AGSF Working Document 7 Business management for small-scale agro-processors Agricultural Mangement, Marketing and Finance Service (AGSF) Agricultural Support Systems Division FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS Rome, 2005 AGSF Working Document 7 Business management for small-scale agro-processors Peter Fellows and Alexandra Rottger Agricultural Mangement, Marketing and Finance Service (AGSF) Agricultural Support Systems Division FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS Rome, 2005 Business management for small- scale agro-processors iii Preface This booklet addresses micro- and small-scale entrepreneurs who wish to improve their business operations. It may not require the sophisticated business management techniques that are used by large-scale manufacturers, but simple procedures to plan, monitor and control production, finances, inventories, quality and staff matters. Some types of agro- processing have specific problems or issues that are described in the last chapter. The booklet aims to provide practical advice and information on management aspects to help entrepreneurs or potential investors at micro- and small-scales to run a sustainable agro- processing business. It may be a useful addition to training resources for local and international NGOs, or staff at government institutions who work with small enterprises. Policy makers or students on business, agriculture and food-related courses may also find the booklet useful. iv Business management for small scale agro-processors Contents Preface iii Acknowledgements v Figures vi Tables vii Glossary viii 1 Introduction 1 2 Planning production 3 3 Managing finance 23 4 Inventory management 41 5 Managing people 47 6 Managing equipment 53 7 Managing quality 58 8 Sector specific guidelines for business management Edible oil extraction 63 Fruit and vegetable processing 67 Cereal milling 69 Meat and dairy processing 71 References and further reading 73 Acknowledgements v Acknowledgements We would like to thank François Mazaud for the original idea of producing a business management guide for small-scale processors. A special thanks to Tim Chamen for editing and Peter Roehr-Rouendaal for the illustrations and Carlos da Silva for revising and commenting on the final draft. vi Business management for small-scale agro-processors Figures Figure 1: Use of a process chart to calculate the equipment needs Figure 2: Activity chart used to plan job allocations for staff in a fruit processing enterprise Figure 3: Production process for making chutney Figure 4: Example of a page from an invoice book Figure 5: Example of a page from a receipt book Figure 6: Example of a page from a cashbook Figure 7: Example of a sales record Figure 8: Example of a page from an order book Figure 9: Example of a page from an expenditure book Figure 10: Example of balance sheet Figure 11: Example of a cash flow statement Figure 12: Break-even analysis Figure 13: The supply chain Figure 14: Pareto curve showing value and number of items in a storeroom Figure 15: Layout of storeroom and processing room Figure 16: Example of a bin card Figure 17: Example of a person profile used in recruitment of new staff Figure 18: Example of a spares record Figure 19: Maintenance and repair records Figure 20: Example of a quality assurance record Figure 21: Process chart showing potential hazards and CCPs in sauce production Tables vii Tables Table 1: Calculation of ingredients needed to make 50 kg of tomato sauce Table 2: Typical losses during food processing Table 3: Storage times for different crops and animal products Table 4: Processes producing polluting effluents Table 5: Different categories of stock in an ABC analysis Table 6: Different categories of stock in an ABC analysis shown as accumulating percentages Table 7: Example of planned maintenance in a flourmill viii Business management for small-scale agro-processors Glossary Bottleneck A hold-up caused when one part of a process is slower than others, one piece of equipment is smaller than the others, or there are too few staff working in a particular part of a process. Break-even point The level of production at which all costs are covered. Budgeting Planning for the amount of money to be spent on a particular activity or item. Cash flow The record of monies received and paid by the company. Cold chain A system that maintains a food at the correct temperature from production to consumption. Competitor Another business selling similar types of products to the same target customers. Consumer The person or household who is the final buyer of a product. Creditors People who are owed money by a business. Customer A person, firm or institution who buys a product. Debtors People who owe money to a business. Demand The amount of goods that customers want or need to buy. Depreciation Decrease of value of capital equipment due to wear and tear and the passage of time. Distribution channel The people or organizations through which products are handled and moved between a producer and a consumer. Diversification Expanding a business range by developing new products or new markets. Efficiency A measure of the amount of production from a certain level of inputs. Equity finance Money put into a business by the owner. Feasibility Study Systematic investigation of an idea for a new product or process to see if it can work – i.e. to see if it is feasible. Fixed costs Costs of production that do not vary with the amount of goods produced. Interviewing A structured way of finding out information about a person or a product. Inventory Amount of inputs, unfinished and finished products at a given time. Investment Putting money, fixed and current assets into a business. Invoice A bill requesting payment. Ledger A record containing the summary of financial information. Limited liability In a company that has shareholders, their liability is limited to the amount of money they have invested in shares. Loan financing Borrowing money for a business. Glossary ix Manpower planning Calculating the numbers and types of workers needed for a job. Market research Finding out about the types of people who buy particular products and why they buy them, in order to identify market opportunities. Market size The total amount of a product that is bought per month or per year in volume or value terms. Marketing The series of activities to identify customers and then satisfying their needs by providing them with the products they want. Occupational health Workers’ protection against health hazards and diseases caused because of work. Occupational safety Protection against any hazards or injuries that arise from work. Order A written request for goods or services. Overhead costs The costs of operating the business. Planned maintenance A written schedule showing when particular pieces of equipment should be serviced. Profitability Income minus expenses. Process efficiency The amount of goods produced compared to the amounts of inputs needed to make it. Procurement Buying from suppliers. Production planning Calculating and predicting the number and amount of inputs needed to make a product. Productivity Output per unit cost. Product development Creating or modifying a product to make something different for new or existing markets Promotion A set of activities to raise awareness of a product and increase sales Receipt A written acknowledgement of payment Recruitment A planned and structured way of finding and employing people. Revenue Income derived from product sales and from other sources such as interest earned, rents etc. Scheduling Ordering a series of activities in a particular sequence or at specific times. Service contract A legally binding agreement with an engineer or other service provider to maintain equipment or provide other services at specified times. Servicing Planned inspection and maintenance of equipment. Staff development Training and other means of increasing a person’s effectiveness to do a job. Stock Materials waiting to be used or sold. Stock control Recording and controlling the amounts of materials that go into or out of a store-room. x Business management for small-scale agro-processors Stock taking Inspection and recording of the amount and quality of stock. Variable costs Costs of production that vary according to the amount of goods produced. Yield Weight of food after processing compared to weight before processing.