Professional Documents
Culture Documents
Starting Business: Following Themes Are Discussed in This Chapter
Starting Business: Following Themes Are Discussed in This Chapter
Starting Business: Following Themes Are Discussed in This Chapter
Starting Business
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Jayantha :- Let us start from the beginning. I will also help you. If any work is
done with a plan that will not become a failure.There are institutions
to obtain advice. First let's think about what do we want to do?
and How do we do it? There after, let us start our business with a
proper plan.We can reuse the old builidings and equipment, can't
we? If we submit a plan properly we will be able to get the assistance
from a bank.Then money will not become a problem to carry out the
work.If so, Let us make bread from country rice.
The above dialogue implies that a business should be started systematically and
methodically. Let us examine further, the factors to be considered in starting a
business.
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Introduction
Man has to consume various types of products to maintain his day-to-day life. He
is not able to produce all these products. Therefore, he has to obtain things which
are required to satisfy his wants from the market. At present producers supply
their products to the market accordingly. For that, a person or group of people
gather and establish various types of business organizations like sole traderships,
partnerships, incorporated companies and co-operative societies.
It can be seen that some businesses which were started by various types of business
organizations with high expectations had been bankrupted. But many businesses
have been existing very successfully in the business world for a long period. For
that, much consideration should be paid to business plan when starting and carrying
forward a business.
_ Legal documents
_ The cost
_ The market
_ The profit
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are given this ability because they have been granted the power of deputy registrar.
Charges for registration are decided according to the assigned power of the
provincial councils.
The application for registration should be submitted within 14 days of starting of
the business.
Incorporated companies
Co-operative Societies
Societies
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Incorporated companies
Wherever a company is started, this type of business organization should be
registered at the Registrars Office of companies. The following documents should
be submitted along with the application which is specifically introduced by the
company registrar. This application must be signed by all the intial shareholders.
Co-operative societies
The registration of these societies is done by the commissioner of the co-operative
development in the respective provincial council. The following documents should
be submitted for the registration.
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The application
Two copies of the minutes of the meeting where the Proposal for
registration had been approved
The map which shows the place where the society is located
Societal Organisations
There are organizations which exist for the welfare of their members. The registration
of these societies is done according to the nature of their activities. Examples are
given below.
Sports societies
The registration must be done at the divisional secretariat. Properly completed
application which is obtained from the sports officer in that office, must be submitted.
Welfare societies
The registration must be done at the divisional secretariat. Properly completed
application which was obtained from the social services officer in that office must
be submitted.
Registration certificate can be obtained by submitting relevant legal documents
which were introduced according to various types of business organizations, to
the respective authorized officer.
Special permits must be obtained to start some special businesses. These permits
must be obtained to carry out business activities irrespective of the type of business
organization. The officer who issues the permit will vary according to the types of
businesses.
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Figure 2.2 shows some institutions from where these permits must be obtained for
such businesses.
Business
Pharmaceutical shops
Bakeries
Institution
Ministry of Health
Local government institutions
Factories
Press
Commercial Banks
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It is obvious that these benefits encourage the businesses to carry out their activities
successfully. Therefore, they tempt to register their businesses although it is not
compulsory.
Activity 01
Pay your attention to the following matters.
i. Daya Lokuge is going to start a pharmaceutical Shop as Daya Pharmacy
ii. Priyantha Ramanayaka and Sanjeewa Ramanayaka are going to start a
vegetable wholesale business as Ramanayaka Brothers
iii. Indika Muthukumarana with some of his friends is going to start a factory for
packaging spices.
List out the procedure to be followed when starting these businesses according to
the following way.
- Obtaining permits
- Registration
For free distribution
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As a student, you have to site for the Ordinary Level examination next
year. Your expectation is to provide answers successfully, for all the subjects. You
know that various resources are required for your educational activities. You must
know that sufficient time must be allocated for that. But this period must be used
not only to improve the knowledge but also to obtain the ability to work as a
group to become a good citizen. Forecasting your future time which has to be
spent and acting according to that will lead you towards success. It will not be a
difficult task to become a person of good personality. Planning will be useful for
your life.
'Planning' can be identified as an important task in the process of starting
a business. A plan is necessary for a business to start in an organised way. It can
be seen that many businesses have become unsuccessful within a short period of
time after starting. The main reason for this is that, they do not carry them out with
a proper plan. It can be seen that some businesses are carried out successfully
according to business plans. But some businesses do not show any familiarity with
business plans. Even though much attempt is taken for business activities, a
successful business cannot be expected with a poor plan.
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Therefore, you must understand that any business must be done according to a
business plan. You can clearly understand that the business can be carried out
towards the success in this way.
Before making a business plan, an appropriate business opportunity must be
identified. The attention should be paid to the following matters, when preparing a
business plan with reference to the identified business opportunity.
The market requirements
Operational activities
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The demand
The competition
Production methods
Storage
Time period
Attention should be paid to the time period the goods and services are to be
provided to the market
Example :-
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Water supply
Communication facilities
Transport facilities
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The power
Prices
If they are to be imported what are the import taxes and reliefs?
Maintenance of machinery
to the nature of the business idea and the size of the business.
Management
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Managerial employees
When comparing with other resources which belong to a business, the human
resource is very important. There are some reasons for that.
It is a live resource
It can be developed
It has creativity
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Types of employees
Permanent or casual?
Future vacancies
The resources which are required for the business can be identified and
the required cost can be estimated
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Activity 02
There are suitable physical resources for the businesses in the area you live. Also
there are human resources with various capabilities. If you have selected a suitable
business opportunity by considering these factors, a financial institute has declared
that they would provide the financial support.
Using the following information, get ready to prepare a business plan with your
friend.
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The W5 frame can be used in collecting information about the customers behaviour
in a market.
Who
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Expected cost
Expected profit
Also the expected earnings for a period of time can be presented as follows.
Business
Trade
Type
mobile phones
Quantity
Unit price
Value , Rs.
100
8000
800 000
80
800
64 000
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July
Aug
Sep
Oct
Nov
Dec
Mar
Apr
May
June
Cement bricks
Feb
Jan
Type of good
Total
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Sales income
Rs.
750000
Complete the monthly plan for the year by using imaginary numbers.
Example :- For the annual plan
A furniture manufacturer is going to make almirah with a new pattern. A specimen
for an annual plan is given below.
product
1st Year
3 rd Year
2 nd Year
Almairah
Number of units
15
65,000
975,000
Complete the annual plan for next years using imaginary numbers.
Expected expenses
When carrying out a business, various expenses have to be borne. Several expenses
are given below.
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Advertising
Wages for employees
Building rents
Expenditure
Jan
Goods purchased
Carriage inwards expenses
Feb
March
60000
15000 75000
Other expenses
Wages of employees
Transport
Sales expenses
Others
Expected Total Expenses
8000
2000
1000
9000
20000
95000
Expected profit
Difference between the expected sales/ income and expected expenditure is
considered as expected profit.
Expected profit
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Activity 03
1. Select a suitable product and prepare a report of forecast expenditure of
sales for three months.
2. Suppose, your group is going to start a business for selling readymade
garments.Prepare an income statement related to the business for next three
years.
Raw materials
Labour
Other expenses
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Production cost
A production firm produces goods by using production resources. To obtain these
resources expenses have to be borne. The value of economic resources which are
used for producing goods or service is called as the cost.
Knowing about the production cost is very important for a production firm. Through
this, it is easy to,
Know the total production cost
Determine the cost per unit
Determine the profit margin
Determine the sales price per unit
Production cost can be divided into two groups as direct cost and indirect cost
according to its nature.Indirect cost is also called as the production overhead
cost.
Figure 2.3 shows the basic components of the cost
Cost
Indirect cost
Direct cost
direct
materials
direct
labour
indirect
materials
other
direct cost
indirect
labour
other
indirect
cost
Figure 2.3
Direct cost
The cost which is directly related to produce goods is called the direct cost. Direct
cost can be classified according to its basic components.
Direct material cost
Direct labour cost
Other direct costs
For free distribution
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Profit margin
The value, which is added to the cost by considering the existence of the business
and attracting more buyers when supplying products to the market, can be
identified as the profit margin.
If profit margin increases, the price of the product will go up. Then the
number of buyers to the business will reduce.
If profit margin decreases, the price of the product will not go up
considerably. Then the number of buyers to the business will increase.
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When pricing a product, producer decides the price by adding a specific profit
margin to the basic cost. This is called as determining the price based on the cost.
Even though the unit cost is important, there are more other factors to be
considered when deciding the price of a product.
The demand for the product
(goods / services)
The competition which the firm is facing
Likes/ dislikes related to the product
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The year................
Rs.
Rs.
45000
10000
4000
59000
3000
2000
16000
21000
80000
If it is sold by keeping 10% profit margin on the cost, the selling price per unit can
be calculated as follows.
Expected number of production units
Cost per unit
= 200
= 80,000 = Rs.400
200
= 400 x 10 = 40
100
= 400 + 40
= Rs.440
Activity 04
Buddhipriya has been producing Vesak lanterns and supplying to the market
during Vesak season for a number of years. Even though he had produced 1000
vesak lanterns in the last year, he was unable to meet the demand at the market.
Therefore, he has decided to produce 500 more vesak lanterns for this year. Pay
your attention on the following factors.
A part of the brothers house is used and a reasonable rent is paid to him
Iron spikes, Bamboo strips and straws are used as main raw materials
Electrical machines are used
Three friends support to the production activities
A reasonable wage is paid to them
There is a helper to carry lanterns here and there and for the security during
the night
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Activity 05
Products are supplied to the market based on other festivals too. Having selected
an appropriate production which can be supplied to the market, make a production
cost plan and display it in the classroom.
Financial plan
Even though you are a student, you have to spend money for some occasions.
Example :-
There are sources of getting money for this. Sometimes you are given money daily,
weekly or monthly by your parents. If you spend the given money economically,
you will be able to save money. By allocating money for the most necessary things,
you will be able to have maximum satisfaction.
These advantages can be obtained by planning about spending and receiving money
based on the past experiences. If so, this is also important for a business. Financial
decisions are the most important factors for the success of a business.
It can be seen that there are successful businesses that earn much benefits with a
less investment. They have reached these successes by taking decisions according
to a plan. There are two main factors which must be considered in a financial plan.
Financing money
Investing money
When starting and carrying out a business, the main challenge faced by a firm is
whether it can finance sufficient money. Therefore, it is necessary to determine the
amount of money that is required to be invested before starting the business.There
after, it must be considered about how to finance this investment.
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Investing
It seems that when investing money for resources there are two types of
resources/ Assets.
01. Long term Assets / Fixed Assets / Non-current Assets which are required
for carrying out the business continuously.
Machinery, Buildings, Computers are needed to carry out business activities. Even
though plans are made properly, business activities cannot be performed, without
these resources. So a large amount of money has to be invested to obtain these
resources.
Assets which are existed for more than one year, can be considered as long term
assets.
Example :- Buildings, machinery, motor vehicles.
02.
Short term Assets / Current Assets - which are required for operational
activities.
Even though there are long term assets, more other things are required to
operate them.
Example :- Even there is a machine, raw materials are needed for
production activities.
Even there are sufficient buildings and equipment, stock
is needed for selling.
Sufficient money must be needed to purchase them. In this way, it seems that
various resources are required to maintain day-to-day business activities. These
are called as short term Assets. It is also called as current assets.
For free distribution
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Example :-
Stocks
Debtors
Cash balance
Bank balance
Short term assets, which are required to maintain day-to-day business activities,
are called as working capital.
As mentioned above, the requirement of the resources for the business activities,
must be realized well.
Funds, which are required for the long term assets as well as the day-to-day
activities (working capital) must be considered. Having considered the fund
requirements it is improtant to examine ways of financing these requirements.
Financing
A person can invest his funds as a sole trader. But if the business is a large scale
one, it may be difficult. It must be known that there are optional sources for
financing.
If there is a proper plan to the business the outsiders will help the
business by financing.
Specially banks and other financing institutions grant loans, when
there is a systamatic business plan.Money, which is obtained from
outsiders in spite of the funds invested by the owner, is called the
external liabilities / external obligations.
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Total
Rs.
Investment by
the owner
Rs.
External loans
Rs.
Fixed Assets
Lands
Buildings
Machines
..............
sub total
Working capital requirement
(for a month)
Raw materials
Electricity
Labour
Other expenses
sub total
Total
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Income statement
The statement which shows the financial performance of the business for a
specific time period is called an income statement. This statement shows how the
business earned profit / loss.
Balance sheet
The balance sheet is the statement which shows the 'financial position' of a
business as at the closing date of a specific period. It shows the prevailing assets
and liabilities to that date.
At least estimated financial statements for 3 years must be submitted to finance
from an external institute.
You can study more about these matters in the proceeding chapters.
Activity 06
Suppose, you have got the following business opportunities
Producing cake for the Sinhala New Year Festival
Manufacturing desks and chairs for the grade one students in a school.
Supplying string hoppers to a canteen daily.
One of your friends has decided to start one of the above mentioned businesses
and you are asked to prepare an estimation of the initial capital.
Present the dialogue which would be taken place between you and your
friend before making the initial capital estimation.(orally or written)
Prepare the initial capital estimation according to the above dialogue.
This can be done as a group activity.
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Activity 07
Consider the following matters given below.
i. You are given the following production opportunities
Bakery production
Manufacturing furniture
Manufacturing clay flower pots
Production of ties for school children
Production of uniforms for school children
ii.
iii.
iv.
v.
vi.
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