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All businesses must buy and sell to make a profit. The profit is made by buying at a low price and selling at a higher price.
· Good selling can increase your sales
· Good buying can decrease your costs
· This means: bigger profit
Retail and wholesale traders buy goods at a low price which they store, pack and distribute to sell at a higher price. This is the way they make a profit. They can work out whether they have made a profit (or a loss) in this way:
Figure
|
|
Sales of goods |
500 | |
|
Less: |
Buying costs of goods |
300 | |
| |
Difference or gross profit |
200 | |
|
Less: |
Other costs |
| |
|
|
Rent of shop |
60 | |
|
|
Wages |
100 |
160 |
| |
Surplus or net profit |
40 | |
Manufacturers buy materials and parts which they make into goods using labour, machines and power. They then sell the goods at prices which must be higher than their total costs. This is the way they make a profit.
Figure
Figure
Service operators sell services such as transport, repairing or cleaning. Like manufacturers, they use labour, machines and equipment and sometimes vehicles, fuel and power. The prices they charge for their services must be higher than their total costs. This is the way they make a profit.
Manufacturers and service operators can work out whether they have made a profit (or a loss) in this way:
|
|
Sales of goods or services |
|
500 |
|
Less: |
Buying costs |
|
|
|
|
Raw materials |
150 |
|
|
|
Labour |
100 |
250 |
|
|
Difference or gross profit |
|
250 |
|
Less: |
Other costs |
|
|
|
|
Rent for workshop |
60 |
|
|
|
Salaries and office costs |
75 |
135 |
|
|
Surplus or net profit |
|
115 |
The more you know about your customers and what they want, the more you will sell and the bigger can be your profit.
The first step towards increasing your sales is to attract more people into your shop or store. Then, encourage them to stay and examine your goods, so that they buy as much as possible. To do this, your shop must be:
· well lit;
· clean and fresh looking;
· nicely decorated; and
· with the goods well displayed.
You should also have an attractive sign outside. None of these things take much money but they do help to increase your sales.
To sell their goods well, traders must:
· know who their customers are; and
· make sure they have the goods of the quality the customers want at prices they can afford to pay.
Figure
AN ATTRACTIVE
SHOP IS:
WELL LIT
CLEAN AND
FRESH-LOOKING
NICELY DECORATED
WITH THE GOODS
WELL
DISPLAYED
WITH AN
EYE-CATCHING
SIGN OUTSIDE
|
Note: People will buy from the shops which: · sell the goods of the quality they want at the lowest prices; · sell goods which other retailers do not sell. |
Customers must be able to see the goods they want. Sometimes retailers can make people buy the goods they want to sell by putting them at the front of their counters.
If your stocks of some goods are low, put them to the back of the shop. The people who really want them will ask. The others will not see them.
WHAT CUSTOMERS SEE, THEY WANT TO
BUY
Try to write down those goods which sell well and those which do not. In this way, you will understand better your customers' wants and you will not waste money buying goods which you cannot easily sell.
If there are other retailers selling the same goods as you in the town or in the market, go and see from time to time what they are selling. See whether-
· their prices are the same as or higher or lower than yours;
· their goods are better set out and easier to see;
· they have some articles which you do not have;
· the goods are of better quality than yours.
If you think some other shops do better than you, don't just copy them-do better still.
GET IDEAS FROM COMPETITORS
Manufacturers or operators of services who know their markets well are more likely to be successful than those who do not know very much about their markets.
The most successful business people are those who study the market and set out to meet its demands.
What does your market look like?
You must find answers to the following questions:
· what the products are;
· who the customers are;
· where the customers are;
· how many customers you hope to sell to; and
· how much they buy.
Find out the answers to these questions by doing simple market research. Do the following:
talk to your customers;
ask what they like;
MARKET RESEARCH
MEANS:
LOOK, ASK, TALK
AND GET
INFORMATION
look at competitors;
look at what people buy;
get information about your products
or services.
Offer something different from your competitors, such as different sizes, different colours or different packaging. But do not be too different unless you are sure that it will sell.
Before you can sell you must buy. How well you will sell depends on how well you have bought.
Intelligent buying can reduce your costs and make more profit for your business.
Before you can buy you must know to whom you are selling and the sort of goods they want. As you have read in the section on selling: You must know your customers. Fora retailer or wholesaler, intelligent buying means to buy goods:
· of the types and sizes that your customers want;· at buying prices which are low enough for you to add a reasonable profit, while your customers are able to afford your selling prices;
· in quantities such that you have the goods in stock when needed, but not so many that your money is tied up for a long time.
GOOD BUYING MEANS
RIGHT TYPES AND SIZE
RIGHT PRICES
RIGHT QUANTITIES
If you are a small trader, you may have to buy in small quantities. Big traders who buy in big quantities can buy from manufacturers or get big discounts from wholesalers, but on small quantities you cannot get discounts. You may even have to buy from other retailers. Your profits will be small.
You may even be tied to one supplier who gives you credit. Even if you know that other suppliers' goods are better or cheaper, you cannot go to them because you are always in debt.
There is no easy way out of this. You already work very hard but this is not enough. You must use your brains.
Be hard on yourself and your family. Save every NU you can until you have enough to pay cash for your supplies and can choose your supplier.
Once you are free to choose your supplier, find out the ones who can give you what your customers will buy-and make sure you know what they want.
Compare what different suppliers can offer in the way of:
· prices;
· delivery;
· discounts;
· credit;
· quality; and
· something different.
Figure
DON’T BE TIED TO ONE SUPPLIER,
Figure
COMPARE SUPPLIERS!
Choose the supplier who gives you the best in terms of prices, quality and delivery.
For manufacturers or operators of services, the way they do their buying has a big influence on whether their businesses are profitable. If they buy well, their prices can be lower, the quality will be better and they will be more competitive.
One way in which you can improve your buying is to break down your purchases into three groups as follows:
·
Raw materials (wood for the carpenter, cloth for the tailor)
·
Manufactured parts (locks, buttons for shirts)
·
Equipment for your own use (tools, etc.)
Raw materials need not be stored in your own storeroom. You can often make a special arrangement with your supplier so that you can have the raw materials delivered just when you need them. In this way, you do not tie up money for storage. If raw materials are in your store-room too long, sell them off even at cost price. Manufactured parts are often cheaper if they are bought in larger quantities. If you can buy one dozen, this will be cheaper than if you buy one single item.
Can you buy bigger quantities jointly with other people and get a discount for quantity?
Tools and other equipment for your own use must always be available. When they are broken, replace them immediately.
Figure
HOW TO BUY
|
1. Examine your needs |
|
· How much do I
need? |
|
2. Find the supplier |
|
· Look in telephone
book |
|
3. Ask for quotations from several suppliers |
|
· Telephone
them |
|
4. Negotiate terms and then buy |
|
· Talk with each
supplier |
|
5. On the day the goods arrive, check quantity, quality and price against delivery note |
|
· Check all
deliveries |
|
6. If you have any complaints, complain to the supplier immediately |
|
· Contact the supplier
himself |
|
7. Check your invoices against the delivery note when it arrives |
|
· Check the
prices |
Lastly, there are always new materials, parts and tools being introduced. Keep yourself up to date.
Stock control means keeping a check on your stock of goods, materials and parts. With good stock control you can:
· make sure you do not run out of stock;
· make sure you do not hold too much stock of any item.
TOO LITTLE STOCK
Why your business can run out of stock:
· because you have forgotten to order goods or materials to replace those sold or used:
· because you have ordered too late;
· because you did not know stocks were low.
Why it is bad to run out of stock:
· because if you run out of stock and must say "no "to customers, they may go to competitors and may not come back to you again.
Why your business can hold too much stock:
· because you do not know which of your goods are not selling well, and stocks are piling up;
· because you do not know how much stock you have, if your stock is not easy to see and count;
· because you do not check regularly how much stock you have in your store.
Why it is bad to hold too much stock:
· because if you keep much larger quantities of stock than you need, you have tied up money which you could be using more profitably.
TOO MUCH
STOCK
RULE 1 - CHECK YOUR STOCKS REGULARLY
How often you do so-once a month, once a week or even once a day-depends on your type of business, how fast your stocks move and how much stock you keep. If you keep your stocks at low levels because you want to keep down the amount of money tied up, you must check often.
CHECK STOCKS REGULARLY
Take note of goods and materials which are selling fast and those which are selling slowly.
RULE 2 - SET OUT YOUR STOCKS WELL SO THAT THEY ARE EASY TO SEE AND COUNT
If the stocks are mixed up, they will not be easy to see and will be very difficult to count.
Stocks mixed up
Stocks well set out
SET OUT STOCKS WELL
RULE 3 - AS THE NUMBER OF STOCK ITEMS INCREASES, SET THEM OUT IN THEIR SEPARATE GROUPS
Dresses must be stored by type of dress, model and size. The sizes must be clearly marked. Items such as cans of paint must be set out by maker, size, if there is more than one size (1/2 litre, 1 litre, 2 litres, etc.), and colour.
Small items - screws, nuts, washers, fuses and so on-may be kept in small boxes, one for each article and size. The name must be marked on each box (e.g. Brass screw, 4 mm x 30 mm). The boxes must be stored by item and size. Whatever stock control system you use, your shelves and stock room must be kept in order.
If you have only a few different stock items, you will not need written stock records. You can simply look at the separate groups, count them and see whether you need to reorder some items, or whether you have overstocked some goods which are not selling.
SET OUT STOCKS BY SIZE
RULE 4 - WHEN THE NUMBER OF STOCK ITEMS GROWS TO MORE THAN 20, KEEP SIMPLE WRITTEN STOCK RECORDS
When you have many stock items, it takes too much time to count them. They will also be difficult to find. Write them into a book or on cards. Read the next section to find out how.
KEEP STOCK
RECORDS
Manufacturers as well as service operators and retailers can use a unit stock control system. This type of stock control is called unit stock control because it shows the number of units or articles which are in stock. Under this system you have a card for each of the different types of stock.
Here is an example of a stock card for retailers. The system works in exactly the same way for a manufacturer or service operator.
Each time you buy or sell batteries, you enter the date and particulars on the card.
The Balance column is adjusted to show how many batteries are still in stock.
When do you reorder your batteries? To find out, you must know-
· how many batteries you sell every week or every month;
· how long it takes you to get delivery of batteries.
You find from the above stock card that you sell 40 batteries each week. Your supplier can deliver the batteries one week after you have given him your order. Therefore, you should order when your stock is 100 or below. This gives you 40 in hand for the week's delay and 60 more in case they do not come on time or you sell more than 40 in the next week. So 100 is your reorder level.
REORDER WHEN 100
LEFT
If you are a retail trader you can use a simple stock control system which tells you the total value of all the goods which you have in stock rather than the number of units.
In all shops, goods are purchased at a lower price-the cost price-and resold at a higher price-the selling price. When you keep stock records, you want to know either how much your business would get if all the goods than are in stock were sold, or how much has been paid by you in total for all the goods in stock.
The easiest method is to record the value of all your stock at selling price. It is easier to use selling prices since they are marked on the goods which customers buy and they are used when sales are recorded.
The easiest way to record your stock is to use a stock control book as below:
|
Stock control book | |||||
|
Month |
January 1986 |
| |
| |
|
Date |
Particulars |
Increase in stock (value in) |
Decrease in stock (value out) |
Balance stock in hand (value) | |
|
1 Jan. |
Opening stock |
|
|
43,250 | |
|
2 Jan. |
Sales |
|
3,200 |
40,050 | |
|
3 Jan. |
Purchase |
|
|
| |
|
| |
Goods Ltd. |
3,000 |
|
43,050 |
The entries in the book are the same as the entries on the stock cards above, except for the fact that the entries are made in value instead of units.
Some items, such as wooden planks, steel rods, sheets of metal and bolts of cloth, are difficult to count quickly and easily. In these cases, the solution is to have a bin card. This card contains all the information needed about the item, and is kept with each item on the rack, shelf and so on.
Every movement, in or out, of the item is recorded on the card. When the reorder level is approached, you reorder the item. Note the hole at the top-it can be tied to a nail or drawer handle.
USE BIN CARDS FOR SPECIAL
ITEMS
|
No. 62 0 |
BIN CARD | ||
|
Date |
In |
Out |
In stock |
|
13 Oct. |
| |
3,200 |
|
14 Oct. |
|
1,000 |
2,200 |
|
18 Oct. |
|
700 |
1,500 reorder! |
|
22 Oct. |
5,000 | |
6,500 |
Small items, such as nails, washers and so on, are very tedious to count. One way of handling them is to count out or weigh out the reorder level quantity into a paper or plastic bag, and put the bag at the back of the drawer, shelf or bin. When you have to open the bag to serve a customer, you know it is time to reorder.
Slow-moving stocks take up space that you may want for goods which sell well. Try to sell them off as special offers at reduced prices.
WHEN YOU OPEN THE BAG:
REORDER!
If they are very old, sell them off at cost price or give them away.
Figure
You must know exactly how much cash you take in and how much you give out - and how you spend it.
Figure
A simple way to control your cash is as follows:
1. Count your amount of money when the business opens in the morning. Whenever you take in cash, put it in the drawer. Each time you pay out cash, write out a cash voucher.
2. Count the amount of cash again at the end of the business day.
3. The difference between the amount in the morning and the amount in the evening is called your net takings.
4. Add up your cash vouchers. This gives the total cash paid out during the day. Remember that this cash has been taken from the cash drawer, and so must be added on to the net takings to show the total cash which has come into the business during the day.
Figure
|
Vouchers |
70 |
|
plus: Net takings |
200 |
|
Total cash in |
|
|
from sales |
|
|
during the day |
270 |
5. Add the total of the vouchers to your net takings. This gives you the total cash which has come in from sales during the day.
It is easier to control the cash coming in and the cash going out if you write down the details of every sale and payment in a cash book.
If you have a bank account, you can also add columns for Bank in and Bank out.
Your cash book can look as follows:
|
Date |
Details |
Cash in |
Cash out |
Bank in |
Bank out |
|
1 Mar. |
Cash at start |
100 |
|
|
|
|
1 Mar. |
Cash sale |
150 |
|
|
|
|
1 Mar. |
Toilet rolls |
|
20 |
|
|
|
1 Mar. |
Typewriter ribbons |
|
15 |
|
|
|
1 Mar. |
Cash sale |
120 |
|
|
|
|
1 Mar. |
To bank |
|
35 |
35 |
|
|
|
|
370 |
70 |
35 |
|
|
Less: |
Cash at start |
100 |
|
|
|
|
|
Total money |
|
|
|
|
|
|
from sales |
270 |
|
|
|
|
Less: |
Cash out |
70 |
|
|
|
|
|
Net cash in |
200 |
|
|
|
If you area retail trader you should keep a cash register which you or an honest employee or member of your own family operates. One person should be in charge of both cash going out of and cash coming into the cash register. The business cash must be kept separate from your own cash and the cash of members of your family.
By keeping the cash register paper rolls, you can see what you take in and give out every day, week, month or year. It is good to see how money comes in and is paid out over a long time because business may change from day to day. One day it may be very good, the next day bad. Compare your business result of this month with that of last month.
KEEP THE CASH REGISTER PAPER
ROLLS
1. Do not allow members of the family to take cash from the business unless it is their wage, it is given by you and they sign a receipt for it.
Figure
2. Pay yourself and each member of the family working in the business regular wages which you can charge to the business like those of your other employees. This can help you to have more control over the outflow of your cash.
3. Decide on how much you can draw each week as a salary for yourself, but keep it low. Remember, you must also put aside money to buy stocks, pay wages, replace old machinery, pay taxes and so on. You must also have something left over in reserve in case business is bad or you want to make it bigger. This is the only way you can build up capital and improve your business.
Figure
4. If you or a member of your family takes goods from the shop or the business-a can of food or a piece of clothing, for example-put the money into the cash box.
Figure
5. Make sure that you have enough money in the bank to meet the normal needs of the business.
Figure
REMEMBER: TAKE CARE OF YOUR CASH!
As your business grows and you buy and sell more of different goods, you need more information from your accounts. Therefore bookkeeping is important. To know more about it, read the Bookkeeping section of the Handbook. If you want to set up a bookkeeping system, you may get help from your local Small Business Centre or you may hire someone. This means that you must save all your bills, invoices, cash register rolls and other papers about money to give him when he comes.
And last, but not least, once again: Keep your own and your family's hands out of the business cash!
KEEP ALL HANDS OUT OF THE CASH
DRAWER!
 |
 |
