M16 Managing small businesses

• The key to success is to understand what customers want and then produce it in ways which allow a good profit to be made.
• Costs must be measured accurately and should include every part of the business, including borrowing a friend’s vehicle, wastage, replacing equipment and power charges.
• PROFIT = SALE PRICE – COSTS
• Profit can be increased in two ways. Firstly by increasing the sale price – if the goods are of such high quality or interest that people will pay more. Secondly, profit can be increased by reducing the costs of production – for example through buying larger quantities of raw materials or through reducing waste.

• What kind of costs could easily be ignored when working out the real cost of producing goods?
• How can people keep their business money separate from their personal money? For example, money from a recent sale may make people feel rich and be used for personal needs. Money owed to a supplier or needed to buy raw materials may be used to buy food for the family. A simple solution is to use a separate pocket for business money.
• Should all profits be kept for personal use? Or should some be invested to build up the business? It may be best to decide what you can afford to take from the business as a salary and take only that.
• If someone already has a small business, how could a loan help them to improve their profits?

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This page was last updated on 04 August 2005