AGRO BUSINESS MANAGEMENT
MANUAL FOR
IMPLEMENTORS AND AGRO
DEALERS
The Zambia Agro Dealer (ADAPT) Project –
CARE Zambia
July 2010
AGRO BUSINESS MANAGEMENT
MANUAL FOR
IMPLEMENTORS AND AGRO DEALERS
Compiled by: Vivian C Mthetwa
Linus Mponda
Edna Maluma
Published by: CARE Zambia, ADAPT project
i.
Foreword
CARE Zambia’ ADAPT project is increasing the access of 91,000 remote, rural smallholder farmers
to quality, affordable inputs by creating a network of 500 agro-dealers.
To achieve this, one major project activity include conducting business management and technical
training of recruited agro-dealers in the remote areas. The main objective of this training is to
respond to the capacity gaps of the agrodealers that were identified during the training needs
assessment so as to strengthen their business management skills so that they can better manage
their businesses as well as poise them for sustained further growth. The project also collaborated
well with private sector (input suppliers) in trying to achieve this objective.
This training manual is to be used as a step by step guide by anyone conducting a training for
agrodealer development works or even by the agrodealer themselves who wish to update/refresh
their knowledge in agrodealer business development. It is through the use of this manual that has
built agrodealer skills and confidence to run their businesses which in turn has resulted in input
suppliers gaining confidence in the starter agrodealers that has resulted in viable and sustained
linkages between agrodealers and suppliers. This has also resulted in a better service to the farmer
our ultimate target, in terms of variety, quality seed brands, affordability and availability within
their location.
Our appreciation go to all those involved in putting up this manual together. It is our hope that this
manual will provide guidance to all those seeking to develop agrodealer works in Zambia.
Peter Manda
Project manager
ADAPT PROJECT
i
ii.
Acknowledgements
The authors would like to thank many partners who made valued contributions to the
compilation of this manual. Special thanks go to CARE ZAMBIA ADAPT project manager Mr.
Peter Manda and the project coordinator Ms. Catherine Pongolani who initiated the idea of
writing the manual. They guided the process of developing this manual. Specific gratitude is
extended to the provincial coordinators of the ADAPT project in eastern province Mr. Noah
Simpasa and Ms. Mukonde Siafunda for the role they played during the training of agro
dealers where experiences referred to in this manual were drawn from. They also provided the
pictures used in the manual.
Extensive work was done by the co-authors of this manual Mr. Linus and Ms. Edna Maluma.
This included them spending a lot of time gathering which are part of the manual. They
brought in their practical experiences from the field where they were involved in training agro
dealers in central province. Their contributions are appreciated.
Recognition is also given to the many agro dealers who attended the trainings in eastern and
central provinces of Zambia. The participation made it possible for the authors to concretise the
approach in designing this manual.
The training of agro dealers and subsequent development of this manual would not have been
possible without the financial support from .
VIVIAN C MTHETWA
ii
iii.
How to use this manual
The ADAPT project has been working in three provinces in Zambia (copperbelt, eastern and
central) to facilitate the processes of ensuring that farmers in these areas get good quality seed
and other farm inputs and implements. This would result in farmers’ households having
improved income and livelihoods. The target vehicles for reaching out to the farmers are agro
dealers. ADAPT works agro dealers assisting them to improve their businesses such that they
are able to supply the farmers with all their agricultural input needs.
ADAPT has now produced this manual AGRO BUSINESS MANAGEMENT MANUAL which
gives training in practical business skills essential for agro dealers. The manual has been
designed to train agro dealers. The manual has been designed to training agro dealers in the
skills of running a business. It is also targeted at implementers like ADAPT staff who train and
mentor agro dealers directly. You should use this manual to:


Train agro dealers so that they gain knowledge of business and understand
factors that lead to business success.
Give handouts (checklists) to agro dealers to use as reminders of what they
need to do in their businesses. The checklists are important during checklists are important
during follow up of agro dealers. The person following up on agro dealers will use these to
assess what the agro dealer is implementing.
When working with agro dealers, implementing organisations that wish to deliver both
business and technical training to the agro dealers should be organisations that:





Have an organised system of reaching out to the agro dealers
Have officers on the ground to work with the agro dealers
Have long term plans of continuing such support in a sustainable manner
Work with the ministry of agriculture and cooperatives
Have commitment for the development of farmers in the farming communities
This manual provides useful information to the agro dealers as reference material in the annex
of this manual.
iii
Contents
Foreword ...................................................................................................................................................i
i.
ii.
Acknowledgements .............................................................................................................................. ii
iii.
1.
How to use this manual ................................................................................................................... iii
INTRODUCTION TO ZAMBIA AGRO DEALER PROJECT .............................................................4
1.1 What is ADAPT and how does it work?............................................................................................4
1.2 The ADAPT agro dealer .......................................................................................................................4
1.2.1
An ideal agro dealer..................................................................................................................4
1.2.2
Selection criteria for agro dealers............................................................................................5
1.3 Matching grants in ADAPT project ....................................................................................................5
1.3.1
Rationale for finding .................................................................................................................5
1.3.2
Agro businesses eligible for funding ......................................................................................6
1.3.3
Grant amounts and utilisation ................................................................................................6
1.4 ADAPT reporting systems for agro dealers ......................................................................................7
1.4.2 Farmer information ...............................................................................................................................7
1.4.3 Grant utilisation ....................................................................................................................................7
2.
UNDERSTANDING THE AGRO BUSINESS IDEA ............................................................................8
2.1 Objective .................................................................................................................................................8
2.2 What products can an agro dealer stock? ..........................................................................................8
2.3 Who are the customers for the agro business?..................................................................................9
2.4 Which customer needs will the business satisfy? .............................................................................9
2.5 How will the agro dealer reach his/her customers? ...................................................................... 10
2.6 Checklist .............................................................................................................................................. 11
3.
LEGAL REQUIREMENTS FOR AGRO DEALERS ........................................................................... 12
3.1 Objectives ............................................................................................................................................ 12
3.2 What are legal issues for agro dealers? ........................................................................................... 12
3.3 Seed certification and control institute (SCCI) licence .................................................................. 12
3.4 Council trading licence ...................................................................................................................... 12
3.5 Environmental council of Zambia licence ...................................................................................... 13
3.6 Patents and companies registration office (PACRO) .................................................................... 13
3.7 Business premises .............................................................................................................................. 14
1
3.8 Contracts.............................................................................................................................................. 14
3.9 Health and safety in an agro business: ........................................................................................... 15
3.10 Checklist .............................................................................................................................................. 16
4.
MARKETING ..................................................................................................................................... 16
4.1 Objectives ............................................................................................................................................ 16
4.2 What is marketing? ............................................................................................................................ 17
4.3 Importance of marketing .................................................................................................................. 17
4.4 Market research .................................................................................................................................. 17
4.5 The 5Ps of marketing ......................................................................................................................... 18
4.5.1
Products ................................................................................................................................... 18
4.5.2
Price .......................................................................................................................................... 18
4.5.3
Place ......................................................................................................................................... 18
4.5.4
Promotion ................................................................................................................................ 18
4.5.5
The business person ............................................................................................................... 20
How to be a successful sales person ........................................................................................................ 20
4.6 Checklist .............................................................................................................................................. 22
5.
STOCK MANAGEMENT ..................................................................................................................... 23
5.1 Objectives ............................................................................................................................................ 23
5.2 What is stock and stock management? ........................................................................................... 23
5.3 Importance of stock management.................................................................................................... 23
5.4 Guidelines to better stock management ......................................................................................... 23
5.5 Stock taking ......................................................................................................................................... 24
5.6 Stock records template ...................................................................................................................... 25
5.7 Checklist .............................................................................................................................................. 26
6.
RECORD KEEPING ............................................................................................................................... 27
6.1 Objectives ............................................................................................................................................ 27
6.2 What is record keeping? .................................................................................................................... 27
6.3 Importance of record keeping .......................................................................................................... 27
6.4 Types of records ................................................................................................................................. 27
6.4.1
Daily cash record .................................................................................................................... 27
6.4.2
Profit and loss statement ....................................................................................................... 29
2
6.5 Checklist .............................................................................................................................................. 30
COSTING AND PRICING .................................................................................................................... 31
7.
7.1 Objectives ............................................................................................................................................ 31
7.2 What is costing?.................................................................................................................................. 31
What is pricing?.............................................................................................................................................. 31
7.3 Importance of costing ........................................................................................................................ 31
7.4 Types of costs ...................................................................................................................................... 32
7.5 Costing process for agro products ................................................................................................... 33
7.6 Pricing of agro products .................................................................................................................... 36
7.7 Break-Even Point (BEP) ..................................................................................................................... 36
7.8 Checklist .............................................................................................................................................. 37
8.
FINANCIAL PLANNING ................................................................................................................ 38
8.1 Objectives ............................................................................................................................................ 38
8.2 Importance of financial planning..................................................................................................... 38
8.3 A sales and cost plan ......................................................................................................................... 38
8.4 Cash flow plan .................................................................................................................................... 39
8.5 Budgeting ............................................................................................................................................ 41
8.6 Savings and investment .................................................................................................................... 41
8.7 Checklist .............................................................................................................................................. 43
9.
ANNEXES ............................................................................................................................................... 44
9.1 Elements of a business plan .............................................................................................................. 44
9.2 Association formation ....................................................................................................................... 48
What is an association? ............................................................................................................................. 48
Objectives of an Association ..................................................................................................................... 48
Who will form an association? ................................................................................................................. 48
Benefits of working with/through an association ................................................................................. 48
Why do associations fail? (Reasons for failure) ..................................................................................... 50
Roles and responsibilities of association members and officers.......................................................... 50
Linkages ...................................................................................................................................................... 51
Guidance and training............................................................................................................................... 51
Guidelines for formation of an association body .................................................................................. 51
3
1. INTRODUCTION TO ZAMBIA AGRO DEALER PROJECT
1.1 What is ADAPT and how does it work?
ADAPT, is an agro dealer project run by Care International in Zambia in three provinces. It is
funded by the alliance for Green Revolution in Africa. The project is in three provinces and
three districts of each province. In the Copperbelt province the project is in Masaiti,
Lufwanyama and Mpongwe districts. Lundazi, Katete and Petauke districts in Eastern
province and Chibombo, Mumbwa and Kapiri Mposhi for the Central province.
The project has trained over 441 agro dealers in the three provinces in the last two years of its
implementation.
The objectives of the project are to enable supply chain actors to:



Actively pursue the smallholder market,
Improve the affordability, timeliness, range, and volume of inputs and services reaching
smallholder farmers in targeted areas.
Strengthen enabling environment for expansion of agro inputs in smallholder markets of
sparsely populated areas.
Activities of the project include actively:






Recruiting, training and certifying of agro dealers,
Conduct demand creation activities among smallholder farmers,
Facilitate linkages between Supply chain actors (Suppliers, Agro-Dealer and Smallholder
farmers) and Output markets,
Use innovation fund to buy down Agro-dealers’ risks of rapid expansion into smallholder
market
Develop agro dealer associations in targeted districts and
Conduct Monitoring and Evaluation (M&E)
1.2 The ADAPT agro dealer
1.2.1



An ideal agro dealer
An ideal agro dealer is one who is able to supply the right inputs to the farmers, at the right
price, right quantity and right time.
An ideal agro dealer is one who is able to make inputs needed available in the right season.
An ideal agro dealer is one who understands farmer needs and is able to explain the uses of
different products he stocks.
4
1.2.2
Selection criteria for agro dealers
Recruitment of Agro Dealers was based on their:





location (distance from town),
financial management capacity,
past experience in business,
project commercial viability and
Significant number of households to benefit from the agro dealer business.
Why we recruit Agro Dealers?
Many smallholder farmers are faced with difficult in accessing inputs which mostly are found
in town centres located very far from their communities.
Therefore the aim of recruiting Agro dealers is basically to mitigate the problems smallholder
farmers face when it comes to input access such as distance travelled etc. The Agro dealers
recruited enable smallholder farmers to access the needed inputs easily and hence this helps
them to cut down on costs such as transportation.
1.3 Matching grants in ADAPT project
1.3.1
Rationale for finding
To help buy down the barriers to entry for start-up agro-dealers in these areas, ADAPT has
provided aid in the form of matching grants. This Innovation Fund matching grant requires
that agro dealers assume 50% or more of the investment risk and that the investment is tailored
to their business models and needs.
The goal of the Fund is to stimulate local community based agro dealers’ adoption of
approaches to promote, market, and cost effectively distribute larger volumes of seeds and
other agro inputs and services to rural areas currently underserved by stationary district
center- based retail facilities. This grant, called the Innovation Fund, allows for agro-dealers to
make initial investments that they would not be able to afford otherwise.
5
Before and After Pictures for Christine Daka’s One Sister Agro Shop in Mwanjabanthu – Petauke
1.3.2
Agro businesses eligible for funding
CARE Zambia (ADAPT project) has available an innovation fund open to all agro dealers
including females in the project sites.




1.3.3
Potential recipients to the awards are advised to apply through the relevant District
Coordinators.
The District Coordinators will appraise the applications on a pass or fail basis depending
on how the proposed concept is aligned to ADAPT’s objectives.
District Coordinators will scrutinize the proposals which meet the pass mark and
discuss with the applicants areas of improvement with a view of revising the proposals.
The proposed so reviewed will be submitted to the Business Advisor for final
assessment at ADAPT HQ in Lusaka.
Grant amounts and utilisation
Agro dealers are requested to apply for grants up to ZK 5 000 000.00. Compelling applications
that fall slightly above this range may be considered. The goal of the Fund is to stimulate agro
dealers to adopt approaches that will promote, market, and distribute large volumes of seeds
and other agro inputs to rural areas in the 9 selected districts. The proposed action should target
the small holder market and the strategy to grow/expand the market should be very clear. The
innovation fund has been designed to help small upcoming agro dealers with:





Upgrading of business premises ( painting, Shelving, burglar bars, doors, windows)
Advertising ( bill boards, point of sale leaflets, market fairs)
Demand creation ( Demos, field days)
Limited seed inventory
Seed Kiosks
6





Mobile seed sells through the use of Zam-bikes & Carts
Protective clothing for shop employees
Improve packaging of hybrid seeds and agro chemicals in appropriate and right
packages
Promotion of business (t shirts, chitenge material, field demonstrations)
Hiring of technical expertise for a specified time period
1.4 ADAPT reporting systems for agro dealers
Key performance indicators among others to measuring business growth are that of sales by
volume and value. Reporting for Agro-dealership is looked at from two stand points;
For self reflection(for Agro-dealers)
For accountability and learning purposes for ADAPT and any other stakeholders
1.4.1
Sales Information
Using the cash sales, Agro-dealers are to compute the sales (value) disaggregated by type of
product. The same picture applies for volume of sales. This information informs the Agrodealer on how healthy the business is.
1.4.2
Farmer information
While the project focuses on developing ideal Agro-dealers-business development, the
ultimate impact as regards food security is at small holder farmer level. With this regard,
linkages or relationships between the customer (SHF) and the Agro-dealers is
established at transaction point. At this stage, the Agro-dealer uses the customer
tracking form, to collect data on the farmer. The data collected includes
# of customers(SHF) accessing Agro inputs from Agro-dealers per month
Location of farmers
Value and Volume of products purchased
1.4.3
Grant utilisation
Grant utilization is measured using both the quantitative and the qualitative form. A cost
benefit analysis is measured (ROI).
In terms of qualitative measurements, changes as contributed by the innovation fund/ grant are
also measured. This is done using the categorization matrix as developed by the ADAPT team
where parameters such as, shop branding, Sales, number of transactions are assessed.
7
2. UNDERSTANDING THE AGRO BUSINESS IDEA
2.1 Objective
To enable participants to
 Have a clear understanding of what an agro business is
 Decide what types of products they will stock
 Plan how they will reach their customers
2.2 What products can an agro dealer stock?
In an agro business, products are all items that agro dealers buys to sell to their customers.
Before an agro dealer decides on what products they will stock in their business, they need to:





Identify who their customers are
Understand clearly the geographical coverage of where their customers are located
Find out what the needs of the customer are in the area of agro inputs
For the required agro inputs by potential customers find out who sells the products and
if they satisfy the needs of the farmers
Decide then what products to stock remembering that every product should satisfy a
particular need of the customers. The simple rule is that ‘if you cannot sell it, do not
stock it’. In any agro business all products bought for resell should be in demand.
Stocking goods without demand will tie up business finances in goods unsold thereby
reducing possible profits and funds for reinvesting into working capital. The categories
of products that can be sold by an agro dealer are:
o Seeds which include maize seed and vegetable seeds
o Grain preservatives
o Veterinary drugs
o
Agricultural chemicals
o
Farm implements
o
Poultry feed and drugs
Product Display in a Shop
8
2.3 Who are the customers for the agro business?
The primary aim of ADAPT introducing agro dealership is to ensure that farmers receive
the right inputs at the right time at affordable prices. Farmers are the key customers for agro
dealers. Customers are the people or other businesses that want your products and services
and are willing to pay for them.
It is important to understand that every customer has his/her specific needs and not
everyone who comes to your shop is willing to buy. Therefore, efforts should be made to
entice such a person with satisfactory services so as to make him/her your customer. It is
easy to lose a customer than to find one. Remember the common saying that “customer is
the king”, so attend to him/her as a king. The agro dealer needs to understand the following
factors about customers:









Who they are: if you sell to other businesses, find out what size they are. For example,
are they small agro dealers and where they are located?
What they do: this helps to understand what your business customers are trying to
achieve.
Why they buy: if you know why customers buy a product or service, it is easier to
match their needs to the benefits your business can offer.
When they buy: if you approach a customer just at the time they want to buy, you will
massively increase your chances of success. You can plan t open your shop when they
want to buy.
How they buy: for example some people prefer to buy from a phone while others prefer
a face-to face meeting.
How much money they have: you will be more successful if you can match what you
are offering to what you know your customer can afford.
What they expect from you: for example, if your customers expect reliable supply of a
particular product and you do not disappoint them, you stand to gain repeat business.
What they think about you: if your customers enjoy dealing with you, they are likely to
buy more. And you can only tackle problems that customers have if you know what
they are.
What they think about your competitors: if you know how your customers view your
competitors, you stand a much better chance of staying ahead of your competitors.
2.4 Which customer needs will the business satisfy?
Agro dealer’s shops are usually located within the geographical location of their customers.
The reason for this type of setup is to ensure that the agro products and services required by
the farmers are easily accessed. For products and services to be bought, they should be
fulfilling specific needs of the farmers in general are:



To have access to inputs and implements at affordable prices and at the right time
To have up to date information on all aspects of farming
To be exposed to new farming technologies which when applied will result in
improved productivity. This will in turn bring about increased income at farmer
household level.
9

To have agro dealers who will supply all their seed they need which is of good
quality and is from reputable companies.
2.5 How will the agro dealer reach his/her customers?
The process of getting the products and services to the agro dealers need to put in place. It is
important to ensure that the agro shop is located at a place close to where the customers can
reach easily. Some agro dealers limit themselves to putting up a shop at a place close to
where they reside in order to be able to secure their products. This is good but it may not
work well all the time. It is also better to consider how far the shop will be located from the
customers.
There are different ways in which agro dealers can make sure they reach their customers.
Some of the options they may engage in would be:


Setting up an agro shop at a location that customers can easily reach. Such a place
would be like a common business place where many farmers go to buy products for
household needs and farming needs. Such places are usually well established
business places, so there would be many agro dealers selling the same products to
farmers. The customer is the one who goes to the shop to buy the products. If any
agro dealer decides to take this option, they need to be ready to put strategies for
competition in place as they will be competing with many other agro dealers in the
same location.
They can set up the agro shop as in the option mentioned above. They employ a
system of taking the products to specific areas for customers who maybe far away
from the shop. They can do this like once every two weeks. The consideration to
make in this instance is the transport cost that will be incurred and how it affects the
price of the products. Some agro dealers have found the use of the ZAMBIKE to be a
cost effective mode of transport for this activity.
This option allows the agro dealer to have two ways of getting the products to the
customers. Firstly by customers coming to the shop and secondly the agro dealer
takes the products to where the customers are.


Agro dealers can have shops in central places and also have agents who are located
in far off areas where customers reside. The agents could have small shops.
Agro dealers can have multiple shops located in different places. These shops can be
kiosks that can be at places where there are many customers. The agro dealers needs
to place an employee at the kiosk to manage the sales. The agro dealer needs to put a
system for managing the kiosk ensuring profitability is achieved.
10
2.6 Checklist
CHECKLIST ON UNDERSTANDING THE AGRO BUSINESS IDEA
ACTION POINT
 In my shop I will stock the following categories of products:
TICK
-
Maize seed
[ ]
-
Vegetable seed
[ ]
-
Grain preservatives
[ ]
-
Farm implements
[ ]
-
Poultry feed
[ ]
-
Poultry drugs
[ ]
-
Agricultural chemicals
[ ]
 I know my circumstances very well.
My circumstances are:
..............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
 My business will satisfy the needs of my customers.
The specific needs of my customers are:
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
 I will setup the agro shop in the following way:
-
A shop at a common business place
[ ]
-
A shop at a common business place but also deliver to distant
[ ]
places
[ ]
-
A shop in my area and have agents in other places
[ ]
-
More than one shop in different places
11
3. LEGAL REQUIREMENTS FOR AGRO DEALERS
3.1 Objectives
To enable the agro dealers:
 Identify all legal issues addressing agro business especially agro seed and chemical
sellers
 Understand the different requirements for registering agro business with different
authorities and getting the relevant certificates
 Understand the specifications of an ideal agro shop
 Learn how to manage contracts
Agro dealers operate their businesses in an environment that has rules and regulations on
how such businesses should be run. The government through its different ministries and
departments has put in place different regulations that the Agro dealer has to abide by.
These regulations concern among others business registration, seed sellers’ license, trading
licenses.
3.2 What are legal issues for agro dealers?
Legal issues for agro dealers are regulations that the government has put in place through the
different ministries and departments for Agro dealers to follow so that they operate their
businesses in an acceptable way. The Agro dealer needs to get specific certificates and licenses
to prove that they are following these regulations.
3.3 Seed certification and control institute (SCCI) licence
This certificate allows the Agro dealer to sell seeds and chemicals in their shops. The ministry of
agriculture and cooperatives has set up the seed certification and control institutes in different
locations of the country. In Zambia, these are found in Lusaka, Eastern Province and on the
Copperbelt Province. At present it is K15, 100 per application. Inspectors from the institute will
then come to the agro shop to conduct inspection of the premises. They will look out for:




The size of the shop
The ventilation in the shop
The shelving especially if the shop will stock chemicals
What other products being sold in the shop
The license will be issues when the inspectors are satisfied that all the aspects are according to
requirements. This license has to be renewed annually.
3.4 Council trading licence
12
The agro shops operate in locations regulated by the local authorities (the council). In all
business locations the local council is the one that gives trading licenses to all businesses
operating in that particular area. Agro dealers being part of these traders are therefore required
by the law to get the trading license from the local council. This license permits them to operate
legally in a specific location. If the Agro dealer opens another business outlet in another area
governed by a different council, he/she will have to apply for another trading license from the
new local council. The fees for the license differ from council to council.
3.5 Environmental council of Zambia licence
Agro dealers selling seed and chemicals will need a license from ECZ. The ECZ is concerned
with the health welfare of people and the effect of chemicals on the environment. For the Agro
dealer to get this license, they should apply to ECZ whose offices are in Lusaka. Apart from the
application, the Agro dealer must have been trained in handling chemicals such that they
provide information on how to use the chemicals to the farmers without harming people and
the environment. The specific areas they consider are:


The safety of the people handling the chemicals who include the workers in the agro
shop and the end users who are farmers in this case
The disposal of chemical containers, unused chemicals or expired chemicals to ensure
that no harm is done to the environment.
The license is renewable every year.
3.6 Patents and companies registration office (PACRO)
This is a government department that is concerned with the registration of businesses in
Zambia. For any business to be recognised as a registered business, they need to register with
PACRO. A business can be registered either as a limited company, partnership, cooperative or
just a business name. Most Agro dealers register their business name. This is because it is the
most simple and least expensive way of registration. There are many advantages of having a
business registered. Some of the advantages are that:


A registered business can do business with other businesses like seed companies and
other input and chemical suppliers. The suppliers also feel confident to give credit to a
registered Agro dealer’s business.
It becomes easy for the business to register with organs like the Zambia Revenue
Authority.
It is a requirement by the ADAPT project that all Agro dealers in this project be registered
because it shows that the Agro dealer is serious with business.
13
3.7 Business premises
There are specifications on how the agro shop should be set up. For the licenses to be given, the
Agro dealer should make sure that the shop is at the expected minimum standard. Specific
things to ensure are in place are that:




The shop is big enough to accommodate the stock
There is enough ventilation to allow free air circulation. This is good for both the
products and the people working in the shop
There are no foodstuffs being sold in the shop
The shelves for the products are in place
You should avoid putting products like fertiliser on the floor. It is important that before you
start renovating or constructing the shop, you consult with experts from either the ADAPT
office or the agriculture extension officers from the ministry of agriculture and cooperatives.
3.8 Contracts
The Agro dealer undertakes numerous business transactions to meet the business objectives.
He/she acts as a distributor/agent for suppliers, regularly buys and sells goods for resell and
accesses several services (hiring employee, renting ) to run the business. In some cases, the
Agro dealer has appointed agents who represent and make sales on behalf of the Agro dealer
on a commission basis. In so doing, it is important that the terms of all the transactions with
the suppliers and agents are clear and of mutual benefit to both parties. Having a contract is
thus vital to make sure that services/goods are delivered timely, savings are made and to ensure
that there is effective communication among parties involved in the various business
transactions.
14
3.9 Health and safety in an agro business:
Considering that most agrodealers recruited are start ups who lack skills in safe use and handling
of chemicals, as revealed by the training needs assessment, it is critical that Agrodealers receive this
knowledge and skills needed to run their businesses in a safe manner in order for them to be
certified and allowed to stock chemicals by the environmental council of Zambia. Otherwise
without this training and certification they run the risk of having their products confisticated and
their business closed.
Instead of ADAPT delivering the training, the project engaged ‘CropLife to conduct technical
training in safe use and handling of chemicals. ‘CropLife Zambia is a local private sector association
of agricultural chemicals importers and distributors and is the member of the international
‘CropLife association representing the global crop protection industry. Crop life Zambia is the only
organisation in the country conducting safe use and handling of agro chemicals as well as certifying
its trainees as approved by the Environmental council of Zambia which is the public environmental
regulatory body.
15
3.10
Checklist
CHECKLIST FOR LEGAL REQUIREMENTS
ACTION POINT
TICK
 My business is registered with PACRO
[ ]
[ ]
 I have a business bank account
[ ]
 I have a certification and control institute licence
 I have a council trading licence
[ ]
 I have a licence from ECZ
[ ]
 My business premises comply to the minimum expected standards
for an agro shop
[ ]
4. MARKETING
4.1 Objectives
To enable the agro dealers to:
 Understand the importance of marketing in a business
 Plan how to use the 5Ps of marketing in their business
 Decide what promotional activities they will use in their business
16
4.2 What is marketing?
Marketing is everything you do to find out who your customers are and what they need and
want. It is how to satisfy them and make a profit by providing the products or services they
need, setting prices that they are willing to pay, getting your products or services to them,
informing and attracting them to buy your products or services
4.3 Importance of marketing
Marketing is important for several reasons:




The agro- dealer will stock the products that need all the time.
Marketing will give an indication on what prices to charge for varied products, and still able
to make a profit for traders.
Promoting your products by advertising and good customer service will attract customer’s
services to buy from your slop.
Marketing will help you know your customers and competitors fully. It is essential to do a
market research and learn your customers and competitors. Find out about your customers
and competitors. Find out if there are enough customers.
4.4 Market research
Market research is the process by which business people go out to find information about their
customers and competitors. It is important to always listen to what your customers need and do
not need. When their needs change, change your products and services to satisfy the new needs.
When you know what your customers want, you can provide those products or services and
increase your sales. If you sell products which need packaging, you can also change the
packaging to suit the needs of your customers.
In a market research, the following information should be obtained:











Which different kinds of customers want your products or services?
What products do they want?
What prices are they willing and able to pay?
Where are the customers and where do they usually buy?
How often and how much do they buy?
Who are your competitors and what do they offer?
What are the gaps in the market?
What are the gaps in the product range?
What is the competition doing?
How should we advertise?
What should our message be?
Remember that the customer is the most important person for your business success. More
satisfied customers means larger sales and profits.
17
4.5 The 5Ps of marketing
The 5 Ps of marketing are like stepping stones between your business and your customers. To
reach your customers and increase your sales, you will need to learn and use all five Ps of
marketing. All 5 Ps are very important and must be strong. If one or more Ps are missing, it
becomes a challenge to reach your market effectively.
Use each of the 5 Ps to satisfy your customers and improve your sales. Satisfied customers will
come back to buy some more from your business and will tell other people to buy from your
business. The 5 Ps are discussed one at a time.
4.5.1
Products
All businesses sell products or services in order to make profits and be successful. People buy
products for various reasons. The characteristics of the products will influence the customers’
decision to buy. The characteristics for agro products include:
4.5.2
Product quality
Colour of product
Function of the product
Packaging of the product
Price
To set the price can be difficult but it is very important. Your business may have very good
products or services, but if your prices are wrong, you will not sell much. When you work out a
price on a product or service, you need to know the product cost. Remember your total profit
from sales depends on how much profit you make on each product or service and how many of
each product or services you are able to sell.
How to set your prices
In general, your prices must be low enough to attract customers to buy and high enough to give
a profit. You must have certain information before you decide what prices to charge your
customers. To set your prices you need to know your costs, know how much customers are
willing to pay, know your competitor’s prices and know how to make your prices more
attractive.
4.5.3
Place
Place means location – where your business is situated. Location is especially important for
agro dealers who need to be where their customers are. Place, also means different ways of
getting your products or services to your customers. Your business may have good products at
prices that customers are willing to pay, but sales may still be low. The reason may be that
customers do not know where to buy your products or services. This has been discussed in
chapter 2.5.
4.5.4 Promotion
18
Your business should know how to attract customers for them to buy your products and
services. Your business may be located in a good place, have good products at prices that
customers are willing to pay, but your sales may still be low because you do not tell people
about your business and what it can offer. Promotion means informing and attracting the
customers to buy your products or services. Do not sit and wait for customers to come to you,
instead promote the products you can sell more and increase your profits by:





Advertising- making customers interested (inform, remind and persuade) using
community radio programmes, TV, posters, newspapers, brochures, etc.
Sales promotion- getting customers to buy more through discounts
Direct selling – Visiting targeted customers
Sponsorships – promote community programmes (social responsibility)
Exhibiting at Agriculture shows and community meetings
There are promotional activities unique to agro dealers. In order to increase business
performance the agro dealers can be involved in the following promotional activities:



Seed fairs: Most agro dealers stock maize seed. In the process of stocking maize seed,
some agro dealers become agents or stockists of particular maize seed. Such agro dealers
association, the ADAPT project or the seed company can spearhead the organisation of a
seed fair. Seed fairs are organised for a particular location targeting farmers in the area.
Farmers are given chance to find out specific information about each type of maize seed.
They also have opportunity to buy the seed.
Demonstration plots: Some agro dealers work with the seed companies so that they are
given seed for planting in a demonstration plot. At an agreed time, farmers in that area
where the plot is are invited to come and see how the seed performs with good
management. Farmers are able to see this performance and can decide to buy the seed
from the agro dealers shop. Agro dealers are encouraged to grow different varieties of
crops in demonstration plots and apart from rain fed maize which is commonly grown.
The agro dealers can also have demonstration plots for vegetable crops as well as
technology demonstration like irrigation equipment
Field days: These are open days when farmers and other partners promoting agro
dealers businesses come on an appointed day to learn what has been done at a
demonstration plot. Agro dealers who are not hosting the demonstration plots are
encouraged to attend field days so that they could also do the same. Common field days
cover rain fed crops especially maize.
19
4.5.5
Demo Plo
The business person
Field Day
In customer care, the relationship between the customer and the agro dealer is extremely
important. The quality of customer care is particularly highly dependent on the agro dealer,
therefore the agro dealer needs to have good customer care skills especially communication
skills. Whoever is in charge of the shop should be a well trained person in customers care. The
shop owner who is not sensitive to customer needs and lack communication skills could make
the business lose customers. The shop attendants or employees of Agro dealers should be
motivated to provide better services to the customers.
How to be a successful sales person
To improve your skills as a salesperson and increase your sales you need to know your
customers and their needs, know how to treat your customers and know your products and
how to sell them
 Know your customers and their needs
Customers are different, some are careless with their money and some never have enough
money. Try to understand and get to know every customer. Find out what the customer really
needs by listening and asking questions. Then satisfy the customers need by giving advice and
offering suitable products or service.
 Know how to treat your customers
Successful sales people try to see things through the customer’s eyes. This means that you
should try to think of yourself as a customer. Treat your customers the way you like to be
treated when you are a customer. Greet your customers. Call them by their names.
If you are already serving a customer, greet new customers and tell them that you will soon
help them.
20








Be polite and friendly so that customers feel welcome and enjoy visiting your business.
Smiles and friendliness cost nothing.
Dress well- look tidy and clean.
Offer your help.
Do not talk too much. Listen carefully to what your customers say and ask questions to
find out what they need.
Be patient. Give the customers time to ask questions and decide what they want to buy.
Always be honest and trust worthy. For example, tell your customers both good and bad
points about a product or a service.
Do not disagree with your customers if they decide they do not want a product. Allow
them to say no. Never argue with a customer. Make your customers feel they are right.
Thank your customers for coming to your business.
 Know your products and how to sell them
To gain respect and trust from your customers and sell well, you need to know your products.
Your customers may ask many questions about your products. Be sure you know the answers.
21
4.6 Checklist
CHECKLIST FOR MARKETING
ACTION POINT
TICK
 I have done market research and I have the following information:
o
Who my customers are
[ ]
o
What customers want and need
[ ]
o
How much my customers are willing to pay
[ ]
o
Who my competitors are
[ ]
o
What products my competitors offer and their process
[ ]
 I know what products will be stocked in the shop
[ ]
 My business premises are located:
o
Near the customers
[ ]
o
Far away from customers
[ ]
 I will only undertake the following promotional activities:
o
Community radio programmes
[ ]
o
Painting the shop
[ ]
o
Visited targeted customers
[ ]
o
Exhibiting at agriculture shows
[ ]
o
Attending seed fairs
[ ]
o
Hosting demonstration plots
[ ]
o
Hosting field days
[ ]
 I know how to treat customers well
[ ]
 My workers in the shop treat all the customers well
[ ]
22
5. STOCK MANAGEMENT
5.1 Objectives
To enable the participants to:
 Understand the importance of stock management in a business
 Use stock records
 Do stock taking
5.2 What is stock and stock management?
Stock is all the products that the business has for sale. In the case of the agro dealer, stock is the
goods a business buys from other businesses and keeps to resell. It includes seed, fertilizer,
chemicals, packaging materials, agricultural equipment, etc.
Stock control means organizing the way you:






Receive your stock
Record your stock
Store your stock
Arrange your stock
Check your stock
Re-order your stock
5.3 Importance of stock management
Good stock management helps to keep:




The right goods and materials, the right amount of stock- not too much or too little
Helps to keep your stock in good condition
Prevents stock from being lost through pilferage and other means
Re-ordering stock at the right time.
5.4 Guidelines to better stock management




Keep the right amount of stock
Always think of what the customers want and make sure that you do not run out of
stock. Keep enough stock as possible. This means less money tied in stock and more
money for the business
Stock goods that sell quickly; know which products sell quickly and the ones that sell
slowly. Buy products that sells quickly because that means more sells and more money
for the business
Avoid having stock that sells slowly as this will tie up your money
23






Offer stock that does not sell quickly at a discount if the customers cannot buy it at the
regular price as long as it is not at a loss
Arrange and display stock in an orderly manner; arrange and display goods neatly so
that it is easy for the customers to see and for easy checking and counting. Keep similar
goods in groups and near each other
Keep goods that are easy to steal in safe places
Check stock regularly; always check that you have the right amount of goods that is
needed. Check to find out if stock is missing and check for damaged stock or stock that
is not in good condition. Try to sell such stock at a discount. Check stock to find out
when to order more
Keep stock records
Use the stock records to know which goods sell well and which sell badly. This helps to
know which goods to buy. Use the stock records to find out which goods to re-order,
when to order and what quantities are needed.
5.5 Stock taking
Stock taking is a system of physically counting and writing down all the stock in the business
on a stock taking list. It is important to know exactly:



What kind of stock is available
How much stock is available
The condition of the stock
Importance of stock taking
It helps to find out if there is missing stock. The problem of missing stock can be an error in
filling in stock cards, theft or something else. When stock is counted it helps to find out:



If any stock is damaged and not in good condition
Which goods sell quickly and which sell slowly
When to re-order
It is good to do stock taking regularly but also when something is wrong and when you suspect
goods are being stolen. Remember that it is not good for the business to close for stock taking.
When the business closes then you are not selling and there are no sales. It is better to do stock
taking at a time that will not inconvenience your customers.
24
5.6 Stock records template
STOCK CARD
PRODUCT:
Date
In
Out
25
Balance
5.7 Checklist
CHECKLIST FOR STOCK MANAGEMENT
ACTION POINT
TICK
 In order to manage stock well in the shop I always:
-
Record all stock in stock daily cards
[ ]
-
Record all stock received
[ ]
-
Arrange stock well
[ ]
-
Follow the first in first out rule
[ ]
-
Make sure stock does not run out before ordering some more
[ ]
-
Stock goods that sell quickly
[ ]
 I routinely and systematically carry out stock taking
[ ]
 I can calculate the re order levels for all products
[ ]
26
6. RECORD KEEPING
6.1 Objectives
To enable the participants to:
 Understand the importance of keeping records
 Use a daily cash record
 Use a simple analysis book
6.2 What is record keeping?
Record keeping means to write down how much money your business receives how much
money your business pays out. It also means writing down the types and quantities of products
the business receives and types and quantities of products go out of the business.
6.3 Importance of record keeping
Records are important management tools that enable business owners to:





Provide the business person with a history of what has happened in the business
Assess the physical and financial performance of the business.
Assess how a business is progressing over a given period
Facilitate advisory services to business persons wishing to borrow money for investment,
sales and marketing of products and services.
To legal responsibilities of the business like paying taxes
6.4 Types of records
Businesses keep different types of records. The business owner usually decides on what type of
business records for their business considering the size of the business and the employees
assigned to compile the business records. All records in the business should have relevant use.
They should also be easy enough for the business owner to understand and interpret. Similarly
agro dealers need to keep records that will add value to the running of the business. They can
start with simple records but as the business grows new records will have to be introduced in
that particular business. The simple records an agro dealer can employ are: the daily cash
records and the simple analysis book.
6.4.1
Daily cash record
This is where all money from all sales is recorded on a daily basis. The products sold, quantity
and the price are recorded. The daily cash record will only show money coming into the
business through sales. It will not show the money the business is spending. As a result, it
cannot be used on its own as a complete business record. It works well when you also use the
simple analysis book.
27
Presentation on Record Keeping during training
Daily cash Record
Date:
Details
Quantity
Unit price
Total for the day
28
Total
6.4.2
Profit and loss statement
Follow the following example to make a profit and loss statement. The daily records must be up
to date and accurate in order to make a correct profit and loss statement. Follow the steps
below:
Sales
Cost of Goods Sold
Gross profit
Indirect costs
Net profit
K 5,000,000
K 2,000,000
K 3,000,000
K 700,000
K 2,300,000
The profit and loss statement is made on a monthly basis. As the agro dealer compares business
performance by comparing the profit and loss statements for the different months, there will be
a realisation that the business might make losses in certain months and profits in other months.
Though this is expected the trend should not be that in one year, there are more months were
the business makes losses than were it makes profits. It is for this reason that business people
should also make a profits and loss statement every quarter and annually.
29
6.5 Checklist
CHECKLIST FOR RECORDS KEEPING
ACTIVITY
TICK
 In my business I keep the following records
o Daily cash records
[ ]
o
Simple analysis book
[ ]
o
Other records: ................................................................................
[ ]
 I make profit and loss statement:
o
Monthly
[ ]
o
Per quarter
[ ]
o
Annually
[ ]
 I compare the records for previous months to learn from differences
[ ]
in business performance
 I am able to fill in all records without problems
[ ]
 All my workers can fill in all records in my business
[ ]
30
7. COSTING AND PRICING
7.1 Objectives
To enable the participants to:

Identify the types of costs in a business

Cost the products and services in the business

Understand how to price products and services profitably
7.2 What is costing?
Costing is the process of calculating how much you have spent to produce a product or offer a
service, before you can price that product or service at a profit.
What is pricing?
Pricing is the process of determining how much your products or services will be sold for after
carefully calculating the total cost of one product. The fundamental point to be noted under
pricing is that the prices chosen for the enterprises various products and services should give
that enterprise some profit to ensure sustainability and growth.
What is a price?
A price is a figure, which is arrived at after adding a profit margin to the unit cost of products.
7.3 Importance of costing
If you know your costs, you are able to:




Set your prices in such a way that you make a profit
Identify which items are most costly in the running of your business and if it is possible to
reduce certain costs
Avoid overpricing yourself out of competition (over pricing is charging prices which are
well above the average market prices)
Avoid under pricing yourself to bankruptcy (under pricing is charging prices which are
well below the unit cost of production)
The information you need to do effective costing comes from your own records of all your
transactions. That is why your record keeping must be in good order before you can do your
costing properly.
31
7.4 Types of costs
There are two types of costs involved when an entrepreneur is calculating his costs of
producing a product or service namely:

Direct Costs
Indirect Costs
The Direct Costs may also be broken down into two sub-costs namely Direct Labour Cost and
Direct Material Costs.
For certain businesses, you may even have direct expenses.
For
instance, a hammer mill running on diesel will have maize as the direct material; the hammer
mill operator’s wage as the direct labour cost and the diesel as the direct expense.
Direct costs are those costs which become part of the products or services which you produce,
for instance:A Farmer’s Costs
A farmer’s direct material costs are input costs such as:


Seed
Fertiliser
Pesticide (where applicable)
A farmer’s direct labour costs are costs incurred for the payment of:








Clearing
Ploughing
Planting
Application of fertilizer
Weeding
Harvesting
Packaging
Etc.
Indirect Costs
Indirect costs are the costs of all other items, which you need in running your business but are
not in any way easily traced to products or services you sell. These may include: 





Rent of building
Electricity
Water
Telephone
Transport
Salaries and wages for all workers who are not directly involved in production, e.g. the
owner’s salary, the security guards and the cashier
32





Stationery
Postage
Repairs and maintenance
Insurance
Depreciation (wear and tear of fixed assets)
Fixed Assets
Every business utilises certain fixed assets in its operation process. Fixed assets may fall under
the following categories: 



Land and buildings
Machinery/equipment
Furniture and fittings
Motor vehicles
A retailer and Wholesaler have only direct material costs and indirect costs. There are no direct
labour costs for a retailer and wholesaler as he is not involved in production, but only sells that
which has already been produced elsewhere.
For a retailer and wholesaler, such as an agro dealer business or agro dealer agents, the direct
costs are the cost of goods, which they purchases for resale.
7.5 Costing process for agro products
To calculate the total cost of each product the following steps are taken:
Step one: Calculate direct material costs





List all the products that you will order for resell. Each type and size of products should
be listed separately. If costing is for a new business, the list of products should comprise
of all the products that will be in the opening stock
State the quantity required for each product listed
Indicate the unit cost for each product. This is the amount of money paid for the
product.
Calculate the total cost of the same products by multiplying the required quantity by
unit cost.
Add up the total cost column to get the total amount for material cost
Product
Quantity
Unit cost
required
Total cost
(K)
33
Total Material
cost
Step two: Calculate indirect costs
1. List all the indirect costs. Indirect costs are calculated on a monthly basis. Different
businesses have different indirect costs
Item
Rent of building
Monthly costs
100,000
Electricity
50,000
Water
20,000
Salaries
300,000
Transport
50,000
Interest on loan
50,000
Repairs and maintenance
*Depreciation
Total Indirect Expenses
100,000
91,666.67
761,667
Step three: Calculate the indirect cost percentage
2. Total material cost divided by total indirect cost and then multiply by one hundred will give
you the percentage.
Total indirect cost X 100 =.....%
Total material cost
Step four: Calculate total cost product
Indirect cost percentage=
34
PRODUCT
UNIT COST
INDIRECT COST
PER PRODUCT
(unit cost x indirect
cost percentage
35
TOTAL COST
PER PRODUCT
PRICE
7.6 Pricing of agro products
Some questions to consider when pricing are:






What is the cost or break-even price?
What are the competitors’ prices?
How much of a premium can you get above the competition?
Can the majority of the customers afford the price?
Does it encourage sales of related items?
Are sales soaring or slumping?
Importance of pricing
Pricing ensures that:



The prices you charge are able to give your enterprise a profit
The prices you charge are not pushing you out of competition
The prices you charge reflect the value and quality of your products and services
7.7 Break-Even Point (BEP)
It is important to know how many items should be sold before an Agro dealer can make a
profit. BEP refers to the number of units of agro products one should sell before making a profit
or loss. It is a point where neither a profit nor a loss is made. To calculate the BEP, establish
fixed costs per month total all variable costs (monthly costs that fluctuate according to the
volume of operations such as direct costs plus all indirect costs except fixed costs) and calculate
the unit variable cost by dividing the total variable costs by total quantities of an agro product
purchased i.e. fertilizer. Remember that the formula works well if you are stocking few items
otherwise calculating BEP for each item if you stock more than 4 products can be cumbersome
and allocation of fixed and variable costs to each product may be arbitrary. The following
formula is used to calculate BEP:
BEP in Units = Fixed Costs / (Unit Selling Price - Unit Variable Cost)
Taking the example of selling fertiliser above, if monthly fixed costs are K2, 000,000. Unit Selling
Price K280, 000 and Unit Variable Cost K200, 000, the BEP will be as follows:
BEP = 2,000,000/280,000-200,000
BEP = 25 Bags
This means that the Agro dealer will make losses if bags of fertiliser sold are less than 25. The
Agro dealer should sell more than 25 bags in order to make profits.
36
7.8 Checklist
CHECKLIST FOR COSTING AND PRICING
ACTION POINT
TICK
 I have made a list of the costs in my business for:
o Direct material costs
[ ]
o
Indirect costs
[ ]
o
Fixed costs
[ ]
 I have calculated the indirect cost percentage
[ ]
 I have calculated the total cost of each product
[ ]
 I have set prices of the products based on the costs and competitors
price
[ ]
 The fixed assets in my business are:
o Land and buildings
o Machinery/ equipment
o Furniture and fittings
o Motor vehicles
[
[
[
[
 I pay myself a salary
 I pay my family members when they work in the business
[ ]
[ ]
3. I have calculated the breakeven point of my products
[ ]
37
]
]
]
]
8. FINANCIAL PLANNING
8.1 Objectives
By the end of the session, the participants will:
 Understand the importance of making sales and costs plans and cash plans
 Know how to use budgeting as a financial planning, performance monitoring and control
management tool
 Know how to ration working capital
 Understand and appreciate the importance of making savings and investments in business
for growth and expansion purposes.
8.2 Importance of financial planning
In any business it takes some time before money from sales starts to come in. During this
period, the business is very vulnerable and it is important to keep a close eye on the financial
situation. It is important that the business makes a profit and has enough cash to run the
business. A business must have higher sales than cost at all times otherwise it will run out of
cash. It is important to plan for both profit and cash flow and while running the business there
is need to follow up on the sales, costs and cash flow. The Agro dealer needs to plan and
monitor the financial situation of the business by doing the following;




Making a Sales and Costs Plan
Making a Cash flow Plan
Keeping records and comparing with both plans every month
Taking action if anything goes wrong
8.3 A sales and cost plan
A sales and costs plan will show the Agro dealer, the sales, costs and profit the business is likely
to have each month. A sales and costs plan is made annually. Forecast the costs to be rather
higher than you think and the sales a bit lower. This way you will make sure that your business
can survive even if things do not go well. The Agro dealers needs to seek for information when
making this plan and should avoid guessing.
To make a sale and cost plan, the Agro dealer needs to follow these steps:
Step 1. Forecast sales for each month of the year
Step 2. Forecast direct material costs per item
Step 3. Forecast indirect costs for each month of the year
Step 4. Calculate total direct material and indirect costs for each moth of the year.
Step 5. Complete the sales and cost Plan.
38
An example of a Sales and Costs Plan Format that the Agro dealer can Use.
Details
Jan
Feb
March April
May
June
July
Total
1.Sales
2.Direct Material costs
3.Gross Profit(1-2)
4.Indirect Costs
5.Net profit(3-4)
8.4 Cash flow plan
This is a forecast which shows how much cash you expect to come into and go out of the
business each month. The cash flow plan will help the Agro dealer make sure that the business
does not run out of cash at any given time.
Reasons a business may run out of cash



You have to buy materials/goods before you sell anything. This means that cash goes out
before cash comes in.
If you give credit to customers you do not get paid immediately. You often have to buy
more goods or materials before the credit customers pay you.
You need to buy equipment that will help the business to make profit in the future, but you
have to pay for the equipment before you earn the profit.
How to make a cash flow plan
To make a cash flow plan, follow the following steps. Steps 1-4 are for CASH IN. Steps 5-9 are
for CASH OUT.
Step 1
Cash at the start of the month: This is the amount of cash you expect to have in the
cash box plus the money you expect to have in the bank. If you are starting in the month of
January determine the cash at hand for this month.
Step 2
Cash in from sales: This is cash sales during the month. You look at your sales and
costs plan to find the forecasts for the cash sales for each month.
Step 3
Any other cash: This is the amount of cash you expect to get from other sources such
as a bank loan, a donation or grant. Forecast any other cash in for the month of January
Step 4
Total Cash in: You add up all the cash in amounts from steps 1 to 3. This is the total
cash expected to come into the business per month.
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Step 5
Cash out for direct material costs: This is the amount of cash you forecast the
business will pay to buy goods. You find the amount in the sales and costs plan. For the month
of January you forecast the cost as projected in the sales and costs plan.
Step 6
Cash out for indirect costs: This is the amount of money the business forecasts to
pay for the indirect costs in each month. The costs for the month of January are obtained from
the sales and costs plan.
Step 7
Cash for planned Investment: This is the amount that the business will pay for any
planned investment. There is need to forecast when this investment will be made.
Step 8
Interest and Loan Repayment: This is the amount that the business has to pay to
service any loan obtained. Forecast how much will be paid monthly to service the loan.
Step 9
Any other cash: any other costs the business is likely to pay out, such as renovations.
Step 10 Total cash out: Add up all the cash out amounts from steps 5 to 9. This is the total cash
amount that is expected to go out of the business. Calculate this for the month of January.
Step 11 Cash at the end of the Month: Subtract the total cash out from the total cash in. This is
the cash at the end of the month in this case for the month of January. Cash at the end of the
month is cash at the start of the next Month i.e. the cash at the end of January is the cash at the
start for the month of February.
An example of a cash flow plan
Jan
Cash in
1.Cash at start of the month
2. Cash in from Sales
3.Any other cash in
4.TOTAL CASH IN
5. Cash out for direct material costs
6. Cash out for indirect costs
Cash out
7. Cash out for planned investment
8. Loan repayment
9. Any other cash out
10. TOTAL CASH OUT
11. CASH AT THE END OF THE MONTH
(4-10)
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Feb
March April
May
June
8.5 Budgeting
Budgeting is another important tool that will assist the Agro dealer to ensure that spending is
within projected expenses. A budget can be defined as a plan quantified in monetary terms,
prepared for a defined period of time showing income and expenditure to be generated and
incurred respectively. In the case of the Agro dealer, it is important to make a budget before
undertaking any activity. This will include:






Estimating sales volumes and income
Identifying the activity to be undertaken. E.g. purchasing of goods for resell.
Identifying the goods to be bought and other support activities e.g. seed, fertilizer,
pesticides, fungicides, transport, lunch etc
Identifying the quantities required for each item e.g. 50 x 3g Rape seed, 100 x 100g
dithane M45.
Costing for each item to be bought e.g. 50x 3g rape seed x K4500/3g rape seed= K225000.
Summing up all the costs. Add up all the costs to determine the total budget required to
buy the goods for resell.
When the goods are bought, the Agro dealer needs to compare the planned budget and the
actual expenditure. This will help in understanding the over or under expenditure. In the case
of an over expenditure, there will be need to identify ways to control expenses contributing to
the over expenditure.
Importance of budgeting



Control over costs such as not allowing costs that were not planned for.
Basis for comparison and assists in evaluation.
Assists in Planning as you take into account the expenses and income from the previous period.
8.6 Savings and investment
In any business the profit realized is expected to assist in increasing the scale of the business. If
the scale of the business increases it is likely that the business will expand in terms of
introducing new products or outlets. Agro dealers therefore need to plan for such growth and
expansion. The utilization of profit realized from the business needs to be carefully planned.
The Agro dealer can either save or invest the profits realized.
What is savings?
Accumulated wealth/ money put aside for future use. Money or anything of value that is
deliberately put aside to grow in value and can be used in future.
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Importance of saving



Assists the business when it runs out of money; when people who got goods on credit
have not paid, money saved can be used to buy the goods for resell.
Assists to increase the scale of business; the money saved can be used to add to the
working capital so that more goods are bought for resell.
Assists in self capitalization: The money saved can be used to purchase equipment or
build a shop. In this case you will not need a loan but you would have managed to
invest using your own resources.
Characteristics of good savings
Savings must be;




Accessible- easy to get when needed.
Safe- secure and not easily destroyed, stolen or lost.
Profitable- should grow in value through earning interest.
Low transaction costs- should not be expensive to get and should not be expensive to
convert.
Where to save



Commercial bank
Trusted person
Informal saving group account
Investment
What are investments? The redirection of resources from being used today to creating benefits
in the future; the use of assets to earn income or profit. Surplus cash should be invested to avoid
opportunity costs associated with keeping idle cash such as losing potential interest earnings.
Importance of investment
Investment helps you to;



Put your money to work to earn more money.
Acquire assets to grow and expand the business.
Improve your financial security.
Types of Investments


Financial investments- shares, bonds, etc.
Capital Investments- buildings, equipment, machinery, etc.
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8.7 Checklist
CHECKLIST FOR FINANCIAL PLANNING
ACTIVITY
TICK
 I make financial forecasts in my business by making:
o A sales and cost plan
o
A cash flow plan
[ ]
[ ]
 I often do budgeting for the business
[ ]
 I often keep savings in the business account
[ ]
 I reinvest business profits into the business
[ ]
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9. ANNEXES
9.1 Elements of a business plan
Business Planning is a process of establishing the current situation of a business and identifying
the new and desirable destination in the future and indicating how that destination will be
arrived at in a specified period of time. Business Planning also includes the processes of
identifying the key players (investors, family members, friends or relatives and customers) who
will be part of the process and the roles each of those will play in realizing the intended goal.
When planning for business it is important to answer the following questions:
Where is my business now? Where is it going? What should I do for my business to get there?
How will it get there? Who are the potential investors? Who are the suppliers? Where are the
customers? Who are my competitors? When shall my business reach that destination?
The end result of the business planning process is to produce a business plan which is a written
document prepared by the entrepreneur. It is a written document which contains estimates of
future sales, (agro inputs to be ordered) production, future costs and future profits.
Executive Summary
This part of the business plan is written at the end but presented at the beginning in the
business plan. It should address a number of issues or questions that anyone picking up the
written plan for the first time would want to know. It should address the following:





What is this business?
How is it different or unique?
Who are the individuals starting this business?
How will they make the money and how much?
How much will it cost?
The Business Idea
The business Idea sets out the basic concept that the entrepreneur is attempting to develop.
Investors consider it very important because they can determine the amount of investment
needed without having to read through the entire plan. It describes:


The name and address of the company
The names of entrepreneurs, telephone number, fax number, mobile number, email address
and website address if available
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


The nature of business (products or services to be sold)
The different types of customers
The amount of financing needed and the sources.
a. Environmental and Industry Analysis
This is sometimes referred to as the SWOT analysis of the business as already discussed in topic
1 above. Critical issues in environmental and industry analysis include:
What are the major economic, social, technological, legal and political trends on a national and
international level? What are the total industry (agriculture) sales over the past five years?
What is the anticipated growth in this industry? How many new Agro dealers have entered this
agricultural industry in the past three years? What new products have recently been introduced
in agricultural industry? Who are the closest competitors? How will your business operations
be better than competitors’? Are the sales of your major competitors growing, declining or
steady? What are the strengths and weaknesses of each of your competitors? What trends are
occurring in your specific market area? What is the profile of your customers? How does the
profile of your customers differ from that of your competitors?
b. Description of the Business
This is about you and what you say about your business. It provides a complete overview of
products, services and operations of your business. In describing your business, you should be
able to answer the following questions: What is the mission of the business? What are the
reasons for going into this business? Why will you succeed in this business? What development
work towards this business has been completed to date? What are your products and services?
Describe your products or services (if you are farming) including any trademark etc? Where
will your business be located? Is the building rented or of your own? Old? Does it need
renovations? Why is this building and location right for your business? What office equipment
will be needed? What skills do you have and / or will you need to successfully implement the
business plan?
c. Marketing Plan
This describes market conditions and strategy relating to how products and services will be
packaged, distributed, priced and promoted. It is in this section where an Agro dealer analyses
the 7 ‘P’s of marketing (product, price, promotion, place, processes, people and physical
evidence) and determine the right mix to enhance the business.
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d. Legal form of Business
In this section, you describe how the business is registered or how you intend to register it,
whether it is a sole proprietorship, a partnership, a private limited company or it is a
cooperative or public limited company. The reason for choosing this form of business should be
stated clearly.
e. Staffing
The staffing section is part of the organization plan of the business. It helps you to understand
the skills and experiences needed to run the business so that you hire the right kind of staff. You
can conduct a skills assessment of yourself and family members. Where you find yourselves to
be weak, find time to be trained. Remember to treat family members and other employees
equally. This part should also specify responsibilities and line of authority of each member of
staff and family.
Skills Assessment
You can use the following table to rate both your skills and staff and undergo training to fill skills
gaps:
Skill
Excellent
Good
Fair
Poor
Planning
Forecasting
Market research
Sales management
Accounts/ taxes
People management
Product design and
development
Legal issues
Organizing
Monitoring and control
f.
Legal responsibilities and Insurance
In this section, the Agro dealer describes what legal responsibilities are applicable to the type of
business and also how to mitigate the risks by taking up insurance policies. There are some
insurance policies that fall under legal responsibilities and the Agro dealer should state and
indicate the costs associated with these. In Agro dealership, trading licenses and seed seller’s
license are required. Those that own vehicles have to pay road taxes and vehicle insurances.
Income taxes for employees working in the business should also be explained.
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g. Financial Plan
In this section of the business plan, an Agro dealer provides projections of the key financial data
that determine the economic feasibility and necessary financial investment commitments. The
two main projections made are Sales and Costs (Profit and loss) Plan and the Cash Flow Plan.
The Sales and Costs Plan
In this sales and costs plan, an Agro dealer indicates a summary of the forecasted sales and
appropriate expenses for at least 3 years with the first year’s projections provided monthly. This
plan includes the forecasted sales, costs of goods to be sold (direct material costs), and general
and administrative costs (indirect costs). The Agro dealer shows how the product costs were
arrived at using the whole costing process. For Agro dealers, the important aspect is how the
indirect costs are incorporated into the cost of goods to be sold. Net profits after taxes can also
be projected by estimating depreciation on buildings, equipment and motor vehicles, interest
charges and taxes or any other taxes in force. Sales and costs plan is normally used as an
important tool for analyzing business performance and for improving the business in the short
term.
The Cash Flow Plan
Once the sales and costs plan is formulated you can proceed in formulating the cash flow plan.
A cash flow plan is a forecast which shows you how much cash you expect to come into your
business and how much cash you expect to go out of your business each month. Since bills have
to be paid at different times of the year, it is important to determine the demands on cash on a
monthly basis. In most cases, sales may be irregular, and receipts from customers may also be
spread out, thus necessitating borrowing of short term capital to meet fixed expenses such as
salaries and utilities. In short, the cash flow plan will:




Provide a warning in advance about future cash shortages.
Help you to have more control over cash flow.
Help you solve problems before they happen.
Help you have cash when you need it.
A cash flow plan can also help you plan on how to utilize extra cash lying idle in the bank.
When there is a lot of money lying idle in a business, it also creates a problem as money is not
bringing any profits. A balance should be made to ensure that while the business is meeting its
financial obligations, it also does not allow money to remain unutilized (opportunity cost).
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9.2 Association formation
What is an association?
An association is a group of persons organised for a common purpose.
Objectives of an Association
Some of the objectives of an association/ cooperative should be to;






Facilitate farming business operations for its members.
Make money for its members.
Enlighten members on economic and marketing developments.
Protect members from unfair treatment in business dealings.
Lobby for better services from government and other market players for its members.
Provide a forum for exchange of ideas and information relating to members’ needs.
Who will form an association?





People who know and trust each other
People who have a common interest
People who need each other
People who will gain a clear advantage (usually in financial terms) by working together
People who appreciate all the benefits of acting together. There must be a clear advantage
(usually commercial) in associating. If not, it is a waste of time and money. An association
should be able to improve the economic status of its members by working hard on their
behalf.
Benefits of working with/through an association



Reducing input prices by bulk purchase (discount benefits)
Availability of products and services will be known
Reduced transport costs.
Other befits of working with the groups include:
a. Provision of marketing information and advice
Members can benefit from a poll of information which should be compiled and kept by the
secretariat. Government and other stakeholders find it easy to disseminate information
using associations.
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b. Improved market information flow and awareness
Members are able to share information and become more aware of the economic
environment through association meetings. Suppliers and other collaborators can also
disseminate information about their products very quickly and easily through associations.
c. Access to technical information and new innovations
With improved organization, associations will attract the interest of technical experts and
institutions for pilot programmes on new technologies and innovations that will benefit the
members. Local private traders could also be used to work with properly organized
associations/ cooperatives in testing the market for new technical products.
d. Joint sourcing of produce
Working in groups will enable Agro dealers to conduct joint marketing in buying and
selling products. The costs of operations are minimised if products are sourced jointly
because of discounts and suppliers can easily agree to deliver products to associations if
orders are big.
Group marketing leads to increased bargaining or negotiating power for better prices and
favourable terms of trade. By putting members’ requirements together, an association can
negotiate for a better uniform price. Suppliers are more willing to offer lower prices for
large volumes of produce obtained from one place.
e. Joint Ownership and Operation of Input-supply, Warehousing, Processing, Packaging
and Transport.
Working in groups provides the following benefits:



f.
Sharing storage costs to store commodities
Timeless and increased efficiency- a trader is able to service many clients at one given
time and place. All group members are able to obtain the required inputs and goods at
one time.
Reduced costs for transporting produce and input-association members share transport
costs and make full use of available transport.
Provision of training and extension to members
Joint trainings can easily be organised at reduced fees. Members also benefit from a pool of
knowledge.
g. Provision of credit for input supply to members
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Members can easily be assisted with finances and goods in form of loans.
h. Identify and promote viable business ventures on behalf of its members
An association can take up a business venture on behalf of members and members would
benefit from profits and business experience.
i.
Setting and enforcement of quality standards
Associations can set standards and petition relevant authorities to enforce quality standards
in order to prevent and mitigate counterfeit products.
j.
Act as a lobby group for members
Associations can easily negotiate with the government to improve industry trade policies.
Why do associations fail? (Reasons for failure)
Some reasons for the failure of an association, cooperatives or registered groups are:





Lack of good leadership skills
Lack of business skills
Lack of management skills
Lack of mutual trust- usually financial!
Unfulfilled expectations (mainly inadequate access to credit)
Good leadership is important but it requires team spirit for an association to succeed. Any group/
association/ cooperative will ultimately only be as strong as the collective will of its members. To
make it work, you need to keep it going, pay for it and use it.
Roles and responsibilities of association members and officers
Contributions of members in terms of labour, time, material or money need to be worked out. Once
an association has been formed, the training must be organised to allow the target group members
answer some of the obvious questions like:










Why are we associating together?
Who should be a member?
What should be the conditions for membership?
What could be the short and long term benefits?
Who will inherit a member’s share if he/she dies?
What role will ordinary members play in the association to obtain the benefits?
What business opportunities are available to the association/ cooperatives? etc
What offers are required? Why?
What are their responsibilities?
Should they be paid? How?
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




What is their term of office?
How often do they meet?
What should their mandate be?
How could the other members check on them?
How could the members get rid of them if they were no good?
Linkages
Collaborators should be identified and contracted to elicit their perspective on the existence of an
association/ cooperative in a particular area. This would assist in building confidence in the
association/ cooperative among collaborators and encourage sustainable links from the initial
stages. Many times business houses and private traders tend to regard associations and
cooperatives with suspicion especially in matters relating to contracts and credit. Note that
identifying and contacting Collaborators should be done by representatives of the group with the
assistance of the District Commissioner. Exposure and study tours should be encouraged.
Guidance and training
After establishing that the target groups and collaborators are interested and committed, the
association / cooperative should constantly be provided with guidance and leadership training to
enable members learn how to manage the organisation on their own. Guidance and leadership
training could cover:





Basic principles in organisation and management
Communications and negotiation skills
Team work and motivation strategies
Marketing skills
Basic project planning and management
Guidelines for formation of an association body
a. Name of the Association Body; naming of the association/ cooperative should be done by
the members involved. Names relating to villages or headmen should be avoided since
experience has shown that some members can feel that the association/ cooperative should
serve a specific village and this attitude can be counter- productive.
b. Brief background information; brief history of the area and the reasons for forming the
association/ cooperative should be provided.
c. Aims and objectives; both short term and long term objectives of the association/
cooperative should be outlined with brief indications on how the association will achieve
objectives. The objectives should have a business sense and address marketing needs and
opportunities.
d. Constitution; guides the organisation and functioning of the body. It should specify:
51










Leadership- the leadership should be as possible elected by members. Normally the
following should be elected: Chairman, Vice chairman, Secretary, Treasurer and Committee
members who should represent commodities or economic activities in the area.
Term of office of leaders; to be decided by members
Roles and powers of leaders and ordinary members; normally the roles of leaders are clear
but members tend to relax and feel that leaders will do everything. The roles of leaders and
members should be specified and agreed upon by all members.
Code of conduct; members should agree on the dos and don’ts of members and leaders (i.e.
who should be the spokesman etc, reactions to politics and events)
Disciplinary measures; to be specified by members
Membership subscription; nominal contribution to ensure that members are committed to
association/ cooperative objectives. The amount to be paid should be specified, when to pay
and validity of subscription (i.e. time from payment to renewal). It is also important to
clearly explain to all members what the subscription is for (members should not assume
subscriptions to be down for credit)
Nature and frequency of meetings (e.g. AGM, monthly or extra- ordinary) - when to hold
them? Proceedings of the (Agenda) and who should be present. Any other meetings should
be specified.
Legal status; registration with local authorities or Registrar of societies etc
Finance; opening bank account, book keeping, fundraising and auditing. Information on
how the subscriptions and any other association money will be kept and accounted for
should be clear.
Information flow; members should agree on the period of notice for meetings, how
members should be informed and any other information requirements.
52