Basics to creating your own business

Tanzania economy has been creating fewer and fewer jobs, worsening the country’s labour force which experiences pressure from youths graduating from colleges every year.

Figures from the National Bureau of Statics indicates that in 2014 the country created as low as  282,382 formal jobs against more than 400,000 graduates who left colleges.

If the 2014 formal employment figures is anything to go by Tanzania needs to do a lot to increase employment opportunities.

Probably, the only remaining solutions to unemployment is through self employment (entrepreneurship). But worse enough even youth who want to venture into businesses don’t know how to do it because the education system does little or no trainings on entrepreneurship.

Even as the Fifth Government is at the forefront of promoting industrialization as a strategy to achieve middle income state by 2025, lack of entrepreneurial skills may act like a stumbling block to achieving this target.

This column will be offering you with basic tips on how to start businesses, how to manage businesses and how to obtain finance for your businesses.

Let us start by understanding the business concept and some basics of starting a business.

Definition of “Business”

A business may be defined as an activity of buying and selling goods and services for profit.  Business can be done by exchanging goods for goods, goods for services or by exchanging goods for money.

Purpose of doing business

Any business undertaking aims at making profit.

Profit is the amount that remains after subtracting the cost of providing the service or product from what one gets after selling. When production cost is higher than sales it should alarm the owner because the business is making losses.

What is entrepreneurship

Entrepreneurship is recognized as the ability to create and build something from practically nothing.  It is initiating, doing, achieving and building an enterprise or organization, rather than just watching, analyzing or describing one.  It is the knack of sensing an opportunity where others see chaos, contradiction and confusion.  It is the ability to build a founding team to complement your own skills and talents.  It is the know-how to find, marshal and control resources and to make sure you don’t run out of money when you need it most.  Finally, it is the willingness to take calculated risks, both personal and financial, and then to do everything possible to get the odds in your favor.

Definition of an “entrepreneur”

A kind of  person who organizes, operates and assumes the risks for a business venture; a person who rather than working as employee runs his /her own business and assume all the risks and reward of given business venture, idea or good or service offered for sale.

Key roles and functions of an entrepreneur

  • A business leader
  • Innovator: An innovator of new process
  • Profit maker: Maker of profitable ideas
  • Visionary: Deliver of potential economic profit (visionary)
  • Promoter: Promoter of new idea, business concept or system (sales person)
  • Mobilizer: Mobilize of factors of production (resources)
  • Organizer & planner: Organizer and planner of factors of production
  • Manager: Manager of factor of production

What are qualities of entrepreneurs?

  1. Self Disciplined: These individuals are focused on making their businesses work, and eliminate any hindrances or distractions to their goals. They have overarching strategies and outline the tactics to accomplish them. Successful entrepreneurs are disciplined enough to take steps every day toward the achievement of their objectives.
  2. Self Confidence: The entrepreneur does not ask questions about whether they can succeed or whether they are worthy of success. They are confident with the knowledge that they will make their businesses succeed. They exude that confidence in everything they do.
  3. Open Minded: Entrepreneurs realize that every event and situation is a business opportunity. Ideas are constantly being generated about workflows and efficiency, people skills and potential new businesses. They have the ability to look at everything around them and focus it toward their goals.
  4. Self Starter: Entrepreneurs know that if something needs to be done, they should start it themselves. They set the parameters and make sure that projects follow that path. They are proactive, not waiting for someone to give them permission.
  5. Competitive: Many companies are formed because an entrepreneur knows that they can do a job better than another. They need to win at the sports they play and need to win at the businesses that they create. An entrepreneur will highlight their own company’s track record of success.
  6. Creativity: One facet of creativity is being able to make connections between seemingly unrelated events or situations. Entrepreneurs often come up with solutions which are the synthesis of other items. They will repurpose products to market them to new industries.
  7. Determination: Entrepreneurs are not thwarted by their defeats. They look at defeat as an opportunity for success. They are determined to make all of their endeavors succeed, so will try and try again until it does. Successful entrepreneurs do not believe that something cannot be done.
  8. Strong people skills: The entrepreneur has strong communication skills to sell the product and motivate employees. Most successful entrepreneurs know how to motivate their employees so the business grows overall. They are very good at highlighting the benefits of any situation and coaching others to their success.
  9. Strong work ethic: The successful entrepreneur will often be the first person to arrive at the office and the last one to leave. They will come in on their days off to make sure that an outcome meets their expectations. Their mind is constantly on their work, whether they are in or out of the workplace.
  10. Passion: Passion is the most important trait of the successful entrepreneur. They genuinely love their work. They are willing to put in those extra hours to make the business succeed because there is a joy their business gives which goes beyond the money. The successful entrepreneur will always be reading and researching ways to make the business better.

Successful entrepreneurs want to see what the view is like at the top of the business mountain. Once they see it, they want to go further. They know how to talk to their employees, and their businesses soar as a result.

Starting your own Business

Last Week we discussed about different business concepts. We discussed the meaning of a Business, purpose of doing business, what are business activities, meaning of entrepreneurship and qualities of an entrepreneur.

Today we continue with “How to actually start your own business”. As already discussed last week an entrepreneur needs to have self discipline, self confidence, be open minded, creative and  have self determination amongst others to run their own business. Below are simple techniques that will guide you to start your own business on the right footing

Starting a Business

Any business  starts out as an idea, but it should be transformed into action. This is where many individuals begin to feel overwhelmed. It is understandable to freeze up at the load of things required to get a business started, but getting going is actually easier than you might think. Like any big goal, if you start by breaking it down into smaller tasks, you’ll be able to tackle enough of the actions necessary to get started.

How to start a Small Business

Starting and managing a business requires  motivation, desire and talent. It also takes research and planning.   Like a “Draft Board game”, success in a small business starts with decisive and correct opening moves. And, although initial mistakes might not destroy  your business, it takes skill, discipline, hard work and at times additional resources such as time, labor or fund to fix them.

To increase your chances for success, it is advised you take  time up front to explore and evaluate your business and personal goals. Results of your business evaluation should be used to build a comprehensive and well thought  business plan that will help to  reach your  goals. 

The process of developing a business plan  provide an opportunity to think through some important issues, which you might have overlooked or unconsidered. Your plan will become a valuable guide for raising capital required in your business..Needless to say, a properly crafted business plan  contain milestones hence allowing you to establish the level of success of your small business.

Get Started

There are just as many, if not more reasons to take a leap and start your own business. Some of the most common reasons for starting a business  includes;

  • Wanting to to be your own boss.
  • Wanting to be financially independent.
  • Wanting to have a creative freedom.
  • Wanting to fully use your skills and knowledge and so much more.

Whatever your reasons are, there is also a lot of benefits that goes along with it. It is therefore advised to list out most important reasons to start your own business as they will save as your reminder for pushing forward.

What Type of Business is right for you?

You might have unclear ideas of what type of business to venture in. To determine what business is “right for you” try responding to  some of these questions:

  • What do I like to do with my time?
  • What technical skills have I learned or developed?
  • What do others say I am good at?
  • How much time do I have to run a successful business?
  • Do I have any hobbies or interests which are marketable?
  • What niche will your business fill?
  • Is my idea practical and will it fill a need?
  • Who are my competitors? What is my competitive advantage?
  • Can I deliver a better quality of service?
  • Can I create demand for my business?

Based on your response to the above questions, you can clearly start to see through the noise on many business ideas and strip through to determine one you can pursue

Pre-Business Checklist

It is always important to think of how your business is going to turn out before starting. It is therefore advised to have a checklist of requirements for any business you want to start.  Below is a summary of some of the questions to help you getting started by considering most of the requirements.

  • Which business am I interested in starting?
  • What services or products will I sell? Where will I be located?
  • What skills and experience do I bring to the business?
  • What will be my legal structure?
  • What will I name my business?
  • What equipment or supplies will I need?
  • What insurance coverage will be needed?
  • What financing will I need?
  • What are my resources and how will I compensate myself?

Your answers will help you create a focused, well researched business plan that should serve as a blueprint and provide details on how the business will be operated, managed and capitalized.

What business structure, do I want?

When organizing a new business, one of the most important decisions to make is choosing a structure of the business. Some of the common factors influencing your decision about your business organization include:

  • Legal restrictions requirements
  • Liabilities assumed
  • Type of business operation
  • Earnings distribution
  • Capital needs
  • Number of employees and management
  • Accounting/Tax advantages or disadvantages
  • Length of business operation (business cycle)

Types of business structure

One of the first decisions you will need to make for your new business is choosing the type of legal organization that is best for you. The choice you make is important because it will determine what your business can and cannot do, what will happen if someone sues you, and how both you and your business are taxed.

Today we are going to talk about four of the most common business structures namely; Sole Proprietorship, Partnership ,Corporation and franchising

Sole Proprietorship

This is the easiest and least costly way of starting a business. A sole proprietorship can be formed by finding a location and opening the door for your business.

There are likely to be fees to register your business name and other necessary licenses. The Business Registrations and Licensing Agency requires that when starting a business one needs at least Sh20,000  to register a business name.

A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as Nancy’s Nail Salon. The fictitious name is simply a trade name–it does not create a legal entity separate from the sole proprietor owner.

The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only to register his or her name and secure local licenses to start operation.

A distinct disadvantage, however, is that the owner of a sole proprietorship remains personally liable for all the business’s debts. So, if a sole proprietor business runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are successful, the owner will have to pay the business debts with his or her own money. Below are some of the pros and cons of sole proprietorship

Pros

Registration is instant, easy and inexpensive.

Carry little, if any, ongoing formalities.

Owners may freely mix business with their personal assets.

Cons

Owners are subject to unlimited personal liability for the debts and losses of the business.

Owners cannot raise capital by selling an interest in the business.

Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

Partnership

Partnership is the most common type of business structure for businesses with more than one owner. There are several types of partnerships. The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, and each person is full responsible for the business.  A limited partnership is where at least one owner is a general partner and at least one owner is a limited partner. The general partners make everyday business decisions and are personally liable for business debts. However, limited partners simply invest in the business and have little control over business operations.

If you opt to have a limited partnership, it is highly recommended to have an agreement drawn up by an attorney.

A partnership agreement drawn up by an attorney could be helpful in solving any arising disputes. However, partners are responsible for the other partner’s business actions, as well as their own.  Based on best practices, a Partnership Agreement should include the following:

  • Type of business
  • Amount of equity invested by each partner
  • Division of profit or loss
  • Partner compensation
  • Distribution of assets on dissolution
  • Duration of partnership
  • Provisions for changes or dissolving the partnership
  • Dispute settlement clause
  • Restrictions of authority and expenditures
  • Settlement in case of death or incapacitation

Corporation

A  business  may  incorporate  without  an  attorney,  but  legal  advice  is  highly  recommended. The corporate structure is usually the most complex and more costly to organize than the other three business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors’ meetings and annual stockholders’ meetings.

Franchising

Franchising is a type of business ownership where an entity is authorized to distribute or sell goods and services for another company in a certain area. An example of franchising is on Pepsi products. Generally , Pepsi Company produce syrup concentrate only and sold to bottles around the world who finish the product and distribute to retail stores.

In addition to a well-known brand name, buying a franchise offers many other advantages that aren’t available to the entrepreneur who is starting a business from scratch. Perhaps the most significant is that you get a proven system of operation and training in how to use it. New franchisees can avoid a lot of the mistakes startup entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error. It is recommended to find out the following before entering into franchising business;

  • If the franchisor–as well as the current franchisees–are profitable
  • How well-organized the franchise is
  • If it has national adaptability
  • Whether it has good public acceptance
  • What its unique selling proposition is
  • How good the financial controls of the business are
  • If the franchise is credible
  • If the cash requirements are reasonable
  • What the integrity and commitment of the franchisor are
  • If the franchisor has a monitoring system
  • Which goods are proprietary and must be purchased from the franchisor
  • What the success ratio is in the industry

Finding a Niche Market

A niche market is the division of the market on which a specific product is focused.

A market in its entirety is too broad in scope for any but the largest companies to tackle successfully. The best strategy for a smaller business is to divide demand into manageable market niches, or areas of special focus.

Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers.   There are undoubtedly some particular products or services you are especially suited to provide. Study the market carefully and you will find opportunities.

While researching your own company’s niche, consider the results of your market survey and the areas in which your competitors already have strong businesses.

Put this information into a table or a graph to show where an opening might be for your product or service. Try to find the right combination of products, services, quality, and price that will ensure the least direct competition. Unfortunately, there is no universally effective way to make these comparisons. Not only will the desired attributes vary from industry to industry, but it also takes imagination, which cannot be learned from a book.

A well-designed database can help you sort through your market information and reveal particular segments you might not see otherwise. For example, do customers in a certain geographic area tend to purchase products that combine high quality and high price more frequently? Do your individual clients take advantage of your customer service more often than large groups from hotels? If so, consider focusing on being a local provider of high quality goods and services, or a service-oriented company that pays extra  attention to individuals.

What you need before establishing your business

In this topic entrepreneurs will learn how to identify needs in their local community using their skills. Knowing customer needs is very crucial in ensuring that your business grows and generates revenue. Here  entrepreneurs are required to use their own skills and talents to assess the market needs. The skills needed are mostly those we use in our daily lives to mingle with the community. Proper identification of market needs provides a powerful force to launch a viable business enterprise. Below are key items to consider

  1. a) Assess demand

The first step in starting a business is to identify a need in the community. Establishing the size of that need is called assessing demand. It is a waste of time to jump into developing a business plan before undergoing a thorough and proper demand assessment first.

Demand refers to the willingness to go out and buy a certain product/service. Hence, market demand is the total of what everybody in the market wants.

How can an entrepreneur assess demand of a product/services?

There are several ways to assess the demand of a product / service in the community. Some of the most common  ways include;

  • Listening to peoples’ complaints about a specific need in the community
  • Conducting informal survey especially at the market place
  • Sending out questionnaires to sample population
  • Scoping by reading and listening for highlights of needs in local newspapers or radio programs as well as other sources of information.
  • Complaints or demands highlighted on social platforms.

Accessing demand is amongst the biggest milestone you will make before establishing your business. This will help you establish the right business for the right people.

Assessing your target market

Before you are able to sell anything, you have to understand who you are selling to. You have to create a complete portrait of your customer and know why they want your product and how they will use it. By determining who will buy your products, you can fine tune the various aspects of your marketing message to appeal to this group and to avoid wasting time, money and other resources on non-customers. One needs to assess the kind of customer attracted in buying their products /service and from which demographic segment they come from such as their age, gender, occupation, education level, location and socio-economic status  amongst others.

Assess your market  size

The starting point for estimating the market size is to understand the problem you solve for customers and the potential value your product generates for them . You need to analyze whether the market is growing in numbers or declining and how to reach them? In addition to this you need to examine trends which are relevant to the target market.

Competitive arenas

 You need to demonstrate how your product/service differs from that of your competitors. Here you may try to ensure that the quality of your products is superior to that of your competitors. You may also want to package your goods in a more attractive package and brand it better than your competitors.

  1. b) Sizing up the market

Sizing the market is a necessary task for business planning and budgeting for all start ups. If you wish to invest in a certain business then you need to understand the potential market size. In order to determine the market size for your start up, you need to ask yourself the following questions.

  • What problem are you solving?
  • Who is your target customer?
  • What competitors’ products/services exist in your space? And
  • What is the estimate number of target customers?

Marketing Strategy

Customers must be made aware of availability of a new product or service and should be able to obtain it. Helping customers to understand the product and service and how they can obtain it is referred to as a marketing strategy. It is very crucial for any business to have an effective marketing strategy.

Any marketing strategy must take into consideration the following factors:

The location of the business – The business must be located at a place easy to reach, it must have enough space to accommodate many customers at once, and with enough car parking lots.

Advertising – A special budget can be set aside for advertising your new business. The advertisement can be done through social media, blogs, local newspapers or placing posters to road junctions and at areas where people meet.

Packaging – Make sure that your products are well packaged and branded. The package must make it comfortable for customers to carry and needs to be neat and attractive.

The need for good relationship with other businesses – Establishing your business doesn’t mean that you don’t talk with your competitors. You need to be close to them and have a good relationship, competitors are members of your community hence having a good relationship is key for your social well being.

Reputation in the community (word of mouth) – In normal circumstances it is not easy to please everyone, but try as much as you can to be close to members of your community. Talk nicely and set time to participate in social activities.

Competitor’s price – You need to examine clearly prices for the same goods as yours, which are present in the market. This will guide you to set competitive prices for your products.

All in all any entrepreneur should be willing to adapt products or services to customer preference, taking into consideration local safety and security regulations. A new product may have an initial period of high demand. However, a saturation point may be reached and demand may stay stable or even decrease. A sustainable market is one in which demand price keeps on increasing or stays stable with a steady rate of replacement.

  1. c) Estimating cost and setting a price

A product or service may be exchanged for money or for another product or service. Most businesses will want to make profit on product or services sold. Profit is the difference between cost price and selling price. A part of the profit can be reinvested or used for expansion of the business. A reasonable margin of profit enables the business to continue and even expand.

Definition of “Costs”

An amount that has to be paid or given up in order to get something. All expenses are costs, but not all costs are expenses.

Types of Costs

There are two types of costs;

Direct costs: These are costs directly related to the product or services that business produce or sell. E.g. the money we pay people who work in making or selling product; transport of materials or product; and consumable bills.

Indirect costs: These are all other costs for running the business. They include; rent, license, security, utility among others. Indirect costs are also known as overhead costs as they are paid whether the business is producing or not.

Factors to consider in setting a price and formulating an  effective price strategy

When setting a price for product or service one needs to consider the following:

  • Total production cost (direct and indirect)
  • How much customers are willing to pay
  • Competitors price
  • Short supply of product /service “Scarcity”
  • Product/ service demand
  • Government policies

It is therefore important to accurately calculate each of these, so that the final selling price is realistic. Selling price can be established using the below formula

Cost of production + overheads + profits = selling price

The entrepreneur should be careful in setting the level of profit intended to be made on the sale of a product or service, by also taking into account the relationship between demand of the product and the available supply. If demand is higher than the available supply, the price (and thus the profit) may be increased. If there is a large supply, but few people want to buy, then prices may drop. An excessively high price due to a big margin of profit will dissuade customers. When sales increase, profit margins may be reduced. This can enable the entrepreneur to lower the selling price, therefore allowing the business to ‘capture’ the market and even expand it.

Good Business Management is key to a Successful Business

Last week we discussed on how to identify needs in the local community before starting a business. We found out that knowing customer needs is very crucial in ensuring that your business grows and generate revenue. An entrepreneur is required to use own skills and talents to access market needs. Proper identification of  need becomes a powerful force to launch a viable business enterprise.

Now, as you have established your business, you need to put efforts and hard work for it to prosper. Without that, planning and efforts invested in establishing your business will be futile. In today’s topic we discuss various aspects of good business management.

Managing your business

Owning a business  comes up with number of challenges which are unique to the size and functions of the business itself. The business owner is obliged to handle all emerging challenges, ranging from selling, delivering, financing and ensuring business growth. For smaller businesses, the owner usually deal with these challenges alone or with few staff while trying to make her business successful.

Experience have shown that managerial function is  amongst the biggest challenge facing entrepreneurs. The fact is that proper business management is the backbone of every successful business and any startup business ought to survive should embrace this norm.

Good business management therefore means organizing your business in such a way that you make as much profit as possible.

Built Good Relationship with Key Stakeholders

For your business to prosper any entrepreneur need to build good relationship with the following stakeholders;

  1. Suppliers
  2. Customers
  3. Workers

Experience shows that without having good relationship with the above stakeholders, prosperity of your business is at risk. So, nurturing relationships with your customers, suppliers and workers is a crucial part of growing a successful business.

Apart from building good relationship an entrepreneur need to possess/acquire several qualities that will help one succeed in business.

Among those qualities includes:

  • Effective Communication Skills
  • Employees recruitment and management skills
  • Supervision Skills
  • Financial Management Skills

Any entrepreneur need to understand that  good business management comprises of many aspect of business in general, including; keeping records of income and expenditure, buying and selling on credit, calculating your profit or loss, setting a good price, good planning and many others. Although not exhaustive, possessing/ acquiring the above qualities and using them have proved to help success of many business. Below is a detailed explanation on each of the above qualities;

  1. Effective Communication Skills

Business communication is any form of communication being verbal or non verbal that is used to relay a massage, promote a product or service or share information. Communication is essential for success in any business. The type of communication vary given the circumstances and business needs.

The role of business communication is to inform, persuade and build good relationship both in and outside the business environment.

Creating good business relationship especially with your customers is a business opportunity that should not be overlooked. Most businesses are failing when it comes to the customer experience.

Types of communication

Communication can be divided between verbal and non-verbal communication. Verbal communication is communication using speech that is understood by all parties to the communication. In other word written communication falls under its own category.

Non-verbal communication is a bit more complicated. It is sending a massage without using words to convey meaning. Non –verbal communication can include many different elements. such as vocal clue, body movement, facial expression, space, touch, clothing and artifacts

Formal and informal communication

Entrepreneurs need to communicate effectively. Without good business communication, the internal and external structure of a business can face numerous challenges that can ultimately lead to its downfall.

Formal communication is mostly used by big entrepreneurs where personal interaction may not be practical. Formal communication involves utilizing the formal communication channels through well written guidelines such as memo and letters.

Informal communication on the other hand is between entrepreneurs outside the formal communication structure. Here entrepreneurs use informal means such as advertisements on billboards, door to door communication about the product and many others.

It should be known that when communication lines are open between a business and its customers, it can ultimately boosts the performance of a business.

  1. Employees recruitment and management Skills
  • Basing on United Republic of Tanzania, employing workers must adhere to the already established guidelines. In this, there are basic three laws that guide the process and one need to adhere to; Empowerment and Labor Relation Act, Occupational Health and Safety Act and, Vocational Education and Training Act

Guideline for employees recruitment

You must have the required standard for employees in terms of

  • Age
  • Education level
  • Profession
  • Salary

NB: the government in the country sets Age and Minimum salary for employees

As an entrepreneur you need to have an actual number of employees that suit your business needs. You need also to plan the overall benefits and incentives that will be offered to the employees to attract them. These may include paid vacation, transport allowance and health benefits. Make sure to crosscheck all the necessary documents before hiring.

Maintaining employees in an organization solely depends on the overall working environment that the workers are subjected to. There are many strategies that can be employed in order to maintain employees for longer time. In some business creating good working environment and provision on incentives to hard worker are usually among the strategies that are used.

Basic ways to keep employees

Arguably, making an employee comfortable in their roles within the business is a contributing factor to keep him/her. This can be done through;

  • Regular review and addressing received suggestions and recommendations. .
  • Provision of incentives or rewards for extra efforts. This can save as motivation for employees.
  • Regular verbal praise for good performers. This can also be a form of motivation which doesn’t involve any financial costs for the business.
  • Having in place a mechanism to control office misunderstandings for reducing burnouts is also a good way of maintaining your employees.

Termination

As in the recruitment of employment, termination of employees is in most case a legal matter. Terminating a contract usually requires reviewing of the necessary clause present in the contract so as to avoid legal actions against your business.

Things to consider when firing employees

  • Understand the legal issues associated with employee’s termination
  • Put in place the benefits that one will receive after termination
  • Collect all the company accessories that the employee had in their possession
  • Make sure to have a lawyer in place to oversee the whole process

Next Week we will continue discussing qualities of a good entrepreneur. We will get details of supervision skills and Financial Management skills.

For more detailed information on business management please visit the below web address http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

Financial Management skills

Last week we discussed that owning a business  comes with numerous challenges which are unique to the size and functions of every business.  Business owners are obliged to operate their businesses and handle all emerging challenges. Challenges that can be expected may range from the actual selling, delivery, financing and other activities in the undertaking to grow the business. In the case of smaller businesses, the owner usually deals with these challenges alone or with few staff, while trying to make their business successful.

We saw that building a good relationship with stakeholders is key to the success of any business. Without having good relations with your customers, employees and suppliers, the prosperity of your business is at risk. So, nurturing relationships with your key stakeholders is a crucial part of growing a successful business.

In today’s topic we focus our discussion on how to manage the finances your business generates.

It should be understood that every business, big or small, is always concerned about finance management. Proper financial management is very important in surviving a volatile economy and competition from other businesses. Effective management of finances is also essential, as it provides people with options for savings, that later on can be used for further business expansion.

Small businesses in particular, need to be careful about their financial decisions from the very beginning. They need to have a proper financial structure that gives them detailed information on income and expenditure. By stating clearly income and expenses, entrepreneurs will be able to turn their ventures into success stories.

The following tips will greatly contribute to effective finance management if taken into consideration in all your business undertaking;

Having multiple sources of income

I guess many of us have heard the phrase ‘Don’t put all your eggs in one basket’, and most of us would arrive at the literal meaning, that if you put all your eggs in one basket, and happen to drop the basket, all the eggs would break, and you’d be left with no eggs.

Experts are using the same logic to recommend entrepreneurs  diversify their investment portfolio by having multiple sources of income. This way, if one of your investments or income streams goes dry, you can still stay afloat.

Although it might be difficult for beginning entrepreneurs, it is very crucial for one to have multiple sources of income. This is good in the sense that failure from one source will not result in the complete failure of the business, as other sources will be available to cover for the incurred losses.

 Savings for bad/underperforming months

Another issue which entrepreneurs need to be aware of is that there will be months where the business is underperforming and therefore it is important to have, saving for those months. Here, an entrepreneur needs to have at least 6 months expenditure amount as savings  to avoid instant failure in case of sudden underperformance of the business. This is essential to allow other functions to continue while an entrepreneur is searching for alternative options to reduce the impact that was caused by the underperformance.

Having some savings will help you to get out of debt at  times when your business is performing low. Maintaining a “reserve fund” will also help you to notice if your spending is getting out of hand.

So, if you haven’t started saving start today., You may start today,  by setting aside a little money each day. If you receive unexpected cash from your work or other investments use that amount to get you started or to add to what you’ve already got set aside. As life goes about you might need to take some money from your savings, remember to build back your reserves. It takes a bit of work and commitment, but it’s a habit worth getting in to.

Separate Business Funds from personal Funds

This is also a very important item that entrepreneurs need to understand. When operating a business, an entrepreneur needs to separate business funds from personal funds. They also need to separate business expenditures from personal expenditures.

Keeping personal funds and expenditures separate from those of the business is very crucial, because combining the two can result into business failure. Even if you’re just getting started, it’s essential to separate these two parts of your fund. Treat your business, big or small, like a separate viable entity.

Here’s how you can peel your business away from your personal finances.

  1. a) Maintain separate Bank accounts

Despite the fact that you may have your personal bank account  before venturing into business, make sure that you open a special account for your business.

This, in one way or another will help you track your revenue and expenses much more easily, because they will both be in one place. b) Renting a Location

If you are using part of your home for business, you could rent that space to your business.

Create paperwork to show this rental agreement, including all the terms and conditions.

Always negotiate for better offer

Negotiating when purchasing goods or services is another way that can be used in overall managing business finances.

Negotiating is a part of everyday life, but in business it’s absolutely critical to your success. Poor negotiations can cripple a company just as quickly as losing key customers.

If you are a buyer, make sure you are thoroughly familiar with the product or service that will be the subject of the negotiations. If the other party senses you are weak on details, you may be a prime target for a bluff or another technique designed to create anxiety and uncertainty.

So before purchasing anything make sure you always ask for better prices for the provided goods or services. This  in the long run, will provide savings for the business.

Always be in control of the business income and expenditures

MSMEs are supposed to be in control of all financial matters related to their businesses. They need to personally control both income and expenditure streams. Never allow any unauthorized person(s) to manage your income or spending,as this may potentially lead to confusion which may in a long run lead to losses.

Cut Costs

It is important that entrepreneurs stay tight-fisted to keep their expenses in check without hampering customer satisfaction. This, especially holds true for small businesses.

Every business endures 2 basic types of costs – fixed and variable. While fixed costs have to be borne irrespective of whether your business is making money or not, there is a scope for savings in variable costs.

For example, instead of travelling to different places to purchase raw materials or goods for your business, encourage suppliers to deliver them to your office. This will cut travelling costs and save time for you.

While owning and running your own business can be exciting, it can also be nerve-wracking, especially when it comes to handling finances in a lucrative manner. Don’t let your business suffer due to poor financial management. Keep the above tips in mind and give your venture a bright future.

For more detailed information on business management please visit the below web address http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

Time Management

You came very early to your office and after having a very busy day it is time to go back home. Even though you came  early and left late, you don’t feel of doing anything significant. This happen to many people therefore calling for proper time management.

Proper and effective time management will not only help you set enough time for business development but also set aside enough time for personal development including time for your family and friends.

In this article, we will offer tips  on time management and various steps you can take to improve effectiveness..

Making the best use of your time

In order to achieve desired goals and priorities, every entrepreneur need to manage and align daily activities properly within available time slots .

Time is one resource that we do not buy, but we often waste it or use it ineffectively. Scheduling helps you think about what you want to achieve in a day, week or month, and keeps you on track to accomplish desired goals.

Time management works well when it is treated as an integral part of overall plan in the business enterprise and by each individual, rather than as an isolated and often a by-the-way activity that has to be done as and when we find time.

We all have exactly equal hours available to us – it is the use of these hours that makes the different between effective people and those ineffective.

Those who always do the most important things they are supposed to be doing at a certain time, are the most effective people.

Many successful people and business enterprises budget money for business operations and they further budget time (scheduling) as well.

Three steps of time management

To manage time properly you have to do the following three steps:

  • Identify the things that waste your time and not productive
  • Make a list of all your tasks and prioritize the most important ones
  • Draw up a daily to-do list to make sure that all tasks are completed in time.

Example: Hassan is an entrepreneur, is a trader of goods at major a market in Dar es Salaam. He normally works seven days a week. Among many of his business activities are to trade, and he is a member of MSHIKAMANO VICOBA in which they meet every Monday. In the last few months his business is not doing quite well. Leaders of MSHIKAMANO VICOBA have required him to attend an urgent meeting on Monday at 14:30 hrs. On the same day and time he expects to meet his long time client from Comoro at  his office. What should Hassan do?

Though both meetings are important, Hassan needs to make a wise decision. As a person who depend on business to earn a living, he will naturally be forced to attend the meeting which will in one way or another bring positive impact to his business and reschedule the one that aims to discuss issues which have little or no impact to his business.

As entrepreneurs we need to identify things that consume our time and they are less productive. This does not mean that we ignore them but we attend them in a manner that doesn’t impact the operations of our businesses.

How to identify time wasters

Time wasters are all those things which are not essential to your core tasks. You may do them because you are used to doing them, or because they are easier to do or because of other people and demands they make or problem they cause. These time wasters can either be caused by your business enterprise or by yourself.

Practice the following techniques to become the master of your own time:

  1. Carry a schedule and record all your thinking, conversations and activities for a week. This will help you understand how much you can get done during the course of a day and where your precious moments are going. You’ll see how much time is actually spent producing results and how much time is wasted on unproductive thoughts, conversations and actions.
  2. Any activity or conversation that’s important to your success should have a time assigned to it. Schedule appointments with yourself and create time blocks for high-priority thoughts, conversations, and actions. Schedule when they will begin and end. Have the discipline to keep these appointments.
  3. Plan to spend at least 50 percent of your time engaged in the thoughts, activities and conversations that produce most of your results.
  4. Schedule time for interruptions. Plan time to be pulled away from what you’re doing. Take, for instance, the concept of having “office hours.” Isn’t “office hours” another way of saying “planned interruptions?”
  5. Take the first 30 minutes of every day to plan your day. Don’t start your day until you complete your time plan.
  6. Take five minutes before every call and task to decide what result you want to attain. This will help you know what success looks like before you start. And it will also slow time down. Take five minutes after each call and activity to determine whether your desired result was achieved. If not, what was missing? How do you put what’s missing in your next call or activity?
  7. Practice not answering the phone just because it’s ringing. Don’t instantly give people your attention unless it’s absolutely crucial in your business to offer an immediate human response. Instead, schedule a time to answer and return phone calls.

Importance of having supervision skills

After getting some basics of time management, the next step is to have an operational plan. Operation supervision is very essential as it provide a business with a means to oversee the intended activities of the business and make sure that they are done in proper standards.

A supervisor is a manager at the first level of management. She is tasked to ensure that the business is meeting the intended goals. She also ensures that employees are performing their jobs. Operational Supervisor oversees daily business problems and goals.

A supervisor should possess the following skills:

  • Management Skills
  • Technical Skills
  • Human Relation Skills
  • Idea developing Skills
  • Decision Making Skills

General Function of a supervisor includes the following

Planning – this involves drawing up plans of actions that combine unity, continuity, flexibility and accuracy given the organization’s resources.

Leading – this involves the social and informal sources of influence that you use to inspire action taken by others. It helps supervisors understand their subordinates’ personalities, values, attitudes, and emotions.

Controlling – this involves identifying performance weaknesses and errors by controlling feedback, and conforming activities to plans and instructions.

Supervisors must be prepared for change as fast as their employees do. Supervisor must be accountable to business practice by imposing penalties for employees who fail to adequately carry out responsibilities and provide rewards for meeting expectations.

Tips for supervisors

Supervisor must be prepared for change as fast as their employees do.

Supervisor must be accountable to business practice by imposing penalties for employees who fail to adequately carry out responsibilities and provide rewards for meeting expectations.

Set limits on your behavior! No gossip.

Do not be a “rescuer”. Train employees to improve performance, do not do it for them.

Figure out how to measure success. Know when people are not on track to meet goals.

Communicate with everyone. Talk with each subordinate regularly.

Be firm. You will be tested on rules and standards.

Learn from others. Find other bosses who will share their wisdom. Seek people inside and outside the organization. Create a business network.

A successful supervisor is one who;

Brings a positive attitude to the workplace.

Be interested in hearing about work related problems.

Be loyal to the organization. Listen to employees and discuss problems.

Develop good communication skills. Your time will not shift from task to people orientation.

Be able to delegate and give up control.

Must accept the challenge and seize the opportunity for success.

Let us end here for today, next week we will discuss other aspects of business management

If you want more information about Business Management Tips and templates please visit http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Content Specialist

Tanzania Private Sector Foundation

Practicing business ethics

When entrepreneurs do business, to a large extent they care about making profit. Most of them forget that profit is not the end of everything rather efforts should be made to ensure sustainable development.

Ethical practices is among the key component that will lead to success of your business.

It should be known that, every business need to function according to established laws, rules, regulations as well as prevailing ethical standards. Business investors, money lenders and customers pay close attention to the standards and practices of any business before making any decision. But most importantly entrepreneurs are free to set their own higher ethical standards as they wish.

Various groups and  businesses have set their own ethical standards for their specific businesses. These standards of practice are a core values, developed to govern the relationship between their business and customers. Although they are not legally binding, these values help to provide level of service that distinguish the best performing businesses and building confidence among clients.

What is business ethics?

Business ethics are moral principles that guide the way a business behave. The same principles that determine an individual’s action also apply to business. Business ethics relate to the way you act to keep customer’s trust, the way you treat customers as your friends, and the way you advise customers to get the best options and benefits for them.

So for business prosperity, every entrepreneur need to treat people and companies with respect in order to establish a positive working environment. The effects of ethical practices in business can benefit a company financially and they can also help a company gain the elements it needs to grow.

Business owners need to be role models to champion ethical practices asemployees and customers generally take their cue regarding the behaviors that are acceptable based on how they see the company’s leaders acting and the behaviors that they see being rewarded by their peers. Businesses that are managed by leaders who conduct themselves in an ethical manner and who reward employees for doing what is right are much more likely to be characterized by a positive ethical culture.

Good manners should be an integral of employees in   engaging with each other, with customers, shareholders, and with the community. Having such manners will strengthen your organization and is one of major ingredient for  your organization growth.

Individuals who work for businesses make decisions every day, and their actions can impact the lives of many other people. When employees make decisions which  are unethical, many people can be hurt – including other employees, customers, and members of the general population — as well as the business itself.

Sources of business ethics

Laws and rules set by community : Laws and rules are the code of conduct formulated by the legal system of Tanzania and is to be followed by an individual to respect the societal interest. These are strict rules and procedures that every business should abide by.  For instance, to practice engineering, you need to follow engineering ethics established by Engineering Registration Board of Tanzania. Similarly, a Medical practitioner should follow codes of conduct established by the Medical Association of Tanzania and so forth. Laws and rules are reactive in nature and cannot cover all the cultural ethics as they are created when a new wrong doing emerges.

Culture : Culture is a pattern of behaviors and values that are transferred from one generation to another and it is considered as ideal within the acceptable limits. No wonder therefore that it is the culture that predominantly determines what is wrong and what is right. It is the culture that defines certain behavior as acceptable and others as unacceptable.

Human civilization in fact has passed through various cultures, wherein the moral code was redrafted depending upon the epoch that was. What was immoral or unacceptable in certain culture became acceptable later on and vice versa.

Other sources of business ethics includes Business practices & various groups of business networks.

Thus business ethics are influenced by an array of  sources which vary from company to company and practice to practice

Tips to Promote Workplace Ethics

The best way to promote workplace ethics is to be very specific and careful while recruiting potential employees who would be representing the top level positions especially the human resource department.

It is rightly said that human resource professionals are the faces of an organization. They need to understand the psychology of individual employees as they are the one who are responsible in formulating policies, rules and regulations of the organization.

Remember, policies should neither be too flexible nor too rigid. If policies are too flexible, no one actually follows them and if policies are too rigid, again employees would depend on excuses and lies to escape them. You must understand your nature of business. An organization which works primarily for clients can’t necessarily ask employees to report early in the morning as in most cases  such employees work  till late or probably the whole night.

Human resource professionals ought to communicate the organization policies and code of conduct clearly to the employees the very first day. They need to clearly introduce the organization including  office timings, hierarchy, dress code, salary structure, leave procedure, reporting structure and so on. When such information is provided at the beginning, employees would not use such excuses on wrong doing and unethical behavior.

Listen to what your employees problems and opinions. Superiors need to interact with employees on a regular basis and address their grievances. Management needs to make employees feel comfortable. They might come up with lots of issues and as a a business leader  it is your responsibility to guide them and help them with a solution. Even if the problem is illogical, do not be harsh to them, rather make them realize as to where they are wrong. Open communication is the best way to promote workplace ethics. Constant mentoring plays an important role in motivating the employees to adhere to the organization policies.

No employee should be given special treatments. Bonuses and hikes must be proportional to the employee’s performance over a period of time. Appreciating the employee who really deserve it  is essential. Do not favour anyone just because you like him/her.

Fair judgment is of utmost importance. You have nothing to do with his/her personal life. There should be absolutely no problem if an employee goes out to meet his girlfriend after office hours.

Organization needs to support its employees always, even at the hours of crisis. Job security and constant career growth are two most important factors which ensure employees stick around for a long time and also are satisfied with their current assignment. If employees are happy and contended and feel respected, they would also strive hard to deliver their level best every time.

Issues surrounding business ethics

In your business practice, you will encounter business ethic issues from time to time. Those issues may arise out of conflict of interest, corruption and bribery, environment responsibility, after sales service, truthful advertising, fair treatment of staff, refusal to deal with illegal partner  and non-discriminatory against others, for instance women,  a people living with HIV/AIDS and so forth

It is always important to follow ethic principles in resolving ethical dilemmas. The choice lies within Owners/ Managers and organization value clarity.

Benefits of practicing business ethics

There is a lot of benefit when your organization practice ethical business standards. Such benefits includes;

Attracting more customers to your business hence boosting sales and profits.

Making employees want to stay with  your organization and

Attracting talented human resources ,recognition and respect within the community

Disadvantages of lacking business ethics

Unethical behavior may damage an organization reputation and make it less appealing to stakeholders. Profits could fall as a result.

Let us end here for today, next week we will discuss other aspects of business.

If you want more information about business ethic Tips, please visit http://enterpreneurs.or.tz/

Prepared by Veneranda Sumila

Content Specialist

Tanzania Private Sector Foundation

Marketing your business

Market is explained as a place where buyers and sellers meet to exchange commodities. In business development terms, a market is explained as those people or customers where sellers and entrepreneurs expect to sell their goods or services. Marketing on the other side is that process of searching and creating a market for the commodity either goods or services that an entrepreneur expect to sell.

To  succeed in  any  business, entrepreneurs must  attract  and  retain  a  growing  base  of  satisfied customers. Marketing programs, though widely varied, are all aimed at convincing people to try out or keep using particular products or services. Business owners should carefully plan their marketing strategies and performance to keep their market presence strong.

Hence as an entrepreneur, you need to keep in mind that success of your business lies in its marketing. For people to come to your business they must first be told about what you are offering and be convinced to come.

Searching and creating a market for commodity  is very key and should be embraced by MSMEs. Below are some of the reasons why you should market your product;

  1. Provide a better way to retain and attract new customers.

Regular marketing of products and services is very essential as it has an impact on either retaining the existing or attracting new customers. Use of different marketing strategies helps to make your products known to the daily targeted costumers and also attracts new ones to start using products/services provided by your business.

  1. Provides a means to showcase products and services available/offered by your business.

Marketing provides a platform to showcase business products to customers with the aim of increasing awareness. This is very important because before people start to buy your products they need to be aware of its existence.

  1. Promotes growth of business income

The goal of marketing a product or service is usually to increase the overall number of people consuming or utilizing  services or product offered. If the number of product or services users increases, your sales will increases resulting in the improvement of business income.  Proper marketing usually brings benefits to the company including an increase of income.

Ways to Market your product

Different companies use different ways to market their products. The following are some of the most commonly used ways by many businesses.

  1. Quality of the product and services positioning

Without doubt one of the best marketing strategy for either a commodity or service is usually the quality of the supplied product. Before thinking of any other expensive way to attract customer to consume your  product or services provided, an entrepreneur must make sure the quality of the supplied items is of reasonable standards.

The produced products must be of better quality than those of competitors hence giving your business a niche over other businesses supplying similar goods or services.

Developing a new product is easier. But developing a great product that people actually want to buy and use is another story. Building a better product needs incorporation of strategies, empathy, design and analytics in the development process.  Below are some of known tips which can guide you into developing a great product.

Know your customers and their needs: Pay attention to your customers and learn as much about them as you can – where did they come from, who are they, and what do they expect from you?

Know what your customer expects from you or your business: Do you know how they define desired or delighted product/service? If you don’t know, it’s hit or miss as to whether you’ll deliver it or not. What you may think is quality, may not be “quality” to someone else. Again, give your customers a way to express their voice and be aggressive in your desire to listen to them.

Correct different views from customer expectations: Your employees have to held accountable to meet customer expectations on service delivery and should receive training and decision making skills to meet performance expectations. Giving customers as many avenues as possible  for communication will help you gather information needed before they able vent their  disappointments to the public through online forums such as Facebook, Whatsapp, YouTube as many are become accustomed to nowadays, or other conventional means..

Strengthen customer loyalty and service: This requires a calm head and fast response to quickly resolve customer complaints and grievances. Successfully resolve of a customers’ issues is the fastest way to build customer loyalty.

Maximize satisfaction and retention: Gaining feedback at various moments of the customer experience will tell you where you stand. Use dashboards or scoreboards to let your workers know what the customer has to say about your work environment or product or service.

  1. Advertisement

This is usually a created means of letting customers see your product in terms of appearance, use and the benefits. In marketing your product,, you need an advertisement strategy that will focus on changing people’s purchasing habits or perceptions concerning their everyday products so as to start utilizing products your are providing. A good advertisement strategy should be;

Sensitive: Not offensive or attacking a particular group

Appealing: it should easily capture people attention or interests

Reaching large masses at short period of time: It should be effective in reaching large number of targeted customers over a short period of time, hence little resources will be employed for large population.

  1. Packaging

Packaging can be applied as another basic way to market your product for those products requiring it.. Human consumptions pattern tend to divide people into certain preference in terms of the overall outlook, colors and the design of the product. .An entrepreneur can thus market a product by packaging it  in a format that meets customer preference.

  1. Promotions

One can use regular promotions as means to boost demand for the provided good or service. With an assured quality of the products, an entrepreneur can use promotions as a means to let customers test the products at affordable prices so that they can start consuming it. Promotions can include pitches  like “buy 5 get one for free” or “Get two for the price of one” stimulate trial among your targeted customers for  your product. The aforementioned pitches and many others are amongst the best product promotion strategies.

  1. Price

The right price is very important for getting the most total revenue. When setting a price for your product or service one needs to consider the following factors ;Total production cost (direct and indirect),How much customers are willing to pay, Competitors price,

Short supply of product /service “Scarcity”,

Product/ service demand, and Government policies.

It is therefore important to accurately calculate each of these, so that the final selling price is realistic.

The entrepreneur should be careful in setting the level of profit intended to be made on the sale of a product or service, by also taking into account the relationship between demand of the product and the available supply. If demand is higher than the available supply, the price (and thus the profit) may be increased. Likewise, if there is a large supply, but few people want to buy, then prices may drop. An excessively high price due to the need of a big profit margin will dissuade customers. When sales increase, profit margins may be reduced., This enables the entrepreneur to lower the selling price, and allow the business to ‘capture’ the market and even expand it.

  1. Distribution

The manufacturer and wholesaler must decide how to distribute their products. Working through established sellers is generally the easiest distribution channel for small businesses. Small retailers should consider cost and traffic flow during site selection, especially since advertising and rent can be reciprocal: A low-cost, low-traffic location means spending more on advertising to build traffic.

All in all the named above are the fundamentals of a true marketing mindset. Entrepreneurs needs to understand that, customer wants should be the focus of their business operations and planning.

Let us end here for today, next week we will discuss other aspects of business.

If you want more information marketing tips including viewing free marketing videos, please visit http://enterpreneurs.or.tz/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation

Customer service for your business prosperity

In today’s world it has been normal for entrepreneurs to improve their products to attract customers. To achieve this, many come with different and attractive products, forgetting that improving products alone cannot lead to business success, rather effort is needed to always be in touch with customers.

It is crucial for entrepreneurs to reach out to their customers and build meaningful relationships with them. This will help to improve the reputation of your brand hence increase sales. Customer service can make or break your business. If customers find your employees are rude or don’t know what they’re talking about they’ll go elsewhere to make their purchases.

As a business owner, you should not allow customers to run away from your business and therefore it is important to teach your employees / self handling customers to their satisfaction to promote business prosperity.

It is important to choose words careful when attending customers.

For example, if a customer walks through your door and say, do you have this product? If you don’t, but you have another product similar to the one requested, you need to say, I’m sorry we don’t, but we do have this product and it’ll serve the same purpose. That’s customer service.

The Golden Rule, “do unto others as you would have them do unto you,” may seem self-evident in the way we try to conduct our personal lives. Yet this saying is assuming new importance as a guiding principle in the world of business.  The growing significance of meeting customer demands for quality service has special implications for small business. For it is in this arena that small companies can, in the least expensive way, set themselves apart from the competition. Exercise the  following golden rules to help you meet customer demands.

Golden Rule number 1: Put your Customer First

Quality customer service begins with your employees.  The first person that a customer will see is you and your employees. You all should be good ambassadors.  If you take care of your employees then they are more likely to take care of your customers. Try offering service bonuses to increase employee morale and make them pay attention to customers.

Golden Rule  number 2: Stay Close To Your Customer

Asking questions and listening carefully to answers is an important part of customer service.  You lose money when you lose customers, so keeping them is going to make your business run. You can see the evidence in these facts:

  • 65 per cent of a company’s business comes from existing customers
  • It costs 5 times as much to attract a new customer as it does to keep an existing customer happy
  • 91 per cent of customers will never use a company who has disappointed, failed, or offended them
  • The best business owners are not only committed to staying close to their clientele, but also identify them. They give their customers the level of service they themselves would expect to receive.

Golden Rule number 3: Pay Attention to Little Details

Some of the most effective “extras” are really very basic adages of conducting good business, although customers are often surprised when they take place. These include:

  • Answering the phone by the third ring;
  • Treating customers respectfully and courteously at all times;
  • Greeting them by name;
  • Promptly answering their questions and, if you can’t, getting back to them with an answers as quickly as possible;

Golden rule number 4: Understanding customers and the way they think

Understanding customers and the way they think is critical to keeping them.  For example, customers do  business on  the  basis  of  emotional desire: they  want  what  they  want  —  when they  want  it. Customers also tend to gravitate toward a company or group of people they like. Plus, most customers have a strong tendency to stick with businesses with which they are familiar, and are slow to change buying habits unless given a very good reason.  However, when they are displeased, even by a small disappointment or discourteous word, various surveys have revealed that customers tell from seven to 11 people about their dissatisfaction.  An important key to serving customers well is this: don’t try to change them.

Customer service can also be used on the phone. No matter what type of business you run, customers call on the phone. They may want to know your hours of operation or they may have a question about a purchase they recently made. No matter what the reason is for the call it’s important that the person answering the phone knows how to do it properly and is kind at all times. People will continue to do business with you if they’re treated fairly and with respect. Rude and inconsiderate people will drive people away faster than anything else.

Following up with customers is another form of customer service. When you show your customers that you care about them and you want to make sure they have everything they need and that the products are working properly, they’ll remember that. They won’t be afraid to come to you when there’s a problem and they won’t think twice about recommending your business  to their friends and family.

One last form of customer service  is helping your customers. No matter if they’re young or old; helping them to the car when they have an arm load of products is a good way to show them you care. Helping them decide which products to purchase and helping them to understand which ones will work well together is another way.

It’s important to remember that your customers are what will keep you in business. If they’re not happy they’ll leave and go to your competition. When you have good customer service each and every time a customer comes through the door, they’ll be happy to come back to you and they’ll invite their friends and family as well.

If you want more information about Business Management Tips and templates please visit http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation

Business model: A roadmap for small business success

In marketing products or services, it is vital to have the most appropriate business model. A business model describes the various aspects, approaches and values that an enterprise offers to one or more segment of customers.

Creating a small business model means planning – on paper – the fundamentals of your business. It helps you, as an entrepreneur, to put aside the excitement and make a realistic evaluation of the potential success of your business idea.

A proper business model helps you to figure out elements such as: Your business concept – what problem are you solving for whom; how will you create customer value; how will you get customers for your  product or service; how your business will stay competitive; and all revenue and costs you can anticipate.

All in all every entrepreneur need to keep in mind that having an appropriate business model is very important as it helps to identify the right implementation strategies which will lead to business prosperity.

In the absence of a business  model,  an  entrepreneur  may  find difficulties to take  the  right  decision  at  a given time. This may lead to inefficient operations and in turn a Non-viable business.

Parameters of a business model

As you embark on making a proper model for your business consider the below four key components;

  1. Your business goal

Knowing  the business goal is important. The entrepreneur need to clearly lay out objectives of her business such as:

Is it a profit making business/ service?

Is it a charity based organization?

Once the objective is clear, the performance of the business can be measured against the goals. For profit oriented entrepreneurs, any profit can be reinvested in growth and expansion. The goals of the enterprise also determine other aspects of the business model.

  1. Products and Services.

To create the business model, each entrepreneur need to determine the main product of her business. It is important that the entrepreneur know various sections and technologies which are key to her business success. Once this is understood, the entrepreneur can determine the appropriate devices/equipment, products or services to start or expand a particular business. In this process, the entrepreneur must be able to identify clearly the following:

  1. Product or service; here an entrepreneur need to clearly define the kind of business intended. She needs to tell whether her business will base on products, focus on services or deal with both products and services. Also an entrepreneur need to tell if her business will further provide a wider range of related services or products that will enable the business to be more sustainable. For example, supplying complimentary products, providing repair and maintenance services, providing credits to consumers, providing training for use and maintenance and others.
  2. Uses; here an entrepreneur need to tell the use of the offered products or services.
  3. Supply chain; it is important to establish the supply chain. How will the entrepreneur obtain products and then provide them to the customers. Will the products be manufactured or assembled?
  4. Standardization; will the product be standardized or customized per user?
  5. Demand

An entrepreneur must understand the markets that she will be serving. It is therefore important to understand the ability of customers to pay for the service or product, the income stream of the customers and the current demand spending of the targeted customers.

Demand encompasses having a good understanding of;

  1. End user of the product – is it an individual, a household, an organization or a community
  2. The geographic coverage area and its demographics where the enterprise will operate and sell its product
  3. The socio-economic level of the society that will be the users of the offered products or services including the income level – are they willing or capable to pay for the product or service?
  4. Presence of formal and informal groups and leadership structures that will impact local practices.
  5. The current levels of spending on products

Once  the  market,  in  particular the  demand  is  understood, appropriate delivery  models  can  be designed. This is the fourth dimension of designing an appropriate business model for the enterprise.

  1. Delivery Model

The delivery model includes the approach that the enterprise will follow to provide products or services to the customers in a way that it fulfills its goals. Few key aspects are;

Financing mechanism: It is important to know where the finance for setting up or expanding your business is coming from. How will the business make profit? Understanding the costing and revenue model is important.   Will the entrepreneur be able to provide credit to the customer or how will products or services be affordable?

Ownership and Management: One of the most important components of the business model is to determine the ownership and management structure. Is the enterprise a co-operative, private or public one? What is the right of ownership of the products or services?

Delivery: This is very important to be determined as it includes the way the product or services are made available to the customers. The delivery model is dependent on the other factors particularly demand.

The delivery should look at the following in detail;

Distribution: will the product be delivered through a decentralized  mechanism or will there be centrally provided product/services where several units can use it

Sales model: The mechanism through which the product / service will be sold. It can be through cash, lease or credit.

Sales channels: what sales channels will be used e.g. franchise

Marketing: what will be the marketing approach

Expanding the Delivery Model

Once an entrepreneur understands step by step of a business model, the actual delivery of goods and services can be designed. In this section, some key sales model and sales channels are being introduced. Some of the common model are elaborated below:

Cash Sales.

The cash sale model is straightforward and is commonly used among entrepreneurs. This is probably the only model that applies to almost all businesses. It is common for entrepreneurs to make products and sell directly to customers.

Cash sales can also be:

Direct sales: whereby a product or service is sold directly to customers

Decentralized sales: a product is sold via dealer to customers

To many entrepreneurs cash sales usually works well. The success of a cash sales delivery model also rests on the quality of the products, and particular the warranty period, which the entrepreneur should honor to keep his/her clients. Despite demands, sometimes entrepreneurs cannot expand or start a business because of the ‘initial investment barrier’ especially if it is a larger businesses like industrial products e.g. building material, hardware, or spare parts. However, local made parts are starting to be alternatives for micro entrepreneurs to initiate business for example metal fabrications.

The suppliers are also coming up with credit for micro entrepreneurs who can be their dealers. If the purchasing power of the consumer is strong, the cash model works in a perfect condition. It must be noted that in rural areas, seasonal fluctuations of harvesting, festivals etc may determine the best time period for cash sales.

Let us end here for today, next week we will continue with discussing other business models.

If you want more information about Business Management Tips and templates please visit http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation

Business model: A roadmap for small business success (2)

Last week we discussed on the importance of a Business model. We saw that in marketing products or services, it is vital to have the most appropriate business model. A business model describes the various aspects, approaches and values that an enterprise offers to one or more segment of customers.

We discussed that once an entrepreneur understands step by step of a business model, the actual delivery of goods and services can be designed. In this section we will continue to discuss some key sales model and sales channels that are key for your business growth:

Lease and hire purchase.

This model is not commonly used, but there are a few cases especially in the industrial sector particularly on products like garments, solar equipments, and agricultural products.  In this model, the entrepreneur leases the product to the customer for a limited period of time in return for a fee. During this leasing or hiring period, the entrepreneur has to be responsible for the maintenance of the products or systems hired. If the customer does not pay for the services, the entrepreneur retains and withdraws the system.

The model works best if the entrepreneur has up front financial investment to buy the products for leasing, and also the capacity to administer the process. It requires good management skills and payment collection systems, as well as customers who are disciplined to pay fees each month or whatever time period payment is set by the entrepreneur. Again, the demand for a particular service needs to be high for this model to work. It may not be a good idea to lease out products that do not have a long lifespan such as cook stoves, perishable materials etc. You may want to lease things like solar PV systems, Garments and furniture

Supplier Credit

This model is mostly used by medium or large scale suppliers and dealers who provide products to customers by credit. Some form of agreement is made between the two parties. Often, the customer owns the product and repays the credit in installments to the supplier. There may be a clause in the agreement whereby inability to pay may lead to the ownership reverting to the supplier.

The supplier credit works particularly if the product is expensive. Conditions for credit need to be well suited as defaults may occur. A supplier can be faced with shortage of working capital and dealing with consumer credit may not be his/her specialty. Unless a supplier/dealer has the capacity to administer a credit scheme, this model is not recommended.

End-user Credit

In this credit model, the supplier/dealer sells  products to the customer who obtains consumer credit  from  a  third  party  credit  institution such  as  a  Bank,  a  micro  finance or  SACCO.  The entrepreneur is not directly involved in the credit scheme and thus valuable working capital remains available for the entrepreneur. Often, the customer can own the product but often full ownership needs to wait after paying back the financing institutions. The financial institution can in turn also have a lending deal with the supplier or dealer.

The entrepreneur remains responsible for the sales and distribution. The end-user pays a down- payment (either directly to the company or to the financial institution), and the remaining payments are collected by the financial institution. The financial institution usually takes responsibility for the loan. The product is usually used as collateral because it is easy to remove and reuse. The supplier/dealer needs to work with financial institutions that have regional reach and experience with credit particularly in rural areas.

End user credit is advantageous as it lowers the high cost of buying a product. Also, the supplier/dealer does not have to worry about the credit management but rather focus on providing good products and services, particularly maintenance. As a dealer, one can always approach local credit or savings group to start a small end user credit model even in rural areas.

Community/ Co-operative/ Utility (Fee for service).

This model applies usually when community/co-operatives or small private utility delivers services and products to customers, usually at a fee. If community is well organized and structured, a Company can be formed. The Company invests (borrows from a Financial Institution) and owns the project (example, micro hydro, wind, large solar installations) and provides a service such as lighting to the customer. A monthly fee is usually charged by the Company or Co-operative. Although this model is common in many parts of Asia, Bangladesh, South Africa it is still new in East Africa specifically Tanzania. Often, the Company needs sound financial and technical advice to establish such a venture and often, is a long term. This model is common for bigger entrepreneurship businesses.

For this model to succeed, the members forming the Company must be well versed in financial management as well as stay committed for a long duration of time. If well managed, more people could benefit from the services. Management of service delivery is important as well and often a good technical maintenance person is an absolute must to be trained or hired. Collection of fees from customers can be time consuming and such issues needs to be sorted out at the initial phases. Customer care is very important as if they do not pay fees, the Company could lose out. If installation size of the project is large, then it can also be connected to the grid once there is a government policy to buy power from decentralized sources.

Franchise dealership model

In a Franchise dealership model, the business processes, products and marketing are standardized and a number of ‘franchisee’ is set up by a parent Company to deliver the energy goods and services. In a way, the Company depends on the franchisees to link to other levels of supply chain. The franchisee has the right to sell or rent the parent Company’s products and use its name. In a franchise model, a successful dealer network can potentially be set up; each franchisee/dealer will need to adhere to the standards that are set up, often with the same operating and marketing business strategy set by parent company.

Franchises are often set up when the parent company (franchisee) succeeds in the retailing of energy products or service to a customer base. In a typical franchise model, anyone has the right to own and operate an outlet. For the franchise model to succeed, dealers must have similar drive and determination to promote and sell the products or services. The parent company may assist in the initial setting up but dealers must be entrepreneurial and innovative to sustain it.  They can further take loans from financial institutions and establish their business further. Franchise models in East Africa are mostly in the solar sector.

If you want more information about Business Management Tips and templates please visit http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation

Why Managers are so important for business success

Having someone to manage your small business is very crucial for its prosperity. The manager can be the owner or an employed person. A full dedicated manager for your business will help in decision- making  on different matters  including profitability,  investment,  cash management,  pricing  and  other  aspects  of  business performance.

Every entrepreneur need to remember that the cost of making wrong decisions is high and in many cases leads to business failure. Having the right manager helps  to  reduce   mistakes   in   decision-making and   enhances management effectiveness.

Your business need to mobilize resources, combine and coordinate the resources effectively to help you meet the goals of the business.   To be able to do this, the manager performs the functions of planning, organizing, leading, staffing and controlling.

Duties and responsibilities of owners/managers

Most micro and small business are owned and managed by the same person.   Therefore, he/she can be called an owner/ manager.  Because of this the owner/ manager carries out the following duties and responsibilities:

  • Plans the business resources and activities.
  • Organizes work, recruits staff and allocates work to himself/herself and workers
  • Leads and communicates with those who work in the business
  • Controls resources – materials, machines, buildings, finances et
  • Markets his / her business
  • Seeks for investment in the business
  • Communicates and works with others outside the business including handling public relations.
  • Customer care
  • Gathers information on matters that affect the business.

Let us discuss one element after the other

  1. Planning Activities

Planning is a process of coming up with a sketch of actions to achieve a set target for operational activities. This may involve forecasting events, scheduling and re-scheduling of activities and tasks that affect the attainment of a target or goal. Planning is thinking ahead of time. Planning affects all the activities that the business undertakes.

The entrepreneur should plan for everything in the business including and not limited to finance, marketing, buying of stock and even the people he/she employs in the business.

Planning for the business involves the following:

Setting goals, objectives and targets. This involves:

Making a decision on what target to achieve after a certain period of time.

Developing long term and short term plans for the business

Deciding on the activities that will be undertaken to help achieve the goals, objectives and targets.

Developing ways of finding out whether the business is achieving its desired targets

  1. Organization

This is the process of identifying activities and tasks which will be carried out in the business and deciding the order in which the activities will be implemented and the people responsible for the activities.

There are many activities that could be involved in a particular business such as purchasing of goods or materials, banking and selling. The complexity and intensity of these activities will depend on the size of the energy enterprise.

The entrepreneur would need to involve members of his/her family or employ workers to help in carrying out some routine activities. The entrepreneur should identify the tasks and allocate duties and responsibilities to others. This is organizing.

The following are the main functions in organizing:

Listing or writing down all the activities that must be carried out in the business. Such activities include accounting, marketing, transport and production

Grouping all the activities that are related together. For example for accounting:

Record keeping

Banking

Planning finances (budgeting)

Deciding  which  activities  must  done  by  the  owner/manager and  those  that  others allowing the manager to focus on the core business activity of selling.

Delegating i.e.  allocating duties and responsibility to  others.  When delegating, the entrepreneur should make sure that others know their full responsibilities.

  1. Leadership

This is the function of providing strategic direction in the business. In a business there may be people working for or assisting the owner in one way or another. But it is the owner who knows the direction he/she wants to take the business. The business vision may be written or not. To have a successful business, the owner must be prepared to be a leader.

A leader/manager is the one who :-

Shows direction and helps in decision making

coordinate all activities carried out in the business

Communicate with workers and also the outside world.

Customer and public relations.

Inter-personal relations. How people work together with others.

Making sure others remain motivated to do their best for the goal of the business.

  1. Staffing or Resource Mobilization

Staffing or resource mobilization involves looking for required resources to implement the activities identified in the business plan. These resources could be people, money, raw materials, equipment and so on. It is the responsibility of the manager/owner to look for these resources and ensure that employees are retained and business assets are maintained.

  1. Controlling

Controlling is one of the most important role for any manager. Controling involves knowing whether what has been planned or invested in the business is going according to plan.  The owner/manager should take pro-active measures to prevent damages to the business. The following are some of the main control activities:

Control the budget.  This involves ensuring that spending does not exceed what was budgeted.

Controlling cash movement and the way it is spent (used). It involves making sure that there is enough cash to meet daily business activities.

Controlling credit sales – reduce the number of debtors.

Controlling stock held so that the business doesn’t have too much or too little.

Controlling performance of workers so that they are able to meet the targets and that they stick to the work that has been planned.

  1. Communication

Communication may be one of the most important responsibilities of a manager to keep the workplace running efficiently. Employees need to know the mission and goals of the business and what is expected of them to achieve those results. Managers must have the ability to comprehend directives from upper management and to then translate them to staff so that everyone is on the same page. A manager’s communication responsibilities may also entail resolving conflicts, motivating employees, speaking to the public on behalf of the company and preserving customer relationships.

  1. Business Growth

A manager’s prime responsibility is to the success of the company. His actions should all be poised toward business growth. Companies hire managers to run daily operations, coach employees, maintain quality control and ensure that its products and services are fulfilling customer needs. Managers must constantly review the company’s financial, budgetary and production goals. If the company is falling short of its goals, it is up to the manager to make the necessary adjustments to get back on track. A manager’s duty is to lead the organization to success.

If you want more information about Business Management Tips and templates please visit http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation

Importance of Record Keeping for your Business

Everyone in business regardless whether it is a micro, small or  medium business must keep records. Accurate record keeping is essential to the success of a business. It allows you to manage stock and raw materials, calculate and monitor profit and loss, plan for the future and also helps you in filing tax returns.

Every single transaction must be recorded daily – both purchases (cash out) and sales (cash in). The process of recording purchases and sales is called cash flow.

Cash flow is important for predicting how much money will be needed and when it will be needed. Cash flow also helps to predict cash surplus (profit) and plan investment. Cash flow is recorded in a book which is called a cash book.

How to keep a Cash Book:

The cash book shows the situation of the business at any given time.  It includes all sales and all costs over time.  It is important to record every single sale and expenditure.  This allows the owner to track sales and expenditures month by month. In addition, knowing the average monthly sales means that one can plan for the future.

To work out the cash flow for the month, add up all the Cash In (Revenue) records  for that month. Then add up all the Cash Out (Expenses) records for that month. Subtract the Cash Out total from the Cash In total to find out the balance (profit or loss).

To work out Cash balance, Cash Out is subtracted from Cash In (revenue) into the business.

Cash book

Number Date Description Cash In Cash Out Balance

Receipt Book

Though it may reduce the speed of working and serving the customer, the use of a receipt book minimizes errors and keeps a hard copy of all past transactions carried out. The risk of not recording could be very high especially when the business has employees handling cash transactions. Cash is very sensitive and easy to steal.

An ideal receipt book should have at least two copies for each transaction, one for the customer and one for the business. Usually one copy remains in the book (book copy) while the other is given to the customer. The book copies are left in the receipt book until it is time for computing sales.    

Record keeping to businesses earning Sh14 million and above per annum can easily keep their records and provide receipt using Electronic Fiscal Devices (EFDs).

TRA introduced the first phase of EFDs to VAT registered traders in 2010, later in June 2013 EFDs were also introduced to non VAT registered traders targeting 200,000 small and midsized traders who earns at least Sh14 million per annum.

Though majority businessmen refrain from using the EFDs but they are very important in helping you keep records for your business transactions particularly sales.

Sales on Credit

Selling on credit has the advantages of retaining royal customers or improving sales during low period. Caution has to be taken when selling on credit. Many businesses have collapsed due to non collection of debts.

It is important to assess the credit worthiness of the customer and put in place some control measures for the credit levels. It is advisable for the owner to limit credit to those long term customers that can be trusted.

the table below shows how to keep a record of sales on credit.   It is a good practice to inform the customer when the payment must be done. It is also good to send reminders on or before the due date. This same information should be recorded and tracked in the records as shown in the table below.   If the customer does not pay the balance by the agreed date, the owner/manager should pursue the client for payment.

Sample record for Sales on credit

 

SALES ON CREDIT

No. Date Client Product /Service Unit Value Advance Paid Cash to be Paid Final  payment due date Actual date of final payment Signature of customer

Preparing Financial Reports

In the course of doing business, many transactions take place and the owner may not trace each and every activity in mind. With record keeping in place a summary could be prepared on what has been happening. From time to time, the owner of a business would want to know exactly what is happening in the business.

In accounting, there are set procedures and guidelines on how this is done. There are three main reports that could be prepared that provide a full picture of financial performance by a business. These reports are

  • profit and loss statement
  • balance sheet and
  • cash flow statement as discussed below.

Preparing a Profit and Loss Statement.

Profit and loss statement is prepared to provide information on whether a profit or loss was made for that particular period. More often the owner calculates the profit or loss of her business.

When preparing the profit and loss statement the owner gets on the driver’s seat of the business. The  Benefits are:

  • Helps the owner to assess business performance and can therefore make good decisions
  • Reference and comparison purpose
  • Help in assessing one’s tax liability
  • Sourcing funds
  • Detection of fraud
  • Budgeting for future needs
  • Cost control
  • Credit control

A profit and loss statement is prepared as follows:

Step 1: Computing sales

Sales are cash receipts (or promise to be paid later) for goods sold or services rendered to customers. Computation of sales should include all what was sold and is treated as gross income into the business. Where few items are involved and the selling price is fixed, sales could be determined by multiplying units sold to selling price. This could also be determined by adding all cash sales and credit sales.

Step 2: Calculation of Gross Profit

After computing sales the next item to estimate are the costs of those sales. For example if the business is that of selling solar panels, they must have been bought or made them by owner. The cost of getting these panels ready for sell is what is called cost of sales. These costs are deducted from sales to get Gross Profit.

Gross Profit = Sales – Cost of sales

Step 3: Calculation of expenses

In the course of doing business, the owner pays for services like transport, rent, electricity and wages. She may also withdraw money for own use at home. All these expenses drain cash or resources from the business and that the money never comes back. They are deducted from gross profit. The table below shows some workings.

Computation of Expenses Salaries/Wages

Salaries/Wages                                TZS
Rent TZS
Transport TZS
Bills TZS
Other Indirect costs| Tax, etc| TZS

Let us end here, next week we will discuss on how to prepare the balance sheet and cash flow statement.

For more detailed information on business management please visit the below web address http://enterpreneurs.or.tz/business-management/

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

Balance Sheet Preparation , Stock management, Costing and Pricing

Last week we discussed the importance of record keeping. We saw that every business person, regardless whether his/her business is a micro, small or  medium business must keep records.

Accurate record keeping is essential to the success of a business. It allows you to manage stock and raw materials, calculate and monitor profit and loss, plan for the future and also helps you in filing tax returns.

We discussed on how to keep a cash book, how to keep a sales book and how to manage sales on credit. We also touch based on preparation of financial reports. In discussing financial reports, we also looked at the importance of preparing a profit and loss account as a tool that help to guide you in determining whether you are losing or gaining.

Today we are discussing on how to prepare a balance sheet

Balance Sheet

Balance sheet is a statement of wealth; a statement showing assets held and how they were acquired. A Balance Sheet therefore is a statement of all assets of the business, liabilities and capital.

An asset  is a resource with economic value that a business own or controls with expectation that it will provide benefit in the future.. Any business is a separate entity from the owner and therefore it can own assets.

Business assets are acquired using capital injected into the business by owners. Capital can be in the form of money or asset. Also included into the capital is a profit retained into the business for purpose of expansion.

Assets are held for purpose of resale while wealth is created by transacting in or using these assets. Examples of assets are cash in hand and at the bank, stock/inventory, debtors, furniture, machinery, vehicles, buildings and rent deposit.

On the other hand, money borrowed or goods received from other people or banks are referred as liabilities. Liabilities are incurred in the process of doing business especially when the owner does not have enough cash to pay for goods or services received. When the enterprise borrows from a bank, MFI, SACCO or a friend of the owner the borrowed fund becomes a liability as well. Liabilities are settled over time based on the established agreement.

The general principle applied in preparing a balance sheet is that all assets must equal capital plus liabilities. Hence the following balance sheet equation:

Assets = Capital + Liabilities

To prepare a balance sheet, follow the below best practice

  1. List all assets of the business with their values on one side
  1. List all liabilities on the other side. This list includes all debts that have been acquired over the period and not paid.
  1. List down money brought into the business by the owner.
  1. Add total on each side and get the difference. This difference is the retained or accumulated profit or loss over the period.

Costing and pricing of products and services

Costing is the process of assigning costs to an element of a business. It is typically used to develop costs for products, customers, distribution channels so as to learn about the cost of operations and assigning costs to products.

We have Direct and Indirect costs.  A direct cost is a cost that can be completely attributed to the production of specific good or service. For instance, the cost of materials used to create a product are direct costs. Indirect costs are those costs which are not directly accountable to a cost object. An example of indirect cost includes administration, personnel.

Pricing is the method or system used in setting up the price of a particular product or service. So price is the worth (value) of a product or service expressed in monetary terms.

Once the production cost has been established, the next step is working out a reasonable price to charge customers for the product. The price set should be fair and affordable to your customers at the same time guaranteeing some profit margin to an entrepreneur.

Price Setting

When setting product price, it is important to ensure that the price is low enough to attract sales , high enough to cover all production cost and profitable.

Factors to Consider in Pricing

Before setting a price for the product, it is important to know direct and indirect cost associated with the product, competitors price, purchasing power of your potential customers and so forth. The following are detailed factors which you need to put into consideration while setting a price for your product.

  1. a) The competition – Prices charged by competitors. Some competitors are able to obtain their raw materials cheaply and are able to charge a reasonable price. The only remedy is to reduce costs and charge the same as competitors. If there is no competition, one should charge reasonably but should not exploit customers.
  1. b) Business costs – i.e. direct and indirect costs. The retail price should cover all of these costs, as well as make a reasonable profit. The trap is that most people consider only direct costs and forget to include the indirect costs like telephone airtime, own salaries and rent.
  1. c) Substitute products – The prices of those goods that can take the place of own goods and serve the same purpose. They may not be the same quality but will affect the price of goods offered by your business.
  1. d) Customer elasticity and  demand  –  If your product is on demand then it can be easy for you to set a price. Likewise, if your product is not on demand you will have to set a fair price to attract customers.
  1. e) Own capacity and strategy – This depends on whether an entrepreneur is introducing a new product to penetrate the market or selling cheaply to clear stocks (market skimming) or increasing the price to cover a profit margin. Your strategy will determine how to set fairly product price.
  1. f) Distribution channels – if an entrepreneur sells a product to distributors, they will set a markup price to gain a profit.. Similarly, if an entrepreneur is the distributor, then she/he will need to set a markup as well. The markup price depends on your position in the distribution chain e.g. manufacturer, wholesaler or retailer. The manufacturer has to charge less and leave a profit margin for the wholesaler and retailer.
  1. g) Sales turnover – If items are moving faster, an entrepreneur can do with a moderate price and generate enough profit.

Stock Management and Control

Stock refers to all the goods owned and held for sale in form of merchandise and includes goods both on the shelves and in the stores. Entrepreneurs are advised to have a proper stock management systems to be able to ;

  • To make sure that there is enough stock for customers
  • To meet the demand of the customers while at the same time avoiding having excess because it ties up money.
  • To keep to the amount budgeted for and avoid holding too much working capital inform of stocks.
  • To help calculating business costs i.e. tracking stock movement.
  • To help in planning and control.
  • To help identify slow and fast moving goods/ items.
  • To help in deciding items to stock.
  • To help in checking against losses.

An example of important component in stock management is raw material.

If your business requires maintaining a stock of raw material, you might sometimes feel like you’re walking a tightrope. Not having enough stock means you run the risk of losing sales, while having too much in stock is costly in more ways than one. That’s why having an efficient stock control system is so important.

One of the worst things you can do in business is to turn away customers — people who are ready to give you their money — because you’ve run out of the item they want .”Stockouts” not only cost you money from missed sales, they can also make you lose customers for good, as people resolve to find somewhere else to satisfy their needs. An efficient stock management system tracks how much product you have and forecast how long your supplies will last based on sales activity. This allows you to place orders far enough ahead of time to prevent stock outs.

Also keep in mind that, when stock isn’t managed well, you can also wind up with overstock — too much of certain items. Overstock comes with its own set of problems. The longer an item sits unsold in stock, the greater the chance it will never sell at all, meaning you’ll have to write it off, or at least discount it deeply. Products go out of style or become obsolete. Perishable items spoil. Items that linger in storage get damaged or stolen. And excessive stock has to be stored, counted and handled, which can add ongoing costs.

For more detailed information on business management please visit the below web address http://enterpreneurs.or.tz/business-management/

Questions and enquiry contact mip@tpsftz.org

Tanzania Private Sector Foundation (TPSF)

Basics to growing your business

Efficient running of business is considered as an essential requirement before embarking on any business growth strategies. In this and upcoming articles, we will provide tips for running your business smoothly and explore on  what is required for one to grow her business.

Usually, the focus of the business changes as it moves through various stages in the business growth cycle. Small and Medium Enterprises (SMEs) should continuously identify opportunities for growth and innovation to ensure sustainability and expansion of the enterprises.

Growth can be measured by looking at statistical parameters such as turnover, market share, profit and human resource. However, it depends on the type of business and the stage of the business lifecycle to determine the parameter which delivers the most accurate picture of the business performance

Every entrepreneur uses different methods to expand her business, usually the used techniques are contingent upon the businesses’  financial situation, the competition and even government regulation.

Most businesses use either internal or external growth strategies. Others use a combination of both. Below are elaborations of each growth strategy

  1. a) Internal growth

Internal growth is achieved through bringing new resources together in an innovative combination to create new value. This means growing the business through increasing market share, developing new products and entering new markets.

Strategies used in internal growth are:

  • Increasing market share: this includes adopting aggressive marketing which will lead to selling more improved products. One way to increase market share is by lowering prices. For example, in markets where there is little differentiation among products, a low price may help a company increase its share of the market. This strategy is applied when marketing a product to existing customers.
  • Expansion and growth in turnover, volume, income or profit and increasing efficiency in delivery: This entails selling current products in a new market. There are several reasons why a company may consider a market expansion strategy. First, the competition may be such that there is no room for growth within the current market. If a business does not find new markets for its products, it cannot increase sales or profits. A small company may also use a market expansion strategy if it finds new uses for its product. For example, a small soap distributor that sells to retail stores may discover that factory workers also use its product.
  • Growth strategies in business can also includes an acquisition: In acquisition, a company purchases another company to expand its operations. A small company may use this type of strategy to expand its product line and enter new markets. An acquisition growth strategy can be risky, but not as risky as a diversification strategy. One reason is that the products and market are already established. A company must know exactly what it wants to achieve when using an acquisition strategy, mainly because of the significant investment required to implement it.
  • Expansion into new market areas and niches through differentiating existing products or creating new: A small company may also expand its product line or add new features to increase its sales and profits. When small companies employ a product expansion strategy, also known as product development, they continue selling within the existing market. A product expansion growth strategy often works well when technology starts to change. A small company may also be forced to add new products as older ones become outdated.
  • Expanding into new locations: ‘Physical expansion isn’t always the best growth answer without careful research, planning and number-planning,” says small-business speaker, writer and consultant Frances McGuckin , who offers the following tips for anyone considering another location:
  • Make sure you’re maintaining a consistent bottom-line profit and that you’ve shown steady growth over the past few years.
  • Look at the trends, both economic and consumer, for indications on your company’s staying power.
  • Make sure your administrative systems and management team are extraordinary-you’ll need them to get a new location up and running.
  • Prepare a complete business plan for a new location.
  • Choose your location based on what’s best for your business, not your wallet.

 

  1. b) External growth

The external growth strategies deal with factors outside the SME and market environment – i.e., beyond the boundaries of existing business. The options are:

  • Vertical integration: this is attained when an SME venture into business above or below current one in the value addition chain: e.g., a briquettes retailer starts making them or merging his/her retail business with a manufacturer of the same product.
  • Horizontal integration: this happens when an SME integrates business that is in the same level: e.g., two SMEs dealing with production of charcoal stoves combine their business to form one.
  • Lateral integration: this occurs when an SME diversifies to another slightly different sector or line of business; e.g., Used clothes dealer starting to sell agricultural products

Managing growth in business

Any business need to grow and to achieve the required growth , a forward looking growth strategy must be established. It is obvious that growth puts a tremendous strain on resources of the business. Therefore this growth must be planned, additional resources required raised and managed effectively to lead to the desired outcome.

In order to achieve the goals of growth two key things must be done; developing and implementing a business plan and sourcing for funding for growth activities. The above two things are discussed below are discussed below. 

Business Planning

Business planning is the process of systematically thinking about ones business, setting business goals and objectives and planning for resources which will help to achieve the desired goals and objectives.

In business planning the entrepreneur should:

  • Clarify his/her vision and purpose of getting to this business
  •  Set goals and objectives for the business.
  • Define his/her business.
  • Assess business environment such as level of competition, socio-economic, political and technological.
  • Assess the potential risks e.g. Inability to secure raw materials for your products if it’s production. After identifying some of the risks, one should draw up a risk mitigation plan
  • Develop a strategy of satisfying his/her target customers
  • Assess resources requirements and availability
  • Raw materials that are needed in the production process e.g.
  • Finance that is required for the purchase of resources
  • Human skills needed to manage and run the production process

A good business planning model is circular. One step links to another in a continuous chain.

For more detailed information on business management please visit the below web address http://enterpreneurs.or.tz/business-management/

Questions and enquiry contact mip@tpsftz.org

Tanzania Private Sector Foundation (TPSF)

Financial plan

Last week we discussed about basics required to grow your business. We saw that efficient running of business is considered as an essential requirement before embarking on any business growth strategies. In this article, we will continue discussion about business growth by looking at the importance of having a financial plan.

Most of you have heard of the benefits of personal and business financial planning and everyone might want to try managing their finances. Yet it can seem so overwhelming. In this article we provide financial planning  basics which if practiced well can help to transform your business..

In business terms, financial planning is basically a plan about money and is used to establish financial goals. It is presented in a form of cash flow or projected income and expenses or both. For a business, both cash flow and, projected income and expenses are important. A balance sheet is sometimes included as well as a break-even analysis. The financial plan is important, because it establishes the financial goals of the business.

The following are the common important aspects to consider in financial planning.

Projected income and expense ( Budget)

Projected income and expense statement is also called a budget. In basic terms, a small business budget estimates both your revenue and expenses for a particular period of time. It shows how you plan to allocate your resources in the future.

Revenue can come from sales, accounts receivable, interest and other sources. Expenses are what you pay out for materials, rent, utilities, payroll, marketing and other fixed and variable costs.

Remember that your small business budget is one of the most powerful financial planning tools you have, as long as you use it well.

We do budgeting in order to;

  • State clearly what entrepreneurs expect to earn or get and what he/she will use or spend for each period in future.
  • State the expected business goals in clear, formal terms to avoid confusion and make sure they are attainable.
  • Communicate expectations to  all  concerned  so  that  they  are  supported,  understood  and implemented.
  • Help coordinate the activities and efforts in such a way that the resources are properly used.
  • Provide a means of measuring and controlling performance

In addition to the above budgeting purposes, a budget also helps business owners to carefully monitor their input and output by comparing it with their budget and l allow entrepreneurs to assess cash flow. Having a budget is almost mandatory if you plan to secure finance from financial institutions.

Banks and other lenders will want to examine your budget before they agree to give you a loan.

 In preparing a budget, it is important to include the following components;

  1. Estimate the expected incomes from sales, services and other sources. These estimates are based on expected activity level as described in your business plan. The planner should indicate assumptions made when making the projections, for example, that sales will grow by 5 per cent.
  1. Estimate the cost of goods sold. This estimate could be based on average margin made per unit of stock sold.
  1. Compute the projected gross profit by deducting cost of sales from sales for each month.
  1. Estimate the expected expenses for each period. These include salaries and wages, transport, rent, telephone, electricity etc. Sum all the expenses per period.
  1. Compute projected net profit by deducting total expenses from gross profit.

Budgetary Control

Budgetary control refers to investigating whether there are differences between actual performance and budgets, finding out the causes and taking corrective action. Budgetary control does not limit expenditure but ensures that expenses incurred are justified and brings the desired results. An entrepreneur should carry out a budgetary control analysis often so as to keep within the cost estimates and remain on track with the business plan. Failure to track budget expenses may lead to cost over runs or spending more money in one area and leaving others without knowing.

Cash flow Management

Cash is the most liquid asset. It is also referred as the life-blood in the business. All assets are acquired through paying cash now or later. Similarly expenses and debts are settled through cash. Cash runs the risk of being lost through theft by employees and other people.

The cash position is affected by the way business transactions take place. Cash balance at the end of the day in a business does not necessarily represent profit but net of cash in and out of business. Therefore cash flow statement should not be confused with profit and loss though they are related.

Projected cash statement represents a plan of cash to be received from various sources into the business (inflow) and how that cash will be used or applied in the business (outflow).

At time projected cash flow is referred to as a cash budget and is a projection of how an entrepreneur expects cash to come in or go-out within a specified time, but usually month by month.

To be able to prepare a cash flow statement it is important to know cash at the beginning ( opening balance). This include cash in the office safe, money at the bank, money on transit, expected receipts(money expected to come in ) and expected payments for expenses and assets. Here you should start cash flow projection by adding cash on hand at the beginning of the period with other cash to be received from various sources.

The following steps have proved useful and should be taken into consideration when preparing a cash flow statement.

Step I: Preparing a schedule of cash balances e.g. money in the office, money in bank and cash in transit

Step II: Preparing a schedule of expected sources of cash. In business cash is expected to come from sales and fees from any services. Other sources could be loans or grants. A total of all inflows is then computed.

Step III: Preparing a schedule of expected cash payments. Payments are made for stock supplies, salaries and wages, rent, transport, motor vehicle office expenses, insurances, telephone and other expenses. Payments are also made for assets like furniture and equipment. Compute the total cash outflow

Step IV: Deducting cash outflow from cash inflow to get net cash flow for each month.

Step V: Adding this net cash balance for the month to the opening cash balance to get cash balance to be carried forward to the next month.

Step VI:  Repeating the same exercise for the each month that follows.

Let us end here for today. We will discuss other aspects of business management next week.

Prepared by Veneranda Sumila

For more detailed information on business management please visit the below web address http://entrepreneurs.or.tz/business-management/

Questions and enquiry contact mip@tpsftz.org

Tanzania Private Sector Foundation (TPSF)

Formal sources of business finance for entrepreneurs

Last week we discussed about informal sources of fund and how to effectively utilize them for your business prosperity. We saw that while getting fund from informal sources can be quicker and easier, careful consideration should be taken whenever an entrepreneurs chose to borrow from such sources. Today we are discussing about formal sources of obtaining fund for your business.

  1. Banks

Micro, Small and Medium Enterprises (MSMEs) can obtain money to finance their businesses from formal sources such as commercial banks. However it is critical to understand that for most commercial banks, before seeking for a loan from them, it is required to have a bank account with them and be a regular customer of some of the products offered. Some of the products offered includes opening savings account and regularly depositing part of the profit from the business as savings until such a time when you have accumulated sufficient funds to finance the intended business need.  This is known as saving up. However saving up is not easy as many of the MSME needs are immediate and cannot wait until when they have enough saving to finance their business plans.

For instance if an MSME is manually producing Mango Juice and  requires to mechanize their operations to meet increased demand, the MSME may find it difficult to wait until such a time that it has raised sufficient funds to mechanize.

Some of the benefits of sourcing finance  from banks include:

  1. Security: In comparison to other modes of saving, funds deposited in banks as savings are secure. Funds deposited in the bank are safe from loss, theft, fire, misappropriation and other risks associated with holding cash in hand.
  2. Big loans: In comparison with informal sources of financing, banks can provide a bigger loan that can meet the intended business needs. Banks are well placed to advance bigger loans to MSMEs.
  3. Advisory services: The banks’ credit officers provide guidance and advice on technical areas such as business planning, record keeping, separation of duties and many other areas of the business.
  4. Flexible and Longer loan repayment periods: Banks’ offer MSMEs with flexible and relatively longer loan repayment periods to service their loans. This enables the entrepreneur to schedule their loan repayments according to the installments that they can comfortably service. (It’s worth pointing out that longer repayment duration increasingly result into increased amount to return.)
  5. Wide product range: Banks offer MSMEs with a wide variety of products over and above the saving account. These products are tailor-made to meet the MSME business needs which include:
  6. i) Loans for business Assets. example, Mango Juice producing machines or processing Unit, vehicles and others.
  1. ii) Emergency loans. This is provided especially when the MSME has an immediate need that requires cash.

iii)      Top-up loans which mean an additional loan to top up an already existing loan.

  1. Prompt loan disbursement: Upon fulfillment of the prescribed requirements and submission of a duly completed loan application form banks are very prompt in making loan disbursement. This is an attractive factors to MSMEs as some of the business opportunities require immediate interventions.

 While borrowing from banks is attractive for most MSMEs, the process and loan qualification requirement is stringent.   Most commercial banks require a loan applicant to provide guarantors who are regular customers with the bank, or collateral such as logbooks and title deeds. A good number of MSMEs may not meet such requirements for they do not have properties which  can be used as collateral hence failing to access funds from banks.

  1. Microfinance Institutions.

There are many microfinance institutions (MFI) operating in East Africa.  They mostly provide financial services to low income clients that normally cannot access financial services from commercial banks. They are characterized by few requirements when joining and provision of un- secured loans or loans that are not backed by physical collateral since they use other forms of collateral such as group guarantee.

Benefits of  accessing funds from MFI include;

  1. Easy terms of joining: The MSME will find that MFI have easy terms of joining and becoming a client. In most of the MFI, all that is required is a client photo, identification documents, business license and registration fee.
  1. Weekly or Monthly repayments: Many MFIs offer their clients weekly repayments that are easy to make. Majority of the MSMEs would be comfortable in making weekly loan repayments that are small and manageable while some may opt for monthly loan repayments.

Despite MFI popularity in Tanzania, this source of financing also have challenges including;

  1. Small loan size and slow graduation: In comparison with banks MFI advance small loans that at times is not sufficient to meet the SME needs. Additionally MFI normally do provide loan to clients on strict graduation. For instance some MFIs only advance a maximum TZS.500,000/- for the first loan.
  2. Short loan repayment period: The loan repayment period by the MFI to clients is generally short. For instance many MFI only offer maximum repayments period of 12 months. The loan repayment installment amounts for bigger loans are big and the loan applicants find it difficult to put together the huge repayments installments.
  3. Limited number of products: Many MFIs only offer a limited product range. Some MFIs only offer business loans which do not meet other needs of business such as those related to asset acquisition and investment.

Note

Micro, Small and Medium enterprises in East Africa has been steadily growing despite of poor access to financing.  Most of the enterprises are at infancy stages hence limiting them to acquire financing from formal sources. There is also a challenge associated with inadequate availability of financial facilities offering tailored or sector specific services to enterprises.

To overcome challenges of poor access to  financial services, MSMEs should position themselves and prove to formal sources of finance that they are profitable, properly managed and have a market for their product.

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

For more detailed information on sources of business finance please visit the below web address http://entrepreneurs.or.tz/access-to-finance/

Questions and enquiry contact mip@tpsftz.org

Why do MSMEs take business loans?

It is no secret that the economy is tough especially for small business owners in Tanzania having to cope with rising costs, lack of manpower and the shortage of working capital.

Money lenders demand high interest rates for MSMEs to obtain capital. This makes the riddle of starting and managing a small business to be more difficult.

However, despite all these stumbling blocks MSMEs need to borrow money to run their businesses.

MSMEs borrow money from financial institutions to do the following:

  • To start a business
  • To obtain working capital to meet business needs – specifically to increase the businesses work force or increase inventory
  • To expand into new markets – the entrepreneur may want to borrow in order to enter new energy markets.
  • To improve cash flow of the enterprise
  • To build a credit history or relationship with a financial Institution- an entrepreneur may not have borrowed before so taking out a loan can help in developing a good repayment history and can help the entrepreneur obtain financing in the future.

Considerations for borrowing

An entrepreneur should plan carefully before deciding to borrow money for either starting up a business or for business expansion. Entrepreneurs are required to make informed borrowing choices, which should be based on the business performance. Prior to borrowing entrepreneurs should carefully consider the following:

  1. A thorough knowledge of the business – this includes analysis of the business, seasonality of the business (identification of peak seasons, slow seasons, and business cycles among others). Knowing the business very well helps the entrepreneur to plan the loan repayments around some of the factors mentioned.
  2. A well laid out business plan will allow entrepreneurs to forecast on their cash requirements, enabling them to determine business needs as well as identifying the correct timing for finances. This will give them extra time to explore all possible borrowing sources and negotiate the most favorable terms.
  3. Knowledge of business competitors: This information is important because it helps the entrepreneur access whether the timing of borrowing will be affected by activities conducted by the competition. An entrepreneur may borrow without studying the competition only to find that he/she cannot make more sales as a result of activities conducted by the competition.
  4. Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of the entrepreneur as well as the enterprise. An entrepreneur needs to conduct a SWOT analysis to be able to maximize both personal and business strengths, minimize weaknesses, take advantage of opportunities as well as have contingency plans to take care of threats. Borrowing should not be done when the business weaknesses and threats outweigh business opportunities.
  5. Business Profile – A business profile defines the business in detail. For start- ups, the business profile provides a justification why the entrepreneur wants to start the particular business as well as sources of startup capital. For expanding businesses the profile highlights when the business was started, how it has grown over time and helps to forecast where it is heading. This is very critical in helping the entrepreneur to make borrowing decisions.
  6. Purpose of the loan – When an entrepreneur is planning to borrow money they should provide a well written statement showing the purpose of the loan, what it will be used for, how the loan will contribute to increased sales and profitability.
  7. Accurate financial records – these are proof of how an enterprise is performing. This information is used to evaluate whether the enterprise has capacity to repay the loan. Capacity of the enterprise can only be accessed if proper records are maintained describing how much money the business is generating against business expenditure.
  1. Cash flow projection – a cash flow shows money into the business and out of the business on a day-to-day basis.
  2. Collateral – this refers to the security an entrepreneur is willing to give a financial institution to secure a loan. Collateral can include business and personal property such as inventory, equipment, and accounts receivable or real estate, stocks, bonds, etc.
  3. A repayment plan that shows how and when an entrepreneur will pay back the loan. As a contingency, an entrepreneur might outline a plan of action on how they will pay off the loan if profits alone aren’t enough.
  4. Supporting documentation – these consist of documents that verify the information for a loan request – for instance, a lease, certificate of incorporation, partnership documents and letters of reference, contracts, invoices or vendor quotes.

Costs related to borrowing

MSMEs who are willing to borrow need to understand all the costs related to borrowing. Some financial institutions do not disclose borrowing costs unless asked to do so by the entrepreneur. It is important for entrepreneurs to understand costs in order to compare what financial institutions are offering the best borrowing rates for them to make informed choices.

The following section presents a number of costs that an entrepreneur needs to consider before deciding to take a loan.

  1. a) Interest rates. Interest rate is the charge for using the borrowed money and is expressed as an annual percentage of the principle. This fee is added to the amount of the loan.

An entrepreneur should seek the following information with regard to interest rates:

  • The amount of interest charged. The entrepreneur should do a research to several institutions.
  • How do different financial institutions calculate the interest rate?
  • What is the default rate of interest and is it competitive?
  • Is the interest rate coupled with all fees, competitive with other available loans?
  • Is the interest rate fixed or variable? Fixed interest rate means that the interest will remain at a per- determined rate for the entire term of the loan while variable interest rate means that the interest rate will move up or down based on the changes of the interest rate index (base lending rate).
  1. b) Payment Terms. Payment terms refer to the duration an MSME is given by a financial institution to pay the loan. What happens if an entrepreneur pays before the stipulated end date? What penalties are charged if the loan is not paid timely? Some financial institutions charge entrepreneurs for late and delayed payments therefore it is important that an entrepreneur understands how much the lender will charge for late payments.

An entrepreneur should seek the following information from a financial institution:

  • What are the monthly or other periodic payment obligations?
  • When is the final principal payment due?
  • Is there a right to extend the due date of the loan?
  1. c) Fees and charges. Fees are different from interest rates because they are charges incurred in loan processing and differ from one financial institution to another. Some common types of fees includes: loan underwriting fees, loan application fees, loan disbursements fees, loan insurance fees, legal costs, collateral valuation costs, due diligence costs, expenses of arranging the loan among others. Find out the following:
  • Are there any loan fees, commitment fees, placement fees?
  • Are they payable upfront?
  • Are there any on-going fees or charges during the life of the loan?

Let us end here for today, next week we will discuss about tactics of negotiating for a loan.

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

For more detailed information on sources of business finance please visit the below web address http://entrepreneurs.or.tz/access-to-finance/

Questions and enquiry contact mip@tpsftz.org

MSMEs loan management and repayment

Last week we discussed that an entrepreneur should plan carefully before deciding to borrow money for either starting up a business or for business expansion. Entrepreneurs are required to make informed borrowing choices, which should be based on the business performance.

MSMEs who are willing to borrow need to understand all the costs related to borrowing. Some financial institutions do not disclose borrowing costs unless asked to do so by the entrepreneur. It is important for entrepreneurs to understand costs in order to compare which financial institution offers the best borrowing rates for them to make informed choices.

In today’s topic we are going to discuss the importance of managing your loan and strategies to ensure the loan is serviced.

Loan management

First of all entrepreneurs need to understand that the newly acquired funds will no doubt help the business achieve goals, make important changes and continue growing.

With this in mind entrepreneurs must be very careful to ensure that the acquired money serves the purpose in which it was intended for.

After obtaining the fund it is advised that you put them in a separate account. If you’re using your loan funds to cover ongoing operational expenses and purchases, you might want to place the money somewhere other than your primary business checking account. Essentially pretending the money isn’t there, and only transferring money as you need it, will prevent you from overspending.

Remember that the businesses have to be sound and well managed to service the loan. Poor loan management often leads to business failure, loss of revenue and in some cases loss of property/collateral.

It is important to point out that many businesses fail because they do not honor loan obligations. An entrepreneur should engage in good loan management so as to ensure that they meet all the due obligations for the energy business.

Managing a loan falls into 3 critical categories:

  1. Applying the loan for the right purpose
  2. Managing the business finances well
  3. Prompt repayment of the loan

Applying the loan for the right purpose.

Many a times, when MSMEs borrow they find themselves spending the money to unintended activities.

There are probably at least a dozen small expenses your new loan funds could help cover. You have a plan for the bulk of that money, and you may think spending Sh10000 here or Sh50000 there won’t throw off your financial strategy too much. However, those little costs add up, and before you know it, you could find yourself back in the position of being short on cash.

So it sound better to create good operational controls and checks and balances for cash monitoring and authority for release of funds. Ensure that release of fund is done only when the money is going to finance business activities.

Family problems leave the entrepreneur with so much burden of repayment. Therefore every entrepreneur should ensure that each loan is applied only to the purpose it was borrowed.

Tips on the right loan use:

  • Put borrowed money in a bank account. This will ensure that the borrower just maintains cash levels that are adequate to meet financial obligations as they fall due. This ensures that the funds are safe and minimizes wastage.
  • Only withdraw amounts that are needed for the business at the time. The entrepreneur should not withdraw more than she requires for that day or week.
  • Using cheque for payments whenever possible. This enables the entrepreneur to easily track her expenses and only pay what is required for the business.
  • Where possible, separate the business account from own personal account. This will ensure that you does not mix up your personal money with the business money.

Managing cash flow for loan repayment.

Financial Management assists the entrepreneur to plan, control and monitor how the business is performing. It demonstrates the procedures of initiating transactions, gathering monetary information related to transactions, recording it and preparing reports to various parties interested in the business.

The biggest money-management mistake which small businesses make is simply failing to keep an eye on their spending and income.

Unless you pay attention to the money, you won’t be able to get your product or service out in front of the public.

Business owners should have a designated day each week, month or quarter to check their invoices and review cash-flow projections against actual business volume.

Experts suggests that any plans to spend the money should be run by someone else first, like your accountant or financial manager.

How to manage cash in the business:

  • Bank all excess cash
  • Use a till under lock and key
  • One person should be responsible for collecting cash and making payments.
  • Issue receipts for all cash collected
  • Request payments by use of an invoice
  • Reconcile all bank statement
  • Use a cash book
  • Use a purchases ledger
  • Record all debts and do not exceed a safe level of debts

Reasons for cash management:

  • To ensure that there are enough funds for the organizations operations all the time.
  • To make sure there are enough funds to commit the organizations commitment.
  • To cater for any emergency which might occur
  • To make sure there are funds for future expansion
  • To plan the time when we shall need to borrow or raise more funds.
  • To establish standards for comparing, monitoring and control or money.
  • To avoid over expenditure or certain items.
  • To time properly the out and inflow of funds.

Prompt repayment of the loan

Set up automatic loan payments. Late or missed payments on your loan can really hurt your credit score, and make it more difficult for you to borrow money in the future. One way to ensure you stay on top of your loan repayment is by setting up automatic debits. Most lenders have an online banking system that allows you to do this, and as long as you know you’ll have the funds each month to make the payments, it will save you the hassle of manually moving your money around.

Continue cutting costs and planning your budget. Don’t let that large bank-account balance go to your head: In the long run, continuing to save money, trim your budget and plan for your business’s future, even though you now have the funds to cover your expenses, will ensure you’re prepared for a financial emergency.

Don’t assume that once you’ve got funding, you are all set, stakeholders believe that another big opportunity or problem can present itself tomorrow. Always be anticipating future funding needs, and look for opportunities to lower the cost of existing loans by refinancing.

Avoid the following

 Avoid hiding from your debt. If you’re struggling to make payments, don’t force the lender to send a collections agent after you. Be honest and up front about your situation. There may be something your lender can do about it.

Go to the bank or lender and let them know what’s going on, and then ask for help. Often, lenders are flexible. They may be able to restructure or refinance your loan. They don’t want bad debt — they just want to get paid.

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

For more detailed information on sources of business finance please visit the below web address http://entrepreneurs.or.tz/access-to-finance/

Questions and enquiry contact mip@tpsftz.org

Techniques to Market and Brand your business

Last week we discussed about the importance of  proper loan management. We saw that if newly acquired fund is properly managed, chances to achieve intended goals and business growth are high. We emphasized on ensuring that acquired fund is used for intended activities to promise business growth.

In today’s topic we are going to discuss about  marketing and branding and why it is important to your business.

Marketing a products or  services is central activity to any business.  Goods or services are produced for sales in exchange of income.. Entrepreneurs’ motivation to do business lies in solving societal problem through selling different products or services in exchange for money.

Marketing is concerned with identifying, anticipating and meeting the needs of customers in return making profit for your business. Meeting customer requirements involve applying a relevant marketing mix including providing the right product at the right price, through the right distribution channels (place) and supported by the most suitable promotional and advertising activities.

The focus of all marketing tasks is a customer: identifying and fulfilling their needs and encouraging loyalty from them to the product. Marketing is about how a company and its products are perceived by the general public, as well as the methods by which the company encourages consumers to buy its products.

There are several approaches that can be used to expand a market. They range from capturing customers of rival companies to expanding to a previously un-served segment of the market. Customers who are not buying a product or service at all are a potentially untapped market. One of the strategies to reach customers who rarely go outside to buy goods or services is to deliver goods to their homes.

The 4 P’s of Marketing

Marketing mix (4 P’s) comprises of decisions that generally fall into the following four controllable categories:

  1. Product – The first of the Four P’s of marketing is product. A product can be either a tangible good or an intangible service that fulfills a need or want of consumers. Whether you sell custom pallets and wood products or provide luxury accommodations, it’s imperative that you have a clear grasp of exactly what your product is and what makes it unique before you can successfully market it.
  2. Price – Once a concrete understanding of the product offering is established an entrepreneur can start making some pricing decisions. Price determinations will impact profit margins, supply, demand and marketing strategy. Similar (in concept) products and brands may need to be positioned differently based on varying price points, while price elasticity considerations may influence our next two P’s.
  3. Promotion – As you have got a product and a price, now it’s time to promote it. Promotion looks at the many ways marketing agencies disseminate relevant product information to consumers and differentiate a particular product or service. Promotion includes elements like: advertising, public relations, social media marketing, email marketing, search engine marketing, video marketing and more. Each touch point must be supported by a well positioned brand to truly maximize return on investment.
  4. Place – Often you will hear marketers saying that marketing is about putting the right product, at the right price, at the right place, at the right time. It’s critical then, to evaluate what the ideal locations are to convert potential clients into actual clients.

Challenges facing MSMEs in marketing

MSMEs  marketing  is  haphazard  and  informal  because of  the  way  entrepreneurs  conducts business. Because they run businesses informally entrepreneurs are busy  responding to current opportunities and circumstances and so decision making occurs in a haphazard and apparently chaotic way.

The following are some of the challenges affecting MSMEs when marketing their products.

  1. Limited resources such as finance, time and marketing knowledge to carry out marketing activities. There is very little effort put to advertise and promote new products.
  2. Lack of expertise in marketing.
  3. Entrepreneurs or their managers tend to be generalists rather than specialists. They therefore do not value the roles of marketers in their businesses.

It is advised to consider the following before embarking on marketing your product

Market research

One challenge an entrepreneur has to grapple with is to understand the business dynamics within a chosen field. At times, it is taken for granted that entrepreneurs knows a lot about their businesses and are capable to see opportunities or business potentials naturally. This is not the case. There is need for substantial information  about the past, present and the future. This information ought to be searched more frequently to remain relevant in the market.

Market research is thus an important element of marketing because this is the process involved in finding out what customers want. Research is a crucial part of all marketing activity regardless of the company size. At the outset of a new business or a new product, research into the target market needs to take place to determine:

  • What type of product or service this market consumes and when
  • What it is that customers are looking for in the type of product
  • What messages resonate with them
  • What colors, designs and logos work with them

For  MSMEs  in  the  business  sector,  market  research  would  be  relevant  in  identifying  customer preferences, market sizes for various business products, market niches and how to bridge the gaps that may exist. The research may not be elaborated and professionally structured but systematic enough to collect information that helps the entrepreneur to identify who and where their customers are, what are their product preferences and how they would like the product delivered to them.

In addition, a feedback system will be essential to communicate back the customer satisfaction levels and areas of improvement in the products as well as the delivery process.

Competitor Analysis.

MSMEs operate in competing environments. Most entrepreneurs work in societies where similar products are sold and targets the same customer base. When a customer decides to buy from a certain entrepreneurs, it is projected that she will never buy from  any other entrepreneurs.

Therefore, for a small business to succeed there is a need for the owner to know almost as much about his/her competitors as they do about their own business and customers. Unfortunately, many small business owners make the mistake of waiting until a competitor has opened up shop across the street and is cutting into profits to find out who and what they are up against.

A competitive analysis allows the entrepreneur to identify his/her competitors and evaluate their respective strengths and weaknesses. By knowing the actions of competitors, the entrepreneur will have a better understanding of what energy products or services to offer; how to market them effectively; and how to position his/her business.

Competitive analysis is an ongoing process. It involves gathering information about what is happening in the market place and could be sourced widely. Below are some of the steps that an entrepreneur in the business sector could follow to analyze the competition:

Step 1: Identify competitors. Competitors are those businesses that offer similar products to the same target market.

Step 2: Analyze strengths and weaknesses of those competitors. In which areas are they strong or weak in?

Step 3: Look at opportunities and threats. Are the opportunities and threats similar?

Step 4: Making comparison between the enterprise and competitors.

This analysis should result in understanding the business’s competitive position. Each business would try to capitalize on the competitors weaknesses by using their own strengths to take advantage of the prevailing business opportunities. The other strategy is to avoid or minimize weaknesses and exposure to threats as much as possible.

For more detailed information on sources of business finance please visit the below web address http://entrepreneurs.or.tz/access-to-finance/

Questions and enquiry contact mip@tpsftz.org

Importance of Networking

As an entrepreneur, networking is very  key, not only fun but also critical for your personal growth and business development.

Small business is all about networking, building relationships and taking action. Communication and strong presence in the entrepreneurial ecosystem are productive approaches which can help you to  build a strong relationships with other entrepreneurs from different age groups, nationality and fields of interest.

Networking is powerful in many different ways. Not only entrepreneurs will feel inspired and motivated after attending specific events or meet ups, but also many exceptional opportunities can occur if they impress potential investors or business partners.  Do not forget to be yourself and present your company the way you want other people to see it in order to create honest fundamentals for one potential business relationship.

As an entrepreneur you should keep in mind that building a successful business takes a lot of time and drive, so it’s good to have a network of friends and associates to draw energy from and keep you going. By surrounding yourself with people who share a similar drive and ambition, you are more likely to move forward as a group.

But that’s not the only benefit of networking. In fact that’s only the beginning. Below are some of the benefits of networking:

  1. Generation of referrals/Increased business

This is probably the most obvious benefit and the reason most business owners decide to participate in networking activities and join networking groups.

The great news is that the referrals that you get through networking are normally of high quality and most of the time are even pre-qualified for you. You can then follow up on these referrals/leads and turn them into clients. In principle, you will get much  higher quality leads from networking than other forms of marketing.

The increase in business from networking is the major advantage, but there are many others as well.

  1. Opportunities

With a motivated group of business owners comes an abundance of opportunities!

Some of the opportunities as a result of networking includes joint ventures, client leads, partnerships, speaking and writing opportunities, business or asset sales.Just make sure you are jumping on board with the right opportunities and don’t go jumping into every opportunity that comes your way way. Opportunities which you get involved in should align with your business goals/vision, otherwise you might find that you are spinning your wheels chasing opportunity after opportunity and getting nowhere.

  1. Connections

It’s not WHAT you know, but WHO you know”. This is so true in business. If you want a really successful business, then you need to have a great source of relevant connections in your network that you can call on when you need them.

Networking provides you with a great source of connections, and really opens the door to talk to highly influential people that you wouldn’t otherwise be able to easily talk to or find.

It’s not just about who you are networking with directly either – that person will already have a network you can tap into as well. So ask the right questions to find out if the person you are networking with knows who you want to know!

  1. Advice

Having like-minded business owners to talk to also gives you the opportunity to get advice from them on all sorts of things related to your business or even your personal life and obtaining that important work-life balance.

Networking is a great way to tap into advice and expertise that you wouldn’t otherwise be able to get hold of. Just make sure you are getting solid advice from the right person – someone that actually knows about what you need to know and is not just giving you their opinion on something that they have no or very little experience about.

  1. Raising your profile

Being visible and getting noticed is a big benefit of networking. Make sure you regularly attend business and social events that will help to get your face known. You can then help to build your reputation as a knowledgeable, reliable and supportive person by offering useful information or tips to people who need it. You are also more likely to get more leads and referrals as you will be the one that pops into their head when they need what you offer.

  1. Positive Influence

The people that you hang around with and talk to do influence who you are and what you do, so it is important to be surrounding yourself with positive, uplifting people that help you to grow and thrive as a business owner. Networking is great for this, as business owners that are using networking are usually people that are really going for it, positive and uplifting.

  1. Increased confidence

By regularly networking, and pushing yourself to talk to people you don’t know, you will get increased confidence the more you do this. This is really important as a business owner, because your business growth is very dependent on talking to people and making connections.

Networking is great for people that aren’t confident as it really pushes them to grow and learn how to make conversations and lasting connections with people they don’t know.

“I was certainly not confident when I started networking, in fact it completely petrified me! But as I do it more, the more confident I get and the easier it becomes, and the more benefit I get from it.”

  1. Satisfaction from helping others

I really love helping other people, and networking is a fantastic way that allows me to do this easily. Networking is full of business owners that have problems or issues within their business that need solving, and there is great satisfaction from helping someone to solve a problem they have and get a fantastic result from it.

  1. Friendship

Lastly, this one is more personal related rather than business related, but is a big benefit none-the-less. Many friendships form as a result of networking because (mostly) you are all like-minded business owners that want to grow your businesses, and you meet and help each other regularly, so naturally strong friendships tend to form. Some of my strongest friendships have been started from networking.

Prepared by Veneranda Sumila with assistance from the Internet

For more detailed information on sources of business finance please visit the below web address http://entrepreneurs.or.tz/business-management/

Questions and enquiry contact mip@tpsftz.org

Market Targeting

Mass marketing is no longer considered effective for most businesses in today’s world of differentiated consumer marketplace. Therefore, most companies no longer tend to generalize the market, but instead they slice it into a number of different, narrowly-defined groups, and then choose the groups to which they aim to sell their products or services.

Definition of Market targeting

A target market or target audience is a group of customers that the business has decided to aim its marketing efforts and ultimately its merchandise. A well-defined target market is the first element to a marketing strategy that helps to determine the success of a product in a marketplace.

Target markets are groups of people separated by distinguishable and noticeable aspects. Example; for energy sector, a target market could be users of renewable energy sources like solar for lighting, heating and cooking.

Each company may have a different viewpoint on how to reach its market. One company may believe that if they produce on a large scale and keep the cost low, they can easily sell more products. Another company may think that it will be easier to sell more products if they improve its quality and make it more attractive to customers.

Marketing activities around the world are guided by certain philosophies that determine how companies market their goods to customers. These are called Marketing Concepts. Over time, five concepts have emerged to fit the market demand at a given period. As markets and human needs evolved, so have the concepts of marketing.

  1. The Production Concept
  2. The Product Concept
  3. The Selling Concept
  4. The Marketing Concept (The Customer Approach)
  5. The Hollistic Marketing Concept

The Selling, Product and Production Concepts focus on existing products and building sales volume as the source of profits. This may get short-term sales, but there is little concern here about who the customer is and what his/her preferences or reasons for buying might be.

On the other hand, the Marketing Concept focuses on identifying and satisfying customer needs as the source of profits. The Holistic Marketing Concept has an all-inclusive approach to marketing, suggesting that goods or services that guarantee success are a product of interrelated marketing activities.

Marketers operate consistent with one of the above concepts depending on the type of product they offer and/or their geographic location. However, the Holistic Marketing Concept is increasingly becoming the go-to approach for marketers around the world.

The following are factors that determine Market Targeting

Geographic segmentations (i.e. their location). Rural areas could benefit from solar installation and therefore form a market segment

Demographic/socio-economic segmentation   (gender,   age,   income   occupation, education, sexual orientation, household size, and stage in the family life cycle). For example, low income groups could be targeted with improved cooking stoves that uses cheaper source of fuel and readily available but more efficient.

Psychographic segmentation (i.e. similar attitudes, values, and lifestyles). The higher income group could be sensitized to the concept of green energy and be targeted solar solutions instead of using charcoal which is not user friendly to environmental conservation that could include changing the construction of their houses and appliances they use.

Behavioral segmentation (i.e. occasions, degree of loyalty),

Product-related segmentation (relationship to a product). Dairy farmers could easily be linked to biogas digesters that utilize animal waste to give them fuel for cooking and lighting as well as fertilizer.

Market Target Selection

Target marketing contrasts with mass marketing, which offers a single product to the entire market. Many MSMEs who deal with processing products also deal with other products and are tempted to use mass marketing. This affects the size market for processing products and eventually limits the income that could have been generated from sales of such products.

Two important factors to consider when selecting a target market segment are

  1. The attractiveness of the segment and  the  fit  between  the  segment, 
  2. The enterprise’s objectives, resources and capabilities.

1) Attractiveness of a market segment:

The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment:

  • Size of the segment (number of customers and/or number of units)
  • Growth rate of the segment
  • Competition in the segment
  • Brand loyalty of existing customers in the segment
  • Attainable market share given promotional budget and competitors’ expenditure
  • Required market share to break even
  • Sales potential for the firm in the segment
  • Expected profit margins in the segment

Market research and analysis is instrumental in obtaining this information. For example, buyer’s intentions, failing to obtain intended income, test marketing, and statistical demand analysis are useful for determining sales potential.

2) Enterprise objectives, resources and capabilities.

Market segments also should be evaluated according to how they fit the SMEs objectives, resources and capabilities. Some aspects of fit include:

  • Whether the firm can offer superior value to the customers in the segment
  • The impact of serving the segment on the firm’s image
  • Access to distribution channels required to serve the segment
  • The firm’s resources vs. capital investment required to serve the segment

The better the SMEs fit to a market segment and the more attractive the market segment, the greater the profit potential to the SME. Therefore the entrepreneur in the business sector should identify and choose those products whose market is attractive and best suits his/her business objectives.

The below targeting approaches are typically used to select target markets:

1) Undifferentiated Targeting; looks at the entire market as one instead of choosing segments, and employs one-fits-all marketing strategy.

Despite the belief that this approach may be ineffective for most companies or products out there, it is often used by businesses which have very little competition, therefore they rule out the need for spending great amount of resources to adapt their strategies for various audiences.

2) Concentrated Targeting; aims its efforts at selling to a well-defined, specific consumer segment by developing a marketing mix appropriate for the given audience.

Companies justify the extra effort and resources spent on a Concentrated Targeting strategy, as they are more likely to directly reach their specific, marketing-savvy consumers by handpicking them out of larger groups.

3) Multi-Segment Targeting; while advantageous requires greater research efforts and more resources. Companies which employ this strategy target more than one of the above mentioned narrowly-defined segments by crafting different strategies for each one of them.  Nonetheless, the Multi-Segment Targeting approach offers a number of benefits to the company such as larger sales volume and bigger market share.

Prepared by Veneranda Sumila with assistance from the internet.

For more detailed information on sources of business finance please visit the below web address http://entrepreneurs.or.tz/business-management/

Questions and enquiry contact mip@tpsftz.org

Product Positioning & Supervisor roles

Last week we discussed about Market targeting. We saw that mass marketing is no longer considered effective for most businesses in today’s world of differentiated consumer marketplace. Therefore, most companies no longer tend to generalize the market, but instead they slice it into a number of different, narrowly-defined groups, and then choose the groups to which they aim to sell their products or services.

In today’s topic we are going to discuss about Product positioning. In general, product positioning is defined as the process marketers use to determine how to best communicate their products’ attributes to their target customers based on customer needs, competitive pressures, available communication channels and carefully crafted key messages. Effective product positioning ensures that marketing messages resonate with target consumers and compel them to take action.

Product positioning therefore, involves efforts to influence consumer perception of a brand or product relative to the perception of competing brands or products, it helps to  create a positive perception and preferred position in the eyes of the public towards that product.

If a product is well positioned, it will have strong sales, and may become the go-to brand for people who need that particular product. Poor positioning, on the other hand, can lead to bad sales and a dubious reputation.

Product positioning process

Product positioning is a tricky process. It is a continuous process requiring constant observation. MSMEs adopting product positioning strategies need to see how consumers perceive their product, and how differences in presentation can impact perception.

As defined above, positioning is the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. Then re-positioning involves changing that identity of a product, relative to the identity of competing products, in the collective minds of the target market.

Effective product positioning requires a clear understanding of customer needs so that the right communication channels are selected and key messages will resonate with customers. Product positioning starts with identifying specific, niche market segments to target — not just women over 25 but women from 25 to 30 who work in senior-level management positions, who make X Shs per year, who are single and enjoy sporting activities. The more specific, the better.

In addition to identifying the customer based on demographic and psychographic (personality/lifestyle) attributes, marketers need to understand customer needs, especially relative to the products and services they have to offer, to clearly convey value as part of their marketing plan.

Generally, the product positioning process involves:

  1. Defining the market in which the product or brand will compete (who the relevant buyers are)
  2. Identifying the attributes (also called dimensions) that define the business product ‘space’.
  3. Collecting information from a sample of customers about their perceptions of each business product on the relevant attributes
  4. Determine each business product’s share of mind
  5. Determine each product’s current location in the business product space
  6. Determine the target market’s preferred combination of attributes
  7. Examine the fit between:
  • The position of your product
  • The position of the target market’s preferred combination of attributes

It is important to note that for the MSME to achieve sustained growth there is need to create an impact in the target market. Creating an image in the minds of customers helps in creating loyalty to products or services being offered.

Product positioning helps marketers consider how their offerings are different from others that consumers have to choose from. But it is not enough to know this from an internal perspective — marketers must communicate this to the target audiences. To do this effectively, they must choose communication channels that are designed to connect with their identified target audiences at times when they will be most receptive to these messages.

Conveying the differentiating, value-added aspects of your product or service to your target audience through the communication channels you have selected is also another key element to consider. These messages are designed to convey how your product is different (and better) than competitive offerings, as well as to address the value-added attributes that are important to your audience. Product positioning is at the foundation of any effective marketing plan because it impacts the ultimate purchase decision.

Who is a supervisor?

Supervisor is a manager at the first level of management, which means the employees reporting to the supervisors are not managers. Operational Supervisor is tasked to ensure that the business is meeting its’ goals. He/she also ensures that employees are performing their jobs so they will contribute a share of the accomplishment of goals. Operational Supervisor oversees daily business problems and goals.

Supervisor should possess the following skills:

  • Management Skills
  • Technical Skills
  • Human Relation Skills
  • Idea developing Skills
  • Decision Making Skills

General Function of a supervisor includes the following

Planning – this involves drawing up plans of actions that combine unity, continuity, flexibility and accuracy given the organization’s resources.

Staffing – it is performed by all managers depending upon the nature of business, size of the company, qualifications and skills of managers. In small companies, the top management generally performs this function. In medium and small scale enterprise, it is performed especially by the personnel department of that concern. Staffing helps in recruitment, selection, placement, training and development, providing remuneration.

Leading – this involves the social and informal sources of influence that you use to inspire action taken by others. It helps supervisors understand their subordinates’ personalities, values, attitudes, and emotions.

Controlling – this involves identifying performance weaknesses and errors by controlling feedback, and conforming activities to plans and instructions.

Responsibilities of a supervisor

Supervisor must be prepared for change as fast as their employees do. Supervisor must be accountable to business practice by imposing penalties for employees who fail to adequately carry out responsibilities and provide rewards for meeting expectations.

Tips for supervisors

Supervisor must be prepared for change as fast as their employees do.

Supervisor must be accountable to business practice by imposing penalties for employees who fail to adequately carry out responsibilities and provide rewards for meeting expectations.

Set limits on your behavior! No gossip participation.

Do not be a “rescuer”. Train employees to improve performance, do not do it for them.

Figure out how to measure success. Know when people are not on track to meet goals.

Communicate with everyone. Talk with each subordinate regularly.

Be firm. You will be tested on rules and standards.

Learn from others. Find other bosses who will share their wisdom. Seek people inside and outside the organization. Create a business network.

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

If you want more information about Business Management Tips and templates please visit http://enterpreneurs.or.tz/business-management/

Formalization for business prosperity

Becoming an entrepreneur is among the best options you can take to pursue your life. By becoming an entrepreneur, you have already demonstrated your leadership trait and the drive to see your idea materialize. You have decided to take the next major step to realize your vision, that is, running your own business. While generating profit in your business, it is important to comply to rules and regulation of the state and thus necessary to formalize it.

Formalizing your business comes with a number of benefits including improved  access  to  public  services  and  formal  credit,  recognition, trust for your product/services and access to other facilities like insurance services for your business.  Experience shows that many entrepreneurs avoid to formalize their business thinking that it will be costlier. Others believe that formalizing makes operation difficult as it attracts all regulators including the taxman to the business.

But the truth is, by operating legally you get more benefits than losses. Below are extended benefits of  registering your business

Profits

Business benefits  of  operating  officially  include  higher  profits,  better  access  to  credit,  increased  investments  and  higher  customer  demand  due  to  the  ability  of  the  firm  to  issue tax  receipts as mentioned earlier.

Investments and Credit

Money lenders are more willing to lend to legally operating businesses than informal businesses. Access to credit can lead to performance improvement, increased profit which will in turn support your business expansion or growth plans. Formalization is often explained by better access to credit allowing firms to increase their investments.

Network and customer size

Experience shows that formally operating companies are more invited to networking events and exhibitions both local and international than the informal businesses. This helps to widen the customer base and improve business networking which is very crucial for business expansion.

After seeing some of the benefits of formalizing a business now let us discuss about  the actual business formalization process. This process involves key stages that need some careful consideration.

Who can register a business?

Any individual resident or nonresident, who is doing business or proposing to do business in the United Republic of Tanzania under a business name is required to register under the Business Activities Registration Act, 2007 .

The Business Activities Registration Act, 2007 requires that all business whether sole proprietorship/individual or partnership/corporation should obtain a certificate of registration from the business registration centre  in respect of every business.

Business name application procedures and requirements

Choose a Business Name

A Business Name is the name or style under which any business is carried on. In Tanzania, They are registered under the Business Names (Registration) Act (Chapter 213 of the Laws) [R.E 2002] A business name helps to identify your business and hence advertise it. Business Names do not acquire Corporate personality after their registration.

People are not compelled by the law to use names in their business, but they are compelled to register them if they use names in their business.

Remember that your business name should describe the nature of your business. Business Registration and Licensing Authority (Brela) is responsible for business name registration.

Applicant has to fill an application form for registering a business name, for sole proprietor, fill form number 3, for firms fill form number 2, for bodies corporate, fill form number 1.

 Apply for the proposed business name by submitting three names. Submitting three names aims to ensure that your business name doesn’t coincide with already existing business names. The good thing is that business registration can now be done online by visiting Brela website.

The name you choose for your business, while being unique and relevant for your business, requires Brela’s approval. Choose a name that is not obscene or vulgar. It must not infringe with any trademark or be too similar or identical to that of any existing companies. The approval process is fast, within a day, however if the chosen name includes certain restricted words involving regulated and strategic sectors such as bank, law, finance, media etc then the relevant government agency or authority will need to review it. In such cases the approval may be delayed by a few days.

To avoid any delay or disappointments, check availability before choosing a name. You may do it online on Brela’s website. Make sure that the name you choose is representative of your business philosophy, nature, product or service and positioning.

Make sure that you choose the right name. Choosing the right name for your new business is extremely important because it distinguishes your products and services from those of your competitors, and helps to establish your identity in the marketplace.

Brela will do a name clearance search and approve or refuse the application.

After your business is registered, you will receive a notification confirming your registration.

After payment of fee and if approved applicant is issued with certificate of Registration and an Extract with which the applicant can then open a bank account

This process involves a fee which- according to Tanzania Investment Centre (TIC) is is estimated at Sh87,120. Further information on business registration and name clearance can be obtained at Brela website.

Have a registered Address

At the time of registration you will have to provide a local physical address. All official notices and correspondence will be sent to this address only. Local Government Authorities of which your business is to operate must approve the premises for commercial use.

If you are a small business owner or decide to operate from your house to save on office rental expenses in the initial years, then permission for such use must be obtained the Tanzania Bureau of Standards (TBS) and from the Tanzania Food and Drugs Authority (TFDA).

Apply for Taxpayer Identification Number (TIN) at Tanzania Revenue Authority.

An individual whether  resident or nonresident  is required to visit TRA regional or district office and fill TIN application form to apply for Taxpayer Identification Number. The application can also be made online, however the applicant must physically visit TRA offices for biometric scanning which involves taking photograph, finger prints and signature.

After obtaining TIN certificate the applicant will be required to apply for business license from the Trade office in District, Municipal, City and the Ministry of Trade and Industry depending on the type of business

The registered name can be obtained before or after application for TIN. The registered business name shall be indicated on the TIN certificate together with an individuals’ name showing the owners name trading as (T/A).

TRA has introduced a Taxpayer Identification Number (TIN) registration and issuance desk at the BRELA offices.

The intention is to ease provision of TIN certificate to newly businesses on a one stop shop arrangement thereby making it convenient for them to commence operations in a much shorter duration.

Prepared by Veneranda Sumila

Tanzania Private Sector Foundation (TPSF)

If you want more information about Business Management Tips and templates please visit http://entrepreneurs.or.tz/starting-a-business-3/

Importance of Trade Mark Registration

What is a trade mark?

Trademarks are brand identifiers. According to the International Trademark Association, “A trademark may be any word, name, slogan, symbol, device, package design or combination of these that serves to identify and distinguish a product from others in the marketplace.” Sometimes you can trademark sounds, colors or even smells. If someone else attempts to distribute products using something “confusingly similar” to your trademark, you have the legal right to protect yourself and stop them.

Many of us do not realize that we deal with trademarks on a daily basis. In other words, “Trademark” is another way of referring to brands.

Besides helping the owner of the Services or products to market their products, trade mark helps the consumers to identify, choose and finally purchase a product or Service because of its quality as has been displayed by the Trade/Service Mark over the years.

Consumers’ purchasing decisions are therefore influenced by trademarks and the reputation such brands represent. It is important for business people to have an understanding of why trademarks are important assets and help grow their business.

Trade mark registration in Tanzania

In Tanzania trade mark registration is governed by the Trade and Service Marks Act, 1986 and Trade and Service Marks Regulations, 2000.

Trademark applications must be filed with the Tanzanian Trademark Office in a prescribed form. Currently, it is not possible to make online filing. The rights granted after registration dates back to the date of filing of the application.

In most cases, the Tanzanian Trademark Office requests for evidence of registration from other countries before accepting registration. Three dimensional marks can be registered in Tanzania upon providing proof of registration from other countries.

The first registration period granted is seven (7) years. The term of registration can be indefinitely renewed for further ten (10) years after expiry of original registration or of the last renewal of registration

Any natural person, firm or other kind of legal entity may apply for trademark registration. A trademark may have several proprietors (joint applicants, joint owners). Applicants not residing in Tanzania must appoint a trademark agent residing and practicing in Tanzania.

Upon filing of an application for registration of a trade and service mark and the payment of the prescribed fee, the Trademark Office conducts an examination to be made as to–

(a) conformity with the formalities required under the Trade and Service Marks Act; (b) The conformity of the trade and service mark in accordance with the provisions of the Trade and Service Marks Act; and

(c) whether the trade and service mark is required to be associated or some words or devices are required to be disclaimed.

If upon the examination it appears that the applicant is entitled to registration of his trade or service mark, the Trademark Office accepts the application and causes the trade or service mark to be advertised in the Trade and Service Marks Journal. If upon the examination, the Trademark Office objects to the application, it will notify the applicant in writing of the objections and will give him 30 days to submit his comments or to request a hearing, and if the applicant fails to submit his comments or requesting for hearing within the time allowed, he will be deemed to have withdrawn his application.

Here are among the top reasons of why trademarks are important to your business.

Registration of a Trade and Service Mark is not a mandatory requirement, provided in using an unregistered mark one does not interfere with the rights of the registered Trade and Service Mark owned by another. Registration of a mark gives exclusives rights of use to the applicant of that Mark, and this exclusive right is extended for the period of seven years and renewable ten years consecutively.

A person using an unregistered mark is most likely going to infringe a register red mark and is at risk of facing legal action which in the final analysis can make him/her bankrupt due to heavy penalties imposed against him/her. So, the best advice to manufacturing and the trading community is to play safe by registering their trade and Service marks in order to avoid those repercussions.

Trademarks are an effective communication tool. In a single brand or logo, trademarks can convey intellectual and emotional attributes and messages about you, your company, and your company’s reputation, products and services.

Your trademark doesn’t need to be a word. Designs can be recognized regardless of language or alphabet. The Nike “Swoosh” design is recognized globally, regardless of whether the native language is Swahili, Chinese, Spanish, Russian, Arabic or English.

Trademarks make it easy for customers to find you. The marketplace is crowded and it’s hard to distinguish your business from your competitors. Trademarks/brands are an efficient commercial communication tool to capture customer attention and make your business, products and services stand out.

Customers viewing a trademark immediately know who they are dealing with, the reputation of your business and are less likely to look for alternatives. Your brand could be the critical factor in driving a customer’s purchase decision.

Trademarks allow businesses to effectively utilize the Internet and social media. Your brand is the first thing customers enter into a search engine or social media platform (Facebook, Twitter, Pinterest) when looking for your products and services.

Higher traffic on a website or social media platform translates into higher rankings, bringing even more traffic, more customers and more brand recognition.

Trademarks are a valuable asset. Trademarks can appreciate in value over time. The more your business reputation grows, the more valuable your brand will be.

Trademarks provide value beyond your core business. Trademarks  can lead the way for expansion from one industry to another, such as from personal care to clothing or eye ware. If you desire it, your trademark can lead to the acquisition of your business by a larger corporation.

Trademarks are a property asset, similar to real estate, that can be bought, sold, licensed (like renting or leasing) or used as a security interest to secure a loan to grow your business. 

Trademarks can make hiring easier. Brands can inspire positive feelings in people’s minds. As a result, employment opportunities are more attractive to candidates. Employee retention can be higher if employees have positive feelings for the brand and the products and services offered.

All in all, brands are a critical asset. Do your due diligence before investing a lot of time and money in launching a new brand. Be sure the brand fits your company. Obtain a clearance search to make sure your new brand is available and doesn’t infringe on anyone’s prior rights.

Failing to research a brand before adopting can lead to denial of registration, or worse, a cease and desist letter from another brand owner. Spending the time and money up front to determine whether a brand is available will help avoid the very high costs of a dispute or litigation.

Keep in mind that the more you differentiate your brand from others in your industry, the easier it’ll be to protect. Choose a name and logo that distinctly identify your business and will protect it from competitors.

Post registration issues on trade and service mark

1.It has to be renewed after seven years, this renewal runs for ten years and then renewed.

2.Assignments where the owner of the mark decides to assign it to someone else; this has to be communicated to the Registrar.

3.Any change of name or address is to be communicated to the Registrar.

4.Mergers, Registered users and any other changes should be communicated to the Registrar.

Prepared by Veneranda Sumila with Assistance from the internet

Tanzania Private Sector Foundation (TPSF)

If you want more information about Business Management Tips and templates please visit http://entrepreneurs.or.tz/starting-a-business-3/

Patenting your invention

Last week we discussed about Trademarks. We saw that trademarks are brand identifiers. Besides helping the owner of services or products to market their products, trade mark helps the consumers to identify, choose and finally purchase a product or service because of its quality.

In today’s topic, we are going to discuss about patents and its importance to your invention. Many entrepreneurs fail to establish what a patent is and who is supposed to have one.

Basically, a patent is an exclusive right granted for an invention. In order to get this exclusive right or protection, there must be a unique invention which can be a solution to a technical problem. A patent protect your invention against unauthorized use.  

In Tanzania patent right is granted for a period of 20 years counted from its filing date. After the expiry of 20 years a patent falls into the public domain upon which anyone who is interested can use it freely.

Patents are big part of almost any business venture, even a small business. Your business might make money by selling patented goods or by making things that are covered by patents. Or, maybe your employees create new products that are later patented. Whatever the case might be, owning a patent gives you the right to stop someone else from making, using or selling your invention without your permission.

What kind of protection does a patent offer?

A Patent restricts commercial use, distribution or sale of goods made out of the invention without the consent of the owner. Any person using or exploiting the patented invention without the consent of the owner is infringing these rights and may face a legal action and will be liable to compensate the owner for the wrong acts.

Rights of the patent owner

The patent owner has the right to work on his/her invention without fear of his/her invention being infringed or being subjected to unfair competition. He has the right to decide on whom to license, or assign on terms to be agreed upon by both parties. However, this right is only valid during the life time of the patent. When this time expires, the patent falls in the public domain and it can be used by anyone for commercial purposes or any other purpose.

Only an inventor may apply for a patent on his or her idea. If two or more people participate in the creation of an invention, the law requires that all participants apply for a patent as joint inventors. A person applying for a patent on an idea he or she did not directly invent is subject to criminal penalties and invalidation of the patent, if one was issued. A person making only a financial contribution to an invention can’t be named as a joint inventor.

How is the Patent granted?

The inventor or any person who has a right over an invention files a patent application with the office of the Registrar of Patents which is under the Business Registration and Licensing Agency (Brela)

This application should contain a title of the invention, description of the invention, stating the technical field under which the invention falls. The description should be in clear language to be understood by a person with average understanding in the field such that they can work on the invention basing on the description. More elaboration such as drawings should be made and should also state what is claimed in the invention.

In Tanzania Patent rights are governed by the Patent registration act, the application is done through filing form No. P. 2 accompanied by a patent document in triplicate and submitted to the Registrar of Patents with Business Registrations and Licensing Agency (BRELA).

There are actually several different type of patents, but the two following patents are the type entrepreneurs use most often:

A design patent: This provides protection on the appearance or ornamental design of your invention. It is generally cheaper, simpler to file and more easily accepted by the registrar than other types of patents. However, its overall protection isn’t as effective as a utility patent because the invention’s design can be changed many times, thus helping others who want to use your design avoid patent infringement. Its term is 14 years.

To receive a design patent, your invention must pass these tests:

  • It must have a new, original and ornamental design.
  • The novel features of your design must not be obvious.

A utility patent: This protects the function or method of your invention. This patent is more complicated than a design patent because it requires you to explain how your invention is used. A utility patent is usually more expensive to obtain, requires more input from an attorney, and is more difficult to have issued by the registrar. Its protection is greater than that of a design patent, however, because patenting a method or function provides stronger, broader coverage. A person trying to make a product similar to your patented one must avoid all the claims of your patent. The utility patent’s term is 20 years. Most inventions can be filed as a design patent, utility patent or both.

To receive a utility patent, your invention must pass four tests:

  • Statutory-class test. Your invention can reasonably be classified as a process, machine, manufacture, composition or a “new use” of any one or more of these classifications.
  • Utility test. Your invention is considered useful.
  • Novelty test. Your invention has a feature that sets it apart from previous inventions and is unknown to the public.
  • “Unobviousness” test. Your invention’s novelty must not be obvious to someone who has ordinary skill in the area of your invention. For example, if your invention is a hairbrush, the uniqueness of its design must not be obvious to someone who uses a hairbrush every day.

If you’re trying to determine if your idea has already been patented, you can have a search performed on all existing patents. This patent search will tell you whether other patents have already been issued that may disclose or suggest your invention. You can perform a patent search on your own, use the Internet or hire a patent researcher.

How to respond in case you are sued for patent infringement.

If you receive a demand letter or notification that you’re being sued, it’s important that you not respond directly to the sender of the letter. Keep in mind that the vast majority of patent-infringement lawsuits are settled out of court. Patent trolls are well aware of this, so any attempt to reason with them will be a waste of time and energy.

It is, however, important that you honor the response deadline outlined imposed by the other party. If you need an extension, feel free to ask for one, but do so with the assistance of a lawyer.

Some businesses may choose to act independently, sending the requested money without consulting any lawyer. The lawyer will, after all, only cost more money. But in many cases, an attorney may be able to reduce the amount paid or reduce the need to pay altogether, so it’s important to at least consult with an attorney to get a good idea about what you’re facing.

The best way to protect against patent trolls is to fully check for any existing patents before starting your business. If possible, consult an attorney who is experienced in the area of intellectual property to not only ensure your product or service is original, but also help you gain the necessary patents to protect your own property. Patent abuse puts the industry at risk for monopolies, which harms consumers as much as it harms innovative new businesses.

Prepared by Veneranda Sumila with assistance from the internet

Tanzania Private Sector Foundation

If you want more information about Business registration Tips and templates please visit http://entrepreneurs.or.tz/starting-a-business-3/

Human resource for small business development

As a small business manager, you will always be involving in human resource management. You will be dealing with employees whom handling them requires proper and relevant skills.  If you don’t know how to handle things well, employee handling can become the single largest consumer of your time and energy.

With human nature being what it is, employees will test limits and act “creatively” in workplace situations, so as a human resource manager, you need to have a clear strategy for developing, communicating and enforcing a set of policies and practices that reflect your standards of acceptable behavior. So having successful policies and practices strategy does more than draw boundaries; it also recognizes and addresses people’s needs.

As an entrepreneur you should keep in mind that there are many different types of people, and not surprisingly, they react differently to the need for policies and practices based on those differences.

So how can you make sure your employees have clear expectations and are treated fairly as they work to help build your company? The answer is found in the way you address four key elements related to the development and deployment of your policies and practices: roles, rules, consequences and tools.

Roles

People like to have a clear understanding of their role in a company as well as the roles of others. Every successful team has well-defined positions for its members: Everyone knows what he or she is to do, how to do it and how their performance can impact those around them. In business, this means you need to have clear reporting structures that spell out who’s in charge and how tasks are to be accomplished in the organization. In addition, role definition is a foundational part of establishing clear performance expectations for each employee.

 

Rules

Managers and employees need to share a clear understanding of what is and what is not acceptable behavior within the company. Unfortunately, in today’s workplace, an employer can be held liable for the bad behavior of an employee, especially when that bad behavior affects other employees, clients or individuals. Having a clear set of behavioral expectations is critical to establishing that you’re not contributing to that bad behavior as an employer.

Setting clear and specific behavioral standards in the form of rules establishes a framework for spotting and addressing violations of those standards. If you rely on loosely defined general standards that aren’t properly documented, then violations become subjective and open to interpretation. The result of such ambiguousness is often litigation.

Consequences

It’s important that you clearly state consequences for violations of your behavioral standards so that employees know what to expect and have fair warning of those expectations. In addition, clear consequences help to ensure that you aren’t limited in your options for dealing with improper behaviors.

To establish these standards and violation consequences, sit down and think through the over-the-line behaviors that won’t be permitted in your company. It’s essential that you know ahead of time what employee actions require an immediate dismissal. Similarly, you want to know what performance issues may qualify for a more progressive disciplinary approach, and then define the steps involved in that approach.

By nature, people are complex beings who will confound you one minute and astound you the next. And except for violations that warrant immediate firings, it’s usually a wise, compassionate and financially prudent course to help people strengthen their character by overcoming their weaknesses. Also, this approach provides you with a way to retain experienced employees and recover your investment in their training.

Managers are often disappointed in an employee’s performance even though the manager never clearly communicated his or her expectations to that employee. If you don’t take steps to set clear expectations, the consequences you administer for failure to meet those expectations can seem unfair. This is extremely important because an employee who feels they’ve been treated unfairly can create a great deal of liability. In many cases, the key issue is not whether they were actually treated unfairly but whether the employee feels or perceives that they were treated unfairly.

And it doesn’t stop with the affected employee. If you or your managers haven’t clearly communicated your expectations to one employee, chances are you haven’t done so with other employees as well and they can be quick to empathize with any affected workers. It’s natural for employees to wonder, “What if that happened to me?” To avoid the negative effect such a chain-reaction can have on your workplace, be clear about your expectations with all employees at all times. Most employees will appreciate and respect your forthright clarity.

Building a great company has a lot to do with how people work together. Policies and practices can improve the way your employees interact, while minimizing the personnel obstacles that often arise in today’s workplaces.

Tools

Tools address the question of how you support the people in your company who manage other employees. When faced with a specific personnel issue, what resources are available to them? Do they have an employee handbook or a policy guide? What about regular training in company policies and practices, coupled with simple, easy-to-use forms to guide them when dealing with particular issues? Are you giving them a clear directive on working with your human resources personnel or legal representatives? Are your resources available online?

Tools like these are vital not just to help avoid litigation, but also to minimize the time it takes for you to deal with productivity-draining people issues instead of core business matters. Whatever your approach, the key to success is to devote the time and resources it takes to develop a policies and practices strategy for your business before the need arises. It’s an investment that can pay large dividends in increased productivity and minimized litigation. And it’s an essential component of your comprehensive people strategy.

Let us end here for today, next week we will discuss about roles of human relations officer.

Prepared by Veneranda Sumila with assistance from the internet.

If you want more information on business management tips please visit http://entrepreneurs.or.tz/business-management/

Tips for an Effective Human Resource

As discussed last week, being a small business manager, you will always be involving in human resource management. You will be dealing with employees whom handling them requires proper and relevant skills.  If you don’t know how to handle things well, employee handling can become the single largest consumer of your time and energy.

In today’s topic we are going to discuss about tips to helping you as a human resource arrange and handle employees to a point that they are comfortable and delivers as per company’s ethics.

Many businesses find themselves with underutilized employees or workers without the specific skills they need to grow with the company. Planning your workforce needs in advance and then monitoring your workers’ performance pays dividends in a variety of ways that directly and indirectly improve your bottom line. Create a human resources strategy that reviews your current staffing situation and plans for long-term growth to make sure you use your workers productively and efficiently.

Have a staffing plan

Before you start to think about hiring, you’ll need at least a basic staffing plan. The plan should not sort out how many employees you expect to hire, the type of employee you’re looking for, and what they will be expected to do. The plan should also address how the employee expenses will be covered.

A staff plan should be well coordinated with your business plan, and it should address items of discussion that will likely take place during candidate interviews.

The plan doesn’t have to be detailed or lengthy, just something that addresses the key issues at a satisfactory level so that wise management decisions can be made based on its content.

Here are the basics of staff plan.

  • Objectives, both near and long term
  • Characteristics and culture of your employees (How you want your employees to behave)
  • Approach to find new employees
  • How you’re going to keep good employees
  • Training and transition
  • Funding for employees
  • Job description
  • Organization chart

The staffing plan has to provide a vision. In the absence of vision, it is easy to go off course or go nowhere at all. In addition to helping you understand your plans for growth, a staffing plan is also useful to help communicate to lender and prospective employees just what kind of organization you are trying to create and maintain.

Finding Good Employees

An important part of good human resource management is finding the right employees for the work you are doing. This is where the idea of culture comes into play. Your human resources are the most important asset you have, so you want them to be of high value to your organization, and that means they need to have the same culture as you and your organization.

In order to get high value employees, you’ll have to spend some time finding them. Here are ways to finding new employees:

  • Ads in publications (general or trade specific)
  • Word of mouth by current employees, associates and customers
  • Co-op program through schools

If you expect to have regular growth in your business, then you’ll need to spend a considerable amount of time recruiting. You’ll “kiss a lot of frog” before you find your prince. Finding good employees can be difficult because many of good ones are working elsewhere and smart employers won’t want to let go of them.

One of my human resources manager (and business management) a philosophy goes like this: “I rather swamped with work, rather than hire wrong person”. Here are the reasons:

  • Hiring can be costly
  • It consumes a lot of your time
  • New employees stress out current employees
  • Find employees stresses you
  • Exiting staff can stress out new employees

Don’t take lightly. Make good selections and take care of your employees through effective human resource management action. To find good employees, you’ll need to screen them.

Screening Potential Candidates

There are many ways to screen potential employees. Let’s look at several key ways that reflect good human resource management techniques.

First, be selective as to your recruiting grounds. You wouldn’t look for brain surgeon at bus stop. Direct all potential employees to write an application letter, scan carefully all application letters and select the ones who has presented themselves very well.

Make certain that where you’re looking for employees is conducive to finding what you’re looking for. A small and aggressive organization shouldn’t be looking for potential recruits from large and clumsy organization that reward longevity instead of leadership and reasonable risk taking.

Second, take a look at current employment on the resume or application. Pretend for a moment that it’s your employment and then ask yourself what it tells others. Ideally, current employment should reflect:

  • Challenge
  • Tenacity
  • Hard work
  • Useful skills

Third, take a good hard look at employment history as shown on the resume or application. What does it tell you about the person and their method of operation? Ideally, employment history should show:

  • Aiming high
  • Job advancement
  • Good judgment
  • Reasonable risk taking
  • Accomplishment
  • Reasonable loyalty

Fourth, only select for formal interview those individuals that you believe offer the best chance of meeting your needs as an employee. Interviewing takes time – your time and the time of others. Don’t waste it interviewing everyone that shown an interest in your job opportunity.

Personnel Interviews

Here is where you can distinguish between “the good, the bad, the ugly and the bizarre”. Take your time and be comprehensive as well as methodical. There is lot to learn from job interview that applies to making a “good hire” as well as being smarter for the next interview.

Here are some key to success:

  • Spend lots of time with the applicant during the interview.
  • Have more than one ended questions to learn who they are and what they can and want to do.
  • Let them tell you story about their work, their life and where they think they are headed; they should be “selling” to you.
  • Don’t “sell” the company or organization to them unless and until you’re certain that they are good fit.

This is going to sound bizarre, but my advice is don’t look at resume or job application until you are finished with general questions and discussion, and you’re ready to wrap thing up.

Think of resume as the human resource management equivalent to glossy brochure for car. Don’t just read the brochure – look under the hood and take the thing out of test drive. Look at resumes near the end of the interview to see if there is anything in particular that didn’t come up in discussion, and then focus on that.

Take notes during interview so you can compare with others that interview the same candidate. Notes are also useful when trying to sort out among multiple candidates that all seem to be a good fit.

Steer clear of discussing benefits, relocation, retirement and other items that aren’t at the core of your business. Pay attention to see if your candidate is primarily interested in these peripheral items, or in the core job opportunity. This will tell you a lot about what he or she is searching for.

Don’t initiate discussion about compensation unless you are ready to hire. If the topic is brought up by interviewee, then only ask what your candidate requires in terms of compensation.

Lets end here today, next week we will discuss more tips.

Prepared by Veneranda Sumila

If you want more information on business management tips please visit http://entrepreneurs.or.tz/business-management/

Hiring Tips

Last week we discuss about tips to helping you as a human resource arrange and handle employees to a point that they are comfortable and delivers as per company’s ethics.

We discussed that planning your workforce needs in advance and then monitoring your workers’ performance pays dividends in a variety of ways that directly and indirectly improve your bottom line.

Today we are going to discuss different hiring tips. If followed, these tips will help entrepreneurs hire required and relevant people for a specific position.

It is common that entrepreneurs start out as a one-man band, and as time goes they get devout customers which forces them to add skilled technicians.

As business grows entrepreneurs need people who will serve as an extension of the brand. He or she will want people who, when others see them, will see the business at a glance.

Hiring

You don’t have much of a company without a strong, dedicated team. All you have to do is be very careful when hiring, because at times the hiring process can be challenging, from sourcing candidates, screening and interviewing them to making the final evaluations.

You might find that after announcing job opportunities your office will flood with application letters making it difficult for the screening process especially for entrepreneurs who are doing the hiring for the first time.

Early-stage startups are pitted against bigger businesses with their army of recruiters, heavy branding campaigns and seemingly unlimited swag.

Yet, there are still ways to develop a competitive hiring advantage to reel in the best candidates and convince them to commit to your startup and its mission. Here are five steps that you can take immediately to enhance your recruiting efforts:

  1. Be transparent about your needs (and how they may change).

At a startup, staffing needs change frequently, along with the company’s direction, products and goals. Let prospective employees in on all this.

You’ll notice a considerable amount of churn if you fail to appropriately manage candidates’ expectations before they join the company. Overwhelmed with new responsibilities, unsuspecting new hires will find it hard to succeed if they are forced to adapt to a change in job description every two weeks.

To hire the perfect new team member, fully disclose current expectations for the role being filled and how that may change as the business evolves and pivots. Candidates need to be prepared and even excited about the fluid nature of a startup and how that might affect their day-to-day responsibilities. Otherwise those who are underprepared will become bitter and burn out.

  1. Build positive relationships with all candidates.

Although you cannot — and should not — hire every job seeker who comes knocking on your door, you have an opportunity to develop strong goodwill and rapport with each one.

As a recruiter at an early-stage startup seeking exceptional talent, you need to develop the firm’s reputation as an organization that everyone wants to work for. If a candidate turns out to be a terrible fit for your business, write off the lost time and salvage the situation by turning that person into a brand advocate. 

Encourage candidates you’ve rejected to refer other job seekers with an incentive such as a finder’s fee or guidance and support with their job search (resume or interviewing tips, referrals to openings elsewhere).

Who knows? They might even return for an interview at a later date after gaining more skills.

  1. Make the benefits awesome.

Never lure a candidate with a false promise of future wealth at the company. Generous stock payouts are more myth than reality these days. Instead, offer opportunities that can make a candidate happier about the job (even it lacks a market rate salary).

A few cost-effective enticements enjoyed by employees include the freedom to take on new challenges and responsibilities, and personal-development programs (lunch-and-learns with successful businesspeople, fireside chats with industry experts and weekly study sessions at the firm).

  1. Enlist help in hiring.

Even the smartest businesspeople know they can’t do everything themselves. Hiring is a skill that’s developed with practice. So if you’re running a young and hungry startup and desperate to find that unique individual who can take your business to the next level, you may need additional counsel.

Consult friends who have hired for specific roles (marketing, sales, engineering) to learn where to source the best candidates, how to effectively review resumes, better questions to ask and ways to determine the final selections. Different people have written some of insights about interviewing techniques. You may also want to check online.

  1. Close the deal, again.

The hiring process does not end when a candidate accepts an offer. Continue to sell the new hire on the opportunity throughout their first weeks of work.

Make the on boarding process seamless so that the employee feels confident in the new role and is excited about the company. Be selective about the tests administered.

Do challenge new hires to make a real impact within the organization but don’t deliberately overwhelm them to see their response to pressure. When possible, make the new recruits feel like family, give them what they need, remove barriers and provide them resources and the knowledge to become successful. Then you’ll be impressed by your startup’s retention rate and amazed by what new hires can accomplish.

All in all you should remember that except in the most informal of situations, hiring should always be done with an offer letter. The letter should spell out all the particular of the job including:

  • Compensation
  • Benefits
  • Responsibilities
  • Performance expectations
  • Probationary period
  • Reporting requirements
  • Desired start date
  • Work location

It needs to be clear at the start what is being offered, and what is expected. If it‘s in writing, then it’s difficult to have misunderstanding. The offer letter helps document the contractual relationship between the new employee and the employer.

If you are going to be successful human resource management, expectations for employees need to be clearly established at the start. Putting those expectations in writing is a good way to do just that.

Prepared by Veneranda Sumila with assistance from the internet.

If you want more information on business management tips please visit http://entrepreneurs.or.tz/business-management/

Things your Small Business can Do to Retain Employees

Last week we discussed that you don’t have much of a company without a strong, dedicated team. All you have to do is be very careful when hiring, because at times the hiring process can be challenging, from sourcing candidates, screening and interviewing them to making the final evaluations.

Today we are going to discuss on how to retain employees even at times when you can’t pay big bucks.

It should be clearly known that Implementing your small business ideas will require good staff. Once you find them, you don’t want to let them go elsewhere.

Employee retention is especially important when you only have a few staff members. Your employees and their long-term happiness and commitment to your business can make all the difference.

Employee retention should always be a top priority for small businesses. When a worker leaves, entrepreneurs are usually responsible for filling that position, which often means recruiting, interviewing, hiring, and training new workers without the support of the HR department – which many larger businesses have. Experts estimate that the average cost to replace a departing employee is 16 percent of a position’s annual salary for low-level positions, 20 percent for mid-range jobs, and as much as 213 percent for highly-educated specialized positions.

In addition to saving money, retaining employees can offer your small business a continuity that can help you grow. To help you fight attrition, below are things you can do to foster employee loyalty. This will also have the added benefit of improving your business’s work culture and boosting morale.

Understand Individual Employee Goals

Experts suggest that you take enough time to get to know your employees’ goals on a person-by-person basis, both in terms of their performance (with you) and their long-term goals. Knowing what’s important to your star performers can help you choose how to reward them. Would a paid educational opportunity be more valued that additional paid time off? Have a frank and ongoing discussion at each annual review period.

Engage Through Communication and Transparency

Consider letting your employees know how the company is performing. While you may not be able to offer a huge raise, they’ll appreciate your open lines of communication and honesty.

Encourage Opportunities for Growth

Climbing the ladder looks different at a small business than in a large corporation. Yet there are many ways to create opportunities and bigger challenges for motivated employees. You may dedicate one employee to do your work (administrative duties) each week as a way of motivating them that even when you are not around everything can be taken care of.

Show You Value Them by Getting Them Involved

Another way to show star performers that you care is by working to involve them in the business. Take the time to solicit their suggestions for how to improve your processes, new services to offer, and how to solve the big problems facing your company. When people’s opinions are valued, they’re more likely to be happy long-term.

Make It Easier for Them to Do Their Job

The number one reason people leave jobs is because they’re unhappy with their work environment. Keep your employees happy by getting input on what can be done to improve the work environment. Do you need new computers, or to find time for a weekly update meeting? Working on your business’ culture is one of the best ways to increase long-term retention.

Don’t Underestimate the Value of Time and Money

At the end of the day, there are two currencies that drive life and business — time and money. Satisfaction and a good working environment are important, but ensure that you’re    giving your valued employees an adequate amount of time off for rest and work-life balance. Look at your salaries to make sure they’re industry standard. If you want to reward an employee for excellent performance and can’t do a salary raise, consider a one-time bonus.

Salaries and bigger benefits are helpful for retaining your star employees. But for many small businesses, facilitating better communication, making employees feel valued, and creating opportunities for education and growth are equally important.

Acknowledge Good Performance

Recognition can go a long way towards improving employee loyalty. You don’t have to provide cash awards. In fact, simply acknowledging a team member’s top performance in front of the group can lead to a sense of pride and accomplishment that money could never bring. Create a certificate or prize of some type and present it to the top performer on your team during your staff meeting.

Conduct Performance Evaluations

One frustration many workers have is that they have no idea what their employers expect of them. You can reduce this by first putting a job description in place that you revisit each year. Review any changes with each employee and ask for suggestions on things that need to be included before you finalize it. On a periodic basis, conduct a performance evaluation that lets your employee know how he or she is doing in completing the duties as outlined in the job description. Praise the things each employee is doing well, while also pointing out areas where improvements can be made.

When you work hard to retain your existing employees, everyone benefits. In 2017, find new ways to improve morale and increase worker loyalty. If you succeed, you’ll be able to put all of your time and energy towards growing your business rather than recruiting and training new employees.

Many things in life offer us a “push” and “pull”. Some things push us away from where we are, and other things pull us towards a new place to be. Typically it takes both a push and pull to make an employee change jobs.

To retain employees, your human resources management philosophy should be to eliminate things that push employees out. It should also, with reason, provide a number of things that keep pulling employees into the organization. Both approaches should be successful in retaining good employees as they both counteract the “pull” from outside organizations.

Recognize of course, that some employees will lose interest and need something fresh to keep their interest. If you can’t continually provide challenges, opportunities for advancement and other interesting and rewarding opportunities, then you’ll have some employees leave through no fault of your own.

The important thing is to identify your key employees and make certain they are being treated well. Interact with them on regular basis to make certain that you understand what makes them tick, and be aware of concerns they may have about job satisfaction