2. Business environment and analysis
Business environment refers to the factors external
to a business enterprise which influence its
operations and determine its effectiveness.
Business environment may be healthy or
Healthy business environment means the conditions
are favourable to the growth of business whereas
unhealthy environment implies conditions hostile
or unfavourable to business operations.
3. Business and its environment interact with each
other. Economic system and other conditions in the
environment determine the success of business
enterprises. The firm and its management have to
adjust to the conditions prevalent around it.
However, business enterprises try to influence and
shape the environment. Successful working of
business concerns improves the economic and
social conditions in the country.
4. No business concern can ignore the environment around it except at its own
A study of business environment offers the following benefits:
It provides information about environment which is essential for
successful operation of business firms.
It opens up fresh avenues for the expansion of new entrepreneurial
operations. The entrepreneurs may come forward with new ideas and
with new ventures when they find environment suitable to their
Knowledge about changing environment enables businessmen to adopt a
dynamic approach and maintain harmony of business operations with the
By studying the environment entrepreneurs can make it hospitable to the
growth of business and thereby earn popular support.
5. Thus, the entrepreneur should continuously study the nature of
environment and its influence on business. However, mere study is not
enough. Attempts must be made to influence the environment in order to
make it congenial and favourable to entrepreneurial activities. The most
successful entrepreneur is one who not only adjusts to the environment
but also modifies the environment to suit his requirements through the
direct and indirect influences he can exercise over the system.
6. 3 TYPES OF ENVIRONMENT
(1) Internal environment (micro-environment)
-It includes 5 Ms
-They are usually within the control of business.
(2) Market environment (microenvironment)
(3) Macro environment
8. External environment analysis
Focuses attention on identifying & evaluating trends, and events
beyond the control of a single organization and also reveals threats
and opportunities of an organization that could have a major
influence on the organization's strategic actions.
Helps managers to formulate strategies to take advantage of the
favourable conditions (opportunities) in the external environment
and avoid or reduce threats or unfavourable conditions in the
external environment which may hinder organisation efforts to
achieve strategic competitiveness.
It involves 4 interrelated activities: Scanning, Monitoring,
Forecasting, Assessing effect and influence.
9. Benefits of macro environmental
analysis Increases managerial awareness of environmental opportunities &
Increases understanding of the context in which industries & markets
Helps identify and reduce risks due to greater awareness.
Helps improve resource allocation decisions based on strategic
priority, actual and potential strategic change.
10. Assessing environmental turbulence
degree to which the macro environment, or segment
of the macro environment is likely to change.
-Complexity (affected by PESTL complexities)
-Novelty (new & unique situations).
extent to which macro environmental factor are predicted.
-Rate of change(rapid/slow)
-Visibility of the future
12. MACRO/GENERAL ENVIRONMENT
It examines potential of political risks that affects business.
Political ideology of Government
Political stability & form of government
Political system & competition policy
Govt policy & attitude towards business
13. ECONOMIC FACTORS
Examines the economy & changes in the economy, and these affects on
business, consumers & society.
GDP trends & growth rates of the economy
Level of Interest rates, Inflation & money supply
Unemployment rates & labor
FDI , Tax system and tax rates
Fiscal and Monetary Policy, Infrastructural Facilities, Banking, Insurance
companies, money markets, capital markets etc
14. SOCIO-CULTURAL FACTORS
Concerned with societal attitudes, cultural values, lifestyle
Changing demographics (e.g. single parenthood; change in
structure of population such as age distribution, religion,
education, population growth etc).
Trends in the social cultural environment creating new
opportunities (e.g. growing consumer demands for healthy food
products, sharing culture; dual-income families etc).
Impact of HIV/Aids has economic, socio-economic &
demographic implications which poses a business
Level of education, crime and corruption
15. TECHNOLOGICAL FACTORS
Levels of technological activities, infrastructure and
trends involved in creating new knowledge,
translating knowledge into new outputs, products,
processes, and materials.
Rapid technological changes which may create new
or destroy existing markets- affect the industry.
Productivity improvements through automation.
17. ENVIRONMENTAL FACTORS
Environmental changes and their effects on
business & consumers e.g. global climate
change; Levels of pollution; water recyling;
Regulations on emissions; waste management
Availability of natural resources and implications
on the business.
18. LEGAL FACTORS
This relates to legal and regulatory environment in which enterprises
operate and how these affect business.
Effectiveness of law enforcement
Effectiveness of the judiciary
19. LIMITATIONS OF
Can be extremely complex, and that at
one time there may be conflicting and
contradictory changes taking place.
Degree of uncertainty has to some
extent cast doubt over the value of
performing a macro environmental
20. SWOT ANALYSIS
It is a technique used to assess the strengths, weaknesses,
opportunities and threats of a business venture
The process of analyzing these factors in relation to the
Purpose of SWOT:
Provide a platform for planning for the future of the firm
Provide a position statement about where the firm is at the time
of analysis in relation to its environment
21. SWOT ANALYSIS
provides an excellent framework to enable the evaluation of complex
information to be carried out.
Identify and focus on issues strategic to the organization which needs to
be strategic goals.
The business has many aspects that can be seen as relevant points
contributing positive value to the final outcome.
There are several areas where one of the organisations is either lacking
experience or resources (human and other)
The business might have aspects that can be seen as opportunities or
chances that can contribute positive value to the final outcome
we need to pay attention to some of the issues potentially arising within
the sector and project.
27. DEVELOPING AN EFFECTIVE
Why business plan
Increase likelihood of success
What is a business plan
a written summary of an entrepreneur’s proposed business venture, its
operational and financial details, its marketing opportunities and strategy and
its manager’s skills and abilities
28. DEVELOPING AN EFFECTIVE
No substitute for a well prepared business plan
No short cuts to prepare business plan
It is a road map to business success
29. DEVELOPING AN EFFECTIVE BUSINESS PLAN
Direction of the business
Where is wants to be
Where it is
How its going to get there
30. DEVELOPING AN EFFECTIVE BUSINESS
PLAN Functions of Business plan
Guides an entrepreneur in charting future course of action and devising
Attract lenders and investors
Has to pass 3 test
Reality test-market/demand should exist
Competitive test-position in the market
Value test-high probability of repayment ie ROI
31. DEVELOPING AN EFFECTIVE BUSINESS
PLAN BENEFITS OF BUSINESS PLAN
i. Essential when one needs a loan to get started.
ii. Convinces other potential investors to invest in an
enterprise. In a cooperative for example, a member can
use a business plan to convince the other members that
his business idea is sound.
iii. Helps one to successfully assess the strengths,
weaknesses, opportunities and risks and the realistic
steps that can be taken between your ideas and their
iv. It reveals new opportunities that may prove more
profitable for your new business idea
32. ELEMENTS OF A BUSINESS PLAN
Business plan is unique
Elements of business plan may be a standard
Are not rigid
33. ELEMENTS OF A BUSINESS PLAN
Company name, logo, address, name and
contact details of the company founders
Table of contents
34. ELEMENTS OF A BUSINESS PLAN
Maximum 2 pages
It is a synopsis of the entire plan
To capture reader’s attention
Vision and mission statement
Company history (for existing firms only)
Business and industry profile
35. ELEMENTS OF A BUSINESS PLAN
Company products and services
Location and layout
Description of management team
Plan of operation
Financial forecasts (come as appendix
36. ELEMENTS OF A BUSINESS PLAN
Loan or investment proposal
37. DEVELOPING AN EFFECTIVE BUSINESS PLAN
An executive summary of a business plan is an overview. Its
purpose is to summarize the key points of a document for its
readers, saving them time and preparing them for the
38. The business opportunity - describe the need or the opportunity.
Taking advantage of the opportunity - explain how will your business will
serve the market.
The target market - describe the customer base you will be targeting.
Business model - describe your products or services and and what will make
them appealing to the target market.
Marketing and sales strategy - briefly outline your plans for marketing your
The competition - describe your competition and your strategy for getting
market share. What is your competitive advantage, e.g. what will you offer to
customers that your competitors cannot?
Financial analysis - summarize the financial plan including projections for at
least the next three years.
Owners/Staff - describe the owners and the key staff members and the
expertise they bring to the venture.
Implementation plan - outline the schedule for taking your business from the
planning stage to opening your doors.
39. DEVELOPING AN EFFECTIVE BUSINESS
PLAN VISION AND MISSION STATEMENT
What business are we in?
Values and principles
What makes the business unique
What is the source of competitive advantage
40. DEVELOPING AN EFFECTIVE BUSINESS
PLAN COMPANY HISTORY
Financial and operational highlights
41. DEVELOPING AN EFFECTIVE BUSINESS
PLAN BUSINESS AND INDUSTRY PROFILE
Key success factors
Outlook for the future
Stage of growth(start-up, growth, maturity
Company goals and objectives (eg operational, financial etc)
42. DEVELOPING AN EFFECTIVE BUSINESS
PLAN Business strategy
Desired image and position in the market
43. DEVELOPING AN EFFECTIVE BUSINESS
COMPANY PRODUCTS AND SERVICE
Warranties or guarantees
Unique selling proposition
Patent, trade mark protection
Description of production process (if applicable)
Raw materials, costs and key suppliers
Future products or service offerings
44. DEVELOPING AN EFFECTIVE BUSINESS
PLAN MARKETING STRATEGY
Other significant customer characteristics
Customer’s motivation to buy
Market size and trends
How large is the market?
Is it growing or shrinking? How fast?
45. DEVELOPING AN EFFECTIVE BUSINESS
PLAN MARKETING STRATEGY cont..
Advertising and promotion
Media used-reader, viewer and listener profiles
Frequency of usage
Plans for generating publicity
46. DEVELOPING AN EFFECTIVE BUSINESS
PLAN MARKETING STRATEGY cont..
Cost structure-fixed and variable
Desired image in the market
Comparison against competitors prices
Channels of distribution used
Sales techniques and incentives
47. DEVELOPING AN EFFECTIVE BUSINESS
PLAN LOCATION AND LAYOUT
Demographic analysis of location Vs customer profile
Layout plan (suitable for an appendix)
48. DEVELOPING AN EFFECTIVE BUSINESS
Who are they? Create a competitive profile matrix
Strength and weaknesses
Who are they?
Impact to the firm if there are any
49. DEVELOPING AN EFFECTIVE BUSINESS
DESCRIPTION OF MANAGEMENT TEAM
Key managers and employees
Experience, skills and know-how they bring to business
Resume of key managers and employees (appendix)
50. DEVELOPING AN EFFECTIVE BUSINESS
PLAN OF OPERATION
Form of ownership chosen and reasoning
Company structure (organizational chart)
Decision making authority
Compensation and benefits packages
51. DEVELOPING AN EFFECTIVE
Technical analysis of the project
Production parameters (assumptions , mortality rate etc.
53. DEVELOPING AN EFFECTIVE BUSINESS
FINANCIAL FORECASTS (appendix)
Cash flow statement
Ratio analysis with comparison to industry standards (applicable to
54. DEVELOPING AN EFFECTIVE BUSINESS
PLAN LOAN OR INVESTMENT PROPOSAL
Purpose and use of funds
Repayment or “cash out’ schedule (exist strategy)
Timetable for implementing plan and launching the business
Communicates the organization’s
reason for being, and how it aims to
serve its key stakeholders
Often integrates a summation of the
Mission statements tend to be longer
than vision statements
A future-oriented declaration of the
organization’s purpose and
Addresses what a firm wants to
Vision statements tend to be
57. Examples of Vision Statements
NBS BANK: To be the Bank of
choice in Malawi
Grow market vegetables using
organic, sustainable farming practices.
58. MARKET RESEARCH
What is market?
It is a group of customers who have the purchasing power and unsatisfied
A business survives if a market exist for its products
Market analysis is needed to establish target market
59. What is marketing research?
It involves gathering of information about a particular market, followed by
analysis of that information
60. STEPS FOR MARKETING RESEARCH
1. Define the purpose and objectives of the research
2. Gather secondary data
3. Gather primary data
4. Develop an information gathering instrument
5. Interpret and report information
61. Define the purpose and objectives of the research
Define information requirements of the decision to be made
Lack of proper problem definition leads to collection of useless
Specific objectives to be established
62. Define the purpose and objectives of the
Questions for establishing objectives for general marketing research:
Identify where potential customers go to purchase the good or service in
Why they choose to go there
What is the size of the market
How much of it can the business capture?
How does the business compare with the competitors
What impact does the business promotion have on customers
What type of products or services are desired by the cutomers
63. Gather secondary data
This is already compiled information
Less expensive to gather
Need to exhaust all the sources before going into the research process
Possible to make market decision with secondary data
It can be internal or external
It can be outdated
Units of measure may not fit current problem
64. Gather primary data
Used when secondary data is insufficient
It is economical
Avoid potential bias
It is limited to descriptive studies
Survey –use e-mails , telephone, interviews
Mail used when respondents are widely dispersed
Mails can bring low response rate
Telephones/interview bring high response rate
Personal interviews are expensive; people refuse interview
Estabishes cause-effect relationship
65. Gather primary data
Goal is to find the effect of an experimental variable has over the dependent
Eg what effect will price change have on sales?
66. Develop an information gathering
It has to be designed carefully
Issues to consider when designing a questionnaire
Questions should be inline with objectives
Simple questions first
Avoid leading and biased questions
Reword questions to avoid misinterpretation
Give concise and complete directions
Use scaled questions other than yes or no ones
Eg do we have friendly sales clerks? But ask how would you evaluate the friendliness
of our sales clerks
67. Interpret and report information
Analysis of data
Data has to be organised into meaningful information
Use tables, charts, etc
Use mean, mode, median
68. Market research questions
They will differ from one business to another
But they can come under the following:
Markets eg buying habits
69. Why entrepreneurs may not carry
Complexity of the undertaking-use of sampling surveying and statistical analysis brings
fear to some entrepreneurs.
One can use specialists
Belief that only major strategic decisions need to be supported through market research
This is due to costs and complexity
Sales efforts can be enhanced through such research
Belief that data will be irrelevant
If data is what you already know, it makes you to deal with confidence
70. Business Law
Commercial law or business law is the body of law which governs
business and commerce and is often considered to be a branch of
civil law and deals both with issues of private law and public law.
Commercial law regulates corporate contracts, hiring practices, and
the manufacture and sales of consumer goods
71. Criminal law
is the body of law that relates to crime. It proscribes
conduct perceived as threatening, harmful, or otherwise
endangering to the property, health, safety, and moral
welfare of people inclusive of one's self
72. Civil law
is a body of rules that defines and protects the
private rights of citizens, offers legal remedies that
may be sought in a dispute, and covers areas of law
such as contracts, torts, property and family law.
74. law of contract
The law of contract is concerned about the legal enforceability of
a contract may be described as an agreement that the law (the Courts) will
If you break (breach) the contract, the other party has several legal
remedies. Firstly, he can sue you for damages for breach of contract. Also,
he can ask the court to order you to perform the contract.
75. Requirements for there to be a contract
1. There must be an agreement between two or more persons.
2. The parties must intend that their agreement will result in legal relations
3. The contract must comply with any required statutory formalities.
4. In English law, there is a requirement that the agreement must be supported by what is
5. The parties to the agreement must have ‘legal capacity’ to contract. For example, acontract with a person
who is mentally unsound is not valid.
6. The agreement must be genuine and not be affected by factors such as mistake, misrepresentation, fraud,
undue influence and duress.
7. The agreement must be for a purpose of object which is not illegal or contrary to publicpolicy.
76. Group assignment
Make a research and present a description of the following forms of business
An association of two
or more people
who co-own a
business for the
purpose of making
A partnership agreement / Partnership Act
Easy to establish
Division of profits
Larger pool of capital
Ability to attract limited partners
Little governmental regulation
A separate legal entity apart from its owners which receives the right to exist from
the state in which in which it is incorporated
Private limited liability
Public limited liability
Company limited by guarantee
State owned company
84. Certificate of Incorporation
Statement of purpose
Names and addresses of directors and shareholders
Place of business
Capital stock authorization’
Capital required at time of incorporation
Provisions for preemptive rights
Restrictions on transferring shares
Names and addresses of officers
Articles of Association
Memorandum of association
Cost and time in incorporating
Potential for reduced incentives
Legal requirements and red tape
Potential loss of control
87. Limited Liability Company
A limited liability company is a corporate structure whereby the members of the
company are not personally liable for the company's debts or liabilities.
Limited liability companies are hybrid entities that combine the characteristics of
a corporation and a partnership or sole proprietorship. While the limited liability
feature is similar to that of a corporation, the availability of flow-through taxation
to the members of an LLC is a feature of partnerships
88. Limited Liability Company
Limited personal liability
No limit on number of shareholders
No restriction on a member’s ability to manage the company
Flexibility to divide income as owners see fit
Not subject to self-employment tax except for managing member
89. Limited Liability Company
Differences between a Partnership and a Limited Liability Company
The primary difference between a partnership and an LLC is that an LLC
separates the business assets of the company from the personal assets of the
owners, which insulates the owners from the LLC's debts and liabilities. An LLC
functions similar to a partnership in that the profits of the company pass
through to owners’ tax return.
90. Limited Liability Company
In terms of the sale or transfer of the business, a business continuation
agreement is the only way to ensure the smooth transfer of interests when one
of the owners leaves or dies. Without a business continuation agreement, the
remaining partners must dissolve the LLC and create a new one is a partner
files bankruptcy or dies.
A cooperative is a business organization owned by a group of individuals
and is operated for their mutual benefit. The persons making up the group
are called members. Cooperatives may be incorporated or unincorporated.
92. Procedure of Registration
Form a group and notify the Registrar of Cooperative Societies of your intention of
registering as a cooperative society.
Before the registration of the group, a cooperative member training conducted by an
officer from the registrars office must be arranged.
The training officer will help the members formulate by-laws for their proposed
After the training the group must submit an application for registration.
The application is accompanied by registration fees, as prescribed under the
cooperative societies regulations and three copies of the by-laws signed by the
chairperson, secretary and treasurer of the proposed cooperative society.
Within thirty (30) days the group is notified if it has been registered or not.
also known as microcredit, is a financial
service that offers loans, savings and
insurance to entrepreneurs and
small business owners who don't have
access to traditional sources of capital,
like banks or investors.
94. What is Microcredit Different from Conventional Banks
Loan size is small b/w $100 - $500
Customers are rural poor, particularly women
Income activities Self-employment, informal
No collateral required
Must have saving account linked to MC
95. The main sources for start-up money for entrepreneurs include:
• others who believe in the entrepreneur
These resources come in several forms, such as
savings, credit cards, loans, and investments.
96. Some sources of financing include:
• finance companies
• investment companies
• government grants
FINANCING THE START-UP
97. To obtain equity capital as a source of funding for a business, the owner
must give equity to obtain the financing.
Equity: an ownership in a business
Equity funding is sometimes called risk capital.
risk capital: money invested in companies where
there is financial risk
Sources of Equity Financing
98. Sources of Equity Financing
Forms of Equity
99. Sources of Debt Financing
Banks Trade credit
100. Banks were once the primary source of operating capital, but today they
are much more conservative in their lending practices.
operating capital: money a business uses to support its operations in the
An established business can usually get a line of credit from a
bank, which it can borrow against.
line of credit: an arrangement whereby a lender agrees to lend up to a
specific amount of money at a certain interest rate for a specific period of
Sources of Debt Financing
101. Some businesses may seek trade credit from other companies in their
industry as a form of debt financing.
trade credit: credit one business grants to another business for the
purchase of goods or services; a source of short-term financing
provided by one business within another business’s
industry or trade
Sources of Debt Financing
102. Financial planning involves finding the right kind of
financial resources at the right time in the right
Financial planning involves:
• Identifying the stages of growth in your business
• Identifying milestones that require resources
• Identifying business advisers
• Hiring an excellent management team
Financial Planning for Your Business
103. To obtain financing, you must create pro forma
financial statements to include in your business plan.
pro forma: proposed or estimated financial
statements based on predictions of how the actual
operations of the business will turn out
How to Obtain Financing
104. Private investors, or angels, expect:
• businesses they understand
• investing with like-minded investors
• ten times their investment at the end of five
• a strong management team
What Private Investors Expect
105. Commercial lenders like banks rely on the five Cs to determine
the acceptability of a business loan applicant:
What Bankers Expect
106. A bank must believe in the character of the entrepreneur,
Character: a borrower’s reputation for fair and ethical
practices, including business experience, dealings with other
businesses, and reputation in the community
Banks consider the capacity of a business to pay its debts
Capacity: the ability of a business to pay a loan in view of its
income and obligations
What Bankers Expect
107. Banks place a strong emphasis on whether a business
has a financially stable capital structure.
Capital: the net worth of a business, the amount by
which its assets exceed its liabilities
Banks are more likely to lend to businesses with
Collateral: security in the form of assets that a
company pledges to a lender
What Bankers Expect
108. Banks consider all the conditions in which the
Conditions: the circumstances at the time of the loan
loan request, including potential for growth, amount
of competition, location, form of ownership, and
What Bankers Expect
109. You will need to calculate exactly how much money you will
need to start or grow your business.
This requires estimating start-up costs, which include capital
expenditures, working capital (operating costs), and
Calculating Your Start-Up Capital Needs
110. Start-up costs are those costs you incur before you start a
Start-up costs may include:
• furniture, fixtures, and equipment
• promotion expenses and office supplies
• fees and licenses
111. Operating costs, often referred to as working
capital, cover the time between selling your product
or service and receiving payment from the customer.
working capital: the amount of cash needed to carry
out the daily operations of a business; it ensures a
positive cash flow after covering all operating
112. Since no one can predict the future, you should
include a contingency fund in your start-up
contingency fund: an extra amount of money that is
saved and used only when absolutely necessary, such
as for unforeseen business expenses
113. TECHNOLOGY AND INNOVATIONS IN
SETTING UP A BUSINESS
the application of scientific knowledge for
practical purposes, especially in industry
114. why entrepreneurs should incorporate technology in
their businesses..(Make a research)
Communication: good communication is necessary to allow efficient flow of
information in a business. Technology provides multiple channels for
businesses to communicate both internally and externally.
Research and Development: through the use of technology, businesses can
research the market through the use of secondary data. This is extremely
useful as it provides businesses with in-depth knowledge about markets
before penetrating them. Along with secondary research, businesses can use
technology to conduct primary research in addition to using online surveys
and customer feedback.
Web Based Advertising: one the most beneficial use of technology is
advertising to millions of people around the globe just at a click of a
button. Web based advertising consists of websites and social media.
115. BASIC ACCOUNTING TERMS
Property owned by an organization and has monetary value
Types of assets
Cannot be easily turned into cash
Are meant to be used in business
Examples: land, machinery, buildings
Can easily be turned into cash, Examples: cash, bank, stocks, accounts
Money/property used to set up a business by the owner.
are fixed assets that are put as a security against a loan or a
legal agreement by which a lender receives the right to
acquire borrower’s property to satisfy a debt if the repayment
schedule is not met.
Anything owed by an organization to outsiders. Examples:
accounts payables, loans, bank overdrafts
Non current Liability
What the business owns and repayments is not expected to
take place within the next 12 months.
Long-term liabilities; what the business owes to the outside
[instalment sale agreement, term loans, directors loans, long term
Owner’s equity; what the business owes to the inside parties.
[Retained profits, share premium account, capital reserves].
118. Current liabilities
These are amounts owing and due within the next 12
months. This can include; current portion of long term debit,
which is the portion of the long term debt repayable within
the next 12 months.
Short term loans.
Accrued expenses for example rent paid in arrears.
119. FINANCIAL STATEMENTS
There are several steps that have to be followed when producing financial statements:
All assets should be valued at the beginning of the year & this is called opening
List down all the creditors and a debtor at the beginning of the season & this is called
opening creditors or debtors.
Creditors are all people you owe money and debtors are people who owe you money.
Record all cash transactions as they occur throughout the year, when money is received
and paid out.
Valuate all the assets at the end of the season and this is closing valuation.
Recording all creditors and debtors at the end of the season and this is called closing
debtor or creditors.
120. Types of financial statements:
One that shows profitability of a business (Profit and
The other shows solvency of a business at a
particular date. Solvency is the capability of meeting
cash obligations (Balance sheet).
121. Profit and Loss Account
The profit & loss statement summarizes the
revenues and expenses generated by the
company over the entire reporting period .i.e.
01/10/2016 – 30/09/2015.
Profit and Loss is also known as trading
account and income and expenditure
account, income statement. Taxation of a
business by Malawi Revenue Authority is also
based on P & L account.
122. Layout of P and L Account
It has four sections
Opening valuation of crops, livestock, buildings
Items of actual expenditure during the year
All the income that is received in the year
Year beginning 1st July 2005, NRC farm assessed their Buildings valued at K15,410,
Machinery K11,210 and Livestock K5,240. they had Stocks in the shop amounting
During the same farming season the farm incurred the following expenses Wages
of K3,220, bought Seed amounting to K1,350 used Fuel &feed of K1,500 and had
Miscellanies K490 (petty cash).
By the end of the season on 30th June 2006, the farm sold Livestock amounting to
K10,000, Tobacco K9500 and Vegetables K815
by 30th June 2006 they had Buildings valued at K13869, Machinery K10,089,
Livestock K4716 and Stocks on hand K1205.
Prepare a P&L statement
125. P & L account for NRC farm for the year ended 30 June
2006. This kind of information should always be there at the top of the account
Opening valuation 1st July 2005
Stocks on hand K2,950
Fuel &feed K1,500
Net profit: K8824
Closing valuation 30th June 2006
Stocks on hand K1205
MK 50,194.00 MK 50,194.00
126. THE BALANCE SHEET
The Balance sheet comes from P & L account. It refers
to solvency statement, which shows the worth of a
business at a particular point in time. At the beginning
or end of a season.
127. BALANCE SHEET LAYOUT
Non current liabilities
Long term loans
Medium term loans
Land & houses
Stock at hand
Cash at the bank
Cash on hand
130. FARM BUDGETING
It is concerned with techniques, which help users to
prescribe future plans of action based on so many courses
of action to achieve objectives.
Budgeting is a tool for farm planning the most profitable
course of action.
Budgeting assesses on paper what the outcome will be
before implementing whatever is there.
131. Budgeting by definition is a logically consistent
devise for examining alternative plans for a farm
business & examining the profitability of cash
The only weakness of a budget is that it doesn’t
necessarily indicate the best way of resource
utilization however if one comes up with various
budgets, a manager can come closer to the best
132. Types of budgets
Partial farm budgets
Total Farm Budgets (complete)*
Cash Flow Budgets*
133. TOTAL OR COMPLETE FARM BUDGETS
Looks at total re-organisation or starting a new
farm. It affects outcome in terms of profit. The
decisions made have a long-term impact.
Comprehensive answers of the impact of
decisions made should be made available.
134. Specific situations where total budget
decisions should be made:
a. When making a new farm
b. Starting an activity to see a head of time whether profits will be made
c. Or when one is inheriting a farm there is need to review the farm.
d. When a large basic change is to be considered in a farming operation
e. Conversion of beef from dairy you need to have an abattoir or milking
parlour in case where dairy animals are reared from beef.
f. In a new financial year.
135. Things to Consider when Planning
1. Estimate what can be produced
Look at limitation of what can be produced
Geographical location – climate, rainfall
136. Determine the hectare of each crop or how many
livestock you should tame. On crops you
determine pattern of rotation.
Estimate yield or output & also inputs required in
terms of quantity, fertilizer, and seed. On yield
estimation there is need to be more realistic &
not over ambitions.
Prices – you look at average prices of inputs for
past three years.
137. Decide on labour input – associated with this is the
Decide on other costs than the costs of labour,
variable inputs i.e. insurance, depreciation.
Lastly you need to add up the total cost & subtract
then from returns to get the net profits.
It is estimated that both enterprise will be established to a piece of land measuring two
acre and it is valued at cost K2, 500,000. The land has already been purchased.
The space required for each bird is 2x2 feet; hence total space required is 12,000square
feet. Each poultry room should measure 40x50 feet and should hold a maximum of
600 birds. The project needs five blocks each with 2 rooms giving a total number of 10
The project will construct office and store rooms as well as an underground tank to
collect and keep water from the poultry houses
141. Production parameters for the
Assuming 5 % mortality rate, the project shall
remain with 19 pigs.
If 3 of these are boars and that the rest are sows
that produce each 8 piglets. This gives a total of
15x8= 120 piglets.
If the project is to sell at six month and assuming
each pig is 35 kgs and each kg sells at K2500/kg=
35kgs * 120* 2500 = K10,500,000.00 per six months.
142. Market Aspects
There are several options to market the products.
• Selling piglets at two months old to other farmers
either for breeding or fattening.
• Selling young pigs usually at the age of six months
• Selling adult pigs for bacon
• Selling cull pigs after useful productive life.
143. CASH FLOW BUDGETS
A cash flow budget is a summary of the projected
cash inflows and outflows for a business over a period
At times it is called a weather forecast. When making
changes in the plan like total budgeting and you
realise that the money you have for fertilizer is not
enough you might think of borrowing money.
144. USES OF A CASH FLOW BUDGET
Cash flow budgets ensure that managers properly plan their
credit needs and repayment programs so that sufficient
working capital is available.
They raise the probability of bank managers agreeing to a
loan or overdraft facilities.
They aid financial control. The budget shows how things
should look like at any given time. By comparing the actual
flow against the budgeted ones the healthy of the business is
constantly reviewed and differences can be investigated
145. its primary purpose is to estimate the amount and
timing of future borrowing needs and the ability of
the business to repay loans
It is also used to predict within a transition period
where cash in flows will maintain liquidity
146. ADVANTAGES OF CASH FLOW BUDGET
The manager thinks ahead and coordinates his/her activities, policies well
It shows the likely timing of peak cash needs.
It shows whether capital expenditure can be financed internally or not.
It reveals opportunities for adjusting purchases and sales to reduce peak
cash and credit needs and to minimise tax liability.
It reveals the availability of cash so that advantage can be taken of cash
discounts or surplus cash can be invested.
Interest charges can be forecast accurately.
A cash flow plan can bring peace of mind to those who have borrowed
147. The cash flow budget includes the
Projected operating receipts
Operating expenses: - labour, fuel
Capital expenditure: - like insurance
148. CONSTRUCTING A CASH FLOW BUDGET
1. Develop a whole-farm plan.
2. Take inventory.
3. Estimate crop production and
livestock feed requirements.
4. Estimate cash receipts from
5. Estimate cash crop sales.
149. CONSTRUCTING A CASH FLOW BUDGET (cont…)
6. Estimate other cash income.
7. Estimate cash farm operating expenses.
8. Estimate personal and non-farm cash
9. Estimate purchases and sales of capital assets.
10. Find and record the scheduled principal and
interest payments on existing debts.
2012 2012 2012 2013 2013 2013 2013 2013 2013 2013 2013 2013
OCT NOV DEC JAN FEB
AP MY JUN
Balance bf A
Sales / Revenue C
TOTAL INFLOWS A+b+c
OUT FLOWS D
Feed mixer E
Feed ingredients F
TOTAL CASH OUTFLOW D+e+f+g
NET CASH FLOW
CUMULATIVE NET CASH
previous month plus
net cash flow