CHOOSING A MICRO ENTERPRISE
by Phil Bartle, PhD
Notes for entrepreneurs in training; how to choose a business
This document is about obtaining information and making calculations to determine if your micro enterprise will be viable (profitable) and therefore worth pursuing.
Every business undertaken might not necessarily result in a profit making venture. How do you choose one that is? You have many choices about what business will be profitable. Use the tips in this document in choosing a viable business.
Here is a selection of possible businesses:
In developing countries, most people fish and farm for their own consumption. This does not contribute to the national market economy. In contrast, there are not enough products made from initial processing of agricultural products (they are in short supply and their prices are too high). While you can choose from among all of the list on the left, we recommend that you most consider initial processing of agricultural products (like making oil out of seeds). This is most likely to sustain a good income for you, and contributes most to the growth of your national economy. Petty trade, in contrast, is easy to get into, but contributes little to the national economy (no new value is added by production; petty trade merely distributes things already manufactured).
Whatever the level and size of your enterprise, you always need to analyse the following:
Product or Service:
What is your proposed product or service? This can be a new product or one already being produced or sold. What are the reasons why you have decided to choose that as a business? Can you make a profit from it? Have you seriously considered the alternatives? Can you defend your decision?
Consider whether your product or service will be: Cheaper? Higher quality? A completely new product? On sale more regularly? On sale in different quantities? and/or Sold in a place where more customers would be? The Facilitator may ask you to defend your choice in a meeting of the group.
To find possible customers (how much they want and at what price), we must find answers to the following questions:
To find out what customers are willing to buy and pay, you can visit and observe customers in a market, and talk to people who are interested in your product. Are there any potential competitors and what are their strengths and weaknesses. See Marketing.
Do you have the skills needed to produce the product or produce the services. If not, can you learn them? Can you learn how to make the product or provide the service?
You need to know:
Materials, Tools and Equipment:
Can you obtain the raw materials, tools and equipment which will be used in the business. It is especially important that the materials needed can be obtained within the locality as often as they are needed.
If something like equipment is to be imported, then it must be well known and arrangements for purchase and maintenance are made. To get spare parts from another country can take a long time and may be very expensive. We should try to use tools and equipment locally available and appropriate to the needs of the business.
Answer the following questions:
Identifying a Work Place:
When carrying out an income generating activity it is important to have a good place to work. Entrepreneurs should find suitable places in which to work.
To carry out a micro enterprise, there are minimum conditions needed:
The conditions needed depend on the type of business planned. A manually operated rice huller machine does not need electricity; a vegetable growing business might not need a building.
Visit (with other members of your group) possible places where your enterprise is to be located and check whether conditions listed above are in place.
Can you find a suitable place to sell from? You may want to sell the product:In a local area only; Elsewhere (eg export); or In both a local and in a wider area.
Most businesses find it best to start selling in a local area and later think about expanding outside the community when your business is running well. Here are some possible places to sell. You may think of others also.
Your main concern is to find out how your micro enterprise will operate from beginning to end, ie how each product is produced, or bought and sold.
You need to know the following:
This will help to determine the ways and means as well as the raw materials that will be needed to achieve high output.
Production Costs (Expenses):
All costs related to any micro enterprise must be explored and considered. Even the long term expenses relating to equipment, like annual depreciation, should be worked out so that the full costs are known by the entrepreneurs before venturing into business.
Production Income (Sales):
It is important to remember that money we get from selling the product or service must pay for three things:
When added together, these three are called recurrent expenses. Every year sales must at least be equal to recurrent expenses, or the enterprise will lose money and the business will collapse.
When starting a micro enterprise, there are also start-up costs. These are costs that will have to be met before any product or service is sold. Start-up costs usually include cost of tools, machinery and furniture as well as any goods. It usually takes six months from the time someone starts a business until she is able to make a profit.
To ensure that the money we receive from sales will be enough to cover their costs plus profit, we must consider the following:
SELLING PRICE = TOTAL COST + PROFIT
Before pricing, be mindful of the following:
PROFIT = SELLING PRICE - TOTAL COSTSThe profit margin is usually a percentage of the total cost and may range between 10-100%.
Selecting the Most Suitable Enterprise:
After going through all the above, then you may decide whether the enterprise is worth the efforts put in.
Among the available alternatives, you should be able to choose the best enterprise:
Workshop: Choosing Viable Enterprises:
© Copyright 1967, 1987, 2007 Phil Bartle