FORM- FOUR COMMERCE NOTES

NB: HAVING THESE NOTES IN YOUR LAPTOP,

SMARTPHONE OR PRINTED DOES NOT MEAN YOU DONT
HAVE TO WRITE THEM IN YOUR NOTE-BOOK!!
COME HAVING FINISHED THEM OVER THE HOLIDAYS
INTRODUCTION TO COMMERCE

Commerce means trade and aids to trade. It is concerned with the distribution of goods and services in order to
satisfy human needs and wants. Commerce helps to transfer goods from the manufacturer to the final consumer.

THE STRUCTURE OF COMMERCE

COMMERCE

TRADE AIDS TO TRADE

Home Trade Foreign Trade - Warehousing

- Advertising
- Banking
- Transport
Wholesale Retail Import Export - Insurance
Trade Trade Trade Trade - Communication

TRADE
Trade is the buying and selling of goods and services with the view of making profit. There are two types of
trade; these are home trade and foreign trade.

Home trade: - It’s the buying and selling of goods and services within a country. It consists of retail and
wholesale trade. Retail trade is the selling of goods in small quantities while wholesale trade is the selling of
goods in large quantities.

Foreign trade: the buying and selling of goods and services between countries. It is divided into two i.e. import
trade and export trade. Import trade is the buying of goods from outside the country while export trade.
Export trade is the selling of goods and services outside the country.

IMPORTANCE OF COMMERCIAL SERVICES TO COMMERCE & INDUSTRY

commercial services are all those services that make buying and selling possible, they are the aids to trade. Often
abbreviated WABTIC

WAREHOUSING
 Provides the place for the safe keeping of raw materials, equipment, partly finished goods and finished
goods.
 It helps to ensure that there is steady flow of raw materials for production to go on smoothly and to keep
a stock ready to meet customer demands.
 It protects goods from damage due to bad weather.
 It provides the space necessary for the wholesalers to prepare goods for sale.

ADVERTISING
 Helps manufacturers to inform and remind customers about the availability of particular brands of goods/
services.
 Helps manufacturers in persuading customers to buy.
 Helps manufacturers to obtain information regarding raw materials supply sources and other inputs.
BANKING
 Helps by providing finance (loans & overdrafts) required to set up a factory and running the business.
 Provides safe custody for manufacturers’ money.
 Provides the use of current account to enable the manufacturer to receive payment from customers and
also to make payment by cheque to raw material suppliers.

TRANSPORT
 Helps to move the equipments and raw-materials to the factory for processing.
 Helps move workers to and from the factory.

INSURANCE
 Facilitates production and trade by absorbing some of the risks involved in businesses e.g. fire, motor
accident, theft, accidental damage.
 It creates an atmosphere of confidence to the producer so that s/he can freely invest her money, produce
and sell the goods.

COMMUNICATION
 Enable manufacturers to contact both the suppliers of raw materials and customers through telephone,
letters, E-mail and can place order through faxes.
 Helps manufacturer to widen his/her market by contacting foreign customers by phones and internet (e-
mail)

HUMAN NEEDS AND WANTS

Needs are goods and services that we require in order to survive, we cannot live without them, they are the basic
necessities of life. E.g. food, clothing, shelter water and health care.
Wants are goods and services that we desire to make our lives more enjoyable but we can survive without them.
E.g. cell phones, TV’s and radios.

The needs and wants are actually goods and services.

Goods are the physical or tangible things that we can see, touch, and measure e.g., cell phones, food, radios,
clothes etc.
Services are intangible things i.e. work done by other people which helps us but which is invisible e.g. transport,
advertising, education, security, health care etc.

These goods and services are provided by production of which there are two types.

PRODUCTION
 It is the making or creation of goods and services in order to satisfy human needs and wants.
 Production refers to all the activities which bring about goods and services or
 it is the creation of utility or usefulness for the satisfaction of human needs and wants.

It includes;
-the extraction of natural resources/ raw materials
-changing of raw materials into more useful goods
-transferring finished goods from factory to the consumer

TYPES OF PRODUCTION
1. Direct production; production of goods for one’s own use or family consumption.
e.g. of direct production
  A man building his own house
 A farmer growing only enough crops for his family consumption.

2. Indirect production; production of goods for sale.

STAGES OF PRODUCTION
a) Primary production
b) Secondary production
c) Tertiary production

a. PRIMARY PRODUCTION/ EXTRACTIVE

This is the first stage of production concerned with the extraction of natural resources which are either above or
below the earth’s surface. The resources are extracted by either: mining, farming, fishing, quarrying, forestry.

b. SECONDARY PRODUCTION
This is the second stage of production where raw materials from primary production are transformed into finished
goods or semi-finished goods.
It consists of manufacturing and construction industries.

i) Manufacturing- is the transformation of raw materials into useable products. E.g. making of shoes, baking.
Some raw materials are turned into semi-finished goods in one firm and then sent to another factory to be
finished into a better product.

ii) Construction- includes the building of roads, bridges, houses and other construction works. This process uses
products from primary and manufacturing industries.
E.g. to build a house, a builder uses cement extracted by mining, roofing sheets and window glasses from
manufacturing industries.

c. TERTIARY PRODUCTION
This is the last stage of production which involves the provision of commercial services and direct services which
help in the transfer of the finished products from the factory to the consumer.
There are 2 services involved;
i) Commercial Services- services that help make trade possible.
It involves safe storing of goods, transporting them, and advertising, providing finance and selling.
ii) Direct Services- these are intangible services that people directly provide as a contribution to production
rather than to the actual making of an item
E.g. services of doctors, nurses and surgeons make people healthy, strong and ready to work. They directly help
them to work more productively.

Chain of production
It refers to how the various processes involved in the making of a product are linked up.
Most goods pass through various production stages before reaching the consumer.

Primary/extractive production secondary production tertiary production

Farming manufacturing Warehousing
Fishing construction Advertising
Forestry processing Banking
Mining Transport
Quarrying Insurance
Communication
Direct services
FACTORS OF PRODUCTION
These are the resources needed for the production of any goods or services.
These are: land
Labour
Capital
Enterprise

a) Land –refers to all the resources provided by nature such as soil, fields, vegetation, animals, minerals, rocks
etc, it includes the earth and oceans and everything that lives or grows in them.
Nothing can be produced without land.
 a fisherman needs the water from which to catch the fish
 a miner extracts minerals from below the surface of the land
 a manufacturing industry needs land to build the factory
Reward for land is rent

b) Labour- is the human effort or energy used in the production of goods and services. It can be physical or
mental energy. It includes services provided by such people as domestic workers, doctors, teachers etc
Reward for labour is wages/salaries

c) Capital- consists of money and all the man made assets used in the production of goods and services. Money is
needed to pay workers, bills and buying machinery.
Reward for capital is interest

d) Entrepreneur – a person who makes the decision and bearing the risks of bringing resources together to
produce goods and services with an aim of making profit e.g. a fruit farmer will use his expertise to combine his
land, capital and labour to produce fruits he will be able to sell.
Reward is profit

 To move products to the consumers for sale when ready.

 Leads to the extension of the market both local and foreign.

CHAIN OF DISTRIBUTION
This is the process that shows the different routes which goods pass through before reaching the final consumer.
In the process the goods are handled by various people and organisations.

Route 1: PRODUCER—WHOLESALER—RETAILER—CONSUMER
Wholesalers buy goods in bulk from producers and sell them to retailers in small quantities and the retailers sell to
the consumers in suitable quantities.

Route 2: PRODUCER—CASH N CARRY WHOLESALER--CONSUMER

Large cash and carry wholesalers who have large warehouses buy good in bulk from producers and sell them
directly to the consumer e.g. Trade World

Route 3: PRODUCER—LARGE SCALE RETAILERS—CONSUMER

Large scale retailers such as Score supermarkets buy directly from the producer in bulk and sell directly to the
final consumer in small quantities.
This route is used mostly by manufactures of consumer durables such as furniture, cars, TV sets.
Route 4: PRODUCER—FACTORY SHOPS--CONSUMER
Producers sell their products straight to the consumers through their own retail outlets known as factory shops.
Perishable goods like vegetables, fruits and bread pass through this route.

Route 5: PRODUCER—MAIL ORDER FIRM--CONSUMER

This route is used for manufactured goods of high value and low volume such as golden products. Here part time
agents market the products directly to the consumer and or mail order companies advertise their products in
catalogues and call for orders by post or phone.

Route 6: PRODUCER—MARKETIG BOARDS—WHOLESALERS—RETAILERS--CONSUMER

Organisations owned and run by the government like BAMB buy the products of primary industries especially
agricultural products and sell them to the consumers through wholesalers, and retailers.

SPECIALISATION

DEF: Specialisation is a process whereby a company/person concentrates on producing only one product or doing
only one task.
The company is said to be belonging to a particular industry. An industry is a group of independent firms
producing related goods and services. E.g. within the liquor industry there are firms that specialise in the
production of wines, beer etc.

DIVISION OF LABOUR
It is the breaking down of work into individual tasks for individual workers to specialise. E.g. in a car assembly
plant, each worker performs a single task along the production line. One person may install the engine, one may
fit the wheels and one put on window glasses.

LEVELS OF SPECIALISATION

1.Specialisation by individual. -When individuals become professionals such as teachers, dentist, accountants.
Specialisation by product- When a company specialises in manufacturing a certain products e.g., Toyota
manufactures cars,
Specialisation by process- It is the division of labour whereby a group of people producing a certain product e.g.
a car, specialise on individual jobs which make up part of the work involved in making the final product.
Specialisation by region-Occurs when a particular region of a country devotes itself to produce a few major
products/ services. This would happen because of historical reasons or because of the richness of natural
resources in that region.
Specialisation by nation- Occurs when a certain country devotes itself mainly in producing certain products
which it exports to other countries. E.g. Botswana produces diamond and beef for export.

ADVANTAGES OF SPECIALISATION/ DIVISION OF LABOUR

 If workers specialise in particular tasks, repeating the same operations their skills and speed are increased,
therefore more is produced.
 Time is saved because workers do not have to move from one operation to another hence increased
productivity.
 Specialisation allows the use of machinery which leads to further savings in efforts and time
 Training is much quicker because jobs are easier to learn.
 Division of labour is done according to people’s abilities so people do what they do best and this improves
productivity.
 DISADVANTAGES OF SPECIALISATION/ DIVISION OF LABOUR

 Doing the same work everyday becomes boring and it leads to low productivity.
 Use of machines leads to loss of individual crafts and skills and unemployment
 People become too independent upon each other therefore production may be disturbed if one worker
falls sick or if the other section is not working.
 Products are all the same so this means consumer’s choice of goods becomes limited.

RELATIONSHIP BETWEEN SPECIALISATION AND TRADE

 Specialisation leads to mass production/increase in output which brings surplus and hence the need to
trade.
 Brings interdependence- people are not self sufficient: they cannot produce all the goods and services to
satisfy themselves hence they exchange what they are able to do for other goods and services. As such
people are able to have a variety of goods/services to consume from other people or businesses.
 RETAIL TRADE

RETAIL TRADE: it is the selling of goods in smaller quantities.

RETAILER: A person of organisation who buys goods in bulk and sells them to consumers in small quantities.

FUNCTIONS OF RETAILERS
 Provide variety of goods to consumers
 Provides goods at convenient times
 Some offer credit to the consumers
 Offer delivery for some goods
 Offer after sales and pre sales service.

TYPES OF RETAILERS
1. Small scale retailers
2. large scale retailers

DIFFERENCE BETWEEN SMALL SCALE AND LARGE SCALE RETAILERS

SMALL SCALE RETAILERS LARGE SCALE RETAILERS

 offer limited range of goods
 most do not have fixed premises for operating
 need small amount of capital to operate
 offer personal service to customers
 have lower operational costs
 offer wide variety of goods
 operate from fixed premises
 need large amount of capital to operate
 most offer self service
 higher operational costs

TYPES OF SMALL SCALE RETAILERS

 HAWKER: a licensed trader who sell goods by walking from one house to another.
 MOBILE SHOPS: traders who sell their goods by moving from door to door using a mode of transport,
either a van or a bicycle.
 STREET/ROADSIDE TRADERS: Unlicensed traders who sell their goods sitting under a tree along the
road.
 ITINERANT TRADER: Unlicensed traders who walk from house to house carrying a handful of things
for sale.
 MARKET STALL TRADERS: Traders who sell their goods from stall areas provided by town councils
usually in busy areas like bus ranks.
 INDEPENDENT RETAILERS: A licensed retailer who operates from a fixed shop on a small scale.
They are commonly known as general dealers.

PROBLEMS FACED BY SMALL SCALE RETAILERS -- [HAWKER/MOBILE SHOP/STREET

MARKET/ITENERANT TRADER]

 Affected by bad weather conditions like rain [1] which can disturb them from selling hence low sales[1]
 Can be attacked by thieves [1] who could take all their money and goods leading to loss [1]
 Face competition from large retailers who offer variety of goods at cheaper prices [1] therefore lose
customers [1]

HOW A SMALL RETAILER CAN MAKE HIS/HER BUSINESS SUCCESSFUL i.e. how to increase sales
  Offering quality goods [1] so as to attract more customers [1]
 Regular advertising [1] to persuade customers to buy [1]
 Lowering prices [1] so that more customers buy [1]
 Providing good customer service [1] so as to appeal to more customers [1]

WHY THE NUMBER OF SMALL SCALE RETAILERS HAS DECLINED

 Competition from large scale retailers who offer goods at lower prices [1] therefore lose customers [1]
 Offer limited range of goods and services [1] so customers rarely buy there [1]
 Lack of advertising [1] which lead to low sales [1]
 Poor management [1] as some traders take the business money for personal use.
 Poor locations [1] most are located on the outskirts of towns where there are few customers. [1]

WHY SOME SMALL SCALE RETAILERS ARE STILL SURVIVING/ CONTINUE TO TRADE
SUCCESFULLY

 They offer a wider range of goods and services [1] so this attracts customers to buy in large numbers [1]
 They offer delivery and credit services [1] which makes customers enjoy to buy from them [1]
 They open for long hours [1] which caters for late shoppers hence increase in sales [1]
 They offer good customer service [1] which appeals to more customers [1]
 They offer quality goods at competitive prices [1] which makes customers to be loyal [1]

LARGE SCALE RETAILERS

These are retailers that operate on a large scale offering a wide range of goods and services to the customers.

TYPES OF LARGE SCALE RETAILERS

1. Supermarkets
2. hypermarkets
3. multiple chain stores
4. department sores
5. mail order firms
6. retail cooperative societies

1. SUPERMARKET
These are large self service stores with about 200 -250 sq metres of selling space and have three or more cash tills
at the exit E.G. - Choppies supermarket
-Spar
- Pick n Pay

FEATURES OF SUPERMARKETS
 Sell mainly groceries and house hold items
 Use self service method of selling
 Have a trading space of about 200 sq metres.
 They sell branded and pre-packaged goods.

ADVANTAGES OF SUPERMARKETS TO THE RETAILER

 Fewer workers are hired because of self service method [1] hence low wage bill [1] however shoplifting is
common which reduces profits [1]
  Buy in bulk and get trade discounts [1] therefore able to charge low prices which attract customers [1]
however lack of personal attention may chase away some customers especially those who ca not read and
write. [1]
 Clever display of goods by trader leads to impulse buying [1] which increases sales and may be profits
[1] however they require a large trading space which can be expensive as they are usually located in city
centres where rent is expensive [1]

DISADVANTAGES TO THE RETAILER

 Shoplifting is common which lead to additional costs of hiring security guards.
 Large trading space is needed which can be expensive
 Shopping baskets and trolleys are sometimes stolen

ADVANTAGES OF SUPERMARKETS TO THE CUSTOMER

 Wide range of goods is offered [1] so customers enjoy one stop shopping [1] however impulse buying is
likely which may tempt customers to overspend and end up with financial difficulties [1]
 Saves customer time [1] as goods are easy to find so they can serve themselves quickly [1] however lack
of personal attention can be a problem to illiterate customers [1]
 Customers enjoy cheaper prices [1] so they can be able to buy more goods to satisfy their needs [1]
however delivery and credit are not provided. [1]

DISADVANTAGES TO THE CUSTOMER

 Impulse buying is more likely which may lead to financial difficulties
 Most goods are pre-packaged so can not be inspected before buying
 Credit and delivery are usually not provided.

2. HYPERMARKETS
This is a large self service store with a trading space of over 5000 sq meters, selling groceries, household items,
furniture and other items

FEATURES OF HYPERMARKETS
 Have a selling space of over 5000 square metres
 Use self service method of selling
 Usually charge lower prices
 Goods are sold on cash and carry basis except furniture which is sold on credit
 Offer wider range of goods than supermarkets

ADVANTAGES OF HYPERMARKETS TO THE RETAILER/OWNER

 Buy stock direct from producers at factory prices [1] therefore able to charge lower prices [1] which
attract customers hence increase in sales [1] however lack of personal attention may led to some
customers not buying [1]

 Self service is used[1]which lead to low wage bills as few shop assistants are needed hence more profits
[1] however shoplifting more likely which may reduce profits [1]

 Impulse buying is more likely [1] which increases sales and possibly profits [1] however they are to
expensive to set up and need much land which may lower profits [1]

DISADVANTAGES
 Expensive to set up and need too much which may lower profits
  Shoplifting is common

ADVATAGES OF HYPERMARKETS TO THE CONSUMER

 Wide range of goods offered at lower prices [1] consumer enjoy one stop shopping [1] however the shops
are too big with many goods which makes it difficult for customers to find some goods [1]

 Self service is provided [1] which makes customer to shop at their own paced without being rushed [1]
however impulse buying is more likely which may lead to financial difficulties [1]

 Usually provide long opening hours [1] enabling late shoppers to buy [1] however they are destroying
small local shops which are conveniently located closer to consumers. [1]

DISADVANTAGES
 Too big to find some items
 Too large and impersonal
 Destroying small local shops conveniently located near customers

3. MULTIPLE CHAIN STORES

These are a group of shops owned by same company with branches all over the country and in other countries
selling identical and usually limited range of goods under centralised ownership and control

TYPES OF CHAIN STORES

 VARIETY CHAIN STORE: stores that sell a variety of goods usually a combination of clothing and
food. E.G Woolworths
 SPECIALIST CHAIN STORE: Stores that specialise on selling a limited range of goods.
E.G OK furniture and furniture mart sell furniture,
CB stores and Jet sell clothing

FEATURES
 Consist of number of branches scattered all over the country and in other countries
 Stock can be moved between branches
 All branches sell the same line of goods, use the same name and have similar shop fronts
 Branches are controlled from the head office
 Each branch is headed by a branch manager

ADVATAGES OF MULTIPLE/CHAIN STORE TO THE RETAILER/SHOP OWNER

 The uniformity of the sores save on architectural costs [1] as the same building plan will be when a new
branch is being built [1] however large capital is needed to set up and run the business [1]
 Able to employ highly qualified workers[1] which brings greater efficiency and help reduce costs
[1]however the qualified workers may need to be paid high wages which increases wage bill [1]
 The advertising, accounting and purchasing are done from the head office [1] which saves overheads and
lead to low costs per branch [1] however centralised control from head office leaves the branch manager
with no power to change anything to suit the local needs of the area leading to low sales [1]

ADVANTAGES TO THE CONSUMER

 Goods bought at one branch may be returned at any nearest branch [1] this saves consumers time and
transport costs [1] however
  Some offer credit [1] which gives many consumers the opportunity to buy more goods [1] however they sell
limited range of goods so no one stop shopping [1]
 Shops are identical [1] so can be easily recognised by customers [1]however they are controlled from the
head office which makes it difficult for the branch manager to cater for the needs of the local community.
[1]

REASONS WHY MULTIPLE STORES OFTEN HAVE A LARGER SHARE OF THE MARKET

 Sell on credit and offer delivery [1] which attract many customers to buy [1]
 Have branches all over the country [1] so have easily accessible to many consumers [1]
 Carry out national advertising [1] which can persuade many customers to buy [1]
 Offer competitive prices [1] which attracts many customers to buy [1]

4. DEPARTMENT STORES

These are stores divided into a number of independent departments each stocking only one kind of good.
e.g Game Stores

FEATURES OF THE DEPARTMENT STORES

 Payments of goods is by cash, and budget account
 They are usually located in towns or central shopping areas
 Each department is controlled by a Department Manager who reports to the General Manager
 They offer a wide range of goods through their different departments

ADVANTAGES OF DEPARTMENT STORES TO THE CUSTOMER

 They are located in central locations in towns [1] hence is convenient for customers[1] however
consumers from rural areas have to travel long distances [1]
 Credit and delivery services are provided [1] which makes more customer to afford to buy even if they
don’t have money [1] however they are often more expensive than other stores [1]
 Wide range of goods available [1] hence customers enjoy one stop shopping [1] however may lead to
overspending through impulse buying [1]

ADVANTAGES OF DEPARTMENT STORES TO THE RETAILER

 Each department advertises [1] the others since customers pass through other departments hence attracts
more customers [1] however costs of providing amenities reduce profits [1]
 Open for long hours [1] which attract more customers hence more sales [1] however workers have to be
paid overtime wages [1]
 Losses in one department can be absorbed [1] as long as other department make profits however it
requires more labour [1] leading to higher operation costs [1]

5. MAIL ORDER FIRMS

These are stores which sell their goods through the post office. It is suitable for selling high value, light and low
volume goods such as jewellery, household utensils and clothes.
E.G. Home Choice, Tupperware

FEATURES OF MAIL ORDER FIRM

 They advertise their goods mainly through catalogues, journals, magazines

  They have no shops but only have warehouses and offices through which they process orders
 They rely on post office to deliver goods to the customers
 They also sell through part-time agents who work for commission

ADVANTAGES OF MAIL ORDER FIRMS TO THE CUSTOMER

 Customer enjoy shopping from home [1] since goods are delivered to customer’s door which is convenient
[1] however it is difficult to assess the quality of goods [1]
 Offer credit facilities [1] which help many who would not afford the goods to buy [1] however customers
may burden themselves with debts and suffer with installments for a long time. [1]
 Unsatisfactory goods are returnable [1] hence gives customers satisfaction of proper goods of their choice
[1] however goods are returned at the customer’s expense [1]

ADVANTAGES OF MAIL ORDER FIRMS TO THE RETAILER

 Does not need premises/shops [1] hence save on rental costs [1] however there is no personal contact
with the customers
 They need few shop assistants only for packaging [1] hence save on labour costs [1] however they need to
pay commissions to agents as well as post offices which increase operational costs [1]
 Enjoy economies of scale for buying in bulk [1] this reduces operational costs [1] however holding large
stocks increases insurance and storage costs [1]

6. RETAIL COOPERTIONS SOCIETY

These are stores formed and run by a group of consumers on the cooperative principle of ownership, cooperation
and distribution of profits.

FEATURES
 The members/owners are people who hold shares in the society and are also the main customers.
 Profits are divided as dividends in relation to the amount of goods the member bought from the store.
 They offer special benefits such as scholarships, funeral benefits to the community
 They are run by a committee elected by the members

ADVANTAGES OF RETAIL COOPERATIVES TO THE CONSUMER

 Enjoy low prices [1] hence able to buy more goods [1] however their choice of shops is restricted in fear
of losing benefits of membership [1]
 Wide range of goods available [1] hence customers needs/choice are met [1] however may lead to
overspending through impulse buying [1]
 Enjoy amenities like scholarships, funeral benefits [1] hence improved standard of living [1] however
there is poor management which may lead [1]

ADVANTAGES OF RETAIL COOPERATIVES TO THE RETAILER

 Reap benefits of economies of scale [1] hence offer lower prices to consumers which in turn attracts
many customers [1] however societies are poorly managed leading to closure [1]
 Payment of dividends encourage members to buy more from the society[1] hence increase sales [1]
however issuing of stamps is a slow process hence become inefficient [1]
 They may have their own brand [1]which encourage customer loyalty [1] however packaging and
branding is expensive [1]

TREND
1. BRANDING:
This is the use of a mark or
name to differentiate one
producer’s product from
another to make it unique and
easy to identify.
E.G Addidas, Omo, Sta-soft
2.PRE-PACKAGING:
means putting goods in
distinctive packets of standard
sizes by manufacturers before
selling them for protection
and easy handling.
3. SELF SERVICE
A method of selling where by retailer [1] hence increased profit [1] of hiring security guards and installing
goods are displayed on
shelves [1] for customers to
pick whatever they need [1]
and pay at the check out tills
[1]
Features of self service
Goods are well displayed on
shelves section by section.
TRENDS IN RETAILING
ADVANTAGES DISADVANTAGES
It gives the product identity, (1) so it however it is expensive to carry out(1)
can be easily seen by customers / hence increased costs to the business
attracts customers, (1) [1]
It makes it easy display of the however shoplifting is common [1]
product on shelves and be sold by and this may reduce business profits(1)
self service method (1) which is
labour saving hence reduced wage
bill (1)
However imitations may appear in the
It makes it easy to advertise the market (1) hence split of customers
product (1) by describing it so as to leading to low sales. [1]
attract customers to buy [1]
however it may be difficult to get a
good share of the market [1] due to
It helps create brand loyalty(1) so it increased competition[1]
is easier to push to customers hence
wider market (1)
It allows brand names to be shown
on the packets [1] so that customers However it is expensive [1] hence
can easily identify the goods and increased costs to the business [1]
buy[1]
However cost of packaging is added to
Attractive/ colorful packaging attract the price of the product which makes it
customers to buy[1] hence increase expensive [1] hence low sales [1]
in sales [1]
however shoplifting is common [1]
It enables the use of the self-service and this may reduce business profits(1)
method [1] which is labour saving
hence reduced wage bill [1] However customers are not able to
It prolongs the shelf-life of goods.[1] inspect the goods before buying [1] this
hence ensuring customer satisfaction may lead to some customers not buying
[1] hence reduced sales [1]
It requires few sales assistants [1] However shoplifting is more common
therefore low wage bill to the [1] which lead to additional expenses
surveillance cameras [1] hence reduced
profit [1]
However it requires a large selling
Impulse buying is likely [1] because space for layout (1); and this can be
of clever and attractive display of expensive thus more money required
goods on shelves [1] which may (1) forcing the business to create debts
increase sales [1] by borrowing money (1)
However only suitable for goods which
are pre-packaged and branded (1)
difficult for customers to select (1)
Trolleys and shopping baskets
are provided.
Goods sold are usually
packaged, branded and
individually priced.
Large selling space is needed.
Few sales assistants are
needed.
4. VOLUNTARY CHAINS
These are groups of
independent retailers who join
with wholesalers in order to
reap the benefits of bulk
buying.
E.G BIG 1 SUPA 7
features of voluntary chains
They are mainly found in the
grocery trade.
The chains are normally
organized via a wholesaler.
Individual retailers place their
orders through a wholesaler.
Group undertakes national
advertising and provides
members with advertisement
leaflets
5.AUTOMATIC VENDING They are open 24 hours a day [1] so However it can only be used to sell
customers can buy at anytime [1] limited range of goods [1] hence
MACHINES
hence increase in sales [1]
Machines used to sell certain
goods such as drinks, snacks,
cigarettes with a slot where
customers drop the money and
punch her order and the
product comes out from the
other slot.
E-COMMERCE
hence limited sales (1)
Enables the selling of wide variety
of goods(1) leading to economies of However lack of personal attention can
scale(1) and possible high profits(1) be a problem to illiterate customers [1]
may leave the shop without buying [1]
hence reduced sales [1]
Saves time for customers/retailer (1)
since they don’t wait to be served
(1) hence creating customer
loyalty(1)
Enjoys purchasing economies/trade However the retailer has to always
discount for bulk buying [1] hence place an order through a wholesaler [1]
able to charge competitive prices [1] so he can not buy elsewhere even if he
thereby attracting more customers to can find cheaper suppliers [1]
buy [1] leading to increase in sales
[1] however retailers have to pay
subscription fee [1] which may reduce
National advertising is under taken profit [1]
[1] which help attracts customer to
the retailer at reduced costs [1]
hence possibility of increase in
profits [1] However they have to pay interest on
loans given [1] which may lead to
Finance in the form of loans for shortage of working capital. [1]
improvement of the premises may
be provided to members [1] which
help make the shop look attractive However there is less freedom as the
an appealing to customers [1] retailer is restricted by the set rules and
regulations [1]
Advice on stock, pricing, display etc
is given to retailers [1] leading to
efficient management of the
business [1]
limited sales [1]
No sales assistants needed [1] low However the retailer has to do regular
wage bill to the retailer [1] hence maintenance to avoid total loss when
more profits [1] machine breakdown [1] this can reduce
profits.[1]
They are located in convenient However the machines are vulnerable
spots/busy areas [1] where it attracts to vandalism/ theft [1] which brings
more customers [1] loss to the retailer [1]
The net is 24hours around the globe However not many people have
[1] so customers can buy at anytime computers nor access to the internet [1]

This is the buying and selling
goods and services on line or
on the internet.
SHOPPING MALLS
These are designated areas
where a whole range of shops
are found offering variety of
goods.
[1] this help increase sales [1] so this limit the number of customers
[1] leading to reduced sales [1]
However credit card fraud is likely [1]
Global reach [1] helps to find new which may make customers be in fear
markets and compete globally for a to buy online [1] hence reducing the
small fee [1] hence increase in number of customers [1]
market share [1]
However delivery cost makes it costly
[1] as goods have to be packaged and
It is economical [1] as one does not sent by post/couriers. [1]
have to rent expensive street
premises [1] so this reduce costs [1] However the business has to pay for
internet subscription [1] which
Customers orders come increases costs. [1]
automatically to the business’s order
database [1] so it is cheaper to
process them [1]
To retailers
1.Retailers spend less on advertising However there is a lot of competition
[1] as malls attracts lot of customers [1] which may lower profits of the
[1] hence reduced operational costs business. [1]
[1]
However retailers pay high rent [1] as
2.Plenty of labour for retailers [1] as shopping malls are usually in prime
many people prefer to work in such sites which are expensive [1] increasing
prestige malls [1] operational costs [1]
3.Security guards are usually
provided [1] this means less costs to
the retailer [1]
To customers
However customers are likely to buy
Wider variety of goods and services
impulsively [1] leading to financial
for consumers to choose [1]
difficulties [1]
therefore enjoy one stop shopping
[1] hence saving time and travelling
However customers valuables are
costs [1]
likely to be stolen by thieves [1] as
Competitive prices are offered [1] malls attracts lots of people hence loss
enabling customers to afford to buy to the customer [1]
more goods and improve their living
standard [1]
However there is noise pollution [1]
due to traffic/vehicles hooting/ retailers
shouting to advertise their products [1]
Amenities such as resting places, which cause discomfort to some
music , parking spaces are provided customers [1]
[1] which makes shopping enjoyable
[1]
 It increases sales to the trader [1] as However increased management costs
AFTER SALES SERVICE customers make repeat purchases [1] and warranty repair work increase
costs to the retailer [1]
Service given in order to
maintain correspondence with However warranty given is only for a
a customer after they have limited period and adds to the cost of
bought a product from the The customer enjoys technical the product [1]
shop and have taken it home. support, supply of spares and
product warranty [1] which create
It includes:supply of customer loyalty [1]
maintenance parts, repairs,
warranty, installation

BAR CODING Helps enable automatic billing [1] However the retailer has to incur high
which saves on labour hence costs operational costs as skilled labour is
It is a series of black bars and [1] required and computers have to be
white spaces of varying provided [1]
widths printed on labels to
uniquely identify products and However software/scanner
help in stock control. Help reduce human errors at tills and malfunctioning brings business to a halt
provide quick billing [1] [1]

LOSS LEADER

These are selected goods that

a trader sells below cost price
in order to attract customers
into the shop and to promote
sales for a short period of time

CAUSES OF THE CHANGES/TRENDS IN RETAIL TRADE

 Changes in the pattern of spending due to rising standards of living. For e.g. many people now own
private cars so few customers now require delivery services from retailers and so the retailer’s costs are
lower.

 Quickening pace of modern life and the need for speedier shopping which resulted in the use of self
service.

 The growing pressure of competition among retailers has caused them to think of more cost effective
selling methods.

 Retailers try to cut costs by dealing direct with manufacturers instead of buying from wholesalers; this had
led to the growth of voluntary chain stores.

 Improvement in technology has brought about automatic cash registers and computers, which are now
widely used in selling.
 THE WHOLESALE TRADE

What is wholesale trade: it is the selling of goods to another trader in large quantities.

What is a wholesaler: a trader who sells goods in large quantities more especially to small scale retailers.

FUNCTIONS OF THE WHOLESALER

FUNCTIONS OF WHOLESALERS TO THE PRODUCER FUNCTIONS OF WHOLESALERS TO THE RETAILER

Warehousing [1] - The wholesaler stores goods and keeps Warehousing [1] : buys goods in bulk as soon as they
them safe until they are required by the retailers[1] so produced and stores them [1] so this relieves the producer
retailers will not run out of stock as there is read supply of the costs of storage [1]
goods [1]

Keeping prices stable [1] - Wholesalers keep prices steady The Financier: [1] Wholesalers may pay the
by holding goods in store in order to prevent either shortage manufacturer promptly by cash [1] so the producer
or excess developing in the market [1] so retailers are able will have has sufficient working capital to buy raw
to charge constant prices so as to keep customers [1] materials for production. [1]
Providing a variety [1] - Wholesalers provide the retailers
Transport: [1] wholesalers send their own trucks to
with a wide variety of goods from which to choose [1] so
collect goods from manufactures [1] so this saves
this help save time and costs of going from one producer to
transports costs [1]
another [1]
Marketing: [1] Wholesalers buy goods from the
The Financier [1] - Wholesalers usually give credit to
manufacturers as soon as they are produced then
retailers [1] thereby increasing their working capital
advertise and market them on behalf of the manufacturers
therefore able to pay for other expenses. [1]
[1] so they are relieved of marketing costs [1]
Breaking bulk [1] - wholesalers buy goods from the
Risk bearing: [1] - by storing goods in large quantities,
producers in large quantities and sell them to retailers in
the wholesalers bears the risk of loss in case the
relatively smaller quantities [1]
anticipated demand does not materialize or goods goes
out of fashion or are damaged. [1]
Transport: [1] they usually deliver goods to the retailer
premises [1] so this relieves the retailer transport costs and
Information: [1] - The wholesaler informs the
related problems [1]
manufacturers whenever there is any change in the
demand for a product [1]
Information: [1] - the wholesaler informs the retailers of
any new changes in products or new products introduced in
Prepare goods for sale [1] by
the market [1]
branding/bottling/packaging [1] this help reduce
production costs [1]

TYPES OF WHOLESALERS
 Cash and carry wholesalers
 General wholesalers
 Specialist wholesaler

1. CASH-AND-CARRY WHOLESALERS
These are wholesalers who sell their goods strictly on cash and do not provide credit and delivery services.
EG trade world, Trans Africa, welcome cash n carry etc.
Features of cash and carry wholesalers
 They sell mainly groceries.
 They do not offer credit and delivery facilities so they tend to be cheap.
 They usually serve local markets.

2. GENERAL WHOLESALERS

These are wholesalers who sell a wide range of goods and are usually very large with branches in many regions of the
country.

Features of General Wholesalers

 They are run by large companies who have huge capital.

 They are usually very large and may operate on a regional or national basis.
 They often send their salesman around to obtain orders from retailers.
 They normally offer regular customers short - term credit facilities and delivery services..
 They offer a much wider range of goods including household, hardware and building supplies.

3. SPECIALIST WHOLESALERS

These are wholesalers who specialize in selling a limited range of goods although they provide a wide variety of goods
within that range.

E.G. Builders Merchants Botswana (BMB), Builders world and cash build sell only building materials and equipment but
provide many different varieties of building materials and equipment.

Fruit and vegetable wholesalers sell only fruits and vegetables but offer a wider variety of fruits and vegetables.

MIDDLEMEN IN WHOLESALING

BROKERS: Agents whose work is to bring the buyer and the seller face to face so as to negotiate the deal, they do not
physically handle the goods for sale. They are paid brokerage.

FACTORS: agents whose work is to collect the goods from the seller and look for a buyer while having the goods with
them. They sell the goods in their own names and can even give credits. They then forward the money to the buyer less their
commission.

IMPORT MERCHANTS: they are actually traders who buy goods in large quantities from abroad in their own names and
sell them locally at a profit.

OTHER TYPES OF WHOLESALERS

 COMMODITY MARKETS: A form of wholesaling dealing mainly in raw materials, agricultural produce and
metals. They are found in international trading centres and goods are sold by description, grade or sample and may
be auctioned.

E.G: The Harare Tobacco Auction Floor

 COOPERATIVE WHOLESALE SOCIETY: wholesales owned and controlled by retail cooperative societies run
on the cooperative principle of ownership, operation and distribution of profits.

CIRCUMSTANCES UNDER WHICH A WHOLESALER MAY BE ELIMINATED

Wholesalers are very important in the chain of distribution. But the wholesalers may be eliminated under the following
circumstances:

 Where the manufacturers appoint agents to sell their products.

 Where the manufacturers decides to sell direct to consumers through mail order selling or through their
factory shops.

 If transport and communication are so efficient that retailers can restock quickly direct from producers.

 where retailers place large orders directly from manufacturers such that there is no need for them to order
from the wholesalers

 If there is need for speed in distribution and need to reduce handling of especially perishable and fragile
goods.

IMPLICATIONS OF THE ELIMINATION OF THE WHOLESALER

 Introduction of home shopping e.g. through e-commerce [1] will help cut transportation costs [1]
 consumers can get goods while still fresh [1] since the supply chain is now short [1] hence satisfy their needs and
wants [1]
 Small retailers would suffer as they don’t have the capital to hold large stock [1] hence fail to replenish their stock
adequately [1] resulting in loss of customers [1]
 Producers will have to hire agents to market their products [1] this will increase their operational costs [1] hence
reduced working capital [1]
 Retailers are able to buy from producers at factory prices [1] hence able to charge reasonable prices [1] which will
attract more customers hence increase in sales [1]

STRATEGIES ADOPTED BY WHOLESALER TO SURVIVE

 forming voluntary chains with small retailers

 develop into specialist wholesalers
 Offer discounts, credit, delivery services so as to encourage small scale retailers to buy from them.
 Launch intensive advertising campaigns so as to attract more customers.
 Concentrate on perishable and seasonal goods

MARKETING BOARDS
These are trading organizations set up by the government to handle the sale of agricultural produce. They are created by an
Act of parliament.

E.G. BAMB - Botswana Agricultural Marketing Board handles the sale of sorghum, maize and pulses.
BMC- Botswana Meat Commission handles the sale of beef and beef by products

REASONS FOR THE ESTABLISHMENT OF A MARKETING BOARD ARE AS FOLLOWS

 To arrange the orderly marketing of agricultural produce.
 To minimize fluctuations in the price of agricultural produce.
 To ensure a steady supply of produce throughout the year, especially those which are produce seasonally.
 To determine prices before output reaches the market so as to encourage the farmers to grow more corps.
 To maintain standards of quality produce through research and regular inspection.
 To provide transport for collecting produce from the farmers.
 To provide storage facilities

THE FUNCTIONS OF MARKETING BOARDS

  Buying produce from the farmers: [1] as soon as they are harvested, this guarantee ready market [1] for the
farmers produce thereby stimulating production [1] however prices are set by the board and may be too low[1]

 Provides inputs to farmers at reasonable prices: [1] as a result farmers are able to buy expensive farm inputs
such as tractors for mass production [1] however farmers have to contribute part of the purchase price which can be
expensive to the farmer. [1].

 Control of production [1] the board controls production in order to avoid either overproduction or under
production which may lead to price fluctuations so this helps even out supply [1] hence stable prices for consumers.
[1] however by discouraging over production allows prices to go up beyond the means of poor consumers [1]

 Collection and storage of produce: [1] - They provide transport to collect produce from the farmers and stores
them in their depots so this relieves the farmers the problem of both storage and transport. [1]

 Research:[1] they carry out research for the benefit of the farmers. Through researches conducted farmers can get
improved seeds or hybrid varieties that yield more per given acre of land [1] however the information may not be
beneficial to all farmers.

 Selling of produce

 Offering farm inputs on loan

BOTSWANA MEAT COMMISSION [BMC]

It handles the sale of beef and beef by products throughout the world.

INPUTS OF BMC
 Cattle
 Small livestock [goats/sheep]

OUTPUTS OF BMC
 Corned beef
 Boneless beef
 Canned tongue and hides
 Pet food
 Carcass meal

BENEFITS OF BMC TO BOTSWANA ECONOMY

 Source of employment [1] hence those employed earn income [1] to improve their standard of living [1]
 Source of foreign exchange [1] through exportation of beef [1] which can be used to pay for imports [1]
 Provides ready market for livestock [1] therefore help stimulate livestock farming in Botswana [1]
 Produces beef of high quality [1] making the country self sufficient in beef [1]

PROBLEMS FACED BY BMC

 Competition with local butcheries [1] lead to failure to meet the EU quota [1] hence loss of market [1]
 Drought [1] lead to loss of cattle [1] hence decrease in sales [1]
 Outbreak of foot and mouth disease [1] force closure of abattoirs and suspension of beef exports to EU
markets [1] hence loss [1]
 Farmers failing to meet the set health and safety requirements to supply their cattle [1] thus reducing total
output [1] hence decrease in sales [1]
DISCUSS THE BENEFITS OF THE USE OF COMPUTERS IN BUSINESSES/TRADING

 Through internet it can be used for e-commerce [1] which will help increase business’ s sales as it operate 24/7 [1]
however the business has to subscribe for internet [1]

 Can be used for online banking [1] which saves time for going to the bank [1] however the business account may be
hacked [1]

 Can be used for storing business data/ information [1] which can easily retrieved when needed [1] however the
information can be lost due to virus [1]

 Can be used for research through internet [1] which can help the business to come up with better strategies on how
to improve [1] however it can not work if there is no electricity. [1]

 Can be used to design advertisements [1] which will help attract more customers [1] however it need skilled
personnel to design the advert [1]
 CREDIT TRADING

FORMS OF DREDIT TRADING

1. Hire –purchase
2. Deferred payment/ credit sale
3. Monthly accounts
4. Budget account
5. Simple credit

1. HIRE-PURCHASE
DEF: It means hiring an item while paying to acquire it; the item legally belongs to the seller until the last
instalment has been paid.

FEATURES OF HIRE PURCHASE

 A down payment called deposit is made followed by fixed instalments at regular intervals for a specific
period of time
 The goods acquired on hire purchase do not belong to the buyer until last instalment has been made
 The item purchased may not be sold until payment is completed.
 The seller can repossess the item if the buyer defaults.
 It is usually used for goods with high resale value such as furniture,, fridges, office equipment and cars.

ADVANTAGES OF HIRE PURCHASE DISADVANTAGES OF HIRE PURCHASE

TO THE CONSUMER TO THE CUSTOMER

It enables low-income people to buy expensive However it is costly [1]compared to cash purchases as
durables like furniture, cars [1] which improve their the amount payable includes other charges such as
standard of living. [1] insurance and interest [1]

By spreading payments over a period of time [1] a However it tempts people into buying what they cannot
customer can save money for other needs. [1] afford [1] and they will suffer with the instalments for a
long time. [1]
The customer has full use of the item and practically However the buyer is not allowed to sell the goods until
treats it as his or her own [1] as soon as the deposit is he/she has finished paying for it. [1]
paid. [1]
ADVANTAGES TO THE SELLER DISADVANTAGES TO THE SELLER

It helps increase sales to the trader [1], as more However much of the traders’ capital is tied up in debts
people are able to buy the expensive goods [1] . [1] so it requires a large amount of capital to run the
business and this may put the business in debts[1]

However it requires trained staff to keep a record of

The trader gets a high profit margin [1] because the customers and details of their transactions [1] usually
goods sold on hire purchase carry higher interests or this trained staff are paid high wages [1] which reduces
financial charges. [1] the profits [1]

However court action against defaulting customers may

It is a safe means of selling goods [1] as goods can be tarnish the image of the trader [1] hence scare away
repossessed if the customer fails to pay the customers [1]
instalments [1] .
2. DEFFERED PAYMENT/CREDIT SALES
A credit trading method in which the customer pays the deposit and becomes the legal owner of the item
immediately and the balance is paid in installments.

DIFFERENCES BETWEEN HIRE PURCHASE AND DEFFERD PAYMENT

HIRE PURCHASE
 Buyer only assumes ownership after last
instalment has been paid
 Seller can repossess the good if the buyer
defaults
 Buyer cannot sell the goods without
completing payment
 Suitable for goods with resale value such as
furniture, TV and cars
DEFFERED PAYMENT
 Buyer assumes ownership upon payment of
deposit
 Seller cannot repossess the goods but may
sue for the balance outstanding.
 Buyer can sell the good any time
 Suitable for goods with little resale value
such as clothing and carpets

3. MONTHLY ACCOUNTS
A form of credit trading in which the customer goes to the shop and opens an account i.e. negotiate a small credit
that he promises to pay at the end of the month. The customer then picks a number of items from the shop and
signs against each purchase, at the end of each month he comes to the shop to pay the account.

4. BUDGET ACCOUNT
A form of credit trading in which the customer picks the goods and pays a small deposit, a small amount is
charged above the cash price and the customer is then expected to pay a certain amount each month until full
balance is cleared.

5. SIMPLE CREDIT
It is a form of credit that the customer gets without much formality. For example if you receive visitors suddenly
and you do not have cash to buy visitors a few soft drinks, you can approach the retailer and ask for a few drinks
on credit and you will pay off the debt the day you get money.

IMPORTANCE OF BANKS AND FINANCE HOUSES IN HIRE PURCHASE TRANSACTIONS

 They buy off the invoices from the traders (1) after they have sold the goods to the customer. So this
helps the trader to have working capital.
 They provide standing order/stop orders to customers (1) hence reduced bad debts
 They stimulate demand (increase sales) with immediate capital (1) hence traders will have continuous
flow of products.
 They offer advice
 Consumer protection and customer relations

Consumer protection is about helping consumers to get a fair deal whenever they go to the shops to buy goods and services.

WHY DO CONSUMERS NEED PROTECTION / REASONS FOR CONSUMER PROTECTION

1. Unfair trading practices of the businessman in the form of:

 Overcharging- traders might fix prices at high levels in order to maximize their profits.
 Misleading price reduction might be offered to tempt customers to believe they have got a bargain.
 Underweight goods: consumers might not receive the correct weight, quantity or measure of goods.
 False advertisement
 Poor quality raw materials may be used to produce goods and these goods might be harmful to the public.
2. Inability of consumers to asses claims of advertisers
3. Ignorance of consumers that products may endanger their health or life
4. Safe guarding the religious beliefs of consumers
5. Ignorance of consumers of their rights

HOW CAN CONSUMERS BE PROTECTED

1. CONSUMER LAW
A law can be passed by parliament, which makes it a crime for traders to mislead or cheat consumers and sets out punishment for
the crime.
2. SETING UP STATUTORY BODIES
Statutory bodies are watchdog organizations set up to provide consumers with awareness and protection.
It could be a government department charged with the responsibility to protect consumers e.g. consumer affairs unit in the
ministry of commerce and industry.

a. THE OMBUDSMAN {PUBLIC PROTECTOR}

The ombudsman is a high level official who is independent of the government or any political. He is appointed by the president in
consultation with the opposition.
The work of the ombudsman is to:
 Receive any kind of complaints from members of the public, private companies or any legal persons against government
department, parastatals or any other authorities in which government is a part.
 Investigate the complaints and recommend remedial action.

b. THE BOTSWANA BUREAU OF STANDARDS [BOBS]

BOBS was formed with the primary objective of improving the quality of life of the citizens of Botswana by:
 Formulating Botswana standards
 Coordinating quality assurance activities in Botswana.
NB: standards encourage an improved quality of life by contributing to safety, human health and the protection of the environment.
2. CONSUMER MOVEMENT [ASSOCIATION]
A consumer movement is a group of people who have got together in order to:
 Benefit the community by addressing the issues affecting the interests of the consumer [Health, safety, or prosperity for the
community] and make the society more responsive to consumers’ needs and interests
Consumer association is a movement of people for the people. It will protect consumers against any
one or more of the following:

 Supply of poor services and shoddy goods

 Lack of proper representation at decision making levels
 Poor treatment of customers by the business community
 Lack of adequate measures of redress
 Lack of enough information on goods and services selling in the market.

Functions of consumer‘s association

 They receive and investigate complaints from consumers and take appropriate action and if necessary
refer such complaints to government bodies concerned.
 They carry out surveys, testing and research programmes concerning matters of consumer interest. e.g.
they examine the extent to which consumers are affected by certain goods and services and carry out
tests on the quality and safety of such products, and determine the effect on consumers of such
products.
 They publish reports through the mass media so that the public becomes more aware of the need for
consumer protection.
 They give advice to persons on protection available under the laws and regulations of the government
and in certain circumstances provide free legal aid to the consumer.

CHARACTERISTICS OF CONSUMER ORGARNISATIONS

 They must act exclusively on behalf of the interest of the consumers

 They must be political independent from political or commercial concerns.
 They must be non-profit making in nature.
 They must not accept advertisements for any commercial purpose in their publications
 Must not accept or allow selective commercial exploration of information and advice they give to
customers.
  Must protect their independence, action, and comments and not to be influenced by receipts of
subsidies.

CONSUMER RESPONSIBILITIES

 Critical awareness: the responsibility to be more alert and inquisitive about the price and quality of
goods and services we use.
 Action: the responsibility to assert ourselves and to act to ensure that we get a fair deal.
 Social concern: the responsibility to be aware of the impact of our consumption on other citizens
especially the disadvantaged.
 Environmental awareness: the responsibility to understand the environmental consequences of our
consumption
 Solidarity: the responsibility to organize together as consumers to develop the strength and influence
to promote and protect our interests.

CONSUMER RIGHTS

 The right to be informed: i.e. the right to be given facts and data needed to make an informed choice
each time when buying goods.
 The right to choose: i.e. the right to have access to a variety of goods at competitive prices while being
assured of good quality.
 The right to safety: i.e. the right to be protected against products, production processes which are
hazardous to health or life.
 The right to a healthy environment: i.e. the right to a physical environment that will enhance the quality
of life at present as well as in future.
 The right to representation: i.e. the right to have consumer interests represented in the making and
execution of government policy in the development of goods and services.
 The right to be heard: i.e. the right to be heard when expressing their dissatisfaction or views.
 The right to redress: i.e. the right to receive a fair settlement of just claims including compensation for
misrepresentation, shoddy goods or unsatisfactory services.
 The right to consumer education: i.e. the right to acquire the knowledge and skills to be an informed
consumer throughout life.
CUSTOMER RELATIONS
A customer relation is all about being of help to the customer so that they can also support your business.

ASPECTS OF GOOD CUSTOMER RELATIONS

 Always provide good service with a smile to all your customers.
 Make your customers feel important
 Listen to your customers even if they are critical
 Point out the features, benefits and advantages of your product and listen to their feedback on these points.
 Contact your customers each time you are having a sale or launching a new product.
 Never give up to selling to potential customers.
 Treat each customer, as an individual do not generalize.

THE DO’S AND DON’T’S OF CUSTOMER RELATIONS

 Do not make the customer wait too long before you speak to them.
 Always greet your customers properly and try to put them at their ease.
 Be courteous even if the customer is being rude and unreasonable.
 Make sure that you know as much as possible about the goods and services offered by your company.
 You must know who to ask if you do not know the answer to a customer’s question.
 Make sure that if anything has changed about the goods or services, which you have promised the customer is informed as soon
as possible.
 Always try to minimize the amount of problems that the customer has to put up with you.
 Always treat the customer with respect and follow the concept that they are always right.

FEATURES OF GOOD CUSTOMER SERVICE

Good customer relations depend upon the following factors:
Staff- the staff should always be ready to take prompt actions to deal with customer needs whether it is complaints, inquiry or orders.
They should be able to talk about the product to the customers in the best possible way, should also be friendly, look good and always
stay positive even when the customers are unrealistic.
Premises- the premises should be clean appealing with clear access road. The layout and display of goods inside the shop should be neat
and attractive. A clean premise motivates the customers to come back to the same shop another time.
Product – a high quality product builds customer confidence and loyalty. If the quality of the products does not meet your customers’
tastes they are unlikely to buy from you. Good quality products and service send a positive message to the customers and is a powerful
tool for maintaining your clientele and attracting more.
After sales service- this can take many forms and has increasingly become a powerful strategy to many organizations. After sales
service may be provided in the form of:
 Technical maintenance and repair service
 Hot line query which enables customers with difficulties to obtain instant advice on how to operate complicated equipment
 Information follow- up, particularly concerning new products and refinements to present ones.
 THE IMPORTANCE OF GOOD CUSTOMER CARE
 It helps to build the reputation of your business and sustain a good relationship with the customers
 It encourages the customers to always buy from your shop, assuring you of regular customers
 It gives your business an edge over your competitors
 It brings feedback that can be used to improve your products and services.

TIPS ON HOW TO HANDLE CUSTOMER COMPLAINTS

 Do not argue with your customers, listen and understand their complaints
 If there is a misunderstanding about the product or service then wait until your customer has explained their point of view.
Calmly explain what was intended and where the misunderstanding occurred. Never ever tell the customers they are wrong or
criticize them, because this can chase customers away.
 Try to understand or at least sympathize with your customer’s complaint.
 Put yourself in your customers’ shoes.

NEEDS WHICH MAKE CUSTOMERS BUY FROM A PARTICULAR SELLER

1. information: for the customers to make informed choices they need the relevant facts and data, as a seller one should try to provide
all the information the customers need to know prior to buying.
2. Assistance: customers need attention when they come to the shop, as a seller one should ensure that the staff is always available and
ready to provide all sorts of help to the customers with a smile.
3. Care: always take care of the customers .e.g. deal with their orders, inquiry or query without any delay, also give them discounts,
delivery and credit facilities if necessary.
4. Refund or replacement: one should always promptly resolve any complaints from the customers. A customer may buy a product and
be dissatisfied with the product may be because the product is
o not the correct size
o expired or obsolete
o damaged on transit
o Not what they ordered so the customer has the right to return the product and be refunded or the product is replaced.
 Purchasing and selling procedures

CONTRACT OF SALE: a binding agreement of sale between the buyer and the seller which creates an
obligation for the seller to deliver the goods and for the buyer to pay for the goods. In this case the seller offers
the goods and the buyer accepts the goods.

OFFER: means to put forward something for sale to someone at a certain price.
Or a statement, by the seller, of the terms in which he/she is willing to part with a particular good.
Rules that govern offering:
 An offer is usually made to a specific person unless otherwise stated. It can also be made to a group of
people or the general public.
 An offer cannot be withdrawn after it has been accepted.
 An offer that is conditional must specify the conditions attached to it.
 An offer must be communicated to the prospective buyer.
 An offer is usually made for a specific period of time.

ACCEPTANCE: means to agree to buy something at a certain price.

Rules governing acceptance
 Acceptance must be made within a reasonable time.
 An acceptance must be promptly communicated to the offerer so that he/she knows it
 Acceptance cannot be withdrawn once it has been made.
 Acceptance can be in any form written, verbal or by conduct.

TERMS OF A CONTRACT OF SALE

These are promises and undertakings contained in a contract of sale.

i) CONDITIONS IN A CONTRACT OF SALE

This is the pillar of the contract. A breach of a contract’s “condition” by a Seller could result in claims for
damages and a right to cancel the contract or delay settlement by the buyer.

ii) WARRANTIES IN A CONTRACT OF SALE

It is not as essential as a condition but essential in the contract. A breach in a contract’s “warranty” only entitles a
Buyer to claim damages or compensation but does not allows the right to cancel or delay settlement.

Example:
You board a bus from Selibe Phikwe to Gaborone and you are told it will take 5 hours. If instead it takes 6 hours
you cannot refuse to pay because the bus arrived late. Here the condition is you should pay.
The warranty is the time or duration of the journey

AGREEMENT TO SELL AND ACTUAL SALE

Agreement to sell: This refers to a situation where the buyer and seller agree on how the transaction is going to
be concluded but no transfer of ownership takes place. E.g. lay bye and hire purchase.

Actual sale: This is where the ownership of goods changes hands, the buyer pays full purchase price required by
the seller and the seller delivers the goods. The buyer assumes full and legal ownership of the goods.
POINTS OF AGREEMENT IN A CONTRACT OF SALE/ ESSENTIALS OF A VALID CONTRACT OF
SALE

1. Price of the product –The buyer and the seller should agree on the price of the product, the agreement should
specify whether the price includes transportation, packaging materials etc.
2. Quantity required – the buyer must specify the quantity of the goods required and the units in which the
goods are measured, in his or her order as this is a condition of a contract. The seller must also state if he or she is
able to supply the quantity ordered.
3. Quality of the product –the buyer must satisfy himself that the goods are of the right quality he/she is looking
for. When goods are sold by the description they must correspond with the description.
4. Delivery – the buyer must specify the address or place, time and date of delivery in cases where the seller
delivers the goods.
5. Conditions of payment- The buyer need to be sure of when and how he/she is expected to pay for the goods.
E.g. cash, cheque, postal order etc.

PURCHASING PROCEDURES

Factors to consider when choosing a supplier

 Quality of the product
 Reasonable and competitive prices
 Suppliers’ capability of providing quality required
 Reliability of the supplier
 Reputation of the supplier for prompt delivery, good service e.t.c.
 Ability of the supplier to offer technical support in the form of installation, repairs, maintenance and
training.

THE PROCESS OF CHOOSING SUPPLIERS

1. DEFINE THE NEED: the buyer must determine which goods he/she needs to buy and list them down.
2. RESEARCH THE MARKET for the goods required: The buyer must find information about the
organizations capable of supplying such goods.
3.SEND ENQUIRIES to all possible suppliers asking about the availability of goods, size, prices, packaging
format, delivery date, terms of payment etc.
4. EXAMINE the quotations sent by the suppliers and select the most suitable supplier.
5. PLACE the order with the selected supplier.

FOLLOW UP PROCEDURE AFTER THE RECEIPT OF AN ORDER

SUPPLIER
 Package the goods
 Send the advice note
 Prepare the delivery note
 Despatch the goods together with the delivery note

CUSTOMER
 Checks goods against the delivery note, signs it and keep his copy
 Records the stock on the stock record card or computer system
 Stores the stock according to the rules of storing stock
 DOCUMENTS USED IN BUYING AND SELLING

1.THE ENQUIRY- a letter sent to the seller by the buyer seeking information about the availability of goods
and their prices.

It is used by the buyer to know : It is used by the seller to kwom:

o What goods are availble -- what the customers want

o Prices and conditions of sale -- any after sales services customers want
o If transport is provided

E.G ENQUIRY

Habitat Natural
Leather Goods Specialits
P O Box 43
Gaborone
Tel : 234567

VAT Regitration number: 66672

1 June 2010
The sales manager
All leather (pty)ltd
Box 3344
Lobatse

Supply of leather goods

I should be pleased if you send me the prices of the following leather items, as well as the terms upon
which you will supply our company regularly.
Men’s leather jackets size M BLACK
Ladies leather jackets size M PINK

Yours Faithfully
k. Chaponda

Purchasing Manager

2. QUATATION-This is a reply to the inquiry usually sent by the supplier to the buyer containing a detailed
description of goods available, the price at which goods are offered, terms and conditions of sales, terms of
payment and delivery date.

Sometimes instead of sending a quotation the seller may send a catalogue or a price list. Catalogue- is pamphlet
with pictures of goods which a seller may send to customer who makes enquiries.it also contains their prices,
colour, ans size.
 E.G QUOTATION

QUOTATION

All leather (pty)ltd

P O Box 3344
Lobatse
Habitat Natural
Leather Goods Specialits
P O Box 34
Gaborone

Dear Sir/Madam

Thank you for your enquiry of 10.10.13. We have the pleasure of sending you the folowing quotation for the
leather goods stated in your inquiry. If there is more information you need you can ask the sales manager.
Types Description Unit price
Men’s jackets MJ 116 size M BLAK P850.00
Ladies jackets LJ 226 size M PINK P850.00

The above is subject to 12% VAT

Orders are sent promptly. Prices are valid for 3 months

Yours Faithfully

Wapapha Masala
Sales Manager

3. AN ORDER –this is a document sent to the seller by the buyer, asking the seller to supply the goods which are
stated in it.

It contains:

 Description of goods needed and the brand,quantity and price of goods

 The quantity required
 Price as given in the quotation or catalogue.
 Expected delivery date
 The terms of payment
 ORDER FORM
Habitat Natural
Leather Goods Specialits
P O Box 34
Gaborone
TEL: 2345671

20 March 2013

Order No: 001

The Sales Manager Your Quotation No 024
All leather (Pty)ltd
P O Box 3344
Lobatse

Please supply the following:

Unit price Total price

Quantity Description P P
20 Black Men’s leather jackets, size M. 850 17 000
30 Pink ladies’ leather jackets , size M. 700 21 000
TOTAL 38 000

Terms: 5 % 7 days
2% 21 days
Delivery: Within 14 days
K Chaponda
Sales Manager

4. ADVICE NOTE: A document sent by the seller to the buyer to inform him/her that the goods have been
despatched. It is usually sent ahead of the goods to enable the buyer to prepare the necessary space for the goods
before they arrive.
 It nforms the buyer of the quantity and type of goods, date and means of despatch.

5. DELIVERY NOTE- A document used when goods are delivered using the suppliers own vehicles sent along
with the goods containing a detailed description of the goods including the quantity and number of packages.
Uses of delivery note
 To inform the buyer that the goods odered ahve been delivered
 help the buyer to check all the goods against the order
 To inform the supplier that the goods have been received in good condition

6. CONSIGNMENT NOTE: This is a document used when sending goods using a hired transport. It is a
request and instruction to the carrier to accept and deliver a certain consignment to the consignee.

7. THE INVOICE: A bill sent by the seller to the buyer informing him/her about the amount which must be
paid as a result of a particilar order.
Contents
  A description of the goods
 The quantity supplied
 The unit price and the total amount due from the customer
 The terms of sales, e.g. cash and trade discount allowed.
 The names and addresses of buyer and seller
 The order number

Uses of the invoice

 Shows the buyer cash discount allowed

 It tells the buyer the amount he owes the supplier.
 It is used by the supplier for accounting i.e. book-keeping purposes.
 The buyer may also verify if everything ordered has been sent by checking the goods delivered against the
invoice.
 A foreign import invoice is used to calculate customs duties.

E.G INVOICE

INVOICE

All leather (Pty)ltd

P O Box 3344
Lobatse

11 October 2013
The Managing Director
Habitat Natural
Leather Goods Specialits
P O Box 43
Gaborone
Order no: 0034
QUANTITY DESCRIPTION PRICE [P] AMOUNT
[P]

20 Mens leather black leather jackets size 850.00 17 000.00

30 M 700.00 21 000.00
Ladies leather pink leather jackets,
size M

38 000.00
Less 2.5% trade discount 950.00

37 050.00
Plus VAT @ 12% 4 446.00

Total amount 41 496.00

Terms: 5 % 7 days, 2.5% 21 days

E &OE
TERMS: 5 % 7 days, 2.5% 21 days: means that if the buyer pays within 7 days he/she is offered a cash discount
of 5% , if he/she pays after 7 days but within 21 days he is given 2.5 % as discount. If he pays after 21 days no
cash discount will be allowed.

E & OE: It stand for Errors and Omission Excepted meaning that seller has the right to correct any mistakes
on the invoice.

6 (b) Pro-forma invoice: skip 12lines

7. CREDIT NOTE – A document sent by seller to the buyer who has been overcharged correcting the mistake
that appears on the invoice. This reduces the amount on the invoice.

It is issued out when:

 Some goods were delivered in an unsatisfactory condition and had to be refunded
 Goods are supplied in smaller quantities than shown on the invoice
 Packaging cases or empty cases have been returned.
 The goods which are wrongly supplied are sent back
 Goods which were not supplied have been charged for.

8. DEBIT NOTE: this is a document sent to the buyer who has been overcharge informing him/her of the
undercharge and to claim the extra amount outstanding. This increases the invoice amount.

It is issued out when;

 Some delivered items were not shown in the invoice
 Pricing errors were made on the invoice
 Calculations went wrong on the invoice
 The buyer has kept samples that were sent by the seller

9.STATEMENT OF ACCOUNT : it is a document which summarise all transactions made between the buyer
and seller during the month which is sent by the supplier to the buyer on monthly basis.
Contents:
 The balance owing at the beginning of the month,
 the amount of invoices issued during the month,
 any payments made, credit or debit notes issued during the month,
 Net amount owing at the end of the month.
uses
 It can be checked against invoices, credit and debit notes and the receipts received to date.
 It serves as a reminder to the buyer to pay up his debt.
 it enables the buyer to check his books of account and notify the seller if there is any error.
 E.G. STATEMENT OF ACCOUNT

All leather (Pty)ltd

P O Box 3344
Lobatse

30 October 2013

The Purchasing Manager

Habitat Natural
Leather Goods Specialits
P O Box 34
Gaborone

Date Details Debit Credit Balance

31.09.13 Balance 2 500

6.10.13 Goods supplied, invoice no.56 19530 22 030

10.10.13 Credit mote no: 43 375 21 655

15.10.13 Debit note 500 22 155

20.10.13 Cheque no 3300991 12 500 9 655

Amount due 9 655

Skip 10lines -

10. Receipt: it is a proof of payment issued by the seller to the buyer when the buyer makes payment.

CASH DISCOUNT TRADE DISCOUNT

Description A deduction off the invoice price of goods A deduction off the price of
purchased on credit given by the seller to the buyer goods purchased given by a trader
to encourage prompt payment. to another trader for bulk
purchases.
Buyer forfeits the discount if he/she fails to pay Buyer is entitled to the discount
Condition within the given period. even if he fails to pay within the
given period.
 Importance -the seller is paid promptly so this improves -it can increase sales if trade
to the seller working capital. discount is attractive enough.

-the number of debtors will be reduced if most -Avoids the expense of reprint
customers take advantage of cash discount. ting catalogues to reflect price
cost of goods is reduced thus giving the buyer a changes as he can adjust the trade
larger profit margin discount.

Example: Mr A. Tan sold 1000 boxes of white printing paper at P10 each to Mr T. Jay. Mr Tan allowed 5% cash
discount and 10trade discount t Mr Jay if he paid within the agreed period. Mr Jay paid on the agreed period.
Calculate the net price he paid.

1000 boxes @ P10 each = P10000

Less 10% trade discount= 10/100= P 1000
Amount payable after TD= P 9000
Less 5% cash discount= 5/100= P 450
Amount paid P 5550

STORAGE AND STOCK CONTROL

TYPES OF STOCK
A. stock of goods and services for the company
B. Stock of raw materials, work in progress and finished goods.

IMPORTANCE OF PROPER STORAGE OF STOCK

 The company is able to maintain sufficient stock to meet the customers demand at all times.
 The company will avoid locking up capital in too much stock
 Stock records provide vital information for management

RULES FOR STORING DIFFERENT STOCK

 Stocks issued frequently should be stored conveniently to keep handling costs down. Eg keep them near
the door.
 Items issued together should be stored next to each other.
 Dangerous items should be stored separately in lockable bins with warning signs.
 Inflammable items should be kept away from open flames and warning signs posted to remind staff.
 Perishables like fruits and vegetables /meat should refrigerated

STOCK CONTROL
It is about ensuring that the business has enough stock to meet the customers demand at all times. A business can
calculate its minimum and maximum stock levels to ensure that it holds the right amount of stock.

Minimum stock level: is the lowest level that stock can fall to before a new order can be placed.

Maximum Stock level: is the highest level of stock that can be maintained. Any stock level higher than this
would be too costly to maintain and would mean that too much capital is tied up.

WAYS OF CONTROLLING STOCK

 Manual stock control
  Computerised stock control

1. MANUAL STOCK CONTROL

Using a stock control card to record stock, basic information about the stock, i.e. description of the goods, the
supplier, the catalogue number, and price and bin number.
 Every time new stock is delivered by the supplier, it is entered on the stock card (the total number of
stock goes up).
 Every time stock is sold or issued out it is entered on the stock card (the total number of stock goes
down).
 The accuracy of stock records can be checked by stock taking. At anytime, one can

STOCK RECORD CARD

STOCK RECORD CARD FOR ALL LEATHER (PTY) LTD

STOCK: Men’s leather jackets size M SUPPLIER: Jamhuri Textiles STOCK

LEVELS:

Bin no. 15A Catalogue no. 0075 Minimum:

40 jackets

Delivery time: 1 week Maximum:

60 jackets

DATE RECEIVED ISSUED BALANCE

Quantity from Quantity To

01.04.2010 70 jackets Jamhuri Textiles 20 Sales 50

Dept

17.04.2010 - 40 Sales 10
Dept

29.04.2010 50 Jamhuri Textiles 20 Sales X

Jackets Dept

2. COMPUTERISED STOCK CONTROL

The use of computers to control stock levels, this enables a trader to enter all the information about the stock
received into the computer, which then monitors it automatically.
BENEFITS OF COMPUTRISED STOCK CONTROL

ADVANTAGES DISADVANTAGES

 The computer signals [1]when minimum stock However it is expensive to buy computers and to
level has been reached so orders can be place install the software needed
immediately[1]

 It is cheaper and convenient [1] since one do However, manual stock –taking has to done, as
not have to close the shop to do manual stock the computer cannot pick cases of
counting. [1] shoplifting/damage [1] the business has to be
closed leading to loss of sales [1]

 Fewer workers are needed to operate the However skilled personnel is required /workers
system [1[ so this reduces wage bill [1] leading have to be trained on how to use the system [1]
to increased profit [1] increasing operational costs [1]

 Records can be updated quickly and However it needs electricity to operate [1]
immediately [1[ thus saving time [1]
 Business Units

In a mixed economic system business units are divided into two broad categories being the public sector and the
private sector.

PUBLIC SECTOR

Def: It is the section of the economy that consists of business organizations that are owned and controlled by the government.

In Botswana the Public Sector businesses can be divided into two broad categories.

Those entirely owned by the government can be subdivided into:

a. CENTRAL GOVERNMENT runs enterprises like National Defence Force, the Police, Universities, Secondary schools.e.t.c

b. LOCAL GOVERNMENT runs enterprises such as primary schools, social services, roads, libraries, reading rooms and parks

Those run as partnership between government and the private sector are called PARASTATALS or PUBLIC CORPORATIONS.

PUBLIC CORPORATIONS/PARASTATALS

Public corporations are enterprises owned by the government and form the public sector of the economy. Such enterprises are either
wholly owned by the government or the government is the largest shareholder or the government is in partnership with the private
companies. Examples of public corporations in Botswana are BMC, BPC, BHC, WUC, BTC, BRC etc.

Features of a Public Corporation

i. It organized, funded and controlled by the government
ii. It is set up by an act of parliament
iii. It has a legal identity separate from that of the government
iv. Its objective is not only to make profit but to improve the welfare of the people. That is why they operate even in remote areas.

Advantages of Public Corporations

i. They provide secure employment to many citizens which hhelp improve their standard of living.
ii. They are a source of income for the government which is used to develop the country
iii. They take care of the public by providing goods and services at cheap prices so that majority of citizens can afford them.
iv. They provide comprehensive services by making services available throughout the country.
v. They help to implement the government policies
vi. Through them the government is able to control the provision of essential goods like minerals, electricity, water, etc.
vii. They are usually big in size so they enjoy economics of scale.

Disadvantages of Public Corporations

i. They are too expensive to run since they do not 'make much profit, therefore taxpayer's money has to be used to run them.
ii. Workers are not initiative because they do not identify with the enterprise, this results in inefficiency.
iii. They tend to produce poor quality goods and services because of monopoly
iv. Workers are less flexible i.e. they have to do exactly what they have been assigned to do nothing else.

WHY GOVERNMENT TAKES PART IN ECONOMIC ACTIVITIES

- To raise revenue which is used for national development eg building schools dams etc
- To create secure employment hence citizens earn income to improve their standard of living
- To decentralize development by providing comprehensive service throughout the country.
- To implement government policies by providing essential goods and services that the private sector is unable to provide.

PRIVATISATION
The selling off of government owned corporations to private individuals or private operators.

ADVANTAGES
- It improves efficiency because of competition and profit motive hence cheaper goods are provided
- It removes political interference in business operations hence provide good quality goods
- It helps empower citizens where such sales are restricted to citizens hence improve their standard of living.
- It increases government revenue because the business will tax to the government which is used for developments.
- DISADVANTAGES
- It leads to loss of jobs as workers would be retrenched which lead to loss if income and poor standard of living.
- It can be abused by corrupt politicians who will sell the company to themselves resulting in the rich getting richer and the poor
getting poorer.
- Some government policies may become difficult to implement.
- Foreigners may end up controlling the economy where majority of local people lack the finance to buy the privatized business
leading to a decline in the economy.
- Government loses a source of revenue resulting in reduced developments

NATIONALISATION
The purchasing of privately owned businesses by the state or government.

-Implement government policies by providing essential goods and services not provided by private sector eg health, education hence
decentralizing development hence improve the welfare of the citizens.
-to raise revenue for national development eg building schools so that all members of the society have access to them
- To create secure employment hence citizens earn income to improve their standard of living.

DISADVANTAGES

-Nationalised businesses are generally inefficient and run at a loss due to lack of profit motive hence the burden is shifted to the tax
payers.
-Nationalised businesses tend to exploit people with their monopoly since there is no competition in the market hence tend to be
unresponsive to customer needs
-there is too much political interference which derails their objectives hence there will be more wastage of resources.

COMMERCIALISATION
The turning of a public enterprise into a profit making business. E.g. BMC has been commercialized.

ADVANTAGES
-Pays tax-which is used for development hence improve citizens
-Possibility of foreign exchange- which can be used for economic development through paying for imports
-Job creation-where workers get income and use to improve their standard of living.
-brings efficiency leading to cheaper services hence people save money.
-quality services may be provided due to lack of political interference hence a prosperous nation.

DISADVANTAGES
- Possibility of exploitation since it may become a national monopoly hence increased prices of goods.
- May prevent transfer of technology since it may employ foreign skilled workers which results in unemployment for the locals
- Government policies may be hindered since the service may not be available to some citizens hence loss of income to the
government.
- Competition may lead to shutting down of small businesses resulting in unemployment of the citizens.

PRIVATE SECTOR
This is a section of the economy that consists of business organizations owned and controlled privately by individuals. The main
objectives of a firm in the private sector are maximizing profits for the owners.

There are two broad categories of privately owned business organizations, namely:

a. NON – INCORPORATED ORGANISATIONS

An organization which according to the law has no separate legal entity from its owners. This means that the owner and the business are
one under the law. It also means that the organization cannot enter into a contract on its own and it cannot sue or be sued as a firm. e.g.
sole trader and partnership.

B. INCORPORATED ORGANISATIONS
An organization that the law recognizes as an artificial person, or as legal entities in their own right and not the employees of them.
An incorporated organization as a legal entity has certain rights – to enter into contracts.
- To own property and employ people.
- To sue and be sued for breach of contract.
- NON – INCORPORATED ORGANISATIONS

1. SOLE TRADER/ SOLE PROPRIETOR

- A business owned and controlled/ operated by just one person who provides all of the capital needed to form, operate or expand the
business. Eg farmers, Hairdressers

FEATURES OF SOLE PROPRIETORSHIP

- Owned and controlled by one person.
- No continuity.
- Easy and simple to form.
- Owners face unlimited liability.
- All profits belong to the sole trader who bears all the risks and losses.

ADVANTAGES DISADVANTAGES
Requires small amount of capital to set up which is - however there is lack of capital for expansion or
easy to raise modernizing the business since he/she contributes the
capital alone.
Easy to set up, run and manage because there are - however there is Division of labour may be difficult
no complex procedures required to organize because of the small size of the business;
as a result the sole trader is always overworked.
- All the profits made belong to the owner since he - however Difficulty to borrow money from financial
is alone institutions because sole traders are considered high
risk customers
The owner is his own boss therefore makes - however there are limited skills and abilities from
independent and quick decisions on how to run the which the business can benefit.
business and has the freedom to choose his own -
holidays, hours of work
Business affairs can be kept private since there - No assured continuity/ limited life
is no requirement to submit financial
documents except for the tax office.

2. PARTNERSHIP
- A relationship that exists between two to 20 people who have come together to do a common business with the view of making
profit. Eg accountants, builders, doctors, lawyers

- There are two types of partneships:

a) Limited liability partnership (LLP)
A partnership in which at least one partner has unlimited liability and other partner’s liability is restricted to the amount of capital
invested in the business.
b) General/ordinary partnership
A partnership in which all partners have unlimited liability, and are usually very active in the operations of the business.

FORMING PARTNERSHIP
In forming a partnership 2 – 20 people come together to form a partnership. They have to draw up legal document called partnership
deed or partnership agreement. The document gives details of the way in which the partnership is organized and run.

Note: The partnership deed which is a legal document does not in any way mean that the business is now incorporated, it is just drawn
and made legal to help in running of affairs of the company and to help in cases of disputes between partners.

CONTENTS OF PARTNERSHIP DEED

- Name of the business and the names of partners.
- Amount of capital contributed by each partner.
- How profits and losses will be divided or shared among partners.
- Duties and rights of each partner.
- The duration of partnership and the conditions under which it may be brought to an end.
- Amount of salary to be paid to each worker.
FEATURES OF PARTNERSHIPS

- Formed by 2 -20 people.

- Each partner contributes to raise capital.
- Has no legal entity – ownership and control is not separate.
- Has unlimited liability
- No assured continuity.
-
ADVANTAGES DISADVANTAGES
More capital is raised than in the case of the Membership of partnership is limited to 20; this
sole trader as more people are involved. restricts the firms’ ability to raise more capital

Expenses and management of the business are Conflicts may arise among partners.
shared.

There is a breadth of skills and abilities from Decision making may be delayed by consultation
which the business can benefit because and disagreements among partners
several people may be involved this may lead
to management of the business.

Each partner may specialize in one aspect of Partners have unlimited liability and are therefore
the business and this promotes efficient personally liable for the debts of the business – their
management personal assets are at risk.

SIMILARITIES BETWEEN SOLE PROPRIETORS AND PARTNERSHIPS

Both
- are easy to set up
- have unlimited liability
- have no assured continuity/ have limited life
- Are managed and controlled directly by owners.
- Have no separate legal entity

DIFFERENCES BETWEEN SOLE TRADERS AND PARTNERSHIP

SOLE TRADERS PARTNERSHIP

- owned by one person - owned by 2 – 20 people

- capital is provided by one person
- decision making is fast
- limited skills and abilities
- profits/ losses belongs to the owner
- everything is done by the owner alone
- Capital is contributed by partners.
- decision making is slow due to consultation
- breadth of skills and abilities
- Profit / losses shared by all partners.
- work and expenses are shared

CONTRIBUTIONS OF THE SOLE TRADER AND PARTNERSHIP ON BOTSWANA’S ECONOMY

-Provide jobs- which helps improve the people’s standard of living

-Pay tax-which is a source of income for developments in Botswana.
-Export goods – which brings in foreign exchange
 LIMITED LIABILITY COMPANIES

A limited company is one where the law primarily recognizes the organization as an artificial person; it has a separate legal entity from
its owner. This means;

- The company exists separately from owners and continues to exist if one of the owners should die.
- It can make contracts/ legal agreements.
- Can sue or be sued.
- Can own property.
- Companies are jointly owned by people who have invested in the business called shareholders, who appoints directors to run the
business.

NB: In Botswana according to the Company Act, two documents, the Memorandum of Association and articles of association have to be
prepared before a limited Company can be created.
They are drawn up and presented to the Registrar of Companies by promoters i.e. the people who wish to form a company.

LIMITED LIABILITY
The liability of the owners (shareholders) is limited to the investment they made by buying the shares in the company i.e., they will only
pay up to the amount they invested in the business.

IMPORTANCE OF LIMITED LIABILITY TO THIRD PARTIES AND THE COMPANY

-In case of a law suit, the assets of the owner cannot be used to pay the debts of the business unless they were pledged as collateral.
- It attracts capital since it encourages the public to invest in the company without fear to lose personal assets
-It encourages the company to borrow money and invest witohout fear which increases the chances of growth and progress.

PRIVATE LIMITED COMPANY

- It is formed by two to fifty people. It is registered under the companies act with the word ltd as part of its name.

FEATURES OF A PRIVATE LIMITED COMPANY

- The number of shareholders is subject to a minimum of two and a maximum of fifty.
- Exist as separate legal entity.
- Not allowed to sell shares to the generally public at the stock exchange.
- Shares are not freely transferable
- The company is controlled by shareholders who are also directors.
- Not required by the law to publish its accounts annually.
- Start trading as soon s it obtains a certificate of incorporation

ADVANTAGES
Has limited liability which protects the
shareholders’ assets from being used to pay
the company’s debts
The shareholders have direct control over
the company’s affairs. Their view is heard
at the annual general meeting.
DISADVANTAGES
There are too many legal formalities so this makes
forming a limited company difficult and costly.
Shares cannot be freely transferred to a new investor
without the approval of the other shareholders so this
limit the shareholders ability to sell his/her shares.

Can easily raise more capital by selling its The growth of a private limited company can be limited
shares privately to friends and relatives.. by lack of capital since its shares cannot be sold openly
to the general public.

It is a separate legal entity, meaning it has

certain rights recognized by courts. For
example it can buy and sell assets; make
contracts; sue other companies and
individuals and it can be sued.

The liability of shareholders are limited

 meaning their personal assets are not at risk
that is, in case the company closes down,
the share holders only lose the amount they
have invested.

The company has sure continuity unlike the

sole proprietorship.

PUBLIC LIMITED COMPANY.

A public limited company is a corporate association of at least 2 persons which is registered with the Registrar of Companies and owned
by shareholders who have limited liabilities.

FEATURES OF PUBLIC LIMITED COMPANIES.

 It is a company formed by 2 to infinity shareholders.
 It owned by shareholders and controlled by a board of directors who are elected by the shareholders of the company.
 Shares are freely transferable
 It is required to publish its accounts annual.
 It starts trading after obtaining the certificate of incorporation and the certificate of trading.

ADVANTAGES DISADVANTAGES
Shares are freely transferable on the stock exchange i.e. It is difficult and expensive to form. The
shareholders can take their shares to the stock exchange and formalities involved are complex, costly and
sell them at any time without the consent of other shareholders time consuming.

Can raise large sums of capital because they sell their shares to Raising of more capital may be expensive
the general public on the stock exchange and can also borrow because it involves the commissions of
money by issuing debentures. stockbrokers and merchants banks.

Enjoy maximum continuity. It is controlled by hired experts so the original

owners may lose control over the company as it
grows big.

Large size enables them to enjoy economies of scale. The annual accounts of the company are open to
public inspection which reduces confidentiality
of the firm.

DIFFERENCES AND SIMILLARITIES BETWEEN PRIVATE AND PUBLIC LTD CO.

The term public in public limited company means that the general public is invited to buy shares from the company while the term
Private in private limited companies means that the shares are sold privately to individuals .

PRIVATE LTD CO. PUBLIC LTD CO.

-Formed by 2-50 people -Formed by 2 to infinity shareholders

-Shares are not freely transferable ie shares
cannot be sold or given away without the
consent of the other shareholders.
-Shares are sold privately to individuals or
relatives and friends.
-Controlled by shareholders
-May not publish its accounts
-Shares are freely transferable. shares can be
sold or given away without the consent of the
other shareholders.
-Shares are sold to the general public through
stock exchange
-Controlled by a board of directors
-Must publish its accounts annually
Name ends with the word proprietary limited
i.e. (Pty) ltd
-Has limitations to raising capital
-Starts business upon receiving certificate of
incorporation
-Not required to issue prospectus.
-Name end with abbreviations (Ltd) or Plc
-Has wider access to raising capital.
-Starts business upon receiving certificate of
incorporation and certificate of commencement
or trading certificate.
-Required to issue prospectus.

Formation of limited company

According to companies act, two documents have to be prepared before a limited company can be created. These
documents are;
i. Memorandum of association,
ii. Articles of association.

These documents are drawn by the promoters that is, people wishing to form a company. Once the documents are
drawn by the promoters, they are then presented to the registrar of companies.

The registrar approves them and if satisfied that they conform to the companies act, she/he issues a certificate of
incorporation as proof of registration.

Memorandum of association
This is a document that lays down and defines powers and limitations of the company. Its main purpose is to
govern the relationship of the company with the outside world (external relationship). It gives information about
the company which includes:

 The name of the company with the word limited at the end.
 The location of the company’s registered office.
 A statement clarifying whether it is a private or limited company.
 The objectives of the company [that is whether it is going to be producing something, buying and selling
something or providing a certain service]
 The statement of limited liability of its shareholders.
 The authorized capital that is, the amount of capital to be raised by selling shares.
 The number of shares to be taken by each of the directors.

Articles of association
This document lays down the rules governing the internal management of the company. It includes:

 The rights, obligations and powers of directors,

 The procedure of calling annual general meetings,
 The rights and powers of each type of shareholders,
 The procedure of electing directors,
 The borrowing power of the company,
 The issue, transfer and forfeiture of shares
 The procedure of dealing with any alterations in the amount of capital,
 The procedure of distributing profits and carrying out auditing.

CERTIFICATE OF INCORPORATION
This is issued by the registrar of companies after ensuring that both the memorandum and articles of association are in accordance with
the provisions in the companies act.
-It certifies that the company has been registered and incorporated as a separate legal entity. With this certificate the private limited
company can start trading.

THE PROSPECTUS
A document prepared by public limited companies inviting the public to subscribe to the shares of the company.
 It gives details of the company’s history
 Details on shares to be issued
 Opening and closing dates of subscription
 Name of the bankers to whom cash and application forms are to be sent

TRADING LICENCE
A certificate issued to the public limited company to commence business. Private limited companies can operate without it
BOARD OF DIRECTORS
Limited company is controlled and governed by board of directors which is elected by the shareholders during an AGM.
Membership varies from two – six in private ltd company and six – thirteen in a public ltd CO.
 Board of directors draw up the policy of the company
 control and govern the day to day operations of the company
 implement the companies aim and objectives

Usually, the day to day running of the business is in the hands of a general manager whose main role is to
implement the policies of the company. The BOD is more of an advisory body while the management are in-
charge of the day to day and frontline work
SHAREHOLDERS
-They are the owners of the company.
-They inject capital into the business for use in the day to day operations.
- They take part in decision making of the company through the annual general meeting.
-They share the dividends at the end of the year

ANNUAL GENERAL MEETING

The Companies Act requires a limited company to hold annual general meeting once a year. An AGM is a meeting of all the
shareholders.

The purpose of AGM is to:

 Directors report to the shareholders about the company’s performance for the past year.
 Any major activities for the coming year or any policy changes are announced.
 Directors’ reports & financial reports are adopted.
 Dividends are announced.
 Shareholders vote to elect new directors.
 Deal with any issues that could not be settled by the board of directors

 It is compulsory by law.
 Matters important to the company are discussed.
 Shareholders are allowed to vote on any decisions taken at this meeting.
ROLE OF PROMOTERS AND REGISTRAR OF COMPANIES IN THE FORMATION OF A LIMITED COMPANY

PROMOTERS
- These are people who wish to start a company
- The y come up with the company name and register it with the registrar of companies.
- They draw up the memorandum and articles of association in accordance with the companies act and submit to registrar of
companies for approval.
 - After receiving the certificate of incorporation, they sell shares to raise capital and commence the business.

REGISTRAR OF COMPANIES
- Approves the company name after ensuring that there is no other similar name existing.
- Receives memorandum and articles of association and checks if they are in accordance with the companies act
- Issue certificate of incorporation if they are satisfied with the articles and memorandum of account.
- It ensures that the company does not raise more capital than the authorized capital.

CAPITAL OF LIMITED COMPANIES

The main source of capital for limited companies is selling of shares and issuing of debentures.

Capital of a limited company

Shares Debentures

Naked Mortgaged

Ordinary Preference
Redeemable Irredeemable
Authorised capital is the total amount of money that a limited company is allowed to raise through the issuing of shares.

1. SHARES
A unit of a limited company’s capital or a portion into which the capital of a limited company is divided.

TYPES OF SHARES
a. Ordinary shares
b. Preference shares

ORDINARY SHARES
 These are shares which receive variable rates of dividend depending on the profits made.
 Shareholders get dividends after preference shares have already received theirs.
 Shareholders have voting rights because the shares are more risky form of investment.
 Shareholders will only be paid after all the debts of the company have been paid if the company fails.

PREFERENCE SHARES
These are shares which receive dividend on a fixed rate e.g. 10 %. They are classified as: Cumulative PS, Non – cumulative PS,
Redeemable PS and Participating PS.
-They receive dividend before the ordinary shares.
-Shareholders have no voting rights at AGM’s

TYPES OF PREFERENCE SHARES

A. Cumulative preference shares: The cumulative P.S. gets a fixed dividend every year. If in one year no profits are made, they are
paid in arrears in the next year when profits are made.

B. Non – cumulative preference shares: They do not have any right to arrears of dividend, i.e. If the company makes no profit this
year, they get nothing and the next year the company makes good profit they only get their amounts.

C. Redeemable preference shares: These are shares which will be bought back by the company at a later date either out of
accumulated profits or from money received from a fresh sale of shares.

d. Participating preference shares: The shareholders here are entitled to a bonus if a very big profit is made in a particular year. The
shareholders participate in decision making in the company.
DIFFERENCES BETWEEN ORDINARY & PREFERENCE SHARES

ORDINARY PREFERENCE

 Receive dividend after preference  Receive dividend before ordinary

shares
 Shareholders have voting rights.
 More risky form of investment
 Receive a variable rate of dividend
depending on the amount of profits
made.
shares.
 Shareholders have no voting rights.
 Less risky than ordinary shares.
 Receive dividend on a fixed rate
and shares may be cumulative,
participating or non cumulative.

2. DEBENTURES
A loan given to a company by outsiders on which a fixed rate of interest must be paid whether the company makes profit or not.
 Debentures are long term loans to the company.
 Debenture holders are not owners of the company; they are creditors of the company.
 Debentures holders are paid a fixed rate of interest every year.
 Debentures may be redeemable as they are loans.

TYPES OF DEBENTURES

A. Naked debentures- these are debentures which are issued without any property or security pledged against them i.e they are not
secure.
B. Mortgage debentures- have some property pledged against them. They are more secure
C. Redeemable debentures- are issued for a fixed period of time and can be bought back by the company
D. Irredeemable debentures- can never be bought back. The money borrowed against them remains outstanding until the company is
liquidated. The holders get interest against their debentures

DIFFERENCES BETWEEN DEBENTURES AND SHARES

SHARES DEBENTURES

-It is a unit of limited company’s capital
-A Shareholder is part-owner of the
company, and may vote.
-Shares are paid dividend when profits
are made.
-Shares are usually irredeemable.
-Shareholders may get more than the
face value when company is liquidated.
-Shareholders especially ordinary shares
receive variable dividend.
-It is a loan borrowed from members of public
-Debenture –holder is a creditor and has no voting
rights
-Debentures are paid interest whether or not the
company makes profits.
-Debentures are redeemable.
-Debentures holders are paid only the face value of
the debentures held when the company is
liquidated.
-Debenture holders are paid fixed interest.
 STOCK EXCHANGE

Stock exchange: is a market/ place where stocks or shares are bought and sold especially for public limited Companies. E.g. Botswana
Stock Exchange (BSE).

Functions of the stock exchange

-Provides a market where stocks and shares can be sold and bought.
-Establishes prices for shares (based on supply and demand) and makes prices known to the public at large by publishing it in the mass
communication media.
-Stock exchange approval gives some indication to the investors that a company quoted is reputable.
-Provides a place where people with savings can invest and lend to those companies who need to raise finance.
-Establishes a code of conduct which members of the stock exchange must follow.

STRUCTURE OF THE STOCK EXCHANGE

Stock Exchange
Council

Board Of Directors

Stock Brokers/ Agents and Listed companies/Market

speculators markers (buyers and sellers)

ACTIVITIES OF THE STOCK EXCHANGE MEMBERS

- Stock brokers: are licensed agents who act on behalf of investors to buy and sell shares.
- Listed companies: these are companies approved to sell their shares to the general public through the stock exchange.
- Jobbers: an individual who makes a profit from the buying and selling of shares but does not deal directly with the public but sells
only to brokers.
- Speculators: are people who try to make quick profits by anticipating how prices of shares are going to change. These are
Bulls-people who buy shares now with the expectation that their prices will rise in a week or so and they would sell them for a
profit.
Bears: expect that prices of the shares they are holding would fall over the next week and they sell them off now, with the hope
that they would then buy them back and save some money.
Stags: these are people who specialize on new shares which they buy with the hope that prices would rise and they would make a
profit.

ROLE OF THE STOCK EXCHANGE

- Provides access to the country’s equity and debt market- by allowing foreign investors to use its market as an
entry point hence diversify the economy.
- Allows companies to raise capital at a low cost in order to increase their productivity hence providing more
goods and services to the people.
- Provides an investment opportunity for individuals to save and earn interests and dividends to meet their
financial goals.
- Help in creating more jobs as companies raise capital to improve their growth which improves their standard
of living.
CAUSES AND CONSEQUENCES OF STOCK MARKET TURBULENCE
- Popularity of the company’s products results in more customers and this will attract investors to buy its
shares pushing up its share prices.
- Industrial disputes: leads to fewer investors being interested in the company and his would drive down share
prices.
- Good performance of the company: lead to investors gaining confidence in the company and being buy
more shares pushing up the share prices.
- Company being taken over by a bigger and popular company would attract investors to the company
hence pushing up the share prices.
 MULTINATIONAL CORPORATIONS

These are companies that operate in more than one country or have branches in more than one country and a head office located in the
mother country. Eg BP,Coca cola co, shell, standard chartered, Barclays bank

IMPORTANCE/ BENEFITS OF MULTINATIONAL COMPANIES TO THE HOST COUNTRY

Creation of employment therefore people will get However the jobs created are often unskilled assembly
income to spend/may have wages and salaries line task. Skilled jobs such as those in research and
design are not usually created in the countries
receiving the multinational.
Brings skills and technology that can be used by However They often use up scarce and non –
local companies to improve efficiency in their renewable primary resources in the host country.
businesses
Bring capital; that can be used to develop local However Some do not respect the host country’s
resources regulations on employment, working hours,
production and trade due to their large size.

Improves country’s foreign trade ; by selling

abroad
Pay tax to Mauritius ; which can be used for Profits are often sent back to the multinational’s home
national development country and not kept in the country where they are
earned so the country loses foreign exchange as the
profits are sent abroad in foreign currency
Locals get variety of services at reduced prices However They may force local firms out of business
hence access to more goods and services/ given a because multinationals are often more efficient and
choice have lower costs than local businesses.
Have worldwide contacts ; that Mauritius can use However As the businesses are very large they could
to boost its export sales have a lot of influence on both the government and the
economy of the country. They might ask the
government for large grants to keep them operating in
the country.

ADVANTAGES AND DISADVANTAGES OF COMPANY BECOMING A MULTINATIONAL

ADVANTAGES DISADVANTAGES
Enjoys economies of scale ; therefore low However Increased operational costs/large capital
operational costs required due to many branches/forced to borrow
money
Wider market which increases sales However The company may grow too big for
managers to supervise leading to inefficiency and low
productivity
Can acquire cheap labour / skills / technology from However Conflicts with policies in the host country as
a host country ; that can be used to improve the it has to abide by the rules and regulations [operation
business hence improved efficiency hours/minimum wage/transport Act]
Increased sources of raw materials hence improved but it requires large capital to operate
service delivery
Increased company image ; that can help attract However It may not be accepted in the host
more customers/ increase sales country/xenophobia so this reduces sales
 INTERNATIONAL TRADE/ FOREIGN TRADE

International trade is the buying and selling of goods and services that take place between countries.
It can be between two individuals or two organizations based in different countries or even between two
governments.
It consists of import trade and export trade.

Import trade is the buying of goods from someone outside the country.
Imports: Goods and services bought from other countries.

Export trade is the selling of goods to someone outside the country.

Exports: Goods and services sold outside the country.

DIFFERENCIATE BETWEEN HOME TRADE AND FOREIGN TRADE

HOME TRADE FOREIGN TRADE

 Takes place within one country
 Consist of wholesale trade and retail trade
 Same language is used so there is easy
communication
 Same units of measurement are used
 No trade barriers
 Same currency used
 Takes place between countries
 Consist of export trade and import trade
 Different languages used so it is difficult to
communicate
 Different units of measurement used
 There are trade barriers like customs duty, quota
 Different currencies used

THE IMPORTANCE OF FOREIGN TRADE TO BOTSWANA/ADVANTAGES OF FOREIGN TRADE

ADVANTAGES
 No country is self-sufficient due to lack of resources
[1] so it has to trade with other countries get the goods
and services that they cannot produce themselves.[1]
 Exportation encourages more production to meet the
foreign market demand [1] so more people will be
employed to increase production [1]
 Consumers are given a wider range of goods from
which to choose from [1] hence improved standard of
living [1].
 A country exports goods in order to earn foreign
exchange or income [1] which is used to finance
development projects such as roads/ schools/ hospitals
or pay for imports[1]
 It leads to transfer of technology [1] which can be used
to improve local industries [1]
 It may bring good relations between countries.
DISADVANTAGES
 local industries may not be able to compete with
imported goods [1] so they may end up closing
down leading to increase in unemployment rate
[1]
 dumping of poor quality goods in developing
countries by developed countries [1] lead to loss
of local industries [1]
 may lead to unfavourable balance of payment [ 1]
as a country may import more than what it
exports [1] hence less finance for development
projects [1]
 cultural differences may lead to some countries
losing their culture [1] as young people desire
foreign goods/way of life [1]
CHARACTERISTICS OF BOTSWANA’S FOREIGN TRADE

Botswana’s main exports Botswana’s main imports

- Diamonds - Petroleum products
- Cooper Nickel - Vehicles and transport equipment
- Gold - machinery and medicines
- Beef - foods beverages and tobacco
- Soda Ash - textiles and footwear
- Tourism - metal and metal products

PROBLEMS FACING EXPORTERS AND IMPORTERS

 Difficulty of obtaining information on foreign markets[1]: about safety standards/ import regulations due to
differences in language.[1] exporter has to hire a foreign based agent/send a research market team abroad to collect
information [1] this can be costly as the agent has to be paid [1]
 Difficulty of communication [1] caused by language differences: [1] which calls for trade documents such as
advertising materials/ leaflets/ invoices to be translated into foreign languages [1] usually at additional cost.
 Longer distances [1] which lead to high transport costs [1]: as goods move over longer distances arranging for
transport is more expensive and time consuming.
 The problem of payment [1] caused by different currencies which are used [1] the money has to be converted
into local currencies therefore exporters may lose if the exchange rate falls before payment [1]
 The problem of trade barriers either in the form of customs duty/ quotas [1]: makes imported goods very
expensive and unable to compete with home made goods [1] and hence discourages people from importing [1]
A ban or quota makes it difficult for exporters to get access to lucrative markets. [1] hence low sales [1]
 Differences in units of measurements [1] make it difficult for exporters to fix prices for their goods [1] and may
result in costly repackaging of goods. [1]
 Increased insurance costs due to higher risks of damage/theft [1] makes Insurance companies to charge higher
premiums to exporters. [1] which increases operational costs of the trader [1]
 Risk of foreign buyer defaulting/not paying due to political changes in the country[1] lead to loss [1] however
exporter can hire a del credere agent to guarantee payment for orders obtained [1]

HOW THE GOVERNMENT CAN ASSIST EXPORTERS AND IMPORTERS

 Subsidizing exports [1] so as to enable the exporters to charge lower prices [1] therefore win more markets abroad
[1]
 Devaluing the local currency[1] to make exports cheaper [1] therefore have a large market share abroad [1]
 Provision of vital information on foreign markets through BEDIA[1] so that exporters are able to meet the taste
and preferences of foreign customers [1]
 Financial assistance in the form of loans/grants [1] so as to be able to produce more goods for exportation [1]
 Setting up of export credit insurance- BECI [1] so as to stimulate export trade as this will protect exporters
against loss due to non payment by customers [1]

a. BOTSWANA EXPORT CREDIT INSURANCE-BECI

A subsidiary of Botswana Development Corporation formed to promote export trade by offering insurance cover to
exporters who sell goods on credit against the risk of loss due to not non payment by foreign customers.

FUNTIONS /IMPORTANCE OF THE EXPORT CREDIT INSURANCE

 It can help exporters to obtain information on their prospective foreign buyers. [1] which can them to meet the
demand of their customers hence increase in sales [1]
 It can provide useful security for exporters to obtain export finance from their banks[1] therefore able to produce
more for exportation
 It diversifies the export market [1] of the country as it enables exporters to take on more business and reach new
markets by offering competitive credit terms [1]
b. EXPORTERS’ ASSOCIATION OF BOTSWANA
This is an organization set up to increase the production of export related products by helping to identify foreign markets for
locally produced exportable goods and make representation to government on behalf of exporters.
c. BOTSWANA EXPORT DEVELOPMENT AND INVESTMENT AUTHORITY (BEDIA)
BEDIA was established in1998 with the mandate to promote investment and export trade.

ROLE of BEDIA
 To provide advisory and consultancy services to local, national and international investors
 Liaise with potential investors and relevant government agencies and business organizations
 Organize trade and investment missions to other countries
 Operate trade and information services
 Organize annual trade fairs
 Analyze and identify export markets as well as import substitution opportunities
 Create and produce publicity and promotional materials about the country’s potential
 Disseminate trade and investment information to the business community

BALANCE OF TRADE AND BALANCE OF PAYMENT

BALANCE OF TRADE: It is the difference between the amount a country earns from exporting goods and what it spends
on importing goods.
Balance of trade = visible exports – visible imports

Visible exports: Value of goods sold to other countries within a given period
e.g. beef diamond
Visible imports: total value of goods bought from other countries within a given period.
e.g. medicine machinery
NB:
 If the value of goods imported/visible imports exceed the value of goods exported, a country is said to have
an unfavourable balance of trade/deficit
 If the value of exported goods exceeds the value of imported goods, the country would have a favourable
balance of trade/in surplus.

THE BALANCE OF PAYMENT: it is the difference between total exports (visible, invisibles &capital items exported)
and total imports (visible, invisibles & capital items imported) over a year. It includes the
 Visible items
 Invisible items
 Capital items

Balance of Payment = total visible and – total visible and

invisible items invisible items
exported + capital imported + capital payment
receipts

The balance of payment is divided into two sections:

 current account
 Capital account.

1. CURRENT ACCOUNT: This account records transactions that involve the export or import of goods and services.
It therefore shows the trade in visible exports and imports as well as invisible exports and imports.

Current balance = total visible & invisible exports – total visible & invisible imports
OR
Total exports of goods & services – total imports of goods &services
 NB:
 Visible items refer to trade in physical goods that can be touched, seen measured or weighed such as furniture,
cars, clothes, food, building materials, etc.
 The invisible items refer to trade in services, that cannot be seen touched, measured, weighed etc.
EG. Invisible exports: tourists coming to Botswana
Foreign students studying in Botswana
Invisible imports: sending Batswana students abroad for study
Botswana using other countries ships when transporting beef to Europe

2. THE CAPITAL ACCOUNT: it shows the amount of money coming in from other countries (capital
inflow/receipts) and the amount of money going out of the country (capital outflow/payments)
E.G
 Loans received from abroad (from individuals, foreign governments and foreign companies)
 Lending made abroad by Botswana and the Botswana government.
 Investments made abroad by Botswana and Botswana government
 Investments made in Botswana by foreign companies and individuals.

Capital Account Balance = Total capital receipts - total capital payments

IMPLICATIONS OF FAVOURABLE AND UNFAVOURABLE BALANCE OF PAYMENT

FAVOURABLE BALANCE OF BALANCE UNFAVOURABLE BALANCE OF PAYMENT

 The country can afford to implement
development projects such as building
schools/ hospitals [1] hence improved
standard of living for its citizens [1]
 The country makes savings in the form
of foreign exchange reserves[1]that can
help to pay for imports/ help in time of
drought/floods/ war [1]
 The country becomes a net borrower [1]
therefore have financial difficulties [1]
 Development projects will be delayed,
postponed or even cancelled [1] hence poor
standard of living for the citizens [1]
 The country will spend and exhausts its
savings/foreign exchange reserves [1] no
money to guard against difficulty times like
war/floods/drought [1]

 Loss of foreign exchange [1] therefore no

money to pay for imports [1]


Inflation [1] which may be a problem to citizens
as they may not afford to buy goods and
services[1] hence poor standard of living [1]
NB: favourable balance of payment occurs when the value of total exports is greater than total imports, this means the
country has earned more than it spent.
Unfavourable balance of payment occurs when the total value of imports is greater than total exports this means
the country spends more than what it earns.

WAYS OF SOLVING UNFAVOURABLE BALANCE OF PAYMENT PROBLEM

 Devalue the local currency (the pula) [1]:this will make exports cheaper for other countries to buy / imports will
be expensive for us therefore this will reduce the number of imports [1] but this may lead to citizens to have less
choice when buying goods [1]
 Impose import quotas: this will restrict the amount of goods to be imported and hence the country will spend less
to pay for imports. [1] but this may lead to shortage of essential imports.
  Impose tariffs or customs duty: It will make imports more expensive to buy than local produced goods leading to
a decrease in imports. [1] but some countries may retaliate by imposing quotas too [1]
 Increase interest rates: In order to cause a fall in spending and hence a fall in imports.
 Stimulate exports by providing subsides [1] therefore exporters will be able to charge competitive prices leading
to attraction of large share of the foreign market [1]
 Ban the importation of some goods which are not so important [1] this will help reduce imports [1] but may
encourage smuggling of goods into the country [1]
 Borrow money from other countries/IMF/WORLD BANK

IMPORTANCE OF INTERNATIONAL MONETARY FUND—IMF

 Promotion of exchange stability [1] to maintain orderly exchange arrangements among members to avoid
competitive exchange depreciation [1]
 Give confidence to members by making the general resources of fund temporarily available [1] so as to correct
their unfavourable balance of payment [1]
 Promote international monetary cooperation [1] through institutions which provides machinery for consultation and
collaboration on international monetary problems. [1]
 Facilitate the expansion and balanced growth of international trade [1] so as to create high levels of employment
and real income [1]

IMPORTANCE OF WORLD BANK

 Capacity building
 Infrastructure creation
 Development of financial systems
 Combating corruption

MIDDLEMEN IN INTERNATIONAL TRADE

a. BROKER: agent who help traders to buy or to sell their goods by bringing the buyer and the seller face to face so as to
carry out their transactions.
 They do not physically handle goods but only bring the buyer and the seller face to face.
 They help in buying and selling i.e. can help the exporter to sell the goods and also the importer to buy the goods

b. FACTOR: agents who help in selling of goods by collecting the goods from the exporter and physically sell them in
their own names.
 They may pledge goods and even give credit.
 They only help in selling.
 Collect and forward the payments less the commission

c. FORWARDING AGENTS: These are agents who help in making arrangements for the transfer of exported goods by:
 Preparing exporting documents
 Booking transport
 obtaining insurance cover
 Packaging and storage of goods pending shipment
 Consolidating smaller shipments to save time and money
 Arranging and operating multimodal systems-use different modes of transport for a shipment

d. DEL CREDERE AGENT: These are agents who for additional commission, provides the extra services of guaranteeing
payment for any goods they sell on credit for the exporter.
 They sell goods on credit to persons of good financial standing and guarantees that payment will be made.
 DOCUMENTS IN INTERNATIONAL TRADE

1. BILL OF LADING: a document used when goods are sent by sea issued to the exporter by the shipper to enable the
importer to claim goods.
Contents
 Details of the goods on board the ship
 name of the ship carrying the goods
 ports of loading and destination
 Condition of the goods,
 captain's signature
 NB: It can be a clean bill of goods are in good condition or a dirty bill if some goods are damaged

Importance of bill lading

 It is a document of title: i.e. it can be used to claim possession of the goods by presenting it.
 It is quasi negotiable: i.e. it is transferable by endorsement so the importer can look for market and dispose off the
goods even if they have not yet arrived.
 it acts as a receipt for the goods shipped
 it is a contract for the carriage of goods
 It indicates the conditions of goods discharged.
 It is used for customs clearance

2. THE INDENT: it is a letter from an importer asking an agent to order goods from abroad on behalf of the importer.
Types of indent
Open indent: it does not specify the supplier and therefore the agent can order goods from any suitable supplier
Closed indent: is the one that the importer has specified the supplier from whom the agent should order the goods.

Contents
 Description of goods and quantity to be ordered
 Price at which goods are offered
 delivery instructions
 terms of payment

3. AIRWAY BILL: A document used when goods are sent by air.

Contents
 Details of the goods on board the plane
 name of the plane carrying the goods
Importance of airway bill
 it is a contract for the carriage of goods
 it acts as a freight bill
 Has a tracking number that can be used to check the status of delivery and current position of shipment

4 .SHIPPING NOTE: a document prepared by consignor/transporter and given to port authorities who receives the goods
for shipping requesting them to load the quantity of goods described on board a named vessel.
Contents
 gives details of the goods
 handling instructions,
 the name of the vessel to be used
 port of destination

Importance of shipping note

 It acts as dock receipt when signed by port authorities.
5. THE CHARTER PARTY: It is a contract made between a ship owner and the trader/exporter when hiring a ship for
transporting goods.
Types of/ Ways of preparing a charter party
Voyage Charter: issued when hiring a ship for a particular trip, when the goods are delivered the ship goes back to the
owner. The duration of the trip is not considered. E.g. Durban to London

Time charter: issued when hiring a ship for a specific time period e .g. 6 months. The trader will have to use the ship for
the whole of that duration, make as many delivery trips as possible and only return it upon expiry of the period.

6. CERTIFICATE OF ORIGIN: A document prepared by the producer showing the country/origin where the goods were
made and certified by the Chamber of Commerce
Importance
 This helps the customs authorities to know exactly where the imported goods have come from and where applicable
exempt them or charge less duty.

7. CONSULAR INVOICE: A normal ordinary invoice with the signature of the consulate or trade attaché certifying that
the prices on the invoice are correct so as to reduce chances of cheating by the importer reducing the invoice amount.
Importance
 Certifies that the prices on the invoice are correct so that the right duty is paid
 Help prevents the importation of prohibited goods

8. CERTIFICATE OF INSURANCE: An insurance policy or cover note which shows that the goods have been insured
against risks of the trip.
Importance
 It is assurance for the transport company and other parties, that goods are covered by insurance

METHODS OF PAYMENT USED IN INTERNATIONAL TRADE

1. LETTER OF CREDIT/ DOCUMENTARY CREDIT: this is an order from a domestic/local bank to another bank
abroad, authorizing payment of a certain sum of money to a named exporter. It overcomes the problems that both the
importer and exporter face.
How it works
 The importer first banks the money for the exporter at a home bank, before the exporter sends the goods.
 The importers bank then issues a copy of a letter of credit to the exporter’s bank
 The exporter then ships the goods and sends all the export and customs documents to the importers bank.
 Upon receiving the documents the importers bank then send the money to the exporter’s bank for payment even
before the goods arrive.
Importance
 It helps guard against default by the importer
 It gives the exporter guarantee of payment before handing over the documents to the importers banks

2. DIRECT PAYMENTS
A payment sent in the form of a banker’s draft/ cable transfer used when the exporter is selling to a well known trusted
customer.
a. banker’s draft
A draft drawn by the bank on itself and bought by the customer in foreign currency, then sent to the exporter as payment.
This is an equivalent of a banker’s own cheque.
Advantage
 The exporter has more confidence in receiving payment by banker’s draft because it is guaranteed by the bank
however it can be lost in transit.

b. cable transfers
This involves the transfer of funds electronically between banks. The importer pays money in his local bank and instructs
the bank to transfer the money direct in to the bank account of the exporter.
Advantage
 Quick method therefore suitable for urgent payments

c. international money order

Documents that can be exchanged for cash in the supplier’s country via a post office/an issuer’s office
Advantage
 Cheaper to obtain however they are only suitable for small payments and can also

5. BILLS OF EXCHANGE
An unconditional order issued by a person which directs the recipient to pay a fixed sum of money to a third party at a
future date.
How it works
 The exporter first agrees with the importer on the sale of goods.
 The seller then draws up & signs a bill of exchange, which he gives to the importer for acceptance.
 The importer signs across it and writes the word “accepted”.
 The exporter then presents it to the bank for payment as it falls due.
Advantage
 The exporter can endorse it and then use it to pay another company for goods bought from them.
 The exporter can get ready cash by discounting it with a bank or discount house i.e. sell off the bill to the bank for a
cash amount slightly less than its face value.

Process of discounting a bill of exchange

 Exporter sells the bill to bank/discount house before maturity
 The bank then pays the exporter money less a discount
 The bank then keeps the bill until it matures
 The bank claims the full value from the importer
6. DOCUMENTARY BILLS
It is a bill of exchange to which is attached other shipping documents like the bill of lading, insurance policy, certificate of
origin, export invoice to show that the goods have been sent.

How it works
 The exporter draws up a bill of exchange on his importer after shipping the goods
 He then gives it together with the shipping documents to his bank.
 He then instructs the bank to hand over the documents to the importer’s bank (usually after the importer has
accepted the bill).
 His bank will send them to the importer’s bank with the relevant instructions.
N:B This method is used when exporting to familiar and trustworthy customers.

7. TRAVELLERS CHEQUE
These are cheques for fixed amounts sold by a bank and can easily be cashed in a foreign country or used to pay for goods
and services by a traveller in foreign countries

HOW COMMERCIAL BANKS FACILITATE FOREIGN TRADE

 Provide finance (loan) to importer and exporters.

 Facilitate payment for imports through documentary credits, bankers’ drafts etc.
 Help to transfer funds to other countries. This helps importers to pay for their imports.
 Giving business advice to exporters and importers.
 Discount bills of exchange to help exporters with working capital
 THE CUSTOMS AND EXCISE AUTHORITY/BURS

In Botswana, the Department of Customs and Excise is under the Ministry of Finance and Development Planning with the
primary mandate to implement customs legislation dealing with the movement of goods into and out of the country.

FUNCTIONS OF CUSTOMS AND EXCISE AUTHORITY

1. KEEPING STATISTICAL RECORDS ON IMPORTS AND EXPORTS

The statistical records help
 To calculate balance of trade and balance of payment
 The government to determine the needs of the people at home.
 The government to design and assess the effects of its trade policies.
 The government to evaluate the effectiveness the tax collection mechanism

2. COLLECTING REVENUE in the form of customs duty, excise duty and VAT which help the government to
implement its developmental projects.
 Excise duties are taxes levied/charged on home made goods to discourage home consumption of dutiable goods
that can be exported
 Custom duties are taxes levied / charged on imports to discourage consumption of foreign goods.
 VAT or Value Added Tax is a form of tax levied on goods as their values increase.

Advantages of customs duty Disadvantages of customs duty

 Raise revenue or income for the government which
can be used for finance development projects.
 Protect home industries from competition as imports
will be expensive and thus discourage people from
importing as a result buy home made goods.
 Restrict imports so as to improve the balance of
payment position of the country.
 may cause other countries to retaliate by
imposing similar duties on our exports therefore
less goods exported
 They restrict trade making people to have less
choice
 Duties break agreements with neighbouring
countries as well as with the World Trade
Organisation it is not in line with globalization

Ways of calculating duties

i. Ad valorem duty: This duty is expressed as a percentage of the value of the goods imported. E.g. 10% of the value of the
cars imported
ii. Specific duty: This duty is charged per unit of import. E.g. for 10 cars imported, P2000 is charged per car as duty.

3. CONTROLLING BONDED WAREHOUSES

Custom authorities control the bonded warehouses in order to enforce the payment of duties. Bonded warehouses are
warehouses used for the storage of dutiable goods on which duty has not yet been paid.

4. KEEPING AN EYE ON THE MOVEMENT OF GOODS ACROSS THE NATIONAL BOUNDARIES so this
helps to prevent the smuggling of prohibited goods that are either a threat to national security like arms and ammunition or a
danger to public health, e.g. drugs such as cocaine and dagga.

5. ENFORCING QUOTAS i.e. A limit on amount of goods allowed to be imported in a given year.

Reasons why quotas are imposed:

 To restrict the importation of a particular commodity in order to correct a poor balance of payment position.
 To protect local industries against unfair competition from foreign goods.
 To reduce home consumption of imports.
 To prevent dumping of cheap and possibly low quality of goods into the country by foreign companies.
6. SAFEGUARDING PUBLIC HEALTH by ensuring that goods that enter the country are safe for consumption, have not
been manufactured using inferior or dangerous ingredients, and that all imported animals are accompanied by the correct
documents of vaccination.

BONDED WAREHOUSES

These are warehouses under the control of custom and excise authority used for the storage of dutiable goods on which duty
has not yet been paid.
NB: Dutiable goods are goods on which duties have to be paid e.g.
Non dutiable/duty free goods are those which can be imported without the payment of duties e.g. agricultural
machinery/fuel
Bonded warehouses are different from other types of warehouse in that:
 They are under the control of the customs and excise authorities
 They are only for the storage of dutiable goods on which duty has not been paid.
 Goods will only be released f upon payment of duty.
 Goods may not be manufactured while in bond but they may be prepared for sale by labelling, blending, bottling,
packaging etc.

Bonded warehouses might be preferred to other types of warehouses when:

 The imported goods are dutiable and the trader does not have sufficient capital to pay the duties immediately.
 The goods imported are not required immediately and they, therefore, need to be stored under the control of
customs authorities without payment of duties until they are needed.
 The goods need to be prepared for sale by bottling/packaging and the like.
 The goods are to be re-exported and no duty will then be due.
 HOW TO ESTABLISH A COMMERCIAL ACTIVITY

To set up a business one has three possible options:

1. You can start a new one from scratch
2. You can buy an existing business or
3. You can get a franchise

 STARTING A NEW COMMERCIAL ACTIVITY

WAYS OF FINDING COMMERCIAL IDEAS

 Noting a gap in the market: this is noticing that something is lacking then you can try to provide it. E.g.
providing a salon in an area where most women travel to town to get their hair done.
 Solving a problem: you can look at a problem troubling your community then try to set up a business to
solve it. E.g. finding the cure for HIV/AIDS and getting paid for the patent rights.
 Raising customers’ standard of living: looking beyond customers’ basic needs and coming up with a
business idea that caters for people’s free time such as a gym room.
 Brainstorming: this involves team work where a list of various ideas is written down then screened and
the bad ones dropped until you finally have a best possible idea.
 Redesigning an existing product: so as to iron out the problems in its use and make it user friendly or
improve its quality.

TECHNIQUES OF FINDING COMMERCIAL IDEAS

 Observation: look at the changes taking place around you. These can be political economic, social or
technological then come up with a business idea. E.g. an increase in salaries of civil servants may mean
an increased expenditure on leisure services hence the need for guest houses.
 Creativity: you can use your own imagination to come up with a new product, Such as aircrafts and guns.
 Modifying ideas: look at the products or services people are buying at the moment and try to improve
them by making them bigger, smaller or presented in a new packaging etc. this is how car manufacturers
keep on bringing new models.
 Experience: A business idea could be based on your experience such as having worked in a retail shop
for a long time then using the experience to set up your own.
 Consultation: intensive consultation with consumers and business people can lead to a viable business
idea.

WHY SOME BUSINESSES FAIL

 Poor/ inadequate planning/management/ lack of business expertise which lead to managers failing to
understand their customer needs and being able to provide what they need/ failing to predict costs and
profits of the business effectively resulting in the business making losses.
 Lack of working capital for the business to take available opportunities such as cash discounts resulting in
the business spending more on operational costs.
 Cash flow problems due to borrowing too much in order to grow quickly resulting in crippling interest
repayment charges.
 Poor treatment of workers such not paying them on time may result in workers leaving the business.
 External factors such as prices of inputs which may go up resulting in the business making less profit.
  Too much competition from well-established business which are able to offer their products at cheaper
prices resulting in loss of customers to them.
 Poor location which appeals to a small number of people but expensive or inaccessible.
 Poor/inadequate marketing resulting in customers not knowing about the products and also the business
not knowing customers’ needs and preferences.
 Poor quality products
 Lack of networking

2. BUYING AN EXISTING BUSINESS (GOING CONCERN)

Advantages
 Use of a name that is already well established therefore
there is no need for extensive advertising which saves the
business’ money.
 one enjoy the goodwill of the business such as existing
clientele, useful network of contacts etc. which saves the
business time to look for clients and suppliers
 One do not have to look for a new premise, this saves
money and time instead you concentrate on improving
the premises.
 Inheriting of experienced employees which saves money
and time on training them since they are already familiar
with the business.
disadvantages
However there may be resentment from
customers because of change in management
and customers may stop buying
However honour/negotiate any outstanding
contracts the previous owner leaves in place
However if the business has been neglected
one may have to refurbish it which can be
costly
However there may be resentment from
employees which may lower productivity

STEPS TO FOLLOW WHEN BUYING AN EXISTING BUSINESS

 Find out the true reason why the business is being sold in order to avoid buying problems
 Obtain a credible valuation of net assets and goodwill of the business so as to know the value of the
business you are buying
 Carry out assessment of the final accounts of the business so as to know how the business has been
performing
 Consider the impact of the impeding change of ownership on workers as well as the customers.
3. FRANCHISING
It is an agreement which allows a trader to trade in another business’s name and pays royalty for using the name.
Franchiser: is the retailer who operates in another business’s name and pays royalty for using the name.
Franchisee: The mother company allowing its name to be used by other businesses in trading.
Examples of franchisees
 KFC
 CHOPPIES supermarket
 Barclays bank
 Nandos
Advantages disadvantages
TO THE FRANCHISE
 Use of a well-known and widely However the franchisee has to pay
advertised name [1] so does not have to royalties which reduces profits.
spend much on promotions which reduce
However owner has less independence
operational costs [1] hence increased profit
as freedom of management is limited by
[1] the terms of the contract
 Advice on how to manage the business is
provides like on display of goods [1] this However there is no automatic renewal
helps minimize mistakes [1] hence a of the contract
greater chance of success. [1]
However the franchisee is restricted to
 Free training of staff is provided [1] help
buy supplies from the franchisers
bring efficiency therefore quality service suppliers even if they could get them
can be provided [1] which attracts more cheaper elsewhere.
customers [1]
 Cheaper supplies can be obtained from the however there may be
franchisers supplier [1] which saves on imitations/copying of the business
money and time spent on looking for
model [1] reduce market share [1]
suppliers [1]
leading to less sales [1]
TO THE FRANCHISEE however bad practice by one hair salon
 wider market [1] increased sales [1]
tarnish the image of the franchiser [1]
however fake brands/copy of the salon’s
lead to loss of customers [1] possibility
model which reduce market [1]
of failure of business [1]
 increased image [1] due to compliance of however buying of stock in large
set standards [1] quantities need warehouse [1] increases
costs [1]

 Able to buy stock in bulk [1] enjoy trade

however has to train the employees of
discounts [1] able to offer competitive
the franchisee [1] increases operational
prices which attracts customers [1]
costs which reduce profits
 guaranteed income due to royalties [1]
which increases profit [1]
 MARKET RESEARCH

It is the gathering of information to find out what potential customers want and how best to provide it so as to
satisfy their needs and wants.

IMPORTANCE OF MARKET RESARCH

It helps to:
 Know the target market/size of the market so as to produce and sell the right product and supply right
quantity to meet customer needs.
 Know about the competitors , what prices they are charging and what customer services
 They are offering so as to come up with better strategies to beat them.
 Know the product/taste and preferences, in what form, shape color and package the customers want the
product or service.
 Know the prices the customers are willing to pay so as to charge reasonable prices in order to attract more
customers.
 Know the location with more customers to locate the business.
 It helps you to keep up to date with trends in the market.

METHODS OF MARKET RESEARCH

 Primary (field) research

 Secondary (Desk/library) research.

1. SECONDARY RESEARCH
This is the collection of second hand information i.e. information which is already available.
This information could be from internal or external sources.
Internal sources- include records that have been kept by the business over time.
E.G; accounting records, Records of customer complaints, reports from sales representatives

External sources – include records that have been published by someone else and are obtained from outside the
organization.
EG: newspapers, Magazines, textbooks, journals

2. PRIMARY/ FIELD RESEARCH

This involves collecting raw or information which no one has yet collected.

METHODS OF PRIMARY RESEARCH

Method advantages disadvantages

1. Oral interview This is  it is suitable for literate and However it is time consuming
when researcher prepares a illiterate people so
set of questions and sits information can be
down with the respondent gathered from a However respondents may withhold
face to face and asks representative sample sensitive information
questions to get information.
 detailed information can be However there is interviewer bias
obtained due to follow up
questions

2. Questionnaire
A research instrument
consisting of preset questions
which are distributed to
respondents to answer at
their own time.
Observation
It is the gathering of
information by looking at
and recording how
respondents react/behave
towards a particular product.
Experiment/test marketing
In this research, samples of
the product are given to
consumers to taste or use and
thereafter give their opinions.
Consumer Panels
Getting information from a
group of potential customers
who meet together to enable
to enable the researcher to
see how they react to a
particular product
 there is clarity of questions
leading to more accurate
data gathered
 Many questions can be However questionnaires can be lost, so
sent out at once hence the researcher has to redistribute which
saving time for the can be costly.
researcher
However there is low response rate
 Respondents answer at
their own time with the
absence of the researcher,
so they are free to give However it is suitable for literate people
sensitive information only
 Respondents have
enough time to think
about the questions
therefore more accurate
data can be obtained
 It is cheap to conduct However it is not suitable for collecting
therefore less costs to the qualitative data because there is no way
researcher to know the reasons behind consumer
behavior
however may be difficult to observe a
 Possibility of collecting representative population
accurate data as
respondents will not be
aware that they are being
observed.
 It is easy to set up and However Consumers may hide their
carry out true feelings
 Suitable for However The sample size may not be
testing
public opinion or trying the true representation of the total
out a new product population
However It may be expensive to carry
out
 detailed information can However It is time consuming
be obtained
However biased if members of the
 Relatively inexpensive panel are influenced by the decision of
others
 SAMPLE OF A QUESTIONNAIRE

1. How often do you T-shirts

Everyday twice a week weekend only never

2. How many T shirts would you be willing to buy per year?

1-2 3-4 5-6 7-8

3. Which type of t-shirts would you be willing to buy?

Unisex design male design female design

4. What material would you prefer your T-shirt to be made of?

Cotton Nylon Wool others [specify] __________________

5. What color of a T-shirt would you prefer? ______________________________________

6. How much would you be willing to pay for a T-shirt?
P25 P30 P35 P40

7. Where do you normally buy your buy your T-shirt? _________________________________

8. How much do you currently pay for one T-shirt? ______________________________

9. Which newspaper do you normally read?

Mmegi Dailynews The Voice The midweek sun
 BUSINESS PLAN

DEFN: a document designed to provide information about a new or existing business giving details on how one
plan to organise and run the business and also to convince investors to invest in the business.

IMPORTANCE OF A BUSINESS PLAN

 It is used to test the feasibility[1] of the idea through customer and competitor analysis [1]which help to
charge competitive or reasonable prices.[1]
 Helps to evaluate performance [1] through cash flow forecasts/set goals and objectives [1]
 Helps to control of purchases [1] to determine economic order quantity [1] so as not to overstock or under
stock[1]
 Give direction on operations [1]through planning which help to see whether the set objective has been
achieved.[1]
 Helps to secure finance [1] through cash flow forecasts/ projected income statement [1] which help
financers to see if the business will be able to repay the loan. [1]

CONTENTS OF A BUSINESS PLAN

1. EXECUTIVE SUMMARY
 Provides a summary of the company, explaining who you are, what you do and why.

2. COMPANY DESCRIPTION
 Mission, vision
 Goals and objectives
 Legal structure of the business(sole proprietorship, partnership, private or public limited company
 Brief History of the company
 Future potential of the company

3. PRODUCT/SERVICE
 Description of product or service including features and benefits of the product or service

4. MANAGEMENT PLAN
 Organizational structure
 A brief bio description of key managers and their salaries
 Job description
 Retention strategies to be used

5. OPERATIONAL PLAN
 Production Process
 Raw materials needed and their costs
 Suppliers of raw materials
 Monthly production plan

6. MARKETING AND SALES PLAN

 Market research analysis
 Target market,
 Competitor analysis
 Pricing strategy
  Sales strategy
 Monthly sales plan
 Promotional strategy
 SWOT analysis

7. FINANCIAL PLAN
 Start Up capital
 Break even analysis
 Cash flow forecast
 Income statement forecast
 Statement of financial position forecast

CASH FLOW PLANNING

CASHFLOW: Money coming in and going out of the business.
CASH FLOW STATEMENT: a statement that shows the amount of money coming in and going out of a
business at any one time.
HOW CASH FLOWS IN TO THE BUSINESS
 By the sale of goods for cash
 through payments made by debtors
 By borrowing money from an external source e.g. bank
 Through the sale of unwanted business assets.
HOW CASH FLOWS OUT OF THE BUSINESS
 By purchasing goods or materials for cash
 By purchasing fixed assets
 By repaying loans
 By paying creditors of a business
 By payment of wages, salaries and other expenses.
 By paying dividend
EVENTS THAT CAN LEAD TO CASHFLOW PROBLEMS
 A fall in sales due to low demand
 A new competitor suddenly taking away a number of customers and reduces sales.
 An increase in the price of an important material which increases expenditure.
 Interest rates paid on loans going up which increases the level of payment
HOW THE BUSINESS CAN REDUCE CASHFLOW PROBLEMS
 Introducing sales promotion [1] in order to increase sales by attracting customers.[1]
 Encouraging prompt payment from customers [1] to improve working capital [1]
 Reducing prices [1] to increase sales [1] and compete better against other businesses.
 Arranging trade credit [1] with suppliers so that payment is delayed until goods are sold.
 Investing more capital either by obtaining a bank loan or an overdraft.
 Attempt to reduce expenditure [1] through finding cheaper suppliers [1] or reduce any other expense like
electricity
EXERCISE
CASH FLOW FORECAST FOR PRESTIGE PRINTING COMPANY.
JAN FEB MAR APR
Cash inflow /Receipts

Cash sales 15 000 15 000 20 000 25 000

Payment from debtors 5 000 5 000 7 000 8 000

Total cash inflow 20 000 A 27 000 33 000

Cash out flow /Payments

Materials and wages 3 000 3 000 5 000 7 000

Rent and other expenses 15 000 15 000 25 000 15 000

Total cash out flow 18 000 18 000 B 22 000

Net cash in C 2 000 D 11 000

Opening bank balance 3000 F 7 000 4 000

Closing bank balance 5 000 E 4 000 G

1. Using the cash flow forecast above calculate A-G

[Leave space for the exercise]

NETCASH IN = total cash inflows – total cash

outflow

Closing bank balance = opening bank balance + net cash in

Opening bank balance = closing bank balance of the previous month

PROFIT FORECAST
This is the prediction of incomes and expenses of the business in a given period.
Gross Profit = Sales- Cost of sales
Net profit= Gross profit – Operating expenses.
 SWOT ANALYSIS
These are the strengths, weaknesses, opportunities and strengths of a business which should be carried out before
the idea can be adopted. It helps to determine a strategy for the future to improve the company’s performance.

STRENGTHS
These are characteristics of the business that gives it an advantage over other businesses.
E.G.
 The company is using its own premises [1] so no renting costs incurred [1] thus saving money for other
business needs.
 Skilled workers available [1] so little training is required [1] thus saving the business some money and
time.
 Excellent transport links [1] so customers can easily reach the business to buy [1]

WEAKNESSES
These are internal characteristics that place the business at a disadvantage relative to other businesses.
E.G
 Poor financial position as it has large debts [1] which makes it difficult for the business to take available
business opportunities such as discounts or special offers [1]
 Lack of an established reputation [1] which requires the business to extensively advertise [1] itself thus an
increase in the costs. [1]
 poor Stock control [1] as the business hold too small stock leading to customers not getting their orders
on time [1] hence switching to other businesses [1]
 Inexperienced workers [1] needs more training [1] increases operational costs [1]

OPPORTUNITIES
These are external factors that a business can exploit to its advantage.
E.G
 Increased spending power in the local /national economy [1] resulting in increased demand [1] market
thus more sales for the business. [1]
 New technology [1] that allows the business to improve the quality of its product at lower costs. [1]
 Financial assistance from the government in the form of a grant (1) thus few debts for the business (1)
 New residential areas [1] means more customers for the business [1]
 Few competitors (1) thus large domestic market (1)

THREATS
These are external factors that can put a business at a disadvantage.
E.G
 increasing competition in the area [1] resulting in customers leaving the business [1] thus decrease in
sales [1]
 Increase in interest rates [1] which means higher cost of borrowing and repayment on existing loans [1]
leading to the business spending more. [1]
 High crime rate in the area [1] leading to loss [1]
 Recession [1] leading to low demand [1] thus possibility of loss to the business [1]
 BUSINESS CAPITAL

START UP CAPITAL: the money and material resources used to start the business.
IMPORTANCE OF START UP CAPITAL/ USES OF START UP CAPITAL
 Used to buy fixed assets such as buildings, land, motor vehicles, machinery [1] that will help in the
production of goods. [1]
 Used as working capital in the business to pay for salaries, electricity/water/telephone bills, insurance,
buying stock. [1] for production to go on smoothly. [1]
 Act as a financial reserve [1] for any unexpected costs that may arise, such as sudden break down of
machinery [1]
 Used to pay for any new projects once the business is underway

WORKING CAPITAL: this is part of start -up capital which has been allocated to cover the day to day
expenses of running the business such as
 Payment for purchases of stock
 Payment to creditors
 Payment of wages, bills, insurance, advertising, rent e.t.c.

IMPORTANCE/USES OF WORKING CAPITAL

It is used to:
 Buy raw materials/components [1] for production to continue [1] to ensure constant supply of goods to
meet customer needs [1]
 Pay for advertising / sales promotion [1] in order to increase sales [1] by attracting customers. [1]
 Payment of creditors/suppliers on time [1] so as to build trust from suppliers [1]
 can take advantage of discounts offered by suppliers (1) therefore sell products at competitive prices (1)
leading to more customers [1]
 money in reserve, (1) ability to care for emergencies, (1)no interruption of business operation(1)

 To buy stock [1] so as to meet customer needs [1] hence customer satisfaction [1]
 Paying wages and salaries to workers on time [1] so as to motivate them [1] hence increased productivity
[1]

IMPLICATIONS OF LACK OF WORKING CAPITAL

 Creditors will not be paid on time [1] this means loss of valuable cash discounts [1] offered by suppliers
for prompt payment, if legal action is taken the business’s assets may be auctioned.
 Some providers of certain services such as telephone, water, and power may decide to terminate them [1]
if not paid on time [1] hence disrupting the smooth running of the business. [1]
 The business may not be able to replenish its stock adequately [1] hence customers get disappointed if
they cannot get their orders on time [1] hence loss of customers. [1]
 The business may be forced to borrow working capital [1] from the bank which will cost the business
high rates of interest [1] hence little profit [1]

WAYS OF IMPROVING WORKING CAPITAL

 Introducing sales promotion [1] in order to increase sales by attracting customers [1]
  Encouraging prompt payment from customers [1] by offering cash discounts [1]
 Reducing prices [1] to increase sales and compete better against other businesses [1]
 Arranging trade credit with suppliers [1] so that payment is delayed until goods are sold. [1]
 Investing more capital either by obtaining a bank loan or an overdraft.
 Attempt to reduce expenditure through finding cheaper suppliers or any other expense like electricity

CAUSES OF LACK OF WORKING CAPITAL

 Overcapitalization: whereby the firm buys too many fixed assets leaving the firm with no or little working
capital.
 Overtrading: whereby the firm buys more goods on credit than it can sell.
 Excessive personal drawing of cash or stock.
 A fall in sales due to low demand
 A new competitor suddenly taking away a number of customer and reduces sales.
 An increase in the price of an important material which increases expenditure.

CALCULATION OF WORKING CAPITAL

Working Capital = current assets – current liabilities

Current assets: assets whose form or nature keeps on changing during the cause of the business trading
activities. E.G. Inventory/stock, debtors, cash at bank, prepayments.
Current liabilities: resources or money the business owes other people/ organizations which have to be repaid
within a year. E.G Creditors, bank overdraft, accruals,
NB: Working capital should always be positive; meaning that the firm is solvent i.e. the business is able to pay its
short term debts when they fall due.
A negative cash flow means the business is insolvent, i.e. unable to pay its debts when due.

POSSIBLE CAUSES OF A DECREASE/DECLINE IN SALES FOR A BUSINESS

 Poor customer service (1) lead to fewer customers buying (1) hence less income. (1)
 Inadequate/poor advertising (1) customers not knowing about products (1) hence less customers buying
(1).
 New competitors (1) offering better quality products (1) thus attracting the business’s customers (1).
 Poor treatment of workers (1) low productivity (1) unable to meet customers’ orders (1) market share lost
to competitors(1)
 inferior raw materials used (1) leading to poor quality products made [1] customers buying from
competitors(1)
 High prices (1) due to increase in the price of raw materials (1) hence customers not buying [1]
 BUSINESS FINANCE

1. SHORT TERM FINANCE

Capital that the business has borrowed and has to be repaid over a short period of time, usually within 2 years.
In most cases it is used to buy stock, small equipment.

SOURCES OF SHORT TERM FINANCE

ADVANTAGES
1. BANK OVERDRAFT
 Interest is paid only for the funds used [1]
which makes it less costly
 It is quick to arrange [1] so the business can
have quick access to money [1]
DISADVANTAGES
 However Variable interest rates are charged
[1] which can be expensive if the rates goes
up [1]
 However It has to be arranged regularly [1]
and an arrangement fee is charged each
time[1]

 Only available to current account holders

2. TRADE CREDIT
 No Interest charged [1] less costly [1]
 Help increase working capital of the business
[1] as the money is paid after selling stock [1]
 Has to be repaid
 However Supplier may refuse to give cash
discount or even to supply any more goods if
payment is not made quickly.

3. BORROW FROM FRIENDS AND

RELATIVES
 No/ little interest charged [1] helps in efficient  However it has to be repaid [1]
budgeting [1]

 One can negotiate terms of payment[1] hence  However May damage the relationship if one
able to cater for other business needs [1] cannot afford to repay the loan
 No security needed [1] therefore business
assets are safe from repossession [1]
4. HIRE-PURCHASE [refer to the topic on
credit trading

5. FACTORING
 Cash is quickly available [1]
 The responsibility of collecting the debt  However The business does not receive 100
remains with the debt factor [1] less chances % of the value of the debt.
of bad debts [1]

2. LONG TERM CAPITAL

This is the capital a business has borrowed and which has to be repaid over a long period of time, normally over a
period of 2 years.
The money is usually used to - purchase long term fixed assets,
-to expand the business or
- to finance a takeover.
SOURCES OF LONG TERM FINANCE
ADVANTAGES DISADVANTAGES
1. BANK LOAN
 Large amount can be obtained [1] therefore  However security is needed [1] which may
business able to buy almost all the put the business assets at risk of being taken
machinery/resources needed [1] [1]
 Repayable over a long period of time [1]
business has money to pay for other expenses
[1]
 Interest is fixed for the period [1] which helps
for efficient budgeting [1]
 Financial advice is given [1] which lead to
good utilization/efficient management of
money [1]
2. ISSUE OF SHARES[ available to limited
companies only]
 Permanent source of capital that need not to be
repaid [1] hence reduced debts [1]
 Dividends do not have to be repaid if the
company makes loss [1]
 Shareholders have voting rights [1] so they
can have an input in the efficient running of
the business because of shared ideas [1]
2. DEBENTURES
 Debenture holders are creditors of the
company [1] so have no voting rights [1]
 Holders are paid fixed rate of interest [1]
leading to efficient budgeting [1]
 Large amount can be obtained (1) will help to
buy machinery and equipment to increase
production. [1]
3. RETAINED PROFITS
 Does not have to be repaid [1] hence improved
working capital/cash flow [1]
 No interest charges [1] hence chances of more
 However failure to repay may lead to
repossession of business assets [1]
 However payment of Interests rates
decreases profits [1]
 However may not be relevant/applicable
due to changes in the business environment/
 It is expensive to organize and advertise [1]
as brokers are to be paid commission [1]
 However dividends will be expected by
shareholders [1] which puts the business
under pressure as some investors may
disinvest if no dividend paid [1]
 However ownership of the company can
change hands [1] because of large share
issue.
 However have to be paid interest whether
the company makes profit or not [1] so this
reduces profit/ can lead to cash flow
problem [1]
 However it has to be repaid [1] which may
reduce the business profit [1]
 However for some debentures, security is
needed [1] which may put the business’
assets at risk [1]
 However the profit may be too low to
finance the project [1]hence need for
additional capital [1]

 profit [1]
4. CEDA/NDB LOANS
 Low interest is charged [1] hence reduced
expenses [1]
 Can obtain large amounts of capital (1)
therefore be able to buy equipment and
machinery needed (1)
 Repaid over a long period of time (1) therefore
able to pay for other expenses e.g. wages (1)
 Training and financial advice is given [1]
hence efficient management of the business
money (1)
 However interest is fixed [1] which makes
it impossible for the business to take
advantage of decreasing interest rates [1]
 however is security is needed (1) which
may put the business assets at risk of
repossession
 However interest payment reduces profits
(1).
 However the advice may not be
relevant/applicable due to changes in the
business environment/ may give advice
using outdated information (1).

 Close monitoring of the business [1] may lead
to greater chance of success [1]
5. GOVERNMENT GRANT/ YOUTH
GRANT
 Not to be repaid [1] therefore reduced debts/
less debts to worry about [1]
 Expert business advice and training given [1]
leading to efficient management of the
business [1] hence greater chances of success
[1]
 Close monitoring [1] can lead to better
management of the business [1] hence greater
chances of success
6. OWN SAVINGS/ SALE OF PERSONAL
ASSETS
 Quickly available [1] hence able to buy
machinery/equipment/finance the project on time
[1]
 No interest paid [1] hence reduced expenses [1]
 Payable at own pace/ nota must to be repaid
 However this leads to less independence [1]
therefore less control over the business [1]
 However grants normally cover a certain
percentage of the costs [1] therefore has to
look for other sources of finance [1]
 Application procedure can be complex / one
has to meet the scheme’s criteria such as
business location.
 However close monitoring can lead to less
independence in making decisions [1]
 However it Increases the risk taken by the
owner[1] as the project may not be a
success [1]
 However it may be too low to finance the
project.

FACTORS TO CONSIDER BEFORE CHOOSING A SOURCE OF FINANCE

 Interests rates: [1] choose a source which offers low rates [1] so as to reduce expenses [1]
 Amount of finance required [1] see whether the source will be able to provide the amount needed so as
to avoid looking for additional funding [1] which may strain the business financial [1]
 Period of repayment/ duration of the loan [1] choose a source which offers long repayment period [1]
to avoid cash flow problems [1]
 Security available [1] asses the assets that can be offered as security [1] and see whether they will not
affect the production process/smooth running of the business [1]
  Purpose of the loan [1] if the money is needed to finance long term assets then long term sources of
finance should be chosen [1] as large amount can be obtained [1]/ if one need small amount of money then
short term sources will be the best [1]
 Method of repayment [1]

BUSINESS RECORDS
A firm needs to keep different types of records like
 Value of assets
 Value of liabilities
 Changes in assets and liabilities
 Value of sales and other income
 Amounts of drawings
 How much profit is being made
 A list of the business expenditure
IMPORTANCE OF BUSINESS RECORDS/FINANCIAL STATEMENTS
 Used to compare performance [1] over years through the balance sheet so as to identify weaknesses and
strengths [1] and come up with strategies on how to deal with the weaknesses. [1]
 Used by tax inspectors [1] to calculate tax payable by looking at the income statement [1] thus help to
avoid the risk of penalties for late tax payment/overcharging [1] .
 Calculation of profit to know performance [1] through profit forecast or income statement this will
reflect if the business is making profit or loss [1] thus help in making an informed decision. [1]
 Helps if the owner wants to sell the business [1] as it will help in assessing the value [1] of the business
though the balance. Hence able to charge a fair value [1]
 Helps when borrowing money from financial institutions [1] as managers would like to assess the
business’s ability to repay the loan [1] by looking at the business plan and decide whether to borrow it or
not so as to avoid losses [1]
 Used by prospective investors to know the performance of the business [1] by looking at the balance
sheet/ income statement and see whether it’s worth investing in it [1] to avoid costly mistakes [1]

BUSINESS INCOME AND EXPENDITURE

1. BUSINESS INCOME: The money received by the business during its course of business activities
E.G money received for sale of goods or unwanted fixed assets, Commission received, donation, money received
for sale unwanted fixed assets.
a. CAPITAL INCOME: Money invested in the business by the owner s or members of the business.
e.g. capital brought in by partners, Share capital brought in by shareholders.
b. REVENUE INCOME: Money received as a result of the normal trading activities of a business.
e.g. discount received, Sale of unwanted business assets

2. BUSINESS EXPENDITURE: money spent or paid out of the business for various purposes such as purchase
of goods for sale, motor vehicles, payment of salaries, bills.
a. CAPITAL EXPENDITURE: Money spent on the purchase or improvement of fixed assets e.g. purchase of
motor vehicle, furniture, fixtures and fittings, machinery.
b. REVENUE EXPENDITURE: Money spent in the business to pay for services and to purchase current assets
e.g. purchase of goods for sale, payment of services such a telephone, electricity, water bills, salaries, rent, repairs
e.t.c.
PREPARING INCOME AND EXPENDITURE ACCOUNT [normally prepared by non-profit making
organizations]
List the revenue items and add up
List all the expenditure items and add them up
Find the difference between the two [either a surplus or deficit]

E.G. INCOME AND EXPENDITURE ACCOUNT FOR SUPER STAR SPORTS CLUB
INCOME
Subscriptions 4000
Football gate fees 2000
Tennis gate fees 500
Hire of club properties sale of dance tickets 1000
Miscellaneous 400
Total income 7900
Less expenditure
Salaries and wages 1500
Printing and stationery 500
Tennis expenses 200
Depreciation of furniture and equipment 300
Total expenditure 2500
Surplus 5400
EXERCISE
The following balances were found in the books of accounts of Sure Film Club for the year ended 31 December
2012.
Members subscription 2000
Salaries and wages 3500
Rent 1000
Stationery 500
Fees received 8000
Transport 500
Discount received 500

Prepare the income and expenditure account for Sure Film Club.
NB: DO THE EXERCISE ON THE EXERCISE BOOK PLEASE.

FINAL ACCOUNTS FOR A PROFIT MAKING ORGANISATION

1. TRADING ACCOUNT
2. PROFIT AND LOSS ACCOUNT
3. BALACE SHEET/STATEMENT OF FINANCIAL POSITION
1. TRADING ACCOUNT: a financial statement prepared in order to calculate gross profit /loss. It also shows
the net sales, cost of goods sold and net purchases.
ITEMS WHICH APPEAR ON THE TRDING ACCOUNT
a. Opening stock:
b. closing stock: amount of stock remaining unsold at the end of the trading period.
c. i. sales/turnover- amount received from the sale goods.
ii. Sales returns/returns inwards: amount of goods returned by the customers due to unsatisfactory condition.
Net sales = sales – sales returns

di. Purchases- cost of goods bought for resale.

ii. Purchase returns/ returns outwards: amount of goods returned by the business to the suppliers due to some
faults on the goods

Net purchases = purchases – purchase returns

e. carriage inwards- cost of transporting bought goods from the supplier to the business for resale.
f. import /customs duty- money paid for goods bought outside the country.

Cost of purchases = net purchases + carriage inwards + customs

duty

Cost of goods sold= opening stock + cost of purchases – closing

stock

Gross profit = net sales – cost of goods sold

2. PROFIT AND LOSS ACCOUNT: A financial statement that shows the net profit / loss made by the business
during a specific period.
ITEMS WHICH APPEAR ON THE PROFIT AND LOSS ACCOUNT
a. Gross profit from the trading account
b. Other income/gains: any items which brought revenue into the business during the year in addition to
sales.
 Commission received
 Discount received
 Rent received
 Interest received
 Bad debts recovered
NB: other incomes are added to gross profit.

c. Expenses: cost of operating the business. E.G.

 Advertising
 insurance
 carriage outwards
 rent
 interest paid
 bills i.e. telephone, water, electricity


Net profit = gross profit + other income- expenses
Exercise
The following figures were obtained from a firm’s records at the end of the trading period.
Purchases 76 000
Sales 101 500
Purchase returns 500
Sales returns 1500
Opening stock 6 000
Closing stock 65 000
Wages 450
Carriage outwards 360
Rent 450
Discount received 300
Calculate a. net sales
b. cost of purchases
c. cost of goods sold
d. Gross profit
e. net profit

NB: DO THE EXERCISE IN YOUR EXERCISE BOOKs please

3. BALANCE SHEET: A financial statement that shows the financial position of a business at a specific date. It
lists what the business owns [assets], what the business owes [liabilities] and how much the business owner has
invested in the business [capital invested]
Items that appear on the balance sheet
1. ASSETS: properties of the business
a. Fixed assets/Non-current assets: properties that the business owns and uses for more than a year.
E.G.
 Land and buildings
 Machinery
 Motor vehicles
 Furniture
 Fixtures and fittings e.t.c.

b. Current assets: assets whose form or nature keeps on changing during the course of the trading
activity. E.G.
 Stock/inventory
 Debtors
 Cash in hand
 Cash at bank

2. LIABILITIES: debts of the business or borrowed resources.

a. Current liabilities: debts of the business that need to be repaid within one year. E.G.
 Bank overdraft
 Creditors
b. Long term liabilities: debts of the business or items of the business that have to be repaid over a long
period of time usually over a year. E.G
 Long term bank loan
 Mortgage loan
 Debentures
3. CAPITAL INVESTED: money/resources that the owner of the business has invested in the business.
EXERCISE
The following is a list of items for DGD’s trading business.
Motor vehicles 20 000
Premises 7 000
Creditors 3000
Stock at 01.01. 2012 10 000
Stock at 31.12.2012 7 000
Debtors 5 000
Bank overdraft 4 000
Cash in hand 1000
Loan from D. Jones 35 000
Machinery 13200
Capital ?

1. Classify the following into:a) Fixed assets

b) Current assets
c) Current liabilities
d) Long term liabilities
2. Calculate the working capital. Comment on the working capital.

NB: DO THE EXERCISE IN YOUR EXERCISE BOOKS

 PROTECTING THE ENVIRONMENT

WAYS OF PROTECTING THE ENVIRONMENT

 Use of environmentally friendly production methods [1] which will reduce air pollution [1]
 Afforestation; planting of trees
 Use of environmentally friendly products
 Proper disposal of waste e.g. in dumping sites
 Recycling/re using of waste
 Organize litter picking campaigns
 Public education on resource utilization

LEGISLATION AVAILABLE TO PROTECT THE ENVIRONMENT

1. The Fauna Conservation Act: controls the number and type of hunting licenses issued and spell out the
terms and conditions applicable to such licenses and penalties for their infringement.

2. Wildlife conservation and National Parks Act: Provides provisions for the conservation and
management of wildlife in Botswana and also provides for the establishment, control and management of
national parks and game reserves.

3. Government Paper No.1 of 1986-Wildlife conservation Policy: The policy aims to obtain better yield or
economic return from land allocated for wildlife and ensure continuity of wildlife resources to ensure
development of commercial wildlife industry and increase in supply of game meat to people.

4. Waste management Act: Aims to prevent improper waste dumping through the adoption of national waste
management policy.
 Coordinates monitors and formulate policies on waste management in Botswana through waste
management department.
 Implements training programmes and public education campaign to educate people on ways of
protecting the environment.

5. Council by Laws: Aimed at reducing bad business practices such as

 dumping of rubbish on streets
 pouring toxic chemicals down the drain
 pouring oil onto the floor/roads

PRESSURE GROUPS

THE ROLE OF PRESSURE GROUPS ON PROTECTING THE ENVIRONMENT

1. The Kalahari conservation society

This is a national wildlife and environmental NGO set up with the aim:
 To conserve Botswana’s rich wildlife and its environment through education and publicity.
 To encourage and in some instances finance research issues affecting these resources and their
conservation.

It is also involved in the

 support of vital conservation and anti-poaching programmes
  promotion of sustainable utilization of natural resources
 collection and interpretation of data on natural resources

2. Wildlife Clubs
Students participate in wildlife and environmental activities which are educational to them for future
environmental issues.

3. GREEN PEACE. An organization of environmental activists, i.e. people concerned about the environment. It
has become a global symbol for people who seek to challenge those who seek to pollute and damage the planet.

SUSTAINABLE WAYS OF UTILISING THE RESOURCES IN THE ENVIRONMENT

The following are some suggestions of sustainable ways of utilizing the environment:
-Strengthen anti-pollution, anti-poaching, and conservation legislation.
-Encourage waste recycling/Re using/reduce
-Strict licensing of land use types
-Encourage the use of coal for domestic cooking fuel
-improve land use zoning
-public education on all matters of resource utilization and conservation should be increased.
-Establish institutional framework e.g. bodies responsible for specific aspects of the problem.
-Allocation of the necessary resources to enable the policies to be effectively implemented.

-Eco- tourism: Tourists are able to enjoy areas of natural beauty without requiring over-development that might
harm the environment.

NB: HAVING THESE NOTES IN YOUR LAPTOP,

SMARTPHONE OR PRINTED DOES NOT MEAN YOU DONT
HAVE TO WRITE THEM IN YOUR NOTE-BOOK!!
COME HAVING FINISHED THEM OVER THE HOLIDAYS