Strategic Planning for Business Development

Managing Business Ownership

The Managing Business Ownership course is a comprehensive program that covers a wide range of topics related to owning and running a business. Its goal is to provide students with the skills and knowledge necessary to manage a business successfully. The course covers key areas such as a company's legal structure, the challenges and risks involved in ownership, creating a business plan, and managing finances and accounting.

Additionally, the course also focuses on topics such as developing effective marketing strategies, managing employees, building a positive company culture, and making ethical and socially responsible business decisions. The course's learning outcomes aim to provide students with a well-rounded understanding of business ownership and the tools to launch and manage their businesses.

Upon completion of the section, students will have gained valuable insights into the various aspects of business ownership and will be well-prepared to tackle the challenges of entrepreneurship.

Introduction: Managing Business Ownership

A business is an entity. Ownership of a business refers to the legal rights and responsibilities of an individual or group of individuals who have control over the assets and operations of the company. Understanding the concept of ownership is essential for anyone interested in starting or managing a business. This section provides an introduction to the different types of business ownership, including sole proprietorship, partnership, and corporation, as well as the advantages and disadvantages of each. Whether you are a budding entrepreneur or a seasoned business professional, gaining a clear understanding of ownership is crucial for making informed decisions and ensuring the success of your business.

A business exists, but much of it is intangible. We might be able to see and touch some of its assets, such as currency notes and coins, machines, or stocks of goods for sale. We might be able to see the premises (the building from which it operates. We might be able to see the person or people who run it. But there is much that we cannot see or touch: the skills, knowledge, experience or client; the activities which go on “behind the scenes”. Ownership of a business can consist of more than one person. The business is likely to consist of both tangible and intangible parts. Just one person might own the “whole”, or the ownership – not the business itself – might be shared between two or more people.

Defining business ownership: What it means to own a business

To truly grasp the concept of business ownership, it is important to consider what it means to own a business. Owning a business entails more than just having legal rights and responsibilities over its assets and operations. It encompasses the ability to make important decisions, take risks, and derive financial benefits from the enterprise's success. Ownership grants individuals or groups control and authority over the direction of the business. This includes the power to determine the company's strategies, set goals, hire and manage employees, and allocate resources effectively. It also involves shouldering the liability and risks associated with the business.

However, business ownership is not only about personal gains. It also requires a commitment to the well-being of all stakeholders, such as employees, customers, and the community. Owners must prioritize ethical practices and ensure the long-term sustainability and growth of the business.

In our next section, we will discuss the various types of business ownership in greater detail, examining their unique characteristics and implications. Stay tuned to gain further insight into this crucial aspect of entrepreneurship.

Legal and financial responsibilities of business owners

Business owners have several legal and financial responsibilities that they must fulfill to operate their businesses effectively. Legally, business owners must comply with various requirements, including obtaining the necessary permits and licenses, filing taxes correctly and timely, and complying with labor and employment laws.

Financially, business owners must manage their financial obligations, including paying taxes, managing debts, keeping accurate financial records, and ensuring that their business's financial health is sustainable. Failure to fulfill these responsibilities can result in legal action, including fines, lawsuits, and even bankruptcy. Business owners must understand and fulfill their legal and financial obligations to ensure the smooth operation of their businesses and avoid legal problems.

The benefits and challenges of business ownership

Business ownership has both benefits and challenges. On the one hand, owning a small business allows individuals a degree of independence and freedom to make their own decisions. Business owners also have the opportunity to turn skills, interests and passions into income, while also contributing to the economy through job creation. On the other hand, challenges such as financial instability, high levels of responsibility and stress can make business ownership difficult and require significant personal sacrifices. Furthermore, business owners may face difficulties such as struggling to balance work with their personal life and finding the right people to help them grow their business.

How to establish ownership of a business

To establish ownership of a business, there are several steps you can take;

Determine Your Business Concept: Clearly define the type of business you want to start and the products or services you will offer.

Research Your Competitors and Market: Conduct market research to understand your target audience, competitive landscape, and industry trends.

Create Your Business Plan: Develop a comprehensive business plan that outlines your goals, strategies, financial projections, and marketing plans.

Choose Your Business Structure: Decide on the legal structure of your business, such as sole proprietorship, partnership, or corporation. Each structure has different implications for ownership and liability.

Register Your Business and Get Licenses: Register your business with the appropriate government authorities and obtain any necessary licenses and permits to operate legally.

Get a Tax Identification Number: Apply for a tax identification number, such as an Employer Identification Number (EIN), which will be used for tax purposes and to open a business bank account.

Establish Bank Accounts: Open a separate bank account for your business to keep personal and business finances separate.

Secure Funding: Determine how you will finance your business, whether through personal savings, loans, or investments from others.

Obtain Business Insurance: Protect your business and its assets by obtaining the necessary insurance coverage, such as general liability insurance or professional liability insurance.

Develop Contracts and Agreements: Create contracts and agreements that outline the ownership rights, responsibilities, and expectations of all parties involved, such as partnership agreements or shareholder agreements.

Maintain Proper Record keeping: Keep accurate financial records and ensure compliance with tax and legal requirements. Implement a system for tracking income, expenses, and other financial transactions.

By following these steps, you can establish ownership of your business and lay the foundation for its success.

Tips for Successful Business Ownership

Here are some guides for successful business ownership:

Develop a solid business plan: A well-thought-out business plan helps you define your goals, target market, and strategies for growth. It also serves as a roadmap for your business.

Understand your target market: Identify your target customers, understand their needs, and tailor your products or services to meet those needs. Conduct market research to gather insights and stay updated on market trends.

Build a strong team: Surround yourself with talented individuals who share your vision and can contribute to the success of your business. Delegate tasks, empower your team, and foster a positive work culture.

Prioritize customer satisfaction: Focus on providing exceptional customer service and building long-lasting relationships with your customers. Listen to their feedback and continuously improve your products or services to meet their expectations.

Stay adaptable and innovative: Embrace change and be open to new ideas. Be willing to adjust your strategies and products/services based on market demands. Stay updated on industry trends and technology advancements to stay ahead of the competition.

Manage your finances wisely: Keep track of your expenses and revenue, and maintain a sound financial management system. Monitor cash flow, budget effectively, and seek professional advice when needed.

Stay committed and persevere: Running a business is not easy, and there will be challenges and setbacks along the way. Stay focused, stay motivated, and be willing to put in the hard work required to achieve your goals.

Network and build relationships: Establish connections within your industry, attend industry events, and join business organizations. Networking can help you learn from others, gain new business opportunities, and expand your customer base.

Embrace technology: Utilize technology tools and platforms to streamline your operations, improve efficiency, and reach a wider audience. Embrace digital marketing strategies to promote your business and engage with customers online.

Continuously learn and adapt: Stay updated on industry news, emerging trends, and new business strategies. Invest in your own personal and professional development to stay ahead in the competitive business world.

Remember, successful business ownership requires passion, hard work, and continuous learning. Trust your instincts, take calculated risks, and never stop striving for improvement.

The role and significance of business ownership in the economy

Business ownership plays a crucial role in the economy as it fuels economic growth and development. Entrepreneurs who own businesses are responsible for creating job opportunities, stimulating innovation, and driving competition in markets. Through their businesses, owners inject capital into the economy, which helps fund new projects and stimulates the growth of existing businesses. They also create wealth and generate tax revenue for governments, which helps to fund public services and infrastructure.

Additionally, business ownership drives innovation and creativity, as entrepreneurs seek to develop new products, services, and technologies to meet changing consumer needs. This, in turn, helps boost consumer spending and drives economic growth.

Overall, business ownership is a key driver of economic development, creating employment opportunities, generating capital, and stimulating innovation and development.

The Profit Motivation

People start, own, and run businesses with one common “goal” in mind. And that is to make money from the activities of their respective businesses. Many business people are content to earn a reasonable “living” so that they and their families will have a good “standard of living”. Other business people want to earn “big money”, to be successful and respected’ and perhaps to retire young. They are all motivated by the need to make profits from their businesses.

Of course, there may be other “motivation”: the challenge to do something new or different, perhaps what has not been done before; the chance to exercise skill or judgment’ the stimulation of taking “risks”, to out-think others; to work for oneself, to mention but a few.

The motivations which prompt people to go into business are often summed up as being the “entrepreneurial spirit”. What we call an ‘entrepreneur’ (adapted from a French word) is commonly defined as being:

A person who undertakes a commercial or business venture, with the chance of making a profit or a loss, and often at personal or financial RISK.

For success in business, an entrepreneur needs to be self-confident and resourceful; to be able to focus, concentrate, and persevere; to be able to

analyze (to understand and see through the maze of distractions); and he or she also needs flexibility of mind, good judgment, the ability to make – the right – decisions; and, of course, commitment.

The common aim of most entrepreneurs is profit. So let us be quite clear on how and why profits arise. The following simple example explains clearly to you what profit is and how it arises. You need to understand these matters clearly if you are to make a successful career in business.

Practical Example B

Rebecca Fraser is a fashion designer; he runs a small business called “Rebecca Collection” from a workshop he rents. She sells ladies' handbags she has made, and the money she receives goes towards buying food or clothing buying materials, or paying the rent of her workshop. What she has done is to exchange her materials and labor for the materials and labor of other people; what we call “money” (currency or bank notes and coins) is only the “medium” which makes the exchange easier.

To design and produce ladies' handbags, Rebecca has to make use of what is called the “three factors of production’; they are land, labor, and capital. That is because:-

• without land there would be no place or workshop in which she could work;

• without her labor, no ladies' handbags would be made;

without capital there would not be the money she needed to pay rent of her workshop, to buy leather, tools, nails, etc, from which she could design and produce more ladies' handbags, and feed and clothe herself and any dependents until the next ladies handbags are designed and made and sold.

Rebecca works hard in the expectation that her production will bring back the money she spends on materials, labor, and rent, and that it will also bring her more than the total she spent. The “return” on the capital she “invests” is what is called “profit”. A ‘return on capital’ in the form of profit is essential in business. That is because capital is the result of previous production. If Rebecca works so well that she sells her products for more money than her immediate needs, she can use that extra or excess money as capital to ‘finance’ more production. We can explain that a business ‘makes a profit’ from its activities or operations during a certain period, when:

• the total of all its ‘income’ – its receipts of money –

  exceeds (is greater than)

• the total of all its ‘expenditure’ – its payments out of money.

The amount of the excess of income over expenditure represents a profit made by the business. The “period” we mentioned is called a ‘trading period’ or a ‘financial period’, and is most often one year: a “trading year” or “financial year”. That is not necessarily the same as a “calendar year”, e.g. from January 1 to December 31. Commonly the trading or financial year of a business is counted as 12 months from the first day of the month on which it was established. For instance, if a business was started on July 1, each of its financial or trading years might be from July 1 in one year to June 30 in the following year.

Losses in Business

In business, a ‘loss’ is the opposite of a profit. Say the total expenditure of a business exceeds (is greater than) the total of its income during a certain financial or trading period. The amount of the excess of expenditure over income represents a loss made by – or incurred by – the business. We say that the business has ‘lost money’ during its activities and operations.

If a business continues to make losses, its capital will be used up, and if the owner cannot raise more capital, the business will become ‘insolvent’ and will have to close. Every business person strives to avoid making losses! This Program aims to help you avoid such an unfortunate situation occurring.

Different Types of Business Ownership Structures

Understanding the different types of business ownership structures is essential for aspiring entrepreneurs and existing business owners alike. People who are business take certain risks. For example, if a business does not do well, its owner(s) might lose the money and effort they invested in it. People who own and run businesses also have certain obligations; there are things that they must do, and there are things that they must not do, morally or legally

In this Section you will learn how to reduce business risks ways to avoid losses; and how to ensure that moral and legal business obligations are met. How a particular business is owned can have important effects on the risks and obligations of its owner(s).

We can now look at each business ownership structure; as it each business ownership structure comes with its own set of characteristics, legal requirements, and implications. By exploring these options, you can choose the ownership structure that best aligns with your goals, values, and resources.

The most common types of business ownership structures include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. It is possible to change or convert from one type of ownership to another, even after a business has been registered. Let's take a closer look at each:

Sole proprietorship:

This is the simplest form of business ownership, where an individual owns and operates the business as a sole owner. The word “sole” means alone or one person only. It shows that a business of this type is owned by just one person. You might hear the expressions sole-trader or sole-proprietor or one man business or self-employed. The sole owner might be either a man or a woman.

The sole-proprietorship business is usually fairly small with a wide range of and the range of activities:-

• many are engaged in trading and distribution.

• some are engaged in small-scale manufacturing or agriculture.

• many are engaged in technical or crafts fields, such as motor mechanics, electricians, radio or television engineers, painters and decorators, fashion designers, etc; some provide domestic services, such as gardening, window or carpet cleaning, etc.

• some provide commercial services, like estate agents, insurance agents, couriers and road transporters, taxis or cabs or minibusses, etc.

• some are concerned with running cafés, restaurants, guest houses, and small hotels.

The management of a sole proprietorship is generally fairly simple as the owner or manager will know personally each person working in the business. The owner will normally have a good knowledge of the work performed by each person. In some small businesses, certain specialists with important skills, knowledge, or experience might have to be employed.

Advantages of Sole proprietorship

• The owner retains all profits made by the business.

• The owner makes all decisions and does not have to consult anybody else.

• The owner has ease of control of the business and personal contact with customers and suppliers.

Disadvantages of Sole proprietorship

There are also disadvantages to being a sole proprietor, which include:-

• The owner might find it difficult to take holidays, without having to close the business.

• If the owner falls ill or has suffered an injury, the business will not operate and will have to close until the owner is capable of resuming work.

• A sole proprietor might not have all the knowledge and skill required to run a business successfully, and might not have the time to carry out all the managerial functions necessary.

• A sole proprietor might have a problem in generating the initial capital needed to start the business properly, and also in raising funds needed to keep the business going in difficult times or expand it.

• The owner also assumes unlimited personal liability and is personally responsible for the business's debts. What this means is if the owner has insufficient money, his or her possessions such as a house, car, furniture, etc. could be confiscated through legal means and sold to offset the debts of the business.

Registration of Business Name

This type of business unit is relatively easy to set up. A government body is responsible for the registration of the intended business name in many countries. In some countries, the “Registrar of Business Names”, under the Ministry of Trade or Commerce or Industry (or similar) is responsible for registration of business names.

For example, if John wants to register a business name. He might like to call the intended business “Daily Associate Agency”. John might have to approach a local government office or local chamber of commerce for advice. He may be required to complete a simple application form and submit it, perhaps with a small registration fee, to the Registrar of Business Names. Apart from the name of the business John wants to register, he will also, have to state his own name and address as the owner-to-be, in addition to the type of activities in which the business will be engaged, and additional information, such as the intended business address from which the business will operate.

If the name of the intended business, John has chosen is very similar to another business already registered he will not be permitted to register his first choice. He will have to select a different name and might be issued a ‘registration certificate’ after the chosen name has been approved. Once he has the registration certificate, he might have to display the registration certificate prominently in his business premises, as proof his business is legally registered to operate.

Converting a Sole-Proprietorship Business into a Partnership Business

Some businesses start as sole proprietorships and expand into partnerships. To develop into a partnership firm from a sole proprietorship, the initial process is to draft the partnership business deed. The deed will include the conditions of the business, the partnership start-up date, and the relationship between the partners.

It must be indicated in the deed how much capital will each partner invest, how the profits and losses will be split, and what happens after retirement to one or more partners. In the deed, there should be details of all the changes expected to occur with the introduction of the new business partners. It includes any change in the firm’s registered address details as well.

When you convert a sole proprietorship to a partnership, there will be a change in the structure. Each partner has effective and equal control over the activities of the business and shares profits equally unless there is any agreement contrary to this in the partnership agreement. A partner must not transfer their interest to others without other existing partners’ consensus.

The partnership business will make a declaration of transfer deed which is different from a regular partnership deed. The declaration of transfer deed will make several references to the proprietorship business and will declare the transfer to a partnership firm. The declaration of transfer deeds must include the date of sole proprietorship formation, name of sole proprietor, type of business, TIN, Tax registration, and VAT numbers.

The partners can jointly agree to choose any name for their partnership firm and register it with the Registrar of Business Names. There is no government-mandatory set of rules for naming the firm. The partners should make sure that the name given is not already registered by another business.

There should be mutual agreement between partners in which, each partner will be bound by the actions of the other partners. Hence, with a mutual agreement, the partners act as the principals of the other partners.

Note that whenever a partner leaves the partnership firm, a new business is formed. Any time a new partner is admitted to a partnership, a new business is formed and new partnership agreements are required. The Registrar of Business must be informed about changes in ownership of a partnership firm.

Partnership Firms

In a partnership, two or more individuals share ownership and control of the business. Partners contribute resources, share profits and losses, and collectively make decisions. Depending on the type of partnership, partners may have limited liability or be personally liable for the business's obligations.

This type of business unit is usually governed by a legal agreement in writing called a partnership agreement which outlines the duties and responsibilities of each partner. The partnership agreement will also outline what proportion or percentage of the business each of the owners “owns” what earnings each may receive, and how any profits or gains made by the business will be shared between the partners. In some cases, people go into partnership with spoken agreement between them which is a very dangerous form of partnership. This type of partnership can lead to misunderstanding, disputes, losses, and unpleasantness.

Some people might trust each other such; as close relatives, brothers, or sisters. They need to sign a legally binding partnership agreement. An attorney of law or an accountant should be able to assist and advise in this regard. There are standard worded prepared agreements which set out the most common matters which need to be included; such as the names and addresses of the partners, the name of their firm, and the methods in which they are to share ownership, earnings and profits or losses. All of the above details need to be filled in the agreement before it is signed and witnessed.

Apart from attorneys of law and accountants mentioned above. There are other professionals such as auditors, doctors, dentists, architects, civil engineers, and others, who do not consider their profession as business, but they rarely provide services without charge, and sometimes, similar professionals work together as partners with the common goal of earning money and, making profits and might call their unit a practice instead of a firm.

Reasons for Forming a Partnership

In some cases two or more persons might join together to form or take over or run a business by pooling their skills, knowledge, experience, contacts, finance, assets; or a combination of any of the above factors. This type of business unit is commonly run by husband and wife as a team, and the business can be any of the following: cafés, restaurants, guesthouses and small hotels, hairdressing salons, travel agencies, and estate agencies. The partners might not have the time or funds to run a successful partnership business. But they can do the following:-

• share the work, and pool their expertise or resources together;

  and

• might be able to earn a modest income and enjoy a good standard of living or a useful second income.

In some cases, where persons forming a partnership business might not have sufficient knowledge, skill, or finance to run a business; two or more persons can pool their knowledge, talents, and resources and work together as a partnership team, and might be able to run a successful business. In many cases, one or more of the partners might provide the skill, experience, or technical know-how, whilst one or more others might have some or all of the capital needed.

Sources of Capital

In a partnership firm, some partners are involved in day to day running of the business, whilst some might provide all or part of the fund needed and leave the day-to-day running of the business to the working partners. Partners who do not partake in day to day running of the partnership business are called sleeping partners.

In some cases, some partnership firm has a 50/50 partnership or an equal partnership. But, some partners might not necessarily contribute the same amount of capital. For instance, one partner might raise two-thirds of the capital needed, whilst another might raise the remaining one-third. There is no fixed rule, and much depends on the circumstances, and what is agreed between the partners.

Division of Profits

Depending on the proportions agreed in the partnership agreement. Any profits made by a partnership firm are divided between all the partners in that firm. The division might be based on amounts or percentages of capital contributed or on work performed, on time devoted to the business.

Liability for Losses

If the partnership firm has been incorporated, the liability of each partner for the debts of the firm is limited. Any losses made by a partnership firm are shared between all the partners in that firm. In some cases, a wealthy partner of a partnership firm could take personal responsibility for settling any of the debts of the business, which the other partners are unable to meet.

Advantages of Partnerships

Advantages of partnership firms might include:-

• One of the biggest challenges of starting a new partnership business is the overhead expenses. Partners can share startup costs and other expenses.

• There is the possibility to spread the workload and responsibilities of the business among the partners and at the same time allow different

• partners to focus on their areas of specialization, thereby, providing access to essential skills and experience within the business.

• One partner can cover for another partner in the absence of one partner due to a holiday or illness. If one partner is no longer interested in the partnership and wants to leave the partnership, the partners can apply the partnership interests’ agreement to transfer the right to receive benefits to a new partner. With a partnership, there will be less pressure in handling day-to-day details of the business. In this instance, having a partner can improve both the partner’s work–life and routine.

• In a business partnership, a partner with a different perspective can provide valuable input when making important decisions.

• It is easy to change a partnership business into another business structure if the partners decide that they need more protection for their business. To start the conversion process from a partnership to a limited liability company or corporation, they must submit official conversion documents to the Registrar of Business Office.

• Business partnership enjoys more freedom when it comes to ownership and control in equal measure than limited liability companies or corporations. Members of business partnerships are answerable only to each other and without outside influence in decision-making.

Disadvantages of Partnerships

• In some cases, the disadvantages of business partnerships are often centered on relations between partners. Relations can deteriorate if the business does not do well, or if one partner is less honest reliable, or hard-working than the other partners.

• There can be disagreement between partners on what direction the firm should take in achieving its objectives. Any unsettled disagreement between partners can threaten the existence of the firm.

• One of the disadvantages of a partnership business is problems arising if one partner wishes to take back all or part of the capital he or she invested in the business or wishes to leave the business or if one of the partners dies. To avoid this type of problem in partnership business, before they arise. It’s of paramount importance to stipulate how disputes will be solved in partnership agreements.

• In a partnership business, there is equal liability of each partner for losses and debts. Each partner has an unlimited personal liability, which means all the partners are responsible for any bad business dealings another partner enters into. Every decision one partner makes has potential consequences for another partner’s assets and finances such as bank accounts, cars, and houses.

• In a partnership business, Partners have less autonomy and equal decision-making power. Any decisions made must be jointly acceptable by the partners. This will depend on the agreement stipulated in the partnership agreement.

Registration of a Partnership Firm

Registration of a partnership firm is the same process as the registration of a sole-owner business. Both sole-owner businesses and a partnership business will have to provide particulars of the business owners to the Registrar of Business Names.

Limited Liability Company (LLC):

A limited Liability Company is commonly called a limited company or simply LLC or company. An LLC is formed by a process called incorporation and combines the benefits of a corporation and a partnership. It provides a degree of personal liability protection while allowing for flexible management and tax benefits. LLCs are owned by members who have limited liability, meaning their assets are generally protected.

The capital and ownership of an LLC are divided into several units which are called shares or stock in some countries. A person can become a shareholder or stockholder in an LLC by investing in it and contributing towards its capital, by buying some of its shares.

Shares

Shares represent units of ownership in a company. It is an exchange for money an investor paid into the company in return for a share. The person who invested in a company is issued a share certificate and the person is known as a shareholder. The share certificate is proof that he or she is the holder of a stipulated quantity of the company shares.

The quantity and value of shares are based on the following factors:

• the value of capital it needs – which is known as its share capital

  and

• the number of different shareholders there might be.

A company can issue shares without worrying about rules, as there is no fixed rule on several shares or their issued value. A company that needs a share capital of $50,000 could have 100 shares of an issued value of $500 each 1000 shares of $50 each, or 50,000 shares of $1 each, and so on as there is no fixed rule on the number of shares. In some cases, where the number of shareholders is 2 or 3, the number of shares can be of a high value each. But, if the shareholders are to be many, more shares will be needed with relatively low value.

Shareholders

A shareholder is a person, company, or institution that owns shares in a company’s shares or stocks and will share in the profits made by the company in proportion to the quantity of its shares he or she holds. The amount paid per share held is called a dividend. A company shareholder can hold as little as one share. When a company loses money, the share price invariably drops, which can cause shareholders to lose money.

A shareholder as an investor in a company does not necessarily participate in the day-to-day running of the company. An investor who invested in a company by buying some of its shares might reap the benefits of the company’s success which comes in the form of increased stock valuation or financial rewards or profits distributed as dividends. In a small company, a single shareholder who owns and controls more than 50% of the company’s outstanding shares is known as the majority shareholder. This type of shareholder is often the company founder and will be involved in the day-to-day running of the business. In some cases, those who hold less than 50% of a company’s stock are known as minority shareholders. In addition to receiving a dividend or reaping the benefits of the business’s success which comes in the form of financial rewards, a shareholder also has the right to vote on key corporate matters, such as naming board directors, and can vote on critical matters by proxy, either through mail-in ballots or online voting platforms if they’re unable to attend voting meetings in person.

Each share gives one vote. If an investor in a company holds 100 shares, he or she will have 100 votes. If the investor holds 1000 shares, he or she will have 1,000 votes, and so on. The votes can be cast at general meetings of shareholders. By law, there must be at least one such meeting called an Annual General Meeting each financial year. Shareholders who are unable to attend the Annual General Meetings in person can vote by proxy, either through mail-in ballots or online voting platforms.

The following are critical matters that can be voted upon and decided upon at meetings of shareholders:-

• The policies of the company. The shareholders of a company must agree to any major changes in its policies.

• The management of the company. In big companies, the shareholders elect the company board of directors to run the business on their behalf and manage their investments. In small companies, the directors are also the shareholders.

• The dividend. Shareholders receive financial rewards which is payable from profit, if any, made by the company during a particular financial year. In some cases, the dividend is usually paid to shareholders after the end of the financial or trading year.

• In some cases, a vote might be the best way of settling issues should shareholders disagree on a proposition such as a change of policy the election of a company director, or the amount of dividend raised at a meeting. The most votes cast the majority for or against wins the vote.

In a small company, where the shareholders are two or three, there is a need for a concession if and when disagreement occurs.

The Advantages of Limited Liability and Incorporation

Limited liability companies have favorable advantages over unlimited business ownership such as sole proprietorship and partnership. The purpose of limited liability is to promote entrepreneurship, investment, and overall economic growth. Limited liability offers several notable advantages for business owners, and investors and promotes entrepreneurship, investment, and overall economic growth. The following are the advantages of limited liability and incorporation:-

• The process of forming a new company is called formation. The new company must be registered with the appropriate government agency often known as Registrar of Companies. After the company has been registered or incorporated – the company becomes a separate, legal entity from its owner/owners. This safeguards the owner’s assets from the debts and liabilities of the company. A limited liability company as ‘an individual’ may legally own assets, enter into a contract, take other actions, and be responsible for its financial issues.

• A limited liability entity can more easily raise finance for the purchase of working assets, for growth, and for other purposes by way of issuing shares to shareholders, than it is for a sole-proprietorship or partnership business.

• v Limited liability exists to protect the personal assets of business owner/owners by blocking creditors from going directly for the owner’s assets such as property, vehicles, bank accounts, investments, etc.). This allows business owners and directors to make some calculated financial risks without fear of the potential consequences it could bring upon their personal and home life.

• Limited liability will Increase investor(s) confidence in investing in a company with limited liability as their obligation for any debts of the company is limited to the amount which they invested in the business; the investor(s) cannot be called upon to pay anymore. This can make finding investment and outside funding significantly easier, potentially hugely beneficial to the future of the company.

• The death or retirement of a shareholder or director does not affect the existence of a limited liability company as a business. This is not the case for sole proprietorship and partnership businesses. The death or retirement of sole proprietorship and partnership businesses will affect the existence of both businesses respectively.

• The transfer of shares from one person to another does not necessarily affect the management of a company, as it does in a partnership business.

• The name: LIMITED LIABILITY is the most important advantage of this structure of business. Limited liability means that an investor who buys shares in a company and the company fails can lose no more than the amount of money that he or she agreed to invest for those shares. The sole proprietor of an unincorporated business and the partner owners in an unincorporated partnership firm have unlimited liability for the debts of their respective business should it fail, and they can be called upon personally to pay those debts.

Corporation:

A corporation is a separate legal entity from its owners, known as shareholders. This structure offers the greatest level of liability protection, as the owners' assets are typically shielded from the business's debts. Corporations have a more complex structure, with shareholders, directors, and officers responsible for decision-making and management.

Choosing the right ownership structure for your business involves considering factors such as liability, taxation, management style, and growth potential. It is advisable to consult with legal and financial professionals to ensure you make an informed decision. In the next section, we will delve deeper into each ownership structure, examining their advantages, disadvantages, and suitable business contexts. Stay tuned for valuable insights that will help you navigate the world of business ownership.

Private Companies

In some countries, there are two types of corporations (limited companies); private companies and public companies. A private company is a business entity held under private ownership and whose securities do not trade on public markets. Compared to a public company. Private companies are the most popular form of corporation. However many of them are relatively small businesses and can be structured as sole proprietorships, partnerships, or corporations. Many sole- -proprietorships and partners change their businesses by incorporation into limited companies, to themselves the important protection of limited liability. For example, Jerome and Mukasa might well decide to form a limited liability company instead of forming a partnership business.

In some countries, a private limited company may be formed by 1 or 2 people, considering the limit imposed by law on the maximum number of shareholders there may be, and restrictions on the right of shareholders to transfer or sell the share they hold. For example, if Jerome is a shareholder and wants to sell all or some of his shares he might have to offer them to other shareholders first; if any of the shareholders do not want to buy the shares, Jerome may sell the shares to another person outside the company.

Formation and Incorporation

Company formation is the process of incorporating (registering) a business in the form of a limited company. When a company is registered, it becomes a separate legal entity; a 'person' that is completely distinct from its owners and responsible for its finances, assets, and liabilities.

In many countries around the globe, companies have to operate by documents called the Memorandum and Articles of Association, legal documents signed by all the shareholders or guarantors agreeing to the formation of the company and; rules about running the company agreed by the shareholders or guarantors, directors and the company. These set out the activities in which the company will be involved.

In some countries, the process of registration is expensive due to charges on stamp duty and other form of taxes, and these charges will depend on the value of the capital of a company. The financial standing of those forming the company might be required, and restrictions on the names of companies might be stricter than the registration of business names.

The word “Limited” is often abbreviated to “Ltd” in some countries, and must be included as part of a company name; for example, Jerome & Mukasa Hardware Ltd. And, in some countries, a private company must include the word “Private” either the full name or an abbreviation such as “Pty” or “Pvt. 51

Share Held by Proxy

A shareholder proxy is a person who is appointed to stand in for a shareholder. In some countries, company regulation requires two or three persons to be the first shareholders of a new company. For example, in a situation where Jerome wishes to be the sole shareholder of a limited company, what Jerome can do, is to appoint a spouse or his lawyer to hold some shares. The spouse or the lawyer would sign a legal document stating that the shares the shares belong to Jerome and are being held on behalf of Jerome, and that the proxy cannot gain from or sell the shares without approval and agreement from Jerome

A proxy can act as an agent legally authorized to act on behalf of another party. If the shareholder cannot attend, a formal power of attorney document may be required to provide the permissions to complete certain actions.

The shareholder signs a power of attorney and extends official authorization to the designated individual to vote on behalf of the stated shareholder at the annual meeting

Staying in Control

Limited liability can help to reduce the financial risk of a business, and also give a certain peace of mind to its owners. The following situations can pose danger to the owner(s) of a limited liability company: =

• Lack of enough funds, or the ability to raise enough capital.

• The owner(s) lacking the required skill may have to depend on the skill of others to achieve the company objectives.

In general, a new business person might consider including one or more people in a new company as shareholders. A limited company might be the most satisfactory answer for the new business person. It is important to think beforehand about the type of business to be established and the type of ownership.

Practical Example C

Karen Mathews wishes to form a company to make and market a product that she has invented. Her funds' forecast indicates that eventually, the company will need capital of $100, 000, of which $60,000 will be needed to start with. She can raise only $30,000 herself, but she has secured the “backing” of a Mr. Ibrahim who, although not interested in running the business, likes the product and her business plan. He agrees to invest $30,000 in the new company by buying shares in it to that value.

The two of them form a company called “Day & Night Stores Ltd” with a total ‘share capital’ of $100,000, made up of 10,000 shares of $10 each. They agree that Karen will be the managing director; Mr. Ibrahim will be a director, but he will not be involved in running the business.

In the situation described, to begin with, only 6,000 shares need to be “issued” (sold or allocated): 3,000 to Karen for her $30,000 and 3,000 to Mr. Ibrahim for his $30,000. The ‘issued share capital’ of the company is therefore $60,000, whilst its ‘unissued share capital’ is $40,000 (making a total share capital of $100,000). When the company needs more issued capital to expand, it might be possible to sell some of the “unissued shares” to other people or organizations. By then, Karen might be able to afford to buy more.

To retain control or the ‘controlling interest’ in the company, Karen needs to hold more than 50% - half – of the shares, she can “win” any vote that might have to be held at a shareholders’ meeting. Control gives many advantages, and so it should not be given up lightly. Therefore, from the 6,000 shares first issued, it would be best for Karen could buy and hold 3,060 shares (51% of the 6,000 issued) and let Mr. Ibrahim have 2,940 (49%). But Mr. Ibrahim, who is “putting up” a large sum of money, and who will not be involved in actually running the business, might insist on having the full 3,000 (50%) so that there is “parity” between them so that is “50-50”.

If the situation was that Karen could not raise her $30,000, she might have to hold fewer shares than Mr. Ibrahim, who would then have “control”. He could still let her manage the company (as managing director) but he could have most “say” in policy matters, in deciding who might or might not also be elected a director, on dividends (if any) to be paid, and so on.

Unseen Problems of the Lack of Control

To continue the practical example of “Day & Night Stores Ltd”

After running for a while, the company needed $20,000 more capital, which could be raised by selling 2,000 more shares (leaving 2,000 only still “unissued”. Karen cannot raise $20,000, and Mr. Ibrahim declines to invest more. They approach a Mr. Tom, who agrees to buy 2,000 shares for $20,000. He wishes to take no part in running the business but wants to be a director.

Karen might feel that she is still “secure” because there is still more or less parity between the three. But that might not remain the case. As managing director, Karen is in charge of the day-to-day running of the business. But that does not give her complete “freedom” to do as she wishes, especially with money invested by others. She has obligations to the other shareholders.

For example, say that Mr. Ibrahim and Mr. Tom feel she is spending unwisely the company’s money (much of which they invested in it). If she would not listen to their objections, they could – quite legally – vote against her at a shareholders’ meeting (in this case of just the three of them). Between them, Mr. Ibrahim and Mr. Tom have 5,000 shares (that is, 5,000 votes), whilst Karen has only 3,000 shares (and votes). So they could “outvote” her, and require her to take action or to direct the company in a way she might not wish to do.

They could even – if they thought it necessary – at a meeting of shareholders to replace her as managing director and put someone else in her place. Karen might not be able to challenge that in law, and could even be voted off the board and even out of management entirely!

Such “unseen dangers” in losing control of a business through lack of financial resources (or for some other reason) must never be overlooked. There might, of course, be no alternative in some cases to “surrendering” control: but the business person concerned should think long and hard before taking such a step. It might well be worthwhile seeking the advice of a lawyer who specializes in company matters, or a business consultant. A mutually acceptable agreement between the parties might be possible, for example, to allow the business person to buy some or all of the shares held by the backer(s) – probably at a “premium” (increased price) – at some future time.

Franchises

A franchise is often attractive to new business people because it offers the chance to run a business with relatively little capital, which it might be impossible to run “independently”. A franchise might be gained by a limited company, or in some cases by a sole owner or by a partnership.

Some franchising has been in existence for a long time; for example petrol or gas stations, and motor vehicle distributors. Today it extends to restaurants and other types of eating places, printing, motor vehicle exhaust and tire fitting and servicing, “standard” repairs, home and carpet cleaning, and many other activities.

In a simplified way, this is how franchising works:

Over several years, Karen’s company, “Day & Night Stores Ltd”, has grown and extended the range of products it manufactures. Its products are well known and the “brand name” of “Day & Night Stores Ltd” is easily identifiable. To grow – to expand – and to increase profits made by the business, it might be necessary to open numerous “outlets” (shops or stores). But the owners of “Day & Night Stores Ltd” (who might or might not still include Karen) might not wish to become involved in establishing and running many outlets. Instead, other people – as individuals and/or as groups – are found who are willing to establish and run those outlets – as “franchisees” – under the “brand name” of “Day & Night Stores Ltd” but as “semi-independent” businesses under “franchise agreements”

The owner of a franchise – the owner(s) of the “original” business – “Day & Night Stores Ltd” in this example – is called the ’franchiser’. The franchiser supplies each franchisee with a well-known “brand name”, certain products and/or equipment, general services (such as advertising and publicity), know-how and training, and any contacts made in the franchisee’s allocated “territory”.

Franchise agreements vary, but in general, the franchisee business has to pay a set fee plus a proportion of its income to the franchiser. From the point of view of the franchiser, growth can be achieved – and savings often made due to increased production or bulk buying – without heavy capital layout, or the need to manage (and staff) numerous outlets. From the franchisee’s point of view, a profitable business can be run, and experience gained, with a relatively modest capital outlay. To a certain extent, the risk is reduced because the brand name is already established and “known”. However, the location of a particular franchiser business and the “market” are important.

Your Decision

We have now given you information about different types of business ownership, and the possible advantages and disadvantages of each type. You need to consider carefully – based on your particular circumstances and financial position – which is most likely to be the best type of ownership for the business you are running, or which you propose to start or take over – now or at a later date. It is most important, however, that you make your decision based on all the facts available to you at the time, and with consideration of the forecasts of the likely future position, as set out in your business plan.

Trade Licenses

In addition to registration, in many countries, businesses (sometimes only those dealing in certain products or commodities) might have to apply for and secure local or national licenses to operate. This is a matter that you need to look into (perhaps at your town or city hall or other local government office) because it might be illegal to operate without a license. Failure to comply with local or national regulations might result in the imposition of a penalty – such as a fine – on your business or you and possibly even the suspension of your business operations.

Strategic Planning for Business Location

Effective strategic planning is a key determinant of a business location's success. Through this process, businesses can better understand the multifaceted and ever-changing factors that impact their operations. For instance, demographic data can provide valuable insights into the wants and needs of local consumers. At the same time, market trends can help businesses anticipate shifts in demand and adjust their offerings accordingly. In addition, strategic planning enables businesses to identify their competitors and develop strategies to gain a competitive edge. By conducting a comprehensive analysis of the regulatory landscape, businesses can ensure compliance and steer clear of costly legal issues.

Most importantly, strategic planning helps businesses identify opportunities for growth and expansion. By evaluating the strengths and weaknesses of their current location, organizations can decide whether expanding to new markets makes sense. Furthermore, strategic planning empowers businesses to anticipate potential risks or challenges, such as changing economic conditions or shifts in consumer behavior. By developing contingency plans and identifying areas of potential vulnerability, businesses can mitigate these risks and ensure long-term success.

All in all, strategic planning yields numerous and diverse benefits for businesses. By engaging in this process, organizations can establish a sustainable and profitable operation that caters to the needs of customers, employees, and stakeholders. With meticulous planning and execution, businesses can achieve their objectives and thrive in a competitive marketplace.

Introduction: Strategic Planning for Business Location

The premises where a business is operated from is called its Location. Choosing the right location for your business is a critical decision that can greatly impact its success. With so many factors to consider, it can be overwhelming to determine where best to establish your company. However, by carefully evaluating key factors and conducting thorough research, you can make an informed decision that aligns with your business goals. In this chapter, we will explore the factors to consider when locating a business and provide valuable insights to help you determine the optimal location for your venture.

Factors to consider when locating a business:-

• The type of business to start.

• The types or natures of the products the business will produce and/or sell.

• The type of market the business will compete.

• The type of customers the business will target.

• The financial status of the business owner(s).

• Suitability and cost of the business premises.

Production

Production is a fundamental concept in the world of business and economics. It refers to the process of creating goods or services through various stages of transformation. Simply put, production is the act of combining resources, such as labor, capital, and materials, to produce output that satisfies consumer demand. While the concept of production may seem straightforward, it involves complex decision-making, coordination, and optimization. This chapter dives deeper into the concept of production, its importance in the economy, and the different types and factors of production. Read on to gain a comprehensive understanding of what production truly entails.

Types of Businesses

We can also consider the following types of businesses based on their activities.

Industrial

The term "industrial" is often used to describe anything related to manufacturing or producing goods on a large scale. However, the concept of industrial goes beyond just factories and production lines. It encompasses a wide range of sectors and activities, from energy and transportation to construction and infrastructure development. There are many businesses of various sizes offering a wide range of activities which result from the availability of different products. In this chapter, we will explore the definition of industrial and its significance in today's global economy. Whether you are a business owner, investor, or simply curious about the inner workings of various industries, this chapter will provide you with a comprehensive understanding of what industrial truly means, and the type of activities in which they are involved as outlined below:

Extractive Industrial: This refers to the process of extracting natural resources from the earth for commercial use. It encompasses industries such as mining, oil and gas extraction, and forestry. Extractive industries play a vital role in providing raw materials for various sectors of the economy, including manufacturing and energy production. However, these industries also raise concerns regarding environmental impact, social responsibility, and sustainable practices. This chapter explores the concept of extractive industry and its significance in modern society.

Processing or Refining Industrial: In the industrial sector, several key processes play a crucial role in transforming raw materials into finished products. Two of these fundamental processes are processing and refining. Both processing and refining are integral parts of the industrial production chain. For example, crude oil is refined into petrol and diesel to fuel machinery and motor vehicles.

Manufacturing: Manufacturing is a fundamental aspect of the industrial sector, encompassing the processes involved in transforming raw materials into finished goods. It is a complex and multifaceted industry that plays a crucial role in the global economy. From automobile production to food processing, manufacturing spans a wide range of sectors and products.

Construction Industrial: Construction is a vast and complex industry that encompasses the planning, designing, and building of structures, as well as the maintenance and repair of existing ones. Within this industry, there are various sectors and sub-sectors, each with its own set of challenges and requirements. One such sector is the construction industry, which focuses on large-scale projects such as industrial facilities, power plants, and infrastructure.

Introduction: Commercial

In the business world, the term "commercial" is often used to describe activities and transactions that involve the buying and selling of goods and services. However, the concept of commercial extends beyond just buying and selling. It encompasses a wide range of activities, including marketing, advertising, finance, and law. Understanding what is considered "commercial" and how it impacts businesses and consumers is essential for anyone involved in the business world. In this chapter, we will explore the meaning and significance of commercials, their various aspects, and the type of activities in which they are involved as outlined below:

Trading and Distribution

Trading and distribution are two fundamental components of the global supply chain. Both are crucial in getting goods from manufacturers to consumers, ensuring the availability and accessibility of products in the market. While these terms are often used interchangeably, they have distinct roles and responsibilities within the distribution channel. This chapter aims to explore the definitions and nuances of trading and distribution, as well as their significance in the world of business. Whether you are an aspiring entrepreneur or simply curious about the inner workings of the market, this chapter will provide valuable insights into the essential concepts of trading and distribution, and the type of activities in which they are involved as broadly categorized below:

Domestic Trade

This type of trade refers to the buying and selling of goods and services within a country's borders. It involves transactions between individuals, businesses, and government entities, and plays a crucial role in the overall economic development of a nation. Understanding the concept and dynamics of domestic trade is essential for businesses and policymakers alike, as it impacts factors such as employment, production, and economic growth. In this chapter, we will delve deeper into the world of domestic trade, exploring its definition, importance, and key characteristics as broadly categorized below:

Retailers: In the world of business and commerce, retailers play a crucial role in the distribution of goods to the end consumer. But what exactly are retailers and what do they do? In simplest terms, retailers are businesses or individuals who purchase products from wholesalers or manufacturers and sell them directly to consumers. They operate in a variety of industries, from clothing to electronics to groceries. Retailers serve as the middleman between suppliers and consumers, ensuring that products are available and accessible to the public.

Large–scale stores: Large-scale stores, also known as big-box retailers superstores or supermarkets, are retail establishments that have massive purchasing power offering a wide selection of products in a single location. These stores are characterized by their extensive floor space and vast inventory, allowing them to cater to a diverse range of consumer needs.

Large-scale stores have become increasingly popular in recent years, particularly due to their ability to offer competitive pricing and a one-stop shopping experience.

Wholesalers: Wholesalers play a crucial role in the supply chain, connecting manufacturers and retailers by purchasing goods in large quantities and selling them to smaller businesses. They serve as intermediaries, helping to distribute products efficiently and effectively.

Wholesalers provide a range of services, including warehousing, inventory management, and transportation. This chapter explores the role of wholesalers in the business world and discusses their importance in modern commerce. Whether you are a manufacturer or a retailer, understanding wholesalers and their functions is essential for success in today's competitive market.

International Trade

This type of trade plays a crucial role in the global economy, facilitating the exchange of goods and services between countries. It involves the import and export of products and services across borders and is essential for economic growth and development. Understanding the concept of international trade is important for businesses, policymakers, and individuals alike, as it influences factors such as employment, investment, and economic stability. This chapter provides an overview of what international trade is, its significance, and the various factors that contribute to its success. Whether you are a student, a business owner, or simply interested in global economics, this chapter will provide valuable insights into the world of international trade including the main types of international trade, as broadly outlined below:-

Export: This type of international trade plays a crucial role in international trade, contributing significantly to the economic growth and development of nations. It involves the sale and shipment of goods or services from one country to another, typically to meet the demand of foreign markets. Understanding the concept of export and its importance in global commerce is essential for businesses and individuals seeking to expand their reach beyond domestic borders. This chapter provides a comprehensive overview of export, including its definition, processes, and benefits, to help you navigate the world of international trade successfully.

Import: This type of international trade plays a crucial role in international trade, contributing to the economy and affecting the prices and availability of goods. But what exactly is import? It refers to the act of bringing goods or services into a country from abroad for sale or use. From raw materials and components used in manufacturing to finished products and consumer goods, imports have a significant impact on various sectors of the economy.

Entréport: This is a term that is gaining traction in the business world, yet many people are still unfamiliar with its meaning and significance. In short, entréport refers to a specific type of business that acts as both an entry point and a gateway for entrepreneurs. This concept combines the idea of an entry point or access point with the notion of a seaport or airport, symbolizing the potential for growth, expansion, and global connections that these businesses offer.

For example, a trader imports goods from abroad into his or her country without repackaging or any form of processing, the goods are then re-exported to other countries. In this circle, the trader acts as both the exporter and importer at the same time.

Services Providing

In the world of business, there are many different types of industries and sectors. One such sector is the services-providing business, which encompasses a wide range of businesses that offer services rather than physical products. From consulting firms to marketing agencies to IT support companies, the services providing business sector plays a crucial role in the economy. In this chapter, we will explore what exactly a services-providing business is and how it operates. Whether you are considering starting your own services-providing business or simply want to learn more about this sector, this chapter is right for you.

The following are major types of businesses involved in services providing industrial.

Accountancy: Accountancy is a fundamental aspect of business operations that plays a crucial role in financial decision-making and ensuring the integrity and accuracy of financial records. It encompasses a wide range of activities, including recording, analyzing, interpreting, and reporting financial information. Accountants use their expertise and knowledge to help businesses navigate complex financial regulations, manage tax obligations, and optimize financial performance. In this blog, we will explore the ins and outs of accountancy, its importance in the business world, and the skills required to excel in this profession. Whether you are a business owner, an aspiring accountant, or simply curious about the field, this blog will provide you with a comprehensive understanding of accountancy.

Accommodation and Catering: Accommodation refers to the provision of lodging or housing for travelers, whether it is in hotels, resorts, or vacation rentals. Catering, on the other hand, involves providing food and beverage services for events or functions, such as weddings, business conferences, or private parties. Both accommodation and catering are crucial aspects of ensuring a positive and enjoyable experience for guests.

Banking and Finance: Banking and finance are two intertwined sectors that play a crucial role in the global economy. Banking refers to the activities conducted by financial institutions, such as banks, to provide services to individuals, businesses, and governments. Finance, on the other hand, encompasses the management of money and assets, including investments, lending, and financial planning. Together, banking and finance form the foundation of our modern financial system, facilitating economic growth and stability.

Insurance: Insurance plays a crucial role in our lives, providing protection and financial security in the face of unexpected events. But what exactly is insurance? It is a contract between an individual or organization and an insurance company, where the insured pays a premium in exchange for the promise of compensation in the event of a covered loss. Insurance is a complex industry with various types of coverage available to protect against risks such as property damage, accidents, illness, and more.

Maintenance and Repair: Maintenance and repair are essential aspects of ensuring the longevity and functionality of various systems and equipment. From household appliances to complex industrial machinery, every system requires regular maintenance to prevent problems and repair services when issues arise. Maintenance involves regular checks, inspections, and necessary adjustments to keep the system in optimal condition, while repair involves fixing any malfunctions or damages.

Transportation: Transportation is a fundamental aspect of modern society, facilitating the movement of people and goods from one place to another. It plays a crucial role in the functioning of economies, enabling trade, tourism, and access to essential services. Transport systems have evolved significantly over time, adapting to new technologies, changing demographics, and societal needs.

Warehousing: Warehousing is an essential component of supply chain management that plays a crucial role in the storage, handling, and distribution of goods. It refers to the process of storing and managing inventory in a designated facility, known as a warehouse until it is needed for consumption or shipment. Warehousing involves various activities, such as receiving, storing, picking, packing, and shipping goods, as well as inventory control and record-keeping.

Introduction: Consumers and Corporate Buyers

There are two main classes of buyers who buy products businesses sell. These classes of buyers are the end-user, known as consumers, and, the corporate buyers. Buyers can be referred to by different terms such as; purchasers, customers, clients, regular, patrons, passengers, guests, subscribers, visitors, travelers, viewers, spectators, fans, and so on by different businesses.

Consumers: In the world of marketing and business, understanding consumer behavior is crucial for success. After all, consumers are the ones who ultimately decide whether or not to purchase a product or service. But what exactly is consumer buying behavior? Consumer buying behavior refers to the process by which individuals search for, select, purchase, and use goods and services to satisfy their needs and desires. It involves complex factors such as psychological, social, and cultural influences that shape consumers' decision-making processes.

Corporate Buyers: Corporate buyers play a critical role in the purchasing process of goods and services for businesses. These professionals are responsible for selecting suppliers and negotiating contracts that meet the needs of their organizations. They are tasked with evaluating and sourcing the best products and services at the most competitive prices, all while ensuring quality and reliability.

Natures of Products We Buy

Products can be divided into goods and services and can each be further subdivided into two groups below:-

‘necessities’ or ‘essentials’ and ‘luxuries’ or ‘nonessentials’

Necessities and Luxuries: In today’s consumer-driven society, it can be easy to lose sight of the distinction between what is truly essential and what is considered a luxury. The line between necessities and luxuries has become increasingly blurred, with the availability of a wide range of products and services at our fingertips. However, understanding the difference between the two is crucial for making informed purchasing decisions and managing our finances effectively. Any products that consumers buy that are not essential, but add to the quality and comfort of life, might be considered to be nonessential, and thus luxuries. For example, to a laborer, a smartphone would be a luxury, but to a tech engineer in the same location or country, a smartphone might be very essential, as he could not perform his work effectively if he or she did not have access to the internet to download device software.

Necessities are basic and staple items that people need. In general, people know what necessary items they need and can afford, and do not need to be persuaded to buy. They will simply ask shop assistants for what they want or will collect the items from, say, supermarket shelves, and take them to a check-out point where they will pay. Salesmanship is not needed in such circumstances – unless consumers have a choice of similar products, in which case some selling skill might be needed to persuade them to buy one make or brand rather than another.

Luxuries are items that consumers may not need, but which they can afford to buy, to make their lives more comfortable and enjoyable. There is often a fairly wide range of such nonessential items available, but between which consumers must select because their spending power is limited. Skillful salesmanship is needed to persuade consumers to spend their money on certain types of products instead of other types and on specific products instead of on similar ones sold by competitors.

Choice Factor Products: This refers to a specific line of goods that have been carefully curated and selected based on their quality, value, and customer satisfaction. These products are chosen by experts in the industry who are dedicated to providing consumers with the best options available. Whether it's in the realm of electronics, home goods, or fashion, Choice Factor Products are known for their exceptional standards and reliability. When consumers have a choice of makes or brand of necessity items each manufacturer or producer tries to persuade consumers to purchase their products, rather than those of competitors.

Essentials and Nonessentials: In the world of business and consumerism, it is essential to understand the distinction between essential and nonessential products. Essential products are those that are necessary for everyday life and are considered basic needs, such as food, water, and shelter. Nonessential products, on the other hand, are luxury items or goods that are not required for survival. This distinction becomes particularly relevant during times of crisis or economic downturn, as consumer behavior and spending habits often shift.

Important services such as electricity, telecommunications, banking, transport, and so on are essential for the success of most businesses, and adequate insurance coverage is also essential if they are to be able to continue to operate in the event of losses due to fire, theft, flood, accidents, and so on. Modern office equipment such as electronic calculators, photocopies, computers, fax machines, and so on are essential to businesses of various sizes.

The Market for the Products

Understanding the market for products is a crucial aspect of any business strategy. It is essential to identify and analyze the target market to ensure that products are developed, promoted, and distributed effectively. The market for products refers to the specific group of consumers or businesses that are likely to have an interest in purchasing a particular product.

By understanding the market for products, businesses can tailor their marketing efforts, pricing strategies, and product development to meet the needs and preferences of their target customers. This article explores the concept of the market for products and its importance in strategic decision-making.

Competition

Competition is a fundamental concept in the world of business. It refers to the rivalry between companies that offer similar products or services and are vying for the same customers. In a competitive business environment, companies must constantly strive to differentiate themselves and gain a competitive advantage over their rivals. This can be achieved through various means, such as offering superior products, providing better customer service, or implementing more efficient business processes. Understanding the concept of competition is crucial for businesses to thrive in today’s competitive market landscape. In this article, we will explore what competition is, its significance in the business world, and how companies can navigate and leverage competition to achieve success.

The Classes of Customers

In the world of business, understanding your customers is key to success. Identifying and categorizing your customers into different groups or segments allows you to tailor your marketing strategies and provide personalized experiences. One commonly used method of segmentation is classifying customers based on their characteristics, preferences, and behaviors. This approach, known as the class of customer, helps businesses gain valuable insights into their customer base and make informed decisions. In this article, we will explore what exactly the class of customer is and why it is important in today's competitive market.

Where to Locate a Business

Having considered all the major factors in locating a business, where do you locate your business? Several personal factors might have to bear on your choice of answers such as where you live, or where you want to work.

Working from Home: In recent years, there has been a significant shift in the way people work. More and more individuals are embracing the concept of working from home, also known as remote work or telecommuting. But what exactly does it mean to work from home? Is it just lounging in pajamas all day or is it a legitimate way to maintain productivity and balance work and personal life? This article will explore the definition of working from home, its benefits and challenges, and provide tips for those considering this flexible work arrangement. So, let's dive in and discover what working from home is all about.

Passing Trade: Passing trade is a term commonly used in the business world to describe customers who make spontaneous purchases or engage in a service without prior planning or intention. These customers typically come across a store or a business while passing by, and are enticed to purchase due to attractive displays of products for sale in their shop or showroom windows or compelling advertising. Window displays are designed to appeal to the eyes of passers-by, to compel them to stop and look closer at items in the displays. The concept of passing trade is especially relevant to businesses located in high-foot-traffic areas such as malls, tourist destinations, or busy city centers. Examples of passing trade include shops, stores, and showrooms selling fashions, footwear, stationeries, jewelry, televisions and DVD players, electrical appliances, computers, cosmetics, and many more.

Often the type of business dictates where it should or can be located. For example, a business that depends for its trade on passers-by must be located in a busy thoroughfare-preferably at street level-which many customers pass along every day. Shopping malls or arcades (even on upper storeys) are also suitable for such businesses. But businesses that do not depend upon, or seek, passing trade, can be located in quieter areas, away from main streets (perhaps on upper storeys of buildings). Examples are businesses that provide repair and commercial services, wholesalers, manufacturers, and building and timber merchants.

A business usually needs to be located conveniently for the market for its products; that is, for people who are most likely to buy its products, and those who can afford to do so. Much depends on the nature of the products a business is selling, and on the financial status of its likely customers; that is, their demands and preferences. A launderette or laundry mat, for example, would best be located in a high-density residential area in which few people own washing machines. Such a business would not have a good market in a working or office area in which few people live.

Customers or clients of some businesses will find them, if they are not too inconveniently situated, and if they are situated in areas in which those people feel “comfortable”. Other businesses, for example, a vocational college, can be located hundreds or thousands of kilometers from their clients, so long as there are efficient communications (post, telephones, fax, and email.)

Quieter Areas: Many businesses that do not depend on passing- trade can locate their businesses on high-rise buildings or upper storeys of buildings, or far away from busy business areas. These types of businesses include those that provide services such as insurance agents or brokers, accountants, lawyers, tradesmen, artisans such as tailors, shoemakers, fashion designers, hairdressers, technicians such as those who repair electrical appliances, watches, radios and televisions, welders, carpenters, plumbers, and so on. Other professionals such as travel agents, estate agents, banks, microfinance, and building societies need to be situated in busy business districts.

City Outskirts: Most businesses such as wholesale businesses do not need to be in city central, and might be situated in the city outskirts, which is quieter, and where it is possible to find large areas of storage space and uncongested access for free movement for vehicles delivering and pickup merchandises. Businesses dealing with building materials, forestry materials such as timbers, and woods, and businesses in repairing and servicing motor vehicles will often be located outskirts of busy city centers where they need large working space, cheaper and easier access to road, rail or even water transportation.

Some businesses are located in local councils' business parks, industrial estates, or trading estates located on city outskirts. Others might have their shops or stores in the city centers or shopping malls but have their stocks of commodities for sale stored in premises on the city outskirts.

Practical Examples D: Natures of Goods

For a woman who wants to set up a fruit and vegetable shop, the best location for such a trade would be a busy marketplace or a busy shopping mall frequented by housewives or different types of shoppers where competition from similar trade is not available. If the woman is located in an area frequented mainly by office workers or businesses, her business will not survive, because those people are not the type of customers for the products of that type of business.

Businesses such as those which sell office equipment, stationery, printing; travel agents, insurance agents, banking agents, those providing business and professional services, financial services, banking, employment agency, cafés and restaurants, and secretarial services. Others are businesses such as newsagents, tobacconists, confectionists, and so on. Locations such as office blocks, cinemas, the sports complexes will be suitable for the type of products for sale. Businesses should be located in areas in which likely customers for their products live, work, or where customers frequently visit.

Practical Examples E: Classes of Customers

We must consider that natures of products relate directly to the class of customer to whom sales of goods or services are most likely to be made. Whether or not the qualities and prices of products will be considered essentials or luxuries by targeted buyers, must be thought about very carefully.

It should be carefully considered before deciding whether there is a market in the location for the types of products a business hopes to sell. Businesses such as jewelry, high-valued household appliances, expensive furniture, television sets, DVD players, cameras, computers, cosmetics, and clothing cannot sell in areas frequented mainly by people with low incomes. Similarly, businesses selling cheap products would find little or no markets in areas frequented by wealthy people.

High Priced Products versus Low Priced Products

Some business owners believe that it is more profitable to sell high-priced products than to sell low-priced products. The possibility is that the market for high-priced items might be quite small, but the profit on each unit sold might be quite high. Similarly, the possibility that the market for lower-priced items might be much larger, but the profit margin on each unit will probably be low.

Business owners hoping to attract affluent customers will normally, locate their businesses in expensive buildings, plush areas, or neighborhoods. They might decorate their premises with expensive, luxurious furnishing and decor to meet customer’s expectations.

What Premises are available, and the Cost to Rent or Buy?

It is important to note that different types of businesses require different types of premises. A business located in premises in the busiest areas of the city is likely to be expensive to rent or to buy. Some businesses need shops or showrooms, others need offices or storehouses, warehouses, stockyards, and others need factory sites. Some businesses are best located on ground level, whilst others can be located on the upper storeys of buildings. Some businesses need large premises; others might need only small areas, like kiosks.

It might be well to admit that you will not be able to find the exact type and size of premises in the most suitable location, and at the right price. You might well have to reach a “compromise” between good features and less good ones.

Research

It is wise not to select a business location based on guesswork or instinct alone. Before making any decision, it is advisable to get as much information as possible about the area that you think might be suitable for your business, even if you are familiar with the area by carrying out some investigation and research. You must gain a good idea of the size of the market in the general area for the products you want to sell. For example, if you were planning to open a convenience store in a particular area.

It is advisable to chat with other shop owners, in the area you want to locate the convenience store or contact the local Chamber of Commerce office for accurate information. If the location in which a business is established is found from experience to be unsuitable, it might not be easy to move it to another location. Even if that is possible, it will involve expense, and probably loss of customers.

It is therefore important to research possible locations for your business in advance, before making a final selection. A location that seems ideal might have hidden problems, which will only be discovered by research. For example, competitors might be planning to move into the area. Or major road works (a bypass for example) might divert traffic (and customers) away from the area. On the other hand, you might learn about factors that can make a particular location more attractive than it seems. For instance, the local council is offering low rents to encourage new businesses in its area.

Key to Successful Business Acquisition

Acquiring a business is a complex process that involves several key areas. A solid understanding of the target company and its industry is essential for a successful business acquisition. This requires conducting thorough research to gain insights into the company's operations, financials, and potential risks and opportunities. A well-crafted business plan and strategy that align with the overall business strategy are critical to the success of the acquisition.

Effective communication and negotiation skills are paramount in building and maintaining a positive relationship between the acquiring and target companies. Finally, the post-acquisition phase is equally essential, which includes the effective integration and management of the operations, employees, and assets of both companies. By focusing on these critical areas, businesses can increase their chances of achieving a successful acquisition and realizing their strategic objectives.

Introduction: "Unlock the Key to Successful Business Acquisition with Our Definitive Course on Buying or Taking Over an Existing Business

Buying or taking over an established business refers to the process of acquiring an existing company. This can be achieved through a variety of means, such as purchasing the assets or shares of the business, entering into a merger or acquisition agreement, or assuming control through a management buyout.

There are several reasons why individuals or organizations may consider buying or taking over an existing business. For starters, it provides a quicker route to entering the market compared to starting a business from scratch. By acquiring an established business, you can benefit from its existing customer base, brand recognition, and operational infrastructure.

Additionally, taking over an existing business allows you to bypass many of the challenges and risks associated with starting a new venture. Rather than having to build a reputation and establish relationships from scratch, you can build upon the existing reputation and relationships of the acquired business.

When considering buying or taking over an existing business, it is important to conduct thorough due diligence. This includes assessing the financial health of the business, analyzing its market position, evaluating its assets and liabilities, and reviewing any legal or contractual obligations. This information will help you determine the value of the business and identify any potential risks or opportunities.

It is also crucial to have a well-developed business acquisition strategy in place. This includes determining your objectives for the acquisition, identifying the target market and industry, and establishing a budget and financing plan. Engaging professional advisors such as lawyers, accountants, and business brokers can provide valuable guidance throughout the acquisition process.

Buying or taking over an existing business can be a complex endeavor, but it offers the potential for significant rewards. With careful planning, due diligence, and strategic execution, acquiring an established business can be a beneficial step toward achieving your entrepreneurial goals. As the business being acquired is what is often known as a going concern, there are many different reasons why a business is being acquired; and these are some of the reasons:-

When a business is for sale, some of the reasons could be that an individual or a group of people is planning to establish the same type of business in the same location.

When a new started operation in the same location, it might have to compete with the existing business. To avoid competition, buying the existing business will be harmless to both the new and the established businesses.

Another reason is that the ownership of an established business is considering establishing another branch in other to extend the range of activities. For example, Jackie might find that she could expand her business activities by offering fashion design services for clothes, shoes, and ladies' handbags. Acquiring an existing fashion design service that has the necessary equipment and customers already would be helpful to her business, because she will not have to start a new business from scratch.

If you are ever considering buying or taking over an established business as a going concern or securing the use of desirable premises, the best way of achieving that is to buy the business presently operating from them. You can continue with the same type of business from the premises or start a different business from the same premises. The following factors should be included in your decision if you are thinking about buying or taking over an established business. The factors are: - capital, ownership, the market, competition, experience and skills, and so on.

Some Business Terms

There are some business terms that you need to understand before buying or taking over an established business. Some you might have come across before and some have different meanings in modern business.

Assets: Assets refer to the economic resources owned or controlled by a company that provides future benefits. These can include physical assets such as buildings, equipment, and inventory, as well as intangible assets like patents, trademarks, and goodwill. The value of assets is typically measured at their historical cost, less any depreciation or impairment.

Debtors: These refer to people or businesses that owe money to a business. For example, if you take out a car loan from your bank, you're the debtor and the bank is the creditor in this transaction. Money owed to a business is one of its assets.

Liabilities: These are the obligations or debts that a company owes to external parties (people and/or organizations). These can include loans, accounts payable, accrued expenses, and other financial obligations. Like assets, liabilities are recorded at their historical cost, which is the amount owed at the time of acquisition.

Creditors: These are individuals and/or businesses that have lent money to another individual or entity. They typically charge interest to the borrowers and /or debtors. For example, a bank lending money to a person and/or business is the creditor. If a person or a business has a bank overdraft, the bank is the creditor.

Credit: This term is different from creditor. Credit is the ability of a customer to obtain goods or services before payment is made or received at a later date.

If a person or a business buys goods ‘on credit’, without paying for them at once, it owes a debt of their value, which is a liability. The person or business, to whom the money is still owed for goods or services, is a creditor of the business.

If a person or a business sells goods ‘on credit’, without receiving payment for them at once, a debt of their value is owned to it, the debt is an asset. The person or business, who owes the money to the business for goods or services, is a debtor of that business.

Stock: In some countries, stock is called Inventory. Stocks or inventory are assets of the business. This term refers to all the items, goods, merchandise, and materials held by a business for resale in the market to earn a profit.

Accounts: This term refers to the record or statement of financial expenditure, transactions, and exchange of money that a business has with other parties (persons and/or organizations).

Why the Business is For Sale

The decision to put a business up for sale can stem from a variety of factors, and gaining a clear understanding of why a business is on the market is essential before considering an acquisition. There are several common reasons why a business may be for sale, each with its own set of implications and considerations.

One common reason is retirement. Many business owners choose to sell their businesses as they approach retirement age, looking to transition into a new phase of life and secure financial stability for the future. In these cases, the business is often well-established and has a solid track record, making it an attractive opportunity for potential buyers.

Another reason for selling a business is a strategic decision by the owner. Businesses may be sold as part of a larger corporate strategy to focus on core operations or divest non-core assets. This could be due to market changes, shifts in industry dynamics, or a desire to reallocate resources to other ventures. In these instances, the business may still be in good standing, but the owner has determined that it is no longer aligned with their long-term goals.

Financial struggles can also lead to a business being put up for sale. In some cases, businesses may face challenges, such as declining revenue, increasing costs, or a lack of profitability, that make it difficult to continue operations. Selling the business can be a way to recoup some of the investment and minimize financial losses.

Its Accounts

Normally, the business owner (s) will be able to produce financial records and other important documents showing the volume of business done, and if the business is profitable or not by including the final accounts covering one or more years. It is important to understand what the final accounts of any business entail, as the final account will not give information about the present financial position of the business, but the financial position of a past or historical position of the business. In some cases, final accounts might not be a ‘true’ lead to the position of the business at the time you are considering buying or taking over the business.

Additionally, personal factors can play a role in the decision to sell a business. Health issues, family circumstances, or other personal considerations may make it necessary for an owner to exit their business. While these situations can be more challenging for potential buyers to evaluate, they may present unique opportunities for those with the expertise and resources to overcome any obstacles.

Understanding why a business is for sale is crucial in determining whether it is a viable investment opportunity. By conducting thorough due diligence and working closely with financial and legal professionals, potential buyers can gain a comprehensive understanding of the business's financial health, growth potential, and any potential risks or challenges. This information is vital in making an informed decision and maximizing the chances of a successful acquisition.

Getting the Real Facts

If properly investigated, you will find out that a business that is for sale has not been doing well, and might be relatively cheaper to buy that business. The incoming owner(s) must make sure, that they are capable of transforming an unprofitable business into a successful business.

There could be hidden reasons why the person selling the business wants to sell the business, but does not want to share with the incoming owner(s). For example, a new megastore has recently opened in the same location competitors are moving into the area, or a nearby factory has closed causing customers to leave the area. If you are considering buying or taking over an established business, you must find out as much as possible about the location in which the business is located, and about any future events which might harm the business, even if you are familiar with the area.

The Asking Price of the Business

The asking price of a business refers to the amount of money that the owner is seeking in exchange for selling their business. It is the initial price set by the seller, and it serves as a starting point for negotiations between the seller and potential buyers.

Determining the asking price for a business can be a complex process that takes into account a variety of factors. These factors may include the financial performance of the business, its assets and liabilities, market conditions, industry trends, and the overall value of similar businesses in the market.

To arrive at a reasonable asking price, business owners may enlist the help of professional business valuators or appraisers who can conduct a thorough analysis of the business and provide an objective assessment of its worth. This assessment may involve reviewing financial statements, assessing the business's market position and potential, and considering any unique or valuable assets or intellectual property that the business possesses.

Business owners need to set a realistic asking price that accurately reflects the value of their business. Setting the price too high may deter potential buyers and prolong the selling process, while setting it too low may result in the owner not receiving fair compensation for their hard work and investment.

In summary, the asking price of a business is the initial amount set by the owner when selling their business. It is determined through a careful assessment of the business's financial performance, market conditions, and other relevant factors. Setting a reasonable asking price is crucial for attracting potential buyers and ensuring a fair transaction for both parties involved.

The Make-Up of the Value of a Business

The overall value of a business is made up of two main features:-

• The accepted total value of its “assets” – meaning what it owns, less the total value of its “liabilities” – meaning what it owes, to others.

• Ability of the business to generate profits for the owner(s), and to keep on earning profits.

Values of Assets and Liabilities

The value of assets and liabilities is an essential aspect of accounting and financial analysis. Assets refer to the resources owned by a company or individual that have economic value and can be converted into cash. Examples of assets include cash, accounts receivable, inventory, and property.

Determining the value of assets and liabilities is crucial for financial reporting and decision-making. It helps assess the financial health of an entity and provides insight into its ability to meet its obligations. This information is also necessary for calculating key financial ratios, such as the debt-to-equity ratio, which indicates a company's financial leverage.

To determine the value of assets and liabilities, various methods can be used. Assets can be valued at historical cost, fair value, or net realizable value, depending on the accounting standards being followed. Liabilities are typically recorded at their face value or the amount required to settle the obligation. The exact value of stocks of goods or materials should be worked out on the date of sale, not before, after a careful stock count. A valuation based on the cost prices of different stock items can then be made. Any items which are out of date have little or no value, and so should not be included in the count.

Ultimately, the value of assets and liabilities serves as a foundation for understanding the financial position of a business or individual. It provides a snapshot of their financial resources and obligations, helping stakeholders make informed decisions based on accurate and reliable financial information.

Assets and liabilities are key components of a company's financial statements and play a crucial role in determining a company's value.

Assets refer to the economic resources owned or controlled by a company that provides future benefits. These can include physical assets such as buildings, equipment, and inventory, as well as intangible assets like patents, trademarks, and goodwill. The value of assets is typically measured at their historical cost, less any depreciation or impairment.

Liabilities, on the other hand, are the obligations or debts that a company owes to external parties. These can include loans, accounts payable, accrued expenses, and other financial obligations. Like assets, liabilities are recorded at their historical cost, which is the amount owed at the time of acquisition.

Special Attributes

When considering the purchase of a business, it is essential to understand the special attributes that can greatly impact its value and potential for success. These special attributes refer to distinctive characteristics or features that set the business apart from others in the market. Identifying and analyzing these attributes is crucial for potential buyers to make informed decisions and assess the true value of the business.

One key special attribute to consider is the business's reputation and brand recognition. A well-established and respected brand can provide a significant competitive advantage, as it attracts a loyal customer base and enhances the business's overall market position. It is important to evaluate the strength of the brand and assess how it aligns with the target market and industry trends. These are some examples of special features a business might have that can help it do better than similar businesses:-

• A business might own “patents” (the right to use) for a particular invention.

• A business might own the “copyright” (the right to reproduce) particular publications, musical works, films or videos, etc.

• A business might have a franchise for the area.

• A business might have agreements or contracts with government agencies or big clients.

• A business might be the sole agent or sole distributor for particular products. These terms mean that the business is the only authorized seller or provider.

• A business might be situated in a particularly good position; for example, a take-away restaurant near a college.

Another special attribute to look for is the uniqueness of the products or services offered by the business. Differentiation is key in today's competitive market, and businesses that offer innovative or niche products often have a higher value proposition. Understanding the intellectual property, patents, or proprietary technology associated with the business can provide insights into its potential for growth and future profitability.

Additionally, the business's customer base and strong relationships with key clients or suppliers can be significant special attributes. A diversified and loyal customer base reduces the risk of revenue concentration and provides stability. Evaluating the quality of customer relationships, their purchasing patterns, and the potential for cross-selling or up-selling opportunities is crucial.

Financial performance is another important special attribute to consider. Analyzing historical financial statements, profitability ratios, and cash flow patterns provides insights into the business's financial health and potential for future growth. Buyers should also assess any relevant industry trends and market dynamics that may impact the business's financial performance.

Finally, the qualifications and skills of the existing management team can be a critical special attribute. A competent and experienced management team can drive the business's success and ensure a smooth transition for new owners. Buyers should evaluate the depth of management talent and assess the potential for employee retention and development.

In conclusion, understanding and evaluating special attributes are essential when assessing the value and potential of a business for sale. These attributes, including reputation, product uniqueness, customer base, financial performance, and management talent, can greatly impact the business's success and profitability. Conducting comprehensive due diligence and seeking professional advice can help buyers make informed decisions and maximize their chances of acquiring a thriving business.

Goodwill

Goodwill in business refers to the intangible value of a business that is based on its reputation, customer relations, brand recognition, and other non-physical assets. It is an important concept in accounting and is considered an intangible asset on a company's balance sheet. Goodwill can be built over time through the consistent delivery of high-quality products or services, strong customer relationships, effective marketing and branding strategies, and a positive reputation in the industry.

It represents the added value that a company has beyond its tangible assets, such as buildings, equipment, and inventory.

Goodwill plays a crucial role in determining the overall value of a business, as it can contribute significantly to its marketability and future profitability. When a business is sold, goodwill is typically factored into the purchase price. It can also be impaired if there are changes in market conditions, customer perception, or other factors that affect the company's reputation and future earnings potential.

From a financial standpoint, the value of goodwill is not easily quantifiable, as it is subjective and dependent on various factors. However, companies are required to periodically assess the value of their goodwill and test it for impairment if necessary. The impairment test involves comparing the carrying value of goodwill to its fair value, and if the carrying value exceeds the fair value, an impairment loss must be recognized.

In summary, goodwill represents the intangible value of a business that is based on its reputation, customer relations, brand recognition, and other non-physical assets. It contributes to the overall value of a company and is an important consideration in financial reporting and business valuations.

How the price is to be paid

This will depend on what price you would be ready to pay to purchase a business. The seller might accept payment in full or in installments over several months or years. In this case, a legal agreement would have to be drafted, signed, and dated by all the parties involved.

Assistance Offered

The outgoing owner(s) of a business might offer assistance to you, as the new owner of the business if you lack experience of running the business. The vendor has been assured of monthly income for an agreed period he or she is willing to assist.

Avoiding Competition

This is a very serious matter that should not be overlooked. There is a possibility that after purchasing or taking over an established business from the previous owner(s), he or she (they) might start another similar business that you bought from him or her (they) in the same area. In this case, a legal agreement should entered by both parties stating that the former owner will not start a competitive business in the same area for a stipulated number of years after the sale of the business.

The Sale Agreement

A sales agreement is an essential document used in business transactions to outline the terms and conditions of a sale. It is a legally binding agreement between a buyer and a seller that sets forth the rights and obligations of each party involved in the transaction. This agreement serves to protect the interests of both parties and ensures that the transaction is carried out smoothly and by the agreed-upon terms.

The sales agreement typically includes important details such as the names and addresses of the buyer and seller, a detailed description of the product or service being sold, the purchase price, payment terms, delivery terms, warranties, and any other relevant terms and conditions. It may also include provisions for dispute resolution, indemnification, and limitations of liability.

By having a well-drafted sales agreement in place, businesses can minimize the potential for misunderstandings, disputes, and legal issues that may arise during a sale. It provides a clear framework for the sales transaction and ensures that both parties are aware of their rights and obligations.

Businesses must consult legal professionals or experienced attorneys when drafting a sales agreement to ensure that all necessary provisions are included and that they comply with applicable laws and regulations. This will help protect the interests of the business and provide a solid foundation for successful business transactions.

If the business you are buying is a limited liability company (LLC), you will be buying shares in it. The number of shares you are buying must be transferred into your name from the names of the present owner(s) of the shares.

Buying Into a Partnership

The opportunity to buy into a partnership is sometimes offered to someone hard working and already working as an employee for the partnership firm, or offered to outsiders to join a partnership. Buying into an existing partnership business can be done in two ways: - Buying out an existing partner and Buying into an expanded partnership.

Buying out an Existing Partner

When an existing partner in a partnership business wishes to sell the part of the partnership firm he or she owns and leaves, the remaining partners may have to agree to your purchase of part of the business. In this case, there should be a legal sales agreement between you and the partner whom you are buying out of the partnership firm.

Buying into an Expanded Partnership

This refers to existing partners considering adding new partner (s) one or more than one to the partnership. There are reasons partnership firms add new partners, and that might be because, the firm is expanding or performing well and the need to spread duties and responsibilities or the business needs specialist skills or knowledge, or the business needs more capital to expand, and so on. Before joining a partnership firm, you need to know why you might be accepted and the benefits after paying. In this instance, you should enter a new partnership agreement with the remaining partner(s).

The Business Premises

The property (land/or building) from which the business operates might attract the attention of an attorney (a lawyer). The services of an attorney (a lawyer) must not be ignored when purchasing a business premises to avoid costly and damaging mistakes to businesses operating from the premises.

Included in the Purchase Price

In some cases, the property where a business operates might be personal property (land and/or building) of the seller (s), and the purchase price of the business might not include the property (land and/or building). But if the purchase price of the business includes the property (land and/or building), an attorney (a lawyer) will help arrange the transfer of ownership of the property (land and/or building) to the new buyer(s).

In a situation, where the business being bought is a limited liability company, the ownership of the company will transfer the shares to the new buyer(s). However, the ownership of the property (land and/or building) will still be owned by the company and will not be transferred to the new buyer(s).

Rented or Leased Premises

A business pays rent to the owner(s) of the rental property for the right to use the premises. The owner(s) of the property is called the landlord. The person(s) or business renting the premises is called the tenant. Sometimes the property is managed by an agent of the landlord.

The Lease

A written lease agreement is recommended if you intend to rent the premises of a new or an existing business. The lease agreement will set out conditions under which the premises will be rented or leased. The lease agreement must be signed by the landlord or agent of the landlord and the tenant(s). It is advisable not to sign a lease agreement offered by a landlord or agent until you have carefully read it and agreed to the terms of it, or you have had it looked at by an attorney (a lawyer).

It is not advisable to operate a business from rented premises without a proper, legal lease. Premises offered for rent every month can be legally terminated by a landlord. The landlord can give a tenant one month's notice or less to vacate, the premises. If this happened, and you could not quickly find suitable alternative premises, your business could be harmed.

Matters to Look at in Leases

When entering into a lease agreement, there are several important factors to consider and thoroughly examine before making any commitments. These matters are critical to ensure that both parties are protected and well-informed throughout the lease. You should pay special attention to the following points in a lease agreement.

The first aspect to address is the lease term. It is essential to clearly define the length of the lease, including any renewal options, termination clauses, and provisions for lease extensions. Additionally, both parties should agree on the start and end dates of the lease and any associated timelines for notice periods or rent adjustments.

Next, parties must carefully review the rental payment terms. This includes determining the frequency of rental payments, the amount due, and any specific methods of payment that are accepted. It is also crucial to understand if there are any penalties or late fees for missed or delayed payments and to clarify how payment discrepancies will be resolved.

Another critical consideration is the condition of the leased property. Before signing the lease, a comprehensive inspection should be conducted to document the current state of the property. This will help avoid any disputes regarding pre-existing damages or issues. Additionally, both parties should clearly outline their responsibilities for repairs, maintenance, and any potential remodeling or renovations that may be required throughout the lease term.

Furthermore, it is crucial to thoroughly understand the rights and obligations of each party. This includes determining who is responsible for utilities, property taxes, insurance, and other associated costs. It is also important to address any restrictions or limitations on the use of the leased property, such as zoning regulations or noise restrictions, and to outline the consequences of non-compliance.

Finally, the lease should include provisions for dispute resolution and an exit strategy. Parties should agree on the procedures for resolving any conflicts that may arise during the lease term, such as mediation or arbitration. It is also essential to outline the process for terminating the lease, including notice requirements and any penalties or fees associated with early termination.

Overall, the matters to look at in leases encompass a wide range of factors that require careful consideration and negotiation. Both parties should seek professional legal advice to ensure that their rights and interests are adequately protected throughout the lease agreement.

When it comes to looking for leases, it's important to carefully consider the area in which the lease is located. The location of your business can have a significant impact on its success, so it's crucial to thoroughly research and analyze the area before committing to a lease agreement.

Area

When it comes to looking for leases, it's important to carefully consider the area in which the lease is located. The location of your business can have a significant impact on its success, so it's crucial to thoroughly research and analyze the area before committing to a lease agreement.

One of the first things you'll want to assess is the demographics of the area. You'll want to know the average age, income levels, and population density of the surrounding community. This information will give you a good understanding of your potential customer base and whether or not your target market aligns with the demographics of the area.

Another important factor to consider is the competition in the area. Are there already several businesses similar to yours in the vicinity? If so, how well are they doing? Can your business differentiate itself and attract customers despite the competition? Understanding the competitive landscape will help you determine if the area is a suitable location for your business.

Additionally, you'll want to evaluate the accessibility and visibility of the location. Is it easily accessible by major roads or public transportation? Is there ample parking for both employees and customers? Is the location visible to passing traffic? These factors can greatly impact the foot traffic and visibility your business receives, ultimately affecting its success.

Other important aspects to consider include the safety of the area, proximity to suppliers and vendors, zoning regulations and restrictions, and any potential future developments or changes that may impact the area.

By thoroughly examining these factors, you can make an informed decision about whether a specific lease in a certain area is the right move for your business. It's always a good idea to consult with a real estate professional who specializes in commercial leases to ensure you're making the best decision for your business's future success.

Property Space

When entering into a lease agreement, it is important to have a clear understanding of the amount of space you are renting. This can be determined by calculating the property space in either square meters or yards.

To check the property space in square meters, you will need to measure the length and width of each room or area in the property. Multiply these two measurements together to get the square meterage of each space. Then, simply add up the square meterage of all the spaces to determine the total property space.

If you prefer to work with yards instead of square meters, the process is similar. Measure the length and width of each room or area in the property, and multiply these two measurements together to obtain the square yards of each space. Once you have the square yardage of each area, add them together to determine the total property space.

Checking the property space in either square meters or yards is crucial for ensuring that you are getting the amount of space you expect in your lease agreement. It also allows you to accurately compare different properties and make informed decisions about which one best suits your needs.

Rent or Rental

Parties must carefully review the rental payment terms. This includes determining the frequency of rental payments, the amount due, and any specific methods of payment that are accepted. It is also crucial to understand if there are any penalties or late fees for missed or delayed payments and to clarify how payment discrepancies will be resolved. Check how much is the rental and how it has to be paid. In some cases, rental has to be paid in advance, and on a weekly, monthly, and quarterly basis or at lengthy intervals.

Dates

When entering into a lease agreement, it is crucial to carefully review and check the start dates and end dates specified in the agreement. This is an important step to ensure that both parties are clear on the duration of the lease and avoid any potential disputes or misunderstandings in the future.

Start dates and end dates in a lease agreement typically refer to the specific dates on which the tenant is granted access to the leased property and when the lease agreement will terminate. These dates are crucial as they establish the duration of the lease and outline the rights and obligations of both the landlord and the tenant.

When reviewing the start and end dates, it is important to ensure that they accurately reflect the agreed-upon period of occupancy. This can be done by cross-referencing the dates with any other relevant documents, such as emails or correspondence between the parties. It is also advisable to consult with legal counsel or a real estate professional to ensure that the dates align with local laws and regulations.

In addition, it is important to pay attention to any provisions in the lease agreement that may affect the start or end dates. For example, if there are any conditions or requirements that need to be fulfilled before the tenant can take possession of the property, such as repairs or renovations, these should be clearly stated in the agreement and accounted for in the start date.

Similarly, if any provisions allow for an extension or renewal of the lease agreement, the terms and conditions should be clearly outlined to avoid any confusion or disputes when it comes to the end date.

By carefully reviewing and verifying the start and end dates in a lease agreement, both landlords and tenants can ensure clarity and avoid any potential complications or disagreements. It is always recommended to seek professional advice and thoroughly understand the terms of the lease agreement before signing to protect the rights and interests of all parties involved.

Renewal

One important aspect of being a landlord or property manager is ensuring that you are well-informed about the rights and responsibilities of both tenants and landlords. When it comes to lease agreements, it is essential to understand whether a tenant has the right to renew their lease for an additional period on its expiry, and, if so, for what period and on what conditions.

In many jurisdictions, tenants are granted the right to renew their lease agreement. This means that as a landlord, you cannot terminate the tenancy at the end of the lease term if the tenant wishes to renew and complies with the necessary conditions.

To determine whether a tenant has the right to renew their lease agreement, you should start by reviewing the initial lease agreement. This document should outline the specific terms and conditions regarding lease renewal, including any requirements or limitations.

Next, check your local laws and regulations. Landlord-tenant laws vary from one jurisdiction to another and may offer additional protections or requirements for lease renewals. Familiarize yourself with these laws to ensure compliance and to understand the specific rights granted to tenants.

If you discover that a tenant does have the right to renew their lease, it is crucial to communicate with the tenant promptly. Ideally, you should provide the tenant with a notice of the upcoming lease expiration at least 30 to 60 days in advance. This allows both parties to discuss their intentions and negotiate any changes or modifications to the lease agreement.

Remember, proper documentation is essential throughout the lease renewal process. Be sure to document all communications and agreements with the tenant, including any changes to the lease terms. This helps protect both parties and provides a clear record of the renewal process.

In summary, when it comes to determining whether a tenant has the right to renew their lease agreement, it is crucial to review the initial lease agreement, consult local laws and regulations, and communicate effectively with the tenant. By staying informed and following the necessary steps, you can ensure a smooth and compliant lease renewal process.

Change of Tenant

As per the lease agreement signed between the landlord and the tenant, any change in the tenancy requires the explicit consent of the landlord.

This includes a change of tenant, whereby the current tenant wishes to transfer their rights and responsibilities to a new person or entity.

To initiate the process of changing a tenant, the current tenant must first submit a formal request to the landlord. This request should include the contact information and identification details of the proposed new tenant, as well as any relevant documents such as credit reports or references.

Upon receipt of the request, the landlord will review the proposed new tenant and assess their suitability based on their ability to meet the financial obligations outlined in the lease agreement, as well as their rental and credit history.

If the landlord approves the change of tenant, both the current tenant and the proposed new tenant will be required to sign ‘consent’ to the change of tenant form. This form outlines the terms of the change and confirms that both parties agree to the transfer of rights and responsibilities.

It is important to note that the change of tenant does not release the current tenant from their obligations under the lease agreement. The new tenant will assume all of the rights and responsibilities outlined in the original lease, including the payment of rent and maintenance of the property.

A fee may be applicable for processing the change of tenant, and both parties should consult the lease agreement or seek legal advice for further information.

It is crucial for all parties involved to ensure that the change of tenant is done by the lease agreement and any applicable laws and regulations. Failure to obtain the landlord's consent or properly execute the change of tenant may result in legal consequences or a breach of the lease agreement.

We recommend seeking professional legal advice when initiating a change of tenant in a lease agreement to ensure compliance with all requirements and protect the interests of both the landlord and the tenants involved.

Rent Reviews or Revisions

Rent reviews or revisions in a lease agreement are important considerations for both landlords and tenants. These mechanisms allow for adjustments to the rental amount over the lease term, ensuring that the rent remains fair and reflective of market conditions.

Rent reviews can take different forms depending on the agreed terms between parties. The most common types include fixed rent reviews, market rent reviews, and indexed rent reviews.

Fixed rent reviews involve predetermined increases in the rental amount at set intervals. This approach provides stability and predictability for both the landlord and tenant. However, it is essential to ensure that the fixed rent increase aligns with the current market conditions to avoid potential disputes.

Market rent reviews, on the other hand, determine the rental amount based on the prevailing market rates at the time of the review. This approach ensures that the rent remains competitive and reflects the value of the property within the current rental market. Professional property valuations and market research can be essential in determining the fair market rent.

Indexed rent reviews provide a mechanism for rent adjustments based on an agreed-upon index, such as the Consumer Price Index (CPI). This approach takes into account inflation and provides a fair and objective way to adjust the rent over time. It is important to specify the index used and the frequency of review in the lease agreement.

Whether you are a landlord or a tenant, it is crucial to carefully review and negotiate the rent review provisions in the lease agreement. Consideration should be given to factors such as the frequency of reviews, the method of review, and any applicable caps or limitations. Seeking legal advice from a qualified professional can help ensure that the rent review provisions align with your objectives and comply with legal requirements.

Other Payments Over and Above the Rent

When entering into a lease agreement, it is important to understand that there may be additional payments required beyond just the rent. These additional payments often referred to as "other payments," can vary depending on the terms of the lease agreement and the specific property.

One common type of additional payment is the security deposit. This is a refundable amount of money that the tenant provides to the landlord at the beginning of the lease term. The purpose of the security deposit is to protect the landlord in case the tenant causes damage to the property or fails to fulfill their obligations under the lease agreement. The amount of the security deposit is typically determined based on the monthly rent amount, and it is held by the landlord until the end of the lease term.

In some cases, the lease agreement may include provisions for additional payments such as utility fees or common area maintenance fees. These fees are typically used to cover the cost of maintaining and operating shared spaces or utilities within a multi-unit property, such as a shopping center or office building. The amount and method of payment for these fees will be outlined in the lease agreement.

It is important to carefully review the lease agreement and understand all of the additional payments that may be required before signing the document. If you have any questions or concerns about the specific terms of the lease agreement, it is recommended to consult with a legal professional or a leasing agent who can provide guidance and clarification.

Always make sure that

1. Your lease is legal for any property rented by you or your business.

and, that

2. The period and conditions of the lease agreement are fair and reasonable.

Share Holdings and Share Transfers

The shares held by an individual or legal entity that is registered by a company as the legal owner of shares. The number of shares held might increase or decrease from time to time. For example, if Tim held 5,000 shares in a company, and later bought some of the unissued shares, or bought some or all of the shares held by another investor in the same company: Tim's shareholding would increase.

If at a later date Tim decided to sell some of his shares in the company, to one of the investors in the company, or to another party if any of the existing investors in the company did not want to buy some or all of the shares; Tim's shareholding would decrease. It is important to note that not only people may hold shares in a company; other entities might hold shares.

Practical Examples: E

Joseph converted his motor vehicle repair business into a limited liability company (LLC): “Martyrs’ Garage Ltd” and wants to buy a motor spare parts business which is also a limited liability company called “Mid Town Spares Ltd”.

Joseph could buy shares from the current shareholders of “Mid Town Spares Ltd”. Or Joseph could buy some shares in his name, and “Martyrs’ Garage Ltd” could buy some in its name as the company has the legal right to do.

A company called “Smith and Sons Ltd” might approach a bank or another financial institution to buy its unissued share capital. The bank or financial institution might agree to buy some or all of the unissued shares, and become a shareholder in “Smith and Sons Ltd”.

It is important to note that shares are not always sold for cash by an individual or entity to be transferred to another individual or entity. In some cases, an individual might inherit shares, for example from a deceased relative.

When share(s) are transferred to an individual or organization; a new share certificate or more than one must be issued in the name of the replacement shareholder(s). Old share certificate(s) returned to the company secretary for cancellation. According to governing law, written records of all share issues, changes in ownership, etc., must be maintained.

The Board of Directors

The board of directors is a governing body that oversees the activities of a company or organization. It is comprised of a group of individuals who are elected or appointed to represent the shareholders or stakeholders of the organization. The primary role of the board of directors is to make important decisions and provide guidance on strategic direction, and financial matters, to turn the business ‘on behalf of’ the shareholders in such a way that satisfactory profits are made by it, and overall management of the organization.

The specific responsibilities and duties of the board of directors can vary depending on the type of organization and its legal structure. However, some common functions of the board include setting corporate goals and objectives, hiring and evaluating senior executives, approving budgets and financial plans, and ensuring compliance with laws and regulations. The board is like the “watchdog” of the shareholders' interests and investments. As the “watchdog” of the shareholders, it must protect the capital invested by the shareholders in the company.

Board members are typically individuals with diverse backgrounds and areas of expertise who bring valuable perspectives and experiences to the table. They may be former executives, industry experts, or individuals with specialized knowledge in areas such as finance, marketing, or legal affairs.

The board of directors operates in a fiduciary capacity, meaning they have a legal obligation to act in the best interests of the organization and its stakeholders. They are expected to exercise sound judgment, exercise due diligence, and act ethically and transparently.

Overall, the board of directors plays a crucial role in ensuring the long-term success and sustainability of the organization. By providing oversight, strategic guidance, and accountability, they help steer the organization toward its goals and objectives while safeguarding the interests of the shareholders or stakeholders.

Executive and Non-Executive Directors

Executive and non-executive directors are both important roles within a company's board of directors. They each have distinct responsibilities and play different roles in the decision-making and governance of the organization.

An executive director is typically a member of the company's management team and is involved in the day-to-day operations and strategic direction of the business. They are usually responsible for managing the company's operations, implementing the board's decisions, and ensuring the organization is meeting its financial and operational goals. Executive directors are often appointed based on their expertise and experience in a specific industry or function.

On the other hand, a non-executive director is an independent member of the board who is not involved in the daily management of the company. They bring an outside perspective and are responsible for providing objective and impartial advice to the executive team. Non-executive directors are often appointed for their industry knowledge, strategic thinking, and ability to provide oversight and accountability to the company's management team. They are also responsible for ensuring the company is adhering to legal and regulatory requirements, maintaining good corporate governance practices, and safeguarding the interests of shareholders.

The roles of executive and non-executive directors can vary depending on the size and nature of the company. In some cases, a director may serve in both capacities, while in others; there may be a clear separation between executive and non-executive roles. Regardless of the specific roles and responsibilities, both executive and non-executive directors have a fiduciary duty to act in the best interests of the company and its stakeholders.

In conclusion, executive directors are involved in the day-to-day management and operations of the company, while non-executive directors provide independent oversight and guidance. The combination of these roles helps to ensure effective governance, strategic decision-making, and the long-term success of the organization.

Company ‘Officials’

Company Officer means any person who is approved by the Board of Directors of the Company to manage the business and operations of the Company. The Company Officer is often called the ‘managing director’ (MD) or “chief executive” (CEO). The Company Officers meet from time to time to discuss matters concerning the company, how the Company is doing, the profit it is making, and other matters relating to its operations. These ‘board meetings’ are headed by the ‘chairman’. In a small Company, the meeting is headed by the managing director who might also be the chairman. Any decisions made and agreed upon must be recorded in the ‘minutes’ of the board meetings and maintained.

Directors’ Fees

This applies to payment for time spent by directors on attending board meetings. The payment may be called a ‘directors fee’, and is only payable to directors not involved in running the business. The director responsible for running the business will receive a salary or wage approved by the board and might be paid a small director fee in addition to salary or wage. In some cases, all earnings of directors are called directors fees.

Dividends

Dividends are a form of payment that a company may distribute to its shareholders. These payments are typically made in cash, although they can also be in the form of additional shares of stock. Dividends are a way for a company to distribute its profits to its shareholders, who are the owners of the company.

Dividends are usually paid out regularly, such as quarterly or annually, and the amount of the dividend is typically based on the company's profits. The board of directors of a company will determine the dividend amount and the frequency of the payments. They may also choose to adjust the dividend amount based on various factors, such as the company's financial performance or plans.

Dividends are an important consideration for investors, as they provide a source of income in addition to any capital gains that may be realized from the increase in the value of the stock. Companies that pay regular dividends are often considered to be stable and well-established, which can make them attractive to investors looking for a steady income stream.

It is important to note that not all companies pay dividends. Some companies, particularly newer or growing companies, may choose to reinvest their profits back into the business rather than distribute them to shareholders. This is often the case with technology companies or startups, where there may be a greater need for capital to fund research and development or expansion efforts.

In conclusion, dividends are a form of payment that a company may distribute to its shareholders as a way to share its profits. They can provide investors with a steady income stream and are an important consideration when evaluating potential investments.

Statutory Obligations

Statutory obligations refer to legal requirements that individuals, organizations, or businesses must comply with. These obligations are outlined in statutes and legislation enacted by the government. They are binding and enforceable by law.

Statutory obligations can vary depending on the jurisdiction and industry. For example, businesses may have statutory obligations related to labor laws, taxes, health and safety regulations, environmental standards, and consumer protection. Individuals may have statutory obligations related to paying taxes, obeying traffic laws, and fulfilling jury duty, among others.

Compliance with statutory obligations is crucial to avoiding legal penalties and maintaining a good reputation. Failure to meet these obligations can result in fines, lawsuits, or even criminal prosecution. Individuals and businesses need to stay informed about their statutory obligations and take the necessary steps to fulfill them.

To ensure compliance, organizations often have dedicated departments or personnel responsible for monitoring changes in legislation and ensuring that the company's operations align with the statutory requirements. This may involve implementing policies, conducting regular audits, and maintaining accurate records. For example, the board of directors must make sure the company applies for and obtains any trade licenses needed in the country for its business activities.

The board must ensure the company pays any taxes or contributions for which it is liable, and an ‘Annual Return’ (or “report” in some countries) must be submitted to the “Registrar of Companies” once each year. The ‘Annual Return’ must indicate the number of shares the company has issued and their value, the names and addresses of its shareholders and directors. The ‘Annual Return’ must also state whether there have been changes since the previous annual return or “report”.

Additionally, it is advisable to seek legal counsel or consult with experts in specific fields to ensure a thorough understanding of statutory obligations. Lawyers, accountants, and industry-specific professionals can provide valuable guidance and assistance in navigating the complex landscape of statutory obligations.

In summary, statutory obligations are legal requirements that individuals and businesses must comply with to avoid legal consequences. Understanding and fulfilling these obligations is vital for maintaining legal compliance and upholding ethical standards.

Interior Design for Commercial Spaces

The Commercial Spaces Interior Design course is a comprehensive program that equips students with the principles and best practices of commercial interior design. Throughout the course, students will learn to analyze client needs and preferences, identify design challenges, and create innovative, functional, and aesthetically pleasing design solutions.

In addition to honing their creative and analytical skills, students will gain practical knowledge of the various materials, finishes, and equipment used in commercial interior design. They will discover how to select appropriate materials and finishes based on their durability, sustainability, and aesthetic qualities, and how to integrate lighting, furniture, and other design elements to create cohesive and dynamic spaces.

The curriculum also covers essential topics such as building codes, regulations, and safety standards, along with project management, budgeting, and communication skills. Through practical assignments and real-world scenarios, students will gain hands-on experience working with clients, contractors, and other professionals in the field, and will be well-prepared to put their knowledge and skills into practice in a wide range of commercial settings.

Factors that dictate needs of the businesses

The type of business being conducted, the size of the premises, the number of employees, the type of customers, and the budget allocated for the furnishing and equipping of the business premises are some of the factors that dictate the needs of the business. It is important for the business owner to carefully consider these factors to create a comfortable and functional work environment that can help improve productivity and customer satisfaction.

The furnishing – the furniture, fittings, and fixtures – and the equipment needed will depend on various factors, such as the purpose of the space, the budget allocated, and the design preferences of the owner.

The type of business, its size, and its activities will determine the necessary furnishing, including furniture, fittings, and fixtures, as well as equipment. For instance, a retail store would require a different setup of furnishings and equipment compared to a workshop or a business that provides services and needs office space.

When furnishing and equipping business premises, several factors need to be considered. One of the most important factors is the shape and size of the premises and how different sections will be used. For instance, in a retail business, the area designated for customers (the "selling area") needs to be attractively decorated, with suitable floor covering, to make it more appealing to customers. On the other hand, when it comes to the stockroom, it is necessary to have easily cleanable painted walls and a durable and easy-to-clean floor covering.

The number of visitors to a business premises can vary greatly depending on the nature of the business. Some businesses may receive a large number of visitors daily, while others may have very few. It's important to take into consideration what customers or clients are comfortable with in terms of the number of visitors and their expectations. Customers of some businesses indeed have higher expectations when it comes to the quality of furnishings compared to customers of other businesses. It largely depends on the type of business and the target audience it caters to.

As a business owner, it's important to consider what you can afford before making any purchases. You don't always have to buy brand-new furniture or equipment, especially if it's for areas of the premises that won't be seen by customers. There are often great deals to be found at auction sales or through for-sale advertisements in newspapers for pre-owned furniture and equipment that can still be put to good use.

When starting a new business in rented premises, it's common for the space to be empty or nearly empty. Even if the previous tenant was running a business, the walls and ceilings might already be painted and some floor covering or carpeting might have been laid. However, none of these may be suitable for your new business due to age, dirt, or fading. Assuming you need to start from scratch, let's take a look at what needs to be done to get the premises ready for business.

Layout of the business premises

The layout of a business premises plays a crucial role in creating a conducive environment for employees to work efficiently. It involves the arrangement of physical spaces, such as offices, workstations, meeting rooms, and common areas, to optimize workflow and productivity. A well-planned layout can also enhance the overall look and feel of the workplace, making it more appealing to clients and visitors.

It's important for any business, whether it's a shop, office, workshop, factory, or eating place, to have an efficient layout of its premises. This requires careful planning and a rough sketch, drawn to scale, can be very helpful. The total area and sections of the premises can be allocated to various activities, such as selling, office, stockroom, and so on.

Sometimes, alterations are needed so that the premises can be used for its intended purpose(s). Partition walls may need to be erected to separate different sections from one another. For example, a stockroom for materials and components should be separated from a finished goods stockroom and both should be separated from the production area, offices, and so on. This ensures maximum efficiency and productivity.

The Multi-Room Layout

The Multi-Room Layout is a common form of office layout that comprises two or more rooms, which may be situated on different floors or buildings. Such a layout is common in enterprises that have grown over some time, and the demands on the office have necessitated the allocation of more space wherever it has been available. On the other hand, it may also be brought about by the decentralization of functions, such as clerical work.

One of the disadvantages of this type of layout is that employees waste a considerable amount of time moving around the building(s) collecting and delivering information, records, and other documents, even with the use of an internal communication system. However, one advantage of this layout is that it provides a certain amount of privacy while reducing the number of distractions.

The Open-Plan Layout

The open-plan layout refers to a large room where many employees work together, usually performing similar tasks. The room may be divided into sections by partitions, which could be made of glass and no higher than a meter. This style of layout offers the advantage of easy access to information, records, and documents, without having to move far. It also requires fewer machines and equipment of each type compared to the multi-room layout.

Movable partitions add flexibility to the open-plan layout and make rearrangement possible if the need arises. For instance, the workload of some sections may decrease while others increase at certain times of the year.

Supervision of employees working in an open-plan room is often easier, and it may require fewer supervisors. It is also easier to rearrange workloads in case of absences due to holidays or illnesses, or during busy times. A manager or supervisor may have a private office at one end of the main room, with glass panels in the walls to observe the main room and exercise control, while still providing some privacy.

Once the activities in each section have been determined, furniture and equipment can be arranged accordingly. The ideal layout for a business may not be possible due to the shape or size of the premises. However, the final layout should prioritize convenience, comfort, and safety for both customers and employees.

Regulations

Shops, offices, factories, and other business premises need to comply with safety regulations to ensure the well-being of their employees and visitors. The regulations cover various aspects such as sanitation facilities, safety measures, and a healthy environment. Before any modifications are made to the premises, it is essential to ensure that they comply with the regulations. Any necessary alterations should be made to meet the standards and provide a safe and healthy environment for everyone.

Electrical Fittings

Many business premises, particularly in older buildings, lack sufficient electrical plug sockets for the numerous machines used in modern businesses. Additionally, there may not be enough electrical light fixtures on walls or ceilings. The issue of electrical wiring should be addressed before any redecoration is carried out, before the new floor covering is installed, and before furniture and machines are moved into the premises. The assistance of an electrician will be required. Some machines, particularly those in a workshop or factory, may require heavy-duty cabling and sockets.

Good lighting is essential in most business premises. Customers must be able to see clearly to work efficiently. In stockrooms, good lighting is required to enable the rapid location of goods and materials when needed. People working in workshops and factories require good lighting to avoid mistakes and accidents.

You may indicate on your plan where additional plug sockets and light fixtures will be required. This will be determined by the location of the machines, customers, and workers. Your plan will also serve as a guide for the electrician.

Telephones

In today's business world, a telephone or fax machine is a must-have. Usually, a telephone line will already be installed in your business premises, but it might have been disconnected. If that's the case, you will need to contact your local telephone provider to have the line transferred to your name or your business name and reconnected. Alternatively, you can request a new line installation.

Many businesses require several extensions and multiple incoming telephone lines. It's best to contact your local telephone provider to check if they can provide the required number of lines. Sometimes, an automatic switchboard, known as a PABX, is also needed. It's essential to mark on your plan where additional telephone sockets are needed, depending on where people needing to use a telephone will work.

Installation procedures may vary from country to country. In some countries, only employees of the telephone provider can do the installation, while in others, an electrician can fit the telephone cabling and sockets, possibly doing the electric wiring at the same time. It's always best to have the telephone installation done before any redecoration, before laying any new floor covering, and before furniture and machines are in place.

Computers

We will discuss computers in more detail later, but for now, let's focus on where they should be placed in the building. If there is only one computer, it should be located near an electrical socket. However, if multiple units will be connected to a network, additional computer sockets and electrical sockets will be necessary. Your plan should include the locations of the computers, which will serve as a guide for the electrician and anyone else responsible for installing the cabling.

Walls and Ceilings

It is important to always keep these areas clean. They may require painting before moving in and at regular intervals after. Typically, white, off-white, or cream paint colors are used as they provide a bright and cheerful feel. However, other colors may be used to match the business type. For instance, yellow, orange, red, and brown can create a warm and exciting atmosphere in stores selling clothes for teenagers. On the other hand, green and blue tend to create a cool feeling, which can be ideal for an ice cream parlor, café, or restaurant.

Floor Coverings

When selecting floor coverings, it is important to consider the climate of the country. In cooler areas, carpeting may be necessary to provide warmth. In warmer countries, cooler materials may be needed. The floor coverings chosen should be durable as they will experience a lot of foot traffic. Ideally, they should also match or complement the colors of the walls and ceilings. It is recommended to wait until any electrical, carpentry, or cabling work has been completed before laying new floor coverings. Additionally, it is best to wait until after painting the walls and ceilings as well.

Heating and/or Cooling

Heating and cooling are essential for ensuring the comfort of customers and employees, depending on the climate of a country. Fans or heaters can be used, as appropriate, to provide the required temperature. Although air-conditioning units are expensive, they might be the most suitable option for some premises.

Furniture

The type of furniture needed for a business depends on the activities and areas within the premises. For instance, a retail shop will require counters, display cabinets, shelves, or racks for their selling areas, while the office area will need desks, chairs, filing cabinets, and more. The stock room will need storage shelves or racks and lockable cabinets for small and valuable items.

In some showrooms, desks and chairs are used to attend to customers while they are seated instead of standing at a counter. Counter units may have solid or glass tops, which are suitable for displaying goods. Some readymade counter units are available, while others may need to be customized to fit the size, shape, and layout of the premises.

A desk-like unit with a flat working surface, drawers, shelves, and pigeonholes can be fitted to the rear of a counter to allow the staff to work comfortably while not attending to customers. This also helps keep the countertops clear and tidy.

The appearance and decor of the selling area of a business should be attractive and inviting. This is because prospective customers must be persuaded to enter the premises and once inside, to stay inside and make a purchase. The premises should be comfortable, visually pleasing, and especially if customers have to wait to be attended to.

It is important to note that all furniture items are assets of the business and have monetary value. If any furniture is lost, damaged, or destroyed, the business will lose its value, and money will have to be spent to replace them. Hence, it is necessary to protect and insure them.

Machinery and Equipment

The type, size, and number of machines and equipment required for a business depend on its type and size. For instance, a shop or store may only need cash registers and a computer, while an office or service business may require a computer, fax machine, photocopier, and other similar equipment. On the other hand, a factory or workshop will need different machinery depending on the products they manufacture, repair, or service.

Some businesses may require complex and expensive machinery, which they may not be able to afford to pay for in full or cash. In such cases, there are two financing options worth considering. These options may be available in your country, and they include: - - Financing the machinery and equipment through leasing agreements.- Financing the machinery and equipment through Hire Purchase (HP) or installment payments.

Hiring, Renting, or Leasing

When a business needs a piece of machinery, equipment, or furniture, it can agree with a financial institution, like a bank, to hire, rent, or lease the item. The value of the item is determined beforehand, and the business makes regular payments that include interest. Although the business gets to use the item(s), they don't own it, so it's not considered an asset.

In some countries, tax allowances are permitted on hire, rental, and leasing payments. It's recommended to consult with an accountant or tax specialist in your country to better understand the tax implications.

Hire Purchase (Installment Payment)

When a customer pays a deposit for an item, they are only allowed to use it but do not become the legal owner immediately. The customer should sign an agreement to pay the remaining balance, which is the price less the deposit paid, plus interest in regular installments. It is only after the customer pays all the installments that they become the owner of the item(s).

In some countries, paying the installments may attract tax concessions.

Regardless of whether machinery and equipment are owned by a business or not, they are assets that have monetary value. If any of them are lost, damaged, or destroyed, the business will experience a loss in their value and may even be unable to operate. The business will have to pay money to replace them. Therefore, they need to be regularly serviced, repaired, and maintained. They must also be protected from damage and theft, and insured.

Working Assets

As we learned in Section 1, the machines, equipment, and furniture owned by a business are considered as its working assets. These assets are acquired to enable the business to operate and perform its work. Unlike materials, they are not intended to be used up nor bought and sold like goods. Even if these assets are maintained regularly, they gradually lose value over time due to wear and tear, which is referred to as depreciation.

Doors and Windows

Ensuring the safety of one's business is vital. To protect the materials, goods, tools, and machines from being stolen, it's essential to make sure that all doors and windows are secure and tight-fitting. Lockable doors and windows are necessary, and if needed, bars or shutters should be installed to protect the plate glass windows outside business hours. It's essential to close and lock any fanlights that let in fresh air at night and on weekends. It's crucial to keep the keys to the locks safe as the best locks are of no use if the keys are lost or compromised or if there are too many of them.

The Outside

To attract customers to your business premises, it is advisable to display at least one sign on the outside that states the name of your business and its activities. There are various types of signs available, ranging from large to small, painted on walls or boards affixed on the walls.

Smaller signs may be metal, plastic, or wooden plaques placed near the entrance. The signs can also be banners, illuminated, or even moving. Before affixing or erecting a sign, it is essential to check with the local council office if licenses or permits are required in your country.

Window Displays

In Section 3, we explained how many businesses rely on passing trade. Displays in front or display windows can catch the attention of passers-by and create interest in products for sale. They can even create a desire to buy a product.

Next time you walk through a busy shopping area, observe the reactions of people walking past showrooms or shops. You will see that they often stop to look into windows that have attractively displayed goods. This favorable attention is what businesses aim for. While looking at the display of goods, customers may get interested in a particular item and this may prompt them to enter the shop.

On the other hand, people tend to walk past windows where goods have been dumped carelessly, and if it's not possible to see any particular item. Therefore, an attractive and eye-catching window display is the first step to attract favorable attention. A window display is primarily an appeal to the eyes, and an untidy, dirty, or poorly designed window display will not attract favorable attention.

Designing and Creating Window Displays

While larger businesses may employ specialists called window dressers to design their windows and attract the attention of passers-by, most of the time it is the owner, manager, or staff of a business who design and create window displays. The main goal of designing a display is to ensure that it attracts favorable attention and that the products displayed are easily seen and identifiable. To achieve this, the designer should first decide what features or factors would attract them to the proposed display. The display should then be planned on paper, including all the features considered important. Proper planning is essential, as a display that is not well-planned may not be as attractive as it could be. The plan can be modified until the display is deemed the best that can be built.

Once the plan is in place, the building of the display can begin. It is important to remember that the display is intended to appeal to the eyes of people outside the premises who will, it is hoped, stop and look into the window(s). Once the display has been completed, it should be viewed from the outside to determine the impact it will have on passers-by. If necessary, rearrangements or changes can be made to showcase the products to their best advantage.

The lighting in windows is crucial so that the displays in them can be seen clearly during the day and at night. Brightly lit, colorful window displays can be very attractive at night.

Services

Window displays are not just limited to physical items such as goods. They can also be utilized to showcase services for sale. For instance, tour operating stores can create attractive and eye-catching displays in their windows to draw attention to their services.

To make the displays more appealing, you can incorporate bright and colorful posters, tour brochures, display cards, and cutouts. Additionally, models of aircraft or ships can also be displayed to represent the services offered. For example, placing a pair of ski poles and ski boots against a white polystyrene background in a window can create a visual representation of a skiing holiday, enticing passers-by to enter the store and learn more about the available ski trips. This technique can be especially useful on hot days when people are looking for cooler holiday options.

Keeping Attraction

Business owners and managers must not become complacent about their displays, even if they are well-designed and effective. Over time, the display will become dusty, faded, and old-looking, and it will be less attractive to customers. Additionally, what may have caught people's attention the first or second time they saw it will not continue to do so. It is important to replace window displays frequently with new ones, featuring different products that appeal to different people. This will keep the display fresh, exciting, and attention-grabbing.

Some shops and stores have solid back windows which prevent passersby from seeing what is inside. While it may be easy to attach posters and other display materials to these backs, it is claimed that people are more likely to enter a store if they can see from the outside that the interior is attractive and comfortable. For this reason, some business owners prefer open-backed windows.

It is crucial to remember that attracting customers to the store is the first step towards making sales. Furthermore, although people may initially be drawn to one product or type of product, they may ultimately purchase different items.

The key is to ensure that customers do make purchases. Window displays are not the only method of enticing customers into the store. However, they are a relatively low-cost and simple way of doing so, and they should be used effectively whenever possible.

Internal Displays

Effective displays of items inside shops, stores, and showrooms are just as important as window displays. A person who is encouraged to enter a shop by an attractive window display will quickly be put off if the interior of the shop is dirty, untidy, badly laid out, or badly lit. It's crucial to ensure that the items for sale are clean and easily accessible, rather than all jumbled together.

The same applies to the items in a window display. For example, if a person has entered the shop to look at an item that caught their attention in the window display, a sale would be lost if they were told that it was not available. It's important to make sure that the sales staff can easily reach the item that the customer wants, without having to take apart the entire window display.

The goods displayed inside the shop do not necessarily have to be the same as those displayed in its windows, as long as the window display items are readily available to show to customers. The layout of the retail sales premises may vary depending on its shape, size, and items for sale, but cleanliness, tidiness, and accessibility are always important.

In such cases, it's important to have information materials (leaflets or brochures) readily available and easily accessible. A designated area for these information materials (leaflets or brochures) should be created, and it should be properly organized to make it easy for customers to find what they are looking for. It's also important to ensure that the information materials (leaflets or brochures) are up-to-date and visually appealing, as this can leave a positive impression on the customer and encourage them to take further action.

Safety Consideration

When it comes to displays inside a store, it is important to consider safety. Unlike window displays, items inside the store can be touched or handled by potential customers, which could lead to the goods being disturbed, made dirty, or even completely ruined.

For instance, a pyramid display of cans of orange juice with colorful labels may look very appealing, but a child could accidentally knock it over or try to remove a can, causing the entire display to collapse. This could not only cause harm to the child but also result in cans bursting and creating a terrible mess. Therefore, careful consideration is necessary before constructing internal displays.

Security

Ensuring security against theft, shoplifting or pilfering can limit the display of various items inside shops. Valuable items such as Omega wristwatches need to be kept in locked showcases or counters. Although attractive displays can be created, customers should not be allowed to touch or handle these items without the supervision of sales personnel.

In cases where items are sold in pairs or sets, it may be necessary for safety reasons to display or allow customers to handle only one item, such as one shoe from a pair. In such displays, a variety of different sizes, styles, and colors of shoes can still be showcased, but only one from each pair. Alternatively, items may need to be fastened by chains or other means so that customers can handle them but cannot remove them unless assisted by sales personnel.

Insurance

Every human being, every business, and every item - whether living or not - that has a monetary value, faces various risks. These risks may include: -

• The risk of a person being injured in or by a motor vehicle.

• The risk of a business premises or any of its contents such as money, furniture, machines, equipment, or stock being damaged or destroyed by fire.

• The risk of farm animals being injured or killed.

• The risk of money, machines, equipment, motor vehicles, stock, or some other valuable item being stolen.

• The risk of injury due to an accident at work.

Insurance companies provide insurance to individuals and businesses, although in some countries, insurance is provided by state-run organizations. Insurance is all about managing risks, to reduce or eliminate the adverse effects of risks or fears arising from risks.

Fortunately, not every person or business suffers the reality of the risks they face. For example, most business people insure their business premises and stocks of goods against losses they would suffer if the premises or stocks were destroyed by fire. However, relatively few businesses experience such a disaster.

The point is that it's impossible to predict in advance which businesses will suffer financial loss due to fire and which will not.

Insurance companies - called insurers - collect premiums from businesses that need protection against losses from, say, fire. The premiums collected are pooled so that there is a fund of money. If a business suffers the disaster of fire, it is compensated or reimbursed financially from the fund. Insurance premiums paid by a business to insure its possessions are an expense like any other it must pay.

Indemnity

In insurance, the person or business who buys the policy is referred to as the policyholder. The primary purpose of insurance is to compensate the policyholder for any loss or damage that may occur due to the insured risk. The aim is to restore the policyholder to the same financial position they were in before the loss or damage happened. This is called indemnity.

Indemnity can take the form of:

• A payment of money equivalent to the value of the lost or damaged item(s).

• The replacement of the lost or damaged item(s).

• Repair of the damaged item(s).

• Payment of medical and other expenses resulting from an injury or accident.

• Restoration, such as rebuilding a building destroyed by fire.

Insurance Coverage Needed

When it comes to protecting your business, having the right insurance coverage is crucial. Unexpected events and accidents can happen at any time, and without the proper insurance, your business could be left vulnerable to financial losses. That's why it's important to understand the different types of insurance coverage that your business may need.

One of the most common types of insurance that businesses should have is general liability insurance. This type of insurance provides coverage for bodily injury, property damage, and personal injury claims that may arise from your business operations. It protects your business against lawsuits and helps cover the costs associated with legal defense.

Another important insurance coverage for businesses is property insurance. This type of insurance protects your business property, such as buildings, equipment, and inventory, from damage or loss caused by fire, theft, vandalism, or natural disasters. It provides financial compensation to help cover the cost of repairs or replacement.

In addition to these core coverages, there are several other types of insurance that businesses may need based on their specific industry or operations. For example, professional liability insurance, also known as errors and omissions insurance, provides coverage for professional negligence claims and is often required for certain professions like doctors, lawyers, and architects.

Workers' compensation insurance is another essential coverage for businesses that have employees. It provides benefits to workers who are injured or become ill as a result of their job. This coverage helps cover medical expenses, lost wages, and rehabilitation costs and also protects businesses from being sued by employees for work-related injuries.

Other types of insurance coverages that businesses may consider include cyber liability insurance to protect against data breaches and cyber-attacks, commercial auto insurance to cover vehicles used for business purposes, and product liability insurance to protect against claims related to defective products.

Determining the specific insurance coverages needed for your business can be complex, so it's recommended to consult with an insurance professional who specializes in commercial insurance. They can help assess your business's unique risks and recommend the appropriate insurance policies to protect your business and its assets.

Remember, investing in the right insurance coverage now can save your business from significant financial losses in the future.

Uninsured Risks

Uninsured risks in business are potential threats or hazards that are not covered by insurance policies. While insurance is a crucial tool for mitigating financial risks, certain risks are not typically covered by standard policies. These uninsured risks can pose significant challenges to businesses and may result in substantial financial losses if not properly addressed.

One of the most common uninsured risks in business is reputational damage. Negative publicity, customer complaints, or social media backlash can severely impact a company's reputation and brand image. This can lead to a loss of customers, decreased sales, and ultimately, a decline in revenue. Since reputation damage is difficult to quantify and predict, it is often not covered by insurance policies. However, businesses can minimize this risk by implementing strong public relations strategies, maintaining transparent communication channels with stakeholders, and proactively addressing any potential reputation threats.

Another uninsured risk that businesses face is cyber security breaches. With the increasing reliance on technology and digital infrastructure, the risk of cyber-attacks and data breaches has become a significant concern for organizations. While some insurance policies offer limited coverage for cyber risks, many businesses may find themselves exposed to substantial financial losses that are not covered by insurance. To address this risk, businesses should invest in robust cyber security measures, including regular updates and patching of systems, employee training on best practices, and data encryption.

Natural disasters and catastrophic events are another category of uninsured risks that can impact businesses. Standard property insurance policies typically cover damages caused by fire, theft, or certain weather-related incidents. However, damages resulting from earthquakes, floods, or pandemics are often excluded or require additional coverage. Businesses should assess the potential impact of such events on their operations and consider purchasing specialized insurance policies or implementing disaster recovery plans to mitigate the financial and operational risks associated with these events.

Legal and regulatory risks are also uninsured risks that businesses need to be aware of. While some liabilities are covered by insurance, businesses may face legal challenges or regulatory fines that are not covered. For example, non-compliance with data protection regulations or violations of anti-trust laws can lead to substantial financial penalties and legal fees. To minimize these risks, businesses should stay updated on relevant regulations, seek legal counsel, and implement robust internal compliance programs.

In conclusion, while insurance provides crucial financial protection for businesses, various uninsured risks require careful attention. Reputational damage, cyber security breaches, natural disasters, and legal and regulatory risks are just a few examples of uninsured risks that businesses should be aware of and actively manage. By implementing appropriate risk management strategies and proactive measures, businesses can mitigate the potential impact of these uninsured risks and safeguard their financial well-being.

Loss of Profits

Insurance against loss of profits is an essential component of a robust risk management strategy for businesses. It provides a financial safety net in the event of unforeseen circumstances or events that lead to a significant decline in revenue or business interruption. This type of insurance coverage protects a company's ability to generate profits and helps mitigate the financial impact of unexpected events.

Loss of profits insurance typically covers a variety of circumstances, such as fire, natural disasters, theft, equipment breakdowns, and other events that can disrupt normal business operations and result in a loss of revenue. It can also provide coverage for business interruption caused by external factors, such as supplier or customer disruptions, government actions, or even pandemics.

To obtain insurance against loss of profits, businesses typically need to provide detailed financial records, including profit and loss statements, balance sheets, and other relevant financial data. Insurance providers will assess the risks associated with the business and determine the appropriate coverage based on factors such as industry, revenue projections, and historical financial performance.

Benefits of having this type of insurance include financial stability during challenging times, protection of the company's reputation, and the ability to quickly recover and resume operations after a significant loss event. It offers peace of mind to business owners and stakeholders, knowing that their financial interests are protected in the event of unforeseen circumstances.

It is essential to work with a trusted insurance provider with experience in providing coverage for loss of profits. A knowledgeable insurance broker can help assess a company's specific needs, determine the appropriate coverage limits, and find the best insurance policy that fits within the company's risk management strategy.

In conclusion, insurance against loss of profits is a valuable tool for businesses to protect their financial interests and ensure continuity in the face of unexpected challenges. It is a proactive approach to risk management that can provide peace of mind and financial stability, allowing businesses to focus on their core operations and long-term growth.

Reducing Risks

Business owners should take action to prevent risks from becoming a reality or to reduce their impact. Some precautions are taken automatically, such as locking doors and windows outside of business hours, turning off electrical appliances at night, and using seat belts in vehicles.

Insurance companies can guide businesses on ways to prevent risks and reduce the impact of potential losses. This can be achieved by installing fire extinguishers in certain areas of the premises and using better locks and bars or shutters on windows. By following the recommendations of insurers, businesses can reduce their insurance premiums. Insurers can also conduct inspections and surveys of the premises to provide recommendations for increasing safety measures.

Practical Example: F

To conclude this Section, let's summarize all the various factors we have discussed. Businessman Geoffrey Blair wants to open a bookshop, has enough capital, and registers a company called "Blair Stationers Ltd". He is the largest shareholder and will be the managing director.

Firstly, Geoffrey needs to decide what types of books his shop will sell. Will it offer novels, paperbacks, and inexpensive publications or textbooks, technical publications, and expensive books? Will the business sell new books only, or will it also buy and sell books by wholesaling, retailing, in bulk, by mail-order, or by a combination of them?

Next, he must choose the best location for his shop. If he is going to sell novels and paperbacks, the shop needs to be located in a busy street area where its window displays will attract many passers-by who will buy single copies of books and pay for them at once. But if the shop is going to sell mainly textbooks, it needs to be located near schools, colleges, or a university, but it doesn't have to be on a busy thoroughfare.

If the shop is going to sell single copies of books to students, they will probably pay for their purchases at once. But if the business is going to sell in bulk to schools, storage space will be needed to hold large stocks of books. And the business will probably have to allow its customers a period of credit, that is, it will have to sell books without receiving payment for them at once.

Once he has found a suitable place and entered into a long lease with the landlord, Geoffrey will have to:

• Plan the layout of the premises to allocate the correct amount of space for each type of publication for sale.

• Decide on the types and sizes of racks or shelving to be used in the shop to hold the books for sale and how they will be fixed to the walls or otherwise. He also needs to decide what kinds and sizes of display cabinets, counters, etc., will be necessary.

• Decide the layout of the store to hold reserve stocks of books and the types and sizes of racks or shelving to be used. He must plan how new stocks can be supplied to the shop quickly to replace those books sold.

• Decide on the number of staff needed to sell in the bookshop itself, plus any others who might be needed in the store or for reordering books and/or accounts work. Recruit them and, if necessary, train them.

• If books are to be sold wholesale, in bulk, then a delivery van might have to be bought, and a driver might have to be employed.

• Decide what machines and equipment (e.g., computers, cash registers) will be required inside the shop and how much can be spent on them. He must also decide what sales documents might have to be printed.

• Decide on the publishers and/or wholesalers from whom stocks of books will be ordered, as well as on the sizes of the orders.

• Plans will have to be made to stop possible pilfering (stealing or shoplifting), and the necessary precautions taken.

• Decide what advertising/publicity will be undertaken, such as signboards and/or signs on the building or in windows, advertising in local newspapers, circulars to potential customers, etc. He also needs to decide whether to have special paper plastic bags or wrapping paper printed with the name and address of the shop.

• Decide whether to offer special price reductions (or to use some other form of sales promotion) to attract customers to the new shop quickly.

• Order accessories or consumables, such as adhesive tape, string, pencils, pens, pads, and so on.

Geoffrey will have to make many other plans and decisions once stocks of books start arriving and have to be housed in the store or displayed in the shop and its windows. Arrangements for banking and services, including utilities needed - electricity, telephone, water – will all have to be made well in advance of business startup.

This example is relatively simple, but it provides an overview of what is involved in planning, in this case, in figuring out how to sell books. The planning necessary to set up a factory to produce a range of tinned food products or a motor vehicle will be much more wide-ranging and complex.

Such planning can also arise after the establishment of an enterprise. For example, at a later date, it might be decided (by the owner or board of directors) to diversify the bookshop so that, in addition to books, it will also sell or rent video tapes or DVDs. Plans will have to be made on how that will be done, how the new section will operate with, or independently of, the existing organization, and so on.

Strategic Purchasing and Procurement

Effective procurement practices require a diverse range of knowledge and skills encompassed by strategic purchasing and procurement. In this field, individuals must comprehensively understand the procurement process from start to finish. This includes developing procurement strategies that align with an organization's goals, identifying and mitigating procurement risks, conducting thorough supplier evaluations and negotiations, managing supplier relationships, and ensuring compliance with procurement policies and regulations.

Experts in strategic purchasing and procurement should be able to analyze market trends and identify opportunities to enhance the procurement process. They should be capable of developing effective sourcing strategies that enable their organization to obtain goods and services at the best possible value while maintaining high standards of quality and service. These professionals should also be able to build strong partnerships with suppliers, manage supplier performance, and drive continuous improvement in the procurement function.

Ultimately, the learning outcomes associated with strategic purchasing and procurement are designed to equip individuals with the knowledge and skills they need to drive value for their organizations and contribute to their long-term success. By mastering these essential competencies, procurement professionals can help their organizations achieve their strategic objectives, reduce costs, and enhance operational efficiency.

Introduction: Ordering and Storing

Ordering and storing are crucial processes in business operations. Ordering refers to the task of procuring the necessary materials, products, or services required for the smooth functioning of a business. This includes assessing inventory levels, tracking demand, and contacting suppliers or vendors to place orders.

When it comes to ordering, businesses must establish efficient systems and processes to ensure timely and accurate procurements. This could involve implementing an inventory management system that tracks inventory levels in real-time, automating the order placement process, or establishing relationships with reliable suppliers who can provide competitive pricing and timely deliveries.

On the other hand, storing refers to the storage and management of the ordered items or inventory. Effective storage practices are vital to ensure that products or materials are well-maintained and readily accessible when needed. Depending on the nature of the business, storage can range from warehouses to simple storage rooms or shelves.

In the storage process, businesses need to consider several factors such as space optimization, proper handling and care of goods to prevent damage, implementing security measures to protect valuable items, and employing appropriate inventory management techniques to keep track of stock levels. This may involve implementing a barcode system or utilizing specialized software for inventory management.

Efficient and well-organized ordering and storing processes contribute to streamlined operations, cost-effectiveness, and customer satisfaction. By ensuring prompt order fulfillment and maintaining optimal inventory levels, businesses can meet customer demands promptly, minimize wastage, and avoid costly disruptions in their operations.

In conclusion, ordering and storing are essential functions in business that involve procuring necessary materials or services and managing them efficiently. Implementing effective systems and strategies in these areas can contribute to improved operational efficiency and customer satisfaction.

The type of business being conducted, the size of the premises, the number of employees, the type of customers, and the budget allocated for the furnishing and equipping of the business premises are some of the factors that dictate the needs of the business. It is important for the business owner to carefully consider these factors to create a comfortable and functional work environment that can help improve productivity and customer satisfaction.

Wholesaler Businesses: Streamlining Supply Chains for Efficiency and Profitability

Wholesale businesses play a crucial role in the supply chain by connecting manufacturers with retailers, ensuring a smooth flow of goods from production to end-consumers. With their ability to purchase goods in bulk and distribute them to smaller businesses, wholesalers provide essential services that help drive efficiency and profitability in various industries.

One of the primary benefits of engaging with wholesalers is the cost savings they offer. By purchasing goods in large quantities, wholesalers can negotiate lower prices with manufacturers, passing on those savings to their customers. This allows retailers to access products at a more competitive price point, enabling them to remain competitive in their respective markets.

In addition to cost savings, wholesalers also provide a streamlined distribution process. They consolidate products from multiple manufacturers and deliver them to retailers, reducing the number of individual transactions and simplifying the logistics involved in product sourcing. This efficiency not only saves time but also reduces the administrative burden for retailers, enabling them to focus on other core aspects of their business.

Moreover, wholesalers often offer a wide range of products under one roof, serving as a one-stop solution for retailers. This eliminates the need for retailers to source products from multiple suppliers, simplifying their procurement process and ensuring consistent availability of inventory. This convenience and reliability allow retailers to meet the demands of their customers promptly, thus enhancing customer satisfaction and loyalty.

Furthermore, wholesalers play a crucial role in market expansion. They act as intermediaries, providing a platform for manufacturers to reach a broader customer base. By leveraging their extensive network and market knowledge, wholesalers can expose manufacturers' products to retailers who may not have been aware of them or may not have had access to them otherwise. This increased market exposure opens up new avenues for growth and helps manufacturers expand their reach, ultimately leading to increased sales and market share.

To thrive in the competitive wholesaler industry, businesses must focus on building strong relationships with both manufacturers and retailers. By understanding the needs and preferences of manufacturers, wholesalers can negotiate favorable deals and secure a steady supply of high-quality products. Similarly, establishing trust and credibility with retailers is crucial to ensure repeat business and long-term partnerships.

Wholesalers typically look for products that have high turnovers, which means they can be sold quickly in smaller quantities to their retail customers. They usually avoid products that require breaking bulk, or opening large packages and repacking them into smaller ones, as it wastes both time and money.

For instance, when a manufacturer supplies 100 individually packaged items in a single large outer package, but most retail customers only order a dozen or half a dozen at a time, the wholesaler's staff would have to do a lot of unpacking and repackaging work. In such cases, wholesalers would prefer to receive 20 packs of 6 items each in one outer package.

In conclusion, wholesaler businesses play a significant role in streamlining supply chains, driving efficiency, and facilitating profitability in various industries. Through their cost-saving measures, simplified distribution processes, comprehensive product offerings, and market expansion opportunities, wholesalers contribute to the overall success of manufacturers and retailers alike. Embracing a customer-centric approach and fostering strong relationships within the supply chain are key factors to thrive in this industry and achieve sustainable growth.

Retail Businesses

Retail businesses play a significant role in the global economy. They serve as a crucial link between manufacturers or suppliers and consumers, providing a platform for the exchange of goods and services. Retail businesses can range from small local stores to large multinational chains, and they operate in various sectors such as clothing, electronics, groceries, and many more.

Retail businesses come in a wide variety of sizes and sell a diverse range of products. There are small kiosks, market stalls, corner stores, and village shops selling goods to local communities. Suburban shopping areas have shops of various sizes catering to the needs of the surrounding residential areas. High street town center shops host stores of different sizes and specialties. There are also larger establishments like huge department stores, supermarkets and chains of supermarkets, hypermarkets, shopping centers/malls, DIY centers, garden centers, and so on, providing a wide range of products and services.

The success of a retail business relies heavily on effective merchandising, customer service, and marketing strategies. Retailers must carefully curate their product offerings to meet the demands and preferences of their target market. They need to ensure that their products are attractively displayed and easily accessible to customers. Additionally, excellent customer service is essential for building customer loyalty and driving repeat business.

To stay competitive in the ever-evolving retail industry, businesses need to employ effective marketing techniques to attract and retain customers. This can include advertising through traditional media channels, utilizing social media platforms, and implementing loyalty programs to incentivize repeat purchases.

In recent years, online retail has also become an integral part of the industry, with businesses establishing e-commerce websites and utilizing omnichannel strategies to provide a seamless shopping experience across multiple platforms.

Retail businesses also face various challenges, such as increased competition, changing consumer behaviors, and economic fluctuations. Adapting to these challenges requires staying informed about market trends, investing in technology and infrastructure, and fostering a customer-centric culture within the organization.

Most retailers are interested in any advertising support they can receive, as well as any display material and sales aids provided to them. The original appearance and appeal of products and their packaging to consumers are often of paramount importance to retailers. This is especially true for retailers who sell products via self-selection, where customers choose products from shelves or display cases.

To remain competitive in business, wholesalers and retailers must purchase the right types of products at the right prices and then resell them at a profit within a reasonable time frame. They need to continuously turn over their stocks and money as quickly as possible. Stocks and money are referred to as circulating assets.

In conclusion, retail businesses play a fundamental role in the economy and require careful management and strategic planning to thrive in a competitive and ever-changing landscape.

By understanding their target market, providing exceptional customer service, and employing effective marketing strategies, retail businesses can position themselves for success in the industry.

Groups of Wholesalers and Retailers

The competition from large-scale retailers has taken a toll on many wholesalers and small retailers. However, some retailers have found ways to survive by offering specialist or personal services. While many small businesses have been forced to shut down, others have managed to stay afloat by forming groups.

In these groups, wholesalers combine their orders with manufacturers and producers, which increases the size of their orders and attracts larger discounts - resulting in reduced prices.

Retailers in the group place most of their orders with the wholesale group. In return, they benefit from the lower prices paid by the group. Some wholesale groups also offer assistance with advertising and promotion under the group name, as well as guidance on the layout and design of premises, increasing efficiency, and managing stock ranges and levels - all while making a profit.

Buying or Purchasing

We have emphasized that purchasing high-quality materials at the right time and price is crucial to selling products quickly and at a profit.

Orders and Ordering

When a business needs materials and goods, they purchase them from suppliers. The act of requesting products from a supplier is called ordering, and it is also referred to as placing an order.

Oral orders can be risky because they may be misheard or misunderstood, resulting in the wrong products being delivered. This can lead to problems like loss of production or sales. Therefore, it's always best to put orders in writing to avoid any disputes in the future. Orders can be delivered to suppliers through hand delivery, mail, email, or fax.

Finding Suppliers

When starting a business, it is important to find reliable suppliers for the materials and goods you need. If you already have experience in your industry, you may already know who the best suppliers are. However, if you're new to the industry, there are several ways to find potential suppliers. One option is to contact a chamber of commerce or trade association in your country. Another option is to look for trade magazines or journals related to your industry. You can also check the Yellow Pages in telephone directories or look for advertisements in local or national newspapers.

If you have access to the internet, you can search to find potential suppliers. If you require products from another country, you may need to import them. In this case, you can contact the trade sections of the Embassies or High Commissions of the countries you're interested in. They can help you connect with businesses that want to export products to your country.

Catalogs and Price Lists

Suppliers often publish printed catalogs that describe their products. These catalogs can be large or small booklets and may contain the prices of the products, as well as any discounts and credit terms offered. Alternatively, the prices, discounts, and credit terms might be listed in a separate document. It's recommended that you obtain catalogs and/or price lists from at least two competing suppliers. This allows you to compare their prices, discounts, and credit terms before deciding which supplier(s) to order from.

Quotations and Estimates

When you require specific products of a certain quality and quantity, you may need to request suppliers to provide a quote in advance for their prices, discounts, and credit terms. Suppliers usually provide this information in the form of a quotation, which is a specially typed or printed document. In some cases, the products you require may need to be specially obtained or manufactured, or there may be work that needs to be done such as painting, decorating, or building. In such cases, suppliers or tradesmen will need to estimate their costs of materials and labor. This process is often referred to as costing, and they will provide you with an estimate in the form of a specially typed or printed document

Always obtain multiple quotes from suppliers or tradesmen to compare prices.

Choosing Suppliers

When choosing a supplier, price is often the main consideration. However, before placing an order, there are other factors to consider. These include:

1. Proven Quality from a Known Supplier

It is always better to pay a little more for products that you know are of acceptable quality, rather than paying a lower price for something that is of inferior quality. You can request samples or specimens to examine before placing an order.

2. Reliability of Delivery

It is important to know that a supplier can fill and deliver orders quickly, or can be relied upon to deliver them on the promised dates. This helps in planning orders. Knowing that a supplier can deliver quickly might mean you can place smaller orders, which will reduce the amount of money you have tied up in stock and the storage space required.

3. Forming an Association with a Supplier

It might be worth paying a little more to a supplier who values your business. They are likely to give priority to your orders and satisfy you in other ways. This advantage may not be available with a new, unknown supplier who may make promises to gain your order but cannot keep them.

4. Discounts and Credit Terms Offered

Discounts are reductions offered from normal or list prices of products. They may reduce the prices charged by a particular supplier below the prices charged by other suppliers. Discounts are usually shown as a percentage, e.g. 5%, 10%, or 15%. Two major types of discounts might be offered to your business: -

Trade discount: This is offered to customers who purchase materials or products often in bulk or large quantities either:

a. to resell them to their customers.

or

b. for use in the manufacture of items that will eventually be sold.

Quality discount: Discounts and credit terms are common incentives offered by vendors to their customers. A quality discount is a discount offered to customers who purchase products in large quantities, encouraging them to buy more than they normally would. Such discounts might be offered on a sliding scale, with the percentage of discount increasing as the quantity bought increases.

Credit refers to the ability of a customer to purchase products without paying for them immediately. Rather, the payment can be made at a later date. The time between the purchase date and the due date of payment is known as the period of credit. The period of credit can vary depending on the vendor's eagerness to make a sale and the reliability of the buying business in paying its debts on time. It could range from 7 days to 90 days or more.

In some cases, businesses might need to pay a higher price to gain a longer period of credit, particularly when they have a cash-flow problem.

When it comes to consumer goods, two other factors to consider are well-known brands and advertising.

Well-known brands are likely to offer guarantees or warranties to ensure customer satisfaction, as they have their reputations to protect.

Advertising and Publicity: Goods that are well advertised are likely to sell faster, even if they cost slightly more than similar goods. It's important to note that your business might also need to offer discounts and credit terms to customers to persuade them to buy from you. We'll discuss this in more detail later. In addition to discounts and credit terms, you might also need to print and issue catalogs and price lists. Depending on your business type, you might also need to provide potential customers with quotations or estimates.

Once you've identified your suppliers, it's important to decide how much and when to order. You'll need to forecast the likely demand from customers and the supply of the products you'll make and/or sell.

In an established business, keeping records of usage or sales can be a great help in making future orders. Additionally, maintaining stock records that indicate the quantity received, the quantity used or sold, and the balance of each item can be useful.

If you have experience in the same line of business, it is easier to estimate your needs. However, if you are new to the business, you will have to make an educated guess. Ordering too little can result in lost production or sales, as small orders may not be as efficient as larger ones. Furthermore, placing many small orders can be more time-consuming and costly than placing a single large order.

On the other hand, placing orders that are too large can tie up money in stock that could be used elsewhere. Additionally, larger stocks require more storage space. It is crucial to achieve a balance between the two factors:

1. holding sufficient stock to maintain continuous and uninterrupted operations, and

2. avoid tying up money unnecessarily in stock.

The closer the balance, the more profitable the business is likely to be.

Practical Example: G

Adam Leigh, the owner of a footwear shop, needs to plan and forecast his inventory in advance to ensure that he has the right products available for his customers.

He knows that certain types of footwear are in demand at specific times of the year. For instance, in the summer, customers are likely to buy lightweight, open-toed shoes and sandals, while in the winter, they prefer heavier, closed shoes and boots. Therefore, Adam must order different types of footwear from manufacturers or wholesalers in advance, considering the expected demand for each type of shoe.

He cannot simply order any footwear without proper planning. He needs to forecast the quantity, size, color, and style of each type of shoe that his shop is likely to sell in the upcoming season. Adam’s experience in the business helps him make accurate predictions about the types and sizes of footwear that are popular year after year.

As the fashion industry is constantly evolving, Adam must keep up with the latest trends and styles, especially when it comes to women's footwear. This means he needs to research the market regularly, as well as read trade magazines and manufacturers' catalogs. These resources can provide valuable insights into what colors, styles, and types of footwear are likely to be popular soon.

Additionally, Adam should pay attention to the types of footwear that are heavily advertised, as this is an indicator of increased demand. By staying up-to-date with the latest trends and fulfilling customer demand, Adam can ensure he doesn't lose sales to his competitors.

It's important to consider other factors when deciding on the pricing strategy for footwear. For example, if the economic conditions in the country or region where the shop is located are not favorable, it may be better to stock moderately priced products rather than expensive ones. Additionally, competition is a crucial factor to consider.

If a rival footwear shop nearby has recently closed down, sales will likely increase. However, if a new footwear outlet has opened up nearby, sales will likely decrease.

Order Forms

The documents used for placing orders are commonly referred to as order forms. Order forms used by different businesses can vary greatly in terms of shape, size, design, wording, and color. Order forms can be completed either by writing, typing, or by a computer printer.

Regardless of the mode of completion, an order form must always provide sufficient information to ensure that: -

• The correct supplies are received at the right time,

• and at the agreed prices, discounts, credit terms, etc.

The information given to the prospective supplier is accurate and free of errors. A mistake on an order form can lead to the delivery of too few or too many items or the wrong products in terms of type, size, color, or quality. In such cases, the supplier might not be responsible for the error and may not agree to accept the wrong products back or replace them with the correct ones. This can lead to problems for you and cause production and/or sales loss.

It is essential to ensure accuracy and completeness when filling out an order form to guarantee that the right products are delivered at the right price and within the agreed time frame.

Moreover, keeping a copy of each completed order form is necessary to maintain a record of the stock that has been ordered, when the date, and from whom.

An order form should contain the following information: -

The name and address of the ordering business, including contact details such as telephone/fax number and email address.

• The name and address of the supplier.

• The order reference or serial number.

• The date of the order.

• A detailed description of each item, including size, color, quality, exact quantity required, and the agreed price. Often, the supplier's catalog or reference number is stated to help identify the term precisely.

• Any discounts offered.

• The required delivery date.

• The method of delivery, such as "by air," "by rail," or "to be collected."

• Any special instructions, such as "urgent" or "mark fragile."

• The signature of an authorized person, such as the owner or manager of the ordering business is required to place the order.

Sometimes, instead of an order form, a letter might include full details of the items required or the work to be performed.

Upon receiving an order, the supplier might send the customer a confirmation of the order or an acknowledgment of the order. This confirms that the order has been received and will be filled. Furthermore, it might state the estimated delivery date. This is called feedback, and it is essential to know whether an order you have placed can be filled. If not, you can place the order with another supplier.

It is crucial to follow up with suppliers to ensure that deliveries are fulfilled on time. If a consignment (a supply of items) is late, it could cause problems or sabotage your business. Finally, once the consignment is ready, the supplier might send the customer an advice note as a warning. There might be times when items ordered might be collected from a supplier in your vehicle.

Receiving Deliveries

When you receive a shipment from a supplier, you will normally be given a delivery note (also called a consignment note), which lists the details of the items included in the shipment. This includes the description of each item, its catalog number (if applicable), and the quantity of each item being delivered. The note will also indicate the total number of cartons or packages that make up the shipment.

The first step you should take when you receive a delivery is to check the delivery note against the order you placed. The descriptions and quantities listed on both documents should match. If there are any discrepancies, you need to take note of them.

Next, inspect the delivery closely. Count the number of cartons or packages to confirm that they match the number listed on the delivery note. If possible,

• count or weigh the number of each item to verify that the correct quantity has been delivered.

• check the items to ensure that they are the right size, color, and quality.

• finally, check for any signs of damage.

If the shipment is large, you may not be able to inspect every item in it. In such cases, you can perform spot checks on a few packages to ensure the contents are correct.

It is important to note that the person receiving the consignment is required to sign the delivery note as proof of delivery. The most common issues with incoming shipments are shortages (less quantity than expected) and damage (which may have occurred during transit). If you notice any shortage or damage, you should write down the details on the delivery note immediately. Failure to do so may result in the supplier or insurer refusing to accept liability.

If the shipment is large or arrives late in the day, you may not be able to inspect it all at once. In such cases, it is advisable to write "received uninspected" or similar wording on the delivery note before signing it. This way, if any issues are discovered later, you can inform the supplier.

Storage of Stock

After inspecting the terms in a consignment and finding them acceptable, it is important to store them safely. Maintaining an inventory of various materials and goods is crucial for almost every business as it is not practical to operate with only one of each item to be sold or used in manufacturing or an office. Therefore, a reserve of frequently used or sold materials and goods is maintained. As items or materials are sold or used, they can be replaced or replenished from the stocks held in reserve.

To illustrate the matter, let's take the example of Adam Leigh's footwear shop.

The shop displays a variety of shoes, boots, and other footwear both in its windows and inside the shop. It is inconvenient and time-consuming for Adam and his assistants to remove footwear from the display each time a customer wants to try a pair. Moreover, for security reasons, only one size and color of each style or type of shoe, boot, sandal, etc. are displayed at any given time.

Instead, when a customer expresses interest in a particular style, the shop assistant would inquire about the size and color preference of the customer.

Then they would try to find the right size and color from the pairs of footwear held in reserve. Popular items in the most popular sizes are usually kept inside the shop, on shelves, or in cabinets. But other pairs are kept in a separate stock room, to which Adam or his assistants can go to find the footwear concerned.

To ensure that a pair of shoes or other footwear is quickly replaced when sold, another pair should be available in the store or stock room.

No business can operate efficiently if every time a product is sold or used up in manufacturing, it has to order a replacement from the supplier or manufacturer. Though items may run out of stock from time to time, good stock control can reduce or eliminate such happenings. It ensures that replacements are received in good time and are available when required to replace those items sold or used.

Why Stores are Needed

The term 'store' is commonly used to refer to a retail outlet where goods are sold to consumers, such as a general store or a department store, in some countries. However, in this context, 'Store' (with a capital 'S') refers to an area designated for the storage of materials and/or goods required for production, sales, distribution, or safekeeping.

The items received, housed, and issued by the Store are collectively known as stock. Proper stock control is of utmost importance because the value of the stock is often greater than all other assets combined in a business. Stores are crucial in many ways.

For instance: -

• Retail shops, like the Adam Leigh Footwear Shop, require Stores to hold stock for sale to customers and to replenish sold items.

• Wholesalers use Stores to hold goods purchased in large quantities from manufacturers until they are required in smaller quantities by retailers.

• Manufacturing companies, such as footwear factories, must hold stock of all components used in making different products, e.g., leather, plastic, heels, buckets, nails, and glue.

• Offices require stocks of essential items like paper, envelopes, pins, clips, computer consumables, etc.

• Even businesses that provide services, like garages, require a stock of spare parts for vehicles, consumables like oil, and tools for mechanics' use.

Stores can be quite small, like a stock cupboard in a travel agency or small office, or massive like stockyards for businesses that must have vast stocks of different items available for efficient operation. Many businesses have stores of varying sizes between these two extremes.

Costs of Storage

Maintaining stocks can be costly for businesses. The expenses incurred by a business that maintains stocks can be classified as follows (although not each classification might apply to every business): -

• Interest on capital tied up in the value of stocks held. This can be looked at from two aspects: (a) if a business has surplus money, that money can be invested to earn interest. But by using some or all of that money to purchase stocks, the income that could have been earned is lost to the business. (b) In many cases, stocks purchased have to be paid for before they can be used or sold in their original forms or after processing to produce income for the business. To finance the purchase of stocks pending receipt of the proceeds of the sale or use of them, a business might have to operate on borrowed money, perhaps in the form of a bank overdraft, and interest is payable on the money so borrowed.

• The cost of providing suitable storage facilities, including building or renting and maintaining suitable and secure premises, and, where necessary, providing suitable environmental conditions needed if stocks are not to deteriorate (for example, heating, cooling, semi-refrigeration, etc.), and the cost of storage equipment.

• Materials handling expenses, which include wages of store personnel, and the cost of purchasing, maintaining, and running often expensive materials handling equipment.

• General stores operating expenses, such as heating, lighting, rates, cleaning, depreciation, repairs, and many more.

• Administration expenses, including the salaries of managerial, supervisory, and clerical store staff, the maintaining of stock records, the documentation of receipts into and issues from the stores, and the general expenses of running the store office.

• Losses due to the spoilage of stock, theft, pilfering, fraud, etc., and from stock becoming obsolete.

• Insurance cover is essential if the business is to be able to replace any stocks lost in the event of fire, theft, flood, etc. Insurance premiums to compensate for such losses are expensive, as are premiums for cover to provide compensation for injury suffered by people working in or visiting the stores.

Location of Stores

The locations, sizes, designs, and layouts of store buildings vary from business to business. Factors that can cause differences include the size of different businesses,

• the types, ranges, and complexities of their activities, and

• the volumes, ranges, sizes, and types of items to be stored.

A store is best located close to the section of the business it serves the most, such as the factory area or the sales area, to reduce the movement of items. In general, the best location for a store is likely to be on the ground level. There are several advantages to locating a store on the ground level as opposed to an upper storey of a building, including:-

• Minimized problems with weight: If a store is located on an upper storey of a building, there is a danger of overloading, which means placing more weight on a floor than it was designed or built to carry.

• Eliminated risks of damage and accidents: Items will not have to be moved (perhaps carried) upwards and downwards by stairs, lifts, escalators, etc., as they would if the store was located on an upper storey of a building. This will save time and labor and reduce the risks of damage and accidents happening while moving items upwards and downwards.

• Smooth receipts and issues: Receipts into and issues out of the store should be made more smoothly.

However, these advantages might be outweighed by other priorities or considerations. For instance, the ground floor of most commercial buildings is usually the most expensive to rent and is the most sought-after for both production and sales use. Therefore, depending on circumstances, the store of a business might have to be located on an upper storey.

Stores Doorways and other Openings

When planning doorways and other openings for stores, it is important to consider several factors:-

• Firstly, security is crucial and all doorways and openings should be lockable to prevent theft.

• Secondly, they should be positioned in a way that allows for a smooth and uninterrupted flow of items in and out of the store.

• The number of doorways and openings should be kept to a minimum to maintain a smooth flow and reduce security risks.

• Additionally, the size of the doorways and openings should be large enough to allow easy access for all vehicles and handling equipment like forklifts.

• All doors should be easily kept open while items are being moved and should be able to close and lock quickly. Depending on the situation, standard-size hinged doors or sliding doors may be used.

In some cases, normal hinges can be replaced by springs to automatically close the doors after they have been opened. It's important to note that too many doorways or openings may limit the freedom of arranging shelves and racks along the walls.

Stores Floors

Floors are one of the most important parts of any store, as they have to support the weight of the items held in the store, as well as the shelves, racks, etc, in which or on which they are housed. Floors must also provide a flat surface for wheeled equipment, whether it is manually or power-operated. Therefore, floors must be hard-wearing, hard, and smooth. When possible, they should also have slip-proof and dust-proof surfaces. Concrete floors are the best option, but where they cannot be used (e.g. on upper storeys of old buildings), wood blocks or planks are alternatives, provided they are in good condition.

Heating/Cooling in Stores

There is often a need for temperature control for materials and goods stored. Some items need to be kept in refrigerated cold or frozen conditions, while others need to be kept in warm, dry conditions. Additionally, for the comfort of staff entering or working in the store, in some countries, a degree of heating (which might differ from one time of year to another) is needed. Stores in some countries might also need cooling, at least at some times of the year.

Stores Layout

The layout of stores greatly varies depending on the size and shape of a particular store, its location, access/exit points, the types, quantities, and sizes

of the items housed in it, and the activities of the business.

Economy: Usually, storage space is limited, and it must not be wasted. Therefore, the most commercial and efficient use must be made of the maximum area of storage space available.

Accessibility: The Store must be organized in a way that makes it easy to locate and retrieve items with minimal time and effort.

Flexibility: It should be flexible and adaptable to accommodate changes in the inventory and business operations.

Protection: The layout should prioritize the safety of both the items and the people working or visiting the Store.

Movement: Additionally, it should minimize the distance that items and people need to travel within the Store, especially for staff moving items manually.

Equipment for Stores

A wide range of equipment is available to store the huge variety of items that might be housed in Stores. The type of equipment used in a particular Store will depend on several factors, such as:

• the size, layout, and location of the Store;

• the variety of different items handled;

• the nature of the items stored: their sizes, shapes, bulk, weight, properties, and special storage needs;

• the containers/packaging, if any, in which items are packed.

The main types of equipment used in Stores can be grouped into two categories:-

1. Equipment designed for the storage of items, such as shelves, racks, bins, cupboards, and trays.

2. Equipment used to move items, such as trolleys, pallet trucks, and forklifts.

Shelving is the most common type of storage equipment used in Stores. Shelving in a particular Store might need to be of different lengths, widths, and heights to hold different items. In some cases, shelving is made of wood, but metal shelving is usually preferred.

Slotted-angle metal shelving is very popular. It is relatively cheap and lightweight. It is quick and easy to assemble, so the owner or staff of a business can usually do it themselves. The upright lengths of metal have holes bored in them at regular intervals along their entire length, and there are also holes bored in the ends of the shelves. Bolts of the correct size (usually supplied together with the upright lengths and shelves) are inserted through the holes in the uprights, at the required distances apart, and through the holes in the ends of the shelves. The nuts are then tightened on the bolts.

Such shelving can either be fixed to walls or can be freestanding. A length of the shelves, usually 3 meters, 4.5 meters, or 6 meters, can be bolted to another bay to form a run. The number of bays in a run can be as many as space and requirements dictate, and the distances between shelves in different adjoining bays can differ.

The distance between shelves can be adjusted fairly easily when items to be stored change. Because there are many holes in the uprights, even the shelves in one day can be fitted at different distances apart. Such shelving can be used to considerable heights (say 4 to 41/2 meters), as well as in fairly shallow areas because the uprights can easily be cut to the required lengths.

Cupboards and cabinets are a popular alternative to shelving, especially in smaller stores or when added security is necessary for valuable items or protection from dust and dirt, such as with stationery or clothing. These storage solutions typically feature lockable doors and adjustable shelves, with the compartments able to be divided into sub-compartments and pigeon holes using dividers. Retaining strips can also be added along the front to prevent items from rolling out or off the shelves if needed.

Tools and machines used for the transportation of goods come in different shapes and sizes, with both manual and powered options available. Some of the most commonly used equipment includes trucks, forklifts, conveyors, and cranes. While some of these require manual operation, others are powered for greater efficiency. Here are a few examples of such equipment.

Pallets are custom-made equipment that serves the dual purpose of moving items using forklifts as well as storing them. Often, suppliers deliver goods to stores on pallets, which can be easily handled and stored by staff. The same pallets can be used to issue the goods when required.

Stock Control

Remember always that depending on the type of your business, its stocks might be one of the most valuable if not the most valuable of all its assets. All stock must be protected from loss or damage. Losses of stock can cause harm to your business, and losses of profit. Whatever the size or value of stocks held, it is therefore necessary to exercise managerial control over that stock.

What we refer to as stock control or inventory control comprises mainly the clerical and administrative functions of store work. It involves:

The following are important aspects of stock management:-

• Ensuring that the right types and qualities of items needed for production, sale, and distribution are always available when required.

• Protecting stock from various hazards such as theft, pilfering, spoilage, and fire.

• Issuing stock in the correct sequence, first in first out, to avoid deterioration of older stock that has been kept too long in the store.

• Maintaining accurate manufacturing records that show the movement of items into and out of the store, controlling and monitoring those movements, and keeping full records of the items in the store.

• Setting and maintaining the correct stock levels of various items, making reorders in good time, and ensuring that orders are received.

• Checking, counting, or measuring stock to ensure that records are accurate and no losses are occurring due to pilfering, theft, damage, or poor storage.

• Pricing and valuing the items in the store.

Prevention of Theft

Theft often occurs when unauthorized individuals gain entry to a store by breaking in through doors or windows. To reduce the likelihood of such incidents, the following steps should be taken:

• Keep the number of doorways in the store to a minimum.

• Ensure that all doors are strong, fit well, and have adequate locks, bolts, etc.

• Ensure that all windows and fan lights that can be opened are securely locked. Wired glass can help reduce the risk of windows or fan lights being broken to gain entry. Any vulnerable windows, such as those in walls bordering roads, lanes, or waste ground, should be protected by metal bars, mesh, or lockable shutters.

• Guard keys closely, as even the best locks are useless if keys are left lying around or are lost. Only a few sets of keys should be available.

• Consider fitting burglar alarms to doors and/or windows.

• Install closed-circuit television (CCTV) cameras at strategic points in the store, as well as at entry and/or exit points.

Prevention of Pilfering

Pilfering refers to stealing by individuals who have been granted access to the Store. Pilferers usually target small items, especially those with some value, like spark plugs for motor vehicles, spanners, and torch cells, which can be easily hidden in pockets and taken out of the Store.

To reduce or eliminate pilfering, the following steps can be taken:

1. Restrict entry into the Store: As much as possible, the number of people allowed into a Store should be limited.

2. Lock away target items: Items that are or are likely to be attractive to pilferers should be stored in lockable cabinets. More valuable items, such as watches and jewelry, should be kept in safes and strongrooms.

3. Install closed-circuit television (CCTV) cameras at strategic points in the Store and at entry and/or exit points.

Protection of Items in the Store

Spoilage of items in a store can occur due to various reasons. Some of the major causes of spoilage include bad handling, water damage and dampness, dirt and dust, incorrect temperature and humidity, contamination, rodents and insects, and incorrect issue order.

Bad Handling: To prevent spoilage due to bad handling, staff should be trained in materials handling and containers holding fragile items should be marked clearly.

Dirt and Dust: Regular cleaning and dusting of storage sections is essential to prevent spoilage due to dirt and dust.

Temperature and Humidity: Temperature and humidity levels must be appropriate for the items being stored. For instance, fruits, vegetables, and cheeses require semi-refrigerated conditions to avoid spoilage, while materials such as plastic and chemicals can deteriorate if temperatures are too high or too low.

Contamination: Contamination is a major concern when it comes to storing certain items. It's important to ensure that items that are likely to cause contamination, such as chemicals or oil drums, are kept well away from foodstuffs to prevent them from becoming contaminated and potentially inedible or poisonous if consumed.

Rodents and insects: Insecticides or traps can be used to eradicate pests, but specialist firms might have to be called in severe cases. Using a first-in, first-out rule can prevent

Incorrect Issue Order: Incorrect issue order and ensure that older stock is always issued before any stock received more recently, thereby reducing the chances of deterioration.

Fire Protection

To prevent fires and minimize damage and injuries, it's important to take general precautions such as:

• Prohibiting smoking in and around the store. "No Smoking" signs should be prominently displayed at the entrance(s) and inside the store. The rule should be strictly enforced for everyone who enters the store.

• Installing an alarm system that can quickly alert all personnel in case of a fire outbreak.

• Providing fire-fighting equipment suited to the items stored in the store. The equipment should be placed at strategic points in the store and in nearby areas. Common fire-fighting equipment includes buckets filled with sand or water, hoses (usually on reels), fire blankets, and fire extinguishers. Fire extinguishers are metal cylinders containing water, foam, or dry powder.

Stock Records

Stock records are an essential part of managing inventory. They are records of information and facts about stocks that are received into or held in and issued from the store. These records can be set down by hand, on a typewriter, or another machine, or in some other permanent form, such as input to a computer, for future reference. The purpose of stock records is to show the quantity of each item in stock at any given time. Without accurate and up-to-date stock records, it would be necessary to physically count or otherwise measure the quantity of an item in stock each time that information was required!

To provide the necessary information, the record for each item must show, in chronological order, the following details:

• the quantity of the item received,

  and

• the quantity of the item issued.

The difference between the total number received and the total number issued is called the balance, which is the quantity of the item that should physically be in stock.

Bsic Stock Records

However, a stock record may contain more information about an item, such as its average usage, price, supplier(s), and stock levels set for it.

Accuracy in Stock Records

It is essential to maintain accuracy in stock records. If a stock record shows an incorrect balance for an item, problems could arise. Two examples illustrate just how vital it is that stock records are maintained accurately.

• Maintaining accurate stock records is crucial for business operations. Inaccurate records can lead to delays in replenishment orders, causing a shortage of items and resulting in loss of production and sales.

• On the other hand, if a stock record shows a lower balance than the actual balance, a replenishment order may be placed too early, leading to an excess of items being held in the store and unnecessary financial strain.

Accuracy in stock records is not limited to calculating new balances but also requires careful attention while making entries from primary documents such as delivery notes, goods received advice, requisitions, and indents.

Stock Levels

Shortages of necessary items can lead to serious problems for a business, just as holding excess stock can. To avoid such problems, it is important to maintain the correct stock level for each item.

Shortages of Stock

A shortage of necessary items can result in loss of production, sales, customers, and profits. To prevent such losses, the store must have the required items in the correct quantities and quality, at the right time.

Excess Stocks

Holding excess stock means that the business's funds are unnecessarily tied up. This can lead to a loss of production, sales, customers, and profits. To avoid such losses, borrowing may be the only option, but this will increase costs through interest payments and reduce profits.

Moreover, occupying space with excess stock not needed for immediate use means smaller quantities of necessary items might have to be ordered. This can lead:

• to the loss of discounts for bulk buying,

  and

• frequent small orders can increase costs.

Furthermore, there is a greater risk of excess stock deteriorating, becoming obsolete, and causing further losses as explained earlier

Setting the Correct Stock Levels

It is crucial to set and maintain the appropriate level for each stock item, neither too high nor too low. Several factors need to be considered while deciding on the stock levels for each item. Some factors apply to all items, while others depend on the nature of specific items or materials.

• The average usage of an item in production or sales must be taken into account. Larger stocks of important materials and fast-selling items must be held to avoid holdups or interruptions to production or sales.

• The usage or sales of an item should be analyzed to determine if they are increasing, reducing, or static. The average usage of an item can be calculated by adding up the quantities issued during a period and dividing the total issued by the number of months. For example, if 225 of an item were issued in January, 300 in February, and 240 in March, the total issued in the quarter was 765. That total divided by 3 gives an average monthly issue of 255.

• The time required to order and receive new replenishment supplies is a critical factor. It is necessary to consider the time taken to place orders, find new suppliers, and how long it will take for suppliers to deliver the replenishment stock ordered. Some supplies may be obtainable quickly, but sometimes components and/or finished products have to be specially made or imported from another country, which takes time.

• The shelf life of an item must also be considered. Some items, such as fresh foodstuffs, deteriorate quickly, while others last much longer.

• A reserve might need to be kept in case of delays in receiving new supplies or for more extensive than usual usage.

• The space available in the store, which is usually limited, and how much money the business can afford to have tied up in stock should also be considered.

• The price of an item is another significant factor. It is desirable to keep stocks of expensive items to a minimum, so long as the operations of the business do not suffer. However, there might be other matters to consider, such as:-

1. Discounts are available for bulk buying.

2. Seasonal or other price fluctuations.

3. Expected price increases that might force buying earlier than intended.

The following stock levels can be set for items:

The minimum stock level (MSL) is the level below which the stock of an item should never be allowed to fall. Items such as essential raw materials, popular selling lines, important spare parts for machinery, etc., could seriously harm the business if they run out of stock. So, their minimum stock levels should never be reached.

The reorder stock level (RSL) is the level above the MSL at which action must be taken to ensure the order and delivery of new supplies of the item before the MSL is reached.

The higher stock level (HSL) is the level at which the stock of an item should not be allowed to exceed. It is set to avoid having capital tied up unnecessarily and the other problems with excess stocks we have explained

Stocktaking and Spot Checks.

Stocktaking is the process of physically counting, weighing or measuring the quantity of each item in stock, and recording the result. It is usually carried out once a year in smaller businesses, typically on the last day of the financial or trading year.

Stocktaking is important because it can reveal losses or discrepancies between stock records and the actual stock. However, because it is only done once a year, spot checks can be used to detect possible losses more frequently.

Spot checks are different from normal stocktaking because;-

• They are carried out at irregular intervals throughout the year.

• Without prior warning.

• Usually involves only a few random items.

Spot checks are designed to discourage storekeeping staff from engaging in malpractices that result in losses, such as pilfering or fraud. By checking items at irregular intervals, staff are less likely to know which items will be checked and when.

Another important function of spot checks is to disclose any losses of the items concerned. If irregularities are found, checks can be carried out on a wider range of items without delay. This reduces the likelihood of malpractices occurring between one stocktake and the next.

The Art of Persuasion: Mastering the Principles of Selling

The Art of Persuasion: Mastering the Principles of Selling" is an all-inclusive course that equips individuals with the skills and knowledge necessary to thrive in sales. The course is built on the foundation of effective persuasion, offering practical strategies for participants to apply in their sales endeavors. Throughout the course, individuals will gain insight into understanding their target audience's needs and motivations and learn how to tailor their sales pitch accordingly.

Building relationships with potential clients is paramount to long-term success, and thus, the course covers techniques for building rapport and establishing trust. Moreover, participants will learn how to overcome objections, close deals, and handle difficult customers. Upon completion of the course, individuals will have a thorough understanding of the sales process and a toolbox of strategies to become more effective and successful salespeople.

This lecture encompasses a comprehensive range of significant subjects, which are succinctly summarized for your convenience. By diligently participating in this lecture according to the prescribed learning guidelines, it is anticipated that you will acquire the proficiency to apply the knowledge acquired in various scenarios. Additionally, you should possess the ability to:

• Articulate the significance of proficient selling in business endeavors.

• Elucidate key techniques and approaches used in sales, while recognizing the importance of product knowledge and presentation.

Introduction: The Art of Persuasion: Mastering the Principles of Selling

Mastering the Principles of Selling is an all-inclusive course that equips individuals with the skills and knowledge necessary to thrive in sales. The course is built on the foundation of effective persuasion, offering practical strategies for participants to apply in their sales endeavors. Throughout the course, individuals will gain insight into understanding their target audience's needs and motivations and learn how to tailor their sales pitch accordingly.

Building relationships with potential clients is paramount to long-term success, and thus, the course covers techniques for building rapport and establishing trust. Moreover, participants will learn how to overcome objections, close deals, and handle difficult customers. Upon completion of the course, individuals will have a thorough understanding of the sales process and a toolbox of strategies to become more effective and successful salespeople.

Sales play a critical role in the success of any business, regardless of whether it involves physical products, services, or ideas. Take, for example, an advertising agency that must persuade its clients to invest in various advertising campaigns and the development of innovative advertisements. Similarly, a travel agency needs to convince customers to choose their vacation packages and transportation options. Even a painting and decorating company must effectively market its services to attract clients.

Some individuals may erroneously believe that selling is solely the responsibility of salespeople and consider it beneath them. However, while not everyone may inherently possess strong sales skills, it is imperative for business owners lacking these abilities to hire competent sales personnel to ensure the success of their ventures.

The art of persuasion is something we all encounter in our daily lives, often without even realizing it. From a young age, we learn to use persuasive techniques to get what we want. Whether it's convincing a parent to buy us a toy or persuading an examiner that we deserve a passing grade, the essence of salesmanship is present.

Persuasion can take many forms and serve various purposes. It could be a wife persuading her husband to dine at a specific restaurant, a politician rallying for votes, or even a television announcer enticing viewers to watch a particular program.

In each case, the goal of persuasion is to prompt action from others - actions they may not have considered or intended otherwise. Through effective persuasion, people are influenced or swayed towards taking certain actions that align with the desired outcome.

Ultimately, persuasion is about harnessing the power of influence to guide others toward making decisions and taking actions they might not have taken otherwise.

Salesmanship is a crucial aspect of business, as it involves convincing individuals or groups to buy products or services and exchange money for them. This concept goes beyond simple transactions and encompasses the selling of ideas and concepts as well. While some situations may not involve a direct exchange of money, commercial salesmanship in business revolves around persuading people to make purchases and monetary transactions.

The world of commerce in the modern era is highly intricate and revolves around the exchange of goods and services between individuals or groups. This process is no longer as straightforward as it once was, where a hunter would barter his meat for the crops of a farmer or the weapons made by a craftsman.

Today, the exchange of goods and services is mostly facilitated by money. Money holds no inherent value on its own; rather, its worth lies in what it can be exchanged for. The success of any business relies on its ability to connect with consumers who need their products or services and are willing to pay for them. Without sufficient sales at a profit, no business can sustain itself.

The act of selling products in exchange for money forms the bedrock of modern industries and businesses. Should a factory's products go unsold, all the effort and labor invested in designing and manufacturing those products would go to waste. Additionally, the financial investments made to support production would also be lost.

In the world of business, competition is a common occurrence. Many countries have multiple businesses that produce similar goods or offer similar services. These businesses engage in a constant battle, competing with each other to attract customers who are willing and able to purchase their products.

Every business has its own sales team, which may consist of just one person or several individuals working together. These teams compete with one another, much like teams in a football game compete on the field. However, the objective here is not simply to score goals but rather to sell as many products as possible to as many customers as possible.

To outperform their competitors, businesses must not only focus on making sales but also on retaining existing customers and acquiring new ones. Sometimes, they even manage to lure customers away from their rivals.

It's important to recognize how crucial effective salesmanship is for the success and prosperity of any business. Without generating sales and revenue, a business cannot sustain itself in today's competitive market.

The commercial salesmanship we encounter in our daily lives aims to persuade us to purchase finished products, which most of us use without altering. However, there are exceptions, such as when a housewife buys various ingredients for baking or when someone purchases a product for self-assembly.

Industrial businesses engage in activities like extraction, processing, refining, manufacturing, and construction to bring forth different products. Often, businesses buy products in one form but sell completely different products. The end products of one industrial enterprise may serve as raw materials for another enterprise that operates in a different field.

An example of how this works in practice is as follows:

A business owns and cultivates tracts of land specifically for growing trees that produce high-quality wood for making furniture. The primary products of this business are cut trees and logs. However, these trees and logs serve as the raw materials for timber mills, which purchase them from the business. The timber mills process the trees and logs to create lengths and sheets of timber. These lengths and sheets of timber then become the raw materials for furniture factories, where they are transformed into finished furniture items ready for sale in various retail settings such as shops, stores, and showrooms.

The process of commercial salesmanship involves more than simply delivering end products to consumers who will eventually use them. In reality, a specific product or its components may require salesmanship at multiple earlier stages to reach its final form.

As an illustration, raw materials may have needed to be sold to a component manufacturer, who would then sell those components to a final product manufacturer. The final products might then be sold in large quantities to a wholesaler, who would subsequently sell them in smaller quantities to a retailer.

Finally, the consumer's purchase would constitute the fifth and final sale in the distribution chain. This entire process involves five distinct businesses (excluding the sales of equipment and services required for extracting raw materials, manufacturing products, distributing them, etc.).

The Significance of Effective Salesmanship

Channels of distribution refer to how products or services are delivered from manufacturers or producers to end-users. While there are various types of channels, such as the manufacturer-to-wholesaler-to-retailer channel, effective selling skills are crucial for the majority of businesses to thrive. The level of sales skill can greatly impact a business's success or failure due to the following reasons:

1. Persuading customers to make purchases: It requires skill to convince individuals or groups to exchange their money for something they may not have initially intended to buy or may not even be aware of.

2. Influencing brand and product preference: Skill is necessary in persuading customers to choose one specific type, brand, or make of the product, especially when competitors offer similar or identical options at comparable or lower prices.

3. Overcoming objections and hesitations: Skillful salesmanship involves effectively addressing customer concerns and doubts, ultimately converting potential buyers who are only considering a purchase into actual purchasers.

The Benefits of Products

Consumers purchase products because they have specific wants or needs that they hope to fulfill. They also expect to gain some form of benefit from their purchases. It's important to note that the reasons why consumers buy can vary greatly from those of corporate buyers, who make purchasing decisions based on trade or business-related factors.

While some wants are essential, like food, clothing, and medicine, other desires are more specific and individualized. As a business owner, it is crucial to ensure that customers choose your products over those offered by your competitors. By understanding and catering to their needs, you can provide them with the benefits they seek while building customer loyalty and maintaining a competitive edge in the market.

Other wants might have to be created, perhaps by skillful advertising and/or by publicity. Potential customers have to be made aware of what is available and the benefits that can be gained from a particular product. And then the desire the want to possess or use that product has to be fostered.

In commercial selling, a benefit is something that promotes the welfare of a customer who buys goods or services. A benefit is what the product can do for the customer. Unless a customer is convinced a product will provide a benefit, he or she will NOT buy it. Benefits of a particular product:-

• might be profit

• might be the saving of time

• might add to the status

• might be the saving of work

• might enhance appearance

• might be the saving of money

• might make life more comfortable

and so on. Therefore, benefits are closely allied to peoples' buying motives or their reasons for buying.

The creation of other wants may need to be strategically achieved through effective advertising and publicity. It is crucial to ensure that potential customers are informed about the availability of products and the benefits they can provide. Furthermore, it is important to cultivate a strong desire in customers to possess or use those products.

In the realm of commercial selling, a benefit refers to something that contributes to the well-being of a customer who purchases goods or services. A benefit highlights what the product can offer to the customer. Without being convinced that a product will deliver benefits, customers are unlikely to make a purchase.

Some examples of benefits associated with specific products include: generating profit, saving time, enhancing status, reducing workload, improving appearance, saving money, and increasing comfort. Therefore, benefits are closely tied to people's motivations for making purchases.

Instead of focusing on selling the products themselves, it is crucial to sell the benefits they provide to potential customers. For instance, a cosmetics business sells the benefits of its products, such as enhancing beauty, youthfulness, and sex appeal. Although the customer technically buys a product, in their mind, they are paying for the benefits it can offer them rather than just the product itself.

There are various methods of selling goods and services: through market stalls, shops, stores, and showrooms; either by personal interaction or self-selection; utilizing commercial travelers or representatives who visit both prospective and existing customers; via mail-order or direct-mail using advertisements and/or catalogs; through online platforms; and so on. However, if the salespeople employed by a business lack proficiency in the specific selling methods and techniques required for their products, many sales opportunities may be lost, posing a threat to the company's prosperity.

Commercial salesmanship represents the crucial connection between (1) producers of goods/services and (2) users of these goods/services. Success in commercial salesmanship relies on skill and experience to:

• Create demand for products;

• Convince potential customers that what is being offered will bring them valuable benefits worth their investment;

• Persuade them to make a purchase.

The Ingredients of a Successful Sale

For a sale, whether it be of goods or services, to occur, three essential ingredients must be present:

1. A Seller: This is the individual or company offering the product or service for sale. They play a crucial role in connecting with potential buyers and showcasing the value of their offerings.

2. Something to Be Sold: The product or service being offered is the second ingredient. Sellers need to have a high-quality and desirable offering that meets the needs and wants of potential customers.

3. A Willing and Able Customer: The final ingredient is a customer who is both willing and able to make a purchase. Ultimately, it is the buyer who holds the power to decide whether or not a sale will occur.

While all three ingredients are necessary, it is important to recognize that the buyer ultimately has the final say in making a purchasing decision. Even if the seller possesses extensive knowledge, and expertise, and offers an excellent product at a reasonable price, if the buyer chooses not to buy, no sale can take place.

Practical Example 1

This practical example demonstrates the essential elements required for a successful sale:

A potential customer walks into a clothing store to buy a new shirt. If the store is closed, there is no opportunity for a sale to occur because there is no seller available. Even if the store is open, if the customer cannot find a shirt that matches their desired size, color, or style, there will be no sale because the product they are looking for is missing. Similarly, if the customer does find their ideal shirt but it exceeds their budget or willingness to pay, there will be no sale because there is no willing customer.

While it may not always be necessary for all three ingredients - seller, product, and customer - to physically exist in the same place and time, they must still be present or available for a successful transaction to take place.

Methods of Selling

There are various methods for selling different products. Each method is tailored to suit specific products, and some products can be sold using multiple methods. Personal selling is one of the most common ways products are sold.

Personal Selling: In personal selling, a vendor interacts directly with customers and potential customers either in a physical location like shops or through visits by sales personnel to their homes or workplaces. The success of personal selling relies on the salesperson's influence and skills to convince prospects that the product fulfills their needs and persuade them to make a purchase.

Many products are available for self-selection. in various retail establishments such as shops, stores, supermarkets, and hypermarkets. Customers have the freedom to choose their desired items from the displayed products on shelves or in trays, display cabinets, or open-top freezer units. Once they have made their selections, they proceed to a cashier or check-out point to complete their purchases. Although sales personnel may not actively serve customers, they still play a crucial role in salesmanship:

• Designing visually appealing product packaging that attracts potential customers.

• Strategically arrange the store layout and units to enhance customer convenience and create a pleasant shopping atmosphere.

• Determining which products to showcase, where to position them, and how best to optimize the layout.

• Creating eye-catching posters, notices, etc., that capture customers' attention towards specific products and encourage them to make a purchase.

• Develop advertisements and sales promotion campaigns aimed at attracting customers into the establishment in the first place.

Mail-order or direct marketing is a versatile method of selling a wide range of products. Prospective customers come across product details through various advertising channels such as newspapers, magazines, radio, television, or the Internet. They can also find information in attractively printed color catalogs.

Once they identify items of interest, customers can place orders via telephone, mail, fax, or email. The purchased goods are then delivered to the customer by post or courier service.

In many cases, mail-order businesses do not require physical stores in busy city centers or large sales teams. Instead, they rely on effective communication systems and well-organized offices staffed with capable personnel who handle inquiries from potential buyers. A reliable computerized database and an easily accessible warehouse near a postal or courier depot are also essential components of this type of business. Additionally, expertise in sourcing products for resale is crucial.

While some manufacturers, wholesalers, and retailers opt for mail-order sales alongside their other distribution channels, many successful mail-order businesses specialize in clearing out fast-selling lines from various manufacturers.

One unique aspect of this form of commerce is that the vendor and customer may never actually meet face-to-face. The customer only sees the actual goods upon delivery. Nonetheless, considerable selling skills are required to create attention-grabbing advertisements and catalogs that entice customers to keep and pay for the ordered goods.

Unsolicited Telephone Marketing: With the advancement of modern technology in computers and telecommunications, there has been a significant increase in the practice of unsolicited telephone selling. This method involves a skilled salesperson utilizing a telephone directory to systematically reach out to both private individuals and business subscribers within their local area.

For instance, an insurance agent looking to expand their client base might contact homeowners residing in neighborhoods where they already have existing clients. The objective is to effectively persuade these individuals to purchase insurance coverage from them. If necessary, appointments can be scheduled for those who express interest in learning more about the offered services.

To excel in this approach, salespeople must possess excellent telephone techniques. They must possess the ability to adapt quickly based on the reactions and responses of each individual they engage with during their calls.

The Internet Websites: The Internet has revolutionized the way we do business. With just a few clicks, customers can access a wealth of information and make purchases from the comfort of their own homes or offices. It's like browsing through a massive mail-order catalog but with even more options. As a vendor, it's crucial to ensure that potential customers are aware of the availability of product information on the internet and where to find it.

To effectively sell products, a business must have a well-designed and professionally built website. The website should highlight the benefits of the products and encourage customers to place orders. Additionally, customers should have the option to request additional information or order forms through the website. This convenient process is known as online ordering.

Creating an impactful online presence is essential for any business looking to thrive in today's digital age.

Custom-made Products: When it comes to potential customers requiring specially made or custom-made products, a producer may need to engage in personal negotiations. This could be done through various means such as telephone, mail, fax, email, or even with the assistance of a third party.

It is important to note that while the customer may desire a specific product, there might be several competing businesses capable of producing it. Hence, each business must employ the most suitable selling techniques to convince the customer that their product is superior in terms of quality, price, efficiency, reliability, and timeliness.

Regardless of the goods or services your business intends to sell, it is crucial to utilize the most effective methods for selling those particular products.

The Sales Transaction

In the business world, a sales transaction is the culmination of a successful sale, where a product or products are exchanged for money or its equivalent value.

It's important to note that the physical exchange of goods and money may not happen simultaneously. However, even when agreements are made for future deliveries or credit arrangements, these still qualify as transactions in a business context.

Five key steps lead to a successful selling transaction:

1. Attracting the prospect's favorable attention towards the product is the first step.

2. Once attention is captured, it is crucial to arouse and maintain the prospect's interest in the product.

3. Creating and fostering a desire to purchase must follow after capturing their interest.

4. Convincing the prospect that the product will deliver on its expected benefits or claims comes next.

5. Finally, persuasion techniques are employed to encourage the prospect to complete the transaction and make a purchase.

The five steps we have outlined for you are a cohesive and seamless process that ultimately leads to a successful sales transaction.

It's important to note that a prospect may go through different steps at various points in time, depending on their journey. For example, they may visit a showroom multiple times to inspect a specific vehicle, ask questions, gather more information, and even take it for a test drive before deciding to purchase.

A salesperson may only be able to guide the prospect through one step during each interaction and might not feel progress is being made until the prospect returns or is prompted by follow-up communication.

Likewise, a life insurance agent understands that building trust and rapport with a prospect often requires multiple visits before they are ready to take that final and crucial step of purchasing a life insurance policy.

It is important to keep in mind that if a prospect is unwilling or unable to take any of the five steps necessary for completing a sales transaction, then the transaction will not be successful. The art of salesmanship lies in persuading and influencing prospects to take these steps, particularly the crucial final step: making the actual purchase.

Product Knowledge

Full product knowledge is needed to be able to persuade and convince people to buy. That is you (and your sales team) need to know all about the products you are selling. Any prospect who has to be persuaded and convinced to buy a particular product is likely to want information about it before deciding whether to buy or not. He or she will ask questions. The replies giving the information wanted must often be given orally, that is by word of mouth.

Spoken answers must be given fully, clearly, and accurately, and without hesitation. The prospect will then gain confidence in the seller and, in turn, the product, without that confidence, a sale is unlikely.

To be able to answer fully, clearly, accurately, and without hesitation, any questions asked about products require detailed knowledge about them: full product knowledge. If you, for example, know that you know all about what you are selling, you will have greater confidence in yourself and your products. And that confidence will be communicated to prospects increasing your chances of making sales.

Each prospect must gain the impression that you the vendor and your sales team welcome his or her questions, and are happy to answer them. Indeed you should be as unless the prospect does ask questions and does receive satisfactory answers to them, he or she is unlikely to buy from your business!

If you or a member of your sales team is hesitant in giving answers to questions or uses many “umms” and “ahs”, the impression will be given that you are unsure of yourself and your products. A prospect who gains such an impression, which might be quite or wrong, will not gain confidence in the products, and so will probably not buy.

Some prospects might have to be actively encouraged to ask questions. Some people might want to ask, be too shy, or be embarrassed to display ignorance. An experienced seller, who knows all about his products, will also know the questions most commonly asked about them. He can cleverly use that knowledge to answer questions even before they are asked! This is very valuable when he notes, or senses, that a prospect wants answers to questions but is too shy or nervous to ask them.

In some cases, a seller also needs “technical” knowledge, that is, knowledge not only about what products can do but how they do it – how they work.

Circumstances will, of course, vary considerably from product to product.

Another important matter not to be overlooked is that different prospects might want different information about the same product.

Services

Full product knowledge about services is also important because they are intangible and cannot be seen or touched. The benefits of many services (such as banking, maintenance of machinery and equipment, and insurance might be well known and accepted, but there is nothing to show to prospects, except perhaps printed pamphlets, etc, explaining the benefits of the services. Full product knowledge and skillful salesmanship are very often needed to persuade prospects to buy – and pay for, of course, many types of services.

Demonstrations of Products

The successful sale of many goods requires more than knowledge about them alone. Prospects require assurance that what is being offered for sale lives up to the claims made about it; in other words, that it will perform the function for which it is purchased. Its ability to do so must be demonstrated to prospects, and the act of doing that is called demonstration.

A sales demonstration is “the efficient and skilled handling of an item to convince a prospect that the item can fulfill the claims made about it in advertisements and oral remarks made by the seller”.

Practical Example 1

If you and your assistants run a business selling butane gas-operated cookers from a showroom. The facts you and your staff need to know about each model are as follows:-

• The model name

• Name of the manufacturer.

• Whether the cooker was manufactured in the country itself, or whether it was imported from abroad; if it was imported, the country where it was produced.

• The features of the particular model: its dimensions; the number and sizes of its gas rings; the size of its oven; whether it includes a timing device, a thermostat, or a self-cleaning oven, etc.; the range of colors in which it is made and which colors are available in stock.

• How each model compares with other models on display or being sold by competitors, whether produced by the same manufacturer or by others; e.g. extra charge features for which more is charged with other makes or models.

• The period covered by the manufacturer’s warranty or guarantee, and what, if any, after-sales service is provided.

• What service and repair facilities are available; the cost of services contracts; and the availability of spare parts, especially if the cooker is imported.

• The price of the model, and how it compares with prices of other makes or models.

• What discounts are offered for cash payment or whether any special price reduction is being offered?

• Whether the trade-in of an old cooker would be arranged and/or whether hire purchase facilities are available.

• How quickly delivery and/or installation can be made, and whether there are any additional charges for either or both.

Our list is not exhaustive, but it gives you a good idea of the detail that first has to be learned and then has to be passed on to prospects. Your business probably sells several different models of cookers, possibly produced by different manufacturers. Therefore, you would need to learn as much as we have listed about each one. Furthermore, special features, prices, etc., change often, and therefore you must ensure that you and your staff always have the most up-to-date information to pass on to prospects.

To sell one of the cookers, you would have to do more than talk about it to prospects. You would also have to demonstrate it – and be able to do so skillfully and efficiently.

Sales Demonstrations

Demonstrations of physical products often appeal to one or more of the human senses. Depending on the product, a prospect might want:-

• to taste a new food product or a drink;

• to smell a product, such as perfume;

• to listen to a record or a recorded tape or a CD or a radio;

• to look at the picture on a television set or at a video or a DVD player;

• to feel the quality or texture of cloth or a carpet.

You will be able to think of numerous other examples for yourself. Sometimes a demonstration will appeal to two or more senses at the same time; examples:

• A prospect might both smell and taste a food product;

• A prospect operating a piece of equipment will feel it, and see what it does.

Handling or Operating Products

Often a demonstration involves the prospect of actually handling or operating an item, such as using an electric drill inputting to a computer or word processor, or driving a motor vehicle – the list is endless.

Frequently a salesperson is needed in those types of demonstrations: to give full explanations, to guide the prospect, and to guard against mistakes or accidents which could all too easily loss a sale. Demonstrations need to be performed in an efficient and skilled manner which will both:-

• impress prospects

• and

• give them confidence in the product(s) being demonstrated.

For a successful sales demonstration, full product knowledge plus experience in the competent handling of the product(s) are both essential.

The Stages in a Sales Demonstration

Much will depend on the particular products(s) being demonstrated, but a sales demonstration will often follow this pattern:-

The Presentation: The product to be demonstrated should:

• be readily available,

• be spotlessly clean, and – if it is a piece of equipment – it should:

• be in perfect working order, and

• be ready to be demonstrated.

Description: The salesperson must be able to give all necessary information about the item and, throughout the demonstration, must be able.to answer fully any questions asked by the prospect.

Operation by the vendor: Particularly when a piece of equipment is being demonstrated, the salesperson must be to operate it in a skilled and competent manner.

Operation by the Prospect: The person should be encouraged to handle or operate the item. The salesperson must be ready to give all necessary guidance and assistance so that the prospect will gain confidence in the item. This can often be the turning point in the demonstration and can decide the prospect whether to buy or not. The seller must be watchful to avoid mistakes or accidents which might cause embarrassment or a loss of confidence. Sometimes a prospect does not wish to operate a piece of equipment, or might not be able to do so, and so should not be pressed to do so.

The Completion: The salesperson must be able to provide full information about the item itself, its price, special features, etc, and if applicable, discounts, credit terms, HP facilities, etc, to persuade the prospect to buy.

Practical Example 2

A man has been attracted to the showroom of your shop by an attractive display of cookers in its windows. He might require a little time to look around, but as soon as a member of your sales team or you judge he needs attention which might be the moment he walks through the door you should approach him. The approach is important as he might be embarrassed or nervous; a friendly and courteous but not familiar greeting and offer of assistance usually makes a good impression.

The salesperson needs tactfully to find out the item she is interested in and, if possible, the likely model. Once you have found out, or judged which model of cooker might best suit him, you should, if necessary, lead him to that model. That should be spotlessly clean, in perfect working order, and ready to be demonstrated. If you have to lead the man some distance to the cooker, you can provide him with information about the cooker on the way.

On reaching the cooker you should point out its features, including any special ones or any included in its price but which cost extra on other makes or models; for instance a timing device. Next, you should point out the control knobs and or switches and explain how they operate and what they control. You should open the door of the oven so he can see the size of it, and explain how easy it is to clean, and explain the uses of any dials, and so on.

He should encourage him to turn on the burners and to increase and decrease the sizes of their flames, open and close the oven door, and generally test all the features. There might be saucepans or frying pans handy so he can see what the cooker will look like when in use. You must be prepared to answer fully any questions he asks and to provide any information needed.

The salesperson might have to demonstrate two or more different models, possibly of different makes, to the man before going to the final stage of trying to persuade her to buy one of them. At that time his knowledge of discounts, credit terms, trade-ins, hire purchases, delivery/installation timing and charges, etc, is vital.

The salesperson will know that a scale might not result at once. The man might want to think over or talk the matter over with his wife and possibly even bring her for a demonstration before making a decision. You should explain that he will be welcome to call in again or to telephone you for any further information he might need; you could give him a business card bearing your name and telephone number.

The salesperson must be ready to provide the same information about the cooker or more than one and to give demonstrations several times. And most importantly you must make it clear that you are happy to do so; if you show in any way the slightest sign of boredom or irritation about the prospect’s hesitation in reaching a decision, you will lose the sale.

Note in particular how in this example the salesperson, to have any chance of making a sale, needs both full product knowledge and skill in demonstrating his product. Also, you have to find out the man’s buying motive and what he could afford to buy, and he had to be led through all five steps toward a successful selling transaction.

In the example, the showroom window display led the prospect through the first two steps, the attraction of favorable attention and the arousal of interest, and into the showroom. But it was the salesperson who had to take over from the window display and, using the display inside the showroom and a demonstration, lead him through the remaining steps.

Examples of Demonstrations

The need to demonstrate pieces of machinery and equipment to show what they can do, and how they are operated is evident. But there is a huge variety of other products that might have to be demonstrated in one way or another before they can be sold. Here are examples:-

• Often prospects will want to try on garments, shoes, etc, before making a purchase – sales staff might have to ascertain the sizes, styles, and colors required, produce the required items, unwrap them, prepare them (e.g. put laces in shoes), help prospects to put them on, arrange to have alterations made when applicable, and on so.

• A prospect might want to try writing with a fountain pen or ballpoint pen; a salesperson might have to show how to fill it or how to insert refills.

• A prospect considering buying jewelry might want a salesperson’s advice and assistance in putting on various pieces.

Huge numbers of similar examples can be given and you will think of many yourself. A point to remember is that the need for some form of demonstration can arise as often with simple, low-cost everyday products as with large, complex, and expensive items.

Strategic Human Resource Management

This lecture encompasses a comprehensive range of significant subjects succinctly summarized for your convenience. By diligently participating in this lecture according to the prescribed learning guidelines, it is anticipated that you will acquire the proficiency to apply the knowledge acquired in various scenarios. Additionally, you should possess the ability to:

• Explain the expansion and growth of businesses, the features of organizational business structures, the essential role of human resources in an enterprise, the stages in recruitment, selection, induction, training and development of personnel, and methods of employment.

Introduction: Strategic Human Resource Management

Strategic Human Resource Management is concerned with the employment, development, and reward of people in organizations the conduct of relationships between management and the workforce, and a strategic approach to business that is harnessed throughout the world. HRM champions the ideas of an organization to achieve success for its employees. With such a vast range of cultures using this initiative, it has to be considered how HRM has adapted to meet a variety of needs.

In this introductory course, we will look at human resource management as a concept, a zero impulse business, and international business, and how HRM practices alter in different regions throughout the globe.

Additionally, we will explore further strategic approaches within international business and use them to critically engage and determine the effectiveness of strategic international HR.

This course will delve into the dynamic world of HRM and will equip you to answer this question: what is international HRM and why does it matter?

A resource is something that helps or aids a business to achieve its objectives or goals: to be profitable and to prosper. For a business to be profitable, its owners or managers need to successfully manage the different resources that are available to it.

You must have heard of the financial resources of a business. They comprise money invested in it and/or loaned to it and often earned by it from its activities.

Such resources are available to the business to use to finance or to pay for its operations, whether those are industrial, commercial, or service-providing. The financial resources of a business must be managed to the best effect. Money must not be spent unwisely or unnecessarily, or be wasted or lost. The aim must be to increase the finances available to the business, to gain profits for its owners and/or shareholders, and to give security and returns to investors. Other resources available to a business are more tangible and, depending on its size and activities, might include land, buildings, plant, machinery and equipment, motor vehicles, shop and office furniture, stocks or raw materials, stock of products for sale, or stocks of other items. As you know, such material resources are called assets.

The assets of a business must also be managed most efficiently and cost-effectively to achieve its set objectives: which might be the manufacture or production of products, the sale of products, or the provision of services or two or all. Assets must be protected from loss or damage. Machinery and equipment must be maintained and repaired and, when necessary, replaced, so that it will continue to perform well the functions for which it was acquired.

But no matter how great its financial resources are or how wide the range or value of its assets, a business can achieve its objectives only through human effort. Its ‘human resource’ is therefore as important to any business, if not more important than its other resources. The human resource of a business is made up of all the efforts, skills, or capabilities of the people who work for it, and who enable it to perform and to continue its operations and, indeed, to exist.

A business might be started by just one person, and might perhaps never involve any other person, although that is rare, as even a sole business person usually needs some assistance, if even from members of his or her family. But even if one person ran a business entirely alone, he or she would be its human resource and would be an essential resource!

Most businesses do need contributions by more than one person; some might be family members, some might be partners, and some might be employees. A business might be started and run by just one person, and other people are brought in, as the business expands and the workload increases. Another business might need to employ people to work for it right from the start. Situations differ greatly and will depend on the type and size of business you start or take over and run. However, let us consider a fairly typical example, to show how a retail trading business might expand and need to employ people to work for it.

Practical Example 3

Mr. Jerome established a business called “Moon Light Enterprise Ltd”, which he ran from a store located just off a busy town square, in a popular pedestrians-only side street. The business sold every conceivable kind of kitchen utensil and all the practical household items of daily life, such as brooms, brushes and pans, baskets, storage racks, crockery and cutlery, and a host of other items. To begin with, Mr. Jerome ran the business with the aid only of his wife and with help from their two daughters during particularly busy times.

In Moon Light Enterprise Ltd, just like in any other business, a variety of different activities or types of work had to be performed to achieve its objectives. Even the running of Mr. Jerome’s small store involved ordering stock, storing it, paying for it, selling goods, collecting and banking payments, and much more. What work or activities are involved in a particular business and how many people will be required to perform them adequately, will depend:-

• on its objectives and the policies laid down for their attainment;

• on whether it is involved in the industry, in trading or distribution, or the provision of a service, or two or more of those activities;

• on its size.

As the sole proprietor, assisted by his immediate family members, Mr. Jerome to begin with performed all the work which needed to be done to achieve the objectives of his business. He was personally responsible for the quality of all or most of that work, and for making the decisions and taking the actions which would directly affect the success or otherwise of the business.

But let us assume that “Moon Light Enterprise Ltd’ became successful and that Mr. Jerome as its owner decided to expand it or that circumstance forced him to do that. The expansion of a business results in an increase in the volume of work to be performed, and might also necessitate moving to larger premises or opening a branch, or some other such change.

It is unlikely that Mr. Jerome and his family would alone have been able to cope with the increased workload, and so it became necessary for him to employ other people to work in and to assist in the business; they were the staff or personnel or workforce of the business. But it would have been a full-time job for Mr. Jerome had he had to check every tiny item of work performed by every member of staff employed. And he would have had no time left to concentrate on the more important activities which perhaps only he might have had the necessary experience or expertise or skill to perform.

So how did he – as the owner of the business cope with the new situation?

What he had to do was to entrust the performance of certain activities or certain groups of related activities to another person. That other person might have been a member of his family a partner an experienced employee or someone specially engaged, whom he believed he could trust to perform well the activities concerned without having to be constantly supervised and checked by him. He might have had to entrust or delegate different types or groups of activities to two or more different people.

A person who is entrusted to do certain things has responsibility for doing those things. The things to be done can be the performance of certain work, taking certain actions, or making decisions or two or all of those. So we say that a person is delegated responsibility for doing certain things.

Having delegated other people to subordinates, Mr. Jerome was now by definition a people manager. However, he could still maintain overall managerial control of the business:-

• by issuing instructions and guidelines, that is laying down policies.

• by calling for and studying reports.

• by checking performances from time to time; and

• by encouraging staff to approach him for any help, advice, or guidance they might have needed from time to time.

Delegating in the Right Way

The first stage in the process of delegation is most important but is often the most difficult for the owner of a business to take. A person who has built up a business from scratch who has at one time or another performed and/or controlled all the work involved and who has based on experience established methods and procedures, often finds it very difficult to delegate and to relinquish control over any part of the business.

For instance, Mr. Jerome might find it hard to accept that another person could perform the work as well as he could himself, particularly as that other person might not have the same motivation that he had himself that is every action or decision he took in business might affect his pocket.

In some cases the need for delegation manifests itself over some time as a business steadily expands; in other circumstances, it is the result of a sudden increase in workload which might be more or less unexpected, for instance, a competitive business might have closed. But whatever the circumstances, it is essential that when the need arises the owner of a business does delegate, and that he or she goes about doing so in the right way.

• Each subordinate must be taught both to perform the work he or she is expected to do, as well as to accept any responsibilities for taking actions and making decisions that go with the post.

• The work of the business should be shared out as evenly as is possible so that one person is not idle while another person including the owner or manager has far too much work to do.

• By observing the abilities and potential of each person it can be decided the amount of responsibility he or she is likely to be capable of carrying; that is, the extent of the responsibility each person is likely to be able to handle without constant assistance or supervision.

• Each person should be allowed, indeed be encouraged, to accept the full quantity of responsibility he or she can carry. This should start in a small way, but as soon as a person has demonstrated that the first area of responsibility is being coped with successfully, a little more may be added, and so on, until that person is carrying all the responsibility that he or she can reasonably be expected to carry.

It has to be borne in mind that some people are reluctant or scared to accept responsibility, whilst others are eager to take on too much too soon. Skill needs to be exercised in judging how much, if any, responsibility to delegate to an individual, and in restraining the overeager.

In delegating, certain attitudes or actions should be avoided:-

• Reluctance or a lack of faith should not be shown; as to do that will only discourage the subordinate and start him or her off on the wrong footing.

• The impression should not be given that the subordinate is going to be on trial as that will only increase his or her nervousness and reduce self-confidence.

• The subordinate must not gain the impression that he or she must now go it alone or allow him/her to get a feeling of isolation. On the contrary, he or she should be encouraged to ask for assistance and guidance which should be willingly given particularly in the early stages, and to discuss any problems. Of course, if a person continually requires help and/or advice over an extended period, then it will have to be accepted that too much has been asked of that subordinate but the decision must be reached in a fair and unbiased way.

• Once an area of responsibility has been delegated to a subordinate it must be left where it has been delegated; the owner or manager must not keep interfering. He can still exercise control by calling for and studying regular reports, making inspections, holding formal or informal discussions, and making (tactful) suggestions from time to time; but too close a watch tends to show a lack of confidence in the ability of the person concerned, which could be discouraging or cause resentment.

Practical Example 4

Having considered in detail the meaning and importance of delegation, we now return to our example of the retail trading business called “Moon Light Enterprise Ltd”, which is expanding, and requires delegation by its owner, Mr. Jerome.

As the business is involved in retailing, over a period he might need to delegate to others responsibility for some or all of these activities:-

1. Dealing with stocks of goods: ordering and reordering the goods to be sold, storing them, and issuing them to the selling area of the store or directly to customers when required.

2. Sales of the goods: running the store, the layout of goods for sale in the selling area, window displays, advertising, and related matters.

3. Accounts or financial matters: such as handling and banking monies paid by the customers of the business, ensuring that those to whom goods are sold on credit pay for them when payment is due, paying for goods received from suppliers, paying salaries, keeping accurate accounts records, etc.

Mr. Jerome, as the manager remembers, will retain control over the various activities which you can see have been grouped into related or similar activities and will ensure coordination between the various people, for instance, to ensure that goods are ordered which customers demand, and not those for which there is little or no demand.

If the business continues to expand, each of the three persons, or their successors, will probably need assistance, and so one or more subordinates will be employed to work with each. Thus, over some time, sections containing groups of people engaged in related or similar work will come into being; the sizes of sections will vary, and even at this stage they might be called departments, although not strictly an accurate description yet.

In our example, over some time a stores section, a sales section, and an accounts section might come into being, bearing in mind that the actual descriptive names of the sections might be different.

Although the people employed in each section will be performing related tasks, gradually different people will likely specialize in different activities depending on their abilities and aptitudes and the necessity for specialization or the division of labor within a particular section. For example, in the stores' section:-

• One person might specialize in purchasing, that is, in maintaining contact with suppliers, meeting their representatives, placing orders, etc.

• Another person might specialize in receiving deliveries, checking them, and storing the goods correctly.

• A third person might specialize in issuing goods: including packing and dispatching or delivering.

The said person will, of course, be delegated responsibility for the activities in which they specialize, and they will be answerable to the section manager. And if the business continues to expand, some or all of them will need subordinates to assist them in their work. Should the business keep on expanding from the foregoing stage with the employment of more staff, some if not all of the specialist subdivisions of sections will themselves have grown into sections.

Each original small section will have grown into a full department, comprising several sections. For example, the stores department could have a purchasing section, a stock control section, and an issues section, each with its section head/manager under the overall control of a departmental manager.

But at this stage, Mr. Jerome, the owner of the original small business will no doubt have formed it into a company, perhaps called “Moon Light Enterprises Ltd” of which he might be the managing director. Alternatively, he might have relinquished his managerial control, in which case there will probably be a salaried managing director or a general manager, responsible for the overall control and coordination of the activities of what is now a large business.

Organizational Structures of Businesses

The organizational structure of the company that we have described can be illustrated in what is known as an organization chart. An organization chart shows how responsibility is delegated from top management to lower levels of management.

• Firstly, the shareholders, through the board of directors, delegate to the managing director the responsibility for the overall, day-to-day running and control of the business.

• Responsibility for certain specialist activities or functions is then delegated to departmental managers: a store manager, a sales manager, and an office manager in Fig. 1/1.

• Those managers break down the areas of responsibility, and whilst retaining overall control of their departments, they delegate certain responsibilities to various assistant managers.

• In turn, those executives may further break down the areas of responsibility and delegate responsibilities to supervisors or foremen.

• Finally, those persons may themselves delegate responsibilities to more junior staff, and so on; for example, a senior clerk might be responsible for the supervision and control of several junior clerks

The organization chart in Fig. 8/1 (see resources for downloadable materials) shows responsibility and authority being delegated downwards. But at the same time, those shown lower in the chart are answerable or accountable for their actions and decisions, etc., to the executive in the next box upwards. The assistant to the managing director is responsible only to that executive, and has no responsibility for or to the other managers; this is called staff relationship and is not the same as a deputy or assistant managing director.

Fig. 8/1. Organization chart of “Moon Light Enterprises Ltd” (see resources for downloadable materials)

Not every business will expand as much or in the same way as “Moon Light Enterprises Ltd” in our example. But allowance must be made for the fact that many, although not all businesses need to expand to remain profitable. And, as we have seen, the expansion of a business requires the assistance of other people. So where do they come from?

Recruitment

This term refers to the first stages in the process leading to the filling of an employment vacancy or a vacant post, which arises either:

• Because a new post or position has been created.

  or

• Because the present holder of a post is leaving the employ of the business or has been transferred or promoted to another post within it.

In a large business, the recruitment of all staff will generally be handled by the HR/personnel department, which will have various sources of possible new employees to be called upon as required by a particular vacancy. Smaller businesses might not have such a wide selection of sources, but we look briefly at the most common ones.

Internal Recruitment

This is the process of filling a vacancy by a person who is already in the employ of the business; the person might either be promoted and/or transferred.

It can have advantages, because the abilities and potential of a person selected will already be known to the owner or manager, and he or she will already have some knowledge of the activities of the business and its operations, and possibly even of the work to be performed in the post concerned.

Also, when personnel know that they have prospects for promotion and the benefits that brings, e.g. higher salary they are often motivated to work harder and to learn and do more. That leads to greater job satisfaction and so good personnel are less likely to leave the employ of the business.

Promotions and transfers must always be recommended and made in a fair and unbiased way based on proven ability and past performance and, when appropriate, on training and/or studies undertaken. If that is not done, jealousy and resentment can arise, which can cause problems both for the person promoted and for other personnel, as well as for the business owner or manager. For example, a person promoted within the same workgroup might face difficulties if his or her former workmates are reluctant to accept his or her authority or change status.

A danger of relying too heavily on internal recruitment is that new ideas, skills, and knowledge might not be brought into the business. It might then stagnate and fail to adapt to changing circumstances: customer demands in market trends, new technology, and so on.

External Recruitment

As the name implies, this is the filling of an employment vacancy from a source outside the business. Various sources might be available and, depending on the posts to be filled, they can include:-

• Local schools, particularly when juniors or trainees are required.

• Further education establishments – government or privately run – teach management, secretarial duties, office practice/routine, bookkeeping, salesmanship, and other fields.

• Employment agencies/bureaux – government or privately run; the former may specialize in providing temporary staff – often referred to as “temps” but are often willing to help in filling other vacancies for permanent staff.

• Advertisements placed in newspapers, either in classified situations vacant columns, or using more expensive display advertisements.

• Advertisements placed in situations wanted columns of newspapers by those seeking posts.

It might be necessary to utilize two or more different sources to secure suitable applicants for a particular vacancy to be filled.

Introductions

An introduction of a prospective employee can be looked upon as a mixture of internal and external recruitment. It involves an existing member of staff recommending or introducing a relative or friend from outside the business to fill a vacant post. When that happens, it tends to indicate that a good work climate exists in the business, as it is unlikely that the introduction would be made if it was thought that the friend or relative would be unhappy working for the business.

Care must be taken to avoid bias in such recruitment, and problems can arise if the introduction is found to be unsuitable, or if one person’s relative is selected instead of another’s.

Circumstances differ, but it might be necessary to consider both internal and external candidates for a particular post to be filled; when that is done, both categories must be given equal and fair treatment.

Job Analysis

Before a particular vacancy can be published, internally or through one or more external sources, it must be known what work the successful applicant will be required to perform, and what attributes: in terms of skills, knowledge, previous experience, personal qualities, etc, will be required to perform that work. Any job work comprises a series of tasks, some of which might be very important or require special skills, whilst others might be easier, routine, or even mundane.

In small businesses staff tend to have to perform a fairly wide and varied range of duties; it is, however, useful for notes about the main tasks involved in a post to be jotted down, as applicants are naturally likely to want to know what work they will have to perform if offered the job. As we saw in our earlier practical example, in larger businesses with larger workforces, there is a tendency for specialization and so it is common for each job to be analyzed to be examined, and evaluated to ascertain the following facts about it:-

• What different tasks are involved in the job as a whole;

• How the tasks should be performed, i.e. the procedures involved in the best possible performance of each task or group of related tasks.

• What qualifications, e.g. education, training, experience, skills, and what personal attributes should be possessed if the various tasks are to be performed most satisfactorily?

• For what and/or for whom the holder of the post will be responsible?

What is called a job analysis is then produced for each job, to enable jobs to be compared to see how they differ or resemble others, and to provide some indication of the worth and status of various jobs.

Job Description

Also in larger businesses in particular, it is common for job descriptions to be produced, where applicable based on the relevant job analyses. As its name implies, a job description describes or defines the particular job, stating its purposes and its relations with other jobs and people, and listing the physical, social, and economic features involved. The contents and the order in which information is listed might vary, but a typical job description contains:-

• The current job title, the section/department in which the postholder will work, and details of the workgroup (s) with whom the postholder will be involved.

• A usually brief statement of the purpose of the job: its objectives, for example: to ensure the constant supply of goods required by customers” for a storekeeper.

• A list of the tasks and duties involved in the whole job.

• Details of the responsibilities of the postholder, that is, for what and for whom he or she will be responsible if applicable.

• Information on the relationships involved in the job with people both inside and outside the business, and the job title of the person to whom the postholder will be responsible.

• Facts about the environment in which the postholder will work, e.g. private office sales area or stockroom, or details of any dirty, noisy, or dangerous conditions under which work will be performed.

• Details of such matters as hours of work, overtime, paid holiday entitlement, sick leave, etc.

• Full details of salary rates and overtime rates, etc, and any other benefits arising from the employment.

Although formal, documented job descriptions are likely to be found mainly in larger businesses, most, if not all, of the types of information listed above, will still need to be known when attempting to fill a vacancy in even a small business. For example, every applicant for a post will want to know not only what work he or she will be required to perform, but also the times of work, what salary will be paid, what paid holidays will be earned, and so on.

Employee Specifications

Consideration must usually also be given to the qualities essential in, or desirable in, the person whom it is hoped will be found to perform a particular job. Such qualities will vary according to the post to be filled but may concern some or all of:-

Physical qualities: such as upper and lower age limits, speech, eyesight, hearing, handwriting, etc.

Mental qualities: intelligence, mental alertness, ability to use initiative and/or to concentrate, ability to work without constant supervision, and so on.

Skills: some jobs require skills such as computer literacy, and the ability to operate a switchboard, or other office, shop, store, or factory equipment.

Qualifications or knowledge: from education and/or training and/or from practical experience.

Personality and temperament: requirements vary considerably; selling jobs might call for bright, pleasing, enthusiastic, and helpful personalities, whilst other posts might require more placid personalities, and there are many other possibilities.

In a larger business, the specific or ideal requirements for each post might be set down in an employee specification. In a similar business, the person(s) interviewing applicants for a post will be more aware of the type of person needed with whom he or she might have to work fairly closely but even then it is wise to jot down notes of those qualities it is hoped will be possessed by a person found to fill that post

Seeking Suitable Applicants

Information about a particular vacancy and the person being sought to fill it will be needed to publicize it or advertise to attract applicants. The information might be given in a letter, a poster an advertisement, or even orally in, say, a telephone conversation with a school careers advisor or with employment agency staff. Basic facts needed might include some or all of:-

• The name of the business having the vacancy, where it is located, and the nature of its activities.

• A brief description of the job, or what type it is, e.g. sales assistant, office clerk, bookkeeper, factory hand, PA/secretary as appropriate. In some cases, it might also be necessary to mention the most important tasks involved in a job.

• Important personal qualities, e.g. age, qualifications, experience, or, in some cases, no previous experience as appropriate.

• The salary or wage offered, or some other mention of terms, e.g. good salary and prospects.

• Directions on how to apply for the post, or how to seek more information about it.

• Quite often for junior posts in particular interested persons might be invited to apply for interviews by telephone, or to write about themselves to a person specified by name or designation. Alternatively, people might be asked to write or telephone for employment application forms, which then have to be completed and returned. To some extent, the method used will depend on the urgency with which a post needs to be filled.

In cases in which application forms are used, they must be designed to ensure that not only is the essential information about applicants obtained and it is important that spaces of the appropriate sizes are left in which information can be written but that it is arranged in the best sequence to assist in the selection process.

Figs.8/2 and 8/3 (see resources for downloadable materials) give you two examples of advertisements that might be placed in newspapers when seeking applicants to fill vacancies for office posts in this instance. The first is called a classified because it appears in a section of the newspaper divided in which similar types of advertisements are grouped or classified together in columns, under headings such as, “Situations or Employment Positions Vacant, Situations Wanted, etc. all in similar print. The second type is called a display because it uses different types and sizes of print, and other features to attract attention to it.

When designing an advertisement to fill a vacant employment post, the aim should be to attract suitable applicants and to stimulate them to apply.

There is no value in wasting valuable time and money dealing with numerous unsuitable applicants; on the other hand, if there are very few applicants there will be no real choice. Much will, of course, depend on the employment or unemployment situation in a particular area, that is, on the labor market in that area.

Fig. 8/2. Classified advertisement in situations vacant column (see resources for downloadable materials)

Fig. 8/3. Classified advertisement in a situation vacant column (see resources for downloadable materials)

Selection

The selection process commences once applications start being received, by telephone, letter, or in completed application forms. The first step is to compare the information provided by applicants with the personal characteristics felt desirable as noted down or as listed in an employee specification, if produced and to choose about six applicants considered to be probably and or possibly suitable. Those so chosen who are frequently at this stage referred to as candidates are invited to attend interviews.

Employment Interviews

The initial meeting and discussion with a candidate for an employment vacancy are called an “interview”. Generally, several candidates for a vacant post have to be interviewed, and so a series of interviews will be held. They might all be held on one day or might be spread perhaps in “sessions” of two or more over several days.

The process of interviewing candidates for employment is the most important one, and so proper attention must be paid to the planning and conduct of every interview in a series.

Aims of an Employment Interview

The aims of an employment interview are:-

• To enable the interviewer(s) to confirm the information already provided by the candidate, to obtain further information, and, if necessary, to read the originals of documents testimonials from former employers, certificates/diplomas, school reports, etc., particularly it copies of them were not sent with the application.

• To enable a candidate to obtain more information about the enterprise the job, and the terms and conditions of employment.

• To enable the interviewer(s) to compare more accurately each candidate’s characteristics with those detailed in the employee specification and thus to assess the suitability of the candidate for the post concerned.

• To enable the interviewer(s) at the end of the series of interviews, to decide which is the most suitable candidate for the job, and then to encourage that candidate to join the business.

A series of interviews might not achieve either or both of the final objectives. None of the candidates may be considered suitable; in which case those applications previously rejected might have to be looked at again. On the other hand, two or more candidates might be considered similarly or equally suitable, in which case they might be short-listed and be asked to attend a second interview.

Then, of course, the candidate considered to be most suitable by the interviewer(s) might decline for any one of a variety of reasons to accept the position when it is offered.

Conduct of Employment Interviews

In a large business, it is usual for candidates to be interviewed by two or even three people sitting together, to reduce the effects of any possible personal biases, prejudices, likes, or dislikes of individual interviewers. That might not, however, be possible in a small business, and the owner or manager might have to interview alone. Whatever the situation, the proper planning of and preparation for interviews Are essential for satisfactory and productive results:-

• Firstly, each interviewer should refresh his or her memory by reading the appropriate job description and employee specifications.

• Then each application form and any attachments, letters, notes, or other information provided, should be read through carefully, and notes made of specific questions an interviewer might wish to ask a particular candidate. Different interviewers might attach importance to different topics, and so might want to ask different questions.

• A decision should be reached on the order in which topics will be covered. This will not only ensure that all the interviews go smoothly, but it will also ensure that all candidates receive equal and fair treatment and this is particularly important when both internal and external candidates are being interviewed for the same post, in the same session.

Interviewers must appreciate that some candidates might be nervous or shy during an interview and, particularly if they have not attended an interview before, they might be apprehensive about the whole affair. Therefore, if an interviewer is to be able to assess the true candidate, he or she must be pat at ease as soon as possible. For instance, if candidates have to wait before being interviewed, the room in which they have to wait should be pleasant, quiet, and friendly; and any other people who will meet them, a receptionist, say, should be warned to expect them and asked to treat them in a welcoming and friendly fashion; certainly not disinterestedly or offhandedly.

Although not always easy to achieve in a small business, the room in which an interview is conducted should be comfortable and quiet, e.g. away from noisy machines or telephones ringing. An attempt should be made to break down any barriers to the free exchange of information as soon as the candidate enters the room; for example by the interviewer(s) standing up, making a pleasant or friendly welcoming remark, and even by coming out from behind a desk. Prior arrangements should have been made to ensure that there are no interruptions, such as telephones or intercoms ringing, or callers entering the room.

If an interview is to achieve the aims listed earlier, each candidate must be encouraged to talk, to give information about himself or herself, about his or her qualifications, abilities, experience, and so on. Unless that is done, it will not be possible for the interviewer(s) to assess the candidate’s suitability, or to gain an Impression of his or her character, indications which might well be provided by how answers are given; hesitatingly, carelessly, enthusiastically, after consideration, excitedly, and so on.

A common fault of interviewers is spending too much time talking and not enough time listening to the candidate whilst an interviewer is talking! Where possible, questions which require a simple yes or no answer should be avoided. Some general talk can help to relieve tension, but questions and answers should be kept to the point.

It is most important for the candidate to be allowed and indeed to be encouraged to ask reasonable questions about the business, its activities, and the job concerned. Quite often impressions of the candidate’s character can be gained from the questions asked, e.g. are they penetrating questions indicating that thought has been given to them; or are they questions that have already been answered indicating a lack of concentration or carelessness in reading the job description. At the same time, the candidate needs:

• to be sure that he or she understands what is involved in the job;

• that it is the job for which he or she is looking;

• that the “terms and conditions” (salary or wages, etc.) offered are acceptable;

  and

• that he or she is likely to be content working for the business.

During and/or immediately after an interview, notes should be made of the answers to questions given by a candidate, about any interesting questions asked by the candidate, and about the impressions made by that candidate. After several interviews, possibly held over a few days, it is not always possible to remember an individual candidate unless he or she made a particularly good, or bad, impression and the notes will refresh memories.

Before an interview is brought to a close, the interviewer(s) should be certain that all necessary questions have been answered. If the information has not already been ascertained, the candidate should be asked when he or she would be available to take up the post if it was offered. Bearing in mind that some people may have to give a period of notice to current employers, the answer to this question can be revealing, a candidate who is not bothered by leaving an employer at short notice or without giving any notice, calls for caution as he or she could do the same to his new employer! On the other hand, a person who does not wish to leave his current employer in the lurch displays a sense of responsibility.

Finally, the candidate should be told when he or she can expect to learn the result of the interview and should leave the interview in a pleasant frame of mind.

As mentioned earlier, in some cases a second interview of short-listed candidates might be necessary before a final selection is made.

Selection Tests

A candidate might have to be asked to take a test to prove that he or she is as skillful as claimed; for example, a typist might be asked to type a piece of work or a stenographer might be asked to take down a short piece of dictation. Such tests should be kept easy and short; the intention is to test and not to embarrass: allowance must be made for any nervousness and unfamiliarity.

The successful Candidate

Once a final selection has been made, the candidate whom it is concerned will be most suitable, and who has indicated that he or she will accept the post if it is offered, should be informed.

That might first be done by telephone or intercom to an existing employee, but in any case, the appointment should be confirmed in writing. The letter of appointment needs to state the date on which the successful candidate is to start work, the time he or she is to report, and to whom.

The letter might also contain, or be accompanied by, particulars of the terms and conditions of employment, such as hours of work, starting salary, holiday entitlement, and so on.

It is usually best not to leave the decision on the final selection too long, particularly if at least one candidate appears to be very suitable to fill the post. Such a suitable candidate will probably have applied to other prospective employers as well and is quite likely to have impressed them too. If a decision is delayed, by the time it is made the person concerned might already have accepted an offer of employment from another employer, and so will no longer be available.

That could be a serious disappointment, and might even apply to the second and even third choice as well, necessitating offering the post to one of the less suitable candidates or having to start interviewing the applicants not called in the first place or even, in extreme cases, having to re-advertise the post, and starting all over again! Recruitment and selection processes are always time-consuming and are often expensive as well.

The Trial or Probationary Period

It is quite common for a person to be offered a post on condition that he or she works a trial period or a probationary period. That period might be one or two weeks or a month or longer, depending on the seniority of the post concerned, or the length of training necessary before the work can be performed to the required standard. The terms of the trial period usually allow either the employer or the new employee to terminate the employment at relatively short notice, if either or both wish to do so.

The trial period is, in effect, a continuation of the interview and perhaps test and gives the employer the chance to assess whether the correct selection or placement was made. That is, whether the newcomer settles in well with and gets on well with, the other members of the workgroup or team, and is integrated into it. It also allows for a clearer assessment of whether the new employee can perform the required work, or can be taught to perform it; some jobs might require considerable training, and the trial period might indicate whether the newcomer has the potential to master it.

At the same time, the trial period allows the new employee to decide whether he or she will be happy working for the business, with the work climate, with the other person(s) in the workgroup, and with the work to be performed or the training being given.

Unsuccessful Candidates

Candidates unsuccessful at interviews should be informed as early as possible, by tactfully worded letters which ease disappointment and avoid upsetting the recipients. Although a candidate was not considered the most suitable for a particular post, it might be that the person could be suitable for a similar or another post. It is, therefore, useful to retain the notes, etc, about the people interviewed so that if possibly similar vacancies arise in the future, the relevant people can be contacted at once; that could help fill a vacancy quickly without, perhaps, the necessity to advertise it or to conduct another session of interviews.

Induction

The arrival of a new employee or an employee promoted/transferred from another section or department starts the process called induction. This involves introducing the newcomer to the business, to the work to be performed, and to the other members of the workgroup (if applicable).

The importance of good and effective induction should never be overlooked. That is because the sooner a newcomer settles in feels at home, and is accepted by and integrated with others in the workgroup, the quicker will that person be able to start performing properly the work which he or she was engaged to perform.

First impressions gained by a newcomer about the work atmosphere and about other members of the workgroup and the first impressions which the newcomer makes on them are important, and can greatly influence both the newcomer and his/her acceptance into the workgroup. New employees, particularly the young and those starting their first jobs, are likely to be anxious and apprehensive. They are also likely to be embarrassed by their lack of knowledge, uncertain about the people with whom they will come into contact, and nervous about being in unfamiliar surroundings. The induction process should therefore seek to put a newcomer at ease as soon as possible; a friendly welcome on arrival, for example, will help to relieve tension.

The induction process should always be tailor-made to fit the business, the post, and the circumstances. Who will be responsible for induction will also vary; in a small business, it might be the owner or manager, or another person, depending on the job. The task of whoever is responsible for job induction in a given situation is to ensure that the general information gained by the newcomer, say during the interview, is related to the individual tasks to be performed and the surroundings in which they will be performed.

Information Needed by the Newcomer

The new employee needs to be aware of all facts concerning hours of work, tea break times, lunch times, and so on. A newcomer will need to be able to find his or her way around, and so a conducted tour of the premises should be given; that might take only a minute or two in a small business but might take much longer in a larger one, although the emphasis will be on the area in which he or she will work. The newcomer will need to know the locations of entrances/exits, toilets/cloakrooms, fire appliances, drink dispensers, etc, as appropriate to the size, layout, and type of premises and business.

Introduction to the Team or Workgroup

A small business might employ only one person to work in it in addition to the owner. Other businesses might employ two or more sometimes many more people. However many are employed, it is important that existing employees accept a newcomer into the team or workgroup as early as possible, and develop a good working relationship. Therefore, special attention must be paid to his or her introductions to existing staff. As appropriate, both first names and nicknames and family names might be stated, and their jobs might be briefly described; if convenient, a few minutes of friendly chat might help to relieve tension.

Even when different members of staff of a business perform different work, the owner or manager must get all personnel to work together as a team. They must act together to achieve their target; their efforts must be directed towards achieving the common aim of a profitable business. That is called co-ordination.

A business might have more than just one workgroup section or department. The work performed by the different groups, sections or departments might be very different. But all their different activities and efforts must be coordinated, and so be directed towards achieving their common aim. Unless that is done, the objective of the whole business will not be achieved.

We can use the company called Moon Light Enterprises Ltd as a practical example. There will be two workgroups in that particular business: one in a factory called production, and the other called sales. The work of the production workgroup is to make the T-shirts; the work of the sales workgroup is to sell the T-shirts made.

There would be a problem if the employees in the factory made T-shirts which their sales colleagues could not sell. There would also be a problem if the salespeople tried to sell T-shirts which the people in the factory had not made, or could not make.

It is the responsibility of the managing partners in this example to make sure that the articles of the two sections are coordinated so that only T-shirts which can be sold are made, and so that nothing is sold which cannot be made. In other words, the activities of the two workgroups, although very different from each other must move smoothly together in the same direction.

The Work Area

The newcomer should be shown his or her immediate work area and/or desk; the locations of machines and equipment that the new employee will have to use should be pointed out, and if needed some instruction should be given on their operation. The locations of other items which will be necessary in performing tasks; goods, materials, tools, stationery, records, etc, as appropriate to the job, should also be pointed out. It is also a good idea to mention the names of persons who can provide the newcomer with assistance or guidance should the necessity for it arise.

Training

All newcomers must be taught and trained to perform the tasks involved in their work in the best and most efficient manner.

The extent of what is called ‘on-the-job training’ will vary greatly, depending on the work to be performed by a particular new employee, on his or her previous knowledge and/or experience, and on how quickly an individual learns. Some work is easy, routine, and repetitive, and should be learned fairly quickly. Other work is more difficult and complex and might require specialized knowledge and skills that can only be gained or developed over some time.

In addition, some people learn more quickly than others; and it is possible that a slower learner might turn out to be a more thorough, efficient worker than one who appears to know it all quickly, but who in reality has grasped only the outlines and not the details. The result of the period of training should be an employee who can work well and efficiently and without constant supervision.

Patience in training is important, as it often takes longer to explain or to show a trainee what to do or how to do something that it takes to perform the task oneself. It often helps if a job of work is broken down into its component tasks and if necessary the tasks are even subdivided into the individual actions involved and to teach them, or explain about them, individually rather than trying to explain about or teach everything at one time.

Certain aspects of the work can be concentrated upon, and then gradually the individual tasks can be brought together and their interrelationships demonstrated.

The key to successful training is to simplify a task so that what is involved can be grasped more quickly or easily, rather than making it appear especially to a beginner more complicated than it is.

On-the-Job Training

As far as possible, on-the-job training must be planned and supervised by someone who possesses knowledge of the work to be performed by the newcomer. Other experienced staff might assist in the training, but it can be very dangerous to simply leave a new employee to pick up the work from the employee who is being replaced. If the existing employee is leaving because of promotion internally, he or she might be willing to teach the new employee properly.

But in cases in which the existing employee is leaving, voluntarily or otherwise, for some other reason, he or she is unlikely to make much effort to train the newcomer, and in fact, might deliberately misinform or start the newcomer off with the wrong attitude to the work. In any case, it must be remembered that a skilled or experienced worker does not necessarily make a good teacher, and the knowledge gained by the newcomer should be checked from time to time, in a friendly and helpful way.

A new employee must not be over-supervised, but at the same time must not be allowed to feel isolated and on his/her own. The newcomer should be encouraged to ask for reasonable assistance and guidance, the necessity for which should gradually grow less. An eye should be kept on the relationships developing with others in the workgroup as it is often impossible to know in advance who might clash, perhaps unconsciously, with another; if unchecked, minor irritations can grow into arguments, lack of cooperation, etc, when the aim should always be harmony in the business.

Should an error be found in the work of a newcomer, what that error is and how to avoid it in the future should be clearly explained, in a friendly way; the discovery of an error should be used as a reason to give practical assistance and advice, and not as an excuse for a reprimand.

Responsibilities of an Employer

The change from being an employee or from working alone for oneself to becoming an employer for the first time to suddenly being the boss is not always easy to cope with. It takes time to learn to think differently and to develop a good but not overly friendly working relationship. It is important to treat every employee as the human resource of the business, and remember them fairly and honestly as a fellow human being. At the same time, there needs to be a slight distance between employer and employees, compatible with the working relationship; it might take time and sometimes bitter experience to get the balance right.

Every employer must morally and by law ensure the safety of employees in the workplace, and take steps to avoid accidents and injury and any harmful effects on the health of employees. A safe and healthy work environment needs to be created. As we saw in Chapter 5, employer liability insurance should be arranged to provide compensation should an employee be injured or have an accident in the workplace, or whilst driving or as a passenger in a motor vehicle owned by the business.

It inevitably costs money, and takes time, to recruit and train an employee to perform his or her work well. It follows that an employer will want to retain to keep as an employee, a trained hard-worker. To do that, an employer must offer good attractive pay and benefits to employees.

Some people work during a full working day which might be 7 or 8 or more hours; they are said to be full-time employees. Usually, they have to work on a certain number of days which might be 5, 5½, or 6 in one week. Some people work only part of a working day or only a few days during a week; they are said to be part-time employees.

Some people work for an employer only for short periods, perhaps when the employers need extra help. In such cases, the people are said to be casual or temporary staff. Other workers are employed under agreements or contracts to work for an employer for long periods. They are said to be permanent staff.

Rates of Pay

The term wages is often used for the money paid to people who perform manual work. The term salary is often used for the money paid to people who perform non-manual work. Today, in many countries, the two types of payments for work performed are often mixed together, and the word pay is used for both; we use that in this Chapter.

Time Rates

Most people are paid according to time worked:-

• Some people are paid for each hour they work.

• Some people are paid for a day’s work, which might be 7, 8, or more hours.

• Some people are paid for working a week. For example, a clerk in an office or a sales assistant might be employed to work, say, 8 hours a day for 5 days a week; that is, for 40 hours each week.

• Some people are paid for a month’s work. Some months have more days than other months, but a person will be expected to work on every working day during a particular month.

All the above are called time rates. There are very many different types of jobs which are paid according to the time worked. Usually but not always the length of time to be worked is agreed in advance between the employer and the employee. Also agreed is the amount of money paid to be received by the employee for working the agreed length of time.

Sometimes, if a person works a longer period than agreed, he or she might be paid an extra sum of money, called overtime.

Piece Rates

Some people are paid according to the quantity produced:

Some skilled craftsmen might, for example, be potters, joiners, cabinet makers, tailors, dressmakers, carvers, or weavers who are not paid for the time it takes to make or produce an article. Instead, such a skilled person is paid an agreed sum of money for each article. For example, a pot or a table or a suit of clothes, he or she makes which is of an acceptable quality. The agreed sum of money is paid whether it takes the person just minutes, an hour, or a day, or a week, or longer to make each article.

A tailor, for example, might be paid for each suit of clothes he makes. A potter might be paid for each pot of a certain shape, size, and color he makes.

Suppose a potter will be paid 10 units of money for each pot he completes, which is well-made and so is of acceptance quality. If during one week he can make 50 pots, he will earn 500 units of money from his work that week. The next week he works harder or longer and he makes 60 pots; he will earn 600 units that week. But in the next week, perhaps because he is tired or ill, he only makes 35 pots; he will earn only 350 units. Of course, if any pot is not of acceptable quality perhaps it is chipped or the wrong shape he might not earn anything for it.

This method of earning is called piece rates.

Sometimes an employer may pay skilled craftsmen a basic wage and then the piece rate earned is paid in addition to on top of that.

Commission

Some people are paid according to value

This applies mostly to people whose work is selling: salesmen and saleswomen. It might be for those who sell from inside shops or stores, but most commonly it is paid to those who go out to seek customers to buy what they are selling; such employees might be called commercial travelers or representatives.

Such salespeople are paid what is called commission. This term means that what is paid is part of a percentage of the value of what is sold. Suppose a salesman is offered one-tenth (10% percent) of the value of the goods he sells or gets orders for. If in one week he makes sales worth 6,000 units of money, he will earn 600 units that week. If the next week he makes sales worth 7,100 units, he will earn 710 units. And so on, some weeks he might earn more, and some weeks he might earn less.

Sometimes an employer may pay a salesperson a basic salary, and then any commission earned is paid in addition to on top of that.

Other Employment Benefits

Usually today, in most countries, permanent employees receive more than just pay in the form of money. What an employer offers to attract and retain good employees might differ. It might depend on the work to be done, how difficult it is to find and engage or recruit good employees, as well as on the laws of the country concerned. Also, some employers can afford to give more or better benefits than other employers. Often, too, there are better benefits for senior jobs than for junior jobs.

The usual extra benefits from employment are:

Paid Holiday or Leave

Permanent employees are allowed a period during a year in which they receive pay, although they do not perform any work during the period; that is called an annual holiday or annual leave. The holiday or leave period might be 7 days, 14 days, or longer, in each year (“annual” means “yearly”. A country’s laws might state the “minimum” fewest number of days paid holiday an employee must have, but many employers offer more days.

Sickness Benefit

Most permanent employees are allowed up to a certain number of days they may be off work during the period(s) of sickness or ill health, and still receive all or part of their pay. The number of days might vary from employer to employer, and depend on the types and seniority of jobs. Some employers assist with medical costs (doctors’ fees, hospital costs) and some provide medical services. A country’s laws might lay down the minimum number of days paid days sickness benefits an employee must have, but many employers allow more days than the basic minimum.

Pension Contributions

The laws of a country might require employers to contribute to a state pension fund. Employees who reach a certain age say, 60 or 65 might have to stop working; they are said to be retired. As they are no longer working, they will no longer be earning money. Instead, they will receive regular payments from the pension fund, so they will still have an income.

If there is no state pension, some employers might contribute to a private pension fund to help older employees. Some employers might contribute to both types of pension funds.

Other Employment Benefits

Other benefits for employees depend largely on the seniority of the position, the type of size of a business and its financial position, and the employment legislation (laws) enacted and in force from time to time in a country. These are examples of employment benefits:-

• Some employees might be permitted to take a period of maternity leave before, during, and after the birth of a baby.

• Some employees might receive an extra payment for working especially hard, or for achieving a target in sales value or production.

• Some employees might receive a transport allowance. That might be in the form of help with bus or rail fares, or to pay for fuel used in a vehicle whilst working, or even the use of a vehicle owned by the employer outside normal working hours.

• Some employees might be provided with housing by their employers, either at low rental or rent-free.

Learning Outcomes - Fundamentals of Financial Planning

This lecture encompasses a comprehensive range of significant subjects succinctly summarized for your convenience. By diligently participating in this lecture according to the prescribed learning guidelines, it is anticipated that you will acquire the proficiency to apply the knowledge acquired in various scenarios.

The lecture covers the importance of complete and up-to-date records of transactions and methods of maintaining those records manually and by computer. Students will also learn about methods of ensuring the accuracy of annual profit and loss accounts and balance sheets produced and interpreting the information they contain.

Introduction - Fundamentals of Financial Planning

Most business people devote a great of their time and effort to running and developing their businesses, and seeking profits. That is as it should be, of course! But too often, in the pursuit of profits, they neglect to pay attention to financial matters that affect their businesses and, indeed, the profits they make or unfortunately do not make, in some cases.

Unless care is taken, money can easily be lost or wasted unnecessarily. For example, too much might be paid for raw materials, goods, or services; advantage might not be taken of discounts or credit terms available.

On the other hand, customers who have been permitted to buy products on credit might fail to pay what they owe. Raw materials or goods might be lost through pilfering theft or spoilage. Money could be lost through dishonesty on the part of employees or other people in positions of trust. There are many other such ways in which profits which should have been made by a business might be reduced, or even eliminated.

Too often consideration of, and control over, the finances of a business is not given due importance by the owner or manager or is delegated to other people. In practice, the owner(s) or management mustn't neglect to check on and exercise control over the financial affairs of a business. In this lecture, we look at some of the most important financial matters to which serious attention should be paid.

Forecasting

Planning is very important in all aspects of business activities. In effect, plans are the predetermined routes to the achievement of the objectives of a business. That is, they are the results of decisions taken on how set objectives are to be achieved in practice.

Planning is concerned primarily with activities in the future. That might be the immediate future, for example, a few minutes ahead or a day, or the more distant future, for example, 1, 2, 4, or more years ahead.

Unless there is some guidance as to what might occur in the future, both short-term and long-term planning would be no more than mere guesswork. What is called forecasting is therefore essential to plan effectively.

In your everyday lives, you might come across the words forecast and forecasting mainly in connection with the weather. You might read weather forecasts in newspapers, hear them on the radio, and see them on television. They are concerned with what the weather will be or is expected to be in the future, usually the fairly near future. Such information is useful to different people in many different ways: from helping some people to decide what clothing to wear, e.g. for wet or dry weather; to helping some people to plan sporting fixtures and other outdoor activities; to guiding farmers when to sow their crops and when to harvest them; and so on.

So it is in business. The action of forecasting is intended to determine as accurately as is possible, the probable course of future events which might AFFECT a business and its activities.

In business, a forecast is an assessment of the expected pattern of future events and the way(s) in which they might have affected the operations of the business or sections of it. It is not possible to anticipate or to foresee the future exactly; but the more accurate the forecasting:

• the lower the uncertainty about future events; and

• the greater will be the possibilities of making reliable plans; and, therefore:

• the greater the chances of gaining the objectives of the business.

The USE of Forecasts in Practice

From what we have explained so far, you can see that forecasting must go hand in hand with planning. Based on the forecast made, plans can be formulated to deal successfully with expected future events. In many cases action can be taken to deal with any problems that are anticipated will arise in the future or even to avoid them before they arise.

Forecasting is of great importance in anticipating sales. Sales are affected by many factors; amongst others, they include the general economy of the country, political trends, competition, as well as manufacturing costs and distribution costs. The owner or managers of a business must consider all the relevant factors before they can be sure that the business can sell all its manufacturers or buys for resale. Forecasts are also important for the budgets of a business.

In effect, forecasts of sales are needed to show the extent of effort needed to satisfy the market, and the amount of money needed to do that. Budgets of anticipated expenditure to be incurred in meeting the needs of the market can then be prepared, and steps can be taken to ensure the money needed will be available when it is needed.

Fig.9/1. A simple business cycle, showing the places of forecasts, plans, and budgets. (See resources for downloadable materials)

Budgets and Budgeting

Many businesses, especially smaller ones, often do not achieve their objectives because their owners or managers fail to prepare or use budgets. That might be due to a lack of understanding of what a budget is. Some business people say that although budgeting is possible in other businesses, it is not so in theirs: because there are too many complications and uncertainties to make it worthwhile. Such claims are often also due to a lack of understanding of the purpose and the value of budgeting.

Budgets are plans prepared in advance to show how the financial and material resources of a business will:

a. be needed

b. be used by it, during a specified future period.

Budgeting is the act of preparing those plans.

Budgetary control refers to the use of plans to control the various operations of the business.

The Purpose of Budgeting

The purpose of budgeting is very easy to understand. That is because most people budget in their everyday lives, perhaps without even realizing they are doing so.

For instance, a wage earner will estimate in advance the amount that he or she is likely to earn in the coming months, and then decide what sums he can afford to spend on rent, food, clothing, entertainment, and so on. He needs to set limits on the size of each type of expenditure. All he does in practice is to plan the best way to use his resources (his income in this case), and the limits he sets himself allow him to control within reason his expenditure. He might well plan his expenditure so that he has an amount left over to save or to spend on a holiday or some special item or luxury. Similarly, a business person plans to make profits.

There are many such practical everyday examples: a student on a grant or an allowance will have to budget, perhaps for a shorter period; and a housewife might budget how to spend in the best way her week’s housekeeping money, perhaps leaving a sum over for some special purpose.

Relating this to a business, we can see that its owner or manager needs to know in advance how much money will be needed, and when it will be needed to enable it to achieve its objectives. Not only that, but he or she needs to know in advance what the money will be spent.

There is no value and no profit in a business making or buying products which it cannot sell, or cannot afford to pay for!

Budgeting can be beneficial to almost any business. Any budget is a plan, and all reasonable planning in business is far better than no planning at all. Once the owner(s) or managers of a business attempt budgeting, its benefits quickly become obvious to them. And in many instances, they cannot understand how it was ever possible to operate without budgeting!

Practical Example 1

We go back to Mr. Jerome Smith. To help you understand his decision process in forecasting what footwear to buy when we grouped the various factors he might have to consider into four main categories. However wisely he made his decisions in regards to those factors, his strategy would fail if he did not take into consideration one other vital factor: MONEY.

He has to buy and pay for the footwear he intends to resell to his customers. The manufacturers and/or wholesalers from whom he buys might extend him credit, so he will not have to pay at once for the goods. But he must pay his debts, and his financial liabilities when they fall due; if he fails to do so or is late in paying, the suppliers might refuse to allow him credit again, which could seriously damage his business.

So Jerome Smith must be certain before he places his orders with suppliers, that he will be able to pay for the supplies when the time comes. Of course, he will not place orders for everything at one time; he will order what he has decided he will need in time to be received at the shop/store to meet the anticipated demand. He will no doubt place orders for different goods, perhaps with different suppliers at different times of the year. Payments for the goods will also be made at different times throughout the year. Payments for the goods will also be made at different times throughout the year. There might be times when he is wise to make smaller orders than he would prefer, to be sure of being able to pay for the goods.

A great advantage to Jerome Smith of being able to buy on credit is that there is a good chance he will be able to resell some or all of the goods bought, and so receive income, even before he has to pay for those goods! Even so, he must be sure that his overall income from sales will exceed his overall expenditure, not only in paying for the goods but also in paying all the other expenses his business incurs.

It is important to him to know in advance whether there might be times when he might be short of ready money with which to pay for goods or other expenses. If necessary, he might have to arrange a bank overdraft facility in advance with his bank, to tide him over any periods during which he might be short of ready money.

Jerome Smith must also be sure that he does not overspend on any type of expenses, such as on advertising or on employing and paying salaries to more sales assistants than he needs. Any overspending will use up valuable financial resources, and eat into any profits which he hopes to make from the business. If he knows, reasonably accurately from his forecasts what value his total revenue income from sales is likely to be; he can adjust and limit his expenditure accordingly, so no money is wasted.

Overheads

Some expenses incurred by a business relate to specific materials or goods. For example, it might be necessary to pay the cost of transport sometimes called carriage inwards in getting the materials or goods to the premises of the business. Some products need special storage conditions, e.g. refrigeration. The amount spent is generally about the quantity purchased; i.e. the larger the quantity purchased of the product, the greater will be the expense involved in transporting the consignment, storing it, and so on. Such expenditure directly affects the costs of specific products.

However, other types of expenses are not directly related to or attributable to specific products; they are commonly called overhead expenses or simply overheads. Expenses of this type include rent and rates of premises, clerical and managerial salaries, advertising, and other selling and distribution costs.

Within certain limits, the overheads of a business might be fairly steady and there is often a minimum level below which it is not possible to reduce the expenditure on overheads. But that minimum level might be sufficient to support a substantial volume of business.

For example, the rent that Jerome Smith pays for his shop/store might be the same whether from those premises he sells goods worth, say, $15,000 or $150,000, or more. Therefore, a definite minimum amount of income is essential to meet the fixed or semi-fixed overheads of a business, whilst all things being equal an increase in income should result eventually in a corresponding increase in the size of net profit.

In practice, however, some factors might not allow the foregoing to happen. For example, there is a limit to how far sales from Jerome Smith’s shop/store could be increased before the premises became too small to hold all the goods to be sold and to allow space for staff and customers to move in. He would need to move the business to larger and probably more expensive premises. Advertising is another example; when business is slack it might be necessary to increase expenditure on advertising to try to boost sales. Similarly, when business is bad it might be necessary to offer large reductions in price or discounts and extended credit to prospects to encourage sales.

Working Capital

There is a constant circulation or turnover of values throughout a business. The values of many of its assets, its stocks of raw materials and/or goods for sale or use, its money in hand or held by a bank, and money owed to it by its trade debtors rise and fall with its everyday operations. The values of current liabilities of the business such as debts it owes to trade creditors or a bank overdraft also rise and fall.

Here are some examples to demonstrate this flow or turnover:-

• When a business buys and pays for materials or goods, the amount of money it owns goes down: but the value of its stocks goes up.

• When a business sells materials or goods and receives payment for them, the amount of money it owns goes up: but the value of its stocks goes down.

This is a continuous cycle in many businesses. It is by the turnover of its current assets that a business makes its profits or losses.

Other factors might enter the cycle:

• When a business buys materials or goods on credit, the value of its stocks goes up: but the value that it owes to creditors also goes up.

• When a business sells materials or goods on credit, the value of its stocks goes down: but the value of the money owed to it by debtors goes up.

The difference between the total value of the current assets of a business and the total value of its current liabilities at any point in time is called its working capital.

So long as the value of its current assets exceeds the value of its current liabilities by a reasonable sum, the business should have no difficulty in meeting its current liabilities, and its debts when they fall due for payment. A steady increase in the amount of a business’s working capital usually indicates successful business operations.

A decrease in the amount of working capital of a business over some time could indicate that losses will be incurred because a decrease in working capital might be due to an increase in sales which needed additional fixed assets to be bought, which were paid for from reserves of money instead of from a bank loan or other financing.

Unless a business has sufficient working capital, its activities will be restricted and its financial position will be a problem. The makeup or composition of its working is as important to the success of a business as is the amount or value of that working capital. Here are some examples which explain why that is so:-

• If too much money is tied up in stocks of materials or goods for sale, the business will not have ready money available to pay its debts to its creditors when they fall due.

• If a business does have money but its owner/manager has not used it to buy needed materials or goods, the business will not be able to satisfy the demands of its customers, so it will lose sales.

• If to boost sales, customers are allowed to buy too much on credit, the business will not have ready money available to pay its creditors and its normal operational expenses.

  
  

  Those examples show you that a balance must be kept between the values of the different types of current assets and liabilities so that a business always has:

• sufficient, but not too many stocks of materials and/or goods;

  and

• sufficient, but not too little, money to pay operating expenses and creditors.

Furthermore, if goods are sold on credit, the amounts owed by debtors should not be too high (see later Section on Credit Control).

A business should always have sufficient liquidity by which we mean cash or assets such as bank savings which can easily be converted into cash to meet its expenses and liabilities. The business needs a good cash flow so that sufficient income is regularly being received to meet its outgoings.

Limiting Factors

In practice, some factors limit or restrict the extent of the activities of a business, and they must be taken into account when forecasting and budgeting. The two most common are:-

• the demands for the products of the business:

  and

• its productive capacity.

It would be very wrong, for example, for the owner/manager of a business to budget for the production and/or sales of 3,000 units in a year when either the demand from customers was, say, only for 2,000 units, or if the maximum number which could be produced by the business was, say, only 1,750 units.

Other limiting factors might include:

• Shortages of labor; particularly of skilled or trained workers.

• Shortages of raw materials and/or components or delays in obtaining them.

• Shortage of storage, production, or sales area.

• Inadequate capital available.

• External factors, e.g. the economy of the country, government restrictions on imports, exchange control restrictions or shortages of foreign exchange, restrictions on the employment of skilled non-nationals, etc.

Financial Accounting

Many businesses suffer because their owners or managers do not pay sufficient attention to financial accounting. Too many owners and managers of businesses look upon accounting as an activity that is time-consuming and/or expensive in terms of the nonproductive salaries of accounts personnel, and which is performed, perhaps, mainly to satisfy shareholders, lenders, or tax authorities.

Nothing can be further from the true position! Complete and accurate accounting records provide information that can be presented in a summarized form in various financial statements. Provided that data is wisely interpreted and used, such statements can provide a wealth of very valuable data for business owners and managers. And that includes vital information on whether a particular business is running at a profit or is incurring a loss.

Practical Example 7

To illustrate the factors we have emphasized above, let us consider Mr. and Mrs. Hussein, a couple who own a fair-sized house in a popular seaside resort. Their children have grown up and left home, and they decide to start a small partnership business by renting out a few spare rooms in the house to visitors on bed and breakfast terms during the main holiday/vacation season.

They notify the local tourist office about the accommodation they have available for guests, and they place a few small advertisements in the local newspaper. Soon guests start to book and arrive, and they are in business running as “Lakeview Guest House”.

They very sensibly keep records of:-

• All their receipts of money from their guests, which is their income or revenue.

  and

• All their payments, the money they spend on providing accommodation and breakfasts to their guests, which is their outgoings or expenditures. After the first two months of their business operations, they drew up a statement of their receipts and payments, which looked like that shown in Fig.9/2.

Fig. 9/2. A basic financial statement (See resources for downloadable materials)

By deducting the total of their payments (1790.00) from the total of their receipts (2576.00), the couple will discover that their excess or receipts over payments” was 786.00. They might feel well satisfied by making such a “profit from their endeavor.

But have they made that amount of profit or indeed, any profit at all? To arrive at the true picture of the financial position which is the purpose of accounting other factors might have to be taken into account, for example:-

· With more people in the house, more electricity would be used, e.g. for lighting and cooking, the cost of which is not shown in the statement (probably because it is included in the domestic electricity bill). Similarly, more water will be used, which might increase the domestic water bill and special liability insurance for guests might be required.

• Telephone calls might have been made on the house phone concerning business matters, and some postage might have been incurred.

• It is assumed that the couple’s crockery, glassware, cutlery, and kitchen equipment were used for breakfast; but broken, damaged, or worn-out items will have to be replaced.

• The extra bedroom furniture bought will continue to be used for a long time, so it is not right to treat its total cost as an expense in just the first two-month period. Nor can the existing furniture be ignored. It is to best write off just a small percentage of the total value each year, to account for wear and tear or depreciation as it is called in each accounting period.

• Similarly, the towels and linen, both new and existing will be used for some time, although they will not last as long as the furniture. So a much larger percentage of their cost will be written off each accounting period.

• The couple purchases quantities of food, beverages, and consumables to last quite a few days. Therefore, on the last day of the accounting period, 31st May in this case, they might have some unused items, e.g. unopened packets of cereal or tea, etc., still in stock. Such items will be used in the next period, so should not be charged to the period in question.

• With bed & breakfast terms, guests are commonly asked to pay in advance in full or at least a deposit. So on 31st May some income had been received from guests but had not yet been earned, because accommodation and food will be given in the next period. That sum should not be included in the current period’s accounting.

Now look at Fig. 9/3 and see how the statement might appear if all those factors have been taken into account.

The second statement gives a far more complete and accurate picture of the financial position. Properly interpreted, it tells us:-

• Firstly in actual financial terms, the couple gained or made a profit of the sum of 502.00 in the period i.e. total revenue earned in the period of 2,044.00 less expenditure incurred of 1,540.00. That does not take account of any salaries they might wish to take for their own time and work in running the business.

• Secondly, they had stocks in hand worth 34.00, which will be used in earning income in the following period.

Of course, our example is a very simple one using small sums of money, because this is not an Accounting Course. Here we can give you only a basic insight into financial accounting.

Fig, 9/3. A basic financial statement (See resources for downloadable materials)

Whatever the size of a business, the responsibilities of the person or people involved in financial accounting are:-

• to record all financial transactions;

• to analyze them; and

• to present details of them in statements that show the effects of those transactions on the performance and financial position of the business.

Profit and Loss

Any business, whether it is very small or a huge multinational is run to make profits for its owner(s). A business makes a profit from its activities or operations during a certain period, when:

· the total value of all its income, - its receipts of money

· exceeds (is greater than)

· the total value of all its expenditure, - its payments out of money.

The amount of the excess of income over expenditure represents a profit made by the business. The opposite of making a profit is incurring a loss, which of course all business people wish to avoid. If a business continues to incur losses, the capital invested in it will be exhausted, and it will have to cease operations unless its owner(s) raise more money to invest in it. You can therefore see that unless a business does operate profitably, all the time, the money and effort put into it by its owner(s), managers, and employees will be wasted.

The owner(s)/managers of a business must receive regular indications of its performance and financial position. They need to know whether the business as a whole is operating profitably or not or if appropriate whether different sections of departments of it are operating as profitably as they should or could be doing.

The information they need is contained in two key financial statements, which together are referred to as final accounts. They are so called because they reflect the position of the business on the last or final day of a financial period or accounting period, most commonly a 12 calendar month period, or financial year. The two statements are called the profit & loss account and the balance sheet.

Practical Example 8

Mr. and Mrs. Hussein are so successful in their first business venture, and enjoy it so much, that they decide to sell their house and the guest house business as a going concern and take on the running of a small hotel. With the money they gain as capital, they buy an existing hotel business, including furniture, fixtures, linen, cutlery, crockery, glassware, and other assets that operate from rented premises. They refurbish the premises and reopen the hotel under their partnership management as Lakeview Hotel on the first day of July.

This is a much larger venture than their previous one, and to succeed they have to put into practice much of what we have taught you in these lectures so far, and more which we teach in the next lectures. Not only do they have to order and store stocks of bed linen, food, and beverages, but they also have to recruit, train, and control staff, they have to advertise publicize, and sell the hotel’s services, accommodation, meals, and beverages, and they must keep detailed accounting records.

Information in those records will make it possible for final accounts to be prepared to show the financial position of the business after the first financial year of operations, which in this case will be on 30th June. The final accounts will also show whether the business made a profit or a loss, and how much in either case during that financial year. The statements might be prepared by Mr and Mrs. Hussein if either has the necessary knowledge of bookkeeping by a member of their staff or by an accountancy firm.

They or their staff will also have to take stock or carry out a stocktake which is the physical counting or otherwise measuring of every item of food, beverages, linen, crockery, cutlery, glassware, etc, and the recording of the quantities arrived at. The various items will then be valued, to arrive at the total value of the stocks on the last day of the financial year.

The Profit and Loss Account

This is designed to show the difference between:

• the total REVENUE earned by the business in the period

  and

• the total revenue EXPENDITURE it incurred in the period

If the total revenue exceeds the total expenditure, a PROFIT has been made. But if the total expenditure exceeds the revenue, a LOSS has been incurred. Before you examine the specimen Profit and Loss Account Fig. 9/4, you should note the following points:-

• All revenue earned in the period must be included, whether it was received or not; that is, any money owing by customers on the last day of the period must be added to the amount received in the period.

• Only income earned in the period should be included; that is, any income, such as deposits, received in advance must be deducted from the total.

• All revenue expenditure incurred in the period must be included, whether it had been paid or not; that is, any money owing by the hotel business to suppliers on the last day of the period must be added to the sum paid.

• The costs of items sold in the period are calculated using this formula: Value of opening stock + value of purchase – value of closing stock. Opening stock is the value owned at the start of the financial period; closing stock is the value owned at the end of the period.

Fig. 9/4. A Profit and Loss Account with departmental breakdowns for a hotel (See resources for downloadable materials)

The Balance Sheet

A balance sheet shows the financial position of the business, a hotel in this case at a certain stated date; it is like a snapshot of the business at a point in time. It lists the values of all the assets of the business, both fixed and current, including monies owed to it by debtors. It also lists the values of all the liabilities of the hotel. With the liabilities is shown the capital of the business; that is because, in theory, that value is owed to the person(s) who invested it in the business, and so is a liability of the business.

Fig. 9/5. Balance Sheet of a small owner/managed hotel business (See resources for downloadable materials)

The value of liabilities plus capital plus net profit or less net loss, as the case may be should, if the bookkeeping and accounting records have been maintained accurately, exactly equal the total value of all the assets.

As we have explained, it is the balance sheet of a small, owner-managed hotel business. Note that the net profit disclosed in Fig.1/8 is shown as being added to capital; that is because the profit made increases the amount owed to the owners of the business.

During the year the owners withdrew – called drawings from some of the profit made for their use, as their return on the money, time, and work they had invested in the business. Note that there are differences in the layout of the final accounts of partnership businesses and limited liability companies, but the general concept and the purpose of the settlements are the same as those illustrated.

Other Final Accounts

The amount of profit or loss disclosed by a profit & loss account is called the net profit, that is, the profit made by a business after all its income and expenses incurred have been taken into account.

The owners/managers of businesses involved in trading or distribution might need to know the amount of gross profit or loss made. This is simply the difference between the total sum a business paid for the goods it purchases for resale and the total amount it received for the goods it sold. This is calculated in a statement called a trading account which is prepared before the profit & loss account. A trading account will show:-

The total net income received for all goods sold during the financial year.

Plus

The value of the stock of goods at the end of the financial year is known from the end-of-year stocktaking and valuation.

LESS

The value of the stocks of all goods at the beginning of the financial year.

Plus

The total net value of all goods purchased during the financial year.

Fig. 9/6. A specimen trading account (See resources for downloadable materials)

The value for sales is net because the value of any returns outwards has been deducted; that net sales figure is often called the turnover. The figure for purchases is after the value of any returns inwards has been deducted.

The amount of gross profits is transferred to the profit & loss account. Any non-trading income like interest paid by a bank (see next Chapter 10) is added to the gross profit. Then all operating expenses of the business are deducted from it, to show the net profit made during the period.

It is possible that the total of the expenses could be greater than the gross profit made plus any non-trading income in which case the overall result would be a net loss by the business in the financial period. That might not be too serious and might even be forecast and expected with a new business, but that situation must not be allowed to continue. If a gross loss is disclosed by a trading account, in the profit & loss account the expenditure incurred will be added to the gross loss to show the net loss suffered during the year. That could be a very serious situation for the business.

The owner or manager of a trading business needs to make sure that sufficient gross profit is gained to be able to pay all expenses, and still leave a net profit for its owner (s). You will remember that many expenses are fixed or semi-fixed whether sales income value is high or low so an increase in gross profit should increase net profit. A reduction in gross

Profit, due to a decline in sales or to holding excess stock can result in a serious reduction in net profit or even to a net loss.

Fig. 9/7. A specimen profit and loss account (See resources for downloadable materials)

A manufacturing company might need to prepare a manufacturing account to disclose how much it costs to make its products for sale as opposed to buying them for resale before preparing a trading account and/or a profit & loss account.

All types of businesses produce a balance sheet after the other final account or accounts, and we shall continue our study of financial statements and balance sheets in lecture 5.

Credit and Credit Control

Many businesses offer and allow credit to their customers. This means that customers take possession of products without paying the value of those products at once. Credit is important to such businesses because it increases customers spending power and increases sales. Because of credit, larger numbers of people can afford to buy certain products that might otherwise be beyond their finances: for example, refrigerators, washing machines, DVD players, computers, motor vehicles, and many similar products.

For example, Roxy Hardware Ltd sells refrigerators in its store. The refrigerators she sells are fairly expensive products, and the number of customers for them would be limited if each had to save enough to pay in full at the time of buying. But far more people will be tempted to buy her refrigerators if they can pay in easy installments over some time. In Roxy’s case, he will probably offer to help arrange HP agreements through a bank or finance company for them.

Other businesses selling a wide range of products might have to extend credit to some or all of their customers as well as be allowed credit by their suppliers. For example, a manufacturer of food products will have to allow credit to wholesale businesses. The wholesalers will extend credit to their retail customers. The retailers might even extend credit to large or regular customers, such as hotels, guest houses, restaurants, and even some individuals.

Quite often a business person is forced to offer credit terms because competitors are offering credit. And if his or her business did not follow suit it would lose sales to the competitive businesses.

Two common forms of credit that might be allowed to and also allowed by businesses are as follows:-

Monthly Accounts

Credit is allowed on a calendar month basis. A customer may be allowed to buy products on any day or day during a particular month without paying at the time of receipt. But the total value of what was received must be paid at the end of the month concerned, or within a certain period in the following month.

For example, if a customer received goods worth 400 on 10th September, 450 on 12th September, 510 on 18th September, and 225 on 28 September. The total of 1585 must be paid on 30 September or within an agreed number of days in October.

Fixed Periods of Credit

The customer must pay for the products bought in a fixed, agreed period after the date on which they were received. 30-day credit is most common; for example, if a customer received goods on credit on 15 September, those goods must be paid for on or before 15 October. In some cases 60 days credit, 90 days credit, or even 120 days credit might be allowed. Much depends on how anxious a business person is to make a sale, and what terms competitors are offering. If competitors are offering longer periods of credit, he or she might have to follow suit so as not to lose customers and sales, and on how quickly payment is needed to help pay a business’s debts.

Dangers in Allowing Credit

Despite the benefits of allowing credit, you need to realize that the unwise allowing of credit or extended credit can damage your business. The following are the most common reasons:-

• A customer to whom credit has been allowed might not pay at a later date for the products. It might then be very costly to recover the debt or the items involved. Even if the products are recovered, they might be in an unusable or unsaleable condition. A debt that a credit customer fails to pay is called a bad debt, and it represents a loss to the business.

• A business must receive income on a continuous cycle to be able to pay all the expenses it must incur and to produce a profit. If long credit periods are allowed, the business might have to its expenses before receiving payment for the product sold. It could have insufficient funds with which to pay its operational expenses. In such a case, a bank loan or bank draft overdraft might be needed, which is expensive in interest and which adds to costs.

Credit Limits

If you run or manage a business that sells on credit, you must lay down a sensible credit policy that will benefit the business, but not harm it. Each customer allowed to buy on credit should be set a credit limit. This means that the customer might owe for products supplied on credit up to a certain maximum sum or value, and for a certain period only.

Practical Example 9

Joseph Nelson runs a stationery business called Bookish Stationers Ltd. He sells small quantities of stationery products such as papers, pens, envelopes, exercise books, etc., over the counter for cash. But he also has some customers: offices, schools, hotels, and others, to whom he must allow monthly account terms. Joseph cannot afford to lose sales, but neither can he afford to lose money due to bad debts. So he sets each credit customer a credit limit, which he tells the customer in advance.

1. One particular customer’s credit limit is set at 700 units of the currency of the country. This means that the customer will be permitted to owe for goods bought on credit for one month up to that sum only. Should the total value be reached, or be nearly reached, the customer will not be permitted more credit until some or the entire amount already owed has been paid.

2. During one particular month, the customer buys goods on credit to the value of 700 units and is told by Joseph that the agreed maximum credit limit has nearly been reached.

3. The customer pays 400 units on account, and thus the amount still owed is reduced to 300 units. The customer can therefore, if need be, buy more goods on credit that month up to a value of 300 Units.

4. The customer buys goods on credit worth 300 units; the total amount owed to Bookish Stationers Ltd is now 600 units.

5. The customer pays the debt of 600 Units in full and is thus entitled to make further purchases on credit valued up to 700 Units.

Customers, who are slow in paying what they owe, might have their credit limits reduced, or be refused further credit. On the other hand, customers who prove what is called their creditworthiness by regularly paying the amounts they owe when their debts fall due for payment might be permitted increased credit limits, and to owe for longer periods. But decisions on allowing or refusing credit should not be taken lightly.

Credit Control

Once decisions on credit limits have been taken, it is important to ensure that any sales personnel employed by the business comply with them. Each salesperson must know the credit limits set for his or her regular customers and must be able to check easily the credit position of a particular customer when necessary. As appropriate, a salesperson should be able to consult and check with the owner or manager of the business or with its accounts section.

The owner or manager or the accounts section should give an early warning that a customer is nearing or has reached the credit limit set. Sales personnel should be told immediately if there is any suspicion that a customer might default in payment. If that is not done, the situation could be made worse by further credit sales being made to the same customer.

Before allowing credit to a new customer and before any products are delivered or provided to that customer either a monthly account or a fixed period a salesperson must obtain authority from management.

Checks on Creditworthiness

Credit allowed to a known customer is usually based on past payment history, that is, the reputation the customer has built up for prompt payment when debts fall due. Rather more care is necessary in extending credit to new customers. There are three main methods of checking on a potential customer’s creditworthiness:-

• The potential customer is asked to provide a bank reference.

• The potential customers are asked to provide one or more trade references, that is, the names and addresses of other businesses that have extended credit to that potential customer. Such businesses can then be asked to confirm or otherwise creditworthiness.

• A trade inquiry agency can be engaged to investigate and report on the financial status of a potential customer; in general, this can be done fairly quickly, especially if the potential customer is an established business.

• All checks on creditworthiness must be carried out discreetly, and the results must be kept confidential.

Learning Outcomes - Business Essentials and Types of Bank Accounts

This course offers a comprehensive range of significant subjects, which, when studied diligently according to the prescribed learning guidelines, is expected to equip learners with the proficiency to apply the acquired knowledge in various scenarios. The course content addresses the purposes of different forms and documents used in business to communicate information, principles of design, reasons for opening bank accounts, types of bank accounts, and making payments.

Introduction: Business Essentials and Types of Bank Accounts

Introduction to Business Essentials is a course that aims to provide students with a comprehensive understanding of fundamental concepts and practices in the field of business. The course covers a broad range of topics, including organizational structure, marketing, accounting, finance, operations, and ethics, and seeks to equip students with the knowledge and skills needed to succeed in a business environment.

In addition to gaining a thorough understanding of core business principles, students in this course may also develop critical thinking and problem-solving skills, as well as the ability to communicate effectively and work collaboratively with others. By exploring current trends and issues in business, students can learn to apply their knowledge to real-world situations and make informed decisions that positively impact their organizations.

Overall, Introduction to Business Essentials is a valuable course for anyone looking to pursue a career in business or seeking to enhance their understanding of business operations and practices.

Maintaining accurate and up-to-date records of every business transaction is a critical aspect of business management. In this lecture, we will examine the various source documents from which the required information can be obtained to compile those records.

Business Documents

In transactions, some appropriate documents are issued by a business, while in some cases; completed documents are received from other organizations. A business may both issue and receive documents, but not necessarily the same types or for the same reasons. The types of documents that a particular business issues and/or receives depend on its activities and how it buys and/or sells its products. For instance, order forms provide the intended supplier with information about what is required and by whom while keeping a copy of the order as a record for the business person.

Forms are preprinted or formatted with spaces left blank in which information is to be entered by writing or typing. While many business documents are completed and printed out by computer, they are still very similar to those produced manually.

In today's fast-paced business world, a variety of business documents are utilized for different purposes. These documents facilitate communication between various stakeholders, such as customers, suppliers, employees, and partners. Common examples of business documents include contracts, financial statements, invoices, proposals, and purchase orders.

It's important to keep in mind that not every business will need or receive every document, and some may have their unique documents. Moreover, the appearance and structure of similar documents can differ from one company to another, depending on factors like branding, communication style, and industry standards.

Therefore, it's crucial for businesses to carefully select the appropriate documents that meet their specific needs and ensure they are well-designed and formatted for clear and effective communication. By doing so, they can boost their professionalism, credibility, and communication efficiency with stakeholders.

Invoice

In modern business, a considerable proportion of sales are made on credit, and customers/clients are not required to make immediate payments for the goods/services provided. Therefore, both parties must maintain detailed and accurate records of the money owed and for what purpose. This is where an invoice comes in handy.

Every business that sells products to credit customers must issue invoices containing specific information such as the vendor's name and address, the customer's name, address, and account number, the date of sale, details of the sold products, the total amount owed, and the serial number of the invoice to identify it.

• The name and address and perhaps other particulars of the business making the credit sales – the vendor.

• The name, address, and account number of the customer to whom the products were sold on credit.

• The date on which the sale was made.

• Details of the products sold, such as quantities, descriptions, unit prices, and values of the quantities sold.

• The total amount owed for the products sold under the invoice.

• The serial number of the invoice – to identify it.

However, the information need not be provided in the same sequence in the invoices issued by different businesses. Furthermore, some invoices might need to contain other information, such as the customer’s order number, discount allowed or allowable, catalog or code numbers of the products, length of the period of credit, etc, and some might even require the customer’s signature as proof of sale and/or delivery.

The invoices issued by different businesses might vary considerably in size and shape, some might be printed in different colors or on different colored paper, some are to be completed by hand, others by typing, and yet others might be computer-produced. The differences can be many, although all are invoices used for the same basic purpose: to record sales made on credit. The same applies to many other forms, they are similar but different. The important factor is to design forms that are the most suitable in layout and content for the purposes for which they are to be used.

Fig. 10/1. Basic specimen invoice (See resources for downloadable materials)

Credit Notes

From time to time it happens that the wrong goods are supplied to a customer. They might be wrong quality or seized or color or style, etc, or the goods might have been damaged in transit. Whatever the case, the customer will not accept them or pay for them, if sold on credit. When the incorrect or faulty goods are returned, it is customary, if the goods are not replaced by acceptable ones, to issue a document called a credit note.

A credit note states the description(s) and values(s) of the goods returned, and shows that the customer’s account with the vendor has been credited with a certain sum, thus reducing the customer’s debt to the vendor. A credit note might have to be issued to a customer/client, reducing the amount owing, e.g. if an overcharge was made on an invoice: say the prices charged were too high or a calculation error was made, or if a promised discount was not allowed and deducted from the total due as shown by an invoice, or if an invoice charges for a larger quantity than was supplied.

Fig. 10/2. A basic specimen credit note (See resources for downloadable materials)

Statements of Account

Credit customers are sent, at least once a month, a document called a statement of account; or simply a statement. That lists details (number, date, and value) of each invoice issued to that customer/client during the preceding period, and details of any payments, date, receipt number, and value received from the customer/client during the period. A statement will also show the balance still owing, that is, total invoices value less total credit notes value less value of payments made. If at the start of the period a customer owed money from a previous period, the sum owed will be shown against the annotation Account rendered, meaning that details of how that overdue amount was arrived at have previously been submitted.

Receipts

When a customer/client makes a payment, whether in cash by check/cheque, or in some other form, it is usual to issue a document to provide proof of payment; such a document is called a receipt. It merely states:-

• the name of the customer who made the payment;

• the date on which it was made; and

• the amount paid; often in both words and figures, but not always.

In some cases, it might also contain a brief statement of the reason why the payment was made, e.g. Invoice no. B-732 or settlement of account. Receipts might be handwritten, or produced by computer or cash register.

Fig. 10/3. A basic specimen statement of account (See resources for downloadable materials)

Fig. 10/4. A basic specimen receipt (See resources for downloadable materials)

Delivery Notes

Quite often a supplier will dispatch a consignment of items to a customer in response to an order received. The consignment will be accompanied by a document stating what items are contained in that consignment; such a document is called a delivery note. The document contains very similar information to an invoice, but it does not generally state the prices or values of the items being delivered.

After briefly checking the items received against the facts in the delivery note, the customer or an employee, perhaps a store-person signs the delivery note as proof of receipt of the goods and returns one copy to the supplier or the delivery person. Later the supplier will, as usual, also send the customer an invoice, stating the prices and total value of the goods; the invoice will go to the person or section dealing with the payment of bills.

Fig.10/5. a specimen delivery note

Designing Documents

There is a wide range of other business documents which might be used, and we illustrate some other commonly used forms for you later in this lecture. Today many businesses produce some, if not all of their documents, especially invoices, statements of account, and receipts via computer. Equally, many businesses still rely on manual means to issue their documents. In either case, the basic reason remains the same: to provide information.

Whether forms are to be manually or computer-produced, there are important matters you should bear in mind to make certain the forms you need for your business serve their purposes in the best way. Let us look at those matters briefly.

The information required to achieve the purpose for which a form is needed needs to be decided,:

• what information the particular form be required to contain;

and

• the logical sequence in which that information should be presented.

Only necessary information should be catered for; there is no value in wasting time filling in or reading information that is not relevant.

The sizes of the spaces provided in which information is to be written/typed are very important. If the information required is lengthy, e.g. an address or a detailed description, two or three or more lines might have to be provided, on the other hand, if the information required is brief, e.g. a date or a quantity, only a small space need be provided. Too often we see forms in which only 4 or 5 cms are provided in which to write a name or an address or details of educational background, whilst an entire line 20 cms or so is provided in which to write a person’s age or a date! Such forms are not well designed.

A computerized form is generally set up on screen or predefined and might look very similar to the manual version of the same form, with headings of information. But it might not be necessary to leave blank spaces as such, because the computer can be programmed to accept information or data into certain areas called fields, the sizes of which will be automatically adjusted depending on the amount of data input; for example a short address or a long address. Once the design of the form has been finalized, it can be saved and can be retrieved at any time and completed on-screen by inputting the required data, and as many copies as needed of the complete form can then be printed out on paper or card and when needed.

A sensible arrangement of the information is important to provide the most suitable arrangement for the information it has been decided is essential. It can save a great deal of space, and time in completing the form, if the information that the form is to contain or to provide is arranged in a coherent and logical sequence. That should enable the form to be completed, checked, read, and examined quickly and easily.

An advantage of a computerized form is that its design can often be quickly and easily changed when necessary. The design of manual forms cannot usually easily be changed, and some or all preprinted unused copies might have to be disposed of which can be a costly waste, and a new version printed when circumstances change.

Many forms have to be filed for future reference, which frequently requires holes to be punched along one edge of them. A sufficiently wide margin (space) along the edge concerned should be provided, so that information will not be destroyed by the holes punched, or be obscured by file fastenings.

Particularly when forms are to be used for external purposes, e.g. order forms, invoices, and employment application forms, they should when possible be presented attractively, both in layout and in production (printing, duplicating, or photocopying). This is not always feasible with computer-produced forms.

Bank Accounts

The relationship between business people and banks is not only about borrowing money or operating overdrafts. However, there are other important reasons why what are called bank accounts are opened and used by businesses; they are for safety and convenience; for example:-

• Most business people do not have strong and secure places in their shops/stores or offices or homes in which to keep possibly large sums of currency notes and/or coins safe from thieves and fire.

• It can be very dangerous, and inconvenient, for people to carry bundles or packets of currency notes and/or coins about with them on their persons.

· It is also very dangerous and inconvenient to send bundles or packets of currency notes and/or coins through the post or mail.

It is far safer and more convenient to use the services offered by a bank, even though they have to be paid for. An account is opened with a bank, into which is paid or deposited any cash over immediate or current needs. A business that opens an account with a bank is said to be a customer of that bank. The bank allocates an account number to each customer.

Most banks offer different types of accounts; a customer might open one or more. There might be differences in the types of accounts offered between competing banks in the same country and between banks in different countries.

These are the most common types of bank accounts which are opened for businesses:

• A current account is one into which money can be paid or deposited and from which payments can be made at will at any time provided always there is a sufficient balance of money in the account or an overdraft has been arranged. Some banks pay interest on the balance in a customer’s current account which is called the amount by which the customer is in credit. However, all banks charge interest on any sum which is overdrawn.

• When a payment needs to be made, say to a supplier of products or an employee, the bank can be instructed to make the payment from the customer’s account. There are various ways in which that can be done. A written instruction to a bank to pay money from a customer’s account is most commonly written on a specially printed piece of paper called a check or spelt cheque in some countries.

• A bank pays interest on money deposited in a savings account. Money in a savings account can usually be withdrawn, for example, transferred to a current account, at fairly short notice being given to the bank. So this type of account can be useful if a business has excess funds, perhaps from a large sale that its owner knows will not be needed for a week or two, to pay for goods at the end of a period of credit, or month-end salaries for instance. A useful little sum of interest can be earned on excess money which is not needed immediately, rather than letting it lie idle in a current account.

• A bank also pays interest on a deposit account often at a higher rate than is paid on a savings account. This is because money deposited in it which might be called the capital sum has to be tied up for longer. There are many different types of deposit accounts. Some require the bank to be given 7 days’ notice to withdraw all or part of the capital, sum deposited. Others might require 30 days’ notice or 90 days’ notice, and so on, sometimes the periods are months; 1, 2, 3, or 6, for example; rates of interest offered might vary depending on the length of time or terms and other factors.

There are also fixed-term deposit accounts or call accounts into which money is deposited for an agreed length of time. A 30-day call account is common. This means that 30 days or one month after the deposit, the account will mature and the customer can either withdraw some or the entire capital sum or reinvest it for another period.

The interest earned can be transferred to the customer’s current account, or added to the capital sum thus increasing it Fixed terms may range from one month to 3 6, 12, or 24 months or even longer.

The interest earned on savings and deposit accounts is welcome income for a business, but there can be a danger in tying up money for too long in the hope of earning a little more. If due to unforeseen circumstances or a miscalculation, a business needs some or all of its money sooner than thought, the bank might charge a heavy fine or penalty for releasing money early.

Checks (Cheque)

A check (spelt cheque in some countries) is essentially a form, into which information is written or typed; the process is called issuing or drawing a check/cheque. Commonly several blank unused checks/cheques are bound into a pad: a check/cheque book. Each bank prints its blank checks (cheques) to supply to its customers. Therefore, checks (cheques) can and do differ in size and shape, and even in the colors in which they are printed. There are, however, some features that are common to the checks (cheques) of most banks. Take a careful look at Fig. 10/6. (See resources for downloadable materials)

The actual check (cheque) is the larger section on the right of the dotted line. These are the important features (but note that their sequence may vary) of it:-

• It bears a serial number (00867 in the specimen) to identify it at all times. The next check (cheque) in the book will be No. 00868.

• It has printed on it the name and address of the bank.

• It has a space in which to write the date on which it is issued or drawn.

• There is a line “Pay…………………………..on which to write the name of the person or business called the “payee” who is to receive the money. Usually, the payee will have to deposit the check (cheque) with a bank to collect its value or the amount of money stated on it.

• Below the “Pay” line, there are lines on which to write in words the exact amount of money to be paid to the payee.

• There is a box in which to write in figures the exact amount of money to be paid to the payee.

• The amounts written in words and figures must always be the same. If they differ, the bank will not pay the value of the check (cheque)!

• The name of the bank customer which is Moonlight Enterprises Ltd in this case and the account name allocated to that customer by the bank (5892356 in the specimen) are printed on it.

Fig. 10/6. Specimen check (cheque) (See resources for downloadable materials)

• Below those details, there is a space in which the customer has to write a signature as authority for the bank to make the payment. At the time of opening the account, the customer has to give the bank specimens of the signature(s) which will authorize the bank to make payments from the account. An individual customer will give specimens of his or her signature. But in the case of a business, the bank must be given specimens of the signature(s) of the person or persons say the owner or manager or directors who are permitted to sign checks (cheques) for and on behalf of the business.

The Parties to a Check (cheque)

Note that there are three parties to a check (cheque):-

• The drawer; is the person or business issuing or drawing the check (cheque). Nowadays most banks preprint the names of the respective drawers on the blank checks (cheques) they provide to their customers.

• The bank; which holds the drawer’s money or funds and which will pay the value of the check (cheque). The name of the bank, together with the address of the relevant branch and its sort code, are invariably preprinted on checks (cheques) provided to customers.

• The payee; is the person or organization that is to receive the value of the check (cheque). That name must be written or typed in the space provided in the check (cheque): “Pay”……………………. as part of the issuing process.

The Counterfoil

The smaller section shown on the left in Fig. 4/6 is called the check (cheque’s) counterfoil. The two sections are separated by a dotted or perforated line. The check (cheque) is completed or drawn by writing in it the particular details (date, payee, and amount). Then it is detached from its counterfoil. The counterfoil remains in the check (cheque) book as a record of the check (cheque) issued. Note these features of counterfoil in Fig.10/6:-

• It bears the same serial number as its check (cheque).

• It has a line on which to write the date on which the check (cheque) was drawn.

• It has a line on which to write the name of the payee.

• It has lines on which to write the reason why the payment was made.

• It has a line on which to write in figures the actual amount for which the check (cheque) was drawn.

Not all banks provide checks (cheques) with counterfoils. Some provide a blank list of details (as above) of each check (cheque) are written in numerical order.

Other Methods of Paying through Banks

Sometimes a bank may be instructed, perhaps in a letter or by completing a special form, to make a payment directly to another bank account with the same bank or another. For example, for safety and convenience, an employee might prefer to have his or her salary paid by transfer directly into his or her bank account, instead of being paid in cash or by check (cheque). This might also be a useful method when payment has to be made to another country, perhaps to pay for products to be imported from that country.

A bank might be requested to issue a bank draft or international money order in the name of a certain payee. That can then be sent to the payee in the same country or another country who will deposit it with a bank to collect its value. Many payees consider this a safer method than a check (cheque).

Nowadays, in many countries, special arrangements can be made with banks under which instructions to make payments can be given orally by telephone known as “telephone banking” or by email, known as “internet banking”. It is worthwhile checking whether these facilities are available in your country and, if they are, seeking advice on whether the use of them would benefit your business.

Methods by which Customers might Pay

There are many methods by which businesses might receive payments for their products from customers. The methods that a particular business will encounter depend on its type and size, and the scope of its activities, that is, whether it operates only locally, or whether it operates nationally or even internationally. Lower-value products are most likely to be paid for by customers in cash (currency notes and coins). A small newspaper kiosk or ice cream van, for example, will most likely handle most, if not all, transactions in cash.

Checks (cheques) are also still very commonly used for making payments between people, businesses, and other organizations. Payment by check (cheque) is a type of credit because the customer does not pay until the check (cheque) has been presented to the bank concerned, and is cleared by it. Control of the acceptance of checks (cheques) is important, especially in over-the-counter sales to unknown customers. Banks in many countries supply check (cheque) cards to creditworthy customers. Such a card, which is not to be confused with a credit card serves two purposes as outlined below.

• It identifies the customer and carries a specimen of his/her signature;

• It commits the bank to pay the value of a check (cheque) drawn by the customer up to a specific amount stated on the card, provided: (a) the card is valid, (b) it is produced to the vendor, and (c) the vendor writes the card number on the back of the check (cheque).

Even if a check (cheque) is produced, the information written on the check (cheque) such as date, vendor’s name, and amount to be paid in both words and figures, which should agree should be checked carefully. The signature on the check (cheque) should be compared with that on the card. In some cases, the drawer’s address and/or telephone number might be asked for and written on the back of the check (cheque). Junior sales staff might be instructed to obtain authorization from a senior before accepting a check (cheque).

Checks (Cheques) received by post or in advance of the supply of goods or services should also be looked at carefully and, particularly in the case of personal checks (cheques), supply might be held back until they have been cleared.

Increasingly customers make payments by credit card. If a business needs to be able to accept payment by this method, it must first be registered with the organization providing the service. In a way, credit card transactions are also a form of credit because the vendor does not receive the actual payment at once; that will be received later from the credit card issuing company, less a percentage commission for the service. Also, a credit card issuer might allow a holder of one of its credit cards what is effectively a period of credit before payment must be made.

To make a payment, the information embossed or electronically encoded on a credit card is either (a) reproduced by a small machine into a specially printed form, or (b) scanned electronically and transmitted, after being passed or swiped through a PDQ cash register machine. The cardholder might be required to enter his or her PIN (personal identification number) and/or a security code or password.

The latter within seconds checks the information on the card with the issuer, automatically checks that the cardholder has not exceeded his or her credit limit, and checks that the card has not been reported as lost or stolen. If everything is in order, the machine prints a receipt bearing an authorization code. Where PINs are not used, the completed receipt might be signed by the cardholder with the same signature as on the card. If there is a problem, the printout will state that the transaction has been declined.

An alternative to a credit card is a debit card. A debit card looks like and is used in a very similar way to a credit card; but in this case, the charge is made immediately to the cardholder’s bank account.

Some businesses offer facilities for products to be ordered by email, fax, post, or by telephone, simply by the cardholder stating the credit or debit card number and its expiry date, his/her name and address, etc. The vendor checks all the facts by telephone or by PDQ machine with the credit or debit card issuer before dispatching the items concerned to the cardholder’s registered address.

Other methods that consumers might use to make payments include bank drafts and bank transfers or other money transfers, postal orders, and inland or international money orders. Hotels whose customers come from other countries, and businesses involved in tourism might also encounter:

• Travelers Check (Cheques): These are purchased by customers from banks or travel companies in their home countries in various denominations or values, either in the currency of the country concerned or in one foreign to it. Travelers' checks (cheques) must be properly signed, and some vendors require the customer’s passport number to be written on their reverse. Lists of travelers' checks (cheques) reported lost or stolen are distributed to businesses, against which any presented by customers may be checked.

• Foreign Currency: Some transactions involve the conversion or exchange of foreign currency notes into, and the cashing of travelers' checks (cheques) issued in foreign currencies for the local currency. When these activities are necessary, the countries whose currencies can be exchanged, and not all can be, and the rates of exchange, which might fluctuate daily, and which are notified by a country’s central bank against which they may be exchanged for local currency, may be displayed for customers’ information in hotels and tourism businesses.

  
  

  Whatever the method by which payment is made, it is usually necessary to issue a receipt for each payment received. A receipt might be produced manually, or be produced by a cash register machine or by computer. From the receipts, information will be transferred to the accounting records of the business.

Banking

Some businesses deal with relatively few clients or customers, and so do not receive very many individual payments. In consequence, a cashier might not be employed, and the owner or manager or an assistant might be responsible for depositing or banking, those payments which are received into the current bank account of the business.

The frequency at which banking will be done by a particular business will to a great extent depend on the sums of money involved and on the types of payments which are received by it.

Fig. 10/7. Basic specimen bank paying–in slip with counterfoil  (See resources for downloadable materials)

• Some types of payments, such as checks (cheques). Postal orders, money orders, and bank drafts can be crossed for safety, so banking might need to be done only once or twice a week.

• On the other hand, if currency notes coins, and cash are involved, banking should be done as soon as possible after receipt of it, to reduce the chances of theft or other losses.

The protection available for money received, e.g. a safe or strong room, and the distance of a business’s premises from those of its bank, might also have a bearing on how often banking is done.

A preprinted form called a paying-in-slip, deposit slip, or credit slip is completed for each deposit to be made into a business’s bank account. The details entered in the slip must, of course, agree exactly with the values of the various types and denominations of money to be banked, and the total sum to be banked. A paying-in slip might look similar to the one illustrated for you in Fig. 10/7; it might have a counterfoil, as we show, or the main part of it might be completed in two copies.

The money to be banked is then taken to the bank and handed to an employee of the bank called a cashier or teller, with the completed paying-in slip. He or she will check that the money agrees in detail and in total with what is entered on the paying-in slip. If everything is in order, the teller will stamp and sign the counterfoil or duplicate copy, and return it to the person making the banking as a receipt for the deposit. From the stamped copies or counterfoils of paying-in slips, entries will be made in the accounting records of the business.

Checking and Passing Bills for Payment

The term bills is commonly used to refer to the invoices and statements of accounts tendered for payment by suppliers of goods and services. Sometimes bills are called suppliers’ accounts, which can be a little confusing because as we have already seen the words accounts can have other meanings in business. In larger organizations, the responsibility for checking and paying bills rests with a cashier or accounts department.

Many businesses, however, are too small to warrant the employment of a cashier or, because they do not engage in trade or deal with many suppliers, have relatively few bills to check and pay. In such cases, the checking of bills is commonly done by the owner or manager or by an assistant.

Unless suppliers’ bills are checked carefully, money can be lost or wasted, which will in turn affect the profits made. It is therefore very important to ensure that your business pays only what it should pay, that is:

• that it does NOT pay more than it should:

• and, that it does NOT pay for goods and/or services not supplied to it.

The first step is to collate each invoice that a particular supplier claims is due for payment. There might be a number, as credit purchases might have been made from the same supplier on several different dates during the period in question.

Those invoices should be checked and compared against any supporting documents, which might include copies of the orders made for the items and delivery notes and/or other documents.

The following facts stated in a supplier’s invoice need to be checked:-

1. That the items being charged for were received.

The checker must ensure that the quality being charged for was that actually received, and also that the size, quality, color, etc, priced are what was received; for example, an expensive deluxe quality might have been charged for on an invoice when in fact the cheaper economy quality might have been ordered and delivered.

2. That the prices charged for the items received are correct.

The prices of the items concerned might have to be checked against copies of the orders made, against the supplier’s catalog or price list, or previous invoices for the same items.

3. That any due discounts have been deducted.

As you know, discounts are price reductions, and the buying business might have been offered one or more types because: it was purchasing for resale – trade discount; or to encourage it to purchase a larger quantity than it might otherwise have purchased – quantity discount or to encourage it to pay its debt promptly or earlier than it need do, prompt payment discount.

4. That all calculations are correct.

Additions, subtractions, multiplications, and divisions might have been made on an invoice; all must be double-checked to ensure accuracy.

5. That the invoice has not already been paid.

It might be necessary to check through previously paid invoices which should have been filed properly for such a necessity.

Notes should be made of errors found in invoices, i.e. the number of the invoice in which an error was found, what the error was, and what the correct charge should be. The notes will ensure (1) that only the correct amount will be paid, and (2) that the supplier will be asked for a credit note for any overcharge found.

Once the foregoing has been completed for all invoices tendered for payment by a supplier, each invoice should be ticked off on the statement of account for the period received from that supplier; if any invoice listed has not been paid. Where an error has been found in a listed invoice, the value of it as shown on the statement may have to be altered to show the true amount to be paid.

The next step is to check that the value of every credit note received from the supplier during the period has been deducted from the amount due for payment. Some credit notes requested, particularly towards the end of the period, might not be listed on the statement, and due allowance must be made for the value of all of them, which will, of course, reduce the total sum payable.

Similarly, the values of all payments made to the supplier during the period should have been deducted from the amount due for payment; but any made recently might not yet be shown, so allowance must be made for them, and the total amount shown on the statement as being payable will need to be reduced accordingly.

Finally, any calculations in the statement of account, usually only additions and/or subtractions, should be crosschecked; the documents may then be initiated or rubber-stamped to show that they have been checked.

We have dealt with this process in detail because it is important to avoid losses of money, and the steps we have outlined should never be neglected.

Issuing or Drawing Checks (Cheques)

Once bills have been checked and passed for payment, the next stage is to pay the amount(s) involved. As we have explained, there are several methods by which payments to suppliers, employees, and others can be made; however, payment by check (cheque) is still very common, especially within the same country.

A small business, or one that needs to make relatively few payments by check (cheque), might not employ a cashier. In such a case, the writing or typing out of checks (cheques) or the issuing or drawing of them, as the process can be called, might be done by the owner or manager or by an assistant.

When issuing or drawing a check (cheque), it is essential to ensure that:-

· The date of issue is clear and accurate. It is all too easy, for instance, early in a new year, out of habit, to write the previous year; most banks will not accept or pay a check (cheque) six months after the date stated on it, and such a check (cheque) is said to be stale. Neither will a bank pay a check (cheque) that bears a date earlier than that on which it is presented for payment; such a check (cheque) is said to be postdated.

• The payee’s name is full and clear, and it is the correct name of the person or organization to whom it is intended to receive the payment.

• The amount to be paid is clear and accurate, and the amount stated in the figures agrees exactly with that stated in words, the bank will not pay a check (cheque) without that agreement.

The foregoing particulars should also be written accurately in the check’s (cheque’s) counterfoil or on the list of checks (cheques) in the check (cheque) book, from that record an entry will later be made in the accounting records of the business.

The particulars, as listed above, should be carefully checked by the person or persons authorized to sign the check (cheque), before actually signing the check (cheque), to make certain that everything stated on it is correct and accurate.

Check (Cheque) Security

To ensure that only the intended sum of money is paid by the bank, certain safety precautions should be taken when issuing or drawing a check (cheque):-

· The amounts written in both figures and words should start at the extreme left-hand side of the spaces provided for that information so that nothing can fraudulently be added in front of what is written.

· At the end of the amount to be paid which is written in words, a horizontal line ------------ should be ruled so that nothing can be fraudulently added to the amount, it is even safer to write the word “only” at the end of the amount written in words, and to follow that by the horizontal line, e.g. twenty-nine Units only------------

· At the end of the amount written in figures a dash with or without a stroke should be drawn so that nothing can be fraudulently added to the amount, e.g. Units65--- or Units65/---.

In many, but not all countries there is a common safety precaution against the unauthorized cashing of a check (cheque). That is called crossing and involves two parallel lines ruled or printed across the front or face of the check (cheque). The effect of crossing a check (cheque) is to instruct the drawer’s bank that cash must not be paid in exchange for the check (cheque); instead, the check (cheque) must be deposited with the payee’s bankers who will collect the value of it and pay that into the payee’s bank account.

A check (cheque) that is not crossed is called an open check (cheque), and it can be “cashed over the counter” that is, exchanged for cash (currency notes and coins), at the branch of the bank on which it is drawn.

The object of crossing is to prevent, in the event of a check (cheque) being lost or stolen, a person pretending to be the payee going along to the branch of the bank on which the check (cheque) is drawn and obtaining cash in exchange for the check (cheque). In countries in which crossing is used, banks may nowadays print parallel lines (often with the words “Account Payee” written between them) across the faces of the blank checks (cheques) they provide to their customers; otherwise, the lines can be ruled in ink by the drawers of the checks (cheques) as part of the issuing process.

Another safety precaution against fraud used by many businesses is to ensure that their checks (cheques) are signed by two of their executives. In such cases, the bank is instructed not to pay the value of a check (cheque) unless it bears two authorized signatures. In the case of a partnership firm, both partners (and perhaps any two of them if there are three or more) might sign checks (cheques). In the case of a limited company, two directors (or any two if there are more) might be authorized to sign checks (cheques). A person in business on his or her own might arrange for his or her spouse, an accountant, or another trustworthy person to countersign checks (cheques).

Cashing Checks (Cheques)

To ensure accurate accounting, most businesses pay all the money they receive, in actual cash as well as by other methods, into their current bank account as described earlier. However, from time to time cash might be needed to meet certain expenses which have to be incurred. For example, some employees prefer to be paid in cash and do not have bank accounts into which they can pay checks (cheques). Or amounts to be spent are too small to warrant issuing a check (cheque); such petty expenses are dealt with in the next lecture.

To avoid accounting problems, when cash is needed to make payments it is best not to simply use cash that has been received from customers. Instead, the amount of cash needed should be withdrawn from, drawn out of, the business’s current bank account.

In such cases, it is usual for a check (cheque) to be drawn payable to cash, that is, the word CASH is written in the space in which the name of a payee would normally be written. If the check (cheque) was precrossed when it was printed, that crossing will have to be canceled; that is done by writing pay cash or similar on the face of the check (cheque). Such an instruction to the bank must be accompanied by the full signature(s) of the person(s) authorized to sign checks (cheques) on behalf of the business concerned, as its effect is to turn a crossed check (cheque) into a special type of open check (cheque) called a cash check (cheque).

Great care must be taken in handling a cash cheque, as in theory anybody, even an authorized person having possession of it can exchange it for cash over the counter at the branch of the bank on which it is drawn. At the bank, the person presenting the check (cheque) for payment might be asked for proof of identity, and might also be required to sign his or her name on the reverse of the check (cheque) as proof of receipt of the cash.

The bank teller will need to be told the denominations of currency notes and/or coins required. The amount received from the teller should be carefully counted to ensure that it is the correct sum as stated on the check (cheque).