NEW VENTURE CREATION

LEARNER GUIDE

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 Module Code SP-210401-KM-01
NQF Level 2
Credits 32
Skills Programme ID SP-210401
Number
Skills Programme Title New Venture Creation
Subtitle Entrepreneurship

Name
Contact Address
Telephone (H)
Telephone (W)
Facsimile
Cellular
E-mail

Note to the learner

This Learner Guide provides a comprehensive overview of the module. It is designed to improve
the skills and knowledge of learners, and thus enabling them to effectively and efficiently
complete specific tasks.

Skills Program Purpose

The purpose of the skills programme is to prepare candidates to operate small businesses.
Learners who acquire this skills programme will be able to:
Start, manage, grow and sustain a small business.

Skills Program Purpose

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Youth for Employment Services (YES), is a business led NPO which works in partnership with
government and labour to initiate policy in the creation of jobs for youth. One of the strategies
adopted by YES is the Creation of New Ventures. These skills (learning) program supports the
New Ventures being created by young people, especially in rural areas. The programme will
help the trainee to: Start, manage, grow and sustain a small business.

• Know him/herself
• Know his/her industry
• Identify market opportunities
• Create business innovation
• Manage finances
• Price goods and services
• Plan and set business goals

Entry Requirements
Grade 9

Quality Assurance
QCTO will facilitate the assessment and quality assurance

Work Opportunities and further learning

Learners who intend to start a business and those who intend to improve, stabilise and expand
existing small businesses. Further learning can be pursued into NC: New Venture Creation,
NQF Level 2.

Development Provider Accreditation Requirements

• Facilitator: NQF Level 3 qualification in business studies.
• Assessor: NQF Level 3 qualification in business studies.
• Relevant and adequate learning material.
• Well-equipped classroom that is OHS compliant/ or on a digital platform (smart
mobile phone and Zero-rated data). Learners can continue do their own learning
independently. In addition, there is some facilitation done by facilitators on different
modules.

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Venue, Date and Time:
Consult your facilitator should there be any changes to the venue, date and/or time.
Refer to your timetable

Assessments
The only way to establish whether you are competent and have accomplished the learning
outcomes is through continuous assessments. This assessment process involves interpreting
evidence about your ability to perform certain tasks. You will be required to perform certain
procedures and tasks during the training programmer and will be assessed on them to certify
your competence.

This module includes assessments in the form of self-evaluations/activities and exercises. The
exercises, activities and self-assessments will be done in pairs, groups or on your own. These
exercises/activities or self-assessments (Learner workbook) must be handed to the facilitator. It
will be added to your portfolio of evidence, which will be proof signed by your facilitator that you
have successfully performed these tasks.

Listen carefully to the instructions of the facilitator and do the given activities in the time given to
you.

TOPIC 1: BEING AN ENTREPRENEUR

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What Does It Mean to Be an entrepreneur?
An entrepreneur is an individual who takes the risk to start their own business based on an idea
they have or a product they have created while assuming most of the risks and reaping most of
the rewards of the business.

What Is an entrepreneur?
An entrepreneur is an individual who creates a new business, bearing most of the risks and
enjoying most of the rewards. The process of setting up a business is known as
entrepreneurship. The entrepreneur is commonly seen as an innovator, a source of new ideas,
goods, services, and business/or procedures.

Entrepreneurs play a key role in any economy, using the skills and initiative necessary to
anticipate needs and bringing good new ideas to market. Entrepreneurship that proves to be
successful in taking on the risks of creating a start-up is rewarded with profits, fame, and

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continued growth opportunities. Entrepreneurship that fails results in losses and less prevalence
in the markets for those involved.

How Entrepreneurship Works

Entrepreneurship is one of the resources economists categorize as integral to production, the
other three being land/natural resources, labour, and capital. An entrepreneur combines the first
three of these to manufacture goods or provide services. They typically create a business plan,
hire labour, acquire resources and financing, and provide leadership and management for the
business.

Entrepreneurs commonly face many obstacles when building their companies. The three that
many of them cite as the most challenging are as follows:
• Overcoming bureaucracy
• Hiring talent
• Obtaining financing

Economists have never had a consistent definition of "entrepreneur" or "entrepreneurship" (the

word "entrepreneur" comes from the French verb entreprenerd, meaning "to undertake").
Though the concept of an entrepreneur existed and was known for centuries, the classical and
neoclassical economists left entrepreneurs out of their formal models: They assumed that
perfect information would be known to fully rational actors, leaving no room for risk-taking or
discovery.

How Entrepreneurs Make Money

Entrepreneurs make money like any business: they seek to generate revenues that are greater
than costs. Increasing revenues is the goal and that can be achieved through marketing, word-
of-mouth, and networking. Keeping costs low is also critical as it results in higher profit margins.
This can be achieved through efficient operations and eventually economies of scale.

Taxes for Entrepreneurs

The taxes you will pay as an entrepreneur will depend on how you set up your business in terms
of structure.

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 • Sole Proprietorship: A business set up this way is an extension of the individual.
Business income and expenses are filed on Schedule C on your personal tax return
and you are taxed at your individual tax rate.3

• Partnership: For tax purposes, a partnership functions the same way as a sole
proprietorship, with the only difference being that income and expenses are split
amongst the partners.

There are many benefits entrepreneurs can achieve through taxes, such as deducting their
home office and utilities, mileage for business travel, advertising, and travel expenses.

• C-Corporation: A C-corporation is a separate legal entity and has separate taxes

filed with the IRS from the entrepreneur. The business income will be taxed at the
corporate tax rate rather than the personal income tax rate.

• Limited Liability Company (LLC) or S-Corporation: These two options are taxed in
the same manner as a C-corporation but usually at lower amounts.

7 Characteristics of Entrepreneurs
What else do entrepreneurial success stories have in common? They invariably involve
industrious people diving into things they’re naturally passionate about.

Giving credence to the adage, “find a way to get paid for the job you’d do for free,” passion is
arguably the most important component start-up business owners must have, and every edge
helps.

While the prospect of becoming your own boss and raking in a fortune is alluring to
entrepreneurial dreamers, the possible downside to hanging one’s own shingle is vast. Income
isn’t guaranteed, employer-sponsored benefits go by the wayside, and when your business
loses money, your personal assets can take a hit, not just a corporation’s bottom line. But
adhering to a few tried and true principles can go a long way in diffusing risk.

The following are a few characteristics required to be a successful entrepreneur.

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1. Versatile
When starting out, it’s essential to personally handle sales and other customer interactions
whenever possible. Direct client contact is the clearest path to obtaining honest feedback about
what the target market likes and what you could be doing better. If it’s not always practical to be
the sole customer interface, entrepreneurs should train employees to invite customer comments
as a matter of course. Not only does this make customers feel empowered, but happier clients
are more likely to recommend businesses to others.

Personally, answering phones is one of the most significant competitive edges home-based
entrepreneurs hold over their larger competitors. In a time of high-tech backlash, where
customers are frustrated with automated responses and touch-tone menus, hearing a human
voice is one sure-fire way to entice new customers and make existing ones feel appreciated; an
important fact, given that some 80% of all business is generated from repeat customers.

Paradoxically, while customers value high-touch telephone access, they also expect a highly
polished website. Even if your business isn’t in a high-tech industry, entrepreneurs still must
exploit internet technology to get their message across. A start-up garage-based business can
have a superior website than an established R100 million company. Just make sure a live
human being is on the other end of the phone number listed.

2. Flexible
Few successful business owners find perfect formulas straight out of the gate. On the contrary:
ideas must morph over time. Whether tweaking product design or altering food items on a
menu, finding the perfect sweet spot takes trial and error.

Former Starbucks Chair and CEO Howard Schultz initially thought playing Italian opera music
over store speakers would accentuate the Italian coffeehouse experience he was attempting to
replicate. But customers saw things differently and didn’t seem to like arias with their espressos.
As a result, Schultz jettisoned the opera and introduced comfortable chairs instead.

3. Money Savvy
Through the heart of any successful new business, a venture beats the lifeblood of steady cash
flow, which is essential for purchasing inventory, paying rent, maintaining equipment, and
promoting the business. The key to staying in the black is rigorous bookkeeping of income

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versus expenses. And since most new businesses don’t make a profit within the first year, by
setting money aside for this contingency, entrepreneurs can help mitigate the risk of falling short
of funds. Related to this, it’s essential to keep personal and business costs separate, and never
dip into business funds to cover the costs of daily living.

Of course, it’s important to pay yourself a realistic salary that allows you to cover essentials, but
not much more; especially where investors are involved. Of course, such sacrifices can strain
relationships with loved ones who may need to adjust to lower standards of living and endure
worry over risking family assets. For this reason, entrepreneurs should communicate these
issues well ahead of time, and make sure significant loved ones are spiritually on board.

4. Resilient
Running your own business is extremely difficult, especially getting one started from scratch. It
requires a lot of time, dedication, and failure. A successful entrepreneur must show resilience to
all the difficulties on the road ahead. Whenever they meet with failure or rejection they must
keep pushing forward.

Starting your business is a learning process and any learning process comes with a learning
curve, which can be frustrating, especially when money is on the line. It's important never to
give up through the difficult times if you want to succeed.

5. Focused
Like resilience, a successful entrepreneur must stay focused and eliminate the noise and doubts
that come with running a business. Becoming side-tracked, not believing in your instincts and
ideas, and losing sight of the end goal is a recipe for failure. A successful entrepreneur must
always remember why they started the business and remain on course to see it through.

6. Business Smart
Knowing how to manage money and understanding financial statements are critical for anyone
running their own business. Knowing your revenues, your costs, and how to increase or
decrease them, respectively, is important. Making sure you don't burn through cash will allow
you to keep the business alive.

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Implementing a sound business strategy, knowing your target market, your competitors, your
strengths and weaknesses, will allow you to maneuver the difficult landscape of running your
business.

7. Communicators
Successful communication is important in almost every facet of life, regardless of what you do. It
is also of the utmost importance in running a business. From conveying your ideas and
strategies to potential investors to sharing your business plan with your employees to
negotiating contracts with suppliers all require successful communication.

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Types of Entrepreneurs
Not every entrepreneur is the same and not all have the same goals. Here are a few types of
entrepreneurs:

• Builder
Builders seek to create scalable businesses within a short time frame. Builders typically pass R5
million in revenue in the first two to four years and continue to build up until R100 million or
beyond. These individuals seek to build out a strong infrastructure by hiring the best talent and
seeking the best investors. They have temperamental personalities that are suited to the fast
growth they desire but can make personal and business relationships difficult.7

• Opportunist
Opportunistic entrepreneurs are optimistic individuals with the ability to pick out financial
opportunities, getting in at the right time, staying on board during the time of growth, and exiting
when a business hits its peak.

These types of entrepreneurs are concerned with profits and the wealth they will build, so they
are attracted to ideas where they can create residual or renewal income. Because they are
looking to find well-timed opportunities, opportunistic entrepreneurs can be impulsive.

• Innovator
Innovators are those rare individuals that come up with a great idea or product that no one has
thought of before. Think of Thomas Edison, Steve Jobs, and Mark Zuckerberg. These
individuals worked on what they loved and found business opportunities through that.

Rather than focusing on money, innovators care more about the impact that their products and
services have on society. These individuals are not the best at running a business as they are
idea-generating individuals, so often they leave the day-to-day operations to those more
capable in that respect.7

• Specialist
These individuals are analytical and risk averse. They have a strong skill set in a specific area
obtained through education or apprenticeship. A specialist entrepreneur will build out their

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business through networking and referrals, resulting in slower growth than a builder
entrepreneur.7

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4 Types of Entrepreneurships
As there are different types of entrepreneurs, there are also different types of businesses they
create. Below are the main different types of entrepreneurships.

• Small Business Entrepreneurship

Small business entrepreneurship is the idea of opening a business without turning it into a large
conglomerate or opening many chains. A single-location restaurant, one grocery shop, or a
retail shop to sell your handmade goods would all be an example of small business
entrepreneurship.

These individuals usually invest their own money and succeed if their business turns a profit,
which they live off. They don't have outside investors and will only take a loan if it helps continue
the business.

• Scalable Start-up
These are companies that start with a unique idea; think Silicon Valley. The hopes are to
innovate with a unique product or service and continue growing the company, continuously
scaling up as time moves on. These types of companies often require investors and large
amounts of capital to grow their idea and reach multiple markets.

• Large Company
Large company entrepreneurship is a new business division created within an existing
company. The existing company may be well placed to branch out into other sectors, or it may
be well placed to become involved in new technology.

CEOs of these companies either foresee a new market for the company or individuals within the
company generate ideas that they bring to senior management to start the process.

• Social Entrepreneurship
The goal of social entrepreneurship is to create a benefit to society and humankind. They focus
on helping communities or the environment through their products and services. They are not
driven by profits but rather by helping the world around them.

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How to Become an entrepreneur
What are the steps to becoming an entrepreneur? There are many different paths you can take.
For example, the owner of a delivery company wouldn’t take the exact same path as an interior
decorator. But there are some similar steps all entrepreneurs should take.

In general, these are the steps to take to become an entrepreneur:

Step 1: Find Your Industry or Niche
Step 2: Research Your Market
Step 3: Educate Yourself
Step 4: Build Your Business Slowly

Step 1: Find Your Industry

The most important first step is to find your specific niche or profitable skill. Many people want to
become entrepreneurs, but they don’t know what industry to get involved with.

Often, your niche will be something you have worked in for years. If you have been a carpenter
for a local construction company, home remodelling and restoration may be your area. If you
have worked at a restaurant for many years, you most likely understand how to run a food
service business. Your current experience is a great place to start looking for you’re calling.

It will also help if you love your niche. To have years of success, you must love what you do.
Eventually, money may not be a big enough motivator to keep you working sixty to seventy

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hours a week to sustain a business. You’ll need more than money to keep you motivated, you
will need a purpose.

Step 2: Research Your Market

Entrepreneurs should research the available market, analysing the area for demand and need.

Maybe you want to open a Korean food truck in your hometown. Are other restaurants
succeeding? Are there other, successful food trucks in your area? Do the local customers prefer
a more-moderate place to eat, or are they interested in a high-end restaurant? Do they even like
Korean food?

Finding the answers to questions like these, and more, will be essential to your long-term
success.

Step 3: Educate Yourself

There is a common myth in popular culture that successful, self-made entrepreneurs never
graduate from college. The numbers, however, don’t back this up. According to a team of
researchers from Duke, Akron, and Southern California, over 95% of entrepreneurs in high-
growth industries have at least a bachelor’s degree.

A. Education in Your Industry

The first type of education to consider is work-related experience or research directly related to
your field of interest. If you are looking to open an auto shop, you will obviously need some
education and certifications related to car repair. If you are thinking about being a self-employed
electrician, you will need the latest education and training with wiring and circuitry. If you want to
run a restaurant, training in food service will be useful.

B. Entrepreneurship Degree
Once you’ve got your industry education down, many prospective entrepreneurs consider an
entrepreneurial certificate or degree. Certificates are a great way to inexpensively learn
foundational skills needed to launch a new career quickly while a bachelors will provide a

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general studies foundation and entrepreneurial specific courses. Shorter courses in
entrepreneurship can be completed quickly and are useful for jump starting a new venture
successfully.

C. Education Related to Business and Finance

Every entrepreneur, from owners of roadside cafes to global start-ups, needs to be versed in
management, finances, taxes, and other business-related topics. You don’t necessarily need a
master’s degree in economics, but an educational foundation in business will certainly help. An
entrepreneurship education could mean an actual entrepreneurship degree or a more general
business education that will prepare you to meet the day-to-day challenges of an entrepreneur
career.

8 Advantages of Becoming an Entrepreneur

Entrepreneurship is not always an easy path, and it’s not the road for everyone, but when
walked right, it can be one of your most rewarding and beneficial career decisions.
If you are considering entrepreneurship, congratulations! You’re looking down an exciting and
rewarding path. But do know that it is not for the faint of heart.

For every benefit, there are some challenges. It comes with a lot of hard work and a need to
commit to the journey.
But, for people with an entrepreneurial spirit and determined mindset, the rewards of
entrepreneurship are hard to resist.

The eight best perks of becoming an entrepreneur:

• Rewarding career
• Work-life autonomy
• Leadership experience
• Work from anywhere
• Company control
• Flexible schedule
• Building a beneficial network
• Pride and satisfaction

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1. Rewarding career
For most successful entrepreneurs, it's all about mindset and paving their own way, navigating
out of a corporate world that doesn't always align with their values.

While entrepreneur advantages abound, one of the biggest ones is simply the fact that you can
work in a role (and a field) that matches your beliefs in a really gratifying way.

For example, if you are a proponent of social justice and diversity, you can work only with clients
that agree with those beliefs. If you are passionate about the environment, you can set up your
business to have a low carbon footprint.

What's great about entrepreneurship is that you don't have to wait for the perfect job that fits
your morals and ethics: You can create it! That is an inspiring concept.

2. Work-life autonomy
Work-life balance and having the ability to set your own boundaries can't be overstated as an
essential part of working for yourself.
When you can control your workload, your job satisfaction automatically increases, keeping you
more engaged in the business' day-to-day operations.

3. Leadership experience
The entrepreneurial process involves a lot of entrepreneurial growth. The leadership lessons
you learn from running your own business stay with you forever, helpfully extending into multiple
facets of your life.

Skills like effective communication, patience, time management, fiscal planning, budgeting, self-
discipline, opportunity cost analysis, and more can only be learned essentially in “trial by fire.”

The lessons learned (and application of them) by running your company are invaluable, both
professionally and personally.

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4. Work from anywhere
Your career is a big part of who you are, so it should be rewarding and generally not dull.
You've likely felt the drudgery of office life before, so you recognize that a sense of excitement
and passion in your work is no small feat.

As an entrepreneur, you aren't beholden to the daily drudgery of commuting, nor do you have to
do the same things at the same times daily. You can even choose to work from places other
than a boring office desk -- your home, a café, the park, or even on the road as you take a
working vacation.

If you are considering entrepreneurship, likely you are already wired to have an appreciation of
a faster pace and the unexpected. There's nothing worse than monotony in your book, and
owning your own company knocks the predictable right away, thanks to its inherently dynamic
and progressive nature.

5. Company control
While there are certainly many unpredictable unknowns about the nature of entrepreneurship,
the beauty -- and the irony -- is that you have a lot of control.
This is your business, so you get to make the key decisions, from who to hire and what clients
to take to how to price your services (or goods,) what partnerships to pursue, and what your
quarterly and yearly goals should be.

There is a lot of freedom in being able to set the tone and specifics around your work.

Rather than being some cog in a corporation’s hierarchical wheel, your ideas get to take the
stage and make a difference. It’s incredibly rewarding to see the very seeds you planted
blossom into something successful.

6. Flexible schedule
Dolly Parton may have made the 9 to 5 sound bearable (and hummable), but let’s face it: It is an
age-old gripe for most of us.

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Setting your own schedule enables you to bust out of the traditional trappings of a 9 a.m. start
and working through to 5 p.m., so you can accommodate your personal life, family, needs of
your clients, and even your mental health.

Perhaps you are most productive when working in two-hour chunks with a large break in
between. Or maybe some days you don’t need a full eight hours, and you have found that
working to fill time is less productive. The flexibility of running your own business allows you to
adjust as needed.

Focusing on results rather than watching the clock will increase happiness, work quality, and
output. And, yes, there will be days when entrepreneurship will require long hours, putting you
far past the 5 p.m. mark.

However, even when working long nights, you'll be building something of your own rather than
the monotony of filling a quota.

7. Building a beneficial network

“It’s not what you know, it’s who you know” is often quoted -- and for good reason. Entering the
entrepreneurial world means expanding your professional network.

The connections you make can strengthen your brand by expanding the pool of potential clients
and meeting people who will just personally help you out. There’s no such thing as knowing too
many good people.

8. Pride and satisfaction

At the end of the day, it is important to take pride in your work and feel good about what you do,
as that is what will keep you going. Feeling accomplished by seeing something you
conceptualized and built come together is an amazing feeling.

Being able to give back to your community, local economy, your employees, your family, and
beyond is such a special feeling.

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CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

Question 3:

Question 4:

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 A

Question 5:

Question 6:

Question 7:

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Question 8:

Question 9:

Question 10:

Question 11:

A TRUE

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 B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

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TOPIC 2: KNOW YOURSELF

What is “be yourself” in entrepreneurship?

So what does “being yourself” mean as an organization? It means not pretending to be other
than you are. It means not offering more than you can or something different than you feel
comfortable with. It means not pretending to be more (or less) professional than you are.

Reasons for Entrepreneurs to ‘First Know Thyself’

• Self-knowledge builds confidence. Know who you are and make sure you’re
comfortable in your own skin. But don’t overdo it. We all know people who act
supremely sure of themselves, but they are usually trying to hide some deep
insecurities or fears.

• Self-awareness is one cornerstone of effective leadership. Leadership isn’t about

how big your role is, or how big you act. Self-aware leaders can see the larger
picture, the context and purpose. They actively listen and don’t put themselves
ahead of others. They allow others to be the best they can be.

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 • Being sure of who you are allows you to make sound business decisions.
When you are running a start-up, having a better sense of who you are and what you
want can help you push away things that are not important, and urge you to go after
the things that are really in your heart.

• Knowing, accepting, and liking who you are encourages others to do the same.
Being authentic and genuine makes you attractive to your customers, respected by
your team, and effective as a leader. Individuality is the hallmark of a successful and
strong entrepreneur.

• Understanding your wants and needs helps you say “no” when necessary.
Start-up businesses are very demanding. You’ll be expected to be present just about
24/7 while keeping everything else in your life managed. Knowing your limits – just
how far you can stretch before you break – is an important skill.

• Know all of you – the good, the bad, and the ugly. No one, even the best of us, is all
good. The good encompasses the parts of ourselves that are our natural gifts and
treasures. The bad are those parts that need work. The ugly parts are generally
hidden, especially from ourselves. Use the good, fix the bad, and learn to live with
the ugly.

• Knowing yourself allows you to maximize performance. There’s more to being

successful than working hard. You must be able to create a winning business plan,
cultivate relationships, and build your brand. Work smart and focus on results in
everything you do. This will reduce stress and increase satisfaction.

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Here are 7 skills that any entrepreneur can apply to their journey today:

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 1. A vision
Know exactly what you want. Have a clear idea of your end goal. Write it down, verbalise it,
embrace it. This is how you know exactly where your steps will take you. Your vision is what
defines the strategic goals of your company and what helps you create a business plan that will
get you where you want to go.

2. Ask questions
Question yourself, your plans, your strategy, your business plans and your decisions. This is a
critical skill that will ensure that you are constantly driving yourself to be better tomorrow than
you are today. By challenging yourself at every turn you will refine your vision and ensure you
are always on the right path.

3. Passion and energy

Nobody else is going to be passionate about your business. Nobody else has the energy to take
it where it must go. It is entirely up to you. This may sound extreme, but without these two key
qualities you will battle to take your business through the complexities that lie ahead and
onwards into long-term success.

4. A work ethic
Like passion and energy, a work ethic is critical. This is your business and your vision, so you
need to put in the hours. And there are a lot of hours.
If you’re not prepared for the weekends, late nights and unexpected holiday disruptions, then
you may not be ready for the demands of being an entrepreneur.

5. Create an opportunity
While you may be the vision, the passion and the workhorse of your business, it is important to
remember that your company can only go so far with only one person behind the wheel. Learn
how to build a team and focus your energy on building something bigger than yourself. Your
drive should not be just about building a successful business but creating opportunities for
others.

6. Communication
Throughout your journey you will need to share your vision, ideals and business plans with your
employees and your executives. They must buy into what you are planning, to be fully engaged

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with the work that they do. This means you must learn how to communicate clearly and create a
transparent culture, so people feel part of something and committed to what it represents.

7. Sales
Ultimately, you want your business to grow and this means mastering the art of selling.
Regardless of your business proposition, it is likely you need customers to buy into your product
or service. So, learn how to sell. A large part of this magic formula is made up of the passion,
energy and work ethic you’ve already mastered, the rest is all about relationships,
communication and hooking the clients.

Why You Must Really Know Yourself Before Starting a Business

Very few people are superhuman, with all the skills, creativity, business acumen, knowledge
and personality to succeed alone at any business they tackle. For the rest of us, taking a
realistic view of our individual limitations, and acting with them in mind, is the only way to
succeed, for the following reasons:

1. Starting the right business requires knowing yourself.

If you know your strengths and what you enjoy, you are more likely to tackle a business problem
that is best suited to your skills and interests and is less sensitive to your shortcomings. Too
many people fail working on someone else’s problem. You won’t be happy in the wrong
business.

2. Attracting the right team requires knowing what you don’t know.
You need to surround yourself with the best people to complement your strengths and fill your
gaps, so together you will be able to see the real opportunity, set the right objectives and
execute to success. Many entrepreneurs fail because they seek out the wrong team.

3. Building a business requires confidence in yourself.

As an entrepreneur, you will have no place and no one to hide behind. Knowledge of yourself is
the key to confidence, and confidence builds leadership. Building a new business requires good
leadership to develop the market, attract customers, motivate the team and conquer the
unknowns.

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 4. Being authentic and genuine gets the best from others.
To be effective as a leader and respected by your team, they must see that you like who you
are. Customers and outside business partners also respond to this vibe and give you the
respect and trust you need to keep going. It’s painful and ineffective to continually be someone
you are not.

5. Make better business decisions by playing to your strengths.

Capitalize on your strengths and accept input from advisors and the team on decisions outside
your range. Everyone will see you as a better listener and a stronger leader who is not
autocratic and knows how to tackle the many unknowns of a new business.

6. Know when to say "no" without guilt.

Knowing your limits, and not taking on tasks that you can’t deliver on or are not priorities, is the
only way to survive in a modern business world that demands your attention 24 hours a day.
Entrepreneurs who know themselves are not afraid to delegate, and never use the “too busy”
excuse.

7. You won’t improve if you don’t know what needs fixing.

Every entrepreneur and every business needs continuous improvement. Understanding yourself
will help you set the right priorities for self-improvement, including working on your health,
balancing family life, changing bad habits and joining business peer groups.

If these observations make no sense to you, it may not yet be the time for you to start down the
path of an entrepreneurial lifestyle. Many people are happier to stick with the familiar, even if not
totally satisfied and happy, rather than deal with the stress and likely failures of starting their
own businesses.

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CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

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 A

Question 3:

Question 4:

Question 5:

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Question 6:

Question 7:

Question 8:

Question 9:

33
 D

Question 10:

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

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Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

TOPIC 3: KNOW YOUR INDUSTRY

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What is Industry Analysis?
Industry analysis is a market assessment tool used by businesses and analysts to understand
the competitive dynamics of an industry. It helps them get a sense of what is happening in an
industry, e.g., demand-supply statistics, degree of competition within the industry, state of
competition of the industry with other emerging industries, prospects of the industry considering
technological changes, credit system within the industry, and the influence of external factors on
the industry.

Industry analysis, for an entrepreneur or a company, is a method that helps to understand a

company’s position relative to other participants in the industry. It helps them to identify both the
opportunities and threats coming their way and gives them a strong idea of the present and
future scenario of the industry. The key to surviving in this ever-changing business environment
is to understand the differences between yourself and your competitors in the industry and use it
to your full advantage.

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Types of industry analysis
There are three commonly used and important methods of performing industry analysis. The
three methods are:
• Competitive Forces Model (Porter’s 5 Forces)
• Broad Factors Analysis (PEST Analysis)
• SWOT Analysis

#1 Competitive Forces Model (Porter’s 5 Forces)

One of the most famous models ever developed for industry analysis, famously known as
Porter’s 5 Forces, was introduced by Michael Porter in his 1980 book “Competitive Strategy:
Techniques for Analyzing Industries and Competitors.”

According to Porter, analysis of the five forces gives an accurate impression of the industry and
makes analysis easier. In our Corporate & Business Strategy course, we cover these five forces
and an additional force — power of complementary good/service providers.

The above image comes from a section of CFI’s Corporate & Business Strategy Course.

1. Intensity of industry rivalry

The number of participants in the industry and their respective market shares are a direct
representation of the competitiveness of the industry. These are directly affected by all the
factors mentioned above. Lack of differentiation in products tends to add to the intensity of
competition. High exit costs such as high fixed assets, government restrictions, labour unions,
etc. also make the competitors fight the battle a little harder.

2. Threat of potential entrants

This indicates the ease with which new firms can enter the market of a particular industry. If it is
easy to enter an industry, companies face the constant risk of new competitors. If the entry is
difficult, whichever company enjoys little competitive advantage reaps the benefits for a longer
period. Also, under difficult entry circumstances, companies face a constant set of competitors.

3. Bargaining power of suppliers

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This refers to the bargaining power of suppliers. If the industry relies on a small number of
suppliers, they enjoy a considerable amount of bargaining power. This can particularly affect
small businesses because it directly influences the quality and the price of the final product.

4. Bargaining power of buyers

The complete opposite happens when the bargaining power lies with the customers. If
consumers/buyers enjoy market power, they can negotiate lower prices, better quality, or
additional services and discounts. This is the case in an industry with more competitors but with
a single buyer constituting a large share of the industry’s sales.

5. Threat of substitute goods/services

The industry is always competing with another industry producing a similar substitute product.
Hence, all firms in an industry have potential competitors from other industries. This takes a toll
on their profitability because they are unable to charge exorbitant prices. Substitutes can take
two forms – products with the same function/quality but lesser price, or products of the same
price but of better quality or providing more utility.

#2 Broad Factors Analysis (PEST Analysis)

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Broad Factors Analysis also commonly called the PEST Analysis stands for Political, Economic,
Social and Technological. PEST analysis is a useful framework for analysing the external
environment.

The above image comes from a section of CFI’s Corporate & Business Strategy Course.

To use PEST as a form of industry analysis, an analyst will analyse each of the 4 components
of the model. These components include:

1. Political
Political factors that impact an industry include specific policies and regulations related to things
like taxes, environmental regulation, tariffs, trade policies, labour laws, ease of doing business,
and overall political stability.

2. Economic
The economic forces that have an impact include inflation, exchange rates (FX), interest rates,
GDP growth rates, conditions in the capital markets (ability to access capital), etc.

3. Social
The social impact on an industry refers to trends among people and includes things such as
population growth, demographics (age, gender, etc.), and trends in behaviour such as health,
fashion, and social movements.

4. Technological
The technological aspect of PEST analysis incorporates factors such as advancements and
developments that change the way a business operates and the ways in which people live their
lives (e.g., the advent of the internet).

#3 SWOT Analysis
SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and Threats. It can be a
great way of summarizing various industry forces and determining their implications for the
business in question.

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The above image comes from a section of CFI’s Corporate & Business Strategy Course. Check
it out to learn more about performing SWOT analysis.

1. Internal
Internal factors that already exist and have contributed to the current position and may continue
to exist.

2. External
External factors are usually contingent events. Assess their importance based on the likelihood
of them happening and their potential impact on the company. Also, consider whether
management has the intention and ability to take advantage of the opportunity/avoid the threat.

Importance of Industry Analysis

Industry analysis, as a form of market assessment, is crucial because it helps a business
understand market conditions. It helps them forecast demand and supply and, consequently,
financial returns from the business. It indicates the competitiveness of the industry and costs
associated with entering and exiting the industry. It is very important when planning a small
business. Analysis helps to identify which stage an industry is currently in; whether it is still
growing and there is scope to reap benefits or has reached its saturation point.

With a very detailed study of the industry, entrepreneurs can get a stronghold on the operations
of the industry and may discover untapped opportunities. It is also important to understand that
industry analysis is somewhat subjective and does not always guarantee success. It may
happen that incorrect interpretation of data leads entrepreneurs to a wrong path or into making
wrong decisions. Hence, it becomes important to collect data carefully.

What is a business niche?

A business niche is a specialized or focused area of a broader market that your business serves
specifically. According to Charlene Walters, business and branding mentor and author of Own
Your Other, finding a niche differentiates your business from the competition and allows you to
excel in your sector.

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“[A business niche] is a hole in the current market where the business’s USP [unique selling
proposition] will be appreciated by a select group of customers or target audience,” Walters
said. “This target audience might be one that is currently underserved and/or has a large market
potential.”

Why is finding a business niche important?

If you have ever heard the expression “jack of all trades, master of none,” you can see the
importance of determining your specialization and differentiating yourself from the competition.

Finding a niche is crucial for small business owners who want to create a steady revenue
stream, establish a loyal audience and create a more focused business.

The benefits of identifying a business niche include the following:

• A niche helps you establish a loyal customer base. A solid market niche helps
ensure that specific customers will want to buy from your business instead of the
competition. A niche allows them to identify your product and brand and know that
your offer suits their needs. Additionally, focusing on a smaller target audience lets
you concentrate on the quality of your customer service and establish a long-lasting
relationship.

• It minimizes competition. By entering a niche, you automatically differentiate

yourself from companies seeking the mass market. You don’t have to compete with
big names and can instead focus on delivering an exceptional product and service.

• It reduces marketing costs. If you know your precise customer group, you can cut
down on small business marketing, advertising and promotional costs. You’ll run
targeted ads and campaigns specific to your audience’s needs instead of spending
your resources on broader promotional efforts. Niche marketing also allows you to
create a better rapport with your audience and build more personal relationships.

• It demonstrates expertise. By occupying a business niche, you can establish

yourself as an expert and thought leader in the field rather than providing yet another

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 generic service or product. Being an expert helps you stand out from the competition,
attract relevant customers and establish trust.

• Catering to a niche can increase profit. Matt Woodley, an online entrepreneur who
founded MoverFocus.com, which caters to the international moving niche, says that
creating a business in a niche market can lead to higher rates for products or
services. The supply and demand ratio, especially for those pioneering a new
industry sector, can be highly lucrative.

What are some niche market examples?

Every industry has several niche markets. If you think of a specific product that serves one of
your unique needs, you can probably classify it as a niche business idea.

Walters mentioned the example of professional, wrinkle-free clothing: If a clothing company

wanted to target executives who travel frequently, it would make sense to have a line of wrinkle-
free clothing to serve that specific need.

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Some examples of industries with profitable niche market possibilities include fitness and weight
loss, pet care, and child and baby care.

What is a niche strategy?

Now that you know what a niche market is and why it’s important, how do you create a business
niche for your company? We spoke with Walters and Woodley to create a five-step niche
strategy for entrepreneurs to follow:

• Select your target audience. To identify your niche, begin by selecting the general
market. Woodley said a good approach is to focus on an area where you are
knowledgeable and then identify subtopics.

• Define an unmet or underserved need. Analyse your target audience and identify
gaps in the marketplace. Walters said your products or services should soothe a pain
point your audience is currently experiencing. Choose a sector that also has
anticipated growth.

• Research your customer base. Walters and Woodley emphasized researching your
target audience to understand their needs, goals, motivations, frustrations and
expectations. Walters said that getting your audience involved as early as MVP
(minimum viable product) development is essential. While this is something you
should do at the start of your business, you should also perform regular maintenance
checks to reassess your customer base and competition.

• Create your business plan. Woodley advised creating a business plan in which you
define precisely what you’ll provide and the need it will meet, describe your ideal
customer, and decide on a pricing model. Fine-tune your business idea to reflect
what you’ve learned about your target audience.

• Market your business to your specific audience. Just as your product or service
fits a niche, your marketing efforts should also be focused. Woodley said that
targeted ads, blog posts and podcasts are invaluable tools for getting your message
out to people likely to be interested in your niche business idea. For example,
Woodley said that a targeted marketing strategy for a small business selling vegan

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 baked goods would be to appear on a podcast or local radio show dedicated to
healthy eating.

How do you identify and dominate a business niche market?

Entrepreneurs should consider a few key consumer elements when trying to identify and
dominate a niche market. Look for the following characteristics in your potential market
audience:

• Easily identifiable customers: Potential customers who are easy to see are a
hallmark of a great business niche. Jerry Rackley, director of marketing at Host
Bridge Technology, said that it should be easy to identify who would do business
with you based on a set of reliable characteristics. “If you can’t put your ideal
customers into an identifiable segment, your business plan is a no-go.”

• Easily accessible customers: For a business niche to be profitable, your potential

customers must be accessible, and accessing them must be affordable, Rackley
said. Otherwise, your great idea will be dead in the water. “For example, I might
develop an ideal solution for nomadic goat herders in Outer Mongolia, but I have no
way of reaching them with information about my solution,” Rackley said. “Lack of
accessibility is also a business plan no-go.”

• An underserved or neglected market: Many markets become oversaturated with

small businesses or start-ups eager to get in on the action. Another way to find your
niche is to search consumer ratings indexes and sites to find areas with poor
customer service.”

• A large potential market: For your business to be profitable, your market and niche
must be large enough that you can make money selling your products and services.
“In addition to identifying and accessing potential customers, there has to be enough
of them,” Rackley said. “The potential market for any business must have the size
and mass to warrant the investment to enter that market.” He gave the example of “a
great solution for any human who has ever walked on the surface of the moon.”
While it might be easy to identify and even gain access to moonwalkers, currently,
there just aren’t enough of them to qualify this as a great business niche. A small

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 pool of potential customers means little or no growth potential, another critical
characteristic of a profitable business niche.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

Question 3:

45
Question 4:

Question 5:

Question 6:

Question 7:

46
Question 8:

Question 9:

Question 10:

Question 11:

A TRUE

B FALSE

47
Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

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TOPIC 4: IDENTIFYING MARKET OPPORTUNITIES

Ways to Identify Market Opportunities for Business Growth

In today's business environment, sustaining growth and profitability is never a guarantee.
Technological and scientific advances shorten life cycles of products and services, business
models change and new competitors appear from outside the industry. This constant instability
makes it necessary to seek new business opportunities. In this article, we'll outline 8 ways to
identify market opportunities for business growth.

First, you need to define a framework to help search for opportunities. To do this, it is necessary
to understand your company's business direction and to have knowledge of the resources,
strengths and capabilities of your company.

Once you have a good understanding of company goals and areas of expertise, the next step is
to analyses the market, assessing consumer needs and how they are being met by companies
today. To identify market opportunities, the business model must be evaluated by identifying
consumers and companies and other factors such as brand value propositions, direct and
indirect competitors, supply chains, existing regulations and the general environment. Let’s
examine how to analyses these factors in detail below.

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Eight Analysis Types to Identify Market Opportunities

1. Consumer segmentation
To understand your demand, you must identify consumer segments that share common
characteristics. These characteristics can be "hard" variables such as age, gender, place of
residence, educational level, occupation and level of income or "soft" variables such as lifestyle,
attitude, values and purchasing motivations.

Hard variables can help estimate the number of potential customers a business can have. For
example, a nappies/diapers producer should know how many children under 3 years live in a
certain country as well as the birth rate. Soft variables can help identify motivations that lead to
purchasing decisions including price, prestige, convenience, durability and design.

2. Purchase situation analysis

Purchase situations must also be examined to uncover expansion opportunities. Questions to
ask when reviewing purchase analysis are:
• When do people buy our product or service?
• Is it when they need it?
• Where do people make the purchase?
• How do they pay?

Looking at distribution channels, payment methods and all other circumstances that involve
purchasing decisions can teach you how consumers buy and how you can position your product
appropriately. Offering new shopping alternatives may bring new customers. For example,
vending machines offering snacks like yoghurt and individual juices have been introduced in the
hallways of the subway of Santiago de Chile, promoting on-the-go consumption.

3. Direct competition analysis

In addition to analyzing demand and purchasing situations, it is important to analyze supply.
Knowing the existing players in the market where you are competing or going to compete is
important when evaluating opportunities. Relevant questions in this case are:
• What are the products and brands of our industry that are growing more significantly
and why?
• What is their value proposition?

50
 • What competitive advantage do we have over them?
For example, SKY airline, competing in the Chilean market against a notably positioned brand
such as LAN, found there was an opportunity to differentiate itself with a low-cost model, which
until then had not existed in Chile. SKY lowered its costs, by eliminating complimentary food
and beverages for all passengers during flights and in doing so lowered its ticket prices. This
helped the company increase its share of carried passengers from 10% in 2008 up to 20% in
2017, according to Euromonitor International.

4. Indirect competition analysis

Opportunities can also be found by analyzing substitute industries. For example, thanks to the
decrease in airfares, airlines may look for opportunities in consumer segments currently
supplied by other means of transport. Air carriers should research how many people travel on
long-distance buses and trains, which routes are the most in-demand, how much travelers pay
for their tickets, what the occupation rate of long-distance buses and trains is and what is
necessary to persuade a current passenger of buses or trains to choose to travel by plane
instead. This type of analysis helps establish competitive advantages against indirect
competitors and provide insight on additional opportunities for growth.

5. Analysis of complementary products and services

Companies should monitor the performance of other companies’ products, which are
complementary to their own. For instance, a packaging company should monitor sales of
products that it could potentially package, while a company producing coffee machines should
gather insights on the evolution of different types of coffee sales. Trends in complementary
markets should be considered when making investment decisions.

6. Analysis of other industries

In some cases, the objective of companies is not to continue operating within an industrial
sector but to expand a certain business model or philosophy. For example, a British holding of
companies, Easy Group, started maximizing the occupancy rate of flights with the airline Easy
Jet. Easy Group understood that it was preferable to sell a seat at a lower price than not selling
it at all. Easy Jet opted for a rate management model that depended on the occupancy rate of
flights and the time remaining until the day of the flight. With this business model, it managed to
increase occupancy rates. Easy applied the same model to cinemas when it created Easy
Cinema and then with buses for Easy Bus. In any case, to enter a new industry it is important to

51
learn about competition first: market sizes, market shares, growth rates, unit prices, per capita
sales and brands positioning.

7. Foreign markets analysis

When a company operates in a mature or saturated market, exploring other countries may lead
to additional opportunities. Markets in different countries grow at different paces for several
reasons, including disparities in the level of economic development and local habits. Knowing
the evolution of per capita consumption of a given product in each country can serve as an
indicator of the maturity of the product's life cycle. Having information on the size of the market
and competitors in other countries will help to estimate the business potential.

In addition to product sales, you can also investigate what happens in more developed countries
in terms of consumption habits. For example:
• What is the percentage of people who use the smartphone to pay for their
purchases?
• What is the market share of private labels in a certain industry?
Answers to those questions in more developed countries can serve as indicators of the potential
the indexes have in their own country. On the other hand, monitoring what happens in other
countries may lead to new products or services present still absent in your current market.

8. Environment analysis
Market opportunities can also be identified by analyzing changes in the environment with
technological and scientific developments generating new business opportunities. For example,
the growth of the Internet and smartphones’ penetration has enabled the arrival of companies
with new business models such as Airbnb and Uber. According to Euromonitor International, the
share of mobile internet subscriptions to mobile telephone subscriptions in the world was 20% in
2011, reaching 53% in 2016. And while globally only 17% of households possessed a
smartphone in 2011, this percentage reached 45% in 2016. Beyond mobile and the Internet,
artificial intelligence, robotization, internet of things, biotechnology and renewable energy
sources also provide multiple business opportunities.

Changes in a country's regulatory framework can also create opportunities. Since June 2016,
Chile requires companies to include labels on products high in calories, sodium, sugars and
saturated fats. This obligation may represent a growth opportunity for healthier products not

52
affected by the new labels. Euromonitor International expects product sales in Chile will be
impacted depending on the product type. Obtaining more market research on category and
product sales in Chile may help identify categories that have growth opportunities for new
products without labels.

What Is Market Research? Defining Goals

Market research is the process of collecting data about a market, service or product. It’s used to
analyze the current situation and pave the way for a product launch or increased sales. The
market research definition suggests that the study will shed light on the consumer’s habits and
needs, the economic shape of the industry and the competitors’ situation. Its main purpose is to
discover a market opportunity for a certain business, and it seems that nowadays hardly any
concept or rebranding idea can succeed without prior market research.

These numbers clearly reveal a shortage of information about the market. But the most
important fact is that market research is essential not only for new products, but also for existing
services and concepts. If the business wants to scale up sales or introduce a new feature, it

53
requires knowledge on where the clients stand with respect to the current product version and
whether they’re ready for changes. Market research is integral to both launching a new service
or supporting and improving the ongoing one. But before plunging into it, it’s important to define
clear market research goals. They might be as follows:
• Identify the target audience.
• Recognize the peculiarities of local customers’ buying habits.
• Explore competitors’ marketing research opportunities and strategies.
• Shape the product or service’s identity.
• Understand what clients like most/least about the existing product.
• Define the true unique selling proposition.
• Etc.
If you dig deeper into all the abovementioned sample aims, you’ll see that it’s all about potential
or existing clients, and for good reason – they must determine your strategies and plans.

Ways to Identify Market Opportunities

To stand out from the competition, your company needs to develop skills to identify market
opportunities that will help your business to grow. While there are numerous opportunities out
there, not all are worth investing in. To avoid overwhelming your team with the wrong type of
marketing venture, it’s essential to take some time to assess your strategy and establish a
framework for evaluating marketing opportunities.

Before developing this framework, you must first understand your company’s vision and
determine your team’s capability to take on new ventures and expand its operations. Once
you’re aware of your organization’s strengths and limitations, you’re ready to search for the best
marketing opportunities for you.

The aim is to identify those opportunities that show promise and will positively impact your
business’s growth, but how do you go about this? Let’s break it down into six simple steps.

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 1. Conduct thorough market research
While not a ground-breaking idea, conducting market research is the simplest and most
effective way to learn about your market and give direction to your advertising strategy. The
process of market research is like that of any research project and involves five principal steps:
• Defining the opportunity(s)
• Developing a possible marketing research plan
• Data collection (qualitative and quantitative data)
• Analysis of accrued data and reporting
• Piloting the opportunity with the intent to scaling up

2. Check out international markets

Business growth may also mean that you explore international markets. From business maturity
to home-market saturation, there are a myriad of reasons why your company may be
considering expanding into foreign markets. The advantages of going global include:
• New investment opportunities
• More revenue
• New talent acquisition

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 • Product diversification

Before deciding which countries, you’d like to branch out into, you need to research their
economy and your legal responsibilities.

When you take your business overseas, you may need to hire more staff. Getting the right kind
of talent is a concern for any entrepreneur, but there are resources out there that can help. The
countries you expand to, such as Singapore, will most likely have an employer of record, such
as NH Global Partners, to assist you in managing your liabilities and other employment duties.

You may also need to contract a professional translation service provider to ensure smooth
communications between your new business partners and customer base.

3. Study your consumers

You should study your current customers to find out what other services or products they may
benefit from. This knowledge may inform which products or services you offer in the future. You
may wish to expand to other services that your customers currently need or those that they will
need in the future so that you can keep your customers, even as their lives change.

For instance, if your company manufactures and distributes baby food, you ought to find out
what other products you can introduce that parents and carers of these infants will be interested
in as their kids get older, such as snacks for children’s lunchboxes.

You should strive to collect information such as client characteristics ranging from age,
education status, and income to attitude and lifestyle. These variables influence customers’
purchasing decisions, preferences, and power.

4. Check out your competitors

Being up to speed on what your competitors are doing is just as essential as understanding your
customers. You can learn a great deal from evaluating the successes and failures of other
businesses on the market.

56
This is particularly useful if your company plans to diversity or launch a new product or service.
Are there other company’s out there offering a similar service? What is successful about it, and
what could be improved? Take this knowledge and use it to ensure your business has a leg up.

5. Leverage social evolutions

Although your customers may be very loyal to your brand, they won’t think twice about moving
to one of your competitors as their needs change. It’s vital, therefore, to stay on top of how the
consumers shift their purchasing patterns. This information will provide you with the strategies to
evolve to meet your customer’s needs.

You should be informed about general changes in society, new trends, and how they could
impact your customers’ needs. A great example of this is our new awareness of and concern
about the environment. These days consumers want to know what businesses are doing to
reduce their carbon footprint and are more likely to give their money to companies that take
measures such as using recycled packaging. Keep up with these changes, and your business
will grow.

6. Use social media

We cannot overstate the value of social media for business marketing. Not only should you be
using various social media platforms to advertise your products and services and target your
ideal customer, but you can also mine it for invaluable information about said customer.

By following social media trends and discussions, you can see what the public really thinks
about your services, as well as those of your competitors. You can also engage directly with
your customers by running fun surveys and polls about new or existing products and get
unedited opinions straight from the horse’s mouth. This kind of input can help you refine your
ideas. In a nutshell, this strategy is one of the best ways to identify market opportunities for your
business growth.

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Ways to Identify New Market Opportunities

1. Look for shifts in customer behaviour.

First, understand how your customers are using your product. Are they doing something
different with it now than before? This is how makeup removing wipes and toilet paper
alternative wipes came about. By talking to their customers, companies realized that there were
other ways people were using baby wipes.

Consumer goods and food companies use this strategy frequently to create new product lines.
To find ideas, you can start by scanning the internet and social media pages for people talking
about “hacks” for your product, or creatively improvising to use your product in a new way.

2. Consider where waste exists.

Sustainability is now a core concern to most demographics, including your customers. Can you
innovate to reduce waste in production, transportation, packaging, or at end-of-life? Can you
make your (or someone else’s) product last longer? Can you make it modular so that broken or
worn pieces can be easily replaced?

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 3. Investigate the pain points.
Understanding pain points is an obvious starting point for most businesses, but these gaps must
be addressed because they can give your competitors a welcome edge.

Sometimes a pain point creates literal pain or added friction in a work process. Ask what causes
potential injury or stoppage with the product or the workplace around it. For example,
professional users began to adopt cordless tools at higher rates when they realized that they
reduced job site injuries (no cords to trip over).

Another approach is to see where customers want to save time. Robots and automation show
up where repetitive tasks can be reduced, freeing people to do other things. For instance, many
people don’t like or don’t have time to mow their lawns, but they want to have cut grass—enter
robot lawn mowers.

4. Track trends in your market.

Track general societal trends related to your industry and see if you can adapt a product line to
take advantage of customer interest in that trend.

A recent example come from big changes in food packaging. Several years ago food bloggers,
especially in health food circles, started coming up with bowl meals. Grain bowls. Veggie bowls.
All the ingredients put in one bowl for a meal. Soon it spread to restaurants, often healthy or
Asian-themed. Then mainstream restaurants, even fast food like KFC, came out with their own
versions.

Seeing the continued popularity, the trend finally moved into retail food with several brands
coming out with frozen dinners in bowls. Now bowls are starting to move to other food products
as well.

Take a larger trend in your market or an adjacent market and make it work for your customers
with your product.

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5. Get ideas from a related industry.
Instead of duplicating your competitors, look at what the most successful companies in a
functionally related industry are doing, and see if you can apply similar approaches to your
business.

6. Think bigger when it comes to your target consumer.

Take a holistic approach to product development and sales by targeting the entire customer
base for your product or service, not just the obvious or traditional one.

How does your product meet the needs of your entire potential customer base, not just a certain
type of company or one job title within a company (such as the purchaser versus the end user
versus the decision-maker)?

Focus on the total benefit of your products to the company as a whole and not one customer
group and communicate that to those involved in purchase decisions.

Take for example packaging machinery. Machinery producers may deal primarily with
purchasing departments to sell new machinery. However, they could broaden their outreach
efforts by targeting users and top executives:

Targeting engineers and production managers could provide supporting arguments on how new
machinery could improve workflow and efficiency
Targeting executives such as chief financial officers to promote the long-term cost savings of
new machinery could help with approval of new machinery purchases

7. Look for products or services that complement your existing business.

What are your customers doing that requires your product, and what do they do after they
purchase your product? Are there things you can offer that make that entire process better for
your customer?

For example, movie theatres added in-seat dining with restaurant-type meals because they
understood that many customers went out to eat before going to the movies. Some parking
garages added car washes or car detailing services since customers were already bringing their
cars to the location.

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How to Identify Market Opportunities for Business Growth?

There is no dearth of market opportunities in the world that we live in. With the innovation in
science and technology, the world is changing every day. A changing world opens a wide range
of opportunities. However, not every opportunity will be suitable for you. Identifying market
opportunities that are in line with the company’s vision and capability is crucial. You can identify
market opportunities for business growth with these eight steps:

1. Consumer Segmentation
Consumer segmentation is dividing your customer base into groups that share the same
characteristics. There are two bases of segmenting customers—hard variables and soft
variables.

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Hard variables mean specific facts about the customers, such as age, gender, marital status,
education, etc. For example, a manufacturer selling premium baby products can expect urban
parents from the upper and upper-middle class to be their customers.

Soft variables mean characteristics such as attitude, lifestyle, values, etc. For example, organic
yoghurt manufacturers can expect consumers who want high protein food and live a healthy
lifestyle.

Carry out consumer segmentation for your business. Find out exactly who your customers are.
Then, figure out what additional products or services you can market to them. It will be easier for
you to target your existing customers rather than going for entirely new customers’
demographics.

2. Situation Analysis
A critical part of finding and choosing the perfect market opportunity is figuring out where your
business stands. Situational analysis is used to determine the health of your enterprise. It is an
effective tool to help you understand the strengths and weaknesses of your business. Ask
yourself these questions:

• Is there anything missing from your product line?

• Can you enhance the current features of your products to introduce a new line of
them?
• Where do people hear about you?
• Which platform do they use to buy your products?
• By doing this analysis, you can find out what is missing from your business.

3. Direct Competition Analysis

It is vital to analyze the supply side of things. Thoroughly knowing your competitors or potential
competitors is a prerequisite for expansion. Find out the answers to these questions:

• What are the products that are not performing in the market? Why?
• Are there some gaps in supply that your products can fill?

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 • How can you expand your small business to fill such gaps?
• What competitive advantage do you have over your competitors or potential
competitors?
For example, Indigo Airlines learned to differentiate itself from its competitors to expand. It cut
costs and marketed itself as a low-cost, efficient airline for the commoner. Soon, it grew to have
the highest market share in India.

4. Indirect Competition Analysis

Analyzing substitute industries can provide you with new opportunities. For example, an airline
can study long-distance trains and bus schedules. Find out which routes people take the most.
How much do people pay for these routes? Then, prepare a strategy to compete with other
modes of transportation. What would it take to encourage people who travel by train or bus to fly
instead? This type of analysis can give you fresh insights and new perspectives on things. They
can help you in coming up with creative growth opportunities. You can establish an effective
competitive advantage against competitors from substitute industries.

5. International Market Research

The world is becoming smaller every day. Technology is making great strides every day. The
trends of the international markets are sure to affect the domestic market. Markets go differently
in different places. It all depends on the local economy, income levels, education levels, and
habits.

Identify similar international markets as your country. The latest trend in those countries can
travel to your domestic markets soon. Furthermore, think about expanding internationally. Do
market research on countries that are like yours. Moreover, finding out other countries’
happenings might lead you to new products and services that are missing in your market. For
example, VR gaming seems to be the latest technological fad in the western world. Many
companies sell immersive VR headsets that feel just like the real thing. The Indian VR market is
still at a nascent stage, but the western trend may soon hit the domestic market. You can get a
first-mover advantage now.

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6. social media
Social media can be a great place to identify market opportunities. First, listen to what people
are saying about your products and services. What do you think is missing from your catalogue?
Scour through the comments and messages on social media. They will tell you the weaknesses
of your products and where you can do better. You can grow your small business by listening to
your customers or potential customers.

There is one more area where social media can help you out. It can help you carry out market
research on your products and services. Find out the trends related to your industry on social
media. For example, if you are an athleisure company, find out what the fashion influencers and
people on social media are sporting these days. The latest trend can help you figure out growth
opportunities.

7. Environmental Analysis
Analyzing the scientific and technological advancements can lead to the identification of market
opportunities. For example, smartphone penetration and high-speed internet facilitated the rise
of cab services like Ola and Uber in the country. Furthermore, it also led to an increase in
subscription of streaming services such as Netflix and Prime Video. In addition to the internet,
advancements in biotechnology, Artificial Intelligence, Machine Learning, the Internet of Things
(IoT), etc., can open new doors for your small business.

The environmental analysis also includes analyzing a country’s trade and economic policies. A
change in them can create market opportunities for you. For example, suppose a country is
banning products that contain high amounts of sugar, saturated fats, and sodium. If it bans
them, then this creates a new market for healthier and affordable food options. Using a variety
of analyses can help you find suitable market opportunities for your business.

8. Investigate Other Industries

We have talked about analyzing direct and indirect competitors. However, businesses that
operate outside your industries can help you grow. See which companies are leading the way in
the country. Figure out what they are doing to stand out from their peers and replicate the same
in your business. For example, you can find out what pioneers from other industries are doing to
cope with the aftermath of the Coronavirus to take lessons from them.

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CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

Question 3:

Question 4:

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 B

Question 5:

Question 6:

Question 7:

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Question 8:

Question 9:

Question 10:

Question 11:

A TRUE

B FALSE

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Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

TOPIC 5: INNOVATION

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What is business innovation?
Business innovation is when companies implement new processes, ideas, services, or products
with the goal of boosting the bottom line. It could mean launching new and improved products or
services (which can lead to higher revenue), making an existing process more efficient, or
solving a current business problem (both of which cut down on costs and save time). A business
focus on brainstorming, design thinking, or the establishment of an innovation lab can drive
business innovations. The key element of innovation is that it drives revenue for the company.

What business innovation is not

Innovation has become such a hot topic that its true meaning is often lost in the noise. While
some use it as a catchall buzzword for simply using the latest technology or making change for
change’s sake, the definition of “innovation” is limited to changes to the core business of an
organization that leads to growth.

What is the meaning of innovation in business?

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Innovation, as a concept, refers to the process that an individual or organization undertakes to
conceptualize brand new products, processes, and ideas, or to approach existing products,
processes, and ideas in new ways. In the world of business, there are many different types of
innovation that a company might pursue.

What is Innovation?
Innovation, as a concept, refers to the process that an individual or organization undertakes to
conceptualize brand new products, processes, and ideas, or to approach existing products,
processes, and ideas in new ways.

In the world of business, there are many different types of innovation that a company might
pursue. These are often tied directly to individual products, internal processes or workflows, or
business models. Some companies even embrace all three to spearhead growth while adapting
to the ever-changing market.

Why Is Innovation Important for Business Success?

We’ve all heard the phrase “adapt or die” and for businesses to achieve success in today’s
modern world, this is a universal truth. Take, for example, the massive expansion in
technological advancements in the past decade; because of this extreme growth, businesses
have been forced to adapt and expand more than ever before.
Simply put, companies cannot afford to stay afloat if they do not embrace innovation and
change. Here are three critical factors on the importance of innovation in business.

1. Innovation Helps Companies Grow

As mentioned above, if you want to grow your business to become more successful and
profitable, there are a few ways that you can go about achieving that goal.

Though it will be a slow path forward, you might choose to plod along your current path, growing
incrementally as you perfect your existing products and business models. Instead, you might
choose to grow your business by merging or acquiring others, which is faster, but also typically
a much more expensive avenue for growth. Or you might choose to evolve by rethinking your
product or business model—or both—from the ground up, which is a process that can lead to
rapid expansion and allow you to scale your business very quickly.

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This potential for growth is likely the reason that, in a recent survey conducted by The Boston
Consulting Group, 79 percent of surveyed executives claimed innovation ranked among their
top three business initiatives—the highest percentage since the survey began almost a decade
ago. Furthermore, the BCG notes that organizations consistently earning high rankings in the
annual “top 50 most innovative companies” all have a common focus on science, technology,
and development. These companies continue to grow while staying one step ahead of the
competition because they value the positive impact of innovation.

2. Innovation Keeps Organizations Relevant

The world around us is constantly changing, and for your business to remain relevant and
profitable, it will eventually need to adapt to meet these new realities.

Technology continually proves to be a driving factor in the need for change. To quantify the
recent impact, look at the facts:

• 90 percent of the world’s data has been created in the last couple of years.
• More than 570 new websites are created every minute.
• 8 billion devices will be connected to the Internet by 2020.
These changes have led to a new age of innovation across business models and industries,
allowing new businesses to enter the market and disrupt incumbents in serious ways. In fact,
executives today believe 40 percent of Fortune 500 companies will be wiped out in the coming
decade due to this level of digital disruption. Just as a start-up often innovates to break into an
industry, established organizations need to innovate to fend off competition and remain relevant
in this changing environment.

3. Innovation Helps Organizations Differentiate Themselves

At the core, innovation is about doing something differently from everyone else operating in your
space. If your organization is using innovation on its products, for example, then the goal is to
develop or update the products until there is nothing else on the market like it. If your
organization is using innovation on its processes, it’s because doing so will save you time,
money, or other resources, and give you a competitive advantage over other companies stuck
in their systems. In either scenario, your organization is taking the time to try something new
because sticking to the status quo simply isn’t working.

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While the natural success that this brings can be reward enough for many companies, it would
be a mistake to overlook another key advantage: innovation helps an organization differentiate
itself and its products from the competition, which can be particularly powerful in an
oversaturated industry or market.

While delivering value to your customers should always be a company’s focus, doing so in a
way that is memorable and different from everyone else can become a standout element of your
brand identity and business strategy, as well.

Why is business innovation important

?

Why is business innovation important?

Innovation offers companies four main benefits:

1. Getting ahead of potential disruption

When done right, business innovation takes stock of where the market is going due to potential
disruptors or changing consumer demands. Businesses use that information to make strategic
changes and to entice internal employees to be entrepreneurial. Those changes can include
building a product or service like what new start-ups are making, buying it from others in the
industry, or partnering with the upstarts (known as the “buy, build, partner” model).

2. Increased efficiency
A lot of business innovation happens by making existing business processes less costly, less
time-consuming to complete, and more sustainable. Those changes save time and make it
easier for an organization to adapt to industry shifts with agility, which cushions against volatility
and risk.

3. Talent attraction and retention

More than ever, employees—particularly millennials and Gen Z—want to work for mission-
driven, fast-moving companies that they believe have a bright future.

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4. Brand perception
Consumers are more willing to buy from companies they perceive to be innovative and socially
conscious.

Types of business innovation

Business innovation can, but doesn’t have to, involve the creation of a new product or service.
There are many examples of innovation in business, including:

• Product innovation
Creating a completely new product that’s adjacent to a business’s core offering. Think of Dyson
extending into hand dryers or Apple launching the smartphone.

• Process innovation
Designing a new way to be more efficient in the core business. Examples of this include
Amazon using robots in the warehouse, or Chase Bank implementing mobile check deposit.

• Business model innovation

Introducing a new way of making or saving money, such as Zipcar launching car-sharing
subscriptions, or Rent the Runway offering a subscription service for clothing rental.

• Delivery innovation
Implementing a new way of interacting with customers. This happens when a company like
Zappos puts customer service first, or Tesla makes it possible to buy cars online.

Three models of business innovation

There is more than one way to innovate, and organizations of different ages and sizes will have
different reasons for embarking on a process of business innovation. For some it may be a case
of re-assessing the ways in which the business generates revenue, for others it may be
necessary to move into a different industry altogether - or even to create a brand new one!
Before embarking on any innovation cycle, it is important that organizations understand the
various business innovation models available to them.

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 • Revenue model innovation
If increasing profits is the main driver for business innovation, many organizations may choose
to change their revenue model as a first port-of-call. This can involve re-assessing the products
or services offered or taking another look at the company’s pricing strategy. Innovation does not
have to be radical, sometimes changing even one element can yield significant results.

• Business model innovation

This model of business innovation requires organizations to identify which of their processes,
products or services could be improved to boost the company’s profitability. Innovation in this
case could refer to forming new partnerships, outsourcing specific tasks or implementing new
technologies.

• Industry model innovation

Arguably the most radical model of business innovation, ambitious organizations can choose to
change industry completely for the purposes of innovation - or even create a whole new industry
for themselves. Indeed, companies can win a new lease of life by following examples such as
Virgin’s move from airoplane’s to broadband.

How Does Business Innovation Work?

The Organization for Economic Co-operation and Development (OECD) outlines four ways that
business innovation can manifest: product innovation, process innovation, marketing innovation,
and organizational innovation

• Product innovation refers to new or significantly improved products. The innovation

could include making the same product with better components or a new product
that's more user-friendly.

• Process innovation refers to new ways a business can deliver its product or service.
This could include changes in techniques, equipment, or software.

• Marketing innovation has to do with the way the product or service appears to
customers. It includes new packaging or ad campaigns, but it also includes any price
changes.

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 • Organizational innovation refers to big picture changes that a business can
undertake to improve performance. This could be an internal change to business
practices or an external change to business relations with other entities.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

Question 3:

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 C

Question 4:

Question 5:

Question 6:

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Question 7:

Question 8:

Question 9:

Question 10:

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 A

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

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Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

TOPIC 6: CUSTOMER SERVICE

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What Is Customer Service?
Customer service is the direct one-on-one interaction between a consumer making a purchase
and a representative of the company that is selling it. Most retailers see this direct interaction as
a critical factor in ensuring buyer satisfaction and encouraging repeat business.

Even today, when much of customer care is handled by automated self-service systems, the
option to speak to a human being is seen as necessary to most businesses. It is a key aspect of
servant-leadership.
• Customer service is the interaction between the buyer of a product and the company
that sells it.

• Good customer service is critical to business success, ensuring brand loyalty one
customer at a time.

• Recent innovations have focused on automating customer service systems, but the
human element is, in some cases, indispensable.

Understanding Customer Service

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Behind the scenes at most companies are people who never meet or greet the people who buy
their products. The customer service representatives are the ones who have direct contact with
the buyers. The buyers' perceptions of the company and the product are shaped in part by their
experience in dealing with that person.

For this reason, many companies work hard to increase their customer satisfaction levels.

Key Components of Good Customer Service

Successful small business owners understand the need for good customer service instinctively.
Larger businesses study the subject in-depth, and they have some basic conclusions about the
key components:

• Timely attention to issues raised by customers is critical. Requiring a customer to

wait in line or sit on hold sours an interaction before it begins.
• Customer service should be a single-step process for the consumer. If a customer
calls a helpline, the representative should whenever possible follow the problem
through to its resolution.
• If a customer must be transferred to another department, the original representative
should follow up with the customer to ensure that the problem was solved.

Characteristics of Good Customer Service

Customer service is the act of taking care of the customer's needs by providing and delivering
professional, helpful, high-quality service and assistance before, during, and after the
customer's requirements are met. Customer service is meeting the needs and desires of any
customer. Some characteristics of good customer service include:

• Promptness: Promises for delivery of products must be on time. Delays and

cancellations of products should be avoided.

• Politeness: Politeness is almost a lost art. Saying 'hello,' 'good afternoon,' 'sir,' and
'thank you very much' are a part of good customer service. For any business, using
good manners is appropriate whether the customer makes a purchase or not.

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 • Professionalism: All customers should be treated professionally, which means the
use of competence or skill expected of the professional. Professionalism shows the
customer they're cared for.

• Personalization: Using the customer's name is very effective in producing loyalty.

Customers like the idea that whom they do business with knows them on a personal
level.

Customer Services Employer Responsibilities

Poor management can doom any customer service operation. A couple of important tips for
managers:

• Make sure your customer service representatives are fully informed and have the
latest information and the company's products and policies.
• Periodically assess the customer service experience you are providing to ensure that
it's an asset to the company.
• Consider conducting regular surveys to give customers the chance to provide
feedback about the service they receive and suggest areas for improvement.

What are the principles of good customer service?

There are four key principles of good customer service: It's personalized, competent,
convenient, and proactive. These factors have the biggest influence on the customer
experience.
• Personalized: Good customer service always starts with a human touch.
Personalized interactions greatly improve customer service and let customers know
that your company cares about them and their problems. Instead of thinking of
service as a cost, consider it an opportunity to earn your customer’s business all over
again.

• Competent: Consumers have identified competency as the element that plays the
biggest role in a good customer experience. To be competent, a customer support
professional must have a strong knowledge of the company and its products, as well

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 as the power to fix the customer’s problems. The more knowledge they have, the
more competent they become.

• Convenient: Customers want to be able to get in touch with a customer service

representative through whichever channel is the most convenient for them. Offer
support through the channels of communication your customers rely on most and
make it easy for customers to figure out how to contact you.

• Proactive: Customers want companies to be proactive in reaching out to them. If one

of your products is backordered or your website is going to experience downtime,
proactively reach out to your customers and explain the problem. They may not be
happy about the situation, but they will be thankful that you kept them in the loop.

How to deliver excellent customer service

Whether you’re building a support team from scratch, or you already consider yourself a pro,
we’ve identified tips from our latest CX Trends Report to help you drive better customer service.

1. Make agent training a priority

Companies with high-performing customer support teams understand the need for more
training, more empathy, and more investment to reduce churn and empower their people.
Consider developing a tiered training plan that starts with basic technical skills, including
product knowledge, and then advances agent knowledge at regular intervals.

In fact, high-performing companies are nearly 10 times more likely to strongly agree that their
agents are of the highest calibre and over 6 times more likely to have plans to greatly extend
education and training opportunities.

2. Automate repetitive tasks

Identify and automate the most repetitive tasks to free up agents’ time and improve
performance. For example, high performers are nearly 3 times more likely to use AI-powered
chatbots to help with agent workflows and it's paying off. 63 percent of business leaders believe
chatbots are driving large cost savings.

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61 percent of companies also expect most customer service interactions to be automated in the
future.

3. Personalize every experience

Give agents access to valuable customer information—beyond just the customer’s name—that
they can use to improve experiences. In fact, 72 percent of customers expect agents to have
access to all relevant information.

90 percent of customers will also spend more with companies that personalize the customer
service they offer them. And 92 percent will spend more with companies that ensure they won’t
need to repeat information.

4. Evaluate existing customer service channels

93 percent of customers will spend more with companies that offer their preferred option to
reach customer service. Ensure that you have satisfaction metrics linked to each channel.
Actively track and benchmark performance across channels to check for continuous
improvement.

5. Focus on business impact

Create opportunities for agents to drive profits through upselling and cross-selling, informed by
a deep understanding of the customer’s immediate needs. Establish a separate profit and loss
statement that captures revenue generated by agents so the link between customer service and
business growth is more tangible.

High performers are 7.6 times more likely to strongly agree that they view customer service
primarily as a revenue driver and are 6.2 times more likely to strongly agree that customer
service funding has kept pace with company growth.

6. Integrate systems
Integrate customer service and CRM platforms to monitor changes in customers and their
lifetime value. Sharing data between these platforms can lead to the discovery of personalized,
relevant solutions to customer issues that otherwise wouldn’t be considered.

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7. Keep leadership in the loop
Ensure the core team provides regular updates to leadership so they’re aware of evolving
customer service plans and metrics. Create opportunities for customer service insights to play a
greater role in larger company policy and strategy. Leaders of businesses with the highest
customer satisfaction scores understand the inherent value of their customer service teams. Not
only are they more likely to prioritize funding of customer service initiatives, but they’re also
more likely to keep a close eye on the business impact and make necessary changes along the
way.

Companies that are leading in customer service have buy-in from top to bottom. Instead of a
siloed customer service team, leadership takes an active role in monitoring performance and
impact. And in many cases, compensation of senior executives is directly tied to customer
satisfaction.

High performers are over 9 times more likely to report that senior leaders view customer service
metrics daily and nearly 8 times more likely to strongly agree that senior leaders immerse
themselves in customer service.

Key customer service skills

Customer service skills or characteristics represent the qualities and abilities a customer service
representative needs to deliver good customer service. Customer service managers tend to hire
for technical skill sets. Technical skills are important, but soft skills matter, too.

Here are the top customer service skills your customer service representatives need:

• Ability to mirror a customer's language and tone

Mirroring another person’s language and tone can help you connect with them.
Now, if a customer is angry on a call, you don’t want to copy their frustration. Instead, remember
that “calm is contagious.” Be firm and work to bring the intensity down a notch. Customers
respond well to getting help from someone who's clearly level-headed.

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On live chat, responses are often short, quick, and incomplete. This makes it harder for you and
the customer to understand each other’s tone. Choose your words carefully and err on the side
of caution and clarity. Try to avoid puns or regional turns of phrase.

Instead, use a gentle, informative tone. Patience is your best friend when helping a frustrated
customer.

• Active listening
When customers complain and are frustrated, they might not be able to take in what you say.
So, scrambling to a solution isn’t always the best approach.

The ability to display empathy first is crucial. Remember, both you and the customer want to
reach a resolution, not just a solution.

Customers who are stressed need to feel heard. Explain that you understand the reason for
their call. This little bit of empathy will go a long way toward improving a difficult customer
experience.

• Clear communication
Nobody likes to wait on hold, especially if they don’t know how long it’ll be until they can talk to
someone.

When customers call or start a live chat, set their expectations about hold times. This can help
them feel like their issues matter to you.

• Interpersonal skills
The best customer service templates do more than give agents pre-written text to copy and
paste. They’re the starting point for high-quality, personalized answers so agents can build real,
human connections with customers.

Start with a template, then adjust it before replying to customers. This makes your answers feel
more personal to customers.

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It’s OK to use your own voice and approach—just make sure you reflect the company’s brand
and philosophy. For example, maybe you can make your own email signature unique.

• Comfort multitasking
Live chat agents are expected to handle more than one chat at a time. This is a skill. Great
multitaskers don’t lose sight of the bigger picture as they're bombarded by questions.

Be careful not to handle too many chats, or else your customers will be waiting too long
between responses. You can always put a chat on a brief hold if you need more time to find an
answer. But just like with phone support, set expectations first. For example, ask if you may put
them on a brief hold to conduct more research.

• Attention to detail
Sometimes it’s harder for customers to express themselves in writing. Don’t read too quickly
and jump to conclusions. It takes a lot of training and practice to understand how different
customers communicate. But it's key to success in customer service.

For example, someone who works in sales might come off as assertive or aggressive. Or an
engineer might want more technical details about how their problem was solved.

Being able to read cues like this can give a customer care representative a better idea of how to
tailor their customer service approach.

• Attentiveness
Always respond to a customer’s social post when they need help. You may not be able to
answer right away. But it’s still important to make quick initial contact with that customer and let
them know when you’ll respond. Providing speedy responses means being adept in addressing
a customer's problem with a precise and polite tone.

The exception to “always respond” is when agents are confronted with an obvious attempt to
pick a fight on public channels. These comments are often directed at the company itself. It can
be tempting to engage with the person if you feel strongly about the issue at hand. But a

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company can’t afford to have an agent, or any employee, make mistakes on social media. So,
always proceed with caution when responding publicly.

• Collaboration skills
Answering a customer's question often involves working with other teams or departments. Is
answering a social media post a job for customer support, or for marketing? Sometimes it’s hard
to tell.

If your marketing team manages your social media, make sure they connect with the customer
service team for help with any incoming support requests. Remember, everyone is responsible
for good customer service so agents will need to have strong collaboration skills.

4 examples of good customer service

We’ve all heard the stories of companies going above and beyond to provide their customers
with incredible support. Morton’s steakhouse met a man at the airport with a steak because he
asked for one in a tweet. Nordstrom’s accepted a set of returned tires even though Nordstrom
doesn't sell tires. But good customer service is ultimately about the scalable ways a company
meets customer needs every day.

Here are a few everyday examples of excellent customer service.

1. Providing fast first-response times

76 percent of customers say they expect to engage with someone immediately when contacting
a company.

2. Meeting customers where they are

Customers want to connect with you on the same channels they use to talk to friends and family
—so being able to help a customer on their preferred support channel is one of the best ways to
create an excellent customer service experience. Channel preference can vary based on the
issue type and customer need. In fact, 73 percent of customers also want the ability to start a
conversation on one channel and pick it back up on another.

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3. Helping customers help themselves
89 percent of customers will spend more with companies that allow them to find answers online
without having to contact anyone, such as via a knowledge base.

4. Being proactively helpful

Reactive support used to be the standard: you wait for a customer to contact your business with
an inquiry or issue. Proactive service, however, is now a crucial type of customer service—it
means anticipating your customers’ issues and addressing them before your customers do.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

89
Question 3:

Question 4:

Question 5:

Question 6:

90
 A

Question 7:

Question 8:

Question 9:

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 D

Question 10:

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

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 B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

TOPIC 7: FINANCIAL AND CASHFLOW MANAGEMENT

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What is cashflow in financial management?
Cash flow is a measure of how much cash a business brought in or spent in total over a period.
Cash flow is typically broken down into cash flow from operating activities, investing activities,
and financing activities on the statement of cash flows, a common financial statement.

What Is Cash Flow Analysis?

There are three cash flow types that companies should track and analyse to determine the
liquidity and solvency of the business: cash flow from operating activities, cash flow from
investing activities and cash flow from financing activities. All three are included on a company’s
cash flow statement.

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In conducting a cash flow analysis, businesses correlate line items in those three cash flow
categories to see where money is coming in, and where it’s going out. From this, they can draw
conclusions about the current state of the business.

Depending on the type of cash flow, bringing in money in isn’t necessarily a good thing. And
spending money it isn’t necessarily a bad thing.

Key Takeaways
• Cash flow analysis helps you understand how much cash a business generated or
used during a specific accounting period.
• Understanding cash sources and where your cash is going is essential for
maintaining a financially sustainable business.
• A business may be profitable and still experience negative cash flow or lose money
and experience positive cash flow.
• Complementary measurements, such as free cash flow and unlevered free cash flow,
offer unique insights into a company’s financial health.

Cash Flow Analysis Explained

Cash flow is a measure of how much cash a business brought in or spent in total over a period.
Cash flow is typically broken down into cash flow from operating activities, investing activities,
and financing activities on the statement of cash flows, a common financial statement.

While it’s also important to look at business profitability on the income statement, cash flow
analysis offers critical information on the financial health of a company. It tells you if cash
inflows are coming from sales, loans, or investors, and similar information about outflows. Most
businesses can sustain a temporary period of negative cash flows but can’t sustain negative
cash flows long-term.

Newer businesses may experience negative cash flow from operations due to high spending on
growth. That’s okay if investors and lenders are willing to keep supporting the business. But
eventually, cash flow from operations must turn positive to keep the business open as a going
concern.

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Cash flow analysis helps you understand if a business’s healthy bank account balance is from
sales, debt, or other financing. This type of analysis may uncover unexpected problems, or it
may show a healthy operating cash flow. But you don’t know either way until you review your
cash flow statements or perform a cash flow analysis.

In addition to looking at the standard cash flow statement and details, it’s often also useful to
calculate different versions of cash flow to give you additional insights. For example, free cash
flow excludes non-cash expenses and interest payments and adds in changes in working
capital, which gives you a clearer view of operating cash flows. Unlevered free cash flow shows
you cash flow before financial obligations while levered free cash flow explains cash flow after
considering all bills and obligations.

Depending on the size of your company, your financial situation, and your financial goals,
reviewing and tracking various forms of cash flow may be very helpful in financial planning and
preparing for future quarters, years, and even a potential downturn in sales or economic
conditions.

Why Is Cash Flow Analysis Important?

A cash flow analysis determines a company’s working capital — the amount of money available
to run business operations and complete transactions. That is calculated as current assets
(cash or near-cash assets, like notes receivable) minus current liabilities (liabilities due during
the upcoming accounting period).

Cash flow analysis helps you understand if your business can pay its bills and generate enough
cash to continue operating indefinitely. Long-term negative cash flow situations can indicate a
potential bankruptcy while continual positive cash flow is often a sign of good things to come.

Cash Flow Analysis Basics

• Cash flow analysis first requires that a company generate cash statements about
operating cash flow, investing cash flow and financing cash flow.

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 • Cash from operating activities represents cash received from customers less the
amount spent on operating expenses. In this bucket are annual, recurring expenses
such as salaries, utilities, supplies and rent.
• Investing activities reflect funds spent on fixed assets and financial instruments.
These are long-term, or capital investments, and include property, assets in a plant
or the purchase of stock or securities of another company.
• Financing cash flow is funding that comes from a company’s owners, investors and
creditors. It is classified as debt, equity and dividend transactions on the cash flow
statement.

How Do You Perform Cash Flow Analysis?

To perform a cash flow analysis, you must first prepare operating, investing and financing cash
flow statements. Generally, the finance team uses the company’s accounting software to
generate these statements. Alternately, there are several free templates available.

Preparing a Cash Flow Statement

Let’s first look at preparing the operating cash flow statement. The line items that are factored
into the company’s net income and are included on the company’s operating cash flow
statement include but are not limited to:
• Cash received from sales of goods or services
• The purchase of inventory or supplies
• Employees’ wages and cash bonuses
• Payments to contractors
• Utility bills, rent or lease payments
• Interest paid on loans and other long-term debt and interest received on loans
• Fines or cash settlements from lawsuits

How to calculate cash flow

One of the most important aspects of managing cash flow is understanding how to calculate it.
There are three main formulas that can help you calculate cash flow: free cash flow formula,
operating cash flow formula and cash flow forecast. Each formula serves a different purpose.

• Free cash flow refers to the resources available for distribution among all the
stakeholders in the company. It shows you how much capital you must reinvest in

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 the business – such as purchasing new equipment, expanding your store, or
investing in a new product for your company.

• The operating cash flow formula provides an at-a-glance view of the day-to-day
cash flow within your business.

• The cash flow forecast provides a future look at your cash flow in the coming
month, quarter or year.

All three of these formulas are essential to knowing how much money is flowing in and out of
your business at any given time:

• Net income + Depreciation ÷ Amortization – Change in working capital – Capital

expenditure = Free cash flow

• Depreciation + Operating income – Taxes + Change in working capital = Operating

cash flow

Beginning cash + Projected inflows – Projected outflows = Ending cash = Cash flow
forecast

Preparing a cash flow statement

Cash flow statements are indicative of your company’s health. They show that you have a
healthy business capable of continuing operation at any given time.

You can find a lot of extensive breakdowns on cash flow statements. Here are some basic
terms and elements of a cash flow statement you’ll need to know to create and read yours.
• Cash from operating activities: This is how much money is flowing into your
business. If this number is lower than net income or it’s a negative number, this could
be a problem.

• Cash from investing activities: This should be a negative number. This includes
money your business has used to invest and its products. Buying supplies or further
developing your product are two examples of this kind of activity.

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 • Cash from financing activities: This area demonstrates how much money your
company is spending to pay off certain obligations. This can include things like
dividends.

• Net change in cash: This is how much cash your company gains or loses based on
the investing and financing activities.
• Net cash: Net cash can be highlighted as beginning and ending balance. The ending
balance is determined by applying the net change in cash to the beginning balance.
The ending balance shows how much cash you have on hand.

How do you get positive cash flow?

Sales are obviously the best way for a business to gain cash flow. If you’re not generating sales,
you’re not really a business. Of course, saving money in operational expenses helps, too. It’s
important to have detailed budgets and to curb unnecessary spending.

What should you do if you have a cash flow deficit?

In the event of a cash flow deficit, these are some of your options:
• Apply for a loan from a banking institution or individual.
• Apply for a line of credit from a bank.
• Speed up the collection process.
• Finance the purchase of equipment through leasing or loans.
• Liquidate assets.
• Delay payments to vendors.
Sometimes you may have a surplus of cash. That money can affect future opportunities, so you
don’t want it to sit around. Accountants recommend that you make the surplus work for you. You
can do this by making short-term investments and using the money to pay off debts faster. That
way, the money will benefit you through generated interest or shorter loan terms.

Always consult with a professional accountant before making major financial decisions that
could impact the future of your business.

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Ways to manage cash flow
The most important aspect of managing cash flow is to constantly monitor it. You need to know
how much money your company is taking in as well as how much of that money you have on
hand to use. If you have an accurate idea of your company’s cash flow, you can follow these
simple tips to increase cash flow and manage your business.

1. Don’t wait to send invoices.

Again, a key reason cash flow matters is that it distinguishes between invoices you’ve sent and
invoices that have been paid. That R10,000 invoice means little if you don’t yet have that money
on hand to cover your expenses. That’s why you shouldn’t hesitate to send invoices.

You may want to shift from a monthly invoicing model to one in which you send invoices every
time you complete a certain amount of work. For example, if your small business is an
advertising agency, send your invoice not on Nov. 30, but whenever you complete a present
number of campaigns, ad spends or other initiatives that month.

2. Adjust your inventory as needed.

Check your inventory to identify items that aren’t selling well. These products harm your cash
flow, as the cash you’ve spent to obtain them isn’t converting to sales and thus revenue. You
can address this cash flow concern by selling these less frequently purchased items for
discounted prices and not buying additional stock after you deplete what you currently have.
Similarly, you can always invest more into stocking items that do sell well.

3. Lease your equipment instead of buying it.

Even though it’s usually cheaper over the long term, buying new equipment and updating
outdated equipment can be costly in the short term (not to mention time-consuming). Leasing
your equipment instead can lessen your short-term financial burden. You won’t have to upgrade
or try to sell outdated equipment that you’ve purchased, and equipment leases often qualify for

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tax credits that lower your tax burden. As such, you’ll have less cash leaving your bank in large
lump sums and maintain a more regular cash flow.

4. Borrow money before you need it.

The best time to solve a cash flow problem is before it happens. If your business is running
smoothly or is in the beginning stages of production, now is the time to borrow money. By
opening a business line of credit when your numbers are good, you can avoid the risk of
rejection later. This will also provide you with resources to fall back on should you experience
any growing pains associated with starting a business. Arora said that a business line of credit
can be a lifeline for small businesses, particularly those impacted by seasonality.

“Whatever amount you think you will need, ask for double; you might not get it, but it’s better to
have reserves to draw from when times get tough,” he said. “If you can get a small business
loan at 10% or less, your cost of capital will be so much lower than if you put purchases on
credit cards that carry rates of 19% or more.”

For businesses that have already been consumed with high-interest credit card debt, Arora
recommends refinancing. For example, if you made several purchases on credit cards that
come at interest rates of 20% or more, consider getting a business line of credit, which might be
available for as low as 6% or 7% interest.

If you have yet to open any credit cards and are struggling for a loan, Singer suggests getting a
small business credit card with an interest-free grace period to support your short-term financing
needs. He said that credit cards can highlight opportunities to save and that many even come
with innovative reporting options that illustrate spending trends to help business owners
optimize their cash flow.

5. Revaluate your business operations.

Continually review your cost structure to find efficiency gaps and implementations that can be
modified to increase savings. Arora suggests identifying parts of the operation that can be
outsourced to freelancers and third-party providers. This will allow you to get the job done
without providing salary and benefits. He also suggests that businesses scale back part-time
staff during slow periods.

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“Certain areas of business operations can be re-evaluated and updated for efficiency,” he said.
“[These include] shipping costs, use of middlemen, extra employees, allotted overtime,
marketing returns, overdue invoices, rented equipment payments, stocking up on materials
when tariffs are low and potentially asking vendors for a break.”

As the economy changes, your business strategies will change, too. Always look for ways to
improve your product and invest in smarter solutions.

6. Restructure your payments and collections.

Depending on whom you’re working with, you may be able to put off some payments to your
vendors until your business is financially healthy. Do your best to maintain a healthy relationship
and avoid late fees.

Restructure your payments to your vendors to create a more balanced income for your
business. By doing this, you can turn your vendors into lenders. If you are unable to restructure
payment dates, consider restructuring payment costs. You can do this by meeting with new
vendors that can potentially provide inventory and supplies at a better cost. Arora said that even
if you are not looking to replace your current vendors, you can use the information from
competitors as leverage to get better pricing.

You can also benefit from restructuring how your employees are paid. Although it’s a minor
detail, how often your business runs payroll can provide some cost savings. Shvarts said that
switching to a less frequent pay schedule can save on the administrative costs of collecting,
verifying and tabulating payroll information. Implementing direct deposit can help stabilize your
payroll withdrawals as well. If you already have a payroll system in place, be sure to assess any
fees associated with changing the frequency.

Choosing the best debt collection process can make a big difference as well. It is important that
you are prompt on your collections and take aggressive follow-up action on past-due accounts
receivable when necessary. Set up a continual collections process of reminding accounts
receivable when and how much they owe you. Invoices that slip through the cracks can add up.

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7. Monitor where your money is going.
Taking on debt isn’t always a bad thing. Sometimes borrowing money can be a temporary fix
until your business is healthy enough to make it on its own. However, anytime you take on debt,
you should carefully monitor and evaluate the extent of your cash flow.

“While taking on debt can be key to coasting through hard times, a business should still
calculate how much debt they can take on as to not be overleveraged,” Shvarts said. “The debt
will be paid back either through investing in growth or once an invoice is paid by the client, but
those both require factoring in time, interest, ROI and more.”

Strategically borrowing money can be a viable option, if you have a repayment plan in place.
You should monitor your other expenses and make changes where needed. You may have to
shift from a long-term investment mindset, such as buying equipment, to a short-term survival
mindset, such as leasing equipment.

Alongside examining your debt and expenses, you should monitor your savings. Although
balancing growth capital and working capital can be difficult when working with thin profit
margins, Shvarts said it’s important to maintain a rainy-day reserve. If you don’t have a business
savings account, it may be time to re-evaluate your profit structure.

“Keep reserves of extra cash, not just for hard times, but for when a growth opportunity comes
along or financial flexibility is needed,” Shvarts said. “Growing a business greatly strains cash
flow, [since] you must invest and bring on expenses before the higher revenue kicks in. Grow,
expand, turn your small business into a big business, but still save some money for an
unexpected market dip while you’re in the process of expanding.” [Related: Leverage software
and technology by utilizing the best accounting software for small businesses.

8. Take advantage of technology.

As a business owner, you should take advantage of technological advances and artificial
intelligence-enabled solutions, like new apps and software updates. These can streamline your
business processes and increase efficiency. Although technology can help with any sector of
your business, Shvarts specifically recommends using it to create budgets and project cash
flow.

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“When you can see all accounts payable and accounts receivable, plus the other financial
intricacies of your business, in one spreadsheet, you can budget and easily project future cash
flow,” he said. “Depending on which software you choose, your information will be secure in the
cloud, so you won’t risk misplacing or damaging paper documents.”

The right technology and the right business strategies can make a big difference for your
company. They allow you to spend less time worrying about cash flow and more time running
your business. If you don’t feel confident in overseeing your cash inflow and outflow, you can
always hire a CPA or bookkeeper to do it for you. Regardless of who manages your cash flow, it
needs to be done.

“The point of running a business is to make sure your revenues exceed your expenses and to
generate a profit,” Arora said. “Managing cash flow is critically important to running a profitable
business [for the] long term.”

9. Consider loan options.

Sometimes, all a company needs is a quick cash injection. Look at what line of credit, business
loan and other financing options are out there. Invoice factoring and invoice financing are also
great ways to get advanced payment on outstanding invoices. It can help your company get the
money it deserves earlier than a client is willing to pay. Remember, you should be taking on
debt only if it’s advantageous for your company.

The difference between cash flow and profitability

Cash flow is not the same as profitability. A profitable business can still be unable to pay its bills.
Similarly, just because a business is meeting all its financial obligations doesn’t mean it’s
profitable.

Profit is a basic small business accounting term, which only exists on paper. Measuring profit is
a particular way of looking at a business. It doesn’t tell you a whole lot about how the business
is getting by day-to-day.

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How to calculate profit

The first step to calculating profit is to take your total revenue and then subtract the cost of
goods sold. The difference is your gross profit.

Revenue – Cost of Goods Sold = Gross Profit

For example, if you sold R100,000 in rocking chairs and the chairs themselves cost you
R50,000 wholesale, your gross profit would be R50,000.

Revenue: R100,000
Cost of Goods Sold -R50,000
Gross Profit: R50,000

Of course, you would probably have other expenses beyond buying the chairs. For example,
you’d need a place to store the chairs, and you might want to run some ads to get more sales.
These expenses are called operating expenses, and they get subtracted from your gross profit.

Operating expenses include most costs that don’t directly connect to what you sell—things like
rent, equipment, payroll, and marketing.

The second step is to subtract operating expenses from gross profit. The difference is net profit.

Gross Profit – Operating Expenses = Net Profit

Revenue: R100,000
Cost of Goods Sold: -R50,000
Gross Profit: R50,000
Operating Expenses: -R35,000
Net Profit: R15,000

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If your net profit is a positive number, you made money. If it’s a negative number, you lost
money. This report is called the income statement, or profit and loss (P&L).

The “problem” with profit

In relation to small business cash flow management, the problem with income statements is that
they don’t show your whole business. A few essential pieces of information are missing.

1. Debt repayment

If you have any business loans or other start-up capital to repay, it won't show up here. Only the
interest on those loans is included on a P&L, even though debt repayments can eat up a lot of
cash.

2. Equipment payments

Similarly, if you make a significant equipment purchase, the entire cost will not show up in this
section. Instead, that cost will get spread out over the lifetime of the equipment. If you spend
R100,000 on a canning line and you think it will last you 10 years, your income statement will
show an expense of R10,000/year for 10 years, even if you had to pay all of it upfront.

3. Taxes

Note that your net profit isn’t taxed at this point, which means it will shrink even more. Even if all
your profit is available in cash, you won’t be able to run out and spend it all in one place.

4. Cash received

Finally, many businesses use accrual accounting, which records revenue even if you haven't
received the money yet. On paper, you might have R200,000 in sales, but if no one has paid
you yet, you’re still going to have a hard time paying your bills.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

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Question 1:

Question 2:

Question 3:

Question 4:

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 D

Question 5:

Question 6:

Question 7:

Question 8:

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 A

Question 9:

Question 10:

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

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 B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

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TOPIC 8: BASIC BUSINESS FINANCIAL STATEMENT

What Are Financial Statements?

Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statements are often audited by government agencies,
accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.
Financial statements include the
• Balance sheet
• Income statement
• Cash flow statement
• Financial statements are written records that convey the business activities and the
financial performance of a company.
• The balance sheet provides an overview of assets, liabilities, and stockholders' equity
as a snapshot in time.

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 • The income statement primarily focuses on a company’s revenues and expenses
during a particular period. Once expenses are subtracted from revenues, the
statement produces a company's profit figure called net income.
• The cash flow statement (CFS) measures how well a company generates cash to
pay its debt obligations, fund its operating expenses, and fund investments.

Understanding Financial Statements

Investors and financial analysts rely on financial data to analyse the performance of a company
and make predictions about the future direction of the company's stock price. One of the most
important resources of reliable and audited financial data is the annual report, which contains
the firm's financial statements.
The financial statements are used by investors, market analysts, and creditors to evaluate a
company's financial health and earnings potential. The three major financial statement reports
are the balance sheet, income statement, and statement of cash flows.

Balance Sheet
The balance sheet provides an overview of a company's assets, liabilities, and stockholders'
equity as a snapshot in time. The date at the top of the balance sheet tells you when the
snapshot was taken, which is generally the end of the reporting period. Below is a breakdown of
the items in a balance sheet.

Assets
• Cash and cash equivalents are liquid assets, which may include Treasury bills and
certificates of deposit.
• Accounts receivables are the amount of money owed to the company by its
customers for the sale of its product and service.
• Inventory

Liabilities
• Debt including long-term debt
• Wages payable
• Dividends payable

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Shareholders' Equity
• Shareholders' equity is a company's total assets minus its total liabilities.
Shareholders' equity represents the amount of money that would be returned to
shareholders if all the assets were liquidated and all the company's debt was paid
off.
• Retained earnings are part of shareholders' equity and are the amount of net
earnings that were not paid to shareholders as dividends.

Income Statement
Unlike the balance sheet, the income statement covers a range of time, which is a year for
annual financial statements and a quarter for quarterly financial statements. The income
statement provides an overview of revenues, expenses, net income, and earnings per share.

Revenue
Operating revenue is the revenue earned by selling a company's products or services. The
operating revenue for an auto manufacturer would be realized through the production and sale
of autos. Operating revenue is generated from the core business activities of a company.

Non-operating revenue is the income earned from non-core business activities. These revenues
fall outside the primary function of the business. Some non-operating revenue examples
include:
• Interest earned on cash in the bank
• Rental income from a property
• Income from strategic partnerships like royalty payment receipts
• Income from an advertisement display located on the company's property
• Other income is the revenue earned from other activities. Other income could include
gains from the sale of long-term assets such as land, vehicles, or a subsidiary.

Expenses
Primary expenses are incurred during the process of earning revenue from the primary activity
of the business. Expenses include the cost of goods sold (COGS), selling, general and
administrative expenses

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Cash Flow Statement
The cash flow statement (CFS) measures how well a company generates cash to pay its debt
obligations, fund its operating expenses, and fund investments. The cash flow statement
complements the balance sheet and income statement.

The CFS allows investors to understand how a company's operations are running, where its
money is coming from, and how money is being spent. The CFS also provides insight as to
whether a company is on a solid financial footing.

There is no formula, per se, for calculating a cash flow statement. Instead, it contains three
sections that report cash flow for the various activities for which a company uses its cash. Those
three components of the CFS are listed below.

Operating Activities
The operating activities on the CFS include any sources and uses of cash from running the
business and selling its products or services. Cash from operations includes any changes made
in cash, accounts receivable, depreciation, inventory, and accounts payable. These transactions
also include wages, income tax payments, interest payments, rent, and cash receipts from the
sale of a product or service.

Investing Activities
Investing activities include any sources and uses of cash from a company's investments into the
long-term future of the company. A purchase or sale of an asset, loans made to vendors or
received from customers, or any payments related to a merger or acquisition is included in this
category.

Also, purchases of fixed assets such as property, plant, and equipment (PPE) are included in
this section. In short, changes in equipment, assets, or investments relate to cash from
investing.

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What Goes on an Income Statement?
An income statement, also called a profit and loss statement, lists a business’s revenues,
expenses and overall profit or loss for a specific period. An income statement reports the
following line items:

• Sales: Revenue generated from the sale of goods and services

• Cost of Goods Sold: Including labour and material costs
• Gross Profit: The cost of goods sold subtracted from sales
• General and Administrative Expenses: Includes rent, utilities, salary, etc.
• Earnings Before Tax: Your business’s pre-tax income
• Net Income: The total revenue minus total expenses, which gives the profit or loss
The end goal of the income statement is to show a business’s net income for a specific
reporting period. If the net income is a positive number, the business reports a profit. If it’s a
negative number, the business reports a loss.

What Goes on a Balance Sheet?

A balance sheet reports a business’s assets, liabilities and equity at a specific point in time. A
balance sheet is broken into two main sections: assets on one side and liabilities and equity on
the other side. The balance sheet formats require the two sides must balance out, meaning
they should be equal. It reports the following line items:

• Current Assets: Assets that will be converted to cash within a year, including
accounts receivable, inventory and prepaid expenses

• Long-Term Assets: Assets that won’t be converted to cash within a year, including
land, buildings and equipment

• Current Liabilities: Debts owed within a year, including rent, utilities, taxes and
payroll

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 • Long-Term Liabilities: Long-term business loans, pension fund liabilities

• Shareholders’ Equity: A business’s net assets, including money generated by the

business and donated capital
• Amortization Expenses: These are also called depreciation expenses, and account
for any long-term assets over the life span of their use (such as cars or expensive
technology)

• Account Balances: The amount of money that is in your financial accounts at any
given time, after debits and credits have been accounted for. This includes any long-
term saving accounts or checking accounts.

The balance sheet tells you what your business owns and what it owes to others on a specific
date. It gives a snapshot of the business’s overall worth.

How Do You Prepare a Balance Sheet from an Income Statement?

A business’s financial statements are all interconnected and they report some of the same
information, but for different purposes. Because some of your financial statements draw from
data reported on other statements, there’s a particular order you should follow when preparing
them, which is why we have prepared the following financial statement example:
• Income Statement
• Balance Sheet
• Cash Flow Statement

To prepare a balance sheet, you need to calculate net income. Net income is the final
calculation included on the income statement, showing how much profit or loss the business
generated during the reporting period. Once you’ve prepared your income statement, you can
use the net income figure to start creating your balance sheet.

Using a balance sheet template will streamline the next step of the process, so that you don’t
have to manually insert all the fields yourself. This is a vital step towards understanding the core
strength of a company, and to assess the business performance.

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On the balance sheet, net income appears in the retained earnings line item. Net income affects
how much equity a business reports on the balance sheet.

The Relationship Between Income Statement and Balance Sheet

In double-entry bookkeeping, the income statement and balance sheet are closely related.
Double-entry bookkeeping involves making two separate entries for every business transaction
recorded. One of these entries appears on the income statement and the other appears on the
balance sheet.

To have a more thorough look at how double-entry bookkeeping works, head to FreshBooks for
a gallery of income statement templates.

Every time a sale or expense is recorded, affecting the income statement, the assets or
liabilities are affected on the balance sheet. When a business records a sale, its assets will
increase, or its liabilities will decrease. When a business records an expense, its assets will
decrease or its liabilities will increase.

In this way, the income statement and balance sheet are closely related. Balance sheets will
show a more thorough overview of the security and investment health of a business, however
they are both indispensable financial statements.

Dummies.com put together this helpful illustration demonstrating just how closely the two
reports tie together:

The Difference Between an Income Statement and Balance Sheet

The income statement and balance sheet report different financial accounting information about
your business. The key differences between the two reports include:

• Line Items Reported: The income statement reports revenue, expenses and profit
or loss, while the balance sheet reports assets, liabilities and shareholder equity.

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 • Timing: The income statement reports on financial performance for a specific time
range, often a month, quarter or year. The balance sheet reports on financial activity
for one specific date.

• Metrics: The line items on the income statement are compared to the sales figure to
find your company’s gross margin, operating income and net income, as
percentages. The line items on the balance sheet can be used to understand the
liquidity of your business. Recording financial business activities in this section helps
keep track of the strength of the company.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

Question 3:

118
 B

Question 4:

Question 5:

Question 6:

Question 7:

119
 A

Question 8:

Question 9:

Question 10:

120
Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

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TOPIC 9: PRICING OF GOODS AND SERVICES

What is pricing of goods?

Pricing is a process of fixing the value that a manufacturer will receive in the exchange of
services and goods. Pricing method is exercised to adjust the cost of the producer's offerings
suitable to both the manufacturer and the customer.

What is product pricing?

Product pricing is the process of determining the quantitative value of a product based on both
internal and external factors. Product pricing has a direct impact on the overall success of your
business - from cash flow to profit margins to customer demand.

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What Are Price Controls?
The term "price controls" refers to the legal minimum or maximum prices set for specified
goods. Price controls are normally mandated by the government in the free market. They are
usually implemented as a means of direct economic intervention to manage the affordability of
certain goods and services, including rent, gasoline, and food. Although it may make certain
goods and services more affordable, price controls can often lead to disruptions in the market,
losses for producers, and a noticeable change in quality.
• Price controls are government-mandated minimum or maximum prices set for
specific goods and services.

• Price controls are put in place to manage the affordability of goods and services on
the market.

• Minimums are called price floors while maximums are called price ceilings.

• These controls are only effective on an extremely short-term basis.

Over the long term, price controls can lead to problems such as shortages, rationing,
inferior product quality, and illegal markets.

How should I price my products?

There are a lot of articles and advice about product pricing. It’s easy to fall into a black hole if it’s
your first time pricing a product. Fortunately, there is a simple way to price products so that you
sell profitably.

Pricing touches everything from your business finances to your product’s positioning in the
market with considerations like whether it's timeless, bespoke, or a short-lived trending product.
It also factors into how you make a profit selling on online selling sites. It’s a key strategic
decision you need to make for your business, and it can be just as much an art as it is a
science.

But it’s not a decision you only get to make once.

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If you’re trying to find the retail price of your product, there is a relatively quick and
straightforward way to set a starting price. Remember, just because it’s the price you use to
launch doesn’t mean it’s the price you’ll use forever.

To set your first price, add up all the costs involved in bringing your product to market, set your
profit margin on top of those expenses, and there you have it. This strategy is called cost-plus
pricing, and it’s one of the simplest ways to price your product.

How to price your product

There are three straightforward steps to calculating a sustainable price for your product.

• Add up your variable costs (per product)

• Add a profit margin

• Don’t forget about fixed costs

1. Add up your variable costs (per product)

First and foremost, you need to understand all the costs involved in getting each product out the
door. If you order products, you’ll have a straightforward answer as to how much each unit costs
you, which is your cost of goods sold.

If you make your products, you’ll need to dig a bit deeper and look at a bundle of your raw
materials, labour costs, and overhead costs. How much does that bundle cost, and how many
products can you create from it? That will give you a rough estimate of your cost of goods sold
per item.

However, you shouldn’t forget the time you spend on your business is valuable, too. To price
your time, set an hourly rate you want to earn from your business, and then divide that by how
many products you can make in that time. To set a sustainable price, make sure to incorporate
the cost of your time as a variable product cost.

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Here’s a sample list of costs you might incur on each product.

Cost of goods sold R3.25

Production time R2.00

Packaging R1.78

Promotional materials R0.75

Shipping R4.50

Affiliate commissions R2.00

Total per-product cost R14.28

In this example, your total per-product cost is R14.28.

Wondering what kind of promotional materials you might need for your products? One of the
most common ones in an ecommerce context is marketing materials or additional gifts to level
up your ecommerce packaging and unboxing experience.

2. Add a profit margin

Once you’ve got a total number for your variable costs per product sold, it’s time to build profit
into your price.

Let’s say you want to earn a 20% profit margin on your products on top of your variable costs.
When you’re choosing this percentage, it’s important to remember two things:

You haven’t included your fixed costs yet, so you will have costs to cover beyond just your
variable costs.

You need to consider the overall market and make sure that your price range still falls within the
overall “acceptable” price for your market. If you’re two times the price of all your competitors,
you might find sales become challenging depending on your product category.

Once you’re ready to calculate a price, take your total variable costs and divide them by 1 minus
your desired profit margin, expressed as a decimal. For a 20% profit margin, that’s 0.2, so you’d
divide your variable costs by 0.8.

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In this case, that gives you a base price of R17.85 for your product, which you can round up to
R18.

Target price = (Variable cost per product) / (1 - your desired profit margin as a decimal)

3. Don’t forget about fixed costs

Variable costs aren’t your only costs.

Fixed costs are the expenses that you’d pay no matter what, and that stays the same whether
you sell 10 products or 1,000 products. They’re an important part of running your business, and
the goal is that they’re covered by your product sales as well.

When you’re picking a per-unit price, it can be tricky to figure out how your fixed costs fit in. A
simple way to approach this is to take the information about variable costs you’ve already
gathered and set them up in this break-even calculator spreadsheet. To edit the spreadsheet,
go to File > Make a copy to save a duplicate that’s only accessible by you.

It’s built to look at your fixed costs and your variable costs in one place, and to see how many
units you’d need to sell of a single product to break even at your chosen price. These
calculations can help you make an informed decision about the balance between covering your
fixed costs and setting a manageable and competitive price.

Find out everything you need to know about performing a break-even analysis, including what to
watch out for and how to interpret and adjust based on your numbers.

How to Price Your Product in 5 Steps

Setting prices that allow your business to sustain itself is essential to continued success and
growth as a company. Thankfully, it's quite feasible to create a practical pricing model. Here's
how to do it:

1. Study the market. If you're bringing a new product into an existing market, you need to
research price points for similar products. Customers will have an inherent sense of fair product
pricing within your sector, and you need to meet their expectations. If you plan to vary drastically

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from your competitors' prices, there should be a clear reason for doing so. In the world of easy
online searches, always assume that the public is aware of how much your competitors charge.

2. Assess your costs. On an ongoing basis, a business must cover both fixed costs and
variable costs that go into making their product. Fixed costs include things like real estate
leases, insurance payments, and annual taxes that some businesses owe to states regardless
of income. Variable costs depend on the number of products you manufacture; they include raw
materials and labour costs (employee wages plus benefits). There may also be costs from the
product development process that you need to pay down. These all combine to form your total
cost.

3. Decide how your product will be sold. If you plan to sell your product yourself via an online
store or your own shop, you'll be going direct to the consumer. If you sell your product to a retail
store, the store will add cost to cover their own bottom line—a model known as cost-plus
pricing. If your product is in stores, those retailers won't want you undercutting them by offering
lower prices online. A simple way to address this is to either mark up the price of the product on
your own website (so that it matches the in-store retail price). Alternatively, you can opt to only
sell in either retail stores or direct-to-customer. Many retailers won't allow you to do both.

4. Decide whether you're aiming for the high-end, middle, or low-end consumer. Different
prices connote different messages about your product or service. A higher price may imply that
your product has a higher value, but it may repel savvy bargain hunters or potential customers
with limited incomes. Lower prices may (fairly or unfairly) imply lower quality, but a low product
price can often lead to a high sales volume. Meanwhile, a middle-of-the-road price suggests a
standard-issue, reliable product. This can work for certain types of goods (like groceries) and
services (like auto repair). On the other hand, a mid-tier pricing structure lacks both the high
profit margins of the luxury market and the massive volume of the bargain market.

5. Monitor progress over time. Most small business owners need time to assess the true
market value of their goods or services. To succeed in the long run, you'll need to monitor sales
and see if the dollar amount you've assigned to your product comports with the dollar amount
the public is willing to pay. If it's hard to keep up with demand, you may have reason to raise

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your prices. If sales are low, you may have to offer a sale price (or slash the normal retail price)
to establish a customer base. The most successful businesses respond ably to market trends.
Pay attention to your customers; if you can continually address their needs while maintaining
the necessary cash flow, you can count on a long, prosperous lifespan for your product.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

Question 3:

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Question 4:

Question 5:

Question 6:

Question 7:

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 C

Question 8:

Question 9:

Question 10:

Question 11:

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 A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

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TOPIC 10: MARKETING

What Is Marketing?
Marketing refers to activities a company undertakes to promote the buying or selling of a
product or service. Marketing includes advertising, selling, and delivering products to consumers
or other businesses. Some marketing is done by affiliates on behalf of a company.

Professionals who work in a corporation's marketing and promotion departments seek to get the
attention of key potential audiences through advertising. Promotions are targeted to certain
audiences and may involve celebrity endorsements, catchy phrases or slogans, memorable
packaging or graphic designs and overall media exposure.

• Marketing refers to all activities a company does to promote and sell products or
services to consumers.
• Marketing makes use of the "marketing mix," also known as the four Ps—product,
price, place, and promotion.
• At its core, marketing seeks to take a product or service, identify its ideal customers,
and draw the customers' attention to the product or service available.

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Understanding Marketing
Marketing as a discipline involves all the actions a company undertakes to draw in customers
and maintain relationships with them. Networking with potential or past clients is part of the work
too, and may include writing thank you emails, playing golf with prospective clients, returning
calls and emails quickly, and meeting with clients for coffee or a meal.

At its most basic level, marketing seeks to match a company's products and services to
customers who want access to those products. Matching products to customers ultimately
ensure profitability.

Product
Product refers to an item or items the business plans to offer to customers. The product should
seek to fulfil an absence in the market or fulfil consumer demand for a greater amount of a
product already available. Before they can prepare an appropriate campaign, marketers need to
understand what product is being sold, how it stands out from its competitors, whether the
product can also be paired with a secondary product or product line, and whether there are
substitute products in the market.

Price
Price refers to how much the company will sell the product for. When establishing a price,
companies must consider the unit cost price, marketing costs, and distribution expenses.
Companies must also consider the price of competing products in the marketplace and whether
their proposed price point is sufficient to represent a reasonable alternative for consumers.

Place
Place refers to the distribution of the product. Key considerations include whether the company
will sell the product through a physical storefront, online, or through both distribution channels.
When it's sold in a storefront, what kind of physical product placement does it get? When it's
sold online, what kind of digital product placement does it get?

Promotion
Promotion, the fourth P, is the integrated marketing communications campaign. Promotion
includes a variety of activities such as advertising, selling, sales promotions, public relations,
direct marketing, sponsorship, and guerrilla marketing.

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Promotions vary depending on what stage of the product life cycle the product is in. Marketers
understand that consumers associate a product’s price and distribution with its quality, and they
take this into account when devising the overall marketing strategy.

What Are the Goals of Marketing?

An important goal of marketing is propelling a company’s growth. This can be seen through
attracting and retaining new customers.

Companies may apply several different marketing strategies to achieve these goals. For
instance, matching products with customers' needs could involve personalization, prediction,
and essentially knowing the right problem to solve.

Another strategy is creating value through the customer experience. This is demonstrated
through efforts to elevate customer satisfaction and remove any difficulties with the product or
service.

Types Of Marketing Plans And Strategies

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The strategies are defined by whether the focus is on new or existing products and new or
existing markets.

1. Market Penetration Strategy

When a firm focuses on selling its current products to existing customers, it is pursuing a market
penetration strategy. The marketing activities that will dominate in this type of marketing plan
are those that emphasize increasing the loyalty of existing customers so that they are not
vulnerable to loss to competitors, attracting competitors’ customers, increasing the frequency of
product use, and converting nonusers into users.

Increasing awareness through marketing communications and increasing availability through

expanded distribution are common marketing activities in this type of plan. Identifying new use
occasions and new uses for a product may increase usage frequency or convert current
nonusers into users. For example, the advertising campaign for orange juice that has the tagline
“It’s not just for breakfast anymore” was an effort to expand usage. Price promotions might be
used to encourage competitors’ customers to try the firm’s product if there is reason to believe
that such a trial will result in repeat purchases. Loyalty programs can be very effective in
retaining existing customers. This strategy reduces risk by relying on what the firm already
knows well—its existing products and existing customers. It is also a strategy where
investments in marketing should pay back more quickly because the firm is building on an
existing foundation of customer relationships and product knowledge.

2. Market Development Strategy

The efforts to expand sales by selling current products in new markets are referred to as a
market development strategy. Such efforts may involve entering new geographic markets, such
as international markets. Creating product awareness and developing distribution channels are
key marketing activities. Some product modification may be required to better match the needs
of the local market. For example, as fast-food restaurants have moved into international
markets, they have often changed their menus to better match the food preferences of
customers in local markets. Expanding into a new market with an existing product carries some
risk because the new market is not well known to the firm and the firm and its products are not
well known in the market. The return on marketing investments in such a strategy is likely to be

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longer than for a market penetration strategy because of the time required to build awareness,
distribution, and product trial.

3. Product Development Strategy

Creating new products to sell to existing customers, a product development strategy, is a
common marketing strategy among firms that can leverage their relationships with existing
customers. For example, American Express has been able to leverage its relationships with its
credit card customers to also sell travel-related services. Similarly, cable television companies
have expanded their offerings into Internet and telephone services. Research and development
activities play a dominant role in this strategy. The time required to develop and test new
products may be long, but once a product is developed, creating awareness, interest, and
availability should be relatively rapid because the firm already has a relationship with customers.
A product development strategy is also riskier than a market penetration strategy because the
necessary product may not be possible to develop, at least at a cost acceptable to customers,
or the product developed does not match the needs of customers.

4. Diversification Strategy
A diversification strategy involves taking new products into new markets. This is really the
creation of a completely new business. This is the riskiest of strategies and the strategy likely to
require the most patience in waiting for a return on investment.

Types of Marketing
Where your marketing campaigns live depends entirely on where your customers spend their
time. It's up to you to conduct market research that determines which types of marketing -- and
which mix of tools within each type -- is best for building your brand. Here are several types of
marketing that are relevant today, some of which have stood the test of time:

• Internet marketing: Inspired by an Excedrin product campaign that took place

online, the very idea of having a presence on the internet for business reasons is a
type of marketing in and of itself.

• Search engine optimization: Abbreviated "SEO," this is the process of optimizing

content on a website so that it appears in search engine results. It's used by

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 marketers to attract people who perform searches that imply they're interested in
learning about a particular industry.

• Blog marketing: Blogs are no longer exclusive to the individual writer. Brands now
publish blogs to write about their industry and nurture the interest of potential
customers who browse the internet for information.

• Social media marketing: Businesses can use Facebook, Instagram, Twitter,

LinkedIn, and similar social networks to create impressions on their audience over
time.
• Print marketing: As newspapers and magazines get better at understanding who
subscribes to their print material, businesses continue to sponsor articles,
photography, and similar content in the publications their customers are reading.

• Search engine marketing: This type of marketing is a bit different than SEO, which
is described above. Businesses can now pay a search engine to place links on
pages of its index that get high exposure to their audience. (It's a concept called
"pay-per-click" -- I'll show you an example of this in the next section).

• Video marketing: While there were once just commercials, marketers now put
money into creating and publishing all kinds of videos that entertain and educate
their core customers.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

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 D

Question 2:

Question 3:

Question 4:

Question 5:

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 A

Question 6:

Question 7:

Question 8:

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Question 9:

Question 10:

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

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 A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

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TOPIC 11: SMART GOALS

What are SMART Goals?

Goals are part of every aspect of business/life and provide a sense of direction, motivation, a
clear focus, and clarify importance. By setting goals, you are providing yourself with a target to
aim for. A SMART goal is used to help guide goal setting. SMART is an acronym that stands for
Specific, Measurable, Achievable, Realistic, and Timely. Therefore, a SMART goal incorporates
all these criteria to help focus your efforts and increase the chances of achieving your goal.

SMART goals are:

• Specific: Well defined, clear, and unambiguous

• Measurable: With specific criteria that measure your progress toward the
accomplishment of the goal

• Achievable: Attainable and not impossible to achieve

• Realistic: Within reach, realistic, and relevant to your life purpose

• Timely: With a clearly defined timeline, including a starting date and a target date.
The purpose is to create urgency.

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Specific SMART Goals

Goals that are specific have a significantly greater chance of being accomplished. To make a
goal specific, the five “W” questions must be considered:

• Who: Who is involved in this goal?

• What: What do I want to accomplish?

• Where: Where is this goal to be achieved?

• When: When do I want to achieve this goal?

• Why: Why do I want to achieve this goal?

For example, a general goal would be “I want to get in shape.” A more specific goal would be “I
want to obtain a gym membership at my local community centre and work out four days a week
to be healthier.”

Measurable SMART Goals

A SMART goal must have criteria for measuring progress. If there are no criteria, you will not be
able to determine your progress and if you are on track to reach your goal. To make a goal
measurable, ask yourself:

• How many/much?

• How do I know if I have reached my goal?

• What is my indicator of progress?

For example, building on the specific goal above: I want to obtain a gym membership at my
local community centre and work out four days a week to be healthier. Every week, I will aim to
lose one pound of body fat.

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Achievable SMART Goals

A SMART goal must be achievable and attainable. This will help you figure out ways you can
realize that goal and work towards it. The achievability of the goal should be stretched to make
you feel challenged but defined well enough that you can achieve it. Ask yourself:

Do I have the resources and capabilities to achieve the goal? If not, what am I missing?

Have others done it successfully before?

Realistic SMART Goals

A SMART goal must be realistic in that the goal can be realistically achieved given the available
resources and time. A SMART goal is likely realistic if you believe that it can be accomplished.
Ask yourself:

• Is the goal realistic and within reach?

• Is the goal reachable, given the time and resources?

• Are you able to commit to achieving the goal?

Timely SMART Goals

A SMART goal must be time-bound in that it has a start and finish date. If the goal is not time-
constrained, there will be no sense of urgency and, therefore, less motivation to achieve the
goal. Ask yourself:

• Does my goal have a deadline?

• By when do you want to achieve your goal?

For example, building on the goal above: On August 1, I will obtain a gym membership at my
local community centre. To be healthier, I will work out four days a week. Every week, I will aim
to lose one pound of body fat. By the end of August, I will have realized my goal if I lose four
pounds of fat over the course of the month.

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The Importance of SMART Goal Setting

Often, individuals or businesses will set themselves up for failure by setting general and
unrealistic goals such as “I want to be the best at X.” This goal is vague, with no sense of
direction.

SMART goals set you up for success by making goals specific, measurable, achievable,
realistic, and timely. The SMART method helps push you further, gives you a sense of direction,
and helps you organize and reach your goals.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

Question 2:

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Question 3:

Question 4:

Question 5:

Question 6:

146
Question 7:

Question 8:

Question 9:

Question 10:

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 C

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

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REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

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TOPIC 12: BUSINESS PLANNING

What Is a Business Plan?

A business plan is a document that defines in detail a company's objectives and how it plans to
achieve its goals. A business plan lays out a written roadmap for the firm from marketing,
financial, and operational standpoints. Both start-ups and established companies use business
plans.

A business plan is an important document aimed at a company's external and internal

audiences. For instance, a business plan is used to attract investment before a company has
established a proven track record. It can also help to secure lending from financial institutions.

• A business plan is a document describing a company's core business activities and

how it plans to achieve its goals.
• Start-up companies use business plans to get off the ground and attract outside
investors.

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 • A business plan can also be used as an internal guide to keep an executive team
focused on and working toward short- and long-term objectives.
• Businesses may create a lengthier traditional business plan or a shorter lean start-up
business plan.
• Good business plans should include an executive summary and sections on products
and services, marketing strategy and analysis, financial planning, and a budget.

Understanding Business Plans

A business plan is a fundamental document that any new business should have in place prior to
beginning operations. Indeed, banks and venture capital firms often require a viable business
plan before considering whether they'll provide capital to new businesses.

Operating without a business plan usually is not a good idea. In fact, very few companies can
last very long without one. There are benefits to creating (and sticking to) a good business plan.
These include being able to think through ideas before investing too much money in them and
working through potential obstacles to success.

A good business plan should outline all the projected costs and possible pitfalls of each decision
a company makes. Business plans, even among competitors in the same industry, are rarely
identical.

However, they can have the same basic elements, such as an executive summary of the
business and detailed descriptions of its operations, products and services, and financial
projections. A plan also states how the business intends to achieve its goals.

The plan should include an overview, and, if possible, details of the industry of which the
business will be a part. It should explain how the business will distinguish itself from its
competitors.

Elements of a Business Plan

The length of a business plan varies greatly from business to business. Consider fitting the
basic information into a 15- to 25-page document. Then, other crucial elements that take up a
lot of space—such as applications for patents—can be referenced in the main document and
included as appendices.

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As mentioned above, no two business plans are the same. Nonetheless, they tend to have the
same elements. Below are some of the common and key parts of a business plan.

• Executive summary: This section outlines the company and includes the mission
statement along with any information about the company's leadership, employees,
operations, and location.

• Products and services: Here, the company can outline the products and services it
will offer, and may also include pricing, product lifespan, and benefits to the
consumer. Other factors that may go into this section include production and
manufacturing processes, any patents the company may have, as well as proprietary
technology. Information about research and development (R&D) can also be
included here.

• Market analysis: A firm needs a good handle on its industry as well as its target
market. This section of the plan will detail a company's competition and how the
company fits in the industry, along with its relative strengths and weaknesses. It will
also describe the expected consumer demand for a company's products or services
and how easy or difficult it may be to grab market share from incumbents.

• Marketing strategy: This section describes how the company will attract and keep
its customer base and how it intends to reach the consumer. A clear distribution
channel must be outlined. The section also spells out advertising and marketing
campaign plans and the types of media those campaigns will use.

• Financial planning: This section should include a company's financial planning and
projections. Financial statements, balance sheets, and other financial information
may be included for established businesses. New businesses will include targets and
estimates for the first few years plus a description of potential investors.
• Budget: Every company needs to have a budget in place. This section should
include costs related to staffing, development, manufacturing, marketing, and any
other expenses related to the business.

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How Does Business Planning Work?
Every new business needs a business plan—a blueprint of how you will develop your new
business, backed by research, that demonstrates how the business idea is viable. If your new
business idea requires investment capital, you will have a better chance of obtaining debt or
equity financing from financial institutions, angel investors, or venture capitalists if you have a
solid business plan to back up your ideas.

• Post-Start-up Business Planning

The business plan isn’t a set-it-and-forget-it planning exercise. It should be a living document
that is updated throughout the life cycle of your business.

Once the business has officially started, business planning will shift to setting and meeting goals
and targets. Business planning is most effective when it’s done on a consistent schedule that
revisits existing goals and projects throughout the year, perhaps even monthly. In addition to
reviewing short-term goals throughout the year, it's also important to establish a clear vision and
lay the path for your long-term success.

• Sales Forecasting
The sales forecast is a key section of the business plan that needs to be constantly tracked and
updated. The sales forecast is an estimate of the sales of goods and services your business is
likely to achieve over the forecasted period, along with the estimated profit from those sales.
The forecast should consider trends in your industry, the general economy, and the projected
needs of your primary customers.

• Cash Flow Analysis

Another crucial component of business planning is cash flow analysis. Avoiding extended cash
flow shortages is vital for businesses, and many business failures can be blamed on cash flow
problems.

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Your business may have a large, lucrative order on the books, but if it can't be invoiced until the
job is completed, then you may run into cash flow problems. That scenario can get even worse
if you must hire staff, purchase inventory, and make other expenditures in the meantime to
complete the project.

Performing regular cash flow projections is an important part of business planning. If managed
properly, cash flow shortages can be covered by additional financing or equity investment.

• Business Contingency Planning

In addition to business planning for profit and growth, your business should have a contingency
plan. Contingency business planning (also known as business continuity planning or disaster
planning) is the type of business planning that deals with crises and worst-case scenarios. A
business contingency plan helps businesses deal with sudden emergencies, unexpected
events, and new information that could disrupt your business.

The goals of a contingency plan are to:

• Provide for the safety and security of yourself, your employees, and your customers
in the event of a fire, flood, robbery, data breach, illness, or some other disaster
• Ensure that your business can resume operations after an emergency as quickly as
possible

Business Succession Planning

If your business is a family enterprise or you have specific plans for who you want to take over
in the event of your retirement or illness, then you should have a plan in place to hand over
control of the business. The issues of management, ownership, and taxes can cause a great
deal of discord within families unless a succession plan is in place that clearly outlines the
process.

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The Better Business Planning Process
The business plan process includes 6 steps as follows:

• Do Your Research
• Strategize
• Calculate Your Financial Forecast
• Draft Your Plan
• Revise & Proofread
Nail the Business Plan Presentation
We’ve provided more detail for each of these key steps below.

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate
Business Plan Template and complete your business plan and financial model in hours.

1. Do Your Research
Conduct detailed research into the industry, target market, existing customer base, competitors,
and costs of the business begins the process. You may ask yourself the following questions:

• What are your business goals?

• What is the current state of your business?
• What are the current industry trends?
• What is your competition doing?
There are a variety of resources needed, ranging from databases and articles to direct
interviews with other entrepreneurs, potential customers, or industry experts. The information
gathered during this process should be documented and organized carefully, including the
source as there is a need to cite sources within your business plan.

You may also want to complete a SWOT Analysis for your own business to identify your
strengths, weaknesses, opportunities, and potential risks as this will help you develop your
strategies to highlight your competitive advantage.

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 2. Strategize
Now, you will use the research to determine the best strategy for your business. You may
choose to develop new strategies or refine existing strategies that have demonstrated success
in the industry. Pulling the best practices of the industry provides a foundation, but then you
should expand on the different activities that focus on your competitive advantage.

This step of the planning process may include formulating a vision for the company’s future,
which can be done by conducting intensive customer interviews and understanding their
motivations for purchasing goods and services of interest. Dig deeper into decisions on an
appropriate marketing plan, operational processes to execute your plan, and human resources
required for the first five years of the company’s life.

3. Calculate Your Financial Forecast

All the activities you choose for your strategy come at some cost and, hopefully, lead to some
revenues. Sketch out the financial situation by looking at whether you can expect revenues to
cover all costs and leave room for profit in the long run.

Begin to insert your financial assumptions and start-up costs into a financial model which can
produce a first-year cash flow statement for you, giving you the best sense of the cash you will
need on hand to fund your early operations.

A full set of financial statements provides the details about the company’s operations and
performance, including its expenses and profits by accounting period (quarterly or year-to-date).
Financial statements also provide a snapshot of the company’s current financial position,
including its assets and liabilities.

This is one of the most valued aspects of any business plan as it provides a straightforward
summary of what a company does with its money, or how it grows from initial investment to
become profitable.

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 4. Draft Your Plan
With financials settled and a strategy decided, it is time to draft through the narrative of each
component of your business plan. With the background work you have completed, the drafting
itself should be a relatively painless process.

If you have trouble writing convincing prose, this is a time to seek the help of an experienced
business plan writer who can put together the plan from this point.

5. Revise & Proofread

Revisit the entire plan to look for any ideas or wording that may be confusing, redundant, or
irrelevant to the points you are making within the plan. You may want to work with other
management team members in your business who are familiar with the company’s operations or
marketing plan to fine-tune the plan.

Finally, proofread thoroughly for spelling, grammar, and formatting, enlisting the help of others
to act as additional sets of eyes. You may begin to experience burnout from working on the plan
for so long and have a need to set it aside for a bit to look at it again with fresh eyes.

6. Nail the Business Plan Presentation

The presentation of the business plan should succinctly highlight the key points outlined above
and include additional material that would be helpful to potential investors such as financial
information, resumes of key employees, or samples of marketing materials. It can also be
beneficial to provide a report on past sales or financial performance and what the business has
done to bring it back into positive territory.

CLASS ASSESSMENT

Please complete the Multiple-Choice Questions in circling the correct answer.

Question 1:

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 D

Question 2:

Question 3:

Question 4:

Question 5:

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 B

Question 6:

Question 7:

Question 8:

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Question 9:

Question 10:

Question 11:

A TRUE

B FALSE

Question 12:

A TRUE

B FALSE

Question 13:

A TRUE

B FALSE

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 Question 14:

A TRUE

B FALSE

Question 15:

A TRUE

B FALSE

REFLECTIVE & ASSESSMENT QUESTIONS

Question 1:

Question 2:

Question 3:

Question 4:

References
https://www.brandingstrategyinsider.com
https://www.entrepreneur.com › article
https://www.investopedia.com › ... › Marketing Essentials

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