NCV 2 Entrepreneurship Hands-On Support Slide Show - Module 3

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This slide show complements our learner guide NCV 2 Entrepreneurship Hands-On Training by Pieter Bruwer & Nickey Cilliers, published by Future Managers Pty Ltd. For more information visit our website www.futuremanagers.net

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NCV 2 Entrepreneurship Hands-On Support Slide Show - Module 3

  1. 1. Entrepreneurship Entrepreneurship - Level 2 Future Managers
  2. 2. Module 3: Basic finances Entrepreneurship - Level 2 Future Managers
  3. 3. Module 3: Basic finances <ul><li>After completing this module, you should be able to: </li></ul><ul><ul><li>Outline basic financial terminology </li></ul></ul><ul><ul><li>Outline processes and principles for pricing of product/service </li></ul></ul><ul><ul><li>Outline process and principles of financial management, record keeping and stock control </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  4. 4. 1. Basic financial terminology <ul><li>At the end of this outcome, you should be able to: </li></ul><ul><ul><li>Define the terminology associated with the financing of a new venture such as product costing and pricing, fixed and variable costs, mark-up, profit, cash flow, break-even and forecasting </li></ul></ul><ul><ul><li>Explain the principles and procedures for compiling the cost price of a product or service </li></ul></ul><ul><ul><li>Assess the costs of a product </li></ul></ul><ul><ul><li>Calculate the total cost of a products from given examples </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  5. 5. 1. Basic financial terminology <ul><li>Important questions you should be able to answer </li></ul><ul><ul><li>What are all the costs involved in my proposed new business? </li></ul></ul><ul><ul><li>What is the break-even point of this new business? </li></ul></ul><ul><ul><li>In which way(s) can I finance my proposed new business? </li></ul></ul><ul><ul><li>What is profit, how is it calculated and will I make a profit? </li></ul></ul><ul><ul><li>How much do my products actually cost? </li></ul></ul><ul><ul><li>How much do my competitors charge for the same product? </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  6. 6. 1.1 Financial terminology <ul><li>Sales </li></ul><ul><li>Costs </li></ul><ul><li>Selling price </li></ul><ul><li>Profit </li></ul><ul><li>Gross profit percentage </li></ul><ul><li>Net profit percentage </li></ul><ul><li>Weighted average gross profit percentage </li></ul><ul><li>Sales forecast </li></ul><ul><li>Assets </li></ul><ul><li>Liabilities </li></ul><ul><li>Owners’ equity </li></ul>Entrepreneurship - Level 2 Future Managers
  7. 7. 1.1.1 Sales <ul><li>What are sales? </li></ul><ul><ul><li>The products or services that the business sell in order to make a profit </li></ul></ul><ul><ul><li>Represents the total amount of products or services you sell to your customers for a particular period of time </li></ul></ul><ul><ul><li>Other names are: </li></ul></ul><ul><ul><ul><li>Turnover </li></ul></ul></ul><ul><ul><ul><li>Income </li></ul></ul></ul><ul><ul><ul><li>Sales revenue </li></ul></ul></ul>Entrepreneurship - Level 2 Future Managers
  8. 8. 1.1.2 Costs <ul><li>There are two main categories of costs: </li></ul><ul><ul><li>Fixed costs </li></ul></ul><ul><ul><ul><li>Stay the same from month to month </li></ul></ul></ul><ul><ul><ul><li>Also known as expenses </li></ul></ul></ul><ul><ul><li>Variable costs </li></ul></ul><ul><ul><ul><li>Vary directly with sales </li></ul></ul></ul><ul><ul><ul><li>Also known as ‘cost of sales’ </li></ul></ul></ul><ul><li>Think of some examples of fixed and variable costs </li></ul>Entrepreneurship - Level 2 Future Managers
  9. 9. Business plan activity <ul><li>Make a list of all the potential fixed costs for your new business </li></ul><ul><li>Ask around or speak to someone in business to help you to estimate how much you will have to pay for each of these costs every month </li></ul><ul><li>Example - One of your costs will possibly be the telephone account. Speak to someone with experience and ask him/her how much you could expect your telephone account to be. You need to do estimates for all your fixed costs. </li></ul>Entrepreneurship - Level 2 Future Managers
  10. 10. Business plan activity <ul><li>Make a list of all the variable costs for your particular business </li></ul><ul><li>Call potential suppliers and ask them for the prices of these items </li></ul><ul><li>Example If you plan to manufacture T-shirts you will have to find out what the costs of the following items are: </li></ul><ul><ul><li>T-shirt fabric </li></ul></ul><ul><ul><li>Cotton </li></ul></ul><ul><ul><li>Ribbing </li></ul></ul><ul><ul><li>Plastic bags </li></ul></ul><ul><ul><li>Labour costs (people who will do the work) </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  11. 11. 1.1.3 Selling price <ul><li>Selling price is the price your customers will pay you for your product or service </li></ul><ul><li>The selling price is affected by 2 important factors: </li></ul><ul><ul><li>How much your product or service costs you </li></ul></ul><ul><ul><li>How much your customers are prepared to pay for your particular product or service </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  12. 12. 1.1.4 Profit <ul><li>Gross Profit </li></ul><ul><ul><li>Money left over after variable costs have been deducted. </li></ul></ul><ul><li>Net profit </li></ul><ul><ul><li>Money left over after all variable and fixed costs have been taken into account </li></ul></ul><ul><li>Net profit after tax </li></ul><ul><ul><li>Money left over after all variable and fixed costs have been accounted for and tax has been deducted. </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  13. 13. 1.1.4 Profit Entrepreneurship - Level 2 Future Managers Sales 1000 Less: Cost of Sales 600 Gross Profit 400 Less Expenses 300 Net Profit 100 Less: Taxation 30 Net profit after tax 70
  14. 14. 1.1.5 Gross Profit Percentage <ul><li>Gross profit percentage = </li></ul>Entrepreneurship - Level 2 Future Managers 400 1000 x 100 = = 40% Gross Profit Sales x 100
  15. 15. 1.1.6 Net Profit Percentage <ul><li>Net profit percentage = </li></ul>Entrepreneurship - Level 2 Future Managers 100 1000 x 100 = = 10% Gross Profit Sales x 100
  16. 16. 1.1.7 Weighted average gross profit percentage <ul><li>Used when there are many products for sale, and the mark-up varies from product to product </li></ul>Entrepreneurship - Level 2 Future Managers
  17. 17. 1.1.7 Weighted average gross profit percentage <ul><li>Steps to calculate WAGPP </li></ul><ul><li>Determine the percentage of total sales for each product (or group) </li></ul><ul><li>Calculate the gross profit % for each product (or group) </li></ul><ul><li>Multiply the sales % with the gross profit % for each product </li></ul><ul><li>Add the answers together to arrive at the WAGPP </li></ul>Entrepreneurship - Level 2 Future Managers
  18. 18. Activity 1 <ul><li>Calculate the gross profit% for bread and round it off. You need to show all your calculations to show how you arrived at the answer below: </li></ul><ul><li>Weighted average gross profit percentage is: </li></ul><ul><li>19% (milk) + 12% (bread) = 31% </li></ul>Entrepreneurship - Level 2 Future Managers Sales % (1) Gross profit (2) Weighted gross profit (1) x (2) Milk 65% 29% 19% Bread 35% 33% 12%
  19. 19. Activity 1 (Solution) <ul><li>Gross Profit% for bread is: </li></ul><ul><li>GP X 100 </li></ul><ul><li>Sales </li></ul><ul><li>  </li></ul><ul><li>= R1 X 100 </li></ul><ul><li>R3 </li></ul><ul><li>  </li></ul><ul><li>= 33,33% </li></ul>Entrepreneurship - Level 2 Future Managers
  20. 20. Activity 2 <ul><li>The owner of the corner shop (pg 108) decides to sell eggs as well. He buys a tray of eggs for R3.50 and sells it for R5.50. He estimates that eggs will capture 25% of his total sales. Milk’s share of the total sales will drop to 50% </li></ul><ul><li>Calculate </li></ul><ul><ul><li>The gross profit% of eggs </li></ul></ul><ul><ul><li>The weighted average gross profit percentage of all three products </li></ul></ul><ul><ul><li>Milk’s share of the total sales dropped to 50%. Does this mean that the corner shop is now selling less milk? Explain your answer. </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  21. 21. Activity 2 (Solutions) <ul><li>Question 1: Calculate the gross profit percentage of eggs </li></ul><ul><li>GP X 100 </li></ul><ul><li>Sales </li></ul><ul><li>= R2 X 100 </li></ul><ul><li>R5.50 </li></ul><ul><li>  </li></ul><ul><li>= 36.36% </li></ul>Entrepreneurship - Level 2 Future Managers
  22. 22. Activity 2 (Solutions) <ul><li>Question 2:Calculate the weighted average gross profit percentage of all three products </li></ul>Entrepreneurship - Level 2 Future Managers
  23. 23. Activity 3 (Solutions) <ul><li>Question 3: Milk’s share of the total sales dropped to 50%. Does this mean that the corner shop is selling less milk? Explain your answer </li></ul><ul><ul><li>No, the actual sales did not drop </li></ul></ul><ul><ul><li>Total sales increased since more products were introduced </li></ul></ul><ul><ul><li>As a result each individual product’s contribution dropped as a percentage, but not in real terms. (The cake got bigger; the slices did not get smaller.) </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  24. 24. 1.1.8 Sales forecast <ul><li>Key questions to determine a sales forecast: </li></ul><ul><ul><li>How big is the potential market? (market size) </li></ul></ul><ul><ul><li>How many people are likely to buy my product or service? (market research) </li></ul></ul><ul><ul><li>How many, and what type of products do my competitors sell and at what price? (competitor analysis) </li></ul></ul><ul><ul><li>How many do I need to sell to make neither a profit nor a loss? The answer will quickly tell you what your minimum sales need to be </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  25. 25. 1.1.8 Sales forecast <ul><li>The importance of a sales forecast </li></ul><ul><ul><li>Not enough stock </li></ul></ul><ul><ul><ul><li>Loss of sales income </li></ul></ul></ul><ul><ul><ul><li>Unhappy customers </li></ul></ul></ul><ul><ul><li>Too much stock </li></ul></ul><ul><ul><ul><li>More cash needed </li></ul></ul></ul><ul><ul><ul><li>Higher risk </li></ul></ul></ul><ul><ul><ul><li>Extra space needed </li></ul></ul></ul>Entrepreneurship - Level 2 Future Managers
  26. 26. 1.1.9 Assets <ul><li>Assets are everything that the business owns </li></ul><ul><li>Two categories of assets </li></ul><ul><ul><li>Fixed Assets </li></ul></ul><ul><ul><ul><li>Everything that the business doesn’t want to sell for cash </li></ul></ul></ul><ul><ul><ul><li>Depreciate (lose value) over time </li></ul></ul></ul><ul><ul><li>Current Assets </li></ul></ul><ul><ul><ul><li>Stock </li></ul></ul></ul><ul><ul><ul><li>Debtors </li></ul></ul></ul><ul><ul><ul><li>Cash </li></ul></ul></ul>Entrepreneurship - Level 2 Future Managers
  27. 27. 1.1.10 Liabilities <ul><li>Everything that the business owes </li></ul><ul><ul><li>Current liabilities </li></ul></ul><ul><ul><ul><li>Creditors </li></ul></ul></ul><ul><ul><ul><li>Bank overdraft </li></ul></ul></ul><ul><ul><ul><li>Tax </li></ul></ul></ul><ul><ul><li>Long-term liabilities </li></ul></ul><ul><ul><ul><li>Long term loans </li></ul></ul></ul><ul><ul><ul><li>Bonds </li></ul></ul></ul>Entrepreneurship - Level 2 Future Managers
  28. 28. 1.1.11 Owners’ Equity <ul><li>Owners’ Equity </li></ul><ul><ul><li>The owners’ claim to the assets of the business </li></ul></ul><ul><ul><li>Assets = Liabilities + Owners’ Equity </li></ul></ul><ul><ul><li>Therefore: Owners’ Equity = Assets – Liabilities </li></ul></ul><ul><ul><li>Owner’s equity therefore is the total value of assets once the liabilities have been paid off </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  29. 29. 1.2 Calculating the size of your market <ul><li>Determine the average income per customer in this market (1) </li></ul><ul><li>Determine the total number of potential customers (2) </li></ul><ul><li>Calculate the ‘total income’ for the market (1 x 2 = 3) </li></ul><ul><li>Determine what percentage of customer income is likely to be spent on your product or service (4) </li></ul><ul><li>Given this, calculate the total amount of money available to be spent on your product or service. (3 x 4 = 5) </li></ul><ul><li>Keeping your competition in mind, determine the percentage of the market you could realistically capture (6) </li></ul><ul><li>Calculate your expected market share (5 x 6) </li></ul>Entrepreneurship - Level 2 Future Managers
  30. 30. 1.2 Calculating the size of your market <ul><li>Example </li></ul><ul><li>Simon plans to buy a cold drink vending machine to be placed at his college. There are 1200 (2) students in the college and after asking a few questions he determines that the average income (spending money) per student is about R400 (1) per month. He reckons that a student will probably spend 10% (4) of his income on drinks. There is no cafeteria at the college, but Simon knows that students will spend at least 80% (5) of their drink money for cold drinks elsewhere (after college or on weekends). Calculate Simon’s market share. </li></ul><ul><li>1. Total income for the market is: </li></ul><ul><ul><li>1 200 students × R400 = R480 000 per month </li></ul></ul><ul><ul><li>2. Percentage spent on drinks =10% </li></ul></ul><ul><li>3. Percentage spent on drinks at college is: </li></ul><ul><ul><li>R480 000 × 10% = R48 000 per month </li></ul></ul><ul><li>4. Percentage spent on vending machine drinks </li></ul><ul><li> = 20% (80% elsewhere) </li></ul><ul><li>5. Expected market share is 20% × R48 000 = R9 600 per month </li></ul>Entrepreneurship - Level 2 Future Managers
  31. 31. Activity 3 <ul><li>Blondie intends offering a hairdressing service to clients in Parktown. There are 2800 families in the area. The average income per annum per family amounts to R6 500. Blondie estimates that each family spends 1.5% of its yearly income on hairdressing services. Blondie believes that she will enjoy a market share of 15% of the total market. </li></ul><ul><li>Calculate, showing all your calculations, Blondie’s potential market share </li></ul>Entrepreneurship - Level 2 Future Managers
  32. 32. Activity 3 (Solutions) <ul><li>Total income for market: </li></ul><ul><li>2 800 families x R6 500 = R18 200 000 </li></ul><ul><li>  </li></ul><ul><li>Percentage spent on hair: 1.5% </li></ul><ul><li>  </li></ul><ul><li>Amount spent on hair: </li></ul><ul><li>R18 200 000 x 1.5% = R273 000 </li></ul><ul><li>  </li></ul><ul><li>Expected market share: 15% of R273 000 = R40 950 </li></ul>Entrepreneurship - Level 2 Future Managers
  33. 33. Activity 4 <ul><li>You are in the position to open a small supermarket in an area with 20 000 people from a lower income group. There are two competitors approximately 3 km apart from each other as well as from your intended site. However, there is a large Pick ‘n Pay Hypermarket approximately 2 km from your site and 5 km from your competitors’. Your intended site is right opposite a large block of flats, a cinema and a petrol station. Using the information and making any assumptions you like, answer the following questions: </li></ul><ul><li>What is your total market potential in Rand? </li></ul><ul><li>What is the Rand value of your target market? </li></ul><ul><li>What is your expected market share in Rand? </li></ul><ul><li>What is your expected annual turnover? </li></ul><ul><li>You must be able to justify your assumptions. How does your answer compare with the answers of other groups? </li></ul>Entrepreneurship - Level 2 Future Managers
  34. 34. 1.3 The principles and procedures for compiling cost price of a product / service <ul><li>The following are the steps to follow when you want to determine the cost price of your product or service </li></ul><ul><li>Determine all potential variable costs per product </li></ul><ul><li>Add up all the potential fixed costs of your business for a specific month </li></ul><ul><li>Add all the start-up costs. If you need to loan this money, calculate the monthly repayment amount </li></ul><ul><li>Add the loan repayment amount to your monthly fixed costs </li></ul><ul><li>Compile a sales forecast to determine how many products you will be able to sell in a month </li></ul><ul><li>Multiply your variable cost per product with your sales forecast (the number of products you think you will be able to sell) </li></ul><ul><li>Add your variable costs and fixed costs to determine your total monthly costs </li></ul>Entrepreneurship - Level 2 Future Managers
  35. 35. 1.3 The principles and procedures for compiling cost price of a product / service <ul><li>Example </li></ul><ul><li>You sell live chickens. You buy each chicken for R9 (variable cost). Another variable cost is the transportation of the chickens. You buy 200 chickens at a time and pay R200 for the transport. Thus your variable transport cost is R1 per chicken and your total variable costs are R10 (R9 + R1). </li></ul><ul><li>Your fixed costs per month are: </li></ul><ul><ul><li>Telephone R 200 </li></ul></ul><ul><ul><li>Rent of shop R 300 </li></ul></ul><ul><ul><li>Salaries R1500 </li></ul></ul><ul><ul><li>Total R2000 </li></ul></ul><ul><li>For each chicken you sell, you have to deduct R10 to cover your variable costs (purchase and transport) leaving you the rest or ‘gross profit’ to contribute towards filling your fixed cost ‘hole’. For the moment assume that you would be able to sell each chicken for R20. </li></ul>Entrepreneurship - Level 2 Future Managers
  36. 36. 1.3 The principles and procedures for compiling cost price of a product / service <ul><li>The following are the steps to follow when you want to determine the cost price of your product or service </li></ul><ul><li>Determine all potential variable costs per product </li></ul><ul><li>(R9 + R1) </li></ul><ul><li>2. Add up all the potential fixed costs of your business for a specific month </li></ul><ul><li>R2000 </li></ul><ul><li>3. Add all the start-up costs. If you need to loan this money, calculate the monthly repayment amount </li></ul><ul><li>Nothing </li></ul>Entrepreneurship - Level 2 Future Managers
  37. 37. 1.3 The principles and procedures for compiling cost price of a product / service <ul><li>4. Add the loan repayment amount to your monthly fixed costs </li></ul><ul><li>R2000 + R0 = R2000 </li></ul><ul><li>5. Compile a sales forecast to determine how many products you will be able to sell in a month </li></ul><ul><li>600 Chickens </li></ul><ul><li>6. Multiply your variable cost per product with your sales forecast </li></ul><ul><li>R600 x 10 = R6000 </li></ul><ul><li>7. Add your variable costs and fixed costs to determine your total monthly costs </li></ul><ul><li>R6000 + R2000 = R8000 </li></ul>Entrepreneurship - Level 2 Future Managers
  38. 38. 1.4 Break-even point <ul><li>The break even point is where the business is neither making a profit nor a loss. </li></ul><ul><li>To calculate the break even point in units </li></ul><ul><ul><li>Calculate the gross profit per unit </li></ul></ul><ul><ul><li>Divide total fixed costs by gross profit per table </li></ul></ul><ul><ul><li>Check your calculation </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  39. 39. 1.4.1 Steps to calculate break even sales (R) <ul><li>Calculate the gross profit percentage per table </li></ul><ul><li>Divide total fixed costs by the gross profit percentage </li></ul><ul><li>Check your calculation </li></ul>Entrepreneurship - Level 2 Future Managers
  40. 40. 1.4.1 Steps to calculate break even sales (R) <ul><li>Example </li></ul><ul><li>Steely Sam manufactures steel tables. He knows that his fixed costs are R2000 per month. Furthermore, the cost associated with manufacturing one table is R30 (variable costs). He is currently selling the tables at R50 each. He would like to know how many tables he should manufacture to break even. </li></ul><ul><li>At the break-even point, his profits will be zero. Therefore the break-even point can be calculated by finding that point where sales equal total costs, i.e. variable costs plus fixed costs. </li></ul>Entrepreneurship - Level 2 Future Managers
  41. 41. 1.4.1 Steps to calculate break even sales (R) <ul><li>Calculate the gross profit per table </li></ul><ul><li>selling price R50 </li></ul><ul><li>Less: cost price R30 </li></ul><ul><li>= gross profit R20 </li></ul>Entrepreneurship - Level 2 Future Managers
  42. 42. 1.4.1 Steps to calculate break even sales (R) <ul><li>Divide total fixed costs by the gross profit per table to calculate the break-even point </li></ul><ul><li>R2000 (fixed costs) </li></ul><ul><li>R20 gross profit / unit </li></ul><ul><li>= 100 tables per month </li></ul>Entrepreneurship - Level 2 Future Managers
  43. 43. 1.4.1 Steps to calculate break even sales (R) <ul><li>Divide total fixed costs by the gross profit per table to calculate the break-even point </li></ul><ul><li>R2000 (fixed costs) </li></ul><ul><li>R20 gross profit / unit </li></ul><ul><li>= 100 tables per month </li></ul>Entrepreneurship - Level 2 Future Managers
  44. 44. 1.4.1 Steps to calculate break even sales (R) <ul><li>Check to see if your calculation is correct </li></ul><ul><li>Sales of 100 tables at R50 each = R5000 </li></ul><ul><li>Less cost of sales of 100 tables at R30 each R3000 </li></ul><ul><li>Gross profit of 100 tables = R2000 </li></ul><ul><li>Fixed costs per month = R2000 </li></ul><ul><li>  </li></ul><ul><li>Gross profit of R2000 </li></ul><ul><li>Less: fixed costs of R2000 </li></ul><ul><li>= Net profit of R 0 </li></ul>Entrepreneurship - Level 2 Future Managers
  45. 45. 1.4.1 Steps to calculate break even sales (R) Entrepreneurship - Level 2 Future Managers
  46. 46. Activity 5 <ul><li>The Bat Company  </li></ul><ul><li>Budgeted sales R500 000 </li></ul><ul><li>20 000 bats @ R25 </li></ul><ul><li>Budgeted costs: Fixed Variable </li></ul><ul><li>Materials R90 000 </li></ul><ul><li>Sales commission R100 000 </li></ul><ul><li>Factory rent R30 000 </li></ul><ul><li>Admin expenses R60 000 </li></ul><ul><li>Distribution R50 000 </li></ul><ul><li>Salaries R70 000 </li></ul><ul><li>Office rent R50 000 </li></ul><ul><li>Totals: ? ? </li></ul><ul><li>Question: </li></ul><ul><li>What is your break-even point in Rand? </li></ul><ul><li>(Hint: You must first calculate your gross profit.) </li></ul>Entrepreneurship - Level 2 Future Managers
  47. 47. Activity 5 (Solution) <ul><li>Sales – COS = GP </li></ul><ul><li>R500 000 – R270 000 = R230 000 </li></ul><ul><li>GP% = 46% </li></ul><ul><li>  </li></ul><ul><li>Breakeven Sales = Fixed Costs </li></ul><ul><li>GP% </li></ul><ul><li>  </li></ul><ul><li>R180 000 </li></ul><ul><li>46% </li></ul><ul><li>= R391 304.34 </li></ul>Entrepreneurship - Level 2 Future Managers
  48. 48. 1.4.2 Break-even with a profit motive <ul><li>Calculate the gross profit percentage per table </li></ul><ul><li>Divide total fixed costs + desired profit by the gross profit percentage </li></ul><ul><li>Check your calculation </li></ul>Entrepreneurship - Level 2 Future Managers
  49. 49. Activity 6 <ul><li>Fatimah plans to open a fresh pineapple den selling sliced pineapples dipped in different types of masala. She worked out that a pineapple slice including the spices and the sticks will cost her R1.50. </li></ul><ul><li>Her fixed costs (monthly) are the following: </li></ul><ul><li>Stall rental R200 </li></ul><ul><li>Salary R2000 </li></ul><ul><li>Transport R100 </li></ul><ul><li>Miscellaneous R100 </li></ul><ul><li>She plans to sell the pineapple slices for R5. </li></ul><ul><li>Calculate </li></ul><ul><li>Break-even turnover (R) </li></ul><ul><li>Break-even units </li></ul><ul><li>Break-even point (R) if she increases her salary to R3000 per month? </li></ul>Entrepreneurship - Level 2 Future Managers
  50. 50. Activity 6 (Solution) <ul><li>Gross Profit: R5 – R1.50 = R3.50 </li></ul><ul><li>GP% = 70% </li></ul><ul><li>Break even turnover: R2400 </li></ul><ul><li>70% </li></ul><ul><li>= R3428.57 </li></ul><ul><li>  </li></ul><ul><li>2. Break even Units: R2400 </li></ul><ul><li>R3.50 </li></ul><ul><li>  </li></ul><ul><li>= 686 slices </li></ul>Entrepreneurship - Level 2 Future Managers
  51. 51. 1.4.3 Calculate the break even point for one product <ul><li>Calculate your gross profit per unit </li></ul><ul><li>Calculate the gross profit percentage </li></ul><ul><li>Calculate the break even point </li></ul>Entrepreneurship - Level 2 Future Managers
  52. 52. 1.4.3 Calculate the break even point for one product <ul><li>Example </li></ul><ul><li>CD’s4Africa sells CDs at R150 each. The cost price is R90 per CD and the business’ fixed costs amount to R12 000 per month. Calculate the break-even point of CD’s4Africa. </li></ul>Entrepreneurship - Level 2 Future Managers
  53. 53. 1.4.3 Calculate the break even point for one product <ul><li>Step 1 </li></ul><ul><li>Calculate your gross profit (contribution) per unit: </li></ul><ul><li>Selling price (R150) – Cost price per unit (R90) = Gross profit per CD (R60)  </li></ul><ul><li>  </li></ul><ul><li>Step 2 </li></ul><ul><li>Calculate the gross profit percentage: </li></ul><ul><li>= gross profit × 100 </li></ul><ul><li>selling price 1 </li></ul><ul><li>  </li></ul><ul><li>= R60 × 100 </li></ul><ul><li>R150 1 </li></ul><ul><li>= 40% </li></ul>Entrepreneurship - Level 2 Future Managers
  54. 54. 1.4.3 Calculate the break even point for one product <ul><li>Step 3 </li></ul><ul><li>Break even units: </li></ul><ul><li>= fixed costs </li></ul><ul><li>gross profit per unit </li></ul><ul><li>= R12 000 </li></ul><ul><li>R60 </li></ul><ul><li>= 200 CDs </li></ul>Entrepreneurship - Level 2 Future Managers
  55. 55. 1.4.3 Calculate the break even point for one product <ul><li>Step 3 </li></ul><ul><li>Break even sales: </li></ul><ul><li>= fixed costs </li></ul><ul><li>gross profit % </li></ul><ul><li>= R12 000 </li></ul><ul><li>40% </li></ul><ul><li>= R30 000 </li></ul>Entrepreneurship - Level 2 Future Managers
  56. 56. 1.4.4 Calculate the break even point for multiple products <ul><li>Calculate the gross profit of each product or group of products </li></ul><ul><li>Calculate the gross profit percentage of each product or group of products separately </li></ul><ul><li>Determine the percentage of sales for which the specific product accounts </li></ul><ul><li>Calculate the WAGPP </li></ul><ul><li>Calculate the break even point </li></ul>Entrepreneurship - Level 2 Future Managers
  57. 57. 1.4.4 Calculate the break even point for multiple products <ul><li>Example </li></ul><ul><li>CD’s4Africa decided to sell DVDs as well as CDs. The selling price for each DVD is R250 and the cost price R170. </li></ul><ul><li>The owner expects DVDs to make up 40% of total sales and CDs 60%. Introducing DVDs will increase the fixed costs of the business to R15 000. </li></ul>Entrepreneurship - Level 2 Future Managers
  58. 58. 1.4.4 Calculate the break even point for multiple products <ul><li>Calculate the gross profit of each product or group of products </li></ul><ul><li>For CDs: </li></ul><ul><li>R150 – R90 = R60 </li></ul><ul><li>For DVDs: </li></ul><ul><li>R250 – R170 = R80 </li></ul>Entrepreneurship - Level 2 Future Managers
  59. 59. 1.4.4 Calculate the break even point for multiple products <ul><li>2. Calculate the gross profit percentage for each product or group of products separately </li></ul><ul><li>For CDs: </li></ul><ul><li>Gross profit x 100 </li></ul><ul><li>Sales </li></ul><ul><li>= R60 x 100 </li></ul><ul><li>R150 </li></ul><ul><li>=40% </li></ul><ul><li>For DVDs: </li></ul><ul><li>R80 x 100 </li></ul><ul><li>R250 </li></ul><ul><li>=32% </li></ul>Entrepreneurship - Level 2 Future Managers
  60. 60. 1.4.4 Calculate the break even point for multiple products <ul><li>Determine the percentage of total sales for which each product accounts </li></ul><ul><li>How would you do this? </li></ul><ul><li>CDs: 60% </li></ul><ul><li>DVDs: 40% </li></ul>Entrepreneurship - Level 2 Future Managers
  61. 61. 1.4.4 Calculate the break even point for multiple products <ul><li>Calculate the weighted average gross profit percentage </li></ul><ul><li>For CDs </li></ul><ul><li>Sales (60%) x Gross profit (40%) = 24% </li></ul><ul><li>For DVDs </li></ul><ul><li>Sales (40%) x Gross profit (32%) = 12,8% </li></ul><ul><li>Total </li></ul><ul><li>=24 + 12,8 = 36,8% </li></ul>Entrepreneurship - Level 2 Future Managers
  62. 62. 1.4.4 Calculate the break even point for multiple products <ul><li>Calculate the break even point </li></ul><ul><li>Break even sales = total fixed costs </li></ul><ul><li>WAGPP </li></ul><ul><li>= 15000 </li></ul><ul><li>36.8% </li></ul><ul><li>= R40761 </li></ul>Entrepreneurship - Level 2 Future Managers
  63. 63. 1.5 Start-up costs <ul><li>Start-up costs can be divided into two categories: </li></ul><ul><ul><li>Fixed assets </li></ul></ul><ul><ul><li>Pre-operating costs </li></ul></ul><ul><li>Think of some examples of each </li></ul>Entrepreneurship - Level 2 Future Managers
  64. 64. Business plan activity <ul><li>Make a list of all the fixed asset requirements for your business </li></ul>Entrepreneurship - Level 2 Future Managers
  65. 65. Business plan activity <ul><li>Make a list of all the start-up requirements for your business. </li></ul><ul><li>It is realistic not to expect your business to break even within the first few months. You will need money to keep your business going during this period, especially to pay for your fixed costs, such as salaries. A cash-flow statement which will be covered later will assist you to determine how much money (cash) you will need. Most businesses include three months’ worth of fixed costs as part of their start-up requirements. This is to make sure that there is enough cash until the business breaks even. </li></ul>Entrepreneurship - Level 2 Future Managers
  66. 66. 2. Processes and principles for pricing a product <ul><li>At the end of this outcome, you should be able to: </li></ul><ul><ul><li>Explain pricing principles and processes for pricing of product </li></ul></ul><ul><ul><li>Assess the pricing of product </li></ul></ul><ul><ul><li>Calculate the selling price of products/services of given examples </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  67. 67. 2.1 Factors influencing pricing <ul><li>Your target market </li></ul><ul><li>Competitors </li></ul><ul><li>Convenience </li></ul><ul><li>Costing </li></ul><ul><li>Break-even point </li></ul>Entrepreneurship - Level 2 Future Managers
  68. 68. 2.2 Pricing concepts <ul><li>Skimming </li></ul><ul><li>Competitive pricing </li></ul><ul><li>Cost-plus pricing </li></ul><ul><li>Odd pricing </li></ul><ul><li>“ Loss-leader” pricing </li></ul><ul><li>Discounts </li></ul>Entrepreneurship - Level 2 Future Managers
  69. 69. Activity 7 <ul><li>Refer back to Simon’s vending machine business. </li></ul><ul><li>Simon determined the size of his market. He did a sales forecast and considered a number of pricing factors. However, he did not do a proper costing and did not calculate a break-even point. </li></ul><ul><li>Make a number of assumptions, which you must be able to explain, and calculate the following: </li></ul><ul><ul><li>Variable costs </li></ul></ul><ul><ul><li>Fixed costs </li></ul></ul><ul><ul><li>Total costs (keep Simon’s sales forecast in mind) </li></ul></ul><ul><ul><li>Break-even point. </li></ul></ul><ul><li>Do you think that Simon’s price of R8 per tin is reasonable given all your calculations? If not how much should he charge per tin? Give reasons for your answer </li></ul>Entrepreneurship - Level 2 Future Managers
  70. 70. 2.4 Mark-up percentage <ul><li>Mark-up % = gross profit x 100 </li></ul><ul><li>cost of sales </li></ul><ul><li>Your mark-up should always be enough to cover your fixed costs </li></ul>Entrepreneurship - Level 2 Future Managers
  71. 71. 3. Financial management, record keeping and stock control <ul><li>At the end of this outcome, you should be able to: </li></ul><ul><li>determine the cash flow of a business and how it affects the business over a period of time </li></ul><ul><li>keep record in a small business </li></ul><ul><li>understand the requirements of managing a business </li></ul><ul><li>discuss some banking facilities </li></ul><ul><li>explain how stock is managed and controlled </li></ul>Entrepreneurship - Level 2 Future Managers
  72. 72. 3.1 Forecast cash flow statement <ul><li>What is a cash flow statement? </li></ul><ul><li>Why do we need a cash flow statement? </li></ul><ul><li>Can a business operate without cash? </li></ul><ul><ul><li>even if it is recording a profit? </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  73. 73. 3.1.1 Cash flow calculations <ul><li>To compile your forecast cash flow statement, you will have to determine the approximate figures of the following: </li></ul><ul><ul><li>Your expected monthly sales volume (how many products you expect to sell) </li></ul></ul><ul><ul><li>The percentage of cash sales and the payment patterns of debtors (people who owe you money) </li></ul></ul><ul><ul><li>The cash payments you will need to make to your suppliers </li></ul></ul><ul><ul><li>Your fixed monthly costs, all those monthly payments such as rent and electricity </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  74. 74. 3.1.1 Cash flow calculations Entrepreneurship - Level 2 Future Managers Feb Mar Apr May Jun Jul Money in bank 1000 1 800 2 600 -1 600 12 000 19 600 CD sales (R) 30 000 30 000 30 000 60 000 45 000 45 000 DVD sales (R) 2 500 2 500 2 500 5 000 5000 7 500 Total Cash in 33 500 34 300 35 100 63 400 62 000 72 100 CD costs 18 000 18 000 18 000 36 000 27 000 27 000 DVD costs 1 700 1 700 1 700 3 400 3 400 5 100 Other costs 5 000 Fixed costs 12 000 12 000 12 000 12 000 12 000 12 000 Total cash out 31 700 31 700 36 700 51 400 42 400 44 100 Closing bal 1 800 2 600 -1 600 12 000 R19 600 R28 100
  75. 75. 3.1.2 Steps in compiling a cash flow <ul><li>Determine all your fixed monthly costs </li></ul><ul><li>Identify payments you can schedule and are not due every month </li></ul><ul><li>Use your sales forecast to determine your cash inflow </li></ul><ul><li>Fill in your purchases in accordance with your projected sales pattern </li></ul><ul><li>Include other payments </li></ul><ul><li>Work out your cash flow for the entire first year </li></ul>Entrepreneurship - Level 2 Future Managers
  76. 76. Activity 8: Blondie Entrepreneurship - Level 2 Future Managers Months Estimated income Estimated purchases March R8 000 R 3 000 April R3 000 R5 000 May R5 000 R2 000 June R6 500 R4 000
  77. 77. Activity 8 <ul><li>Blondie bought a new tumble-drier in March. She paid R700 deposit and her monthly payments thereafter will be R250 for the next six months </li></ul><ul><li>Her average expenses per month are: </li></ul><ul><ul><li>Rental R1 200 </li></ul></ul><ul><ul><li>Wages R1 000 </li></ul></ul><ul><ul><li>Telephone R180 </li></ul></ul><ul><ul><li>Electricity R250 </li></ul></ul><ul><ul><li>Water R120 </li></ul></ul><ul><li>Blondie’s terms are strictly cash for both suppliers and customers </li></ul><ul><li>In April she will sell her old hair drier for R800 cash </li></ul><ul><li>In May she will buy a new hair-drier. The deposit will be R450 and the monthly payment thereafter will be R120 for the next six months. </li></ul>Entrepreneurship - Level 2 Future Managers
  78. 78. Activity 8 (Solution) Entrepreneurship - Level 2 Future Managers Mar Apr May Jun Money in bank 0 1 550 -2 650 -3 100 Sales 8 000 3 000 5 000 6 500 Total Cash in 8 000 8 000 2 350 3 400 Purchases 3 000 5 000 2 000 4 000 Other costs 700 250 250 250 Other costs 450 120 Fixed costs 2 750 2 750 2 750 2 750 Total cash out 6 450 8 000 5 450 7 129 Closing bal 1 550 -2 650 -3 100 -3 720
  79. 79. Activity 9: Pie in the sky <ul><li>Pie-in-the-Sky is a one-person business selling pies at an outlet close to a railway station. Use the following information to draw up a cash flow statement for the period March to May 1998. </li></ul>Entrepreneurship - Level 2 Future Managers Months Estimated income Estimated purchases February R 4 000 R3 000 March R3 000 R4 000 April R2 500 R1 500 May R5 500 R200
  80. 80. Activity 9: Pie in the sky <ul><li>Additional Information </li></ul><ul><li>All purchases and sales are cash </li></ul><ul><li>Pie-in-the-Sky expects to receive R1500 in March from an old debtor </li></ul><ul><li>A new pie machine will be delivered in April. A deposit of R800 is payable on delivery. Monthly installments thereafter will amount to R300 </li></ul><ul><li>The business’ average expenses per month are: </li></ul><ul><ul><li>Rent R200 </li></ul></ul><ul><ul><li>Electricity R350 </li></ul></ul><ul><ul><li>Wages R1500 </li></ul></ul><ul><ul><li>Telephone R50 </li></ul></ul><ul><li>The bank balance at the beginning was R2500. </li></ul><ul><li>Required </li></ul><ul><li>Draw up the forecast cash flow statement </li></ul><ul><li>Should Pie-in-the-Sky arrange for an overdraft facility? Explain your answer. </li></ul>Entrepreneurship - Level 2 Future Managers
  81. 81. Activity 9 (Solution) <ul><li>Pie in the Sky will need an additional loan of R2100 in April to avoid a negative cash-flow. A negative cash-flow means that this business will not have the money to pay its fixed costs for the month. </li></ul>Entrepreneurship - Level 2 Future Managers Mar Apr May Jun Money in bank 2 500 1 400 -200 -2 100 Sales 4 000 3 000 2 500 5 500 Other 1 500 Total Cash in 6 500 5 900 2 300 3 400 Purchases 3 000 4 000 1 500 200 Other costs 800 300 Fixed costs 2 100 2 100 2 100 2 100 Total cash out 5 100 6 100 4 400 2 600 Closing bal 1 400 -200 -2 100 800
  82. 82. 3.2 Keeping financial records <ul><li>What are the 3 key financial statements? </li></ul><ul><ul><li>The income statement </li></ul></ul><ul><ul><li>The balance sheet </li></ul></ul><ul><ul><li>The cash flow statement </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  83. 83. 3.2 Keeping financial records <ul><li>These financial statements are compiled from source documents: </li></ul><ul><ul><li>Receipts </li></ul></ul><ul><ul><li>Sales invoices </li></ul></ul><ul><ul><li>Delivery notes </li></ul></ul><ul><ul><li>Cash register slips </li></ul></ul><ul><ul><li>Bank deposit slips </li></ul></ul><ul><ul><li>Petrol slips </li></ul></ul><ul><ul><li>Bank statements </li></ul></ul><ul><ul><li>Cheques </li></ul></ul><ul><li>These need to be kept and filed to comply with the following Acts: </li></ul><ul><ul><li>The Income Tax Act </li></ul></ul><ul><ul><li>The Value Added Tax Act </li></ul></ul><ul><ul><li>The Workmen’s Compensation Act </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  84. 84. Activity 10: Self reading <ul><li>Read the extract on page 136 regarding tax registrations </li></ul>Entrepreneurship - Level 2 Future Managers
  85. 85. Activity 11: Self reading <ul><li>Read the advertisement on page 137. It is aimed at trying to convince entrepreneurs to buy a proper bookkeeping system. It will give a better idea about all the challenges that entrepreneurs face when it comes to keeping records. </li></ul>Entrepreneurship - Level 2 Future Managers
  86. 86. 3.3 Filing methods and systems <ul><li>Source documents should be filed </li></ul><ul><li>Filing starts with a temporary storage location </li></ul><ul><li>From the temporary location, they should be moved to the file. </li></ul><ul><li>Files are generally arranged alphabetically and monthly </li></ul>Entrepreneurship - Level 2 Future Managers
  87. 87. 3.3 Filing methods and systems <ul><li>Staff related documents include: </li></ul><ul><ul><li>Letter of appointment </li></ul></ul><ul><ul><li>Job description </li></ul></ul><ul><ul><li>UIF documentation </li></ul></ul><ul><ul><li>Medical reports </li></ul></ul><ul><ul><li>Workmen’s compensation details </li></ul></ul><ul><ul><li>Staff evaluations </li></ul></ul><ul><ul><li>Any other staff-related documents </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  88. 88. 3.3 Filing methods and systems <ul><li>Other document needing filing: </li></ul><ul><ul><li>Business registration certificates </li></ul></ul><ul><ul><li>Tax certificates </li></ul></ul><ul><ul><li>Lease documents </li></ul></ul><ul><ul><li>Warranties </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Loan agreements </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  89. 89. 3.4 Financial assistance for small businesses <ul><li>Financial assistance is available from: </li></ul><ul><ul><li>Banks </li></ul></ul><ul><ul><li>Other financial institutions </li></ul></ul><ul><ul><ul><li>Khula </li></ul></ul></ul><ul><ul><ul><li>Business Partners </li></ul></ul></ul><ul><ul><ul><li>Chambers of commerce </li></ul></ul></ul><ul><ul><ul><li>Trade credit </li></ul></ul></ul><ul><ul><ul><li>Micro-lenders </li></ul></ul></ul>Entrepreneurship - Level 2 Future Managers
  90. 90. 3.4.1 Banks <ul><li>Typical questions asked by banks: </li></ul><ul><ul><li>How much money do you need and how much of this will come from your own resources? The more you contribute yourself the easier a bank will make up the difference </li></ul></ul><ul><ul><li>On what specifically are you going to spend the money? </li></ul></ul><ul><ul><li>How are you planning to repay the bank and do you have a Plan B if the business does not do as well as you expect? </li></ul></ul><ul><ul><li>What “surety” can you provide? Surety is when someone else is prepared to repay the bank if you fail. Normally only a family member will be prepared to do that. You can also provide surety in the form of an asset to the value of the money you want to borrow from the bank </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  91. 91. Different forms of bank assistance <ul><li>Different forms of bank assistance </li></ul><ul><li>Bank loan </li></ul><ul><ul><li>Fixed amount borrowed over time </li></ul></ul><ul><ul><li>Charge depends on amount lend </li></ul></ul><ul><li>Bank overdraft </li></ul><ul><ul><li>Expensive form of borrowing </li></ul></ul><ul><ul><li>Used as a short-term supplement for cash flow </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  92. 92. Different forms of bank assistance <ul><li>Using the banking system </li></ul><ul><li>Current account </li></ul><ul><li>Savings account </li></ul><ul><li>Internet banking </li></ul><ul><li>Telephone banking </li></ul><ul><li>Auto-banking (ATMs) </li></ul>Entrepreneurship - Level 2 Future Managers
  93. 93. 3.4.2 Other financial institutions <ul><li>Khula </li></ul><ul><ul><li>Established by the DTI to facilitate finance for SMMEs </li></ul></ul><ul><ul><li>Also provides mentorship and advice </li></ul></ul><ul><ul><li>Offers a credit guarantee scheme </li></ul></ul><ul><li>Business Partners </li></ul><ul><ul><li>Focuses on medium size businesses </li></ul></ul><ul><ul><li>Becomes a shareholder of the enterprise </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  94. 94. Activity 12: Internet <ul><li>Visit www.khula.org for more information about Khula </li></ul>Entrepreneurship - Level 2 Future Managers
  95. 95. 3.4.2 Other financial institutions <ul><li>Trade Credit </li></ul><ul><ul><li>Buy now and pay later </li></ul></ul><ul><ul><li>Easy to secure </li></ul></ul><ul><li>Micro-lenders </li></ul><ul><ul><li>Charge very large interest rates </li></ul></ul><ul><ul><li>Loans must obey the following conditions: </li></ul></ul><ul><ul><ul><li>Loans may not exceed R10 000 </li></ul></ul></ul><ul><ul><ul><li>The repayment period may not be longer than 36 months </li></ul></ul></ul><ul><ul><ul><li>A loan may not be repaid from a credit card or cheque account </li></ul></ul></ul><ul><ul><ul><li>You may not hand out your confidential information to anyone else </li></ul></ul></ul><ul><ul><ul><li>You have a 3-day cooling-off period to change your mind after the loan has been granted to you </li></ul></ul></ul><ul><ul><ul><li>The contract must be in writing </li></ul></ul></ul><ul><ul><ul><li>Interest may only be charged once you have received the money </li></ul></ul></ul>Entrepreneurship - Level 2 Future Managers
  96. 96. 3.4.2 Other financial institutions <ul><li>Tips when borrowing money </li></ul><ul><ul><li>Check to make sure that your micro-lender is registered with MFRC. Ask to see the registration certificate </li></ul></ul><ul><ul><li>Never work with a lender who insists on keeping your ID document or bank card, or who demands your bank account PIN number </li></ul></ul><ul><ul><li>Never sign blank documents when applying for a loan. This means that the lender could add conditions to which you have not agreed </li></ul></ul><ul><ul><li>Compare interest rates from several different lenders before deciding where to borrow </li></ul></ul><ul><ul><li>You are entitled to statements showing the costs of the loans, any payment made, and the remaining balance </li></ul></ul><ul><ul><li>You should be aware of any penalties that might be applied if you miss a payment </li></ul></ul><ul><ul><li>Never borrow money from one lender to pay another. This means that you have too much debt </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  97. 97. 3.5 Inventory control <ul><li>Inventory includes the following: </li></ul><ul><ul><li>Raw materials </li></ul></ul><ul><ul><li>Finished goods </li></ul></ul><ul><ul><li>Work-in-progress </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  98. 98. 3.5 Inventory control <ul><li>What is the purpose of inventory control? </li></ul><ul><ul><li>To determine when and how much should be ordered </li></ul></ul><ul><ul><li>Maintain independence of operations, meaning that manufacturing will not come to a standstill because of an out-of-stock situation </li></ul></ul><ul><ul><li>Meet variations in product demand </li></ul></ul><ul><ul><li>Allow flexibility in the production schedule </li></ul></ul><ul><ul><li>Provide a safeguard for variations in the raw material delivery time </li></ul></ul><ul><ul><li>Take advantage of the Economical Order Quantity benefits (EOQ). </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  99. 99. 3.5 Inventory control <ul><li>Inventory costs include: </li></ul><ul><ul><li>Carrying costs </li></ul></ul><ul><ul><li>Set-up costs </li></ul></ul><ul><ul><li>Ordering costs </li></ul></ul><ul><ul><li>Shortage costs </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  100. 100. 3.5.1Managing and controlling stock <ul><li>What is the aim of stock management? </li></ul><ul><ul><li>To keep the right goods </li></ul></ul><ul><ul><li>At the right time </li></ul></ul><ul><ul><li>In the right place </li></ul></ul><ul><ul><li>And displayed in the right way </li></ul></ul><ul><li>Tips on stock management </li></ul><ul><ul><li>Keep simple stock records </li></ul></ul><ul><ul><li>Check your stock regularly </li></ul></ul><ul><ul><li>Store stock so that all items are visible and easy to count </li></ul></ul><ul><ul><li>Stock should be grouped by type, model and size. </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  101. 101. 3.5.2 Keeping accurate records <ul><li>Stock cards in non-computerised systems </li></ul><ul><li>In a computerised system, bar codes and scanners are used </li></ul><ul><li>Both systems allow you to know exactly how much stock is left and whether an order needs to be placed </li></ul>Entrepreneurship - Level 2 Future Managers
  102. 102. 3.5.3 Stock-taking as a method of control <ul><li>Differences between actual and recorded stock could mean </li></ul><ul><ul><li>Theft </li></ul></ul><ul><ul><li>Short deliveries </li></ul></ul><ul><ul><li>Mistakes in counting </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  103. 103. 3.5.4 Managing the store <ul><li>You can have good stock records, but if your products are not properly stored and handled, your shrinkage cost will jump. This in turn will affect your business profits. </li></ul><ul><ul><li>Staff must know which products are easily breakable. Such products should not be stored in a busy area </li></ul></ul><ul><ul><li>Security devices must be installed and regularly checked </li></ul></ul><ul><ul><li>Fast-selling products should be toward the front of the storeroom for easy access </li></ul></ul><ul><ul><li>Store room should be well lit to prevent staff from searching unnecessarily </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  104. 104. Activity 13: Quiz <ul><li>What is the importance of stock control? </li></ul><ul><li>Why is it bad to run out of stock and why is it bad to carry too much stock? </li></ul><ul><li>What is stock-taking? </li></ul><ul><li>What is the purpose of the five columns on a stock card? </li></ul><ul><li>Does a service business carry inventory? If so give examples </li></ul>Entrepreneurship - Level 2 Future Managers
  105. 105. Summative assessment <ul><li>Springbok Silencers is a small silencer-fitting business operating from a garage next to a busy road in Alexandra. </li></ul><ul><li>They made a few enquiries and came up with the following sales forecast for the months March to June. </li></ul>Entrepreneurship - Level 2 Future Managers Months Estimated sales Estimated purchases March R30 000 R15 000 April R15 000 R7 500 May R21 000 R10 500 June R27 000 R13 500
  106. 106. Summative assessment <ul><li>Other information </li></ul><ul><li>Springbok bought a new welding machine in March. They paid R8000 deposit and the monthly payments thereafter are R800 for six months . </li></ul><ul><li>Their average expenses per month are: </li></ul><ul><ul><li>Wages R1700 </li></ul></ul><ul><ul><li>Rental R1200 </li></ul></ul><ul><ul><li>Telephone R550 </li></ul></ul><ul><ul><li>Electricity R180 </li></ul></ul><ul><ul><li>Fuel R500  </li></ul></ul><ul><li>All Springbok’s sales are strictly cash </li></ul><ul><li>In April they plan to sell an old grinder and drill for R2000 cash </li></ul><ul><li>In May they plan to buy a new computer. The deposit will be R1500 and monthly installments of R500 thereafter for one year </li></ul><ul><li>Springbok Silencers sells fitted silencers at R600 each </li></ul><ul><li>At the end of February the business had a favourable bank balance of R4000 </li></ul>Entrepreneurship - Level 2 Future Managers
  107. 107. Summative assessment <ul><li>Other costs: </li></ul><ul><li>Springbok Silencers calculated that the following costs will be incurred for every 10 silencers being fitted. </li></ul><ul><li>Welding rods R200 </li></ul><ul><li>Electricity for the welding machine R200 </li></ul><ul><li>Calculate the following: </li></ul><ul><li>How many silencers Springbok expect to fit each month </li></ul><ul><li>Variable and fixed costs of Springbok </li></ul><ul><li>Gross profit percentage </li></ul><ul><li>Break-even point in sales </li></ul><ul><li>Break-even units. </li></ul><ul><li>Draw up a cash-flow statement for four months (March - June). </li></ul>Entrepreneurship - Level 2 Future Managers
  108. 108. Summative assessment <ul><li>The owners of Springbok Silencers got the shock of their lives when they saw all the calculations and realised that they would never make a decent profit if they did not grow and expand their business. One of the owners came up with the idea to start servicing vehicles </li></ul><ul><li>They identified the following three categories of service: </li></ul><ul><ul><li>1. “Checking” of: </li></ul></ul><ul><ul><li>2. “Topping Up” of: </li></ul></ul><ul><ul><li>“ Replacement” of: </li></ul></ul><ul><li>The all-inclusive price for this service is R450. </li></ul><ul><li>The owners estimated that 40% of the business would come from this service side of the business. Market research has shown that they can expect to service 40 vehicles per month. Variable costs including labour and parts will amount on average to R200 per service. Half of these costs are labour. </li></ul>Entrepreneurship - Level 2 Future Managers
  109. 109. Summative assessment <ul><li>Calculate </li></ul><ul><li>The hours of labour they budgeted per service, if the labour costs per hour are R50 </li></ul><ul><li>The gross profit per service </li></ul><ul><li>The weighted average gross profit percentage </li></ul><ul><li>The mark-up percentage per service </li></ul><ul><li>The net profit percentage of Springbok Silencers. </li></ul>Entrepreneurship - Level 2 Future Managers
  110. 110. Answers <ul><li>Calculate how many silencers Springbok expect to fit each month </li></ul>Entrepreneurship - Level 2 Future Managers March April May June 50 25 35 45
  111. 111. Answers <ul><li>Calculate the fixed and variable costs of Springbok </li></ul><ul><li>Fixed Costs: Wages (1700) + Rental (R1200) + Telephone (R500) + Electricity (R180) + Fuel (500) = R4130 </li></ul><ul><li>Variable Costs: Welding rods (R20) + Electricity (R20) + Silencer (R300) = R340 </li></ul>Entrepreneurship - Level 2 Future Managers
  112. 112. Answers <ul><li>Calculate gross profit percentage </li></ul><ul><li>GP X 100 </li></ul><ul><li>Sales 1 </li></ul><ul><li>= R260 X 100 </li></ul><ul><li>R600 1 </li></ul><ul><li>  </li></ul><ul><li>= 43,33% </li></ul>Entrepreneurship - Level 2 Future Managers
  113. 113. Answers <ul><li>Calculate break even sales </li></ul><ul><li>Break-even sales = Fixed Costs </li></ul><ul><li>GP% </li></ul><ul><li>  </li></ul><ul><li>= R4130 </li></ul><ul><li> 43.33% </li></ul><ul><li>  </li></ul><ul><li>= R9531.50 </li></ul>Entrepreneurship - Level 2 Future Managers
  114. 114. Answers <ul><li>Calculate break even units </li></ul><ul><li>Break-even units: = R4130 </li></ul><ul><li> R260 </li></ul><ul><li>  </li></ul><ul><li>= 15.88 Silencers </li></ul>Entrepreneurship - Level 2 Future Managers
  115. 115. Answers <ul><li>Draw up a cash-flow statement for four months </li></ul>Entrepreneurship - Level 2 Future Managers Mar Apr May Jun Money in bank 4 000 4 870 8 440 11 100 Sales 30 000 15 000 21 000 27 000 Other 2 000 Total Cash in 34 000 21 870 29 440 38 110 Purchases 15 000 7 500 10 500 13 500 Variable costs 2 000 1 000 1 400 1 800 Other costs 8 000 800 1 400 1 800 Fixed costs 4 130 4 130 4 130 4 130 Total cash out 29 130 13 430 18 330 20 730 Closing bal 4 870 8 440 11 110 17 380
  116. 116. Answers <ul><li>Calculate the hours of labour they budgeted per service, if the labour costs are R50 </li></ul><ul><li>2 hours </li></ul><ul><li>Total labour costs = R100 per service@ R50 per hour = 2hours </li></ul>Entrepreneurship - Level 2 Future Managers
  117. 117. Answers <ul><li>Calculate the gross profit per service </li></ul><ul><li>Gross Profit = Sales – Costs </li></ul><ul><li>R450 – R200 </li></ul><ul><li>= R250 / service </li></ul><ul><li>Or R250 X 40 vehicles/ month </li></ul><ul><li>= R10 000 </li></ul>Entrepreneurship - Level 2 Future Managers
  118. 118. Answers <ul><li>Calculate the weighted average gross profit percentage </li></ul><ul><li>Silencers: 43.33%x 60% = 26% </li></ul><ul><li>Services: 56% x 40% = 22.40% = 48.40% </li></ul>Entrepreneurship - Level 2 Future Managers
  119. 119. Answers <ul><li>Calculate the mark-up percentage per service </li></ul><ul><li>Silencers MA% = Gross Profit X 100 </li></ul><ul><li> CoS 1 </li></ul><ul><li>= R260 X 100 </li></ul><ul><li>R340 1 </li></ul><ul><li>  </li></ul><ul><li>= 76.47% </li></ul><ul><li>  </li></ul><ul><li>  </li></ul><ul><li>Service MA% = Gross Profit X 100 </li></ul><ul><li> CoS 1 </li></ul><ul><li>  </li></ul><ul><li>= R250 X 100 </li></ul><ul><li>R200 1 </li></ul><ul><li>  </li></ul><ul><li>= 125% </li></ul>Entrepreneurship - Level 2 Future Managers
  120. 120. Answers <ul><li>Calculate the net profit percentage </li></ul><ul><li>Total Sales (4 months) </li></ul><ul><li>Silencers R93 000 </li></ul><ul><li>Services R450 X R400 </li></ul><ul><li>= R18 000 X 4 months </li></ul><ul><li> = R72 000 </li></ul><ul><li>R165 000 </li></ul>Entrepreneurship - Level 2 Future Managers
  121. 121. Answers <ul><li>Total costs </li></ul><ul><li>For silencers (including fixed costs) </li></ul><ul><li>For services = R200 x 40 vehicles x 4 months </li></ul><ul><li> = R32 000 </li></ul><ul><li>Total costs = R81 620 + R113 620 = 51 380 </li></ul>Entrepreneurship - Level 2 Future Managers Purchases 15 000 7 500 10 500 13 500 Variable costs 2 000 1 000 1 400 1 800 Other costs 8 000 800 1 400 1 800 Fixed costs 4 130 4 130 4 130 4 130 Total cash out 29 130 13 430 18 330 20 730
  122. 122. Answers <ul><li>Net Profit% = Net Profit X 100 </li></ul><ul><li>Sales 1 </li></ul><ul><li>= R51 380 X 100 </li></ul><ul><li>R165 000 1 </li></ul><ul><li>= 31.14% </li></ul>Entrepreneurship - Level 2 Future Managers
  123. 123. Recap <ul><li>Can you outline basic financial terminology? </li></ul><ul><ul><li>Define the terminology associated with the financing of a new venture such as product costing and pricing, fixed and variable costs, mark-up, profit, cash flow, break-even and forecasting? </li></ul></ul><ul><ul><li>Explain the principles and procedures for compiling the cost price of a product or service? </li></ul></ul><ul><ul><li>Assess the costs of a product? </li></ul></ul><ul><ul><li>Calculate the total cost of a products from given examples? </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  124. 124. Recap <ul><li>Can you outline processes and principles for pricing a product? </li></ul><ul><ul><li>Explain pricing principles and processes for pricing of product? </li></ul></ul><ul><ul><li>Assess the pricing of product? </li></ul></ul><ul><ul><li>Calculate the selling price of products/services of given examples? </li></ul></ul>Entrepreneurship - Level 2 Future Managers
  125. 125. Recap <ul><li>Can you outline financial management, record keeping and stock control determine the cash flow of a business and how it affects the business over a period of time </li></ul><ul><ul><li>keep record in a small business </li></ul></ul><ul><ul><li>understand the requirements of managing a business </li></ul></ul><ul><ul><li>discuss some banking facilities </li></ul></ul><ul><ul><li>explain how stock is managed and controlled </li></ul></ul><ul><li>If you can, congratulations, you are ready to move onto the next module </li></ul>Entrepreneurship - Level 2 Future Managers

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