Starting a business can be extremely daunting for a new entrepreneur and it can be so time consuming to figure out all the aspects of running a business, such as sales, accounting, marketing, legislation, taxation, production, logistics and so on. So the Small Business Owner Network has developed a community of businesses and people who can provide services to new business start ups at no upfront cost. If you would like an overview of all the services on offer, take a look at the support service page.
The best way to show you how you and your business idea can benefit from these support services is by way of examples and so they follow below (all names are pseudonyms and products are altered for confidentiality reasons):
Example 1: Existing business falls on hard times.
In 2008 a small manufacturing business ran into difficulty and was not able to be profitable with their existing structure. They had two small machines that made their product and they had a delivery vehicle and rented a factory with an office. The owner and his wife did all the sales, book keeping, reception work and general business management.
Sales were not growing because so much time was spent by the owner dealing with machine break downs, production planning and doing the deliveries himself. This lack of growth meant that they were not earning enough to cover the rent of their factory and the repayments on their delivery vehicle. They did not have enough cash for the business to survive more than another two months .
After the owner contacted the Small Business Owner Network, they come up with the following solution:
- The two machines were transferred to the premises of another existing factory.
- His staff were retrenched. Not a happy ending for them, but at least they received retrenchment payouts rather than arriving to a closed factory one Monday morning.
- The owner began to focus full time on sales. He was after all an expert in the product he sold and understood the industry.
- All production and deliveries were handled by the existing factory using their existing staff and delivery vehicles.
- The owner’s wife continued to handle the book keeping functions.
In this new scenario, sales could increase at a quicker rate because the owner focused almost all his time on this aspect of the business. His business no longer had to pay salaries, rent or vehicle leases. Instead he paid a percentage of each sale he made to the factory for these services – much like a commission. The existing factory benefited from the extra work. The business owner was still in charge of his own business.
Typical monthly income statement when the business was in trouble.
So the business was technically making a small profit, but the owner needed and was drawing far more than the R3900 a month which was available. They were in trouble. After they outsourced the production, logistics , factory and office functions, the income statement looked as follows:
There are several points to note between the situation before the business started using the services and the scenario afterwards:
- Where as in the owner and his wife were initially trying to live on R3900 per month, they were now able to earn R33’750 per month between the two of them.
- The existing business with the factory was also earning an extra R33’750 per month by simply using extra factory space, staff production time and delivery slots that were previously unused. There would be a nominal increase in their expenses as the extra production may use extra electricity and the extra delivery slots required extra petrol, but these were a fraction of the earnings coming in.
- The business owner had an additional less obvious benefit. When they had a quiet month and sales were down, he did not still have to find money to pay rent and wages, because all his costs were based on what was sold and not monthly overheads. His stress levels plummeted.
- In the example we have used the same monthly turnover to make the difference easier to see. In fact sales went up slightly because he was able to focus more on his customers and their needs, as well as find the time to search for new business.
- So who lost out if both the owner and the other factory were no better off? Well, unfortunately his staff were unemployed, but that was inevitable. They would have been in an even worse situation if the business had continued as before and failed. The landlord of his previous premises and the bank financing the vehicle also lost out.
- If his wife was not doing the book keeping work, his business could have made further savings by using an office service as well.
- In addition to his higher drawings there was also a monthly reserve of about R7500 which was being used for taxes, sundry charges and to save for business growth.
The end result was that the business not only survived, but managed to do well in the years that followed.
To find out more about the types of business services on offer take a look at our business support services page here.
To find out if your business or business idea could benefit, submit your information here.