Entrepreneurship Training By: Henry Clarke Kisembo
Training Calendar Dec 13 – Dec 16: 9:00 am – 6:00 pm
Overview of Training SessionsMonday What is an entrepreneur? How to select a viable businessTuesday Market Research Financing Strategies
Overview of Training SessionsWednesday The Costs of Starting & Operating a Business Marketing StrategiesThursday Financial Records Administrative ConcernsFriday Writing a Business Plan
Session #1: Outline What is an entrepreneur? What are the pros and cons of owning your own business? Opportunity Recognition SWOT Analysis Case Study Discussion
Opportunity RecognitionWhere others see problems, entrepreneurs recognize opportunities.Qualities of a Good Business Opportunity It is attractive to customers It will work in your business environment It can be executed in your “window of opportunity” You have the resources and skills You can offer the product/service at the right price
Five Roots of Opportunity1. Problems2. Changes3. Inventions4. Competition5. Technological Advances
The Eight Rules of Building aSuccessful Business1. Recognize an opportunity2. Evaluate the opportunity3. Write a business plan4. Build a team5. Gather resources6. Decide ownership7. Create wealth8. Execute your plan & satisfy consumer needs
Evaluating OpportunitiesMarket Demand Who is your market? Who are your target customers?Competitive Advantage How are you different from the competition?
Four Basic Business Types1. Manufacturing (inganda)2. Wholesale (keranguza)3. Retail (kudandaza)4. Service serviseSome business sell products; others sell services.
Homework for next session Poll friends, family members or colleagues (outside from ORI) and ask them to share things that they find frustrating or difficult in their daily lives. Write down all of the complaints. Now, generate 3 possible business opportunities from the list. Evaluate the ideas using the Business Opportunities questions from the Workbook (Chapter 2, Module 1). Based on the evaluation, choose the best idea and complete a brief SWOT Analysis. Type up the analysis and bring it with you to the next session. Invent a tentative name for your business.
Market ResearchMarket research is the process and technique of finding out who your potential customers are and what they need/want.Types of Market Research General Research Surveys Statistical Research
Return on InvestmentHow to Calculate Return on Investment (R.O.I.)1. Take the amount you possess at the close of the business period. This is your end wealth (A in formula)2. Subtract the amount of your original investment. This is your beginning wealth (B in formula)3. Divide the resulting number by your beginning wealth.4. Multiply by 100 to get the percentage of return on your investment.Formula: (A-B) x 100 = R.O.I. B
Risk, Interest and LiquidityWhat is risk?The possibility that you may lose your moneyWhat is interest?When an investor lends money, s/he charges interest. - The money you borrow is called the principal. - The interest rate is the rate at which the bank (or other investor) will charge interest. This rate is a percentage of the principal. - When you pay back the loan, you need to pay the principal + interest.If you cannot pay back a loan, it is called defaulting.What is liquidity?The ease of getting cash in and out of an investment
Risk, Interest and LiquidityGenerally, the lower the risk of investment, the lower the required rate of return.The higher the risk of investment, the higher the required rate of return.
Cost/Benefit AnalysisThere are always two factors to consider when making any decision:Costs: The money and time you will have to investBenefits: The rate of return on your investment (financial or non-financial)Don’t forget to consider opportunity costs!Remember, there are trade-offs involved in any decision.
Financing Your BusinessThe money needed to start a business is referred to as start-up capital.There are two primary ways to raise capital:1. Debt2. Equity
Debt vs. EquityDebt The business borrows the money from a person or institution and pays it back over a set period of time at a set rate of interest. The entrepreneur signs a promissory note, promising to repay the borrowed sum + interest.Equity The business gives up a percentage of ownership of the business in exchange for money. The investor receives a percentage of future profits based on % ownership.
Debt-to-Equity RatioMany companies are financed by a combination of debt and equity.The financial strategy of a company is expressed by its debt-to-equity ratio.A highly leveraged company is a company that relies heavily on debt.
Financing Options for YoungEntrepreneurs Loans from Banks Loans from Credit Societies Equity stakes for friends, family & colleagues Micro-loan financing Starting small Grants Savings and Loan groups
Homework for next session Write a plan for how you are going to conduct market research about your business idea. What will you do? Be sure to include both general research and some interviews with potential customers. If you plan to use a survey, write a first draft of the questions you wish to ask.
Session #3: OutlineMorning Session 9:00 – 12:15 The Costs of Starting & Operating a Business Types of Businesses Maintaining Competitive Advantage Maintaining QualityAfternoon Session 1:15 pm – 6:00 pm Marketing Your Business
The Costs ofStarting/Operating a BusinessThree Primary Categories of Costs (or expenses) Start-up costs Cost of goods sold Operating costs (both fixed and variable)
Start-up CostsA start-up cost is a one-time expense necessary for starting a business.These are also sometimes called the original investment or seed money.
Cost of Goods Sold (COGS) Units of Sale One example of the product sold (i.e. one cup of coffee) One hour of service time Average sale per customer, if the business sells more than one product (i.e. average sales in a grocery store) Cost of Goods Sold for one unit
Total Cost of Goods Sold Total cost of goods sold is total cost of all goods sold in a given period What about if your unit of sale is a service? Cost of Service Sold (per unit and total)
Operating CostsOperating costs are the costs necessary to run the business (not including the cost of goods sold).These costs typically fall into seven categories: Utilities (gas, electric, telephone, internet) Salaries Advertising Insurance Interest Rent Depreciation
Fixed vs. Variable costs Fixed costs are operating costs that stay the same regardless of sales Also referred to as overhead Variable costs are operating costs that change depending on the volume of sales but cannot be assigned directly to the production of one unit of sale
Calculating Gross Profit Gross profit is determined by subtracting the total cost of goods or services sold from the total revenue earned If unit of sale involves multiple ingredients, the gross profit per unit is the cost of all goods subtracted from the price paid by the customer
Calculating Overall Profit Gross profit is not the same as overall profit, because operating costs are not considered when calculating gross profit How to calculate overall profit: Gross Profit – Operating Costs = Profit
Calculating Profit per Unit Sometimes you may need to know how much profit you make per unit of sale. This is calculated in the following manner: Profits = Profit per Unit Units Sold
Types of Businesses In order to operate in Rwanda, you will need to register your business. There are three types of organizations in Rwanda: For-Profit Businesses (registers with RDB) Non-Profit Organizations (registers with MINALOC or Immigration) Cooperatives (registers with Rwanda Cooperative Authority)
Business Structures Three primary ways to organize a business: Sole Proprietorship Owned by one person Owner receives all profits and suffers all losses Partnership Owned by two or more people who make business decisions together Partners share profits and losses Corporation Legal entity composed of stockholders under a common name Elect officers and a board of directors
Maintaining CompetitiveAdvantage What is the most important benefit that customers in your market will receive from your product/service? How will you deliver it? This forms the basis of your business strategy (the tactics that you will use to outperform your competition)
Creating a Business Strategy1. Develop a Mission Statement2. Research your Competition3. Write your strategy4. Revise your strategy by monitoring the competition and making changes
Maintaining QualityA business’s goal should always be quality, not short-term profitsBusinesses should always strive for continuous improvement.Ethics also play a role in any successful business.
Tips for Improving Quality1. Adopt a philosophy of continuous improvement2. Be consistent3. Do it right the first time4. Develop long-term relationships5. Focus on quality in products & customer service6. Set up training programs for employees (including yourself)7. Get rid of fear8. Don’t ask for perfection but improvement9. Focus on quality, not quantity10. Ask for comments and input
Marketing Your BusinessWhat is marketing?The development and use of strategies for getting a product or service to the customer and generating interest in itWhat are some elements of a successful marketing strategy?1. Location2. Marketing TechniquesFour essential items of a marketing plan: Product Price Place Promotion
Marketing Your BusinessThe goal of your marketing plan is to bring the right product to the right place at the right price with the right promotion. Steps for developing a marketing plan Consumer Analysis Market Analysis Developing a marketing “mix” Break-even analysis
Consumer & Market Analysis1. Who are your customers? What do they want? What is your market segment?2. Now, you can analyze your market - Pick a sample of your population - Conduct some research - Compile your data and look for trends3. How do the different components of your marketing plan work together?
Branding Your Business A brand is a combination of name and symbol/logo. Brands are also defined by company culture. Reputation is a very important aspect of business. Keep your reputation positive by: Providing high quality products/services Clearly defining your products/services Making advertising positive & informative Treating employees/customers with respect
Types of Marketing Advertising Costs money Typically posted in public venues, such as newspapers/other media or billboards Publicity Free advertising Also considered to be more trustworthy by clients
Principles of Salesmanship1. Make a good personal impression2. View selling as teaching3. Believe in your product or service4. Know everything about your product/service5. Know your field6. Listen to and understand your customers7. Prepare and practice your presentation8. Think positively9. Keep good records10. Make appointments11. Stay in touch and build relationships
Homework for next session Write your mission statement and basic marketing strategy for your business. What is your target audience? Then, determine what is the best legal structure for your business.
Record Keeping:The Business Ledger Every business needs a record of all of its income and expenses. This is the business ledger. In the ledger, income sources are referred to as credits and expenses are referred to as debits.
The Business Ledger
Supporting Documents There must be a supporting document to back up each transaction. For each purchase, get a receipt. For each sale, produce a bill or invoice and keep a copy for yourself. Keep a separate record of all invoices in numbered order.
Income Statements Businesses must also produce regular income statements, called profit and loss statements. Income statements should include: Sales Total C.O.G.S. Gross Profit Operating Costs Profit Before Taxes Taxes Net Profit/(Loss)
Sample Income StatementDescription Subtotal TotalTotal Sales 35,000Total C.O.G.S. 20,000Gross Profit 15,000Operating Costs- Fixed Costs 8,000- Variable Costs 0- Total Operating Costs 8,000Profit Before Taxes 7,000Taxes 3,500Net Profit/(Loss) 3,500
The Balance Sheet A business’ balance sheet shows the assets, liabilities and net worth of the business. Net worth is the difference between assets and liabilities. This is also called the owner’s equity. Businesses typically produce income statements and balance sheets once a month, once a quarter and once a fiscal year.
Components of aBalance Sheet1. Assets All items of worth owned by the business (cash, inventory, furniture, etc) “Current” could be sold for cash in one year “Long-term” would take more than one year to turn into cash
Components Continued2. Liabilities Debts owed by the business (bank loans, mortgages, other loans) “Current” must be paid within the year “Long-term” will be paid over a period of more than one year
Components Continued3. Net Worth/Owner’s Equity What remains once you’ve subtracted liabilities from assets Assets – Liabilities = Net Worth If assets are greater than liabilities, net worth is positive If liabilities are greater than assets, net worth is negative
Sample Balance SheetAssets LiabilitiesCash 100,000 Loan 150,000Tables & Chairs 100,000Coffee Machine 150,000 Owner’s Equity 200,000Total Assets 350,000 Total Liabilities 350,000 & Owner’s Equity** Both sides of the Balance Sheet must show the same total.
Debt Ratios The debt ratio describes how much of the total money in your business was provided by creditors (i.e. how much is debt) Debt Ratio: Total Debt Total Assets Typically banks don’t like to lend to businesses with high debt ratios
Assets: Cash Flow & InventoryCash Flow The difference between the amount of money you take in and the amount of money you spend Three simple rules to help maintain positive cash flow Collect cash as soon as possible Pay your bills as late as possible within the agreed-upon time frame Always know your cash balance by consulting your ledger and bank statements frequently Remember to account for seasonal changes
Monthly Cash Projections A cash projection is an educated guess about how much cash you will need in a given month. Preparing a Cash Flow Projection Project your income from all available sources Subtract the expenses you expect to have from the projected cash income
The “Burn Rate” Your burn rate is your negative cash flow per month. The rate measures how quickly you spend money. It is normal to have a negative cash flow for the first few months of a business. Cash on Hand = # Months before cashNegative Cash Outflow per Month runs out
Inventory Inventory is everything the business owns. This includes items used to run the business (i.e. computers and printers) and products bought in bulk for eventual sale. It can sometimes to be risky to buy inventory in advance: You have to pay for storage costs The items may be damaged or stolen It may take a long time to sell the inventory
Break-Even Analysis Break-even Analysis helps you find the point at which your business will be selling enough units to cover its costs Businesses must at least break even to survive. In the long-run, they must make profit beyond the break-even point.
How to determine theBreak-Even point1. Figure out your gross profit per unit2. Calculate your monthly fixed costs3. Divide gross profit per unit into monthly fixed costs4. This gives you the number of units you will need to sell in order to cover fixed costsMonthly Fixed Costs = # Break-Even UnitsGross Profit per Unit
Pricing: An Important NoteHow do you determine the appropriate pricing point for your product? Multiply the wholesale cost of the product by your mark- up percentage (generally the same for the entire business) to find the cost of the item (or the retail price)Determine profit margin by dividing profits by sales. This shows how much of overall sales is profit.
Budgeting A budget is essentially an income statement projected for a full fiscal year Budgeting is always an estimation but it is very important guide that allows you to monitor the financial health of your business
Administrative Concerns1. Laws and Regulations2. Taxes3. Legal Protections (i.e. insurance)4. Assembling Your Team 1. Contracts 2. Tax Obligations 3. What is your hiring strategy? How will you hire the best people?
Homework for next week Write your initial financing strategies. How much capital will you need to start your business? How do you plan to raise the money? What is your projected budget for your first year of operations? Bring all of your homework with you for tomorrow’s session, as it will be useful when writing your business plan.
Session #5: OutlineMorning Session 9:00 am – 1:00 pmAfternoon Session 2:00pm – 6:00pm Writing a Business Plan Business Plan Writing Workshop
Your Business Plan Why do you need a business plan? It serves as a guide for the owner It forces the bsuiness owner to think through the direction and strategy of the business in a structured way It is sometimes required by banks or other investors
Elements of a SuccessfulBusiness Plan1. Business Description2. Marketing Plan3. Competitor Analysis4. Economics of One Unit5. Management and Organization6. Start-up Costs & Financing Strategy7. Operating Costs & Break-Even Analysis8. Financial Statements