Agri business management handbook

ACKNOWLEDGEMENTS
Who brought together
seasoned experts,
working for some of the
largest food processors
and equipment
manufacturers, and who
volunteered their time to
review this handbook’s
original content
Who provided the
resources that were
used in the development
of the content and
conversion in to the
e-book.
Who offered in-depth
country knowledge and
professional acumen
that helped make this
e-book a reality.
We would like to sincerely thank the following partners, who constituted
Solutions for African Food Enterprises (SAFE), the project under which this
e-book was developed.
i | AGRI-BUSINESS MANAGEMENT HANDBOOK

Special Thanks to:-
We would like to recognize and most sincerely thank the individuals below
who put in their time and immeasurable efforts in the journey of developing
the content and reviewing the suitability for conversion of the content to this
e-book
Thanks to Prof Kibas (working under Kenya Institute of Management) who
led the development of the initial content of this book together with PFS
volunteers Shelley Kerr and Staci Seibold.
Special thanks to the team of experts led by Dr. Amos Njuguna (USIU) who
reviewed the original content for suitability as an e-book.
Many thanks to experts Darius Waithaka, Victor Agolla, Stella Kimemia,
Risper Pete, Mabel Omurambi, Eunice Muthoni, Dr. Ng’ang’a Gachara , Dr.
Dancan Irungu and Charles Wainaina who helped in the review of content of
the first edition of this book.
Thanks also to the TechnoServe team Margaret Ngetha, Jane Njeri, Anthony
Etiang and Johnson Kiragu who worked tirelessly to initiate, read, correct and
publicize the content of this book.
AGRI-BUSINESS MANAGEMENT HANDBOOK | ii

iii | AGRI-BUSINESS MANAGEMENT HANDBOOK
For any business enterprise to be established and to run successfully, those
starting and running it must have certain skills, behaviors and attitudes. Lack
of the appropriate skills, behaviors and attitudes leads to business failure
especially during the early stages of establishment. With this realization,
Solutions for African Food Enterprises put together a team of experts to
develop and deliver training in “Business Strategy”. These experts were from;
local training institutions, the industry as well as business experts from
Partners in Food Solutions. After developing the manual and delivering training
workshops, it was evident that we could reach many more industry players
by converting the content into an e-book and at that point a much larger pool
of experts and industry players were brought together to update the earlier
content into what we have in this e-book.
This book provides a discussion of the basic business concepts that
entrepreneurs in the agri-business industry need to enable them run their
businesses profitably and sustainably. The main areas identified are:
entrepreneurship, development of business models, strategic management,
marketing, accounting and finance. The chapter on entrepreneurship
introduces the reader to the mindset of an entrepreneur in addition to
demystifying the concept of entrepreneurship. The development of a realistic
and applicable business model is the foundation of every business. Strategic
management introduces the reader to strategic thinking and lays out the
structured process of strategic management and planning. Marketing has been
included to help entrepreneurs compete favorably in the highly competitive
global market hence helping them position themselves strategically. Lastly,
accounting and finance concepts are introduced to help the reader to connect
the financial implications of the various functional activities within a business.
The book is aimed at entrepreneurs who may not necessarily have studied
a business course but require an in-depth understanding of key concepts to
enable them manage their businesses. The book does not emphasize on the
technical aspects but focuses on the understanding of critical concepts and
principles. The book focuses on decision making and critical strategies that
can be adopted to enhance performance of agri-businesses. To ensure practical
application, numerous examples and a running case study of a company
named JBK-Agri Processors is used. Where appropriate information on different
concepts is summarized and presented by use of tables and figures.
We hope that all readers will find this book understandable and useful to them.
PREFACE

AGRI-BUSINESS MANAGEMENT HANDBOOK | iv
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v | AGRI-BUSINESS MANAGEMENT HANDBOOK
TABLE OF CONTENTS
Acknowledgements i
Preface iii
Table of Contents v
List Of Tables viii
List Of Figures ix
CHAPTER 1 1
Entrepreneurial Skills And Strategies 1
Introduction 1
What Is ENTREPRENEURSHIP? 2
Who Are Entreprenuers? 2
The Pursuit For Business Opportunities 2
Why Do People Become Entreprenuers? 3
Traits Of Successful Entrepreneurs 3
Demystifying Entrepreneurship 4
Chapter Summary 6
Further Reading 7
Review Question 7
CHAPTER 2 8
Understanding Our Businesses 8
What Is A Business Model? 9
Why Develop A Business Model? 9
What Should I Include In My Business Model? 9
How Do I Tell That My Business Model Is No Longer Working? 12
What Should I Do To Ensure My Business Model Is Effective? 13
Chapter Summary 14
Further Reading 15
Review Question 15

AGRI-BUSINESS MANAGEMENT HANDBOOK | vi
CHAPTER 3 16
Actualizing The Business Strategy 16
What Is A Strategy? 17
Strategic Thinking 18
Goals And Objectives 18
Strategic Management 19
Environmental Analysis 21
Swot Analysis 21
Porters Five Forces 25
Strategy Formulation 27
Generic Strategies 27
Strategy Implementation And Control 29
Strategy Evaluation 31
Documenting Strategic Plans 33
Chapter Summary 33
Further Reading 35
Review Questions 35
CHAPTER 4 36
Marketing Agribusiness Products 36
Introduction 36
What Is Marketing? 37
Activities In The Marketing Process 37
Marketing Concepts 37
Marketing Mix 39
Strategies To Undertake Given The Marketing Mix Elements 40
Understanding The Product Life Cycle 42
Market Plan 44
Successful Market Plans 45
Elements Of A Marketing Plan 46
Product Mix Decisions 47
Branding 47
Chapter Summary 48
Further Reading 50
Review Questions 50

vii | AGRI-BUSINESS MANAGEMENT HANDBOOK
CHAPTER 5 51
Accounting For Agri-Business Enterprises 51
Introduction 51
What Is Accounting 52
Users Of Accounting Information 52
Transactions 53
Source Documents Required For An Agri-Business 53
Ledger 54
Posting Transactions To The Ledger 56
Double Entry System 56
Trial Balance 58
Main Financial Statements 62
Income Statement 66
Statement Of Cash Flows 67
Accounting For Manufacturing Firms 73
Financial Ratios Analysis 74
Chapter Summary 81
Further Reading 83
Review Questions 83
CHAPTER 6 84
Managing Finances In Agri-Businesses 84
Introduction 84
What Is Finance 85
How Does Finance Differ With Accounting? 85
Sources Of Finance For Business 85
Profit Planning 89
Liquidity Management 91
Chapter Summary 96
Further Reading 97
Review Questions 97
Case Study 98
Appendix ii: Glossary Of Key Terms 110

AGRI-BUSINESS MANAGEMENT HANDBOOK | viii
LIST OF TABLES
Table 2.1: Components of the business model 10
Table 3.1: Characteristics of properly stated objectives 18
Table 3.2: Strategic management phases 20
Table 3.3: The swot framework 25
Table 3.4: Effect of the five competitive forces on the business 26
Table 3.5: Generic strategies 28
Table 3.6: Successful strategy implementation 29
Table 3.7: Strategic plan template 33
Table 4.1: Marketing concepts (philosophies) 38
Table 4.2: Elements of the marketing mix 39
Table 4.3: Strategies under the marketing mix 40
Table 4.4: Stages (phases) of the product life cycle 43
Table 4.5: Shows the various contents of the marketing plan. 46
Table 5.1: Users of accounting information 52
Table 5.2: Ledger 55
Table 5.3: Three column ledger 55
Table 5.4: Main financial statements prepared by agri-business 62
Table 5.5: Contents of the statement of financial position 65
Table 5.6: Components of the income statement 66
Table 5.7: Components of the statement of cash flows 67
Table 5.8: Profitability ratios 75
Table5.9: Liquidity ratios 75
Table 5.10: Efficiency ratios 76
Table 5.11: Gearing ratios 76
Table 5.12: Investor ratios 77
Table 6.1: Internal sources of finance 85
Table 6.2: External sources of finance 86
Table 6.3: Effect of current assets balances 92
Table 6.4: Elements of the operating cycle 93
Table 6.5: Strategies to manage the operating cycle 94

ix | AGRI-BUSINESS MANAGEMENT HANDBOOK
FIGURE 1.1: Traits of successful entrepreneurs 3
FIGURE 2.1: JBK’S business model. 12
FIGURE 3.1: Forces responsible for industry competition 25
FIGURE 4.1: Product life cycle 42
FIGURE 6.1: Fixed costs 89
FIGURE 6.2: Variable costs 89
FIGURE 6.3: Total costs 90
FIGURE 6.4: Illustrating the breakeven point 90
FIGURE 6.5: Operating cycle 93
LIST OF FIGURES

AGRI-BUSINESS MANAGEMENT HANDBOOK | 1
.....................................
ENTREPRENEURIAL SKILLS
AND STRATEGIES
CHAPTER 1.
Welcome to the world of entrepreneurship! In this opening chapter we provide
a broad overview of the skills and tactics that entrepreneurs need to employ to
conceptualize successful business ventures. We begin by considering the position
of entrepreneurship in business, then go on to discuss the unique characteristics
of entrepreneurs. We see how an understanding of strategic thinking and use of
information to improve the quality of decision making contributes to business success.
In consequent chapters, we narrow down to specific topics that document the actual
decision making rules for the functional areas identified for discussion. Throughout the
chapter we highlight the entrepreneurial skills and strategies demonstrated by JBK.
INTRODUCTION
For the entrepreneurs reading this
manual, you may be asking ‘Why do I need
to study these aspects? – after all I have
been in business.’ So, after discussing the
main entrepreneurial skills and strategies,
we shall discuss why an understanding
of these concepts is crucial to you.
Learning Outcomes
When you have completed this
chapter, you should be able to:
Discuss the
entrepreneurial
process
Demystify the
concept of
entrepreneurship
Identify entrepreneurial
skills and personal
traits that contribute to
successful businesses
Explain reasons
why people become
entrepreneurs
Explain who
entrepreneurs are
Explain the
meaning of
entrepreneurship

2 | AGRI-BUSINESS MANAGEMENT HANDBOOK
WHAT IS ENTREPRENEURSHIP?
Let us start by understanding the
meaning of entrepreneurship. The word
entrepreneurship is derived from two
French words “entre” and “prendre”. Entre
means “between” while prendre means
“take”. This view emanated from the
conceptualization of middlemen – people
whousedto“takerisk”betweenconsumers
and producers. This view has evolved
over time to include people who start
their own business ventures. Therefore,
entrepreneurship implies “under taking”
or starting a business by mobilizing
resources and exploiting opportunities.
In summary, entrepreneurship involves
organizing and managing a business
venture in the context of risk to make
a profit. Through entrepreneurship,
economies have accelerated their
growth rates, generated employment
opportunities and led to innovations that
have solved numerous society problems.
WHO ARE ENTREPRENEURS?
It is important to distinguish inventors
from entrepreneurs. While inventors
will invent (conceive a new concept
or product), the entrepreneur gathers
resources needed to undertake a
venture and converts the invention to
a sustainable or viable business idea.
Broadly entrepreneurship is concerned
with the pursuit of business opportunities
–inmanycaseswithoutenoughresources
to exploit the business opportunity.
Entrepreneurs can be said to be highly
proactive individuals who seek to
innovate and take risk (move away
from the comfort zone) to exploit an
opportunity. The pro-activity emanates
from available information and the desire
to change. Although entrepreneurs are
rewarded with a profit from their business
ventures - usually the primary motive
of starting the venture is not to gain
financial rewards. Where the primary
reason of starting a venture is to make
financial gains, it ends up becoming a
“hype” that is eventually not sustainable.
THE PURSUIT FOR BUSINESS
OPPORTUNITIES
Successful entrepreneurs identify
business opportunities from the day to
day activities. JBK identified a business
opportunity after watching a television
documentary. Others may identify the
opportunities by studying the unmet
needs of the consumers that manifest
themselves in to problems. Opportunities
may also emerge in the process of
satisfying other unmet needs because
one need solved, creates another need.
For instance, after manufacturing goods,
a need for transport emerges. Sometimes
events in the macro environment may
create business opportunities. These
events include the changes in government
policies, socio-economic dynamics
and even disasters such as diseases.
It is however important to note that not
all opportunities can be transformed to
viable business ventures. For an idea to be
scaled up to a business venture, such idea
must; have a long-term dimension, based
on realistic data on the persistence of the
problem and not based on hype or fad.

Figure 1.1: Traits of Successful
Entrepreneurs
Successful
Entrepreneur
Persistence
Business
Intelligence
PassionProduct
Customer
Passion is the inner drive or desire
to achieve or make a difference. It
emanates from one’s own experiences
and leads to self-driven individuals.
Successful entrepreneurs are therefore
self-driven individuals who initiate
actions and believe in themselves.
Persistence is the determination to
succeed despite obstacles in the conduct
of business. Since entrepreneurs start
new ventures or implement ideas that
have not been earlier tested, the rate of
failure of the enterprises will always be
high. Persistence is the will to continue
even when the future seems bleak.
Persistence is complemented by passion
but not undue optimism. An individual who
is passionate about an idea and believes
in it will hang on to it even when others
view the idea as unsustainable as long as
they have reliable data and evidence that
the idea can work. This concept is then
followed by taking deliberate and practical
steps to ensure that the idea works.
WHY DO PEOPLE BECOME
ENTREPRENEURS?
Three main reasons why people choose
to become entrepreneurs are; to control
their own lives (not work under other
people), to pursue their passion in
providing a solution for a given problem
that exists in the society where they live
and to make money. The latter reason
“to make money” is a secondary motive
while the other two reasons constitute the
primary motives that lead to sustainable
business ventures. A focus on the second
motive “provide solutions to a problem
in the society” leads to development
of sustainable social enterprises.
JBK is an entrepreneur and not an inventor
because he did not create a new product
rather he assembled physical, human
and financial resources to start making
products that were already known.
JBK did not even have enough resources
to exploit the business opportunity that he
identified. He was not even trained in food
processing but found an opportunity that
he could transform to a viable business.
JBKstartedthebusinessventuretoexploit
the postharvest losses “opportunity”. He
knew that he could cause a difference by
providing market for the products that
would otherwise be lost. JBK already
had an income from his employment
but he chose to start his own venture
where he got more personal satisfaction
TRAITS OF SUCCESSFUL
ENTREPRENEURS
Figure 1.1 conceptualizes the four main
traits or characteristics of successful
entrepreneurs documented in various
books.

Business acumen or business intelligence
is the ability to execute business ideas
and use those ideas to form a viable
enterprise. In exercising this trait, the
entrepreneur develops an efficient
business model, raises capital, recruits
the right people and develops an action
plan to achieve the desired business
results. Most importantly, intelligence
ensures that the entrepreneur makes
decisions that are supported by facts
and data. Additionally, they recognize and
capture opportunities to their advantage.
A focus on the product implies that the
entrepreneur understands the specific
attributes of the products that they offer.
Entrepreneurs set their minds in designing
a product that works for the customer by
solving an unmet need. An understanding
of what the product is, how it is made and
the needs that it satisfies is critical for the
success of every business. Entrepreneurs
use their understanding of the product
to create a sustainable idea or venture.
A focus on the customer implies
that entrepreneur understands who
the customers are; their current and
future needs and the positioning of
the customer as the main stakeholder
for whom the product is produced.
Entrepreneurs understand that without
customers, there would be no business
MYTHS AND TRUTHS ABOUT
ENTERPRENEURSHIP
There are myths that have for long been
peddled with regard to the nature of
entrepreneurship. Many people who
rely on these myths fail to venture in
to entrepreneurship. In this section
we want to set straight these myths.
The assertion that one is born an
entrepreneur is not accurate. Indeed, it has
been proven that entrepreneurial skills can
be taught or acquired through practice.
Thereisnoevidencethatentrepreneurship
can be transferred from generation to
another through genetics but there is
evidence that entrepreneurial skills learnt
can be taught to future generations.
Anyone can be an entrepreneur!
Some people allege that entrepreneurship
is synonymous to gambling. This
assertion is also not true. Although
both entrepreneurship and gambling
involve some degree of risk taking,
entrepreneurship involves taking up
calculated typical entrepreneurs take
moderate risk by making business
prototypes (to test the business
model) before scaling them up when
they work. Indeed entrepreneurs
appreciate that failure may arise in the
ordinary course of business, hence
they carefully plan the resources that
are required to operate the business.
The assertion that entrepreneurs are
driven by the desire to make money
and money only; is also not true. In the
previous section we mentioned that
financial gain is a secondary objective
of entrepreneurship. The primary
goals are to have self-control of ones
operations and to satisfy one’s passion
to solve some community problems.
Another myth on entrepreneurship
is that entrepreneurs are young,
dynamic and energetic individuals.
This need not be the case – entrepreneurs

can be of any age provided they
are providing creative solutions to
problems affecting the society and
they are able to quickly identify and
execute business opportunities. It is
however important that entrepreneurs
be properly skilled, enthusiastic and
accommodative of changing conditions.
The assertion that educated people
As an entrepreneur, JBK did come from a family of
entrepreneurs. His father was an engineer while
his mother was a small scale farmer.
When JBK decided to get in to business, he took
calculated risk. He did not just give his money
out – (as happens in a casino) hoping to be lucky
rather he invested and worked hoping to get a
return.
JBK started his own venture to solve an existing
society problem (postharvest losses) and to
pursue his passion as he felt that being employed
as a sales person was not making him happy.
The financial gains only followed the primary
objectives. Although JBK started his business at
the age of 40, there are many entrepreneurs who
start their ventures while older or younger than
40. Additionally, they do not necessarilyneed
to have university degrees.
are not entrepreneurs is also not
true. The level of education does not
matter in entrepreneurship as highly
educated individuals as well as lesser
educated individuals can form business
ventures – as long as they have the
requisite traits discussed above.

CHAPTER SUMMARY
01
02
03
04
05
06
07
Entrepreneurship implies forming a new business venture by mobilizing
resources and exploiting available opportunities.
Entrepreneurs are proactive individuals who innovate and take risks.
They seek to conduct their businesses using unique business models
that creatively satisfy their customer’s needs.
Entrepreneurs are motivated by the need to; be in charge (be own
boss) and solve problems in the society. In the process they assemble
physical, human and financial resources to make profits
Successful entrepreneurs strive to improve their business acumen, are
passionate about what they do, are persistent, they tend to focus on the
products they offer and the customers whose needs they need to satisfy.
Individuals are not born as entrepreneurs rather they acquire skills
through observation, training or mentorship.
Entrepreneurship is not gambling rather it is a systematic calculation of
the risks involved in starting a business venture. Additionally, financial
gain is a secondary motive to genuine entrepreneurship.
Everyone can venture into entrepreneurship regardless of age, gender,
family affiliation, religion, education or origin.
JBK’s survival in the business can be
attributed to the five traits discussed
above. His passion to start a business
that will one day “become global” is
an indication of passion. Similarly, his
dissatisfaction with formal employment
shows that his passion was in doing
personal business. JBK also appears as a
persistent individual who despite making
substantial losses in 2009 choses to
move on with business. Instead of quitting
he finds reasons of sticking with the
business instead of reasons for quitting.
JBK’s business acumen enables him to
assemble human, physical and financial
resources to start the venture. He consults
Fikiri and Weke to bridge his business
startup and food production skills and
reviews facts and figures to enable him
make better decisions. Lastly, JBK’s
focus on the product and the customer
is evident. He understands his products
and customers. He consults Weke to
help him understand the market size and
the products that appeal to the market.

FURTHER READING
Hisrich, R. (2011). Entrepreneurship. Mc
Grawhill Education: New York.
Shane, S. (2000). A general theory
of entrepreneurship: The individual
opportunity nexus. Edward Elgar
Publishing: Massachusetts.
REVIEW QUESTION
Given the JBK case study and the
discussion in this chapter; what were the
success factors for JBK as a person and
JBK agri-processors as a business that
ensured that the business was created in
2009, sunk in 2010 and 2011 then picked
in 2012?

.....................................
UNDERSTANDING YOUR
BUSINESS
CHAPTER 2.
INTRODUCTION
Quite often, entrepreneurs fail not because they are doomed to fail but because they are
undertaking so many activities, some of which may not be adding value to their
businesses. The non-value added activities lead to spending of cash that would have
otherwise been used in carrying out the core activities of the business. In this chapter
we provide a discussion on how to understand our businesses which will enable us
to focus on the critical activities that lead to sustainable and profitable businesses.
Thetoolusedtoconceptualizebusinesses
and understand the critical activities of
the business is called a business model.
We begin this chapter by explaining the
meaning and importance of a business
model. We see how understanding and
development of the business model
leads entrepreneurs to concentrate on
the critical activities of the business
thus avoiding “being everywhere”.
The consequent chapters discuss the
contents of the business model in details.
In this chapter we also contextualize the
business model of JBK-Agri processors.
Thischapteristargetedtoallentrepreneurs
regardless of the stages of development
of their businesses – whether planning to
setupabusinessoralreadydonebusiness
for several years as long as they have not
conceptualized their business models.
Learning outcomes
‘Develop a business model
for your business’
Develop a
business
model for your
business
Explain when the issues that
show that a business model is
not working
Explain the main
components of a
business model
Explain the need
for making a
business model
Explain the
meaning of a
business model

WHAT IS A BUSINESS MODEL?
A business model is a conceptual
presentation of the activities that
a business undertakes to actualize
the business idea or to translate the
business idea in to action. The business
model answers the “what and why”
questions with regard to the business.
It is therefore different from the
strategic plan that answers the “how”
and “when” questions. The business
model is the inside story, the logic or the
mechanisms that we use to give value to
our customers and consequently make
money. When entrepreneurs employ
a new model in an existing market,
they create disruptive innovations.
WHY DEVELOP A BUSINESS
MODEL?
Developing business models for our
businesses will help us to formulate better
strategic and business plans and enable
us to focus on the critical activities that
enhance value addition and consequently
reduce our costs and increase revenues.
The business model will therefore help
us formulate marketing, technical and
financial planning. A critical view of
the business model will also help us
identify the key threats (risks) that the
business is exposed to. Additionally,
the business model will help us have a
structured business within whose “lens”
we are able to see the today, tomorrow
and long-term future of the business.
An audit of our business model enables
us to tell whether we are achieving
the business objectives in the most
effective and efficient manner and
whether we are really creating value
for ourselves and the business.
Entrepreneurs should focus on
continuously improving (or sharpening)
their business models in view of
changing circumstances in the internal
and external business environment.
If you are not succeeding in your
business, chances are that you are
using the wrong business model.
WHAT SHOULD I INCLUDE IN MY
BUSINESS MODEL?
A business model should ideally include
theactivitiesthatleadtothedesign,selling,
costing and revenue generation. These
activities are included in table 2.1 below
with illustrations from the JBK case study.

Table 2.1: Components of the Business Model
Value
proposition
Customers
Other
partners
What do we do?
Why should our
product be bought?
Who are our
customers?
How do we get our
customers?
How do we manage
the relationships
with customers?
Other than
customers who are
there other partners?
For JBK, the other partners were farmers,
supermarkets, hotels, government and
the Association of Agri-processors.
JBK buys garden peas, tomatoes, pepper
and French beans from farmers.
Garden peas and French beans are
washed, peeled, packaged, frozen and
sold as ready to cook products.
The tomatoes and pepper are washed
and processed to tomato and pepper
sauces.
The products should be bought because
they have high calorie value and less
contaminated with insecticides and
herbicides.
JBK’s customers are typically individuals
in the middle income bracket residing in
urban areas.
There are also institutional customers
such hotels and restaurants.
JBK’s customers are typical shoppers in
supermarkets.
JBK physically delivers the products to
the supermarkets where they are picked
by the customers.
Relationships with customers are
managed through continuous feedback.
Component Typical questions JBK Case

What do these
partners expect from
our business
What assets do we
use in our production
processes?
What human resources
do we require for
successful operation
of the business?
What will be the size of
investment?
What fixed costs do we
incur?
What variable costs do
we incur?
Is it possible to change
the ratio of fixed costs
to variable costs?
How are the products
we offer priced?
Farmers expect fair prices and prompt
payments, supermarkets expect fair
trading terms and timely delivery,
government expects JBK to pay taxes
promptly and maintain high quality
while the Association of Agri-processors
expect JBK to maintain fair trading
practices and pay subscriptions on time.
The main assets required by JBK are
tomato sauce processing machine,
pepper sauce processing machine,
freezer, packaging machine and a motor
vehicle.
Individuals required to operate the
business were 1 machine operator, 2
loaders, 1 manager and the proprietor.
The fixed costs relate to rent, insurance,
salaries, cleaning and security.
The variable costs relate to raw
materials, direct labour and direct
expenses like electricity used in the
production process.
To change the ratio of fixed costs to
variable costs, the technology used in
production must also change.
JBK uses the available market prices
of similar products as a reference point
then discounts his prices by 5%.
Component Typical questions JBK Case
Key
resources
required
Cost
structure
Revenue
structure

Figure 2.1: JBK’s Business Model.
Partners
Main activities
Value proposition
Customer relationships
Resources – Scale of
investment
Distribution Channels
Cost structure
Sources of revenue –
sales of:
Farmers, Government, Supermarkets & Hotels
Collection of raw materials from farmers
Processing in the factory
Delivery to the supermarkets
Fresh produce with full calorific value
Less contaminated products
Feedback from customers
Machinery, equipment and vehicles
People
Financial
Supermarkets
Hotels
Fixed costs – 20% of total costs
Variable costs – 80% of total costs
Garden peas, Tomato sauce, French beans & Pepper
sauce
HOW DO I TELL THAT MY BUSINESS MODEL IS NO LONGER
WORKING?
We need to revisit our business models
and shape them to suit the changing
business conditions from time to time.
The models should then be “sharpened” to
ensure consistency in providing value to
customers. Indications that the business
model is not delivering include; persistent
loss making, when improvements
do not lead to significant changes,
customers complain of delayed delivery
and when technological innovations in
the industry seem to have overtaken
the technology in use by the business.

The assumptions used in building the model are based on facts
and evidence;
The components of the business model are explicitly
defined;
Resources are devoted to the critical success factors
identified in the model;
Focused on the eventual results.
It is focused on the competitive advantages of the firm
and focuses it on the customer and the product;
WHAT SHOULD I DO TO ENSURE THAT MY BUSINESS MODEL
IS EFFECTIVE?
To ensure that the business model in use delivers value to the stakeholders ensure
that;

CHAPTER SUMMARY
01
02
03
04
05
A business model conceptualizes the core activities of a business.
It shows what the business does in general terms as opposed to the
strategic or business plan.
Business models are used as the basis for further planning and help to
identify the key risks facing the business.
Main components of the business model are value proposition, definition
of customers and partners, key resources required to run the business,
key resources required to run the business and the cost and revenue
structures.
The telltale signs for a failed business model are loss making, minimal
improvements despite significant investments, failure to meet customer
needs and lagged adoption of technology.
Business models that deliver are anchored on facts and evidence,
explicitly define the main components, are focused on the customer and
the product and are difficult to replicate as they focus on the competitive
advantage of the business.

FURTHER READING
Morris, M., Schindehutte, M. & Allen, J.
(2005). The entrepreneur’s business model:
towards a unified perspective. Journal of
Business Research. No. 58, 726-735.
Zott, C., Amit, R. & Massa, L. (2011). The
Business Model: Theoretical roots, recent
developments and future research. Journal
of Management, May, 1-25.
REVIEW QUESTION
1. Review the JBK Agri-processors
business model and state;
(a) Its main weak points at start up;
(b) The improvements that were made
to the business model after
November 2010;
(c) The success factors for the JBK
business model;
(d) Additional strategies, which in your
view could lead to an improvement
of the business model.
2. Develop a business model to reflect
the activities that you undertake in your
business. Are there weaknesses in your
business model? How can your model be
improved?

.....................................
ACTUALIZING THE BUSINESS
STRATEGY
CHAPTER 3.
INTRODUCTION
Today’s business is conducted in turbulence as everything is bound to change
sooner than later. These changes affect the existence of the business. Some
Harvard scholars have described the business environment using the acronym VUCA
(Volatility, Uncertainty, Complexity, and Ambiguity). To survive in this environment,
we must adapt to the situation and carefully plan for the changes. Analyzing these
changes, discerning the impact they have on the business and developing action
points for survival is what business strategy is about. This third chapter thus
addresses survival in the context of numerous changes in and out of the business.
As explained in chapter 1 and 2, the
role of the entrepreneur is to assemble
resources and create a sustainable
business venture. To do this, the
entrepreneur must conceptualize the
business model that will be used to put
the idea in to action. An understanding of
strategy helps to design and implement
the actual measures (strategies) that
will ensure the survival of the business
despite turbulence in the environment.
Every business develops its own unique
culture and mission that lead to the
achievement of its objectives. This
chapter however discusses the generic
lessons learnt that can be universally
applied. The role of the entrepreneur is to
lead the business in to the future, which
cannot be done without implementing
a solid strategic plan. This chapter will
help us to understand the basics of
strategy and strategic management;
develop strategic plans and use the
strategic plans to run the business.

Learning Outcomes
When you have completed this chapter, you should be able to:
Conduct a SWOT analysis of
an agri-business firm
Explain the main
strategic processes
namely environment
scanning, formulation
and execution of
business strategies
Explain the
influence of
external factors
on the strategic
direction of a
firm
Explain the meaning and
importance of strategic
management
Explain the meaning of
strategy and conceptualize
strategic thinking
Formulate basic
strategic plans
Describe steps to take
to ensure successful
strategy implementation
and evaluation
Apply the
generic
strategies
developed by
Michael Porter
in the design
of business
strategies
in Agri-
businesses
Design visions,
missions, goals
and strategic
objectives for agri-
businesses
Analyze the five-Porter’s
competitive forces in the
context of an agri-business firm
WHAT IS A STRATEGY?
The word “strategy” was borrowed
from the Greek military order where
the military needed a way of thinking
and action to win over their enemies.
Contextualized to business, strategy
is viewed as a well thought out plan to
achieve goals in uncertain environment
(in other words, setting the direction
of where we want the business to go).
Strategy thus implies determining goals,
deciding the actions to achieve those
goals and getting appropriate resources
to actualize the achievement of those
goals. Strategy helps to ensure that
the minimal resources available to a
business are focused to the achievement
of the key drivers of performance.

STRATEGIC THINKING
As entrepreneurs we start our businesses
in very uncertain environments. As such
we must apply careful thought bearing in
mind that there are so many obstacles to
achieve our set of objectives. This careful
thought is what strategic thinking is all
about (thinking differently to achieve
results in the most efficient manner). It
involves developing a unique business
model (that is difficult to replicate)
that enables the business to derive a
competitive advantage. This can be
done individually or in discussion with
the key individuals in the business.
Incorporating other team members in
the strategic thinking of a business is
advised as it enriches the thinking and
brings forth new creative ideas. The
main characteristics of strategic thinking
are holistic (considers a decision in
entirety – 360 degree view), considers
the past, present and future aspects of
the decision, is analytical and is focused
to the achievement of certain goals.
GOALS AND OBJECTIVES
A goal is a central or fundamental
principle that guides decision makers
and will express the general plan or
intention to achieve. As a result, goals
are theoretical and difficult to measure.
On the other hand, objectives express
specific measures that will be taken
to achieve the goals. As such the
objectives must be Specific, Measurable,
Attainable, Realistic and Time bound.
Table 3.1 gives the characteristics of good
objectives with appropriate illustrations.
Consider this objective “To launch 2
new products in the Western market
within 60 days to fill the market gap
left by the competitors.” I use this
objective to illustrate the characteristics
of a properly stated objective.
Table 3.1: Characteristics of Properly Stated Objectives
Specific Objectives must clearly
articulate the “Who, When,
Where, What and Why”.
Use of action verbs help to
make objectives specific e.g.
determine, develop, launch
and resolve.
Who – the firm
What - To launch, 2 new
products
When – within 60 days
Where – Western market
Why – to fill market gap
Characteristic Explanation Example

Measurable
Attainable
Relevant
Time bound
Objectives should state the
numerical measure of quantity
or quality (key performance
indicators). These measures
will help us know if we
are indeed achieving the
objectives.
The objective should be
achievable within the
resources that the business or
firm is currently controlling.
Objectives should contribute
to the achievement of the
mission.
The objective should state
the latest time when it will be
achieved
2 new products. For specificity,
one can mention the actual
products.
It is expected that the company
has enough resources to
launch and supply the two
products in the Western
market.
It is expected that the
launching of the 2 new
products to the Western market
contributes to the mission of
the company.
Within 60 days.
Characteristic Explanation Example
STRATEGIC MANAGEMENT
Strategic management is the broader
perspective of the strategy. It involves
formulating the strategy, deciding how
the strategy will be achieved (strategic
planning), implementing the plan
(strategy execution) and cross-checking
to ensure that the strategy is achieved
(strategic control).

Strategic management therefore:
1) Enables the business to actualize its
vision and mission by focusing on the
long-term;
2) Enhances allocation of resources to
the activities that lead to achievement of
the set objectives;
3) Goes beyond strategic planning to
implementation and control;
4) Ties together the functional areas of
business – ensures integration of the
various operations to achieve the long-
term objectives and therefore uses the
business model as its reference frame;
Is a process and not an event;
5) Is geared towards improving
performance and sustaining the
competitive advantage of the firm.
Different authors concur that strategic
management involves three phases
namely; environmental analysis, strategy
formulation and implementation of the
proposed strategies.
Table 3.2 shows the activities that are
included in every phase.
Environmental
Analysis
Strategy
Formulation
Implementation
Developing an implementation
plan for the strategies formulated.
The implementation plan should
clearly state what is to be achieved,
the persons responsible for the
achievement, resources required
and the time period within which
the objectives must be achieved.
Coming up with
action points
(supported by
evidence and
facts) that the
business should
undertake to
create sustainable
competitive
advantage.A diagnostic analysis
(also called situation
analysis) of the external
and internal environment
of the business and
identifying the main issues
that must be addressed for
the business to survive in
the long-term (Strengths,
Weaknesses, Opportunities
and Threats).
Table 3.2: Strategic Management Phases

ENVIRONMENTAL ANALYSIS
As entrepreneurs we must carefully
examine the factors that impend and
also those that enhance our business
operations and consequent long-term
survival. These factors could emanate
from within the business (internal)
or outside the business (external).
Identification of these factors and
understanding how the factors influence
the survival of our businesses is what is
referred to as environmental analysis. It
helps us to understand our competencies
(what we do very well), customers (as
defined in the business model) and the
businessenvironmentinwhichweoperate.
The main analytical tools that are used
to conduct environmental analysis are
SWOT analysis and the Porters five
forces. These tools help us to diagnose
and better understand the critical
success factors for our businesses
and consequently help us to come
up with more focused strategies. The
next section discusses SWOT analysis
and Porter’s five forces techniques.
SWOT ANALYSIS
SWOT is an acronym for Strengths,
Weaknesses, Opportunities and Threats.
It is a diagnostic framework that helps us
to think through the situational analysis of
the business. The SWOT analysis helps us
tovisualizeourmarketstandingcompared
to the competition, find opportunities that
can be exploited in the future and become
aware of the threats in the current
and future business environments. In
table 3.3 we explain the meaning of
each of the component of the SWOT
framework and gives typical examples.
Strengths
Weaknesses
Opportunities
Threats

Strengths
Weaknesses
These are positive factors
within the internal business
environment that can help us
to accelerate the achievement
of our business objectives.
Strengths help us to enhance
our competitive advantage.
To determine our strengths
we must answer the question
– what activities are we best
endowed with compared to the
competition?
These are negative factors
within the internal business
environment that hold us
back in the attempt to achieve
our business objectives. As
opposed to the strengths,
weaknesses erode our
competitive advantages.
To determine our weaknesses
we must answer the question
– what activities are our
competitors doing better than
us. Answers can objectively
be obtained from suppliers,
customer feedback and a
candid self-audit.
Availability of cheap capital,
Having equipment using the
latest technology,
Loyal customers,
Networks that enhance
sourcing of cheaper raw
materials;
Networks that enhance easier
and faster distribution of the
goods produced;
Franchises with leading
brands.
Poor location of the business;
Delay in decision making;
Fear of executing decisions;
Absence of teamwork;
Over-reliance on a specific
employee,
supplier or customer.
Component Description Typical Examples

Opportunities
Threats
These are positive factors
emanating from the external
business environment that
help us achieve our business
objectives.
The sources of opportunities
are the PESTEL (political,
environmental, social,
economic and legal factors).
These are negative factors,
fuelled by external forces that
impede on us as we attempt
to achieve the business
objectives.
Usually, these factors are
beyond our control hence we
must make mitigation plans to
control their effect in case they
occur.
Advancement in technology
of production that lowers our
production costs;
Opening up of new markets
for instance East Africa
Community;
Positive changes in social
perception of a product that
we produce;
Change in a law that leads to
growth of our business;
Increase in population of
people that have special need
for the products we offer.
Increase in the cost of raw
materials and other critical
supplies;
Presence of new technology
that we cannot access due
to cost but competitors can
access it;
Economic depressions that
lower the purchasing power of
consumers;
Continuous reduction of our
market share
Component Description Typical Examples

In the JBK Case study, a SWOT analysis conducted at the end of 2009/10 financial
year revealed the following:
It is important for us to clearly and
objectively evaluate every factor to
determine where it falls in the SWOT
framework. For instance, in the JBK case,
having so many supermarkets distributing
his products can be viewed as strength as
it enables visibility of the products and
provides more outlets for the products.
Strengths
Access to capital, networks with customers, access to
raw materials, absence of entry barriers and employees
support.
Opportunities
The number of consumers in the urban areas is
increasing, Improvement in technology to lower
costs, Government regulation to encourage increased
production of agricultural produce.
Weaknesses
It is easy to replicate the business model, competition,
overreliance on supermarkets for distribution, inability to
lock retail prices, high distribution costs and absence of a
strong organization structure and culture
Threats
It is very easy for new competitors to enter the market,
cheap imports, increased cost of power, suppliers
association could lead to increased prices.
On the other hand, it can be viewed
as a weakness because it means that
JBK cannot control the retail prices
charged on the eventual customers.

PORTERS FIVE FORCES
The five forces developed by Michael
Porter can also be used as a framework to
conductascanoftheenvironmentthatthe
business operates in. The five forces are
bargaining power of suppliers, bargaining
power of buyers, threat of substitute
products, threat of new entrants and
rivalry amongst the existing competitors.
These forces are inter-related as indicated
in figure 3.1. By understanding how these
forces affect our businesses, we are
able to formulate strategies that give us
advantages over our competitors and
hencebecomelessexposedtocompetition.
Table 3.3 shows how these forces can
affect businesses in general and the
Figure 3.1: Forces Responsible for Industry
Competition
Rivalry
amongst
existing
competitors
Bargaining
power of
buyers
Bargaining
power of
suppliers
Threat from
New
Entrants
Threats of
Substitutes
counter strategies that can be applied
in view of the competitive forces.
Threat of
new entrants
Bargaining
power of
suppliers
Potential entrants with creative
ideas and thirsty for market
share can lead customers away
from our businesses.
United suppliers with more
bargaining power can charge
higher prices and lower our
profits.
Keep tab with new
innovations so that new
entrants do not seem to
overshadow you.
Maintain production of high
quality products.
Pursue strategies for
customer loyalty.
Ensure diversity of suppliers
so that switching suppliers
becomes easier. e.g. having
several suppliers for the
same product helps your
business bargain on price
and quality
Offer supplier sustainability
services.
Force Influence on Businesses in General Counter Strategies

Bargaining
power of
buyers
Threat of
substitute
products
Rivalry
amongst
existing
competitors
Shrewd customers can unite
and negotiate lower prices by
playing rival businesses against
each other.
Substitute products are those
that can be used in place of
what we produce. If customers
start using substitutes, it lowers
demand for our goods.
Greater rivalry amongst
competitors may lead to price
wars and ring-fencing.
Expand services to
customers e.g. delivery.
Ensure customer focused
production.
Commit to timely delivery
and adhere to standards set
Ensure high quality products.
Differentiate products.
Keep tabs on the
competitor’s strategies and
carefully analyze their impact
before action.
Force Influence on Businesses in General Counter Strategies
Table 3.4: Effect of the Five Competitive Forces on the Business and Possible Counter
Strategies
JBK Analysis of the Five Competitive Forces
Threat of new entrants – the agri-
processors industry has potential threat
of new entrants as the Kenya government
through the ministry of agriculture and
the media are in continuous effort to
encourage value addition to agricultural
products. The low entry barriers in
the industry encourage new entrants.
Bargaining power of suppliers –
suppliers of the key raw materials for
agri-businesses in Kenya are small scale
farmers spread across the country.
Recent efforts by the government
encouraging farmers to form farmer
associations and marketing cooperative
societies are aimed at creating bargaining
power on the farmers who have for long
been exposed to exploitive middle men.

Bargaining power of customers – the main
intermediaries that JBK uses to reach
the customers are the supermarkets.
The 4 main supermarkets in Kenya
have made trade agreements that have
standardized terms and conditions for
sale. The supermarkets thus deal with
suppliers like JBK on sale or return basis
and withhold supplier funds for up to 90
days.Threat of substitute products - for
JBK, the threat for substitute products is
not as proficient as the other forces as
JBK deals with products “from the farm
to the market.” Additionally, these are
foodstuffs popular with urban dwellers.
As long as the urban population
increases, these products would have to
be consumed. The frozen garden peas
and French beans are ready to cook and
the sauces are a major accompaniments
for popular foods used in the urban areas.
Rivalry amongst existing competitors
– this force manifested itself in the JBK
case as the large existing competitors
were involved in aggressive advertising
and differentiation strategies leaving
out small producers like JBK. In
response, JBK established its prices
at a discount compared to the
large producers. Additionally, price
adjustments were made when low
prices were obtained for raw materials.
STRATEGY FORMULATION
To formulate the strategy, we would
need to develop the vision and mission
of the business, develop strategic
objectives and then articulate very clear
action points (strategies) that will be
pursued to achieve these objectives.
We can develop broad strategies for the
business as a whole (corporate level
strategy), for a specific department,
product or business unit (business unit
strategy) or for a very specific function
in the business (functional strategy).
GENERIC STRATEGIES
As we design strategies to grow our
businesses and sustain our competitive
advantages, three generic or universal
principles developed by Michael Porter
can guide us our thinking. These
strategies are differentiation, cost
leadership and focus. Each of these
strategies is discussed in table 3.5.
Differentiation It is about being unique or
different from the competitors.
Helps to create loyalty,
premium markets and protect
ourselves from entry of new
competitors in the industry.
We can be unique in the
way we package goods,
produce the goods, deliver
the goods or in any other way.
Generic strategy Description Example

Cost
leadership
Focus
Ensuring that our goods and
services are produced at the
lowest cost possible.
Focus involves narrowing
down or emphasizing on a
certain market niche. This
strategy enables the business
to develop expertise and have
strong relationships with
customers in this market
niche.
This can be achieved through
increased production relative
to the fixed resources
(economies of scale), better
use of technology and
negotiations with suppliers
for lower cost of materials.
A firm in agri-business can
choose to concentrate on
producing goods for the
export market only. “focus on
export market”
Generic strategy Description Example
Table 3.5: Generic Strategies
The mission statement articulates the business’s
reason of existence and serves as a guide for what
the organization will do and become. It is focused
on the constituents that the business seeks to
serve. By reading the mission one will clearly
understand what the business offers, its main
stakeholders and the promises it makes to them.
The vision refers to a
view or perspective
of the business’s
long-term direction.
It answers the
question “what does
the business want to
become?”
JBK Agri-Processor’s Vision is “to
be the leading food processing
company with a global orientation”.
Notice that JBK’s vision is
anchored on his conviction at the
start of the business that he will
one day serve the global markets.
JBK Agri-Processor’s Mission
is “to continuously improve
all facets of the business
so as to provide customers
with affordable products that
meet international and local
standards and delivered to
them timeously
JBK Agri-Processor’s
Mission
JBK Agri-Processor’s Vision

A good mission statement should be
brief, bring forth positive emotions about
the entity, give a feeling of long-term
strategic focus and position the business
as a unique outfit different from all the
other businesses.
The mission statement should be
designed to offer the means to achieve
the vision, motivate and set the
foundation for the core values of the
business.
STRATEGY IMPLEMENTATION
AND CONTROL
Strategy implementation refers to the
actual measures undertaken by the
entrepreneur or business leader to
actualize the strategy. In table 3.6 we
make suggestions on the important
steps that we should take to ensure that
strategies are effectively implemented.
Table 3.6: Successful Strategy Implementation
Link the old
activities with
the proposed
strategy
Make budgets
and provide
financial
resources
New strategies may call upon
us to change some of the ways
that we do things. There must
be a transition between the old
and the new. We need to ask,
is the old way of doing things
still relevant with the proposed
strategy in place
We require resources to
implement strategies. We
should therefore provide
enough financial resources to
execute the strategy.
A strategy to outsource
transporting of raw materials
by JBK, requires that use of
the company’s vehicles is
discontinued and vehicles
sold.
To implement a marketing
strategy, we need to make
a budget that shows the
various activities to be
undertaken e.g. salesmen,
advertising and free gifts.
We must determine the
financial value of these
activities and financial
resources provided
accordingly.
Measure to take Description Examples

Organization
structure
Communication
Monitoring
We need to position our
structures to be able to execute
the strategy. It is often said that
“structure follows strategy.”
In other words, new strategies
might require different
structures
Strategies must owned by all
the staff members involved in
it’s execution.
We need to carefully assess
the outcomes of the strategic
initiatives.
We must breakdown the overall
strategy in to small executable
parts so that we continuously
know whether we are achieving
the desired results
To implement strategies
effectively, we must remove
unnecessary reporting lines,
which probably worked
before the new strategy was
conceptualized.
For example we can ask
the production manager
to interact directly with
the marketing manager to
determine the products
to be produced, instead
of marketing manager
communicating to the
operations manager who
then directs the production
manager.
We can communicate the
strategy to employees during
meetings, using posters and
flow diagrams. The most
important thing is that they
understand when, why and
how we are undertaking the
strategy.
We can breakdown a strategy
for cost reduction into;
reduction of the production
costs and distribution costs.
Having formulated the actual
activities to take to reduce
each of these costs, we
compare the costs achieved
with the activities undertaken
say on month by month
basis.
This enables us to tell
whether our strategies are
working.
Measure to take Description Examples

STRATEGY EVALUATION
After designing and implementing the
strategy, it becomes necessary to review
the actual performance relative to the
expected results. This review tells us
whether the strategy is working and if it
is not working, the corrective action that
needs to be taken to ensure that it works.
Strategy evaluation is necessary because
the environment (external and internal) in
which business is done is dynamic and
so strategies can be made redundant
by the changes in the environment.
Three steps can be undertaken in strategy evaluation. The steps are;
Reviewing the factors that led to the
development of the strategy;
(i)
Comparing the results obtained
during implementation with the
expected results at the time of
making the strategy;
(ii)
Addressing gaps that may
be noted as the causes of
underperformance.
(iii)

Strategy Review
Typical questions that strategy
evaluators should seek answers for
when reviewing the factors that led
to the development of the strategy;
(i)
(ii)
(iii)
(iv)
How did the competitors react
to the strategies that we made
and how did they realign their
operations to counter the
strategies?
Looking at the strengths and
weaknesses of our competitors,
have they changed?
Why do some competitors appear
to have more (or less) successful
strategies than us and how
satisfied are they with the current
market conditions?
Given the SWOT we formulated;
Performance Measurement
To enhance strategy evaluation, we must
have relevant data collected on the basis
of the SMART objectives made. This data
should be available on a timely basis
otherwisetheevaluationwilllosemeaning.
In measuring performance we should;
(i)
(ii)
(iii)
Compare our performance over a
period of time;
Compare our performance relative to
the competitors;
Compare our performance with the
industry.
The measures of performance should be
the same as those used in the formulation
of the strategy. If the strategic objective
was to increase market share by 20%
within 2 months, the market share
should be measured after the 2 months.
Addressing Gaps noted after Evaluation
If the strategy was not achieved within the
required period, corrective action should
be taken to seal the gaps. Sometimes a
newstrategymaybereformulatedorsteps
taken to enhance the current strategy.
The most important factor here is that
the step taken should be informed by
the findings noted in strategy review
and performance measurement.
Are our strengths still relevant? Do
we have additional strengths now?
Have our weaknesses changed? Do
we have additional weaknesses?
Have the opportunities
presented results? Are there new
opportunities?
Do the threats that we projected
still exist? Are there new threats?

DOCUMENTING STRATEGIC PLANS
We can combine the elements discussed in this chapter to develop a strategic plan.
The strategic plan is developed by filling in the various elements stated in table 3.7.
Table 3.7: Strategic Plan Template
Component of the strategic plan Operationalization for the business
Vision
Mission
Core values
Unique advantage (what we do best)
SWOT analysis
Strategic goals and respective objectives
Action plan for each strategic objective with key performance indictors
Key risks and mitigation strategy
Implementation plan (on year by year basis)
Financial resources required to achieve the strategies
CHAPTER SUMMARY
01
02
03
A strategy is a carefully thought or analyzed plan to achieve business
goals in a volatile environment. Strategic thinking enables us to develop
unique business solutions that help us to build and sustain competitive
advantage.
Strategic management involves formulating the strategy, implementing
it and monitoring to ensure that the strategy is achieved as planned.
This helps us to have a structured plan to help us pursue the long-term
endeavors of the business.
Environmental analysis enables us to scrutinize the internal and external
factors that impact on the business. The internal factors are within the
control of the managers while the external factors are not within the
control of the managers.

CHAPTER SUMMARY
04
05
06
07
07
07
07
SWOT analysis helps us to analyze the business environment by
reviewing our strengths relative to the competition, weaknesses relative
to the competition, opportunities and threats brought about by the
external environment.
Michael Porter’s framework of scanning the environment focuses on
the analysis of the threats posed by new entrants and substitute goods,
bargaining power of suppliers and buyers and the rivalry amongst
existing competitors.
Michael Porter also formulated 3 generic strategies that form the frame
for reference whenever we need to create and sustain competitive
advantage. The universal strategies are; differentiation (being unique),
cost leadership (pursuing low cost production options) and focus
(concentrating on specific market niches).
The vision of an organization sets its long-term direction while its
mission enables it to achieve the vision. Both vision and mission should
be articulately stated as they lead to the formation of the core values of
the business.
Goals are broad aspirations of what the business wants to do while
objectives are the actual (specific) means of achieving the goals.
Objectives must be SMART (specific, measurable, attainable or
achievable, relevant and time bound).
To ensure effective strategy implementation, we must align old activities
with the ones proposed to achieve the strategy, make budgetary
provisions, develop appropriate structures, inform and involve the staff
and monitor implementation on a continuous basis.
The key elements of a strategic plan are; vision, mission, core values,
the unique advantages, SWOT analysis, strategic goals and strategic
objectives, risk identification and mitigation plans, implementation plan
and the financial plan.

FURTHER READING
Charles, H., & Jones, G. (2012). Strategic
Management Theory: An Integrated
Approach. Cengage Learning.
Lamb, R. (1984). Competitive strategic
management. Engelwood Cliffs: New
Jersey.
Michael, P. (1996). What is Strategy?
Harvard Business Review.
REVIEW QUESTIONS
Revisit the JBK case study and answer
the following questions.
a) What factors influenced JBK’s
strategies in 2009 and how did
these factors change after 2010?
b) Reviewing the SWOT analysis of
JBK agri-processors Ltd in this chapter,
what other strengths, weaknesses,
opportunities and threats would you
document in the context of agri-
businesses that you know or operate?
c) Reviewing the five force analysis of JBK
agri-processors Ltd in this chapter, what
other points would you add on threat of
substitutes, bargaining power of buyers,
rivalry amongst existing competitors,
bargaining power of suppliers and threat
of new entrants in the context of agri-
businessesthatyouknoworoperate?How
did JBK maneuver through these forces?
d) Identify at least five strategies that
JBK Agri-processors implemented after
November30, 2010. What factors could
have led to successful implementation
of these strategies by JBK?
Using your own business scenario;
Develop your SWOT matrix (refer to the
descriptionofSWOTelementsintable3.2).
Conduct the five forces analysis (refer the
description of the five forces in table 3.3).
(Develop your strategic objectives
(refer the description of the five forces
in table 3.5). If you already have your
strategic objectives, cross-check
them with the characteristics of good
objectives discussed in table 3.5.
Fillintable3.7withinformationthatrelates
toyourbusinesstodevelopabusinessplan.

.....................................
MARKETING AGRI-BUSINESS
PRODUCTS
CHAPTER 4.
INTRODUCTION
Marketing involves getting the word about the business and its products
“out there.” No matter how good our products are we cannot transform them
to sales if nobody knows that the products exist and how these products
satisfy the customer needs. Marketing has been acknowledged as a key
functional area in business that defines the business failure or success.
As explained in the previous chapters, the
responsibility of the entrepreneur is to
create a sustainable business. Marketing
is the function that enables sustainability
of the business’s top line (sales). It
enables creation of new markets and
retention of the existing markets. Through
marketing, the company is able to create
its brand identity, its reputation and create
awareness amongst customers. Despite
the benefits, marketing is expensive hence
entrepreneurs must create appropriate
strategies to ensure that the word gets
to the right customers and value for the
money spent on marketing is realized.
In this chapter, we focus on the
importance of marketing and the specific
strategies that can be undertaken
to enhance sales of a typical agri-
business. We illustrate concepts using
the JBK Agri-processors case study.
Learning Outcomes
Explain the product
mix strategies that an
agri-business can use
to widen its product
offering
Prepare basic
market plans
Explain the various
marketing concepts
or philosophies and
position yourself
accordingly
Explain the meaning of marketing
and describe the activities in the
marketing process
Explain the various marketing
strategies that agri-businesses
can use in the context of the
marketing mix
Explain and apply the
concept of branding in
marketing
Describe the product life
cycle and suggest alternative
strategies for agri-business
products in the different stages
of the life cycle

WHAT IS MARKETING?
Marketing has been defined in a
variety of ways but different definitions
have certain aspects that lead to the
understanding of marketing. It is a
process that involves conceptualization
of a product, pricing it, getting it delivered
to the customer and appropriate steps
taken to ensure that customers are
aware of the existence of the product,
how it works and where they can get it.
Marketing differs with selling in that
selling is about getting the customers
to exchange their cash for our goods
without due concern for the exchange of
value in the goods for cash. Marketing
is deeper than selling; it is about
customer satisfaction and value for
money that is geared towards long-
term commitments with customers.
Invariably, marketing contributes to
an increase in sales of the business.
However sales is a subset of marketing.
ACTIVITIES IN THE MARKETING
PROCESS
Marketing is a structured process whose
activities include; identification of
customer needs, creating or designing
a product to satisfy those needs,
promoting or communicating those
benefits to the customers, pricing the
products appropriately depending
on the market niche and ensuring
that the product is availed to the
consumer at the right place and time.
In the marketing process, we must
distinguish between customer needs,
wants and demands. Customer needs are
things or feelings whose absence brings
about a sense of lack for instance food or
clothes. Wants are beyond the needs and
are usually shaped by culture and lifestyle.
Demand implies human wants or needs in
a context where the customers can afford.
In the absence of purchasing power of the
consumers,wantsarereferredtoasdesire.
MARKETING CONCEPTS
To undertake marketing, we must first
ask ourselves what our philosophy,
orientation or thinking we have on
marketing. Phillip Kotler has argued
that there are 5 philosophies that guide
one’s thinking on marketing. The five
philosophies are expounded in table 4.1.

Production
Product
Selling
Marketing
Table 4.1: Marketing Concepts (Philosophies)
Consumers will buy
products that are
cheap and available.
Consumers will buy
products that are
of high quality, high
performance and have
innovative features.
Customers will not
buy as much - unless
the products are
advertised.
Customers will
attempt to resist the
purchase hence they
need to be persuaded
to buy
Companies need
to be better than
competitors in
creating and
sustaining customer
value.
Products sold in the
mass market will be
made available to the
door step and will
ordinarily be cheap
due to the economies
of scale.
Products sold in
premium markets will
be of high quality and
performance.
Used when a
company has excess
capacity, hence must
find ways of making
additional stocks to
move.
Emphasizing on
production and sale
of high value addition
products.
Companies give
warranties and
guarantees.
Focus is on
efficiency in
production, cost
efficiency and mass
distribution.
Premium is charged
from the customers,
emphasis on
informing customers
of the new features
of the product and
how those features
have led to improved
performance.
Aggressive
advertising and
sales promotions.
Concentrating on
a target market,
analyzing customer
needs and
developing
strategies to fulfill
them.
Concept Description Alignment Practical application

Societal Companies must
create customer value
(marketing concept)
and in addition to
enhancing community
benefits.
Companies take care
of the environment
and other corporate
social responsibilities.
Invest in the society
by providing long-
term intangible
benefits such
as education
scholarships,
environment
conservation and
health amongst
other endeavors.
Concept Description Example Practical application
MARKETING MIX
Marketing mix is a generic term that
is used to describe the assortment of
strategies that are put in place to ensure
that the product is available at the right
time, at the desired place and at the
appropriate price. The marketing mix is
associated with the P’s. In the context
of an agri-business, the Ps are critical.
The Ps are; Product, Price, Place and
Promotion. Each of these elements of the
marketing mix are explained in table 4.2.
Product
Price
What the company
offers to satisfy the
customer needs or
wants.
Amount paid by the
customer. Determines
the eventual sales
amount and can lead
to customer apathy.
Can be a physical
product or a service.
Actual amount paid
measured in a certain
currency.
Products offered
are frozen garden
peas, French beans,
tomato and pepper
sauces.
2009 prices – garden
peas – Ksh. 103;
French beans –
Ksh. 163; tomato
and pepper sauce
– Ksh. 76 and 52
respectively.
Table 4.2: Elements of the Marketing Mix
Description Generic example JBK – Case studyElement
of the mix

Place
Promotion
Location where
distribution takes
place. Has to be
accessible to the
buyers.
Getting customers
to know existence of
the products on offer.
Includes advertising,
sales promotion,
free gifts and public
relations.
Local, regional or
global.
Paid advertisements
on television or radio,
word of mouth, social
media or posters.
Initially, JBK supplied
its products in
the local market
but expanded
the distribution
to international
markets.
Use of sales people
positioned in the
supermarkets,
advertising on the
internet, radio and TV
advertisements.
Description Generic example JBK – Case studyElement
of the mix
STRATEGIES TO UNDERTAKE GIVEN THE MARKETING MIX
ELEMENTS
From the marketing mix elements listed and explained in table 4.2, we can devise
appropriate strategies to enhance our marketing efforts. Table 4.3 gives the generic
strategies that can be undertaken.
Table 4.3: Strategies under the Marketing Mix
Element of the mix Possible strategies for agri-businesses
Product
Ensure the product satisfies the specific needs that it’s
designed to fulfill.
Reinvent products once they reach the decline stage of
the product life cycle.
Aggressively promote products at the growth phase of the
product life cycle.
Offer premium products for the top market niche.
Avail the product in different sizes, shapes and colours.
Give the product a catchy name.
Emphasize on the value of the product to the customers.
Brand the products to differentiate them with competitors.

Price
Place
Continuously improve the product taking into account
customer feedback on price.
Market penetration – charge lower prices when getting a
product in to the market that has competitors.
Market skimming – introduce products that are perceived
to have extremely high value at a relatively higher price.
Keep lowering the price as the market absorbs the
products and competitors get in to the market.
Ensure that you operate at the lowest cost possible. High
costs lead to higher prices.
Consider lowering prices slightly to increase demand –
works for products that are considered to be luxuries.
Keep tab on the competitor prices and the balance
between the prices they charge and the quality they offer.
Do not offer extremely low prices – customers equate
prices to quality.
Intensive distribution – selling through a variety of
outlets. Customers get the products everywhere they go.
Extensive distribution – use distribution channels that
reach as many customers as possible. Good for new
products being introduced in the market.
Selective distribution – use of a few outlets (mostly retail)
to distribute the product in a specific region. A good
strategy for premium products.
Franchising – use of another more established company’s
brand name in the distribution of the products. Well
established brands are trusted hence it’s a good strategy
where there are significant market entry barriers.
Where appropriate advertise the products online.
Consider outsourcing physical distribution of goods.
Have stores and warehouses near the market place or
consider having multiple production points.

Promotion
Advertising – conduct a survey to determine the
advertising media that your customers respond to.
Consider the timing within which the sales promotion
takes place. Peak seasons are usually good for
promotions.
Consider using social media and online platforms in
promoting the products.
Emphasize on value to the customer as you advertise and
promote the products.
UNDERSTANDING THE PRODUCT LIFE CYCLE
Products undergo some “metamorphosis”
from the time they are introduced
into the market. The stages through
which a product goes through, over its
lifespan is referred to as the product
life cycle. Figure 4.1 shows discloses
the five stages of the product life cycle
as: development, introduction to the
market, growth, maturity and decline.
Figure 4.1: Product Life Cycle

A description of each of the stages of a product life cycle and the appropriate
strategies to take in every stage is included in table 4.4.
Table 4.4: Stages (Phases) of the Product Life Cycle
Phase Description
New product is
conceptualized but still not
introduced in the market.
Place adverts in such a way as
to arouse curiosity or “hype” of
what the new product will be
once launched.
Do not over promise.
Strategies to use for an agri-
business
Product is launched and
brought to the market.
Low sales and profits as
customers are still not used
to it.
A stage of steady increase
in sales.
Customers have started
becoming aware of existence
of the product (initial
advertising has started
paying off).
Product
Development
Introduction
to the market
Growth
Price skimming.
Penetration pricing.
Aggressive advertising aimed
at creating awareness.
Focus advertising from
awareness to more usage and
why customers should stick to
our product.
Maintain the product quality.
Maintain the current prices.
Increase the distribution
channels

Phase Description
Sales growth stagnates but
is still high.
Competition is high
Profit is high
Adopt strategies to maintain
or sustain the market share –
offer incentives.
Develop new product features
to elongate this period.
Attempt to lower price to
increase quantity sold.
Undertake product
differentiation.
Strategies to use for an agri-
business
Maturity
Decline
Sales reduce as a result of
market slump.
Competitors react by cutting
down prices.
Some products may be
withdrawn from the market
on account of low sales.
Add new attributes or features
to the product.
Move out of certain markets
and continue serving the loyal
market niche.
Stop producing the product.
Sell the brand to another
business.
MARKET PLAN
A marketing plan is a specific action
plan that synchronizes all the marketing
initiatives of a business. The plan
shows how the various elements of
the marketing mix will blend in the
achievement of the overall objectives of
the business. The marketing plan should
be a part of the overall strategic plan.

To prepare a marketing plan we need to:
1) Evaluate the current market environment in terms of customer
demographics, competition, future trends, political, social and economic
factors. To do this, we must review data from both internal and external
sources and make assumptions about the future. The assumptions should
be as realistic as possible.
2) Analyze the product to determine the life cycle stage it is in. This helps
to formulate the actual strategies based on the elements of the marketing
mix to apply. We achieve this by reviewing the sales and profitability
trends of different products.
3) Document the strategies to use based on the marketing mix.
4) Review the possibility that we can use different strategies for different
products or same strategies for different products. The philosophy here
is that the strategy to use is determined by the specific situation and
circumstances.
5) Document the specific activities that should be undertaken to achieve
the strategies determined.
6) Prepare an action plan indicating the time period within which the
activities will be undertaken together with the resources required (physical
and human resources).
7) Prepare the financial estimates for all the marketing activities. The
financial plan should account for the direct costs involved in marketing as
well as the indirect costs that the business may absorb.
8) Implement the marketing plan and review it continuously to ensure that
the objectives are being achieved.
SUCCESSFUL MARKET PLANS
To ensure successful market plans, we
need to; make realistic assumptions, base
arguments and decisions on data – not
emotions,quantifytheexpectedinputsand
outputs to facilitate monitoring, keep the
plan focused and obtain the participation
of all concerned staff members.

ELEMENTS OF A MARKETING PLAN
Element Description
An abstract or summary of the main contents of the plan.
A statement of the immediate market situation considering
internal and external factors. It can be done by use of SWOT
and PESTEL analysis. Use both internally and externally
available data.
A discussion of the factors likely to affect the market in the
future. Use available data and estimates to make assumptions
about the future.
A listing of the marketing objectives to be achieved by the
business. These objectives must be SMART and must be linked
to the overall business goals as expounded in the strategic
plan. Issues likely to confront the business in its attempt to
achieve these objectives should also be listed here.
States the market niche to focus on. Issues on market
segmentation and product positioning ideas should be
presented in this section. Appropriate reasons for targeting
certain markets should be stated.
Executive
summary
Current market
conditions
Future market
conditions
Objectives
Target market
Strategies
Financial plans
Control
Table 4.5: Shows The Various Contents of The Marketing Plan.
A listing of the broad strategies that will form the marketing
initiatives. These should be followed by the specific strategies
in the context of the marketing mix and product life cycle that
will be applied to enhance the marketing initiatives.
A listing and quantification of the resources required to execute
the strategies and the consequent financial implications in
terms of costs, revenues and profits.
A monitoring and evaluation framework that will show whether
the intended objectives are being achieved, within the time plan
and budget.

PRODUCT MIX DECISIONS
Product mix implies the aggregate
products that the business offers for sale.
A typical business will offer more than
one product hence we must consider
the strategies and logistics associated
with offering different products. An
understandingofproductlinesandproduct
mix width becomes important. Having
more products can lead to economies
of scale in production, marketing
and more visibility of the company.
Product line refers to more than one
products clustered or grouped together
basedonthebasisofrelatedcharacteristics
or attributes. In a product line, we can
have products of different packages,
colours, sizes, prices or other attributes
that are identifiable with the product.
Before creating a product line we must
first ensure that the market really needs
the different products and satisfies their
needs and secondly, we have capacity to
produce the different products in the line.
The length of the product line implies the
actual number of products in the line.
We must take caution to ensure that the
product line length is not too crowded as
the products may start “cannibalizing”
one another. Cannibalization in a product
line leads to intra-products competition
that leads to unnecessary costs and
confusion amongst the customers.
With expanded capacity, we can develop
more than one product lines for the
business in what is referred to as product
line width. The most important factors
to consider while deciding the product
line length and width are; the pricing
strategy for every product, market
niche to be served by the different
products, differences in product quality
in the lines and the product attributes.
BRANDING
Branding involves positioning one’s product name and image in the minds of the
consumers. As such, one’s brand evolves from their competitive advantage and
creates some “personality” in the product in terms of quality, origin and capacity
to satisfy the user needs. Branding is mistakenly associated with big companies
only. Small companies can also create their own lasting brands that can see
them grow to large businesses.
To create a brand, one would need to have a product that serves certain user
needs, differentiate that product, have a consistent theme that revolves around
the product and advertise consistently in this theme.

When branding is done, the following benefits will be realized;
Customer loyalty is created, nurtured and maintained;
Customers go for the brand hence weeding off counterfeits;
Magnifies the size of the business – brands eventually become more valued
than the tangible assets of the company;
Quality assurance – brands are associated with superior quality and helps
to deal with bad reputation;
Effective branding creates a sense of a strong business, which makes it
easier to introduce new products.
In branding it becomes important to identify products by use of trade marks.
A trade mark is a unique sign that distinguishes the products produced by one
firm relative to another. Trademarks are usually registered to ensure that other
people or businesses do not use them to brand their products.
CHAPTER SUMMARY
01
02
Marketing involves getting the product to the customers, hence it
includes identifying customer needs, developing suitable products to
meet the needs, sales promotion, pricing and physical distribution.
The way individuals execute the marketing function depends on the
philosophy or conviction of the individual with regard to marketing. As
such supporters of the production philosophy argue that customers buy
cheap products that are easily available, those who advocate for product
concept argue that customers are interested in high quality products,
marketing concept argues that the main thing in marketing is creating
and adding value to the customers while those who support the society
concept believe in addition in customer value – complemented with
added benefits to the society.

CHAPTER SUMMARY
Marketing mix is the combination of product, pricing, place and
promotional activities in the design of the marketing strategies to
pursue. The strategies should be applied selectively depending on the
product life cycle phase that the product is in at any given time.
Product life cycle refers to the progression of a product through its life.
The generic cycle has several stages that include introduction of the
product in the market, growth, maturity and decline. Marketing strategies
should be applied in consideration of the product life cycle.
Market plan is the specific action plan that seeks to actualize the
marketing efforts of a business. It combines the elements of the
marketing mix to achieve specific objectives which could relate to
awareness creation, increasing market share and sales or retaining
existing customers.
The sections in a market plan include; an executive summary,
description of current market situation, forecast of future market
conditions, statement of the objectives to be achieved in the marketing
initiative, target market, specific strategies to pursue to achieve the
objectives, financial implications of the planned activities and the steps
to take to ensure that the actual results compare with the plan.
Product mix refers to the combination of products that we add in
the business. The product line (number of products with similar
characteristics) enables one to leverage on existing economies of scale
and excess capacity. A business can have more than one product line.
Product lines and width should be maintained at desirable levels to
avoid products produced by the same company competing with one
another – a situation that leads to unnecessary costs and confusion
amongst the customers.
Branding involves positioning the product line in the minds of the
consumers. It is more difficult than marketing as it has to get to the
consumer’s mind. Competitive advantage, quality, positioning and
advertising are the key issues in branding.
03
04
05
06
07
08
09

FURTHER READING
Kotler, P., Saunders, J. & Wong, V. (1999).
Principles of Marketing, 2nd Edition, New Jersey:
Prentice Hall.
REVIEW QUESTIONS
1. Review the JBK case study and answer the
following questions;
What role did marketing play in the turnaround
of JBK Agri-processors Limited from losses to
profit making?
What marketing concept did JBK apply in the
design of his marketing strategy? What do you
see as the main limitations of applying this
concept?
Analyze the effect of the marketing mix on the
strategies adopted by JBK Agri-processors
Limited.
Review the continuous development of JBK
Agri-processors’ product and link them to the
different stages of product life cycle. Do you
think the different products could be in different
stages of the product life cycle despite their
production being started at the same time?
Explain your answer.
Analyze the product mix strategies of JBK
Limited. If you were hired as the marketing
consultant of JBK, what would you do differently
at the end of 2014?
2. Using the elements of the marketing plan
included in table 4.5, develop a marketing planfor
your business.

.....................................
ACCOUNTING FOR
AGRI-BUSINESS ENTERPRISES
CHAPTER 5.
Accounting is a critical function for any business enterprise. It involves all aspects of
preparation of records and keeping those records in a manner that contributes to better
financialreports.Theendresultofaccountingisasetoffinancialreportsthatcanbeused
bythemanagers,potentialinvestorsandlenderstoimprovethequalityoftheirdecisions.
INTRODUCTION
As emphasized in previous chapters,
entrepreneurs need to create
sustainable businesses – which
cannot be actualized without proper
accounting of the business resources.
In this chapter, we focus on the
importance of accounting, basic
accounting records, measuring and
reporting financial performance and
analyzing and interpreting financial
statements in the context of agri-
businesses. We illustrate concepts using
practical examples and case studies.
Learning Outcomes
Explain the meaning
of accounting
Explain the main
accounting records
required for an agri-
business
Explain the double entry
concept as the main principle
in accounting
Prepare an income statement
for an agri-business including
a manufacturing concern
Prepare a
statement of
financial
position for an
agri-business
Prepare a statement
of financial position
for an agri-business
Analyze and interpret
financial statements
using financial ratios

WHAT IS ACCOUNTING
Accounting as a discipline is concerned
with collecting, analyzing and
communicating financial information
to the users. It is therefore a support
function that involves identifying
relevant information, measuring it and
giving it to the users so that users can
make appropriate decisions. The broad
tasks in accounting are preparation of
financial statements, summarizing past
events and reporting to external parties.
USERS OF ACCOUNTING
INFORMATION
Constituents who make use of
accounting information can be internal
or external to the business. The
internal users are the business owners
and managers while external users
are the lenders, potential investors,
customers and government. Table 5.1
summarizes the users of accounting
information generated by the business.
Table 5.1: Users of Accounting Information
Example of decisions made by use
of accounting information
Providers of capital to the
business. Their interest
is to have sustainable
businesses that
continuously increase their
wealth.
Individuals who manage
the business on behalf of
the owners.
Bankers who lend long-
term and short term to the
business or suppliers of
goods and services.
Individuals or firms who
could be interested in
buying shares in an
existing business.
Whether to continue investing in
the business.
Strategies required to improve
business performance. They make
these decisions by comparing
actual and planned performance.
Decision to lend or not. Decision
will be based on the ability to pay
back the loans if granted.
To buy shares in the company
or not. Decision will be based on
current profitability and potential
to create wealth in the future.
Category of user Description
Business
owners
Managers
Lenders
Potential
investors

Example of decisions made by use
of accounting information
Those who buy goods from
the business.
Those with authority or
power to rule the country.
Can be national or regional
government.
Whether to award contracts to
your business to supply them
with goods.
Whether the business is
complying with tax laws and
regulations.
Category of user Description
Customers
Government
TRANSACTIONS
A transaction is an economic event
that under the generally accepted
accounting practice affects one or more
elements of the financial statements
and must therefore be recorded. When
a business transaction occurs it is first
recorded in a voucher. The documents
in which the transactions are evidenced
are referred to as source documents.
SOURCE DOCUMENTS
REQUIRED FOR AN
AGRI-BUSINESS
The following source documents are
suitable for use by agri-businesses. These
are standard documents that are readily
available in stationery shops or can be
ordered from printers when we wish to
have them customized to our businesses.
Salesinvoice:thisdocumentshowsthequantityofgoodssold,thesellingprices,
a brief description of the goods sold and other terms of sale. It is issued by the
seller of goods and delivered to the purchaser to evidence credit sales made. It
mayaccompanythegoodsormaybesentafewdaysafterthecreditsaleismade.
Purchases invoice: this document shows the description, quantity and other
issues relating to the goods purchased on credit. The document is received from
suppliers of goods to evidence a credit purchase. Purchases invoices should be
crosscheckedwiththedeliverynotesandthephysicalquantityofgoodsdelivered.
(i)
(ii)

Credit note: this document is made by the seller of goods and sent to the
purchaser where the invoice amount earlier demanded from the purchaser
is to be reduced. Credit notes may be sent to customers (to reduce the
value of the sales invoice) or may be received from suppliers (to reduce
the value of the purchases invoice). Credit notes may also be issued
where there are returns of goods by the customers or by the suppliers.
Debit notes: this document is sent by the seller to the purchaser
to correct an understatement in the initial sales or purchases
invoice. The debit note is therefore an addition to the invoice.
Cash sale receipts: this document is made by the seller to the
purchaser to evidence cash sales made. The document gives a
description of the goods sold, the prices, total amount due, discounts
allowed to the purchaser and the mode of payment (cash or cheque).
Delivery notes: A document made as an acknowledgement that
goods have been received by the customer. A goods received note
(GRN) may be issued by the customer to serve the same purpose.
(iii)
(iv)
(v)
(vi)
All documents issued or received to support transactions should be kept safely as
they provide evidence that the transactions have taken place.
LEDGER
The ledger is a book that houses accounts
of a business. A page in the ledger is
known as an account. The page is divided
in to two sides with the left hand side being
the Debit side and the right hand side the
Credit side. When the pages (sheets) are
attached in to a book, it is described as
bound book ledger but if it is in loose
pages so that one can be extracted and
replaced, it is described as loose-leaf
ledger. Moreover, the ledger may be in
the form of stiff cards each containing
the name of an account arranged in files
thus known as the card ledger. The ledger
records the sources and application of
funds of the business in the accounting
year. Funds must be distinguished from
cash in that a fund means a resource
whether tangible or intangible applied in
a function to give a return. On the other
hand, cash is tangible liquid money
flowing in to or out of the business. An
account is opened in the ledger wherever
thereisanapplicationorasourceoffunds.

Application of funds is the use of business
resources to generate returns e.g.
purchase of goods for resale, purchase
of fixed assets, payment of expenses
etc. Sources of funds means inflow of
resources in to the business whether
from the owner or from outside sources
e.g. capital injected by the owner, sale of
goods, receipt of incomes, sale of fixed
assetsetc.Applicationoffundswillappear
on the debit side of the account opened in
the ledger for such purpose while source
of funds will be recorded on the credit side
of the account opened for the purpose.
Every business transaction involves two
aspects from the business point of view
i.e. giving and taking of value. The two
are recorded on the two sides of the
ledger. The giving of value is recorded
on the credit side e.g. If goods are sold,
a sales account is opened in the ledger
and the amount entered on the credit side
(credited). Taking of value is recorded on
the debit side e.g. if cash is received in to
the business a cash account is opened
and the amount debited. A page in the
ledger is ruled with four columns on either
side. This is described as the T format
of an account illustrated in table 5.2.
Table 5.2: Ledger
Debit side
Date Particulars F FAmounts Particulars AmountsDate
Credit side
Date: shows when a transaction actually took place, Particulars: Shows the
name of the other account affected by the same entry.
F (Folio): Contains the reference page of the account named in the particulars
column. In general, this column is a reference column for the corresponding
entry in the same or different ledger.
Amount: Indicates the monetary value of the transaction. Due to the automation
of the office, the T format of an account is being replaced by the three-column
ledger, which has three amounts column as shown in table 5.3.
Table 5.3: Three Column Ledger
Title of the Account
Date Particulars Folio Debit Credit Balance

Agri business management handbook

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