NCV 4 New Venture Creation Hands-On Support Slide Show - Module 1

New Venture Creation 4

Module 1: Investigate the possibilities of establishing and

running a SME

Module 1: Investigate the possibilities of establishing and

running a SME• After completing this module, you will be

able to:– identify and research the potential for an SME

as an own business

– explain the financial aspects involved in running an SME

–make and support a decision on whether to establish an SME

1. IDENTIFY AND RESEARCH THE POTENTIAL FOR AN SME AS AN OWN BUSINESSAfter completing this subject outcome, you will be able to:• analyse personal strengths, weaknesses, abilities and passions to

compile a personal profile• match personal traits, abilities and profile to a business opportunity,

type of work, product or service that has potential as SME• identify training required to ensure the success of a SME• decide when and where to access training• research the need for the identified product or service and possible

competition• decide which possible distribution channels to select• explain and demonstrate how to select a suitable location for a

selected SME• investigate municipal by-laws and other constraints on trade for a

selected SME in a specific location• explain the importance of networking for a SME, with examples

1.1 Personal strengths, weaknesses, abilities and passions

• What is knowledge?–What do I need to know?

• What are skills?–What do I need to be able to do?

• What are personal attributes?–What kind of person do I need to be?

Example: Rock star

1.1.1 Knowledge

• What are the areas that you need knowledge?– Knowledge about how to run a business

– Knowledge about the industry you are going to enter

– Knowledge needed to produce the product or service you are going to deliver

Knowledge about a business

Activity 1

• Pretend you are Hector or Mavis and use of Table 1 in Appendix 1.1 to this book to assess your level of knowledge about the things a business owner needs to know about

• Do not panic if you feel you have not done well – the purpose of this course is to provide you with enough knowledge to make a start …!

Knowledge about the industry you are going to enter

• What do you need to know about the industry?– Industry participants

– Distribution patterns

– Competition and buying patterns

–Main competitors

Knowledge needed to produce the product

• Is it essential that the owner needs to have this knowledge? Why?

• What are the advantages of having this knowledge?

1.1.2 Skills

• What skills will you need?– Sales and marketing skills

– Financial know-how

– Self-motivation skills

– Time management skills

– Administration skills

Activity 2• Make use of the table below to asses your

level of skills a business owner needs.

1.1.3 Personal attributes

Activity 3

• Make use of Table 2 in Appendix 1.2 to this book to assess your personal attributes in respect of things a business owner needs to know about

• Again - do not panic if you feel you have not done well!

1.2 Match personal traits, abilities and profile to a business opportunity

• Types of business owner– Business leader

–Manager

– Craftsman

– Licentiate

– Freelancer

– Home business entrepreneur

– Analyst

Business leaders:

Business leaders

• Businesses typical for the Business Leader may be situated locally as well as further afield

• The Business Leader can start a new business or buy an established one. In some cases the Business Leader will start a new business based on his own technology and development.

• Businesses favourable for the Business Leader – Commercial agent– Insurance agent– Participator in MLM business– International trade

Business leaders

• The business leader may often partner:– Factory owners– Insurance agency owners– Hi-tech company founders– Travel agency owners– Show businessmen– Trade company proprietors– Mass media company founders– Shop and restaurant owners– Film directors– Construction company proprietors

Innovative manager

• Innovative Managers: – Maintain the functional stability of the business– Can develop it in the appropriate direction– Can estimate the possible risk of innovations– First and foremost strive to achieve the results he /

she has planned for– Are persistent in making necessary arrangements– Encourage creative thinking in a group– Consider possible complications and alternatives– Have little use for those who need instructions

Innovative manager

• The Innovative Manager can succeed not only in starting a new business but also when he purchases an established business. Often it is to his advantage to acquire a running business. Businesses in which the Innovative Manager succeeds are:– Insurance Agents– Travelling Salesmen– Wholesale Dealers– Restaurant Owners– Small Shops Owners

Innovative manager

• The Innovative Manager may meet with problems because he or she:–May be impatient with those who wish to

postpone making decisions

– Shows annoyance openly and this sometimes hurts the self-respect of associates

–May face difficulties in finding a way out of unusual or risky situations

Craftsmen• Craftsmen

– Possess high technical mastery or specific practical skills– Are specialists in their field– Are industrious and patient – As a rule, have a good understanding of business approaches, are

inventive and display balanced assertiveness• The Craftsman can succeed both in running his business by

himself and when he needs to hire employees or take on a partner

• The Craftsman can succeed in expanding and strengthening his business by entering into a partnership

• The Craftsman is more inclined to start a new business, although in many situations it is to his advantage to acquire a running business

Craftsmen

Craftsmen• If hiring employees or in a partnership with a Business Leader or

Manager, the Craftsman often sets up a business in the following fields: – Garages– Restaurant owner– Repair workshops– Shoemaker’s shops– Hairdressing salons– Laundry– Hothouses and greenhouses– Metal workshops– Shops for furniture manufacture– Construction and repair teams– Bakeries– Jewellery workshops– Electrical equipment– Print shops

Craftsmen

• The Craftsman may meet with problems because he or she:– lacks business skills

– lacks persistence in bringing projects to fruition

– experiences difficulties in finding an optimal way out of knotty business circumstances

Licentiate

• Manages an established business which in many cases requires a license

• Prefer to deal with the specific details• Can correctly assess the practical aspects of their

business• As a rule, are unlikely to general ideas that lie beyond

their practical interest• Are notably reliable, responsible and practical• Communicate easily with others and enjoy interacting

with people• Achieve a higher productivity in their business by

making the best use of the resources at hand

Licentiate

• Businesses in which the licentiate succeeds: – Shoe-making shop

– Taxi

– Petty retail store

– Newspaper stalls

– Automatic laundry, dry cleaning workshop

– Sales of sandwiches, snacks

– Delivery of goods

Licentiate

• A licentiate’s business is local although aimed at a wide range of customers

• When conducting a business in partnership, cooperation with a Craftsman is considered advantageous for a Licentiate. A partnership with a Manager also has a good chance to be successful

• Among the types of business which the Licentiate can conduct on a partnership basis are fast food enterprises and stores

• The Licentiate may meet with problems when they decide to radically expand their business. Expansion requires steady and persistent efforts and they often do not have enough of the dominant qualities of a leader

Freelancer

• A freelancer:– prefers to work independently– customers are often other businesses– does not get involved in business partnerships– does hire employees– usually actively looks for a customer– change customers frequently as circumstances

dictate– manages time and resources in accordance with

whatever work is found

Freelancer

• Freelancers base their business on their own professional knowledge and skills

• Sometimes the Freelancer will hire employees if he has an excess of orders

• In some fields of activity it is advantageous for the Freelancer to have an agent who will promote and advertise the Freelancer's service

• The Freelancer may meet with problems because he or she is working completely on his or her own, which can be daunting when needing to test new ideas

Freelancer

Home business entrepreneur

• The home business entrepreneur:– Is often skilful in interpersonal relations

– Usually does not employ hired staff

– Does not lead in a business or manage employee activity

– Understands and considers the feelings of those with whom the business has relations


• For the HBE the most advantageous form of a business is the home business

• Customers may be individual clients as well as other businesses

• For the HBE self-motivation is essential• Businesses in which the Home Business

Entrepreneur Succeeds • For the HBE a partnership with a

Craftsman is suitable

Analyst

• An analyst:– clearly understands the structure and methods

of operation of a business

– can analyze new ideas and generate new approaches

– thoroughly considers new proposals and solutions

– is accurate and careful in his business undertakings

Analyst• The Analyst should preferably act as a Freelancer when he runs a business on

his own. • Analysts that successfully carry out their business are generally found among:

– Tax Specialists– Accountants– Computer consultants– Translators– Web Programmers

• The Analyst can be successful in partnership with a Business Leader as well as in a team with a Manager

• The Analyst can often be found in the following companies: – Technological– Financial– Holding– Trade

• The Analyst may meet with problems because it is not her or his strong point to run a business in a fast-paced environment

Activity4

• Make use of Table 1:3 in Appendix 1.3 to this book to assess how you think that your personal attributes match up to those of particular types of business owners. Again, do not panic…!

1.3 Identify training requirements of an SME

• Closing the knowledge gap

• Closing the skills gap

• Closing the attributes gap

Activity 5• Go back to Self Activities 1, 2, 3 & 4 but this time armed

with four different coloured highlighters or pens• Mark all those answers where you think there is a

competence gap with the different colours, one colour for those having a “Knowledge gap”, another colour for “skills gaps” that you think can be closed by attending a course, another colour for “skills gaps’ where only experience will help and the last for “Personal Attribute gaps”

• Take this list to the presenter of this course and ask him or her to point you in the direction where you can get help in closing the gaps

Decide when and where to access training

• When to access training–When you have a skills gap

– Decide which gap is most critical first

• Where to access training– Schools, colleges etc...

– Self taught

1.5 Research the need for the identified product or service and possible

competition

Competition

Dem

and

1.5.1 Researching the need

• How do you determine demand?– Surveys

– Product testing

– Offering a pre-opening

1.5.2 Possible competition• Cooperating with competition

– Offer to be an affiliate of theirs. This way you can ensure that they will send business your way if they cannot meet the present needs of a customer that you can supply

– Do not place your business directly across from any major competition. Doing this will only give you a 50% chance of success; lower if they are already long since established. Satisfied customers rarely wander into the new competitor’s store

– Try to market your prices at a better bargain than your competitors. If you can’t, place your inventory in a more satisfactory arrangement. Sometimes it is all about the appearance of things

– Assess your competitor’s success rate. Learn what they are doing that is so great and offer something better or at a more reasonable price

– Keep your eye on their marketing and promotional techniques because it will help you to keep up with them better

– Compete with different products. For example, if your competition is selling junk jewellery, why not go for other personal accessories such as funky bags and wallets.

Activity 6

• Pick at random any product or service that is being offered at your local mall. Make a list of how they are going about their advertising? Walk around and find out how many other businesses are offering the same?

• Try to find out which business is selling the most and discuss whether this is because they have a better product or service or whether this is because of better marketing.

1.6 Decide on distribution channels

1.6.1 Understanding distribution channels

• What are distribution channels?– Distribution channels move products and

services from businesses to consumers and to other businesses

• Distribution channels are just one part of the distribution network, which consists of two parts:– a number of locations that store, send, or

receive materials – a number of routes that connect these locations

1.6.1 Understanding distribution channels

• Channel structures– Two channel: Manufacturer – consumer– Three channel: Manufacturer – retailer –

consumer– Four channel: Manufacturer – wholesaler –

retailer – consumer– Five channel: Manufacturer – agent -

wholesaler – retailer – consumer– Five channel: Manufacturer – wholesaler –

jobber – retailer - consumer

1.6.2 Selecting channels for small businesses

• Direct sales • Original equipment manufacturer (OEM)

sales • Manufacturer's representatives • Wholesalers • Brokers • Retailers • Direct mail

Activity 7

• Identify a factory in your area and ask your lecturer to arrange to meet the sales manager. When you meet, ask how the firm distributes its products and why?

1.7 Select a suitable location for a selected SME

• Are any competitors in the area? • Are customer restroom facilities available? • Are qualified employees available in the area? • Are the rates for transporting goods similar to or lower

than in other areas? • Are the supplies the business needs available in the

area? • Are the wage scales in this area similar to or lower than

other areas? • Are you thinking of buying or renting? • Can suppliers conveniently make deliveries to this area?

Are there facilities nearby for transporting goods?


• Can the area serve as a source of supply of employees? Will the ability to attract and keep good employees be affected by your location?

• Do the people you want for customers live nearby? • Do the property rates on this facility compare favourably with

other areas? • Do you need office space, retail or warehouse? • Do you plan to expand quickly and will your premises be able to

cope with the growth? • Do you plan to provide pick up or delivery? • Do you require special lighting, heating or cooling, or other

installations? • Does it work for your customers. No customers = no business


• Does the cost of this facility in this location compare favourably with other areas?

• How many people are you thinking of employing?• How much retail, office, storage or workroom space do

you need? • How will your customers know you are there?• How will your employees get to and from work? Is the

area served by public transportation? • Is exterior lighting in the area adequate to attract

evening shoppers and make them feel safe? • Is parking space available and adequate? • Is the area suitable for expansion in the future?


• Is the area zoned for this type of business? • Is the location convenient to where you live? • Is the population density of the area sufficient?• Is the site close to the markets served by the

business? • Is the location easily accessible? • Is the trade area heavily dependent on seasonal

business? • Is the traffic in the area compatible with this

type of business?


• Is there adequate fire and police protection? • Is this a safe area for employees, suppliers, and

clients? • On what side of the street should you be?• What municipal services will your business need?• Will it suit your type of business?• Where is the nearest bank?• Will crime insurance be prohibitively expensive? • Will customers (and employees ) need parking or

loading areas?


• Will potential investors or buyers see location as an important factor?

• Will sanitation or utility supply be a problem? • Will you need a telephone line or will a cell phone

do?• Will you rely on passing trade or will people know

where to contact you? • Will your advertising expenses be much higher if

you choose a relatively remote location? • Will your business operate during normal working

hours of – possibly – 24/7?

1.8 Investigate municipal by-laws and other constraints

• What is Zoning?– Residential

– Commercial – retail

– Commercial – office

– Industrial (Light, medium and heavy)

• What are by-laws?– Laws that municipalities put in place to keep

control of activities in an area

1.9 The importance of networking for a SME

• What is networking?– Keeping in touch with people in your

community and field of business

• Why do business owners need to network?

1.9.3 How to find your network

• Examples of opportunities for networking are: – Joining the major organisations in your field and

attending as many of their functions as possible– Joining Professional associations related to your work– Attending and taking part in trade shows and Expo’s– Join your local Chamber of Business and Industry

• Social networking– Social and community based clubs– Churches– Sports and cultural clubs– School committees

1.9.4 Getting the most out of networking

• Be cautious about risking your reputation by recommending somebody for a job because of a networking connection

• Learn to recognise ‘takers’ who are only interested in furthering their own aims and will use anybody they can along the way

• There is a fine line between sharing insights with your networking colleagues and breaching confidentiality (business or private). Guard against being too open with people you do not know well enough to trust

• Women’s networks sometimes appear threatening to male colleagues and customers. If you are a woman business owner, you may find it counterproductive to be associated with organisations that appear too defensive on gender issues or actively exclude men

2. IDENTIFY THE RISKS ASSOCIATE WITH AN SME

At the end of this learning outcome you will be able to: • describe and provide examples of risks in a specific

SME

• determine the possible measures to reduce mentioned risks

• explain the needs for marketing, advertising and insurance for a specific SME

2.1 Describe and provide examples of risk in a SME

• Financial risks

• Risk associated with being an employer

• Growth risks for three different scenarios

• Risks associated with stock and other business assets

• Risks associated with marketing and advertisements

2.1.1 Financial risks

• What are the risks of borrowing from someone?– The terms on which you repay the loan–What will happen if you default

• What are the risks associated with lending to someone?

• Other factors– Price movements– Change in foreign currency values

2.1.2 Risks associated with being an employer

• Procedural risks

• Health and safety risks

• Operational risks

Procedural risks

• Employment status

• Skills

• Complaints and dispute resolution

• Harassment and bullying

• Wages and conditions

• Ending employment

Health and safety risks

• Occupational Health and Safety Risk– The Occupational Health and Safety Act

– Compensation for Injuries on Duty Act

– Unemployment insurance

Operational risks

• Taxation risks

• Insurance

• Skills development training

• Industrial action

• Leave and sickness

• Resignations

2.1.2 Growth risks for three different scenarios

• Maintaining perspective

• Balancing today’s and tomorrow’s needsStarting up Maturity Decline

Time

Scenario 1: Starting up stage

• What are the risks to manage?– Lack of funds to develop ideas

– Incomplete financial feasibility studies

– Inadequate or poor business plan to give the business direction

– Lack of financial skills to raise capital

– Lack of capital to start the business or purchase any equipment needed

Scenario 2: Maturity

• What are the risks to manage?– Lack of marketing skills– Lack of technical development skills (in respect

of the new product)– Lack of commercial skills (in respect of the new

product)– Lack of capital to advance the product to the

next level and introduce it into the market – Lack of skills to gain protection for your

ideas(i.e. patents, trademarks)

Scenario 3: An existing business that is already well established and wants to

take it’s growth to the next level• What are the risks to manage?– Capital to fund the market and financial work – New technologies for improved production

efficiencies – Commercial and technical market research

project – Produce financial analyses to identify improved

profitability actions – Negotiate contracts with both suppliers and

customers

2.1.4 Risks associated with stock and other business assets

• Financial risks– Financial risks of having too much stock– Financial risks of having too little stock

• Physical risks– Theft– Fire– Misuse– Damp– Floods– Riots– Wind– Earthquake

2.1.6 Marketing risks

• What is marketing?• Price risk• Market availability risk• To be systematic about analyzing marketing risks, you

should: – Identify the nature and importance of various sources in the

market that might cause you to earn lower profits– Evaluate the impacts of different sources of marketing risks

on the efficiency and profitability of your business– Focus on factors your can control and select risk

management strategies to minimize those marketing risks– Evaluate various alternatives for managing marketing risks,

potential costs and returns and their impacts on risk reduction and the overall business

2.1.7 Advertising risks

• Risk of misleading the public

• Risk of not appealing to target market

Activity 9

• From the list of guidelines on page 37, identify five, which in your opinion are most important

• Compare your list with that of your group and try to reach consensus on a group list

2.2 Determine the possible measures to reduce risk

• Insurance– Liability insurance

– Hazard insurance on business property

– Business continuation insurance

– Insurance for employees

– Financial insurance


• Risks associated with borrowing from someone: – Be careful who you borrow from– Make sure that you understand the terms of repayment– Be certain of the interest rate and whether it is fixed or

variable– Make sure that you understand what recourse the

lender has if you default on the loan– When buying on credit, make sure you check

everything as though you were dealing with a bank– Make sure everything is in writing and that you fully

understand each and every word of the loan agreement


• Risks associated with lending to someone– Do a credit check with an authorised financial

service provider before going into an agreement– Set up strict rules and procedures in your accounts

department to alert you well ahead of time that a debtor looks as if it going to become a problem

– Make certain your debtors know that they will be charged interest if the make late payments

– Make sure everything is in writing and that you both fully understand each and every word of the credit agreement


• Other factors not directly related to lending or borrowing:– Price movements due to the international

market

– Take out insurance to protect you

– Change in foreign currency values

– Take out insurance to protect you

2.2.2 Being an employer• Procedural risks• Health and safety risks

– Make sure you understand the Occupational Health and Safety Act, 1993 (OHASA) and follow its instructions

– Make sure you understand the Compensation for Injuries On Duty Act (COID) and follow its instructions

– Make sure your Workmen’s Compensation fund contributions are up to date.– Unemployment insurance Fund (UIF contributions are up to date.

• Operational risks– Make sure your employees PAYE is up to date at all times– Take out enough insurance of the right type, including workers compensation and public

liability– Ensure that the knowledge and skills of your staff keep pace with those changes– Take out industrial action insurance if you are in that type of industry– Put in place proper procedures for applying for leave– Keep up a good relationship with employees so that you can be alerted to possible

resignations that you could have done something about if you were aware of your employees’ ambitions in life


• Maintaining perspective–Maintain contact with your industry so that you

don’t become complacent

– Network!


• Balancing today's and tomorrow's needs– Keep revisiting your business model, experimenting extensively to find a successful new

model and get to the second stage of growth – Develop a flexible and responsive company structure adaptable to changing internal and

external conditions – Develop an effective and flexible production systems responsive to change – Build strategic alliances and business partnerships– Master the balanced business systems approach – Develop sustainable growth strategies – Reinvent your competitive and differentiation strategy – Master company integration and build a new organization that works – Maintain a purposeful and organized search for new opportunities – Inject the relentless growth attitude into your company – Build a coaching organization – Keep flexible – spot what goes wrong and turn error to advantage – Identify people (values, skills, expertise) and resources needed – Develop a business plan for your company growth stage – Lead the team, create roadmaps: market opportunities; positioning; sales, distribution,

operations; continuous innovation; people – Develop innovative value chain management system – Develop effective reward system – people are reinventing the wheel

2.2.4 Risks associated with stock and other business assets

• Financial risk– Continually be looking at ways of keeping stock levels as low

as possible– Continually evaluate all your business assets to see if your

continuing to keep them is truly adding value to your business

– Plan ahead for buying stock and/or physical assets• Physical risks

– Install proper security and stock control measures – Insurance– Inspect assets for signs of misuse– Check buildings for faults like roofs leaking– Don’t keep stock too long if it is perishable in any way

2.2.5 Risks associated with marketing and advertisements

• Marketing risks – Keep up to date with trends in your industry– Insure against exchange rate and commodity price

changes– Keep your marketing skills up to date

• Advertising risks– Do not take chances– Visit the Advertising Standards Authority of South

Africa website (www.asasa.org.za/)and take its advice!

2.3 Explain the needs for marketing, advertising and insurance

2.3.1 Marketing

• What is marketing?– It is the set of activities used to:• Get your potential customer’s attention

• Motivate them to buy

• Get them to buy

• Get them to buy again

2.3.1 Marketing

• The 5 Ps of marketing– Product

– Positioning

– Place

– Price

– Promotion

2.3.2 Advertising

• Advertising is part of the promotional strategy adopted by a business in order to encourage customers to buy it products or services

2.3.3 Insurance

• Two main factors to consider:–What are the consequences of not being insured

(severity)

–What are the chances of it happening? (probability)

2.3.4 When should insure

2.3.5 Business insurance

• Building and contents

• Public liability

• Product liability

• Equipment

• Legal expenses

• Industrial special risk

• Goods being transported

2.3.6 Reducing your risks and premiums

– Adding locks, video surveillance, alarms and security guards

– Implementing and observing strict occupational health and safety standards

– Preparing business contingency plans and providing copies to the insurance company

– Having quality management systems to reduce the risks in your business

– Agreeing to pay a larger excess for each claim – Not claiming for small incidents

2.3.7 Home business insurance

• If you are going to work from home then it is important to note that a home insurance policy may not cover you running a business from home. For instance, it may well exclude:– Public liability for customers visiting your

home – Replacement of business equipment – Replacement of stock damaged or lost – Damage or loss of goods being transported

2.3.8 Liability and professional indemnity cover• Public liability insurance

• Product liability insurance

• Professional indemnity insurance

• Director’s and officer’s insurance

2.3.11 Getting insurance

• Directly from an insurance company

• Using a broker

Activity 8

• Think of three items that a business such as a manufacturer of clothing would need to use1. Think of three things that could happen

2. Do you think the business should take out insurance for them?

3. What will the consequences be if they don’t insure and the event actually happens?

4. What should they do next time?

3. EXPLAIN THE FINANCIAL ASPECTS INVOLVED IN RUNNING AN SMEAt the end of this subject outcome you will be able to: • explain the concepts of start-up and working capital, with

reference to a specific SME• explain the relationship between cash flow and profit for

three case studies• explain financial controls required to ensure that a

business is viable, with examples• name the types of contracts which a SME can enter into• interpret and explain contract wording in plain language• explain the tax responsibilities of a SME• understand the Small Retailers VAT Package• explain when a business is liable for each form of tax

3.1 Explain the concepts of start-up and working capital

3.1.1 Start up capital

• What is start-up capital?– The amount of money you need to start the

business

3.1.2 Working capital

• Working capital is both a measure of both a company’s efficiency and its short-term financial health

Working capital = Current Assets – Current Liabilities

Short-term liabilities• Most businesses buy supplies on credit with an agreement to pay

in a month or so, so your CREDITORS are a liability• Your credit card agreement will have a condition in it that

allows the bank to demand you “pay it now!”• If you take a loan with a bank that has a condition enabling the

bank to demand it also be “paid back now” this is a current liability

• Your overdraft at the bank is effectively a short term loan…• Salaries are normally paid at the end of a month so the month’s

salary bill is a current liability• Water, electricity and telephone bills that need to be paid at the

end of the month are current liabilities• Income tax that you will have to pay at the end of the month

Current assets

• Stock

• Debtors

• Cash

3.3 Financial controls required to ensure that a business is viable

Established standards

methods for measuring

performance

Established standards

methods for measuring

performance

Measure performance

Measure performance

Does performance

match standards?

Does performance

match standards?

Take corrective

action

Take corrective

action

No action needed

No action needed

3.3.1 Cash flow figures as a financial control measure

• At the start of the month compare the cash in the bank with the expenditure you predict for the coming month and if it is less than what it looks like you are going to need, go to the bank and arrange for a loan

3.3.2 Working capital as a control measure

3.4 Types of contracts which an SME can enter into

• Fixed price contracts• Material supply contracts• Labour only contracts• Independent contractor agreements• Management contracts• Honorarium contracts• Purchase orders• Personal contracts• Sales contracts• Option agreements• Leases

3.5 Contract wording

• An offer is an unequivocal acceptance of the offer, which is communicated to the person making the offer

• Consideration

• Intention to create legal relations

• Capacity in each party to be legally bound

Contracts that need to be made in writing

• Formal contracts made by deed

• Hire purchase contracts

• Contracts with financial services providers

• Sale or lease of fixed property

• For the sale of an interest in land

Legal terms

• Offer • Unconditional acceptance• Acceptance

– Receipt rule– Postal rule

• Communication• Consideration• Intention to create legal relations• Capacity

– Minors– Unrehabilitated bankrupts– Mental incapacity

Activity 9

Hector offers uKhokhanamanje Furnishers R 1 000 to buy a desk. The owner lady says, “that is the right price provided you pay cash now…”Hector comes back an hour later and the price has gone up to R 1 100. Hector is somewhat upset “I thought we had a deal …?”•Was this an unconditional acceptance ?•What could Hector have rather said to clinch the deal there and then?

Activity 10

Back at uKhokhanamanje Furnishers, Mavis arrives to take up the negotiations. She is a lot tougher than Hector and the owner lady says, “OK, OK you can have for R 950”Mavis hands her R 950 cash and demands the desk. It is 5pm and the shop needs to close. Mavis comes back next day and the owner tries to put the price back up to R 1000. •Was Mavis’s R 950 payment an inferred acceptance •When did the deal close ?

Contract categories• Unilateral vs bilateral• Express vs implied• Valid• Unenforceable• Voidable contracts• Duress• Illegality• Mistake

– Where a responsible person could not infer the intention of the parties– Where one party knew of the other’s mistake– Where one party negligently induced the other’s mistake

• Void contracts• Promissory Estoppel

3.6 Explain the tax responsibilities of a SME

• Responsibilities and duties– Register as a taxpayer– Provide correct and accurate information to SARS– File (submit) returns and payments on time– Pay your employees’ tax to SARS– Issue IRP5 certificates to Employees for the amounts of employees tax

deducted each year.– Include VAT in your prices, advertisements and quotes– Keep accurate accounting records– Produce relevant documents when required by SARS– Notify SARS about any changes in your business, namely its address,

trading name, partners / members / shareholders, bank details and tax periods within 60 days after the change

– Issue tax invoices, debit and credit notes– Notify SARS of any changes of the details of the representative person– PAY YOUR TAXES WHEN DUE !

3.6.2 Types of tax• Income tax

– SITE, PAYE• Company tax• Capital Gains Tax• Value-Added Tax

– Compulsory registration– Voluntary registration– Registration procedure

• Stamp duties• Transfer duties• Unemployment insurance• Workmen’s Compensation Fund• Levy for the development of skills• Customs, Excise

Provisional tax

• Who is classified as a Provisional Tax Player– Any individual who earns business income or farming

income– Any director of a private company if that director is a

resident in South Africa– Any member of a close corporation if that member is a

resident in South Africa– Any company– Any person who is notified by the Commissioner that

he/she is a provisional taxpayer – Any individual who derives taxable interest, dividends

and rental income in excess of a specified total (R10 000 for the 2006 year of assessment)

3.7 Small Retailers Vat Package

• To make it simpler for small retailers who are registered for VAT SARS recognises that small retailers find it difficult and time consuming to keep the detailed sales records required by the VAT Act. The Small Retailers VAT Package is designed to cut through these problems and make accounting for VAT simpler for small retailers.

• To make it simpler for small retailers who are not registered for VAT to satisfy the law. All retailers who have a turnover of R300 000 or more per year must register for VAT. There are many small retailers who should register for VAT but do not. However, SARS recognises that this is often due to a lack of knowledge or because small retailers feel that the process is too complicated and time consuming. While this is not a valid excuse for not registering, SARS has tried to resolve the problem by introducing the Small Retailers VAT Package. Unregistered retailers are thus encouraged to register for VAT and apply for the Small Retailers VAT Package.

• To reduce VAT fraud SARS is aware that some retailers abuse VAT through dishonest reporting of sales information. There are also retailers who knowingly avoid registering for VAT when they are required to do so. These practices are regarded as serious criminal acts and SARS will increase its audit activity among retailers to identify such retailers.

3.8 Explain when a business is liable for each form of tax

• Employees tax–Must be paid to SARS on a monthly basis

– You must declare what salaries and wages you have paid in a particular month, what you have deducted and pay this amount to SARS within seven days of the month following the month for which the tax was deducted


• You have to calculate this yourself and pay to SARS as follows:– The first provisional tax payment must be made six

months after the commencement of the tax year– The second payment not later than the last day of the

tax year– The third or topping up payment is voluntary and may

be made within six months after the end of the tax year if your accounts close on a date other than the last day of February

– If your tax year ends on the last day of February, the third payment must be made within seven months after the end of the tax year

VAT• You have to calculate this yourself. The calculation is essentially very

simple and entails the following:– Add up all the VAT you have charged customers for the month– Add up all the VAT you have paid during the month– Subtract the one from the other. – The difference is either payable to, or refundable by SARS

• Generally speaking, there are five different types of VAT tax periods– Monthly: known as Category C and applies to vendors whose turnover is

more than R30 million a year.– Two monthly: known as Category A or B which is applicable to vendors

whose turnover is less than R30 million a year. The applicable category is determined by the Commissioner.

– Four monthly: known as Category F and applies to vendors whose turnover is less than R1 million a year (R1.2 million for tax periods commencing on or after 1 July 2006).

– Six monthly: known as Category D and applies to small farmers with a turnover of less than R1 million a year (R1.2 million for tax periods commencing on or after 1 July 2006).


• Skills Development Levy– You have to calculate this yourself. The amount

of Skills Development Levy (SDL) must be entered on to your monthly PAYE form that you send to SARS each month and payment is made together with your monthly PAYE bill


• UIF – You have to calculate this yourself and pay the

Department of Labour no later than 7 days after the end of the month for which it was calculated


• Capital Gains Tax CGT– CGT is payable together with normal income

tax in the tax period it occurs in


• Stamp duties– These are payable as they arise

• Transfer duties – These are payable as they arise


• Workmen’s compensation– You have submit an estimation of your

remuneration bill for the period March to February on a submit a form in March each year to the Commissioner

– The estimation must be based on each employees remuneration for the year subject to a certain maximum salary per person

– On receipt of your form the Commissioner will assess you taking into account the industry you operate in as well as your remuneration bill for the year and calculate what you are liable for


• Customs, Excise– These are payable as soon as something enters

or leaves the country. The Department of Customs and Excise will not release incoming goods if the customs are not paid

4. MAKE AND SUPPORT A DECISION ON WHETHER TO ESTABLISH AN SMEAt the end of this subject outcome you will be able to: • Explain the concept of an entrepreneur, with

reference to risk

• Survey three selected SME’s to establish the service level required for success, quality of produce and potential productivity required for success

• Decide whether to establish or not establish a SME, supported by findings of an investigation

4.1 Explain the concept of an entrepreneur, with reference to risk

• This learning outcome covers the following topics:– What an entrepreneur is– What the relationship is between being an

entrepreneur and being willing to assume risks– What the characteristics of a successful

entrepreneur are– Whether you need to be a natural born

entrepreneur to succeed in a business venture?– Can entrepreneurship be learned?

4.1.1 What is an entrepreneur• Some definitions are:

– A person who operates a new enterprise or venture and assumes some accountability for the inherent risks

– A person who takes the risks involved to undertake a business venture– An individual who accepts financial risks and undertakes new financial

ventures – A person starting a new project or trying a new opportunity– One who creates a product on his own account– An individual who starts his/her own business – One who organizes, manages, and assumes the risks of a business or

enterprise– A person who has decided to take control of his future and become self-

employed whether by creating his own unique business or working as a member of a team

– Someone who takes responsibility for a business, manages it and builds it– A person who is committed to identifying new opportunities, and

converting them into value

4.1.1 What is an entrepreneur

• Some misconceptions are:– Entrepreneurs are people who are prepared to

take chances

– All people running businesses are entrepreneurs

– All entrepreneurs are in business for themselves

– All entrepreneurs start new businesses

– All entrepreneurs create new products

4.1.2 The relationship between being an entrepreneur and being willing to

assume risks• Risk is the probability that a hazard will

turn into disaster

• Entrepreneurs will take risks if it is reasonable

4.1.3 The characteristics of a successful entrepreneur

• Entrepreneurs have:– A "head for business” – A generally risk-taking personality– Considerable persistence– Decided to take control of their future– High energy levels, feel self-confident, set long-term

goals, and view money and financial security as a measure of accomplishment and piece of mind

– Spontaneous creativity– The ability and willingness to make decisions in the

absence of solid data


• Entrepreneurs are:– Able to make decisions fairly quickly– Always thinking of new ideas and new ways to make money or increase

their business– Careful about money– Competitive by nature– Driven by a need to create something new or build something tangible– Generally highly independent – Not afraid to put ideas to use– Professionals. When they are working, they don't let outside influences

distract them– Risk-takers who trust their hunches and act on them– Usually honourable people who do business based on a handshake or a

promise and who tend to form strong associations with others who share this work ethic

– Usually loners rather than joiners


• Entrepreneurs– Always know how much money they have– Believe that success or failure lies within their personal control or influence– Compete with themselves– Do not see non-successes as failures but as learning experiences– Don't retire. They may sell or change their business, thinking they will retire, but they

always jump back in with a new project or get a new idea that they just can't ignore– Know the value and cost of things so they can recognize a real bargain– Love their journey, not their destination– May tend to overrate their own ability– Never give up and never quit striving for success– Persist in problem solving, take risks, learn from failures (their own and from others),

take the initiative, accept personal responsibility and use all available resources to achieve their success

– Set aside time for leisure activities and family. Their principal form of relaxation is their work, but they do realize the importance of downtime and spend time with their family

– Sleep and eat enough to maintain their energy levels but they don't usually linger over non-productive tasks

– Tend to be more overly optimistic

4.1.4 Do you need to be a natural-born entrepreneur to succeed in a business

venture?• Enterprising attributes include:– Initiative– Flexibility– Leadership– Hard work– Problem-solving– Persuasive powers– Independence– Creativity– Calculated risk-taking– Need for achievement– Belief in control of own destiny

4.1.4 Do you need to be a natural-born entrepreneur to succeed in a business

venture?• There are many situations in which people who are not

strongly entrepreneurial may decide to opt for starting a business or for becoming self-employed, for instance:– A mature person who wants to capitalise on their

accumulated skills and experience– A hobby-driven person who want to do something that will

to enable them to keep doing the thing they enjoy most – A creative person who believes it’s the only feasible way to

make a living – A person who wishes to stay in a specific geographic area

and can’t find other employment – A person who wants flexibility of working hours – A person who is responding to expectations of their family

4.1.5 Can entrepreneurship be learned?

• Key component is to have strong enterprising attributes

• Family, social and economic circumstances

• Saleable skills

Activity 12

• Identify three businesses that you know about and ask the owners to give you some help. Find out from them:– What are the minimum quality factors are essential

to their staying in business? – What would be the quality factors they could

improve on to achieve greater success?– What amount of business they need to do to keep

afloat?

Activity 13

• Pick an area in you town where no-one has yet set up a business such as any one of the tree you examined in Group Activity 12

• Investigate and report on whether you think opening a similar business in the new locality would be sustainable.

NCV 4 New Venture Creation Hands-On Support Slide Show - Module 1

Education

Transcript of NCV 4 New Venture Creation Hands-On Support Slide Show - Module 1