Fundamentals of business knowledge

Let's define Business

A business is an organization or enterprising entity engaged in commercial, industrial or professional activities. A company transacts business activities through the production of a good, offering of a service or retailing of already manufactured products. A business can be a for-profit entity or a nonprofit organization that operates to fulfill a charitable mission.

Business is the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society's needs. A business, then, is an organization which seeks to make a profit through individuals working toward common goals. The goals of the business will vary based on the type of business and the business strategy being used. Regardless of the preferred strategy, businesses must provide a service, product, or good that meets a need of society in some way.

There are basic characteristics that must be met to have a business. Businesses must satisfy a need for society. For example, a cake making business satisfies the need of bieng able to purchase cakes for celebrations such as birthdays, weddings, anniversary etc. Businesses must carefully consider what need they are meeting for the society in order to strategically plan for success. Also, businesses must seek to make a profit. Profit making is the only way to sustain your business. For example, if you make cakes for the community and you are not making profit, in no time your business will no longer exist and that will create a gap in the need of the society. In setting up your cake business you will go in with the intension of making profit by meeting the needs of the society.

Perseverance as a key virtue in Business

Business success doesn’t happen overnight. Sure, some small business owners have a can’t-miss business idea, a wide-open market and many eager customers waiting to buy what they sell – but most businesses need time to become profitable. For example, many well-known and successful companies did not make a profit for their first five years in business. Many prospective small business owners don’t necessarily understand that they should expect to lose money in the beginning. It’s not unusual for businesses to struggle at first before they achieve profitability – and business owners need to plan for some uncertainty and difficulty in the early stages of growth.

Why many small cake businesses don’t make profit at first

Often times when cake makers are doing something that is truly innovative in the cake world, it takes a little while for the market to catch up with the innovation – sometimes customers don’t know what they want to buy until it’s available, and the highest-risk, highest-return strategy in starting up a cake business is going into the business of giving people what they want before they “know” that they want it.

1. Startup costs: Business expenses are a necessary part of running a cake business, but some new entrepreneurs make the mistake of making unnecessary expenses. Try to run your business on a shoestring budget – “bootstrap it” as much as possible. You can always get business loans at a low cost of fund to help cover your startup expenses, but try to make sure that your startup costs are justified by your actual revenue.

2. Lack of a good business plan: It’s surprising, that lots of small cake business do not have a good and detailed business plan to show how their business is going to operate, which market(s) it will serve, which target customers will it sell to and how it will make money. Your business plan is your company’s road map to success – and without a map, you can get lost very quickly.

3. Lack of market research: Market research should be carried out to know who your target customers are and what prices to charge to be competitive and profitable. Do a rigorous research on your industry and market – what prices do your competitors charge? How much profit can you make on each sale? Your research must include what your prospective customers are saying about your business and about your competitors. In what ways are people unhappy or dissatisfied with other cake makers in the cake industry, and how can you swoop in and steal these customers away with better service or better quality? What is new that you are bringing into the cake world?

How to forecast your future profit 

1. Sales Forecast: This is a very simple estimate, determine the amount of sales you want to make per mouth. For example, you can estimate your monthly customers to be 10 persons per month and that your cake price is N10,000 per cake. Therefore the sales you expect your business to earn, on a monthly basis would be 10 x 10,000, that will be N100,000 per month. Then to arrive at your annual sales you will multiply that figure by 12, which is N1,200,000 per annum and your sales for five years will be N1,200,000 x 5 which is N6,000,000. You can do sales forecast for the next 1-5 years depending on how long you want determine the sales estimate.

2. Cost of Goods Sold or Value of Services: To estimate your cost of sales, you can take the current prices of cake materials and factor in expected inflation of future cost of materials and determine what it will cost to produce each cake. To calculate Gross profit, you need to subtract your costs from your sales – so this part of the profit forecast needs to include the estimated cost of the goods that you sell.

•  Operational Expenses: Estimate your operational expenses, these may include rent, employee wages and staff cost, insurance, utilities, marketing expenses and other fixed costs. Then subtract total operational expenses from your gross profit to arrive at your Net Income.

 Basic Principles of business

To grow your business into a conglomerate, please, you need not to joke with your basic principle of business.

 Excellent Customer Service

    The reason I pick customer service as number one is because customer services is a two edged sword i.e. excellent customer service sells a business real fast and poor customer services destroys a business even faster. Successful entrepreneurs know excellent customer service will keep customers coming back and even recommending you to others. In today’s customer-oriented business environment, “people skills” are critical for small business success. How you handle your customers can directly affect your company’s performance. Let your customer service be of high quality.

Turn ideas into actions.

   Ideas are not ideas without action. They're regrets.

  Do not allow procrastination, hesitation and uncertainty stop you from acting on our ideas. Fear of the unknown and fear of failure are what stopped many from achieving their ideas, and do not allow it to stops you, too.

Think about a few of the ideas you've had in your business, whether for a new business, or either for a new product. Looking back, many of your ideas would have turned out well, especially if you had given them your best effort.

Trust your analysis, your judgment, and your instincts. Trust them more than you do. Trust your willingness to work through challenges and roadblocks. Granted, you won't get it right all the time but when you let an idea stay an idea, you almost always get it wrong.

Save a portion of your profits and a cushion of liquidity

When you have a cushion of liquidity, you automatically have more stability in the business, you have higher quality clients, you will end up attracting more opportunities and you won’t be desperate. You will be inspired to select the quality of clients that you choose.