OBJECTIVE
The objective of this module is to give the supervisor an overview of:
a) How a business is created:
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- The role the consumer plays.
- What costs are?
- What happens to a company’s profit?
b) Explain: I Evaluate the Marcam asset manager ordering system.
c) Managing your half level, knowing where your money is going.
d) Demonstrate “Break-even point”.
CREATING A BUSINESS
Why people go into business:
If we look around us, we can see thousands of different products and services. There are copper and gold. There are clothes and toys and food and entertainment’s and tools and books, and we can go on all day. In other words, there are thousands of people trying to DO something for us or to SELL something to us.
People produce a product or a service, that is, THEY GO INTO BUSINESS, because they think they can benefit from it in some way or another. If somebody keeps on losing money while selling copper, you can be sure that he will not remain in the mining business for a very long time.
He will soon move to some other business where he WILL make money, or he will work for somebody else. People are in business because, like all of us, they act in their own self-interest. They hope to gain something from it.
Business therefore, exists:
Because a gap in the market is identified to meet needs and wants of potential customers to make a profit and create wealth.
Business contributes tremendously to the wealth-creation process in our land. Wealth is created through the processing of resources into products and services, which are sold to customer who have a need for the product or service. For example, a contractor builds houses (a process) using bricks, sand and cement (resources) and these houses are sold to people who have a need for houses.
Experience shows that many people who start their own business lose their money. Starting and running a business successfully is therefore not so easy. There are many pitfalls along the way. In this country, many companies have to close down every year
How does a business get started?
Before a new business can be started, it is very important to understand that there must be need or a demand for the product or service, which the new business will be supplying. Enough people must want the product or service.
To find something which people want sounds easier than it is in practice. It is NOT always so easy to predict what people want to make things even more difficult is that people are constantly changing their wants. New inventions will influence the things that people desire.
Assuming that there are many people who want a service or product, it must also be established HOW MUCH they are willing to pay for the product or service, which they are, etc.
In short, the important issues involved when starting a business, are the following:
- Analysis of the Market
- Need / demand for the product / service?
- The target populations focus
- The current consumption / user rate
- The product life span
- Competitor’s status (if any)
Will there be a profit?
There will only be a profit if the product or service costs the provider less than the consumers are willing to pay. In other words, it is important to work out very carefully what his total costs are, and only if his costs are lower than the selling price of the item will be worthwhile to look at starting a business.
A Businessman must know his cost:
When a person wants to go into business, he must know that there are people who want his product or service, he must know how much they are willing to pay for his product or service (the selling price) and he must know whether he can keep his costs below the selling price.
Many wealthy businesspersons have become poor because they failed to keep their costs lower than what consumers were willing to pay.
Most businesses need money:
One will need money to get most business going.
Money is needed to build or start a mine, to buy machines and material, to pay wages to the workers. Therefore, as you can see, you will need quite a lot of money to get a business started.
Where does one find the money to start a business?
Selling shares can raise some of the money. This is called the share capital of the business.
If this is not enough, then some of the owners or shareholders may lend money to the business. This money is called shareholders loans. In other words, the company may borrow money from some of the owners. It will have to pay interest on these loans of course and repay the loan at some time in the future.
The third way to raise money is to borrow from the bank. The company will have to pay interest on this money, and it will have to repay it eventually.
The form of the business:
If one has enough money of one’s own, or if one can personally borrow enough money and is willing to take all the business risk alone, one can be the sole owner of the business. Many businesses are started and operated in this way very successfully. Somebody who runs a small motor car repair business from his back yard has this type of the business.
Sometimes, however, a person does not have enough money to start a business all by himself. Or maybe he does not want to take all the risks involved in running a business all by himself. He can then decide to form a company.
People form a company when they want to share the ownership of a business, that is, there will be more than one owner. One of the reasons why people form companies is to raise money. A Company can issue only two shares, or it can issue thousands of shares.
When a company is first started, the money received for the sale of the shares will belong to the company. It is then called the share capital.
The people who buy the shares in a company are the owners or shareholders. They receive share certificates to prove or show their ownership.
Because there can by so many owners of a company, it may be difficult for them to run the company. They will therefore choose directors to do this. These directors will run the company on behalf of the shareholders.
The directors will, in turn appoint a manager to see that the company does what it is supposed to do.
He receives a salary and works for the company like any other wage earner. If the manager does not do his job, they directors will replace him with someone else.
The manager of the company will (to enable him to perform his duties) appoints subordinate managers supervisors and competent people for the day to day running of the company.
The structure of a company:
The owners, directors, managers and workers are like a team of soccer players. They should not work against each other; in fact, they compete against many other teams consisting of the owners, directors, managers and workers of other companies.