CEREALS BUSINESS TRAINING [DAY 8]: How To Start, Grow And Make Profit (Part 1)

Hello followers, welcome to another day of our CEREALS BUSINESS TRAINING.

The retail business in Kenya provides a livelihood for thousands of people. To succeed in the cereals retail business in Kenya, you need creativity and skills.

Retail cereals shops mostly sell almost all kinds of cereals in small quantities. They thrive in towns and rural areas. There are many cereals retail owners that have gained fame from the success of their businesses.

In today and tomorrow`s training, you will learn on how you can start, grow and profit in cereals retail business in Kenya.

Starting a general cereals shop in Kenya requires one to have a good business plan. Before starting your business, do market research and find out items that are in demand and those that are not sold by other cereals retail shops near you.

Find out where you can source those products at a lower price.

Also, understand the market gap within your business location. For instance, many people could be needing posho mill services, but there isn’t any posho mill near the area. This would boost your business and get customers who could also buy your other kinds of cereals.

Potential customers will be general, public who reside in the area. The business will be involved in selling cereals of different varieties and prices according to quality and quantity of the product.

These will include maize, beans, peas, cow peas, flour, rice, muthokoi etc. This will be done purposely to satisfy customers and win them from the exciting competitors hence maximizing profits and allowing expansion of the business in future

At the start up stage you can start with only one branch but more branches can be opened maybe two years after opening of the business.

Availability of capital from the existing business, Increased demand for cereals in the area or other areas and High rate of growth of food industry which relies on cereals can be the major factors that can motivate you to open more branches in various areas.

You can offer all types of cereals like maize, flour, beans of all variety e.g. wairimu, mwezi mmoja, rosecocoa, mwitemania, rice, peas, cowpeas and many others.

This will be of the best quality which will be very expensive and others of low quality that will be cheap for the lower class customers.

There should be a provision of different qualities and quantities.

The business also should provide transport to the customer’s premises when they make orders for the product or they buy in bulk, e.g. half a sack or more at ago.

The cereals should be the best in that;

1. They will be free from weevils.

2. They are sieved and selected to remove chuff and stones.

3. They are of pure strain i.e. not maize with some beans or millet or mixing of high-quality rice with a little of low-quality rice.

In addition the entire business staff should ensure that customers get the best products and services at the most affordable prices; and that they will be offering individual attention.

With increased rural to urban migration the population of Nairobi seems to increase rapidly. Due to unemployment those unemployed mostly get their cheaply available meals from the kiosk and cafes hence growth of cereals stores.

The industry seems to grow also because of the prevailing climatic conditions which favor growth of the plants and on getting good harvests, the crops are sold at a very low price like in Kitale, maize goes at Ksh.40 per kg immediately after harvesting, boasting the business.

Growth will be developed on demand on cereals products. A customer being the base line of every successful business, he will determine the growth of the business.

Growth will also depend on entrepreneur’ public relations and the following professional ethics:

• i. Cleanliness (personal hygiene and the working area)
• ii. Punctuality. Opening at the right time without delay
• iii. Interest and efforts. Ability to keep on trying something new upon a point of success.
• iv. Self-organization of the working place
• v. Co-operation and team-work spirit. Have interest with others, assist and don’t be selfish.
• vi. Self-control. Control your temper, use diplomatic way of approach and know how to solve a business or personal problem.
• vii. Responsibility. Take duties seriously.

All this will contribute to growth and diversification of the business to even other forms of business.

One of the important decisions that an entrepreneur needs to take before launching a Business enterprise is that of selecting the form of Business organization for his/her venture.

Choosing a legal entity for the venture is not a onetime event. The form of organization can be changed from time to time. As a business grows and matures, it becomes necessary to periodically review whether the current form of business remains appropriate.

No single form of business organization works best in all situations and is appropriate. The entrepreneur thus needs to select the best form that meets his needs and that of the enterprise.

Choice of business organization can be based on the following;

• The type and size of Business
• The cost of starting and maintaining the form
• Form of Business liability applicable
• Desired level of autonomy by the entrepreneur
• Tax considerations
• If and the no. and type of investors one wishes to attract
• The level of financing required

A business can be owned by one person or a group of persons and its operations can be controlled by owners or by the managers on behalf of the owners. It can be classified as small, medium or large.

The major forms of Private business organization are;

• Sole proprietorship
• Partnership
• Company

The form of ownership chosen depends on factors like One’s personal capacity to take decisions, bear the risk, economic soundness, educational attainment.

Today we shall teach you about sole proprietorship and partnership which are the 2 main forms for cereals retail business.

We shall teach about company when we shall be covering on cereals wholesale business.

1. SOLE PROPRIETORSHIP

Also called individual proprietorship and is the oldest, simplest and natural type of business organization. This type of business enterprise is established, financed, owned, managed and controlled by an individual entrepreneur.

The owner introduces his own capital, uses his skills and intelligence in the management, assumes all risks and is solely responsible for its operations and is entitled to all profits.

It’s the most popular form in Kenya due to its distinct advantages. Most cereals retail shops, bakeries, hardware stores, boutiques, barber shops, bookshops, grocery stores, beauty parlours are sole proprietorship.

Characteristics of Sole Proprietorship.

• Ownership: The business is owned by one person
• Management and Control: The owner is the active manager who controls the business, however if the business is large he may delegate some responsibilities to some employees.
• Finance; the sole owner provides the necessary finances needed to run the business. If additional finances are required, capital may be increased through borrowing.
• Size of business unit; usually small but not necessarily so.
• No separation between ownership and management – proprietor is also the manager.
• Risk; The proprietor bears all the risk.
• Personal Incentive; the proprietor takes personal interest for the success of the business.
• Independence; the owner is independent and can take quick prompt decisions.
• Legal status; the sole proprietor and his business are considered as one i.e. the assets and liabilities of the business organizations are personal assets and liabilities of the proprietor.
• Unlimited liability;– incase the enterprise incurs loses, the private property of the proprietor can be utilized to meet the business obligations to outside parties. The sole proprietor is personally liable for debts of the business.
• Enjoys all profits realized but bears all losses incurred.

Advantages of Sole Proprietorship

• Ease or simplicity of formation
• Sole Authority – The proprietor being the sole authority, takes decisions of planning, organizing, staffing, coordinating, controlling and directing the business unit
• Sole beneficiary of profits
• Flexible management – he can make prompt decisions and take quick action without consultations
• Minimum legal restrictions – easy to form, simple to run. Minimum legal requirements information and operation
• Secrecy – affords the sole proprietor high secrecy-profits, business methods, special production technique
• Ease and low cost of organization – legal fees, consultations
• Tax advantage – as compares to other forms of ownership, the profits are taxed as personal income of the owner and taxed only once while corporate income can attract double taxation
• Self-employment – Provides business careers to a large number of persons with small means

Disadvantages of Sole Proprietorship

• Unlimited liability– businesses involve risks and losses are inevitable. The proprietor in case of loss faces the risk of unlimited liability. Considered the greatest disadvantage and often discourages the sole proprietor from getting a loan to boost the business to avoid the risk of losing personal property if business goes down
• Difficulties in expansion– The sole proprietor has limited resources, and limitation in raising funds make it to undertake business development and expansion
• Lack of continuity – Continuity is difficult to maintain in the event of the demise, incapacitation etc of the sole proprietor
• Limited managerial ability– depends on individual skills and jugdement. Most proprietors don’t posses all the management skills required for financing, marketing, production, supervision etc – limits the enterprise to his/her capacity
• Operational disadvantages– due to limited resources – capital , human resources, machinery, raw material, poor location, substandard machinery etc
• Overworked owner
• Loss in absence– business can come to standstill due to absence as a result of long illness etc
• Weak bargaining position – The sole trader both as buyer as seller has weak bargaining position compared to the other types
• Limiting for developing business – this form of organization is limited in meeting the needs of an expanding business.

Sole proprietorship is favorable in the following circumstances

• Where the market is local and scale of business operation is small with less capital requirements
• When personal contact/ attention with customers is required
• Where one prefers autonomy and being one’s own boss
• Where promptness is required in decision making
• Where business is carried out on small scale
• Where there is ease of organization

2. PARTNERSHIPS

Is formed when a sole proprietor wants to expand business and brings partners on board or Partners may just come together to form a Business partnership

A partnership is a business owned by two or more people up to 20 who come together with a common objective of operating a business to earn profits.

A partnership consists of not more than 20 people except in certain cases e.g practicing solicitor, professional accountants and members of the stock exchange where this may be exceeded. In case of banking business, the number of partners is limited to 10.

In Kenya, all partnerships are formed in accordance with the partnership Act 1934 (chap.29)

The name of the partnership must first be registered under the registration of Business names Act

FEATURES OF A PARTNERSHIP

1. Association of at least 2 to 20 persons

2. This is a contractual relation which is formed by an agreement among the partners

3. Requires an Article of partnership prepared in writing to cover the rights of the partners, duties, obligations and the arrangements which partners have mutually agreed on.

4. Partners contribute towards the finances of the firm as per the terms of agreement

5. All partners need to take part in the management of the business

6. Consent required in important business decision-making e.g the decision to transfer one’s shares to another person

7. Liability of the individual partner is unlimited unless the partnership agreement provides for limitations- hence if the business suffers losses and the assets of the partnership are not sufficient to meet its obligations, creditors can sue one or all of the partners. They are jointly and severally liable for any debt. This is a serious handicap to partners who may possess more personal assets as one may be forced to cover the entire debt of the partnership solely

8. Partnership is a temporal form of ownership operating at the pleasure of the partners and can be dissolved by obtaining a decree from the court if a partner leaves or dies

9. Each partner acts as an agent of the firm or of the other partners with authority to enter in to contracts, trade for the partnership

10. Responsibilities, profits and risks are shared on the agreed basis by the partners – any act by a member is considered the act of the firm or of all the partners

Advantages of A partnership

• Simplicity of formation- partners enter into an agreement, get the firm registered and start business
• Partnership avails more capital for the business as each member contributes finances through joint efforts. It is also easier to obtain external financing as the partnership is viewed as being less risky than the sole proprietorship
• Combined talent and skills for managing the firm- each partner brings some talents and skill-giving the firm an advantage of collective expertise for making better decisions
• Advantage of division of labor and specialization which promote efficiency as duties and responsibilities are distributed to each partner based on their specialty and ability.
• Diffusion of risk- risk shared as per their agreement
• Combined judgment – leading to better decisions acts as a brake to hasty decisions
• Skilled employees can be retained and become partners in the partnership
• Relatively more flexible – having new members or exiting members with consultation
• Increase in the spirit of cooperation
• Ease of dissolution

Disadvantages Of A Partnership

• Unlimited liability: – Limited life of the firm which can be occasioned by dissolution due to death or withdrawal of a member, disagreement
• Frozen investment: – It is hard for a member to withdraw one’s funds from the partnership even when one wants to quit the partnership.
• Divided authority: – Partners can pursue their interest or have differing opinions leading to disagreements
• Decisions are made are binding to all members even when one has a different opinion. A decision made by a partner for the firm is equally binding and all partners bear the risk of wrong decisions
• Disputes and disagreements if not handled well can jeopardize the operations of the firm
• Possibility of misuse of funds or firms resources which are jointly owned
• Loss of business opportunities can occur due delay in decision-making especially when there is no consensus
• Implied authority – Acts of a partner are binding to other partners hence partners may suffer or pay for the follies and dishonesty of one partners actions

Partnership Agreement/ Deed

A partnership deed is an agreement entered into by partners in writing which contains all matters determining and governing the mutual rights, duties, liabilities of partners in the conduct and management of the affairs of the partnership.

May be referred to as ‘articles of partnership’

Elements of A partnership deed

These are usually defined by the partnership but include;

• Name of firm, names of partners
• Nature of Business, Place of business
• Mode & Amount of capital to be contributed by each member & the profit/loss sharing ratio
• Loans and advances from partners and the amount of interest
• Drawings allowed to partners
• Amount of salaries/ commissions payable to members
• Duties, powers and obligations of partners
• Maintenance of accounts and audit
• Mode of valuation of goodwill in the event of admission, retirement or death
• Method of revaluation of of assets, liabilities on admission, retirement or death of a partner
• Procedure to be followed in expulsion of a partner
• Procedure for dissolution of the firm and settlement of accounts
• Arbitration in case of disputes among partners

Importance of a Partnership Deed

• It forms the basis of formation of the partnership
• It defines the mutual rights, duties and liabilities of the partners
• Helps in minimizing disputes among partners
• It serves as guidepost for the conduct of firm’s business

Different types of partners

i. General partners – Those whose liability is unlimited in the firm

a. Active – A partner who takes part in the day to day running of the firm

b. Sleeping partner – one who contributes capital, shares profits or losses but is not involved in the running of the firm

ii. Special partners – Liability is limited to the extent of the assets in the firm. Not actively involved in the management of the firm

iii. Secret partner – Takes an active part in the affairs of the firm but is not known to the public

iv. Nominal partner – One who lends his name for the goodwill and credit worthiness of the firm neither contributes capital nor participates in the management of the firm. He is not liable for the debts of the firm but shares in the profits

END OF DAY 8 CEREALS BUSINESS TEACHING SESSION

In tomorrow`s training we shall cover retail and wholesale prices of the remaining types of cereals.

Also we shall cover other aspects of cereals retail business in Kenya.

We now come to the end of today`s teaching session, The PDF of this teaching is available here. Please comment your thoughts and questions below.