed for The owners are taxed individually The cooperative pays tax on business The company pays tax on
business profits for their share of the business profits business profits
profits

CITY GARBAGE RECYCLERSJohn and Mary realized that relatively high costs will be incurred in
obtaining different licences from different regulatory
bodies. In order to keep individual costs low and yet
manage the business effectively, they decide to enter into
a partnership agreement. Consequently, they register it
with the office of Register of Deeds.
Their partnership agreement includes:

Line of business: Manufacturing organic manure
Division of profits: The profit will be divided equally between John and Mary.
Duties of partners: John will be responsible for the overall management of the business and
Mary will be responsible for managing the factory.
When they have agreed to start their business as a partnership, they fill in the “Legal Form of
Business” section of their Business Plan.
LEGAL FORM OF BUSINESS

The business will operate as a:
Partnership
The reason for choosing this form of business is:
It is simple to start and will not require a lot of financing. The two partners have enough
money to pay for the various licenses and assessments that are required.
The owners will be:
Name Name
John Mary
Description of skills Description of skills
Degree in Commerce Bachelor of Science degree
Certificate in Organic farming Human Resource Management diploma
Administration and sales Certificate in organic farming and organic manure
Management diploma
Relevant Experience Relevant experience
Assisting in farm activities Farming experience

TOSAMA CLOTH BAGS
Jane has been thinking about the legal form of business

she should choose for her shop. Jane knows that the risk
is higher if she runs her business as a sole proprietor, but
the simplicity of starting as a sole proprietor appeals to
her. It is also cheaper than registering as a limited
company. Jane decides to run her business as the sole
proprietor. She writes it down in her Business Plan.
LEGAL FORM OF BUSINESS
The business will operate as a:

Sole Proprietorship
The reason for choosing this form of business is:
The simplicity and low cost of starting the business makes it worth the risk that is
involved compared to a limited company.
The owners will be:
Name: Jane
Description of skills: Business management, sales and marketing
Relevant experience: Four years of working experience in green products
Think about the advantages and disadvantages of each form of business. When you have made
your decision, fill in section 5.1: “Legal form of business” in the Business Plan booklet.
2. Legal responsibilities and insurance

Taxes
Your business will collect some taxes from your customers and forward them to the government
tax agency, for example, sales tax or value added tax. The business is also responsible for
deducting and forwarding to the tax authority Pay as You Earn (PAYE) or income taxes from
employee salaries.
Other taxes are paid by the business itself. If the business is profitable, the government tax
authority will tax a percentage of the profit. When your business buys goods or services from

other businesses, it is responsible for paying sales tax or value added tax to those businesses,
which will then forward that amount to the tax authority.
Employees
Find out what labour laws and regulations apply to your line of business. For instance in most
countries, when you hire permanent employees you need to contribute to the pension fund and
to the health insurance programme.
Licences and permits
Find out if you need a licence and where to get it. For some businesses there may also be special
permits needed to operate. Find out if this applies to your business.
Insurance
If you insure your business, you will have some financial security against losses that are caused by
accidents, disasters or other types of incidents.
Risks such as a drop in the demand for your good or service are part of running a business, but
other types of risks can be offset through insurance, for instance:
 Property, machines, stock and vehicles can all be insured against theft.
 Property can be insured against damage caused by fire or accidents.
 Your employees, your family and you can all be insured against accidents and for medical
expenses.
CITY GARBAGE RECYCLERSContact insurance companies to know which insurance is best for your
business. You should understand and compare the
payment and claims procedures that are offered by
different insurers. Ask questions such as: How easy will it
be for your business to file for a claim if something
happens? Will the policy be cancelled if they are late to
make a payment?
John and Mary have contacted the regional tax office and
local government authorities to find out what legal
requirements apply to their business. They write down
what they have learned in their Business Plan.

LEGAL RESPONSIBILITIES AND INSURANCE
The following taxes apply to the business:

Income tax, value added tax
The following regulations apply to the employees:

Need to provide paid holidays, sick leave, minimum wages and follow minimum hours of
work guidelines.
The business will need the following licenses and permits Cost
Trade license per Year $300
City Council license per Year $300
Other responsibilities of the business:

Environment assessment per year $600
TOSAMA CLOTH BAGS

Jane has also contacted other people in business and an insurance
company to find out about legal requirements and
insurance costs. She writes down what she learned in
her Business Plan.

LEGAL RESPONSIBILITIES AND INSURANCE
The following taxes apply to the business:

Income tax
The following regulations apply to the employees:

Need to provide paid holidays, sick leave, minimum wages and follow minimum hours of
work guidelines.
The business will need the following licenses and permits Cost
Business licence $0
The business will need the following insurance:

Insurance for stock and equipment per year $600
Other responsibilities of the business:

To help collect garbage to keep the area clean $10
Go through the list below and think about what legal responsibilities apply to your business and
what insurance you will need. Add things to the list if necessary.
Applies to you Where to find more

Legal responsibility
(tick) information?
TAXES
Sales tax or value added tax

Employee’s income tax
Tax on business profit
EMPLOYEES
Minimum wage
Allowable number of hours an
employee can work per day
Holidays
Occupational safety and health
Sick leave

LICENCES AND PERMITS
Business licence
INSURANCE
Property
Damage
ENVIRONMENTAL MANAGEMENT
Environmental licence
Review all of these legal responsibilities and insurance, fill in section 5.2: “Legal responsibilities
and insurance” in the Business Plan booklet.
In Part VI you have learned that:

 There are several forms that you can select for your business. The form or type of
corporate structure is important and can make a difference in:
- The cost of starting and registering the business
- The simplicity or complexity of starting and administering the business
- The financial risk for the owner of the business
- The possibility of having partners
- The way decisions are made in the business
- The taxation of business profits
 A sole proprietorship is an easy and cheap form of business to start. But it is also the
most risky, because you as the owner are personally responsible for all the debts of the

business.
 A partnership can be an advantage if the business needs skills or experience which you
do not possess. Partners can also help by contributing capital to start the business. All
partners share the responsibility for the debts of the business so your own risk is
reduced.
 A cooperative is formed by a number of people who decide to work together for a
common purpose. The common purpose can be either economic gain or to provide
certain services for the members of the cooperative.
 The biggest advantage of a limited company is that there is less risk for each shareholder.
As a shareholder you only risk losing the money you put into the business when
purchasing shares. But a limited company is quite complicated and expensive to form.
 When you run a business you have legal responsibilities, including paying taxes, following
labour laws and regulations, getting licences and permits and abiding by lease
agreements and other contractual agreements.
 Insurance can provide some protection against financial losses that are caused by
accidents, theft, fire, illness and other types of incidents.

PART VII – BUYING FOR YOUR BUSINESS
If your business is manufacturer or service provider, you need to buy equipment and raw
materials to make goods or services. If your business is retailer or wholesaler, you need to buy
finished goods to resell.
1. Equipment
Equipment is all the machines, tools, workshop fittings, vehicles etc. that your business needs to
make goods or supply your services. To choose good equipment, you should consider:
 Does the equipment work well? How often does it break down?
 Is there another new kind of equipment that would be better?
 Which equipment is the cheapest to run and easiest to operate?
 Do I need special training to use the equipment? Can I get it? Is it free?
 How long will the equipment last?
 Does the supplier give a written guarantee?
 Will the supplier install the equipment and service it?
 Are spare parts available locally? How quickly can I get them? How much do they cost?
You may get advice from suppliers on the equipment, but also talk to your family members,
business friends and people who use the same or similar equipment. You can also find
information on equipment specification, reliability and limitations on the internet.
Finally, you should decide what is the best use of your business money. Should your business:
 Buy new equipment?
 Buy second-hand equipment?
 Borrow, rent or lease equipment?
 Pay another business that has the equipment to do the work for you?
Investment in renewable energy
There are three major reasons why you might want to invest in renewable energy (such as solar
power, wind energy, bio-gas, etc.) equipment:
 Your planned business is in a place where there is no electricity or the national grid is
very unreliable and power outages will disturb your production and business.
 It is cheaper to produce energy using renewable forms. You will save on energy costs in
the long run even if the equipment is more expensive.
 Governments incentivize the investment in renewable energy. Subsidies are paid in the
form of feed-in tariffs, either for the electricity generating equipment or for the
investment.
If you are considering buying renewable energy equipment, find out what equipment is needed,
the capacity of the available equipment, the amount of electricity you will need and the
investment costs taking the government subsidies into consideration.
Part VII – Buying for your business| 61

John and Mary need to buy equipment to produce compost manure. They have asked equipment
suppliers in the city and also taken advices from a NGO. The NGO provided them with useful
information on several types of equipment. Finally, John and Mary decide to buy duo-energy
equipment, which is operated by electrical power and bio-gas. It is more expensive than the
electrical equipment but it can save on energy costs.
2. Raw materials
Raw materials are all the materials and parts that go into the products you make. Planning the
raw material your business needs is important to ensure that the business has sufficient raw
materials for production so that products are delivered timely to the customers. You may need to
stock raw materials to ensure they are available when you need them. But overstocking will
waste your money so you should keep the stock of raw materials as minimum as possible. Based
on the sales estimation in Part IV: Marketing Plan, you can estimate the right amount of raw
materials that your business needs.
You should buy the materials from reliable suppliers and make sure the quality is good, which will
increase the acceptance of your products in the market place.
3. Finished goods
When you buy finished goods, you should consider:
 Which types of goods do your customers want?
 Do your customers want quality assured goods?
 What are your customers’ environmental concerns? Any health concerns?
 What prices are your customers willing to pay?
 How many of each type of good can you expect to sell per week or per month?
 Can you buy the goods directly from the manufacturer or should you buy from a
wholesaler?
Similar to buying raw materials, you can estimate the amount of finished goods needed based on
the sales estimation so that you can keep stock of finished goods as minimum as possible.
Some suppliers are willing to provide goods on credit to increase sales. Buying on credit is often
expensive, as you might be required to pay interest fees on top of the base purchase price.
However, it could help you to get through your start-up phase, if you do not have sufficient
capital.
TOSAMA CLOTH BAGS
Jane visited some suppliers and asked them to make special recycled cloth bags according to the
pattern that she provided. Finally, she selected a company that can make bags in the quantity and

quality she requires. Jane and the company have signed an agreement that the bags will be sold
exclusively to her for the first five years and the payment will be made on the first day of the
following month.
A good buying process will save costs for your business. The IYB BUYING AND
STOCK CONTROL MANUAL goes into more detail about how to buy well and
control stock efficiently.
Think about your business and list down all things that you need to buy to start your business.
Things need to buy Requirements Suppliers Costs
Equipment:
Raw materials:
Finished goods:
In Part VII you have learned that:

 You should make sure that the equipment that you plan to buy can make goods or
services in the quantity and at the quality you have described in the Marketing Plan.
 You should buy the materials from reliable suppliers and make sure the quality is good.
Ensure that the raw materials you purchase meet the required quality standards. Using
Part VII – Buying for your business| 63

quality assured raw materials increases acceptance of your products in the market place.
 If your business is retailer or wholesaler, when you buy finished goods to resell, you
should consider:
- Which types of goods do your customers want?
- Do your customers want quality assured goods?
- What are your customers’ environmental concerns? Any health concerns?
- What prices are your customers willing to pay?
- How many of each type of good can you expect to sell per week or per month?
- Can you buy the goods directly from the manufacturer or should you buy from a
wholesaler?
 If you buy renewable energy equipment, find out what equipment is needed, the capacity
of the available equipment, the amount of electricity you will need and the investment
costs.

PART VIII – GREENING YOUR BUSINESS
1. Your business and natural resources

Businesses depend upon natural resources and use them in the production process in different
ways, including:
 Most businesses need materials in their production. These can be renewable ones such
as wood, recycled ones such as from plastic waste or non-renewable ones such as
cement, non-recycled iron and wood from deforestation activities.
 Most businesses need electricity or heat energy in their business. Energy can come from
renewable sources such as from wind, sun, water flow, sustainable wood or from non-
renewable sources such as diesel and fuel.
 Most businesses need water. Water can come from sustainable sources such as from
rainwater harvesting or unsustainable sources such as excessive groundwater pumping.
Most businesses also produce solid and water waste which the natural environment
needs to absorb.
All businesses are located in and surrounded by natural environment. This natural environment
can be clean and healthy or very polluted and dirty. A healthy natural environment is an
advantage to your business. Notably when you work in tourism the beauty of the place will
attract tourists and make them stay longer. Overuse of natural resources and excessive pollution
leads to their depletion and affects the viability of businesses depending on them. For instance,
businesses that deforest and overuse wood from non- regenerating forests will cause soil
erosion, lack of wood for future needs, deterioration of natural water purification and climate
change. This, in return, will affect the business itself, as it depends on wood, clean water or fertile
soil. Businesses also rely on the health of their workers and owners which is threatened by the
degradation and pollution of the environment.
There are a number of strategies that businesses are employing in the management of the
natural resources, which you should consider for your business. The following is a strategy that
has a positive impact on the environment, as well as improving the profitability of businesses.
2. Increase efficiency and profits: reduce, reuse, recycle

A common strategy for increasing efficiency and hence profits is the three “Rs” approach:
Reduce, Reuse and Recycle. Businesses that tap into the opportunities which arise from these
strategies are those like John and Mary’s City Garbage Recyclers.
Part VIII – Greening your business| 65

Reduce Reuse
Recycle
Dispose
Reducing unnecessary consumption and therefore, waste is the most important step. It can be
done if we change our consumption behaviour by buying more durable products, keeping them
longer and not turning them in for each new “innovative” product in the marketplace.
Reusing things is another way to diminish the amount of waste we produce. Old objects can be
used in new ways. Using old objects to create new objects is a reuse.
Recycling is the third priority in the three “Rs” efficiency strategy. It can be done when reduction
and reuse are not possible. Recycling can provide new raw materials from waste materials.
Therefore, recycling prevents waste disposal and the need to extract more raw materials from
the natural environment to create more new products. It establishes a cyclical production
process.
Disposal is the last resort. It is chosen after all the other waste management options have been
exhausted. Disposal involves the dumping and incineration of waste. Therefore, the waste should
undergo pre-treatment before being ultimately disposed in order to decrease the quantity of
waste or its toxity.
3. Classifying the waste

When we produce waste, most people do not separate organic waste from inorganic waste, but
dispose all the waste together. To categorize and then sort the waste is essential.
Organic waste is biological. Some examples are rotting plant life, food and animal waste. Due to
its characteristics, this waste is also called “wet waste”. It is biodegradable and can be processed
into organic fertilizer like the compost that John and Mary at City Garbage Recyclers plan to sell.
Inorganic waste is that which does not come from nature, but is produced by mankind. Some
examples of typical inorganic waste are metals, glass and plastic. This waste contains many
materials that can be recycled. Due to its characteristics, inorganic waste is also called “dry
waste”. Tosama Cloth Bags is an example of using dry waste – recycled cloth to produce
environmentally-friendly products. Recycling dry waste is a sensible way to expand your business
opportunities.

Now think about your business and the waste that is created. What can be reduced and what can
be reused, recycled or sold as a raw material? For what purpose can items be reused or recycled?
List the waste, estimate the quantity and suggest a strategy to Reduce, Reuse and Recycle (The
three “Rs” strategy):
Wastes Quantity Three “rs” strategy
In Part VIII you have learned that:

 Your business may depend upon and use natural resources in different ways. Overusing
natural resources leads to their depletion and affects the viability of your business.
 There are a number of strategies that businesses are employing in the management of
the natural resources which your business should consider. A common strategy for
increasing efficiency and hence, profits is the three “Rs” approach: Reduce, Reuse and
Recycle.
 By sorting the waste that is produced by your business into organic waste and inorganic
waste, you are not only creating a positive environmental impact, but also may be saving
on material costs of production.
Part VIII – Greening your business| 67

PART IX – COSTING YOUR GOODS AND SERVICES
In Part IV “Marketing Plan” you have learned how to determine the prices for your goods or
services. Another factor that you should consider is the cost of making and selling your goods or
services. This will help determine whether the prices you have set will make your business
profitable.
1. What are costs

Costs are all the money your business spends to make and sell your goods or services. Costs for
businesses can be broadly classified into two categories: Fixed Costs and Variable Costs.
Fixed Costs remain constant even when production volume changes, sales volume changes or the
amount of services being provided changes. Rent, loan payments and salaries for administrative
workers are examples of Fixed Costs.
Fixed Costs can change sometimes. For example your rent may increase. But reasons for the
change are not related to the production or sales volume.
Variable Costs are those that fluctuate with production volume, sales volume or the amount of
services you provide. For example, raw materials, packaging and wages of production workers
are all Variable Costs.
City Garbage Recyclers have listed some of the following costs that they will have for making
organic compost. Tick all of the Variable Costs?
Costs Costs
Waste vegetables Second hand bags

Chicken manure Equipment
Wages of part-time workers Wages of the owners
Wages of sales staff Telephone
Electricity and water Licences
Insurance Marketing expenses
Transport Herbs
Part IX –Costing your goods and services| 69

The examples mentioned above are easy to classify. Others may be more ambiguous because
they are not strictly fixed or strictly variable. For example, wages for sales staff may include a
fixed salary and a sales commission that varies with sales volume. These costs should be broken
up into separate fixed and variable elements. Only the sales commission would then be treated
as Variable Cost.
Costing is the way you calculate the total costs of making or selling a good or providing a service.
Total variable cost + Total fixed cost = Total cost
Costing helps your business to:

 Set prices
 Reduce and control costs
 Make better decisions about business
 Plan for the future
2. Costing for a manufacturer or service operator

If you are a retailer or wholesaler, turn to page 77.
Manufacturers and service providers follow the three steps below to calculate the total cost of
each product. This is illustrated by using City Garbage Recyclers as an example.
Step 1 Step 2 Step 3

Estimate Estimate Add up
Variable Cost Fixed Cost per Total cost per
per item item item

Below is a Product Costing Form for a manufacturer or service operator.
PRODUCT COSTING FORM

(for manufacturers and service providers)
Product:
1. VARIABLE COST PER ITEM

1 2 3 4
Estimated Estimated
Cost of
Input quantity per cost per
purchase
item item
Estimated Variable Cost per item (1)
2. FIXED COST PER ITEM
Estimated total Fixed Cost per month (2)

Estimated total Variable Cost of the business per month (3)
Fixed Cost per Variable cost (4) = (2)/(3)
Estimated Fixed Cost per item (5) = (4) x (1)
3. TOTAL COST PER ITEM (6) = (1) + (5)
You will need to make a separate Product Costing Form for each of your product. You will learn
how to do each step and how to fill in the form.
STEP 1: ESTIMATE THE VARIABLE COST PER ITEM
To estimate the Variable Cost for each of your goods or services, follow these five steps:
1. List all your inputs that have costs which fluctuate with production volume or the amount of
services provided in part 1 of the Product Costing Form, column 1.
2. Get the cost of purchase for each unit of input and write that cost in column 2.
3. Estimate the quantity of input needed to make one good or service and write that amount in
column 3.
4. Calculate the cost of each input needed to make one good or service by multiplying the unit

cost of each input (column 2) and the quantity of input you need to make one item (column
3); write that amount in column 4.
5. Calculate the Variable Cost per item by adding up all amounts in column 4. Write the result in
the space for item (1).
City Garbage Recyclers is going to make two types of compost fertilizer, one with a moderate
amount of nitrogen and packed in 20 kilograms bags with the title “Organic” and the other with a
high amount of nitrogen packed in 10 kilograms bags with the title “Super Organic”. They filled
out part 1 of the Product Costing Form for their Super Organic compost as follows:

Product: Super Organic compost

1 2 3 4
Estimated Estimated
Cost of
purchase
item item
Waste vegetables $0.05/kg 20.0 kg $1.00
Chicken manure $1.00/kg 3.0kg $3.00
Second hand bags $0.25/bag 1 bag $0.25
Labour $3.00/hour 0.6 hours $1.8
Estimated Variable Cost per item (1) $6.05
Here are some notes on how City Garbage Recyclers completed part 1 of the Product Costing
Form:
1. Input
City Garbage Recyclers lists the input with costs that vary depending on the production volume.
The input includes waste vegetables, chicken manure, second hand bags and the wages for
production labour.
They also use herbs. The cost of herbs varies with the production volume. However, the herbs
needed for a bag of Super Organic compost cost very little and it is difficult to calculate how much
herb they need for one bag, so John and Mary have decided that herbs are not a Variable Cost.
On page 72, you can see how City Garbage Recyclers include herbs in their Fixed Cost.

2. Cost of purchase
In column 2, John and Mary write down the amount they would need to pay for one unit of each
input. They get this information by doing market research and asking different suppliers.
For example, City Garbage Recyclers will use part-time labour for production. Mary knows that
she needs to pay a part-time employee $24.00 per day for eight hours of work, so the hourly
labour cost is $3.00 ($24 per 8 working hours).
3. Estimated quantity per item
John and Mary estimate that they will need 800 kilograms of waste vegetables and 120 kilograms
of chicken manure for processing a batch of Super Organic compost. Each production batch will
provide 400 kilograms of high nitrogen fertilizer. That makes 40 bags per batch.
They divide the amount of each input by the number of bags made from each production batch.
In column 3, they write down how much of each input (20 kilograms of waste vegetable, 3.0
kilograms of chicken manure) that they need to make one bag.
For each batch of production they will need three people working eight hours for one day. This
means they need 24 man hours in total to make 40 bags (3 people x 8 hours x 1 day). Or it means
they need 0.6 hours to make one bag of Super Organic compost.
4. Estimated cost per item
To calculate the cost of each input per item, John and Mary multiply the cost of purchase of each
input (column 2) by the quantity of each input needed to make one bag (column 3). In column 4,
they write down the results of their calculations.
5. Estimated Variable Cost per item
John and Mary add up all the amounts in column 4 to get the Variable Cost for each bag of Super
Organic compost, which is $6.05. They do the same for their Organic compost and calculate that
the Variable Cost of each 20 kilograms Organic compost bag is $10 (see the form on page 77).
“While the Variable Cost per month in your business will vary with production
volume or the amount of service being provided, the Variable Cost per item will
not change unless the market price of the raw materials you use changes.”
When you have estimated the Variable Cost per item, you have completed step 1 of your costing.
STEP 2: ESTIMATE THE FIXED COST PER ITEM
To estimate the Fixed Cost per item for each of your goods or services, use part 2 of the Product
Costing Form and follow these four steps:
1. Estimate the total Fixed Cost per month; write the amount in the space for item (2) on
the Product Costing Form.
2. Estimate the total Variable Cost per month for your business; write the amount in the
space for item (3) on the Product Costing Form.
3. Calculate the ratio between the total Fixed Cost per month and the total Variable Cost

per month, then write the result in the space for item (4) on the Product Costing Form.
4. Calculate the Fixed Cost per item and then write the result in the space for item (5) on
the Product Costing Form.
1. Estimate the total Fixed Cost per month
Work out how much money your business is likely to spend for each item of Fixed Cost every
month. Remember that you might be able to add Fixed Costs for items that you reuse and
recycle, if you are able to do this to make your business more efficient.
John and Mary at City Garbage Recyclers filled out their Fixed Cost Form, as follows:
FIXED COST FORM
1 2
Details Cost per month
Rent 2,000
Electricity and water, including waste water 600
National Environmental Management Assessment fee 50
Trade and City Council licences 50
Labour 3,850
Consumables including recycling and disposal 1,000
Depreciation 500
Transport 450
Maintenance and repairs 200
Herbs 150
Marketing expenses 114

Total Fixed Cost per month 8,964
Here are some notes to help you fill out your Fixed Cost Form.
 Small Variable Costs which are considered Fixed Costs: You should first estimate the
total amount of the input that your business needs each month based on your estimation
of production or sales volume and then multiply the total amount of the input needed
per month by its unit cost.

Herbs are a Fixed Cost for City Garbage Recyclers. This is because a small amount of herbs
is needed for each bag of compost, which makes the cost of herbs for each bag of
compost is difficult to calculate. Based on the sales volume estimation (see Sales
Estimation in Part IV: Marketing Plan, page 39), John and Mary estimate the amount of
herbs they will use each month. To work out the cost of herbs each month, they multiply
the cost of one kilogram by the amount of herbs needed each month.
 Wages that do not vary with production volume: Such costs are regarded as fixed. At
City Garbage Recyclers, the wages for John, his assistant, the driver, the sales staff and
the marketing staff are fixed because they do not vary with production volume. Mary is
directly involved in the production process but her salary will not vary with the volume
produced.
To calculate the fixed wages each month, John and Mary look at their Staff Requirements
and Costs (see City Garbage Recyclers’ Staff Requirements and Costs in Part V, page 45)
and add up all the fixed wages.
 Costs that you do not pay every month: Your business may have some costs that you do
not pay every month, for example insurance, licences, tools and stationery. For these
costs, divide the cost by the number of months the item is used.
City Garbage Recyclers pays $600 once a year for the National Environmental
Management Assessment. So they calculate that their cost per month for the assessment
is $50:
$600
= $50
12 months
City Garbage Recyclers also pays $300 once a year for the trade licence and $300 once a year for
City Council licence. So they calculate that their cost per month for the licences is $50.
Marketing expenses for the first year will be $1,370. So the marketing expense per month is
$114:
$1,370
= $114
12 months
 Depreciation: Depreciation is the loss in value of your business equipment, which is a

cost to your business.
The total cost of equipment

= Depreciation cost
Number of years expected to use it
Decide if your business will have equipment for which you should calculate depreciation. In
general, only calculate depreciation for equipment which:

 Costs a lot of money
 Lasts for a long time
To estimate the life of the equipment, you can:
 Use your own experience
 Ask the company that supplied or built the equipment
 Ask other businesses using the same or similar equipment
If you have more than one machine or other equipment, add up the depreciation per month for
each piece of equipment to give you the total amount you need to include in your monthly Fixed
Costs.
City Garbage Recyclers’ heating machine will cost $20,000 and they expect to use it for five years.
Its depreciation costs per year are $4,000:
$20,000
= $4,000
5 years
They also calculate depreciation cost per year for the mixing machine as $2,000.
To calculate the total depreciation cost per month for your business, divide the total depreciation
cost per year of all the equipment by twelve months. City Garbage Recyclers’ total depreciation
cost per month is $500:
($4,000 + $2,000)
= $500
12
This is how John and Mary completed their depreciation form:
DEPRECIATION FORM
Estimated cost of Estimated life of Depreciation per

Equipment
purchase the equipment year
$4,00
Heating machine $20,000 5 years
0
$2,00
Mixing machine $10,000 5 years
0
$6,00
Total $30,000
0
Depreciation per month $500
Now John and Mary know that their estimated total Fixed Cost per month is $8,964. They write
this figure in the space for item (2) in part 2 of the Product Costing Form for their Super Organic

compost product.
2. Estimate the total Variable Cost of the business each month
The total Variable Cost of your business is all the Variable Costs that your business will have as a
result of producing different goods or services. To calculate total Variable Cost per month for a
good or service, multiply its Variable Cost per item by the quantity your business will make in a
month.
In the sales estimation, John and Mary sell an average of 2,000 bags of Super Organic compost
and 2,400 bags of Organic compost each month. They calculate the total Variable Cost per month
as follows:
Quantity produced per Variable Cost per Total Variable Cost per
Product
month item month
Super Organic compost 2,000 bags $6.05 $12,100
Organic compost 2,400 bags $10 $24,000
Total $36,100
John and Mary write City Garbage Recyclers’ estimated total Variable Cost per month in
the space for (3) on the Product Costing Form.
3. Calculate the ratio between the total Fixed Cost and the total Variable Cost per month
The total Fixed Cost per month is for the entire business and must be divided and shared by each
good or service your business makes or sells. The Fixed Cost for one item depends on the Variable
Cost of making that item. Therefore, to calculate the Fixed Cost for one item, we first calculate
the ratio of Fixed Cost to Variable Cost for the entire business.
John and Mary must add a part of their total Fixed Cost of $8,964 to the cost for each Super
Organic compost bag and each Organic compost bag. They divide the total Fixed Cost of $8,964
by the $36,100 total Variable Cost. They write the result (0.25) in the space for item (4) on the
Product Costing Form.
4. Calculate the Fixed Cost per item
When we know the ratio of Fixed Cost to Variable Cost for the whole business, we can easily
calculate the Fixed Cost per item by multiplying the ratio by the Variable Cost of each item.
John and Mary multiply the $6.05 Variable Cost for a bag of Super Organic compost by the ratio
of Fixed Cost to Variable Cost, which works out to be 0.25. They come up with a Fixed Cost for
each bag of $1.51. They write that number in the space for item (5) on the Product Costing Form.

Product: Super Organic compost

Estimated total Fixed Cost per month (2) $8,964
Estimated total Variable Cost of the business per month (3) $36,100
Total Fixed Cost per Total Variable Cost (4) = (2)/(3) 0.25
Estimated Fixed Cost per item (5) = (4) x (1) $1.51
City Garbage Recyclers is a multiple product manufacturer. For single product manufacturers or
service providers the Fixed Cost per item is estimated by simply dividing the total Fixed Cost per
month by the number of items that will be made each month.
“While the Fixed Cost per month in your business will be constant, the Fixed Cost
per item will vary with the production volume or the amount of services provided.
The more items you make, the lower the Fixed Cost per item and therefore, the
lower the cost is for your product.”
Now that you have estimated the Fixed Cost per item, you have completed step 2 of your costing.
STEP 3: ADD UP TO GET THE TOTAL COST PER ITEM
Upon completing steps 1 and 2, you are ready to work out the estimated total cost per item.
John and Mary have completed steps 1 and 2 for costing their bag of Super Organic compost. To
do step 3, they add up the figures on the Product Costing Form:

Variable Cost Fixed Cost per Total cost per
per item item item
$6.55 $1.51 $7.56
They follow the same three steps for costing their Organic compost. They use a separate Product
Costing Form for Organic compost.

Product: Organic Compost (20 kg bag)

1 2 3 4
Estimated Estimated
Cost of
purchase
item item
Waste vegetables $0.05/kg 40 kg $2.00

Chicken manure $1.00/kg 4 kg $4.00
Second hand bags $0.40/bag 1 bag $0.40
Labour $3.00/hour 1.20 hour $3.60
Estimated Variable Cost per item (1) $10

Estimated total Fixed Cost per month (2) $8,964
Estimated total Variable Cost of the business per month (3) $36,100
Fixed Cost per Variable Cost (4) = (2)/(3) 0.25
Estimated Fixed Cost per item (5) = (4) x (1) $2.5
3. TOTAL COST PER ITEM (6) = (1) + (5) $12.5
3. Costing for a retailer or wholesaler

If you are a manufacturer or service operator, turn to page 68.
Retailers and wholesalers have the same type of costs and can normally do costing in the same
way. They follow these three steps to calculate the total cost of each product.

Get information on Estimate Add up
Variable Cost per Fixed Cost per Total cost per
item item item

To illustrate how a retailer does costing, we use Tosama Cloth Bags as an example. Below is a
Product Costing Form for retailers and wholesalers. You will learn how to do each step and how
to fill in the form.

FIXED COST CHARGE (%)
TOTAL FIXED COST PER MONTH (2) %

= X 100% =
TOTAL VARIABLE COST PER MONTH (3) FIXED COST CHARGE (4)
1 2 3
Variable Cost per item Fixed Cost per item Total cost per item
Product
(1) (5) = (1) x (4) (6) = (1) + (5)
STEP 1: GET INFORMATION ON THE VARIABLE COST PER ITEM

For a retailer or wholesaler, Variable Costs are the costs of buying goods to resell. Although
transport is also a Variable Cost, it is a minimal cost for each item of goods sold, so it is difficult to
calculate and therefore, considered a Fixed Cost.
Jane at Tosama Cloth Bags asks her suppliers for information on Variable Costs per item for the
different products her store will sell. On the Product Costing Form, Jane writes the name of the
product. In column 1, she writes how much she will pay for one item.

TOTAL FIXED COST PER MONTH (2) %

= X 100% =
TOTAL VARIABLE COST PER MONTH (3) FIXED COST CHARGE (4)
1 2 3
Variable Cost Fixed Cost per item Total cost per item
Product
per item(1) (5) = (1) x (4) (6) = (1) + (5)
Shopping bags $5.00
Laundry bags $7.00
Green waste garden bags $7.00
Vegetable storage bags $1.20
STEP 2: ESTIMATE THE FIXED COST PER ITEM

For retailers and wholesalers, Fixed Costs are normally all the other costs you will have for
running your business, except the cost of buying goods to resell. To estimate the Fixed Cost per
item for each of your products, follow these four steps:
1. Calculate the total Fixed Cost per month. Write the result of your calculation in the space
for item (2) on the Product Costing Form.
2. Calculate the total Variable Cost per month of your business. Write down the amount in
the space for item (3) on the Product Costing Form.
3. Calculate the ratio between your total Fixed Cost and the total Variable Cost per month.
Write the amount in the space for item (4) on the Product Costing Form.
4. Calculate the Fixed Cost per item and write the amount in the space for item (5) on the
Product Costing Form.
1. Estimate the total Fixed Cost per month
Here are some notes to help you find out the Fixed Cost Form for your business.
 Labour costs: All salaries, wages and benefits for employees and owners of retail and
wholesale businesses are Fixed Costs.
 Costs that you do not pay every month: Your business may have some costs that you do
not pay every month, for example insurance, licences, tools and stationery. For these
costs, divide the cost by the number of months the item is used.
 Depreciation: See calculation of depreciation on pages 73-74.

Below is an example of how Jane would have filled out her Fixed Cost Form.
TOSAMA CLOTH BAGS
FIXED COST FORM
1 2
Details Cost per month
Rent 2,000
Electricity and water, including waste water 100
Insurance at $600 per year 50
Transport 100
Labour 990
Depreciation 142
Miscellaneous, including recycling and disposal 20
Marketing expenses at $600 per year 50
Total Fixed Cost per month 3,452
Now Jane knows that her estimated total Fixed Cost per month is $3,452. She writes this figure in
the space for item (2) on the Product Costing Form.
2. Calculate the total Variable Cost per month
Total Variable Cost per month is the expenses your business has each month when buying goods
to resell. To estimate the total Variable Cost each month, you will need to use your estimate of
monthly sales.
Using the sales estimation for Tosama Cloth Bags (see the Sales Estimation in Part IV, page 39),
Jane calculates monthly average sales of each product, then fills in the Monthly Purchase Form
and calculates the total Variable Cost as follows:

MONTHLY PURCHASE FORM
Estimated number of Variable Cost Total Variable

Product
items sold per month per item Cost per month
Shopping bags 333 $5.00 $1,665

Laundry bags 667 $7.00 $4,669
Green waste garden bags 1,000 $7.00 $7,000
Vegetable storage bags 1,667 $1.20 $2,000
Total Variable Cost per month $15,334
Jane writes Tosama Cloth Bags’ total Variable Cost per month of $15,334 in the space for item (3)
on the Product Costing Form.
3. Calculate the ratio between total Fixed Cost and total Variable Cost
Total Fixed Cost per month

Fixed Cost Charge = x 100%
Total Variable Cost per month
Here is how Jane calculates the Fixed Cost Charge:
3,452
x 100% = 23%
15,333
It means that Jane must add 22.5% to the Variable Cost of each product to find the total cost.
4. Calculate the Fixed Cost per item
Fixed Cost per item = Variable Cost per item x Fixed Cost Charge
Here is how Jane calculates the amount to add to each shopping bag:
$5.00 22.5% $1.12

Variable Cost per item x =
Fixed Cost Charge Fixed Cost per item
The Fixed Cost for a shopping bag is $1.12. Now Jane knows that she must add $1.12 to the cost
of each shopping bag that Tosama Cloth Bags sells.
Jane uses the same Fixed Cost charge of 22.5% to calculate the amount to be added to each
product in the column 2 of the Product Costing Form.

STEP 3: CALCULATE THE TOTAL COST PER ITEM
To get the total cost per item, you add up the Variable Cost and the Fixed Cost per item. Jane
now has all the information she needs to calculate the total cost of a shopping bag.

item item item
$5.00 $1.12 $6.12
On the Product Costing Form, you can see how the total cost of a shopping bag and the other
products is calculated for Tosama Cloth Bags:

TOTAL FIXED COST PER MONTH (2) 3,452 22.5 %

= X 100% =
TOTAL VARIABLE COST PER MONTH (3) 15,334 FIXED COST CHARGE (4)
1 2 3
Variable Cost Fixed Cost per item Total cost per item
Product
per item(1) (5) = (1) x (4) (6) = (1) + (5)
Shopping bags $5.00 $5.00 x 22.5% = $1.12 $6.12
Laundry bags $7.00 $7.00 x 22.5% = $1.57 $8.57
Green waste garden bags $7.00 $7.00 x 22.5% = $1.57 $8.57
Vegetable storage bags $1.20 $1.20 x 22.5% = $0.27 $1.47
When you know your total cost, refer to the Price Form in the Marketing Plan of your Business
Plan booklet. The final price for your good or service should be set using all of the following:
 The total cost of your good or service: If your total cost exceeds the price customers
would be willing to pay, your good or service is not likely to be profitable.
 The price customers are willing to pay for it: The amount customers are willing to pay for
your goods or services also depends on how you market them.
 The price charged by your competitors: It will be difficult for you to charge higher prices
than your competitors for identical products, even if customers would be able to pay
more.

If you plan to start a manufacturing or service business, fill in section 6.1: “Product Costing Form”,
section 6.3: “Fixed Cost Form”, section 6.4:“Depreciation Form” and section 6.5:“Total Variable
Cost per month” in your Business Plan booklet.
If you plan to start a retail or wholesale business, fill in section 6.2: “Product Costing Form”,
section 6.3: “Fixed Cost Form” and section 6.6: “Monthly Purchase Form” in your Business Plan
booklet. When you have done costing for your goods or service, return to the Marketing Plan and
finalize the “Price” section.
In Part IX you have learned:

 Costs are the money your business spends to make and sell your goods or services.
 Costing is the way you calculate the total cost of making or selling a product or providing
a service. Costing helps your business to:
- Set prices
- Reduce and control costs
- Make better decisions about the direction of the business
- Plan for the future
 The cost of doing business can be categorized as follows:
- Fixed Costs are those that will remain constant even when production volume, sales
volume or the amount of services provided changes.
- Variable Costs are those that fluctuate with production volume, sales volume or the
amount of services provided.
 For manufacturers and service providers, costing a good or service follows three steps:

item item item

 For wholesalers or retailers, Variable Costs are the costs of buying goods to resell.
Therefore, to calculate the Variable Cost in step 1, you only need to get information on
product prices from the suppliers:

item item item

PART X – FINANCIAL PLANNING
Normally during the first few months after a business begins operating, it is difficult to recover
costs or to make a profit. It takes some time before money from sales starts to come in. During
this time your business is very vulnerable and you must keep a careful eye on the financial
situation.
When you start your new business, these two things are very important:
 Do not run out of cash
 Make sure that the operation you have created will eventually become profitable
1. What is financial planning?

Follow these four steps to plan and monitor the financial situation of your business:
1. Make a Profit Plan
2. Make a Cash Flow Plan
3. Compare the financial records with both plans every month
4. Take action if anything is not going according to plan
2. Make a Profit Plan
SALES - COSTS = PROFIT
Profit is the amount of money left after you have subtracted all the costs of your business from
its total sales. So, before making a Profit Plan, you must make both a Sales Plan and a Cost Plan
for your business.
2.1 Sales Plan

A Sales Plan shows the sales your business is likely to have each month. When planning your
marketing (see Part IV), you have estimated the price you will charge for your good or service and
the sale volumes of your good or service per month. Now you should use that information to
make a Sales Plan.
John made a Sales Plan for City Garbage Recyclers as follows:

City Garbage Recyclers started business in April, but it will take two months to set up the factory
before it is ready to make the product available to sell to customers. They will start selling their
Part X –Financial planning | 87

product in June. Therefore, John decided to make a plan from June to December. The selling price
and the sales volume of each product were taken from the Marketing Plan. They worked out the
sales value of each product in a month by multiplying the sales price by the sales volume for that
month. They, then, added up the sales value of the two products to get the total sales of the
business.
SALES PLAN
Details Jun Jul Aug Sep Oct Nov Dec Total

Super organic –
Sales price ($) 9 9 9 9 9 9 9

Direct
Sales volume 480 720 800 1,000 1,200 1,400 1,400 7,000
Sales value ($) (1) 4,320 6,480 7,200 9,000 10,800 12,600 12,600 63,000
Super organic –
Sales price ($) 8 8 8 8 8 8 8

Retail
Sales volume 1,600 2,000 400 600 680 800 920 7,000
Sales value ($) (2) 12,800 16,000 3,200 4,800 5,440 6,400 7,360 56,000
Organic- Direct
Sales price ($) 14.38 14.38 14.38 14.38 14.38 14.38 14.38
Sales volume 600 800 1,000 1,200 1,400 1,600 1,800 8,400
Sales value ($) (3) 8,628 11,504 14,380 17,256 20,132 23,008 25,884 120,792
Organic- Retail
Sales price ($) 13 13 13 13 13 13 13
Sales volume 2,000 2,400 400 600 800 1,000 1,200 8,400
Sales value ($) (4) 26,000 31,200 5,200 7,800 10,400 13,000 15,600 109,200
Total sales value ($)

(5) =(1) + (2) + (3)+ 51,748 65,184 29,980 38,856 46,772 55,008 61,444 348,992
(4)
2.2 Cost Plan

A Cost Plan shows the costs your business is likely to have each month. To make such a plan you
need the Variable Cost per item and the total Fixed Cost per month of your business which can be
obtained when you do costing for a good or service. In addition, you also need to know the
quantity of good or service your business will produce or provide per month. This can be
obtained from the Sales Plan.

“The production volume may be the same as the estimated sales volume if you are
a service operator or if your business does not keep stock of finished goods. But
you may have reasons, such as cost effectiveness, for making the production
volume different from the sales volume”
John decides to produce as much as he can sell, so the production volume will be the same as the
sales volume. He fills in the “Production volume” rows in his Cost Plan.
John then reviewed his costing and found the following information:
 The Variable Cost for one Super Organic compost bag is $6.05.
 The Variable Cost for one Organic compost bag is $10.
 The total Fixed Cost of the business per month is $8,964.
The Cost Plan for City Garbage Recyclers is on the next page.
COST PLAN

Production volume (1) 2,080 2,720 1,200 1,600 1,880 2,200 2,320 14,000
Variable Cost per item

Super Organic
($) (2) 6.05 6.05 6.05 6.05 6.05 6.05 6.05
Total Variable Cost ($)

12,584 16,456 7,260 9,680 11,374 13,310 14,036 84,700
(3) = (1) * (2)
Production volume (4) 2,600 3,200 1,400 1,800 2,200 2,600 3,000 16,800
Variable Cost per item

Organic
($) (5) 10 10 10 10 10 10 10
Total Variable Cost ($)

26,000 32,000 14,000 18,000 22,000 26,000 30,000 168,000
(6) = (4) * (5)
Total Variable Cost of
the business ($) 38,584 48,456 21,260 27,680 33,374 39,310 44,036 252,700
(7) = (3) + (6)
Total Fixed Cost ($) (8) 8,964 8,964 8,964 8,964 8,964 8,964 8,964 62,748
Total cost ($)
47,548 57,420 30,224 36,674 42,338 48,274 53,000 315,448
(9) = (7) + (8)

2.3 Profit Plan
A Profit Plan shows the profit your business is likely to have each month.
Follow these steps:
1. Get the information from your Sales Plan and Cost Plan
2. Put the information in the Profit Plan form
3. Do the calculations on the Profit Plan form to find the likely gross and net profit for your
business in the first year
The plan must show that your business should expect to make enough profit to allow for
something to go wrong. For example:
 Your sales might be lower than you expect
 A machine might break down
Below is the completed Profit Plan that John made for City Garbage Recyclers.
PROFIT PLAN (Unit: $)
Total Sales (1) 51,748 65,184 29,980 38,856 46,772 55,008 61,444 348,992
Total Variable Cost (2) 38,584 48,456 21,260 27,680 33,374 39,310 44,036 252,700
Gross Profit (3) = (1) - (2) 13,164 16,728 8,720 11,176 13,398 15,698 17,408 96,292
Total Fixed Cost (4) 8,964 8,964 8,964 8,964 8,964 8,964 8,964 62,748
Net Profit (5) = (3) – (4) 4,200 7,764 (244) 2,212 4,434 6,734 8,444 33,544
Net profit is negative in August. This is shown by writing the figures within brackets, which means
that City Garbage Recyclers will show a loss during this month. Because of the low sales in
August, the gross profit will not cover the Fixed Cost.
TOSAMA CLOTH BAGS
Jane also follows the same steps and creates the Tosama Cloth Bags Profit Plan for the first six
months, as follows:

PROFIT PLAN – first 6 months
(Unit: $)
Details Jan Feb Mar Apr May Jun Total
Total Sales (1) 6,500 13,000 19,500 26,000 32,500 32,500 130,000
Total Variable Cost (2) 4,600 9,200 13,800 18,400 23,000 23,000 92,000
Gross Profit (3) = (1) - (2) 1,900 3,800 5,700 7,600 9,500 9,500 38,000
Total Fixed Cost (4) 3,452 3,452 3,452 3,452 3,452 3,452 20,712
Net Profit (5) = (3) – (4) (1,552) 348 2,248 4,148 6,048 6,048 17,288
Now follow the same steps to make your own Sales Plan, Cost Plan and Profit Plan for the first
year of your business in sections 7.1, 7.2 and 7.3 in the Business Plan booklet.
3. Make a Cash Flow Plan

A Cash Flow Plan is a forecast of how much cash you expect to come into and go out of your
business each month. The Cash Flow Plan helps you to make sure that your business does not run
out of cash at any time.
There are many reasons that your business may run out of cash. For example:
 You have to build a factory or buy equipment and raw materials before you sell anything.
This means that cash goes out before cash comes in.
 If you give credit to your customers, you do not get paid immediately.
TOSAMA CLOTH BAGS
Jane makes a Cash Flow Plan for the first six months.

CASH FLOW PLAN
(Unit: $)
Month Jan Feb Mar Apr May Jun
1.Cash at the beginning of the month 15,000 2,990 8,180 15,270 24,260 35,150
2.Cash from cash sales 6,500 13,000 19,500 26,000 32,500 32,500
3.Cash from credit sales
CASH IN
4.Other cash in
5.total cash in 6,500 13,000 19,500 26,000 32,500 32,500
6. Purchase of goods 4,600 9,200 13,800 18,400 23,000

7.Payment of wages 990 990 990 990 990 990
CASH OUT
8.Purchase of equipment 8,300

9.Loan repayment
10.Other payments 9,220 2,220 2,220 2,220 2,220 2,220
11.Total cash out 18,510 7,810 12,410 17,010 21,610 26,210
12.Cash at month end 2,990 8,180 15,270 24,260 35,150 41,440
To make your Cash Flow Plan, follow the 12 steps in the plan. Steps 2-5 are for Cash In. Steps 6-11
are for Cash Out. Look at each step for January.
Step 1 - Cash at the beginning of the month: This is the amount of cash that Jane has, plus the
amount of money she expects to have in her bank account when she starts.
Step 2 - Cash from cash sales: This is cash Jane will receive from her customers for sales during
the month of January. Look at Tosama Cloth Bags’ Sales Plan to find the forecast for
cash sales in January.
Step 3 - Cash from credit sales: This is the amount of cash the business can expect to get from
their credit customers during the month. Jane leaves the section blank because she will
not sell on credit.
Step 4 - Other cash in: This is the amount of cash that Jane forecasts she will get from other
sources, such as a loan.
Step 5 - Total cash in: Jane adds up all the amounts from steps two to four.
Step 6 - Purchase of goods: Jane pays her supplier on the first day of the following month, so she
will pay for the goods purchased in January in February. She will write the amount for
January in the February row.
Step 7 - Payment of wages: Jane takes this amount from her Staff Requirements and Costs Plan.
Step 8 - Purchase of equipment: Furniture and other fittings need to be purchased for Tosama
Cloth Bags during January. Jane writes the amount she will pay here. She finds the
amount in her Fixed Costs Form.

Step 9 - Loan repayment: Jane takes soft loans from her friends and she plans to repay the loans
from July.
Step 10 - Other payment: In January, besides her monthly payment of $2,220 (for rent, electricity
and water, transport, miscellaneous), Jane will need to make a deposit for two months
of rent to Real Estate company totaling $4,000. She also records her other expenses of
$2,000 for shop decoration, $600 for insurance and $400 for marketing expenses here.
The calculation is: $9,220 = $2,220 + $4,000 + $2,000 + $600 + $400.
Step 11 - Total cash out: Add up all the Cash Out amounts from steps six to ten. This is the total
cash amount that is paid out by Tosama Cloth Bags during January.
Step 12 - Cash at the month end:
Cash at the month end = Cash at the beginning of the month + Total cash in – Total cash out.

John and Mary at City Garbage Recyclers make their Cash Flow Plan for the first year. They start in April, so their Cash Flow Plan is as follows:
CASH FLOW PLAN

(Unit: $)
Month Apr May Jun Jul Aug Sep Oct Nov Dec
1.Cash at the beginning of the month 47,200 5,750 (700) 4,164 11,922 12,392 15,118 20,266 27,514
2.Cash from cash sales 51,748 65,184 29,980 38,856 46,772 55,008 61,444

CASH IN
4.Other cash in
5.total cash in 0 0 51,748 65,184 29,980 38,856 46,772 55,008 61,444
6. Purchase of goods 38,584 48,456 21,260 27,680 33,374 39,310 44,036
7.Salaries 3,850 3,850 3,850 3,850 3,850 3,850 3,850 3,850 3,850
CASH OUT
9.Loan repayment
10.Other payments 7,600 2,600 4,450 5,120 4,400 4,600 4,400 4,600 4,400
11.Total cash out 41,450 6,450 46,884 57,426 29,510 36,130 41,624 47,760 52,286
12.Cash at month end 5,750 (700) 4,164 11,922 12,392 15,118 20,266 27,514 36,672
The Cash Flow Plan shows that at the end of May City Garbage Recyclers will have negative cash flow. This means the business will run out of money.

The cash level will be very low in other months. It is not safe to operate a new business with such a low level of cash.
John is thinking about getting a soft loan of $3,000 from his friends in May and paying it back from June. If he can do that, the form below shows how
City Garbage Recyclers’ Cash Flow Plan will look like.
CASH FLOW PLAN

(Unit: $)
Month Apr May Jun Jul Aug Sep Oct Nov Dec
1.Cash at the beginning of the month 47,200 5,750 2,300 6,164 12,922 12,392 15,118 20,266 27,514
2.Cash from cash sales 51,748 65,184 29,980 38,856 46,772 55,008 61,444

CASH IN
4.Other cash in 3,000
5.Total cash in 0 3,000 51,748 65,184 29,980 38,856 46,772 55,008 61,444
6. Purchase of goods 38,584 48,456 21,260 27,680 33,374 39,310 44,036
7.Salaries 3,850 3,850 3,850 3,850 3,850 3,850 3,850 3,850 3,850

CASH OUT
9.Loan repayment 1,000 1,000 1,000
10.Other payments 7,600 2,600 4,450 5,120 4,400 4,600 4,400 4,600 4,400
11.Total cash out 41,450 6,450 47,884 58,426 30,510 36,130 41,624 47,760 52,286
12.Cash at month end 5,750 2,300 6,164 12,922 12,392 15,118 20,266 27,514 36,672

Now follow the same steps to fill in section 7.4: ‘Cash Flow Plan’ in your Business Plan booklet.
In Part X you have learned:

 When you start your business, you should make sure that you have enough money so you
do not run out of cash before your business begins to generate income. That is the
reason that you have to plan ahead so that your business not only makes a profit, but has
sufficient t cash to operate.
 During first few months, your new business is very vulnerable, so you must properly
prepare your financing. To plan and monitor the financial situation of your business, you
should:
- Make a Profit Plan
- Make a Cash Flow Plan
- Compare the actual business with both plans every month after the operation has
begun
- Take action if anything is not going according to plan
 Profit is the amount of money left after you have subtracted all the costs of your business
from its total sales. So, before making a Profit Plan, you must make both a Sales Plan and
a Cost Plan for your business.
 A Cash Flow Plan is a forecast which shows you how much cash you expect to come into
your business and how much cash you expect to go out of your business each month. The
Cash Flow Plan helps you to make sure that your business does not run out of cash at any
time.

PART XI – REQUIRED START UP CAPITAL
It is absolutely necessary that you know how much start-up capital you need and where you will
get it before you start setting up your business. You will need start-up capital for:
 Capital investments
 Working capital
1. What capital investments do you need?

A capital investment is the purchase of an asset for the business that is expensive and lasts for a
long time. The capital investment needed can be divided into the following two categories:
 Business premises
 Equipment
Business premises
The size and location of business premises depends on the type of business.
Rate which factors are important or not for your choice of business premises by ticking in the
appropriate column below. Add more factors if needed.
Factor Important Not important

Size of premises
Possibility to expand
Specific layout to suit the business
When you know what sort of premises you require, you need to decide if you should:
 Build the premises
 Buy the premises
 Rent the premises
 Run the business from your home
Building or buying your own property can be the best option if your business has special
requirements for the building or the location of the building. However, this option will require a
Part XI –Required start up capital | 97

lot of capital and it often takes a long time.
Renting the business premises needs less capital than building or buying. It is also more flexible
because it is easier to change the location of your business if you are renting. But it is not as
secure as owning your own property.
Running your business from home is obviously the cheapest option. It can be a good way to start
until your business is successful. However, separating business issues from family issues can be
difficult if you are working from home.
Decide what premises you need for your business.
I will
Build our own premises Buy premises

Rent premises Run business from home
Because:
“If your decision is different now from what you wrote down in the “Place” section
of the Marketing Plan in your Business Plan booklet, go back to that section and
change the location. If the altered location has new cost implications, go back to the
Fixed Cost Form and adjust the fixes accordingly.”
Equipment
Buying equipment may require a large capital investment when you start up the business. Instead
of buying equipment, you can sometimes lease it for a specific time period. You would make
monthly payments for the duration of the lease. You should compare the cost and benefits of
asset loans that may be needed to buy the equipment and leases.
If you decide to lease equipment, you will not have to add the cost of new equipment onto the
amount of initial capital required, but you must add the lease payments to your calculations for
working capital.
2. What working capital do you need?

Working capital is the money you need to pay for the expenses generated when your business
starts production.
Some businesses will need enough working capital to cover all costs for a few months or even a
year or more. You must estimate how long it will take before your business will receive sufficient
revenues to cover your on-going expenses. Plan to keep a bit more working capital than you think
you need.
You will need working capital to cover:
 Stocks of raw materials and finished products
 Promotional activities
 Salaries
 Rent
 Insurance
 Loan or lease payments
 Other costs
TOSAMA CLOTH BAGS
Jane tried very hard to accurately estimate how much

start-up capital she needed for Tosama Cloth Bags. She
believed that it would take only three months before the
money coming in from sales was sufficient to pay her
monthly expenses.

REQUIRED START-UP CAPITAL
For a period of three months (January to March) Unit: $)
INVESTMENTS
Business premises
 Construction or purchase of a building 0

The rented shop will
be modified to allow  Conversion or reconstruction of business 2,000
for a display. premises
Equipment
Jane plans to buy  Furniture 8,300 10,300

furniture for the
WORKING CAPITAL
business.
Stock of raw materials or finished goods 13,800
Marketing 600
Salaries ($990 x 3 months) 2,970

Rent is for five
months, includes Rent for three months and two month deposit
10,000
two month ($2,000 per month)
deposit.
Licence and registration 0
Electricity and water 300

Other costs like Insurance 600
stationery and
consumables etc. Other costs 360 28,630
TOTAL START-UP CAPITAL 38,930
John and Mary also estimated how much start-up capital

they needed to start their business. They plan to start their
business in April and think that it will take two months
before sales fully cover their monthly expenses. This is their
estimation:

REQUIRED START-UP CAPITAL
For a period: Two months (April and May) Unit: $)
INVESTMENTS
Business premises
 Construction or purchase of a building 0
 Conversion or reconstruction of 0
business premises
Equipment
 Machinery and tools 28,000
 Furniture Fittings 2,000 30,000

They do not stock raw WORKING CAPITAL
materials until the
business starts. Stock of raw materials or finished goods 0
Trade and City Council licences 600
Marketing expenses 200

Rent is for four months,
including two month Salaries ($3,850 x 2 months) 7,700
deposit.
Rent 8,000
Start-ups are less likely to National Environmental Management

get emergency liquidity 600
Assessment fee
from banks or other
sources, unless they have
Electricity and water 200
a good credit history.
Thus it is important to
budget for Contingency for emergency (30% of
5,000 22,300
emergency/the working capital as normal standard)
unexpected.
TOTAL START-UP CAPITAL 52,300

Turn to section 8: “Required start-up capital” in your own Business Plan booklet to calculate the
amount of capital you will need for the initial investment and for working capital.
In Part XI you have learned:

 Start-up capital is the money you need to start your business. You will need capital for:
- Capital investment
- Working capital
 A capital investment is an asset that you have purchased for the business that is
expensive and will be used by the business for a long period of time. The purchase or
rental/lease of both the business premises and the equipment are necessary investments
for most businesses.
 Depending on your requirements and your available start-up capital, you can decide to
build, buy or rent the premises or you might be able to operate the business from your
home.
 You normally operate your business for some time before sufficient money comes in from
sales to cover your expenses. When your business starts, you need money to buy
materials, to pay salaries, for rent and electricity etc. Working capital is the money you
need to pay for these expenses.
 You will need working capital to cover:
- Stock of raw materials and finished products
- Promotion
- Salaries
- Rent
- Insurance
- Loan or lease payments
- Other costs
 You must calculate how much working capital you need. The amount depends on how
long it will take before money starts coming in from sales and how much stock you need.

PART XII – TYPES AND SOURCES OF START – UP CAPITAL
When you have estimated how much start-up capital you need for your business, the next
question is where to get that capital?
The most important types of start-up capital are:
 Owner’s equity
 Loans
1. Owner’s equity
The equity or the contribution from owners to start the business is the private money that is put
into the business. An entrepreneur’s savings can be a possible source of owner’s equity.
Entrepreneurs can use targeted savings accounts to accumulate some or all of the funds they will
need to start their business. Savings that an entrepreneur does not want to invest in the business
could serve as cash collateral for a loan.
The owner’s equity is called risk capital, because the owners are risking their own money on the
business. Whatever form of business you start, you will have to invest some of your own money.
If you do not have enough money yourself, you can consider finding a partner or partners who
are interested in investing in the business. You should not allow the partner to own more than
half of the business. If you own less than 50 percent, you will forfeit the right to make decisions
for the business.
2. Loans
You will have to repay the amount borrowed and you will probably have to pay interest charges
and/or fees. You can pay the loan back either in instalments or all at once, depending on the
agreement with the lender.
If you borrow money from a lending institution, you usually will have to comply with two major
requirements:
1 The institution will want to see a viable and clear Business Plan with a business idea that
is believable and feasible. An unclear Business Plan will leave a bad impression and make
it difficult for the lending officer to grant loan.
2 The lending institution will probably also need some kind of collateral to make sure that
you repay your loan. If you cannot repay the loan, the lending institution has the right to
take possession of the collateral instead. Machines and other equipment in your business
can sometimes be used as collateral. If you do not own any of these, you may also use
your home or the home of a family member as collateral. This is a big risk, which must be
thought through very carefully.
Part XII – Types and sources of start - up capital | 103

Use this form to help you decide what you can offer as collateral for the finance institutions:
Type of collateral Check if applicable to you Details

Fixed deposit
Land and buildings
Shares and bonds
Business assets
(for example machines and vehicles)
Personal guarantees
Here are a number of different sources you can access when you are applying for a loan to start
your business.
Banks: Several banks have specialized departments for giving loans to small businesses. To obtain
loans from banks you need a viable business idea presented in a well thought out Business Plan
and some kind of collateral.
Government credit schemes: Many governments have lending programmes to help
entrepreneurs who want to start small businesses. You may not need collateral for these
government loans, but the requirements for your Business Plan are just as strict as with the
banks.
Microfinance institutions: These financial service providers focus on the low-income market and
exist in many legal forms- sometimes as banks, sometimes as regulated non-bank financial
institutions and sometimes as unregulated non-profit organizations. They have more flexible
collateral and documentation requirements than mainstream banks, but loan amounts are
relatively small, especially for first-time borrowers. They rarely offer start-up business loans, but
may make capital available to an entrepreneur through other loan products based on the
entrepreneur’s household cash flow.
Membership based associations: To be able to borrow from these associations, you will need to
be a member and to buy shares. You will also be required to have money deposited in an
association savings account.
Other sources: You might be able to get a loan from your family or friends. But remember that if
your business fails and you have difficulty in paying back loans, then relationships can suffer. You
can also take loans from private moneylenders. But these loans usually have extremely high
interest rates.

There are different types of loans that entrepreneurs can access from the different sources. For
example, start-up loans, asset loans, housing loans, consumption loans, emergency loan and
supplier credit. Entrepreneurs should try to find information about such loans and from where
they can access it best.
TOSAMA CLOTH BAGS
SOURCES OF START-UP CAPITAL

(Unit: $)
Required start-up capital 38,930
Sources of start-up capital:
Owner’s equity 28,930
Other sources
Soft loan from friends 10,000
Total (must be the same amount as the required start-up capital) 38,930
Collateral (if applying for a loan)
SOURCES OF START-UP CAPITAL

(Unit: $)
Required start-up capital 52,300
Sources of start-up capital:
Owner’s equity 42,300
Other sources
Soft loan from Mary’s mother 10,000
Total (must be the same amount as the required start-up capital) 52,300
Collateral (if applying for a loan)
Part XII – Types and sources of start - up capital | 105

When you have identified the sources of start-up capital, fill in section 9.1: “Sources of start-up
capital” in the Business Plan booklet.
If you decide to borrow money as one of your sources of start-up capital, you should plan your
repayment schedule and write it in section 9.2: “Loan Repayment Schedule” in the Business Plan
booklet.
In Part XII you have learned:

 You should have all the start-up capital necessary for both the initial investment and the
working capital. The most important types of start-up capital are:
- Owner’s equity
- Loans
 Your owner’s equity is your own money that you put into the business. The equity is
called risk capital, because you, as the owner, risk your money on the business.
 If you do not have enough money to invest in the business, you might consider finding a
partner or partners who are interested in owning part of it. But you should not let the
partner buy more than half of the business, because you will then forfeit the right to
make the decisions for your business.
 You may get a loan for the start-up capital. You would have to pay interest on a loan in
addition to the principal. You can pay the loan back either in instalments or all at one
time.
 There are different sources of business loans available from:
- Banks
- Government credit schemes
- Microfinance institutions
- Membership based association
- Other sources

PART XIII – STARTING THE BUSINESS
1. Are you ready to start your business?

This part will help you to evaluate your plans and preparations for your new business. After that,
it is time to decide whether or not you should start your own business.
Go through the questions in the checklist. Tick either “YES” or “NO” for each question. If you are
not sure about the answer, tick NO.
YES NO
1. Have you decided what goods and/or services you are going to
sell?
2. Do you know who your customers will be?
3. Have you asked any potential customers what they think about
your proposed goods or services?
4. Do you know who your competitors will be?
5. Do you know what prices your competitors charge?
6. Have you decided what prices you will charge?
7. Have you found a good location for your business?
8. Have you decided what kind of distribution you will use?
9. Have you decided what kind of promotions you are going to do?
10. Do you know how much your promotions will cost?
11. Have you decided what staff you will need and how much staff
will cost?
12. Have you calculated a wage for yourself that will enable you to
meet your household’s basic needs?
13. Have you decided which legal form your business will take?
Part XIII – Starting the business | 107

14. Do you know all the legal requirements for your business?
15. Have you decided what insurance your business will need?
16. Do you know how much the insurance will cost?
17. Have you made Sales Plan?
18. Do your Sales Plan and Cost Plan show a profit for the first year?
19. Have you made a Cash Flow Plan?
20. Does your Cash Flow Plan show that you will not run out of cash
during the first six months?
21. Have you calculated how much start-up capital you need to start
your business?
22. Have you raised the money for all your required start-up capital?
23. Have you found out what assistance you can get from business
development service providers, associations, finance institutions
and government agencies?
24. Have you assessed the positive or negative impact your business
has on your community and the natural environment?
Number of Number of
“Yes” “No”
answers answers
………………… …………………
2. Start or not?
When you have answered all the questions and counted the number of “YES” and “NO” answers,
look at the table below. It will help you to assess the efficacy of the preparations you have made
to start your business.
Number of “YES” answers:
24 You are well prepared and should probably go ahead and start your business.
11 - 22 You should analyze the reasons that you answered “NO” to some questions and
decide what you need to do so that you can honestly and comfortably answer
‘YES’ to all the questions.
0 - 10 It would be very risky to start your new business. You should go back and start
from the beginning of your Business Plan. Maybe you need to change your

business idea.
3. Do you need more information to complete your Business Plan?

If there are still preparations which have not been made and issues that are not properly thought
through, you should go back and work on your Business Plan to resolve them. If you start your
business without the necessary preparations, you will increase the risk of failure.
Depending on your score, you may need to develop more knowledge of business management to
do your Business Plan for which you may need more information. Consult business people
around you.
Think about what information you might need and fill in the Action Plan on the next page.
4. Presenting and defending your Business Plan

Once you have completed your Business Plan, you may need to present it to potential partners,
financiers and other relevant stakeholders and to defend the premise and viability of the plans
for your business idea.
The main objective of a Business Plan presentation is for the interested stakeholders to assess
whether you have considered every eventuality in the implementation of your business idea. It
also allows the stakeholders an opportunity to question your ideas and to listen to your answers
so that they can decide for themselves if you truly understand your business concept and have
confidence in its success. The following tips will help you to prepare for your presentation:
 Know your audience: Partners, financiers and other stakeholders have their own business
interests to protect. You need to prepare with adequate information about their
expectations, attitudes and knowledge.
 Ensure that the information you have prepared is both accurate and good quality.
 Keep your explanations simple, short and interesting.
 Be prepared with visual aids that can be used to emphasize a point, but do not over use
them.
 Be prepared to answer questions. Interpret their questions as an indication of interest in
your business idea. Your Business Plan should be able to withstand scrutiny.
 If you are not sure of an answer to a question, do not be afraid to say “I do not know”. If
it is appropriate, promise to get back them with an answer.
5. Action Plan for starting your business

When you have confidently answered yes to all the questions in the previous section, it is time to
go ahead and actually start the business.
Use the Action Plan in the Business Plan booklet to organize yourself. Fill in everything you need
to do under each heading, who you should contact and when you will do it. Use your Business
Plan as often as possible as a checklist and check regularly whether you are still on track.

Action required Contact When Responsible person
Product
Price
Place
Promotion
People
Process
Physical Evidence

Action required
Contact When Responsible person
Staff
Form of business
Legal responsibilities and

insurance
Buying
Impact on community and

natural environment
Costing
Financial planning
Required start-up capital
Sources of start-up capital

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International Labour Office

About the Start and Improve Your Business (SIYB) Programme

1. What is this manual about?

2. Who should read this manual?

3. Objectives of this manual

4. How to use this manual

i |Start Your Business

1. Assess your entrepreneurial abilities

For your business to be a reality and to succeed, you must be

Your business is more likely to succeed if you are very motivated to

Part I – Assess your readiness to start a business | 1

2 |Start Your Business

Part I – Assess your readiness to start a business | 3

CRITICAL AREAS NEEDING IMPROVEMENT AND GROWTH

2. How to strengthen your entrepreneurial abilities?

4 |Start Your Business

Part I – Assess your readiness to start a business | 5

My skills What will I do to strengthen them?

Environmental concerns What will I do to address them?

Community concerns What will I do to address them?

6 |Start Your Business

Part I – Assess your readiness to start a business | 7

1. Why is Business Plan important?

2. Content of the Business Plan

Main parts of the Purposes

Part II – The business plan | 9

3. Where to find information for your Business Plan?

10 |Start Your Business

In Part II you have learned that:

Part II – The business plan | 11

2. Who will buy your good or service?

3. How are you going to sell your good or service?

Part III –Reinforce your business idea| 13

Look at how these people have described their business idea:

14 |Start Your Business

CITY GARBAGE RECYCLERS

Part III –Reinforce your business idea| 15

TOSAMA CLOTH BAGS

16 |Start Your Business

Part III –Reinforce your business idea| 17

18 |Start Your Business

1. Conduct market research

Part IV – The marketing plan| 19

CITY GARBAGE RECYCLERS

20 |Start Your Business

Needs and preferences of Gaps(that competitors

Compost Small-scale Need various types of Cheap “home-made” Compost manure

TOSAMA CLOTH BAGS

Part IV – The marketing plan| 21

Needs and preferences of Gaps (that competitors

Vegetable Small-scale The need for storage bags

22 |Start Your Business

Needs and Gaps (that

Part IV – The marketing plan| 23

2. Make a Marketing Plan

24 |Start Your Business

Now, check whether your product meets your customers’ needs:

Products Basic needs Specific needs