Skip to content Skip to navigation Skip to collection information

OpenStax_CNX

You are here: Home » Content » Economic and Management Sciences Grade 8 » How feasible is my business?

Navigation

Lenses

What is a lens?

Definition of a lens

Lenses

A lens is a custom view of the content in the repository. You can think of it as a fancy kind of list that will let you see content through the eyes of organizations and people you trust.

What is in a lens?

Lens makers point to materials (modules and collections), creating a guide that includes their own comments and descriptive tags about the content.

Who can create a lens?

Any individual member, a community, or a respected organization.

What are tags? tag icon

Tags are descriptors added by lens makers to help label content, attaching a vocabulary that is meaningful in the context of the lens.

This content is ...

In these lenses

  • GETSenPhaseEMS display tagshide tags

    This collection is included inLens: Siyavula: Economic and Management Sciences (Gr. 7-9)
    By: Siyavula

    Collection Review Status: In Review

    Click the "GETSenPhaseEMS" link to see all content selected in this lens.

    Click the tag icon tag icon to display tags associated with this content.

Recently Viewed

This feature requires Javascript to be enabled.

Tags

(What is a tag?)

These tags come from the endorsement, affiliation, and other lenses that include this content.
 

How feasible is my business?

Module by: Siyavula Uploaders. E-mail the author

ECONOMIC AND MANAGEMENT SCIENCES

Grade 8

ENTREPRENEURSHIP

Module 16

How feasible is my business?

ACTIVITY 1:

To determine the financial viability of the business idea.

[LO 4.4]

Up to now we have looked at the business idea in terms of the product, its manufacture and assessment, the market (the buyers) and the way in which we are going to get the buyers to buy the product (marketing strategy). However, now we must make sure that the idea is actually financially viable. A business is only viable if it shows a profit. That means that we should not sell our product or service at a loss and that the breakeven point (the number of items or service contracts that we have to sell in order to break even) is realistically attainable.

To be capable of doing that, we need to look at the following:

  • the selling price;
  • the direct cost of creating the product or service;
  • the costs involved in running the business (e.g. transport and marketing).

The selling price

The selling price is determined provisionally beforehand on the basis of market research. The research is used to determine which similar products or services exist and what they cost.

The cost of the product

A product cannot easily be created without any costs. For example, even if spring water is drawn and sold, the containers (bottles) still cost money.

Operating costs

Operating costs include anything that is needed to keep the business going, such as transport, salaries, marketing, postage, telephone costs, and so on.

Let us do a calculation to determine the viability of a specific business idea. Let us assume that we are going to sell hot dogs at an athletics meeting. It will be only a small meeting and we think we’ll be able to sell 100 hot dogs. After doing some research we decide that R6,00 is an acceptable price. The frankfurters cost R3,00 each and the rolls are R0,60 each. The various sauces that we’ll need cost R25,00. We find out that we’ll have to rent a stall at R50,00 and that we’ll need 20 posters at R8,00 each to market the stall.

This is what our calculation will look like:

Sales: 100 hot dogs @ R6,00 each = R600,00

Cost of products: 100 hot dogs @ R2,75 each, and sauce @ R25,00 = R300,00

Gross profit as first indicator (sales less cost of product) = R300,00

Operating costs: Stall @ R50,00 and 20 posters @ R8,00 each = R210,00

Operational profit = R 90,00

It seems, therefore, that the enterprise will be profitable. The selling price, as provisionally determined taking into account the market indicators, can thus remain unchanged. If the calculation did not show a profit, we could have considered adjusting the selling price upwards.

There are important tests that have to be done to ensure that the project is truly viable: we have to determine where the breakeven point is in case we are not able to reach the goal of selling 100 hot dogs.

ASSIGNMENT:

Determine the financial viability of your business idea by carrying out the above steps, using your data.

ACTIVITY 2: To discuss the different kinds of ownership of a business.

[LO 4.3]

When you plan to start a business you must decide to whom the business will belong.

There are mainly four options: you as individual could be the owner, you could establish a close corporation, you could create a company or you could take up a franchise.

Option 1: you assume ownership as individual

You can own the business in your personal capacity. That means that you as person

will be taxed on any profits of the business (maximum 40%), and

will be held accountable for debts that are incurred by the business (which means that, should the business not be in a position to pay the debts, you could lose your possessions and means of livelihood).

You could also invite other people to become co-owners, but that is dangerous, because there is always the possibility of misunderstandings and tension in the management of the business.

Option 2: you establish a close corporation

You become a member of the corporation and your personal assets are protected. Your accountability for any debts of the corporation does not exceed the amount of capital that you contributed. The income tax is fixed at 30%, which is substantially less than in the case of an individual. You can also allow other people to become members, which means that you obtain additional financial support and do not stand alone. A close corporation functions in terms of a specific law so the interests of all the members are protected. The books of a CC must be done by a chartered accountant. There can be 1 to 10 members.

The name of a close corporation always ends in CC, for example Laser Services CC.

Option 3: you create a private company

A company is managed in terms of a specific law. There are a number of requirements that do not apply to a close corporation. There must be a board of directors and the names of the board members must be made available to the Public Registrar of Companies. Fully audited annual statements must be submitted annually. Annual general meetings must be held according to prescribed guidelines. All these requirements make the process of establishing a private company quite expensive. The name of a private company ends in (Pty) Ltd.

Option 4: you take up a franchise

A franchise has many advantages for an individual. He gets his own business, but has the support of the group and shares in advantages such as purchasing stock at lower prices, having access to tried and tested recipes (e.g. in the case of a restaurant), etc. Well-known names such as SPAR and 7-Eleven are examples of franchises.

The following report from Die Burger about someone who started a successful business on a franchise basis illustrates the advantages of this option.

SOURCE

FROM SCRUBBING FLOORS TO RESTAURANT OWNER

Nellie Brand

Ms Jessica July is the only black owner of a Juicy Lucy shop in the Western Cape.

Last year, when she took over the shop, she was the only black owner of a Juicy Lucy shop in the entire country. This businesswoman, who had to struggle to obtain a bank loan to buy her Juicy Lucy shop in the Kenilworth Shopping Mall, intends to buy two more of these shops soon.

July, who was born in Guguletu, is regarded as a text-book case of someone who started with nothing and now owns a small business that is profitable.

This month July was named entrepreneur of the month by Business Partners, an organisation that invests in entrepreneurs. This organisation helped her to get financing when the banks would not help her.

July, who started working as a “kitchen assistant” at a Juicy Lucy outlet 27 years ago, got the opportunity to buy the Kenilworth shop from her previous employers in 2001. She had been working there for 10 years and even managed the shop.

She says Colleen and Jeremy Chennells, who wanted her to buy the shop, were sent to her by God. “When they came into my life the lights turned green for me,” she says. By that time she already had shares in the business. However, her greatest problem was to get financing to buy the business.

She believes that she is a shining example of what people from previously disadvantaged communities can achieve if they want to. When she passed matric so many years ago, she could get no other work. She says people must realise that it depends solely on yourself what you achieve in life.

She started working for the first franchise holder of a Juicy Lucy shop in Cape Town as a 22-year-old mother. Within a few years she had progressed from scrubbing floors and washing dishes to assistant manager and finally she was promoted to manager.

It was also her job to open new Juicy Lucy shops and to manage them for a month until their business was in order. One of her major achievements was when, as manager, she won R5 000 in 1985 for the shop that showed the greatest growth, as well as for the cleanest shop with the best service.

Some of her clients are regular visitors who are on first name terms with her. She manages her shop herself and still wears the plum-coloured, checked Juicy Lucy manager’s uniform. She wears a tag with “Jessica July: Manager” on it. July is convinced that her success can be ascribed to the fact that she is personally involved in the day-to-day running of the shop as manager. “I am part of the staff,” she says. This is also one of the hints she gives to shopkeepers – “Don’t sit at home. Rather manage the place yourself.”

According to her the shop has shown a 22% growth in turnover during the past two years. She employs six permanent workers and two casual workers.

Now July is interested in two more shops. She has been with Juicy Lucy for almost as long as this chain of shops, which was introduced as a healthier alternative to fast food restaurants, has been in existence.

She says she would never have thought that she would own a Juicy Lucy.

(Source: Die Burger, 3 July 2003 - translated)

QUESTIONS:

1. Name the advantages that a CC offers an entrepreneur.

2. Explain why it might be advantageous to take out a franchise if one wants to start a business. Mention one possible disadvantage.

Assessment

Table 1
Learning Outcomes
(LOs)
LO 4
Entrepreneurial Knowledge and SkillsThe learner will be capable of demonstrating entrepreneurial knowledge, skills and attitudes.
Assessment Standards(ASs)
We know this when the learner:
4.1 identifies financial institutions and organisations promoting entrepreneurship;
4.2 discusses different ideas for starting a business (including ideas to attract tourists, franchising);
4.3 differentiates between the forms of ownership in both the informal and the formal sectors (sole ownership, close corporation);
4.4 evaluates the financial viability of a business (e.g. initial costs, production costs, sales and profit); and
4.5 engages in a business activity that involves purchasing, production and marketing (should involve financing of business with own or borrowed capital – e.g. bank overdraft).

Memorandum

ACTIVITY 1

Spend sufficient time on this activity. Encourage the learners to work thoroughly right from the very first exercise. They must really go out and get information about the business that they have chosen, and they shouldn’t simply think it all up on their own.

In the section on creative thought the learners must be given enough time to consider examples thoroughly.

Their description of their own business idea must be checked carefully and these ideas must be discussed with them so that they can serve as basis for the work in Activity 3.

ACTIVITY 2

This activity is the core of the module, but can only be done successfully if Activity 2 was done properly.

Testing the viability of the business idea allows the learner to deal with important concepts in the field of financial business management and you must make sure that they fully understand the concepts. The difference between product costs and operational costs and the meaning of gross profit must be fully understood. If the product cost is too high in relation to the selling price, the gross profit will be too low for

the entrepreneur to be able to afford essential operational necessities such as salaries and marketing.

The examples in the module can be used to check whether the learners’ calculations are correct.

Collection Navigation

Content actions

Download:

Collection as:

PDF | EPUB (?)

What is an EPUB file?

EPUB is an electronic book format that can be read on a variety of mobile devices.

Downloading to a reading device

For detailed instructions on how to download this content's EPUB to your specific device, click the "(?)" link.

| More downloads ...

Module as:

PDF | EPUB (?)

What is an EPUB file?

EPUB is an electronic book format that can be read on a variety of mobile devices.

Downloading to a reading device

For detailed instructions on how to download this content's EPUB to your specific device, click the "(?)" link.

| More downloads ...

Add:

Collection to:

My Favorites (?)

'My Favorites' is a special kind of lens which you can use to bookmark modules and collections. 'My Favorites' can only be seen by you, and collections saved in 'My Favorites' can remember the last module you were on. You need an account to use 'My Favorites'.

| A lens I own (?)

Definition of a lens

Lenses

A lens is a custom view of the content in the repository. You can think of it as a fancy kind of list that will let you see content through the eyes of organizations and people you trust.

What is in a lens?

Lens makers point to materials (modules and collections), creating a guide that includes their own comments and descriptive tags about the content.

Who can create a lens?

Any individual member, a community, or a respected organization.

What are tags? tag icon

Tags are descriptors added by lens makers to help label content, attaching a vocabulary that is meaningful in the context of the lens.

| External bookmarks

Module to:

My Favorites (?)

'My Favorites' is a special kind of lens which you can use to bookmark modules and collections. 'My Favorites' can only be seen by you, and collections saved in 'My Favorites' can remember the last module you were on. You need an account to use 'My Favorites'.

| A lens I own (?)

Definition of a lens

Lenses

A lens is a custom view of the content in the repository. You can think of it as a fancy kind of list that will let you see content through the eyes of organizations and people you trust.

What is in a lens?

Lens makers point to materials (modules and collections), creating a guide that includes their own comments and descriptive tags about the content.

Who can create a lens?

Any individual member, a community, or a respected organization.

What are tags? tag icon

Tags are descriptors added by lens makers to help label content, attaching a vocabulary that is meaningful in the context of the lens.

| External bookmarks