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INTRODUCTION TO COMMERCE

Commerce is
trade and aids to trade
or all activities that aids the distribution of goods and services from the primary
production to the consumer.
TRADE

Trade is the
buying and selling
of goods and services with view of making
profit
. Trade is divided into two categories, which is home and foreign trade.

Home trade is trade done within a country and is divided into retail and
wholesale trade, retail trade is the selling of goods in small quantities
while wholesaling is the selling of goods in bulk(large quantities). The
person who sells goods in large quantities is called the wholesaler.

Foreign trade is trade done between two or more countries (outside) and is divided
into imports andexports. Exports are the goods going out of the country while
imports are the goods coming into thecountry. Aids to trade exist to help
trade to function, if there was no trade there would be lessreason for the
aids to trade to exist but commerce would still exist because it also
assists primaryand secondary industry to function
THE PURPOSE OF COMMERCE
The purpose of commerce is to satisfy human needs and wants.It aims to organise
the most efficient distribution of goods and services in order to satisfy the human
needsand wants, where as trade aims at making profit. Profit is the reward of doing
trade.
Aids to Trade
Commercial activities are essential to those engaged in Secondary Industries such
as aManufacturer of textiles in the following ways:
Trade is essential to those engaged in Secondary Industries to buy/purchase, raw
materialsSuch as cotton and selling of finished products goods such as blankets in
order to make a profit
The meaning of commercial activities
-
Includes all activities concerned with the distribution of goods and
services and rawmaterials or partly finished products
-
At all stages of production
-
And includes trade and aids to trade
-
That is Banking, Insurance, warehousing, advertising, transport and
communication
-
Trade is essential for the purchase of raw materials/finished goods
-
And sale of goods and services at a profit
Advertising
-
to obtain information on sources and suppliers/where to get goods for sale or the
raw materials tobe used in the industry
-
to persuade potential customers to buy goods and services available on the market
-
increases the sales
-
to advertise for workers/job vacancies/recruiting required staff
-
to give information to customers
-
It can be by television, radio, newspapers, electronic mail (e-mail),
telegram, fax, magazines,posters etc.
Banking
-
is essential for depositing receipts from sales
-
It facilitates payments, through
credit transfer, standing orders, discounting bills
of exchange,cheques and direct debit.
-
provides finance for the customers who are in need of more money through loans
and overdrafts
Communication
-
is essential to contact suppliers of raw materials and customers
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and to settle queries or payments,
-
allows customers to place orders
-
it organises survey to promote business activities
-
allows all forms of business information to travel and finalise their
transactions through tele-phone, Electronic-
mail, telex, fax, internet, letter, data post, cellular phone
Insurance
-
is essential to provide security or cover (indemnify) or compensate
-
against any financial losses of building, raw materials, finished goods, equipment
from fire, dam-age of goods in transit/theft
-
to cover claims from third parties such as employers liability and public liability
Transport
-
is necessary to delivery/carry raw materials and equipment to the industries
-
moves employees to and fro work
-
carries finished products to the market
-
It can be by road, rail, sea, and air.
Warehousing
-
is essential for the storage/keeping of raw materials awaiting procession
-
and finished goods/products awaiting demand or orders from the customers as
some goods areseasonal such as Jerseys, raincoats
-
It protect from adverse weather conditions and deterioration etc.
-
It allows production to take place in anticipation of demand
-
It evens out prices/avoids price fluctuations and helps to prevent shortages
-
It protects the goods from adverse weather conditions
Production
The Meaning of Production
-
Production covers all activities, which contributes to the
satisfaction of the consumers’ demandfor goods and services or needs
and wants or gives utilities can be defined as the provision ofgoods and
services to satisfy human needs and wants.
-
This includes industry both primary (obtains raw materials from nature)
and secondary indus-tries(processes raw material into finished products) ,
-
Commerce is trade and aids to trade,
-
Concerned with the distribution of goods from the producer to the consume
-
and direct service, provides personal and public services to individual citizens
-
such as education provided by the teachers, health care provided by nurses and
doctors, legal ad-vice provided by the lawyers, security provided by police officers
and entertainment provided bythe actors.
The three branches of productionAn industry
is a branch of production that deals with the extraction raw materials/natural
resources fromthe ground and process/convert/transform them into semi finished or
finished products (goods)
Commerce
is trade and aids to trade, is the branch of production that deals with the
distribution of goodsand services from the industry (place of extraction or
manufacturing) to the Consumers/place of demand/scarcity
Direct service
is a branch of production that plays an indirect role in production and whose
services are es-sential in enhancing production. It provides personal and
public services to individual citizens. These in-cludes teachers, doctors, nurses,
policemen, lawyers and any service rendered by service providers.
How the three branches of production are linked to each other
-
all branches contribute to production either indirectly or directly
-
they are interdependent in their roles
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as they bring about the provision of goods and services in order to have
utility/satisfy humanneeds and wants
-
goods extracted/produced must be taken/distributed through trade and aids to trade
-
in the process roles of policemen needed to maintain law and order may be needed,
roles of law-yers to uphold justice may be needed, medical facilities provided by
nurses and doctors may beneeded by producers and manufacturers as well as other
service providers
The Effects of the industry on the environment
-it causes soil acidity and infertility-
w a s t e d i s p o s a l - u n p l a n n e d
s e t t l e m e n t -causes pollution, (air, water and
noise)-occupational health hazards (radiation)
Possible solutions to environmental pollution
- g o v e r n m e n t p o l i c y -
C i v i c e d u c a t i o n -Provision of public
utilities- P r o v i s i o n o f d u s t b i n s -
Provision of posters in the industrial area.
Human Needs and Wants Needs
These are basic that that we require in order for us to survive (survival motive) or
the things that we can notdo without. There are three basic human needs, that is,
food, shelter and clothes. To deny one food, shelterand clothes is actually the
violation of human rights
.Wants
These are the things that we need in order to improve the quality or
standard of our life or to live a moremeaningful, enjoyable and luxurious
life. We can do without them. This includes a radio or a television toprovide us
with news and entertainment, a car to move us to far places, a refrigerator to keep
our drinks orfood cool, a cellular phone to contact or talk to our friends
and relatives. We can not die without thesethings.
Goods and Services
All these things which we need in our day to day life are called goods and
services. Goods are the physicalor the tangible things that we can see, touch, and
weigh or measure. Services on the other hand refers to thework done by other
people, they are intangible (we can not see them or touch them) such as medical
treat-ment, entertainment, security, tourism and transport.
The Role of Commerce in Production
-
Buying of raw materials, spare parts and machinery
-
Distributing goods from the producer to the consumer
-
This is done by retailers, wholesalers, importers and exporters
-
With the help of transport, warehousing, banking, advertising, communication and
insurance.
TYPES OF PRODUCTION(a) Direct Production
-
This is the production of goods for one’s own use
-
It is done on subsistence level without need for exchange/trade
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It directly satisfies one’s needs and wants such as a farmer who grows
only enough maize orkeeps enough live stock for his own consumption is
involve in direct production.
-
If people where to provide all that they need by themselves, they would little or no
need for trade.In other words they would be self sufficient(b) I
ndirect Production
-
This is the production of goods for the benefit of others/sale.
-
It involves trading of what has been produced so as to obtain what one can not
produce.
-
Therefore it depends on trade and makes people to specialise in one field so as to
sell their value.
-
This is the most common type of production in the modern society, where few
people satisfy theirneeds directly by themselves.
-
In this type of production people co-operate with each other to satisfy
the needs or wants ofeveryone.
-
People usually engage in one particular occupation which they are best
suited and sell theirproducts or labour in exchange of the goods or services they
need.
-
For example a farmer sells his farm products to other people like doctors
to obtain medical ser-vices or even to buy machinery to be used on the farm.
STAGES OF PRODUCTION
Production whether direct or indirect can be placed into three stages. These are
primary, secondary and ter-tiary production. (a)
Primary Production
This is the first stage of production.It is concerned with the extraction of natural
resources from the ground.These are either above or underground. The term natural
resources includes:-

The minerals underground

Fish in the water

Trees in the forest

Animals in the wild

Fertile soil and good climateMost of the outputs of the primary production are in
raw or unusable form. Generally, the products ob-tained at this stage have to go the
secondary stage of production for processing in more useful goods exceptfor some
farm products such as apples, water melons, oranges, peaches can be eaten straight
from the farm(b)
Secondary Production
This is the second stage of production. It is the transforming of raw materials
into semi finished or fin-ished goods. It consists of manufacturing and construction
industries
(i)
Manufacturing Industries
This is the transformation of raw materials into useable products such as the
making of shoes, biscuits,vehicles, clothes, blankets, television sets and radios. In
some cases the raw materials are turned into semimanufactured goods into one
factory and then sent to another factory to be finished into a better and
morecomplex product. For example a steel industry makes steel and sends it to the
car-manufacturing factory tomanufacture car parts before they are assembled into a
car, which is very useful to us. (ii
) Construction
This includes building of roads, bridges, houses and other construction work. This
process uses bothproducts from the primary and secondary industries to assemble
or build a house, bridge or dams. Thebuilder for example uses rocks extracted by
quarrying, cement extracted by mining, timbers extracted byforestry, steel, paint,
roofing sheets, window glasses and nails obtained from manufacturing and many
oth-ers to build a house.©
Tertiary Production
This is the third and last stage of production. It involves the provision of services
that helps in the trans-fer of finished goods from the factory to the consumer. There
are two services involved. Firstly the commer-cial services which involves storing
of goods, transporting them, advertising them, insuring, providing fin-ance and
selling them. Secondly, there are also direct services, which plays an indirect
role. For instance,
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the services of the doctor, policemen, nurses, doctor, musicians, actors, lawyers,
architects and sportsmenmay appear to be remote from the process of production
and distribution of goods, but they are not. Doc-tors and nurses, for instance, make
invaluable contribution to production, by making people health, strongand ready to
work, they indirectly aid production.
FACTORS OF PRODUCTION
Before the goods and services are produced, there must be capital, someone with
the idea or the skill to or-ganise the business, land and labour. These are referred to
as the factors of production.
Capital
-
includes money, buildings, machinery, raw materials used to produce further goods
-
And all man made assets used in the production of goods and services.
-
Providers of capital are called capitalists/investors
-
Capital can be accumulated by savings.
-
The reward for capital is called interest.
Enterprise or organisation
-
The ability to organise the other factors of production
-
Enterprise involves making decisions
-
Such as expansion of the business, ploughing back, buying a new motor vehicle
-
For production to take place, someone must have the idea and the skill to
organise, direct andcontrol the production process.
-
This person/provider is known as the entrepreneur or organiser. He is responsible
for decidingwhat should be produced, how to produce it, where and when
to produce it. This decision in-volves risks and a special skill.
-
The entrepreneur gets profit/loss as his/her reward.
Labour
-
This is human effort or energy made/used in the production of goods and services.
-
It can be manual (physical) and skilled (or mental) labour. Labour is limited in
supply.
-
Providers of labour are called workers
-
workers receive/get a wage or salary as their reward for labour
Land
-
includes all kinds of natural resources found on earth and underground
-
Land refers to buildings, minerals underground, and rocks of the crust, fish in the
water, trees andall other natural resources. It therefore, includes the earth and the
oceans and everything whichgrows in them.
-
Providers of land are called landlords
-
Landlords receive rates/rents/loyalties as their reward
The Meaning of Specialisation
-
It is the concentration by an individual on a specific task or occupation or on a
narrow range ofwork within a particular occupation for which their ability or
resources best suits them
-
Such as Teachers, doctors, nurses, lawyers, engineers and farmers
-
Specialisation does not only apply to individuals but also to countries/regions
producing goodsor services for which they are best suited
-
Such as Malawi specialises in tea production, Botswana wool, Mwinilunga in
pineapple and chinain rice
-
It allows division of labour to take place
-
It leads to greater skill and efficiency amongst workers and increased output.
Specialisation depends on trade and trade depends on specialisation
-
if a person concentrates in only one specific task/product or performing one task,
-
s/he may rely/depend on others to produce needs/wants which s/he does not
produce,
-
for example, a farmer depends on the medical doctor for health and the medical
doctor dependson the farmer for food,
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These can only be obtained by selling his/her surplus labour in
o r d e r t o b u y t h e g o o d s a n d services required for his/her daily survival/living.
-
Therefore, without trade specialisation could not take place
-
And individuals would have been self sufficient/reliant, that is, provide
all they need by them-selves.
Advantages of Specialisation
-
workers become skilled
-
workers become efficient
-
it leads to increased output/high production (mass production)
-
time is saved because workers do not have to move from one operation to another
-
training is easy as jobs are easy to learn
-
everyone’s ability is made use of
-
development of specialist machinery to perform the specialised task becomes
easier
-
labour is potentially more mobile as it is often possible to employ people
who do notneed any related qualification and the tasks are simple and easy to
learn
Disadvantages/dangers of Specialisation
-
work becomes boring
-
individual skill and crafts are lost due to use of machinery
-
creates unemployment as greater use of machinery leads to unemployment
-
there is inability of slow workers to keep pace with others as the gap
between manage-ment and workers tend to be widened
-
Products are all the same as the machine takes over, the goods are made in
standard sizesand the choice of goods available to the consumer becomes limited.
-
workers become dependent on each other (in case of illness, production is
disrupted)
-
it is difficulty to find employment after loss of job due to limited skills
-
discontent among workers may lead to low productivity
-
Occupational hazard/there is a risk of contracting diseases, eg. Those in
asbestos in-dustry risk contracting cancer.
Possible solutions to occupation hazards/dangers
-
have constant medical check ups for workers
-
provide protective clothing
-
provide milk for workers
-
deliberate government policy
-
provide entrepreneurship
HOME TRADE
RETAIL TRADE
Retailing is the selling of goods in small quantities to suit the requirements of the
consumers. A person whosells the goods in small quantities is called the retailer.
EFFECTS OF RETAIL ON THE ENVIROMENT
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
They cause poor urban sanitation

Results in the mushrooming of street vendors

Results in unnecessary littering of the environment

Causes unnecessary squatting

becomes health hazard such as cholera, air pollution and water pollution
POSSIBLE SOLUTION TO EFFECTS OF RETAILING ON THE
ENVIRONMENT

Deliberate Government policy such as keep Zambia clean campaign

Civic education

Provision of dust bins/rubbish pits

Provision of public utilities such as toilets

Building more markets
Functions of the retailer

selling to customers/breaking bulk
, the retailer buys the goods in large quantise from the wholesale or
themanufacturer and then breaks them into smaller quantities to suit the consumers

buying from manufacturers/wholesalers

,

offering variety of goods
to meet the consumers wants

displaying goods
in retail shops

pricing goods
before selling them to consumers

Preparing the goods
for sale such as packaging them.

giving after sales services and pre-sales service


offering credit
to trusted customers

giving advice/personal service
to consumers especially on new goods

offers delivery service
on some goods like furniture and refrigerators

advertising/promotions/special offers
for his/her business to the public

providing goods in suitable quantity

supplying local needs
to the consumers

acting as a link/middleman
in the chain of distribution between the consumers and the wholesaler

to
pass on information
to wholesalers on consumers complaints, suggestions or praises on the products

opens his/her shop to suit the consumers

Factors influencing the choice of site/location
-
Cost of site
in relation to anticipated turnover and profit, that is town centre site tooexpensive-
I s t h e r e a n y
competition
with the same type of shops nearby?- A r e t h e r e
sufficient customers
in the area requiring sports equipment?- I s t h e s i t e i n t h e s h o p p i n g
area that is, are there nearby shops to attract passing trade-
I s t h e r e a n y p o s s i b i l i t y o f
trade growth
in the area as a result of population growth oremployment?-
Security
of the shop-
Prices of the goods
, the prices of the goods should be within what the customers orconsumers can
afford to buy (within the income of the consumer)- A c c e s s i b i l i t y o f
the shop, the shop should be easily be accessible by the
c o n s u m e r s w i t h l e s s difficulties- I f t h e r e i s
good communication and transport
network and easy accessibility to transport-
Source of supply,
the shop should be located where there is reliable source of supply
forgoods wanted by the consumers- W h e t h e r t h e s i t e i s i n t h e b u s y
a r e a , f o r e x a m p l e a s h o p p i n g m a l l a t t h e r o a d junction or simply
in an area where it is able to attract passing trade.
Other factors to be considered if the business is to successful
-
experience
, have you sufficient experience in business
-
Capital
have you sufficient capital or the source of capital to meet the demands
of the business en-visaged and to avoid daily cash flow problems
-
advertising policy
what
advertising policy
may be necessary
-
prices or range of goods
,what
prices or range of goods
are suitable for the area in order to avoidslow lines
-
What quantity will be required to avoid overstocking
-
prices or range of goods,
what
prices or range of goods
is to be used
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Method of Sale
, whether sales assistants will be required or whether some degree of self
servicemay be operated
-
Whether to deal on the cash basis only or to give credit
-
layout for the store
, what would be the best form of layout for the store or the best way to displaythe
goods/equipment
-
What make up will be required to make the required profit
-
Opening and closing time must suit the customers
-
Legal requirements
-
Name of the shop, the name of the shop must be easy to remember and eye
catching
HINTS ON HOW TO IMPROVE THE BUSINESS

The service offered must be good with a smile

Prices should be as competitive (low) as possible

Quality products should be worth the price

Provide a wide variety of goods and services

The shop should be clean and attractive

The goods should be well displayed in appropriate sections

If possible find a better supplier offering better terms

Improve on the facilitation of after sales service

Improve on the credit buying rates to the customers

Advertise locally
Factors to consider when expanding the business
-
Have a vision of what you are going to do
-
Concentrate on your original idea. Avoid diverging your line of business
-
Expand in bits. Do not be too ambitious
-
There might be need for finding new ways of doing things, for example,
as the business grows,there might be need for delegation. You might need
to employ the manager to manage the busi-ness because good entrepreneurs
are not always good managers
-
See to it that there is enough structures to accommodate the expansion
-
Focus on your core customers
-
Keep record of your business activities
-
Make sure there is enough cash coming into the business as you spend money on
expansion
-
TRENDS IN RETAILING
Retail trade has undergone through a number of changes in recent. Trends are
changes or developmentswhich have taken place in retail tradeThe main changes
has been due to the following reasons:- T h e c h a n g e i n t h e p a t t e r n o f
s p e n d i n g d u e t o t h e r i s i n g i n t h e s t a n d a r d o f l i v i n g -Fewer
customers now request for the delivery
service resulting in lowering the retailers cost- t h e q u i c k e n i n g
p a c e o f m o d e r n l i f e a n d s h o p p i n g -The growing
pressure of competition among retailers and rising labour
costs.- T h e n e e d t o s a v e / c u t t i n g i n t e r m e d i a r y c o s t s -
New technological development which has brought about the use
o f c a s h r e g i s t e r s , c o m p u t e r s which are now widdely used in computerised
stock controlPREPACKAGINGPre-packaging is the putting of goods in distinctive
packets of standard sizes such as boxes, bottles, wrappers,tins, cartons etc. by the
manufacturer before (prior) selling them to wholesalers, retailers or consumers. It
al-lows a customer to handle the goods without damaging the content.The reasons
for prepackaging the goods includes the following:

to facilitate the branding of the goods, that marking names on the goods

to give a longer shelf life to the goods

to facilitate self service of the goods

to allow the goods to be put in amounts suitable for the consumers

to prevent damage to the goods while they are in transit or in store

to reduce the possibility of goods being contaminated

to make transportation, storage and display of the goods easier

to attract the customers with distinctive packaging

to protect the goods when handled by the customers

to save time of weighing and wrapping goods each time customers ask for them
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
to help in advertising of the goods

to allow customers easily identify goods they needThe effect of prepackaging on
retail trade

it has contributed to the development of self service

as goods can be displayed on the shelves and remain there for a long time

and customers can serve themselves

names of the products can easily be written on the packagesadvantages of
packaging to the manufacturer

Without packaging, the brand name could not be shown on the goods

The package may be made distinctive to attract customers

Packaging prevents damage to the goods both in sore and in transit

The goods may be packed in amounts suitable for the consumers

It make transportation and storage of goods easier

It preserves the life of goods over a longer period of time

It builds brand loyalty

It establishes the quality of the goods

It faciltates advertisingAdvantages of prepackaging to the retailer

The goods have a longer shelf life, for example, tinned fish and Bonita milk can
stay on theshelves for months without going bad

as the goods are protected when handled by the customers

pretects the goods from contamination due to constant handling by consumers

Speeds up the service by eliminating the need for weighing and wrapping of the
goods

It attracts the customers to buy the goods

Prevents goods from damage while in store or transit

It facilitates branding of goods

It facilitates advertising of goods

staff is kept at a minimum hence saving costs

Allows instruction to be written on the packag

It helps to build brand loyaltyAdvantages of packaging to the consumer

Goods can easily be carried

Goods can easily be handled

Doods can easily be identified

Benefits from improved hygiene and preservation of the goods

Goods are packed in suitable amounts for the consumers

Requires less help from the shop assistant as the package contains relevant
instructions

Goods may be cheaperDisadvantages of packaging to the manufacturer/producer

More money is spent on the materials and decorative writing,

Therefore it may be wasteful in terms of money and other resources spent on it

Packaging materials may pollute the enviroment especially where empty cans,
plastics,tinsand boxes are thrown anywhere

Much of the space in storage houses and transporting vehicles is taken up by
packagesDisadvantage of Packaging to the Retailer

It is expensive and wasteful in terms of resourcesBRANDINGBranding means the
use of a name or mark to distinguish one producer’s product from another. It
makes theproduct unique and easy to identify.Reasons for Branding

To enable the goods be identified

To allow the goods be advertised

To facilitate self service in retail shops

To assist producers in setting standards of quality for their goods
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
To build brand loyalty

To enable the goods be displayed on the shelves so that they can be sold in self
service shops
The effects of branding on the Retail Trade

it has contributed to the development of self service

customers no longer depend on the shop assistants for the selection of goods(has
resulted inthe elimination of personal service)

as customers are able to identify and choose the goods on their ownThe advantages
of branding to the manufacturer/producer
-
branding helps to distinguish its products from those of its competitors
-
once the brand name is registered, no other company may be allowed to use the
samename again
-
establishes the company’s name as representing a quality of standard of the goods
-
and may create a brand loyalty and reputation of the business
-
branding allows/enables the product to be advertised
-
branding facilitates display of the goods in a self service store.
-
Branding gives the goods an individual identityAdvantages of branding and
prepackaging to the Retailer
-
The goods are more easily displayed and stacked/stored
-
it facilitates self service
-
as the customers can easily identify the goods without help from the staff
-
It facitates advertising of the goods
-
Customers can easily identify the goods
-
Possible reduction of shop assistants due to self serviceDisadvantage of branding
the manufacture or producer

More money is spent when advertising similar products in an effeffort to make an
importantdifferences between them
Disadvantages of Branding to the Retailer

He may be forced to stock many brands of the same type of good in order to satisfy
the con-sumer,s needs

This may results in stock piling
Disadvantages of Branding to the consumer

may be forced to pay more due to the cost of advertising and packaging

excessive advertising campaigns to promote the sale of the brands may be false,
misleadingand harmful to the consumers
Goods are purchased direct from the manufacturer because:

it is cheaper as goods are purchased in large quantity/bulk

it is sufficient to enable better terms to be negotiated than be obtained from the
wholesalersuch as large trade discount, this allows goods to be sold at a lower price
than a small retailer

in the case of supermarkets, the goods can be delivered direct to regional
warehouses anddistributed direct according to branch requirements

supermarket chains are large enough to undertake the functions of the wholesaler
Shopping complexes
A shopping complex is a variety of shops in the same location, under different
management and do not com-pete directly with each other but work to stimulate
business for one another. An example of a shopping com-plex in Zambia is Manda
Hill and Arcades situated along the great East Road in Lusaka. It is also referred to
asa shopping mall.
Advantages of a shopping complex to the:
( a ) R e t a i l e r

shops do do compete directly with each other, but work to stimulate business for
one an-other.

they are large enough to carry out national wide advertising to attract the customers
from allover the surrounding areas.
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
they are located outside the town centers where land is cheap hence saving
overhead costs
( b ) C o n s u m e r s

they purchase all their requirements from one place since there is a variety of shops
in thesame locaation, such as chemists, department store, etc.

they are locaated in free trafic areas

they are easily accessible by the customers as they are near the bus stops

they have extensive parking for the customers

they also provide banking facilities and other additional ammenities such as
restaurants andentertainment like video shows.

may offer competitive prices/goods may be low priced

the atmospere is very conducive for shopping
Disadvantages of shopping complexes

supermarkets at shopping complexes incur extra expenditures on providing parking
facili-ties and on the staff employed to retrieve the trolleys used to take the goods
to the nearbycar park

a large area of land is required for avariety of shops and car park

consumers cover long distances to reach the shopping complexes and they have to
pay fortaxi and mini bus fares.
SELF SERVICE
Self service is the method of selling where the goods are well displayed on the
shelves within the easy reach ofthe customers. It was firstly used in supermarkets,
but nowadays it is used by main retail outlets.
CHARACTERISTICS/FEATURES OF SELF SERVICE

Goods are displayed on the shelves within the easy reach of the customers, section
by section or according to their families just like books in the library

Customers serve themselves

Goods are usually prepacked, branded and priced in bar codes

Facilities such as trolleys and shopping baskets are provided for the customers to
put their purchases

Customers pay at check outs/pay desks are installed near the exist where the
customers pay from

It requires few sales assistants, mainly to replenish the stock

It requires large selling space, and large parking areaLoss leaders are used to
attract customers into the shop

Customers save on time because they serve themselves

Impulse buying is common

The Development of Self Service
Self service has developed because it has benefits (advantages) to both the
retailer and the customer.
Advantages of self service to the Retailer
-
less staff is required (possible reduction) as customers serve themselves
-
thus saving on labour costs, tht is low wage bill to be paid
-
the use of loss leaders attracts customers into the shop
-
the staff requires less specialised knowledge as the goods are packaged and
instructionsare written on them
-
it leads to impulse buying which results in high turnover and profit
Advantages of Self Service to the Consumer/customer
-
possibly quicker service (saves time)
-
has more time to browse and choose the goods at leisure without being pestered by
thesalesmen
-
the consumer is able to compare brands
-
prices may be cheaper due to the use of loss leaders
-
goods are attractively displayed in relevant sections hence making it easier for
the cus-tomers to find the goodsIts development has further been aided by both
prepackaging and branding which enables thegoods to be clearly be distinguished
by the customers without assistance.
DISADVANTAGES OF SELF SERVICE to

the customer

May lead to (encourages) impulse buying
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
Lacks personal service/attention such as advice

It is not suitable for the old and illiterate people

Services such as delivery and/or credit may not easily be arranged, though credit
may be ac-cepted through the use of credit card/cheque cards

The customer can not closely inspect the goods before buying them because they
are usuallyprepacked

May be delayed at check out points especially during peak shopping hours
The Retailer/Shop owner

More trading space is needed and this may lead to high overhead expenses,
especially if the shop islocated in town centres

Pilferage or shop lifting is very common as the customers serve themselves and
this may cause seriouslosses to the retailer

The retailer have to incur additional costs in securing the shop shop lifting or thefts
by customers

Constant handling of the goods may result in soiling and damages to the goods
though they are pack-aged

Needs more capital for the equipment such as baskets, trolleys, cash registers and
display shelves.
ELECTRONIC COMMERCE
(E-Commerce)

Electronic Commerce is the buying and selling of goods and services on internet.

Electronic commerce is also referred to as on line shopping.

Electronic commerce is one of the latest trends in retailing.

Electronic commerce is about using computers as on line shops.

On line shops are open for 24 hours a day and 7 days a week.On line shops offer to
customers and businesses a variety of high quality but cheap in price products such
as first andsecond hand cars, office equipment, furniture etc. Many business people
purchase goods from on line shops for resaleon local markets.A person wishing to
purchase goods or services on internet has to visit the website of the on line shop
or trader. Websiteis an internet provider such as Yahoo, Hotmail, and Excite
etc.When a person has found the goods or services he/she wants to buy, he/she
will have to make payment. The followingare some of the modes of payment used
for on line transactions:

Credit cards-The most popular method of payment for on line transactions

Bank transfers

Money transfers

Western Union etc.
Points to Consider when shopping on internet
:When shopping on internet, you should consider the following points:

Carry out background check on companies offering on line stores that you intend
to deal with.

This will avoid internet fraud brought about by unscrupulous people who set
up fake online stores that cheatpeople out of their money.

Consider the legal terms of the online store you intend to deal with.

This will enable you to know the policies of the company on matters such as
shipping, liabilities, refunds, deliv-ery policy etc.

Ensure that the website is secure when you send information like bank account
details to online store. Where apassword is used, the word must have at least
five letters for easy remembering. The password must not bewritten
down. This will prevent a wrong person from shopping at the online using your
account.

It is advisable to start shopping on internet with small items and then
move on to biggerthings.

Spend more time looking for new websites and deals on offer.
What is electronic commerce?
-
Electronic Commerce is the buying and selling of goods and services on internet.
-
Electronic commerce is also referred to as on line shopping using computers
connected to the inter-net through the world wide website.
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Explain the advantages and disadvantage of Electronic
Commerce
to( i ) t h e r e t a i l e r o r t r a d e r ( i i ) T h e
c o n s u m e r Advantages of Electronic commerce to:
(I)the owner of the online store (or retailer
)
-
The whole world is one huge market for internet users. Thus the market for online
store products is world-wide.
-
Business is conducted by on 24 hours a day and 7 days a week.
-
Shop buildings do not need to be expensively furnished because customers do not
visit them.
-
The online store may be located on outskirts of a town where land is cheaper.
-
Goods are not soiled or damaged in any way because customers do not handle
them.(ii)
The consumer
-
Electronic commerce is open for 24 hours a day and 7 days a week, and therefore
consumers are able to pur-chase goods and services at any time.
-
Consumers are able to purchase a variety of high quality goods, which
are cheap in price and may not beavailable locally.
-
Online stores offer convenient shopping from the comfort of a consumer’s home.
-
Internet customers are able to decide on how they want their goods packaged.
-
Online stores save consumers’ time and money from travelling to far places in
search of goods.
-
No postage of letters for inquiries required.
Disadvantages of Electronic commerce to the owner of the online
store (or retailer
):
-
Many people find Electronic commerce too complex to use being the latest
development in retailing.
-
Methods of payment for online transaction such as credit cards are not commonly
used in most developingcountries like Zambia, thus limiting online business.
-
There is a possibility of credit card fraud.
Disadvantages of Electronic commerce to the consumer
-
Unscrupulous people may set up fake online stores that cheat consumers out of
their money.
-
Many people do not have computers, and therefore may have access to internets.
-
Goods bought especially big items may take a long time to deliver.
-
Goods shown on internet may not be the exact goods delivered.
VOLUNTARY CHAINS
This is another change that has taken place in the retail trade. They are usually a
group of independent retailers whohave joined with the wholesaler in order to reap
the benefit of bulk buying. Members of the voluntary chain put theirorders together
with the wholesaler who is also a member, the wholesaler is then able to buy goods
in bulk from the pro-ducer at factory price at a great discount.
CHARACTERISTICS OF A VOLUNTARY CHAIN

They are mainly found in grocery trade

They are normally organised by the wholesaler

Individual retailers place their orders together with the wholesaler, who then place
a single order with the man-ufacturer

The retailer gets the goods at factory price

Policy/decisions are taken by representatives elected to the management committee
of the organisation

The group undertakes national advertising and provides the members with
advertising leaflets and posters

Ratail shop member trade under nationally known labels

Member retail shop may commit themselves to purchasing goods from the parent
wholesaler

There are some controls on the prices small retail shops may charge on the goods

Goods may be delivered straight to the small retail shops

Each member retail shop may remain a separate business entity, independently
owned and controlled
Functions of the Voluntary Chain
-enable a large number of small retailers to obtain the
advantage of bulk
b u y i n g And to compete with large scale retailers if they agree to buy from certain
wholesalers- A d v e r t i s i n g
assistance is offered such as national advertising- C r e d i t / f i
nancial assistance may also be available
Advantages that may be obtained by a retailer who joins a voluntary chain
-
benefits from bulk buying by the wholesaler(s)
-
thus reducing prices paid by the retailers
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-
Able to compete favourably with large scale retailers
-
goods may be delivered to the retailers
-
national wide advertising is undertaken
-
advertising display material are supplied
-
advice on stock display is given to the retailers
-
financial assistance such as loans for the improvements to the premises may be
available
Advantages of Voluntary chain to the consumer

consumers are offered good quality service because of the minimum standard that
may be set for member retailshops

consumers may buy a variety of goods at reduced prices

thereby offering a great service especially to consumers in the village where large
shops do not normally exisit\
Disadvantages of voluntary chains to the retailer

the parent wholesaler may control the prices charged to the consumers

member retail shops may not have total freedom to decide on the type of goods to
sell
Disadvantages of voluntary chains to the consumer

prices may not be cheaper than those offered in large retail shops

some consumers may not like the range of goods decided upon for sale by
voluntary chains
Trading Stamps

are used as a form of trade discount or price reduction

it is also one of the forms of sales promotion method
Reasons for using trading stamps

to promote the sales of the business

to encourage customer’s loyalty

How a Trading Stamp Scheme operates

stamp trading companies sell trading stamps to retailers who keep them in their
shops

each tome a customer buys goods of a certain value, a retailer will stick the trading
stamp in the specially pro-vided book

when the page is full the customer may convert the trading stamps either into cash
or goods at a trading stampcompany
Adavantages of trading stamps to the stamp trading company

it makes profit on the sale of trading stamps

benefits from large discount obtained when buying goods in bulk meant for free
gifts to customers
Advantages of trading stamps to the retailer

benefits from the increase in the sales of goods

encourages customers loyalty
Disadvantages of trading stamps to the retailer

cost of trading stamps increases business overheads

the retailer is inconvienced by the additional time and trouble of distributing
trading stamps to consumers
Disadvantages of trading stamps to the consumer

may have difficulties in exchanging trading stamps for cash or goods

may pay for the cost of trading stamps in high price of goods

the consumer may be forced to accept goods not desired in exchange for trading
stamps
Explain the meaning of Automatic Vending Machine;
-
it is a retail machine that releases items required when a coin/token is pressed in
the slot
-
used in busy central sites such as hotels, bus and rail stations
-
sells the goods such as drinks, chocolates, cigarettes and stamps
-
can be hired or be bought
-
it is a labour saving retailing machine
-
it is available 24 hours daily
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CREDIT BUYING AND SELLING
In recent years, credit buying and selling has become very common especially
in the sell of consumer durable goodssuch as motor car, computers,
stereos,cookers, refridgerators and television sets, as these type of goods may
requiremore money for the consumer to procure them
Reasons why businesses purchses on credit
-
do not have the capital to pay immediately
-
it a common practice and businesses are encouraged to do so
-
may sell the goods bought before payment is due and use the money to pay for the
debt
-
it is a short term form of financing the business
-
to overcome cash flow problems/liquidity problemsThere are two major forms of
buying and selling on credit. Namely;(a)
Credit Sales Agreement or Deferred Payment
Is the buying of non durable goods such as clothes and food on credit by which the
customer becomes the legalowner of the product immediately the first instalment
is made
Main Features of Credit sale Agreement

the buyer takes possession and ownership of the goods of the product immediately
the first instalment ispaid

repayment of the product is made in regular instalments

the goods can not be repossessed if the buyer defaults in payment

however, s/he can be sued for the remaining balance

is suitable for buying non-durable goods whose value depeciates quickly

where the credit sale agreement is signed away from the trader’s premises, the
buyer may cancel theagreement within the cooling off period.

A cooling off period is a period of five days from the date of signing the credit sale
agreement in whichthe agreement may be cancelled, goods returned and
customer’s deposit refunded, thus returning theparties to their original positions
Advantages of Deferred payment to the retailer

Enables business sales to increase

May avoid wastage of perishables and the risk of goods going out of fashion

Has closer personal contact with the customers for possible future deals
Advantages of deferred payment to the consumer

Takes possession and ownership of the goods immediately the first payment is
made

The retailer can not repossess the goods if the buyer defaults in payment

Enjoys the use of the goods while still paying for them
Disadvantages of deferred payment ot the retailer

May suffer bad debts

Goods may not be repossessed

Where court proceedings are initiated, they may take too long and are too costly

He loses the right of ownership to the goods immediately the buyer makes the first
payment

May require extra capital to finance goods taken on credit
Disadvantages of deferred payment to the customer

May be forced live beyond his means by getting a lot of goods on credit

Thus burdening himself/herself with instalment payments

Prices may be higher than the cash price(b)
Hire Purchase
This is the buying of durable goods such as vehicles, furniture and machinery by
initially paying a deposit fol-lowed by equal monthly instalments over a given
period of time
The main Features of Hire Purchase
-
Initially a deposit is paid followed by equal monthly instalments paid over a period
of time until the totalprice is paid which includes interest
-
Interest is usually expressed as a percentage of the market price of the item
-
The item bought bought may not be sold until the payment is completed
-
This is because, the buyer only becomes the legal owner of the goods after paying
the last intalment,
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-
hence the item purchased can not be sold until the last instalment is paid
-
The buyer has the use of the goods whilst paying for them
-
It usually deals with durable goods such as machinery, vehicles, stereos,
refridgerators, buildings and furni-ture.
-
In the event of the buyer failing to pay the instalments, the goods may be
repossessed,
-
however, it is subjected to certain legal limitations,
-
for example, if
1
/
3
of the purchase price has been paid, then court order is required
-
There is usually a maximum value of transactions
Advantages of Hire Purchase to the Buyer
-
it enables the buyer to acquire the goods which s/he can not afford on cash basis
-
the buyer has the use of the goods whilst paying for it
-
some goods may pay for themselves such as tractors /vehicles, stereos, machinery,
cookers and refridgera-tors
-
the buyer may obtain the goods on current price to beat inflation
-
by spreading payments over a period of time, he can save money for other needs
-
it may improve the standard of living of the buyer
-
it is an indirect way of saving though not in form of cash but property
Disaadvantages of Hire Purchase to the Buyer
-
may take on the great burden by forcing him to live beyond his means
-
in case the buyer defaults in payment the goods may be repossessed and the buyer
will lose both the moneypaid and the article
-
goods are expensive as interest is added to the cash price
-
the buyer only becomes the legal owner of the item after paying last instalment
-
hence he can not sell the article until the last instalment is paid
-
he may be tempted to go into many Hire Purchase agreement
-
he may buy good he does not need
Advantages of Hire Purchase to the Retailer

it increases the sale of durable expensive goods hence the retailer has high turnover

the seller may get high profit margin since interest is charged

he may get commission if it is financed by the finance company

has closer personal contact with the customers for future deals

retails the right of ownership to the goods until the las instalment is paid
Disaadvantages of Hire Purchase to the Retailer
o
Goods repossessed may not be worth reselling
o
May suffer bad debts
o
It involves a lot of paper work
o
The retailer may be forced to employ several shop workers to collect the
instalments
o
The process of repossessing the goods from the defaulting customers may take
long
o
and my be too costly
o
Much of the traders capital is tied up in debts hence it requires high
capitalinvestiment
o
Court action against defaulting customers is very unpopular and may turnish the
image of the traderwhich may scale away customers
The differences between Hire Purchase and Deferred Payment under Credit Sales
o
In Hire Purchase, the buyer becomes the legal owner of the item after paying the
last intalment whilein deferred the buyer becomes the legal owner of the item
immediately the deposit is paid
o
Hire purchase deals with durable goods while credit sales deals with non durable
o
Under Hire Purchase, the goods may be repossessed in case the buyer defaults
in payment while indeferred payment the goods may not be repossed but the buyer
will only sued for the remaining bal-ance
o
Hire Purchase may be financed by the finance company while credit sales may not
be financed by thefinance company
o
Under Hire Purchase, the buyer can not sell the goods until all the payments are
completed but underdeferred payment thre buyer can sell the good any time as she
becomes the legal owner of the goodsas soon as the deposit is paid.
The necessity of Hire Purchase to be controlled by legislation
o
the purchaser may not fully understand the contract worded in legal terms
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o
the charges may not be clearly be stated and they may be too high, therefore, the
Annual PercentageRate or true rate of interest must be stated with the Hire
Purchase price and cash price
o
repossession of the goods amy occur on trivial grounds if protection is not given,
that is if
1
/
3
of thepurchase price has been paid the court order is required
o
some salemen are too persuasive
o
cooling off period (contract made outside business premises can be
cancelled) allowed under somecircumstances
The Role of the finance Company in Hire Purchase
o
The arrange Hire purchase and leasing terms
o
the finance company provides finance by paying the supplier of the goods the cash
price for the itemand the buyer becomes indebted to the finance company who
collects the instalments
o
the raise money for Hire Purchase by allowing high rate of interest and deposit
allowing the sellercommission on introduction
o
the seller is essentially acting as an agent between the finance company and the
buyer
o
the finance company makes it profit by charging interest on the amount lent
why the consumers need protection when buying goods and services
o
different consumers might be charged different prices (fluctuating prices)
o
the consumers might not receive the right content of the goods (under weight
goods)
o
advertisers might make false claims (misleading advertisements)
o
some salesmen are too persuasive to induce to the consumers to buy the goods
o
some manufacturers might try to cut the production cost by using inferior or
dangerous ingrediates inthe products
o
some traders may over charge the consumers by fixing prices at high
levelsWHOLESALE TRADE
Intoduction
The word ‘whole’ simply means bulk and to sale is simply to transact, trade
is the buying and selling of goods and service with a view ofmaking
profit. Wholesale trade ican therefore be defined as the buying and selling
of the goods in bulk(large quantities). A person whosells the goods in large
quantities is known as a wholesaler. A wholesaler is a connecting link
between the manufacturer and the retailer,and being a middleman
functions
Describe the
functions of a wholesaler
-
Buys goods in bulk from the manufacturer hence clearing the manufacturers’
production line
-
Warehouses the goods awaiting demand to ensure steady flow of goods, hence
preventing price fluctuation(evensout prices) and allowing the manufacturer to
produce the goods ahead of demand
-
Breaks bulk and sells goods in smaller quantities to retailer
-
Finances the retailer by providing credit and manufacturer by paying promptly
-
Acts as an intermediary between manufacturer and retailer by passing
information/complaints to manufacturers
-
Provides a variety and wide range of goods for the retailer and consumer which is
gleened from different producers
-
Prepares goods for sale by branding and blending them.
-
Provides transport (delivery) for goods from manufacturer and to the retailers
premises
-
Operating cash and carry warehouse.
-
he is a risk bearer, that is by storing the goods on behalf of the producer or rtailer,
the goods may go out of fashionor they may be gutted by fire or stolen whilst in the
warehouse.
Services of wholesaler to manufacturer
-
Buys goods in large quantities/bulk from manufacturer in this way the manufcturer
is able to clear his productionlines and have less truck on his premises.
-
Finances the manufacturer by paying promptly/paying within the credit period and
this affords manufacturer tohave constant supply of goods.
-
Provides information to manufacturer and this enables manufacturer to assess the
present and future of state ofmarket.
-
He acts as a middleman between the manufacturer and the retailer
-
Warehouses seasoned goods on behalf of manufactures and therefore prevents a
shortage and price changes.
-
Prepares goods for sale (branding, prepackaging and blending)
-
Partly finished goods and becomes responsible of the wholesaler for finished
process.
Services of a wholesaler to the retailer
-
Sells in relatively smaller quantities to the retailer (breaking bulk)
-
Delivers the goods to the retailer’s premises free of charge/offers transport
-
Provides retailer with market information, which is passed on to the consumer, so
that they are able to know whatnew goods are coming on the market.
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-
Finances the retailer by providing credit
-
Provides the retailer with a variety of goods from various manufactuers.
-
He acts as a reservoir
-
He operates a cash and carry warehouse
-
He acts as an intermediary between the retailers and the manufacturer
-
Offers trade discount
-
Allows the retailers to have a steady flow of goods at stabilised prices throughout
the year
Services of a wholesaler to the consumer
-
he ensures a stead flow of goods
-
he stabilises the prices throughout the year
-
he provides the consumers with a variety of goods
-
he provides the customers with information from the wholesaler , such as
consumer’s complaints and suggestions
-
offers special promotions that are passed on to the consumer
-
he gives credit facilities to the retailer which results in an increase of retail shops
being opened near consumer’shome
How do the functions of a wholesaler affect the consumer
-
May add to cost of goods
-
Offer cash and carry service to customers
-
Providers variety to retailer passed on to customer
-
Offer special promotion passed on to consumer
-
Offers cash and carry services to some retailer cheaper prices to consumers
-
Introduces retailer to new products passed to customer.
Why is a wholesaler reluctant to undertake retailing
-
Could be in competition with his own customers
-
Can not afford to run both kinds of business
-
Would need to live moe staff
-
Would spread resources too thinly and so might not be effective in either.
-
Would need to have two different kinds of Premises in very diffderent
locationReasons for the
Decline of the wholesaler
-
Growth of large scale retailing outlets who are able to undertake their own
wholesale
-
Whole saling functions being undertaken by manufacturer or retailer-saving
intermediary cost.
-
Some retailers buying directly from manufacturers-reduced costs
-
Increase in sale of branded and prepackaged goods-can be supplied directly from
manufacturer.
-
Demand for speed delivery perishables.
-
Increased trade in particular kinds of goods-fragile.
-
the intoduction of mail order
-
some large scale retailers are able to manufacture their own goods, hence
eliminating bo the wholesaler and theproducer
-
need to cut on the intermediary costs
-
increase in trade of perishable goods such as bread and bouquets
-
increase in trade of technical goods that may require installation by the
manufacturer such as Digital Satelite Televi-sion package(satelite dish) and
computers
-
demand for speed delivery of the goods such as Newspapers
-
increase in trade of goods with low turnover such as furniture
SURVIVAL OF THE WHOLESALER[strategies taken by the wholesaler for the
continued existence]
Despite the above factors working against the wholesaler, he has taken the
following steps to remain competitive:-
-
formation of voluntary chains
-
small retailers register as members and are supplied with the goods by the
wholesaler
-
and are conviniently situated where the retilers have established their shops
-
small scale retailers do not have enough capital
-
therefore they still depend on the wholesaler to supply them with the goods, to
offer them credit facility anddelivery service.
-
they operate co-operative wholesale society
-
operates a cash and carry warehouse as well as retail in the same premises
-
does not offer transport
-
does not sell on credit
TYPES OF WHOLESALERSCASH AND CARRY WHOLESALER
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The cash and carry wholesaler is normally located on the outskirts of town
and probably on the Industrial area of business site.
Reasons for the location-
No need

for prime retail site for display- R e t a i l e r s w i l l h a v e

own transport to travel and collect their goods-
Site less costly and prices or costs must be kept as low as
possible- L a r g e s p a c e r e q u i r e d f o r c a r p a r k o r d e l i v e r y
bays
Characteristics of a Cash and Carry warehouse (wholesale
)
-
membership may be required
-
customers are normally retailers and consumers
-
stocks a variety of goods
-
they strictly sell on cash basis/no credit facility offered, that is, retailers must pay
by cheque/cash prior to tak-ing goods
-
may give special offers, gifts, discounts and loss leaders
-
they do bot provide transport or delivery service, that is, the retailers must transport
their own goods, this en-ables the wholesaler to cut costs/prices so that smaller
retailers compete with larger organizations.
-
they operate from the warehouse/large buildings
-
goods are displayed on shelves in boxes.
-
they operate on self service
-
customers use trolleys whilst shopping
-
They mainly deal in groceries and other goods that do no require perssonal service
-
They open for longer hours
GENERAL
They deal in a wide range of goods and they usually have branches in many
parts of the country
Characteristics of a general wholesaler
-
they are usually run by limited companies
-
they operate either on regional or national level
-
they give credit facilities to the retailers
-
they may employ agents to collect orders from the retailers
-
they carry out the functions of a wholesaler
-
they provide delivery service to the retailers
-
retailers are mostly account holding customers
-
they offer all the functions of a wholesaler
SPECIALIST WHOLESALERS
These are wholsalers who deal in a limited range of goods. They are usually
a source of supply for many retailers and they sell bothhome produced and
imported goods
Co-operative Wholesale Society
This is the wholesale business formed by the co-operative retail societies
THE MAIN FEATURES OF CO-OPERATIVE WHOLESALE
SOCIETY

membership is open to all co-operative retail society wishing to become members

they are controlled by Board of Director elected from representatives of the co-
operative retail society

they break the bulk for the members

they supply members with the variety of goods

to reduce dependence on other wholesalers, they carry out manufacturing goods,
farming and obtaining ownlabels

capital is provided by co-operative retail society in direct proportion to the number
of members they have

profits are shared as dividends amongst members according to the purchases made

They are located on the outskirts of town for the following reasons; land
is cheap and readily available, themembers have to provide their own transport
to move the goods.
MIDDLEMEN IN WHOLESALE TRADE
Factors

they are agents concerned with selling of goods/services in the home trade

they sell in their own names although not theirs

They sell on behalf of their principals/someone else or other people and they do
not buy.

they have possession of the goods and documents of title

they may sell the goods to the customers on credit
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
They are remunerated by a commission

And when they guarantee payment by buyers,

they get an extra del Cruder commission

In addition their normal commission for bearing risks such as bad debts.
Brokers

Are agents concerned with both buying and selling of goods/services

on behalf of the principal/someone else or other people

they do not have possession of the goods nor do they sell in their own name

They merely bring buyer and seller together or into contact.

They are remunerated by commission called brokerage
Merchants

Are principals/traders who buy goods for themselves?

They import to sell at home.

They act as wholesalers and provide delivery, warehousing etc.

They are remuneration is profit

which is the difference between the buying price and the selling price
MARKETING BOARDS
It is an association of agricultural producers and is established by an act of
parliament.
Functions of the Marketing Board

To ensure the efficient marketing of agricultural products

to restrict undue fluctuations or variations in prices

collection and storage of agricultural products

to maintain a steady supply of goods on the market

purchases total supply and releases quantities as appropriate

fix prices of agricultural products

advices farmers/producers

supplies farm inputs and equipment to the farmers such as seeds and fertiliser

offers loans to farmers

carries out agricultural research

gives producers a sure price/market

gives consumers a steady supply of the goods
Warehousing
This is the provision of ample accomodation and protection given to goods from
the time they are produced until whenthey are needed by consumers.
Some Goods not usually stored in a warehouse.
1.Jewellery and pharmaceutical products are rarely stored, not only for
security reasons but also because of thehigh cost of investment in the
stock.2 . S o m e p e r i s h a b l e g o o d s s u c h a s b r e a d a n d v e g e t a b l e s n e e d
t o b e c o n s u m e d q u i c k l y a n d a r e , t h e r e f o r e , r a r e l y stored in a
warehouse.

They quickly go bad and must be used within a short time.3.Some goods are so
technical and bulky that they are made on order from consumer e.g. ships
and aircraft.
The importance of the warehouse to those in trade
-it provides a place for the storage of raw materials, equipment, partly
finished goods and finished goods awaitingsales, transportation and processing-It
provides storage for the seasonal goods such as rain coats, jerseys,
Christmas cards etc.-provides storage for goods in transit (entrecote)
trade/stores goods in entrepot trade- i t a l l o w s p r o d u c t i o n t o t a k e p l a c e
ahead of demand- e n s u r e s c o n t i n u o u s p r o d u c t i o n o f g o o d s
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-it evens out prices/stabilises prices/avoids price fluctuations of
goods and it helps to prevent shortages of goods-
r e d u c e s p i l f e r a g e / t h e f t o f g o o d s -it protects goods from adverse/
bad weather elements/conditions-it provides room for the goods to be
prepared for sale such as branding, blending packaging and labelling- i t
a l l o w s s o m e g o o d s s u c h w i n e , t o b a c c o , a n d c h e e s e t o m a t u r e -it
provides space for the retailers to inspect the goods before buying them-
it may be a cold storage or a wholesaler cash and carry-
imported goods may be stored in the bonded warehouse-
t h u s s a v i n g t h e w o r k i n g c a p i t a l -it may be a bonded warehouse
which provides storage for dutiable goods awaiting duty to be paid or
imported goodsawaiting re-export- m a y b e a t t h e a i r p o r t s / p o r t s / b u s
terminals
Reasons why warehousing is important to the cash and carry wholesaler
-need to store the goods for customers/small retailer-
offers large variety of goods from manufacturers-
breaks the bulks, prices the goods, displays the goods-
enables retailers to chose their own goods using trolleys
and pay for them at the checkouts
Reasons why warehousing facility is essential to an importer of dutiable goods
such as wine
-need to store goods on which duty has not yet been
paid- e n a b l e s w i n e a n d s p i r i t s t o m a t u r e -
reduces theft/pilferage of goods-
Useful in entrepot trade or when
bottling/blending has to take place or when seeking
a b u y e r w h o will then pay the duty hence economising on the traders’ working
capital
Importance of a Bonded Warehouse to an importer of Coffee

storage of coffee on which duty has not yet been paid

allows space for preparing coffee for sale/blending, bottling or packaging

imported dutiable coffee can be store if the importer hasn’t got enough money

allows postponement of duty

hence economising/maximizing his working capital

Importance of a Bonded Warehousing to an Exporter of locally
produced Computer Software

to protect the computer software from damage/theft/bad weather

storage of computer software pending export and awaiting transport

storage of the computer software needing further packaging
Types of Warehouses
1.
The wholesale Warehouse
The wholesalers buy goods in bulk and keep them in their warehouses before
selling them. Most wholesalersoperate large warehouses which give them
the space not only to protect the goods but also to break the bulk,prepare
goods for sale and allow retailers to come and inspect the goods before they buy
them.2.
Cold Storage Warehouse
This is a form of specialist warehouse used mainly for the storage of
perishables like fruits, fresh meat, freshmilk butter cheese etc. Goods can be
exported throughout the world without the fear that they would go badon transit.
3. The Manufacturer’s Warehouse or
Depots
They store raw materials, components, tools, spares and machinery necessary for
production to take
place. Theyalso store finished products before transporting or selling them. To the
manufacturer, Warehousing providesa reservoir of raw materials that enables
production to go on without interruption. It also enables them to keep astock of
finished goods that will be able to meet the demand of their customers most of the
time.
4. Seaport and Airport Authority Warehouses
They facilitates the worldwide distribution of goods in international trade. This
makes it possible for goods to bestored while on transit, either at sea ports or
airports may be because transport is not immediately available or be-cause they are
awaiting customs clearance.
5 B o n d e d W a r e h o u s e s

These are used for the storage of dutiable goods
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
On which duty has not yet been paid.

They are under the strict control of the customs and excise authorities.

Goods are only released from them when the duty is paid.

Goods may be sold whilst in the bonded warehouse

To raise more money to pay for the duty

If there is inadequate working capital

Therefore maximising working capital

The goods may be blended or pre-packaged but not manufactured
Importance of the Bonded Warehouse

They are very important as they facilitate international trade and also enable the
customs authorities toenforce the payment of duties.

they allow the preparation of the goods for sales such as bottling, blending,
grading, branding, etc

they enable goods to be offered for sale whilst in the bonded warehouse

they enable the exporter to postpone payment of customs duty

and thus economising on the working capital

they allow the importer to transfer payment of customs duty to the new buyer

they allow the exporter to avoid payment of customs duty on goods for re-export

they encourage entrepot trade because of the avoidance of duty
DOCUMENTS USED IN HOME TRADE
THE NEED FOR DOCUMENTATION IN BUSINESS
TRANSACTIONS
In business there is need to provide a written record of all the transactions that take
place not only for the sake of ev-idence but also to enable the parties
involved to keep track of their activities. For this matter a number of
docu-ments have evolved and are in use on a daily basis. Documents are important
in business for the following reasons:

they provide a record of goods bought and sold by the business, such as purchases
as sales invoice

they enable business activities to be controlled by providing a record of income
and expenditure such asthe receipt and cheque

they make it possible for information to be passed on to other traders, such as the
catalogue or quotation

enables business debts to be collected by providing a record of debtors, such as the
statement of accountsshows the amount the buyer owes the seller

confirms the delivery of goods, such as the delivery note and the consignment note.
How the buyer may obtain the information s/he requires before placing an order
-
send for a catalogue and price list/trade journal
-
send an inquiry to the seller and receive from him/her a quotation or catalogue or
price list
-
telephone the supplier and quotation him for any information
-
by attending a trade exhibition/trade fair organised by the seller
-
by asking the seller for demostrations for his/her goods
-
by asking the seller for visits by his/her sales representative
DOCUMENTS USED IN HOME TRADE
AN INQUIRYThis is a letter prepared by the buyer and is sent to the
supplierasking for the availability of goods, their sizes, prices, delivery dates and
terms of sales.It is possible to make a verbal inquiry on the telephone, and ask for a
quotation although verbal inquiries may notbe taken seriously.
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ENQUIRYThe Salvation ArmyZambia TerritoryChikankata High
SchoolPRIVATE BAG S 1MAZABUKADATE ………………TO
BUDGET STORES Mazabuka BranchDear Sir/madam
Please quote your best terms for the supply of the
following:1 6 0 L o u n g e s u i t -
r e d 2 2 0 D i s p l a y a l b u m s -
g r e y 320 Card index cabinet -
white4 6 0 C a r d i n d e x c a b i n e t -
g r e y 5 1 0 F l i n g c a b i n e t - g r e e n Yours
faithfullyMulenga MwanakashiPurchasing ManagerA
tender
This is sent to the seller in response to an advertisement inviting quotations or
estimates for the supply of certaingoods or services. An estimate is an order to
carry out a service or to undertake work for someone at a certain price.This price is
only the expected cost of the work to be done and is not a definite price.The terms
of payment may include cash and trade discount.
Trade Discount
-it is a reduction from from the list or
catalogue price-it is usually shown or calculated on
t h e i n v o i c e -it is allowed to
those in trade(one trader to another) or
c u s t o m e r s w h o a r e b u y i n g t o s e l l again for a profit/usually refferred to as
profit margin- u s u a l l y v a r i e s w i t h t h e q u a n t i t y p u r c h a s e d a n d
with the custom of that trader-
i t e n c o u r a g e b u l k b u y i n g -may be
varied to avoid the expenses of reprinting the catalogues
Cash Discount
-it is a reduction from the invoice price
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-it is given to encourage prompty payment (early payment),
eg. 5% within 14 days-it helps to avoid bad debts and
improve/speeds up the cash flow system of the business-
it enables the retailer to earn a good reputation with the
supplier
The Differences between trade and
Cash discountC a s h D i s
c o u n t T r a d e
D i s c o u n t
I t r e d u c e s b a d d e b t s
I t s a v e s t h e r e p r i n t i
n g o f c a t a l o g u e A i d s c
a s h f l o w o f t h e b u s i n e s s E
n c o u r a g e s r e p e a t o r d e r s R
e d u c t i o n f r o m t h e i n v o i c e p r i c
e R e d u c t i o n f r o m t h e c a t a l o g u e
p r i c e Encourages the buyer to pay promptly/quick paymentIt
encourages bulk buyingA
Catalogue


This is usually in form ofa booklet/pamphlet with pictures of goods

containing description of the product,

the terms of payment and terms of sale

such as trade discount, cash on delivery and cash with order

The prices may be shown under the article.

They are usually issued once a year or at longer intervals

and are normally printed by the outside firm, which makes them more expensive.

They are usually used by the supplier as a means of advertising their goods.

They are more common in mail order firms.
A Price List

This is usually used with the catalogue.

Each item in the catalogue is numbered and the same number is shown in the price
list, along the price forthe item.

A number of price list may be issued for use with only one catalogue because of
the cost of reprinting cata-logues when prices change.

The buyer will usually obtain a list from several firms and compare
prices, taking careful note of the re-spective terms offered by each.

It shows the list of goods in stock with their prices

The description of the goods such as the colour, quantity and quality.
PRICE LIST BOOK WORLD, P. O. BOX 300001, LUSAKA.
Ref No.
DescriptionPrice
CO 12D125D127D150P250
Carbon papers A4Ball pens (assorted) Pencils (assorted) ErasersQuality bond
papers A4
65 850
per box 45 000 per box30 000 per box 20 000 per box120 000 per box
THE QUOTATION

This is a reply to the inquiry.

It is usually sent by the supplier to the customer.

contains a detailed description of goods asked for/available such as colour and
quality,

the price at which goods are offered,

terms and conditions of sales including terms of payment and delivery date.

The customer uses the quotation to compare prices and conditions offered
by various suppliers beforeplacing the order.

It shows name and address of the seller

Shows the date when it was written
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BUDGET STORESMAZABUKA BRANCHLIVINGSTONE
ROADMAZABUKAQUOTATION NO.. 384120QUOTATIONTO.
Chikankata High School Private Bag S 1MazabukaIn reply to
your enquiry dated …………………… We have pleasure in quoting
the
following:C o d e N o . Q u a
n t i t y D e s c r i p t
i o n U n i t P r i c e
P r i c e 45231423514323142352453216020206
010Lounge suit-redDisplay Album-greyCard Index-whiteCard
Index-greyFiling Cabinet-greenK2 000 000K4 000 000K4 000
000K2 000 000K5 700 000K120 000 000K80 000 000K80 000
000K120 000 000K57 000 000
P r i c e s v a l i d f o r 2 1 d a y s
O r d e r s o v e r K 5 0 0 0 0 0 0 0
s e n t c a r r i a g e p a i d Delivery within 4
weeks of receipt of orderCash discount 5% if paid with 28days of invoicingAll the
prices are subject to 10%Trade discountSignature. THE ORDERThis is an
instruction to the supplier to supply a particular good(s).It can be made on a special
order form or in an ordinary letter.Orders may also be placed verbally on the
phone, but verbal orders must be followed up by a written document toavoid
misquotation and the supply of wrong items.The order contains:

The description of the goods required;

The quantity ordered;

Price, as given in the quotation or catalogue;

Delivery date and cost of carriage;

The terms of sale specifying whether there is credit or not and the discount
offered. The importance of theorder is that it confirms the customer’s seriousness
in purchasing the item.
BUDGET STORESMAZABUKA BRANCHLIVINGSTONE
ROADMAZABUKAYour Ref. 364120 Our Ref. 81434ORDER
FORM
Order No. 461710 Date …………………..
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To. Chikankata High School Private Bag S 1 MazabukaPlease supply and
deliver:Q u a n t i
t y D e s c
r i p t i o
n P r i c e
6020202010Lounge suit –redCard index-greyCard index-whiteDisplay album-
whiteFiling Cabinet - greenK120 000 000K 80 000 000K 80 000 000K 80 000
000K 57 000 000
K417 000 000
ADVICE NOTEThe advice note is sent to advise the buyer that the goods ordered
have been despatched.It is usually sent ahead of the goods. It specifies the method
of transport used, date of despatch, quantity and description of the goods.If the
goods do not arrive within a reasonable period of time the buyer should advise the
seller. As the advice note usually shows what is on the invoice,it provides an
opportunity for the buyer to spot any mistakes, which can be corrected quickly or
in advance, and toprepare the necessary space for the goods when they arrive.
ADVICE NOTEBUDGET STORESLIVINGSTONE
ROADMAZABUKA BRANCHMAZABUKADelivered to:
……………………………… ……………………………………………………
…………..…………………………………Date Despatched:
……………………………..O r d e r N o .
… … … … … … … … … … … … … … . D a t e
d : … … … … … … … . N u m b e r
o f P a c k a g e s D e
s c r i p t i o n Received in good order
and condition :Customer’s signature:
A DELIVERY NOTE
It usually contains the same information as the advice note .it is sent with the
goods in order to assist the buyer to check the goods on arrival.It is used only when
the seller is using his or her own transport to deliver the goods to the buyer’s
premises A duplicate copy is signed by the buyer acknowledging receipt of the
goods. The delivery note is usually the same as the invoice, except that the prices
are OmittedThe purpose of the delivery note is:

To provide the buyer with details of goods being delivered such as quantity of the
goods and the descrip-tion of the goods

To help the buyer check the goods on their arrival

To enable the driver deliver the right type and amount of goods

To allow the seller obtain receipt of deliver A CONSIGNEMENT NOTEThis is a
document used when the seller sending goods to the buyer by hired transport.It is a
request and instruction to the carrier to accept and deliver a certain consignment to
the consignee.It is made out in triplicate.The carrier’s driver will sign one copy and
give it to the sender who will keep it as his/her receipt.It contains the address and
name of the consignee; a description of the goods; the quantity of goods or
number of packages;
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and a statement of who is responsible for any possible damage to the goods and
freight charges.The consignment note is sent together with the goods and
the consignee signs it to acknowledge receipt of themwhen the goods
arrive.The carrier will then produce this copy when claiming the freight charges (if
it is not pre-paid)..
An invoice
This is a bill sent by the supplier to his customer containing details of the
goods supplied relevant to the ordermade,such as description of goods sent,
quantity supplied, price charged, terms of sale, trade discount and value addedtax if
any.It is important because :

It shows the quantity of the goods supplied, the unit and total price

It tells the buyer the amount he/she owes the supplier and,

Shows the details and description of the goods,

Discount given(trade discount) and Value Added Tax(VAT)

It shows name and address of the buyer and seller

It is used by the supplier to start the accounting process

It is the request for payment for the goods supplied by the seller

It is form the basis of a contract of purchas or sale of the goods between the buyer
and the seller

It gives details of goods supplied to the buyer

The buyer may also verify if everything ordered has been sent by checking the
invoice against the order (ifthere is no delivery note).
INVOICEBUDGET STORESMAZBUKA BRANCHMAZABUKADate
5
th
November 2009INVOICE NO..: 1642YOUR ORDER NUMBER:
2542TO : Chikankata High SchoolPrivate Bag S
1MazabukaQ U A N T I T Y D E S C R I P
T I O N / D E T A I L S U N I T P R
I C E ( K ) T O T A L A M O U N T (
K )
5 0 W h i t e c o
l l a r l e s s s
h i r t 4 5 0 0 0
2 2 5 0 0 0 0 5
0 N a v y b l
u e n e c k
t i e s 9 0
0 0 4 5 0 0 0
0 5 0 R o y a l
b l u e t r o u
s e r s 1 0 0 0
0 0 5 0 0 0 0
0 0 TOTAL
7 700 000
1 540 000Less 20% trade discount
6 160 000Terms: 2% one month, 1% two months and net three
monthsE&OE
Explanation of the terms:

2% one month means that 2% cash discount will be allowed if payment is made
within one month

1% two months means that 1% cash discount will be allowed if payment is made
within two months

Net means that no cash discount will be allowed/full amount owing to be paid

E&OE means Errors and omissions Excepted
NOTE: The address of the sender of the document is always on
top of the document.
A PROFORMA INVOICE
is a special type of invoice sent before the goods are delivered if there is any doubt
about the credit standing of anew customer, or if the goods are being sent on
approval. It shows same information as the invoice.
A CREDIT NOTE

This is usually printed and typed in red so that it will not be confused with an
invoice or a debit note.

It is issued when the seller owes the buyer some money

and totals are usually subtracted from the invoice before it is paid./reduces the
amount indicated on the
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invoice

Informs the buyer that his/her account has been credited

A credit note is sent by the seller to correct an overcharge,

or to allow for the return of faulty goods

or empty crates and containers which the buyer has paid for.

It is also issued for surplus quantities of goods returned to the supplier

Shows the unit price, total price of the goods returned, trade discount and reasons
for the return such asfor wrong goods supplied.

Shows name and address of the buyer and the seller

The credit note is important because it corrects the mistake that appears on the
invoice.

It is usually printed in red ink to show that money is going out from the business
CREDIT NOTE NO. ……………………..Date…………………….…..
………………………………..
…………………………………………………………………..
………………………………..To: ………………………………….
………………………………………….…………………………………………..
…………………………………………..Q T Y D
E S C R I P T I
O N P R I C E
A M O U N T
DEBIT NOTEThis is a document sent to the buyer by the seller if he/she has been
undercharged.It is issued to claim the extra money outstanding.In other words
the debit note asks the buyer to pay the difference or amount by which
he/she has been under-charged. It may be issued if, for example:

Some delivered items are committed on the invoice

Pricing errors are made on the invoice

To increase the amount indicated on the invoice when then buyer was oversupplied
but under charged

To notify the buyer that his account has be further debited

Increases the amount indicated on the invoice/it is a supplementary invoiceThe
importance of the debit note is that it informs the buyer of the undercharge and
claims the extra amount out-standing.The seller has a right and obligation to issue
both the credit and debit notes if the letters “E&OE” are printed on
theinvoice. This means Errors and Omissions Excepted”, so if any mistake is made
on the invoice the seller can issuethe note to make the necessary correction.
Debit NoteBUDGET STORESLIVINGSTONE ROADPLOT NO.
87MAZABUKA BRANCHMAZABUKADate ……………………TO:
Chikankata High School Private Bag S-1Mazabuka
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I n v o i c e N o . 2 6
3 8 6 7 D a t e d … … …
… … … … … … … . .
Q u a n t i t y R e t u r n e d D e s c r i p t i o
n M o d e l N o . P r i c e p e r unitT o t a l c o s
t V A T Rate(%)VAT Amount THE STATEMENT OF ACCOUNTThis is a
summary of all transactions made between the buyer and seller during the
month. It is sent by the sup-plier to the buyer every month. The main pieces of
information contained in the statement of account are:

The balance owing at the beginning of the month, if any;

Amount of invoices issued during the month;

Payments made during the month;

Credit/debit notes issued during the month and net amount owing at the end of the
month;This document is important because;

It confirms the transactions made during the month;

It reminds the customer that payment is due;

It enables the buyer to compare the accounting records kept by the supplier with
his/her own records.
NOTE
: entries made in the debit column increases the balance figure and
entried made in credit column re-duces the balance figureThe last figure in the
balance column shows the amount of money the buyer owes the seller at the end of
themonth
STATEMENTSUPREME FURNISHERSPLOT NO. 87MAZABUKA
BRANCHT O : C h i k a n k a t a
H i g h S c h o o l D a t e
… … … … … … … … … … P
rivate bag S-1MazabukaTerms:
D a t e D E T A I L S
D e b i t ( K ) C r e
d i t ( K ) B a l a n
c e ( K ) E&OE
.
A Cheque
is sent by the buyer to the seller as one of the method payment for goods. Since the
date on the cheque isthe day on which the purchaser paid the supplier, the cheque
acts as a record of date of payment. Payment for thegoods could also be made by
standing order, credit transfer or direct debit. The cheque contains the following
infor-mation:

The date on which the cheque is drawn

The name of the payee

The bank on which the cheque is drawn/name of the drawee

The drawer’s name and signature

Amount to be paid both in words and figures

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Drawer P a y
e e D a
t e o
n w h
i c h the cheque is
drawnBARCLAYS BANK (Z) LTD
(Registered Commercial
Bank)M a z a b u k a B r
a n c h D a t e
31
st
May 2009
Pay
Celtel Mweemba or order
The sum of
five Million Kwacha onlyK5 000
000 Signature Crankshaft Banda Amount in words Amount in
figures Signature of theDrawer
A receipt
This is rarely used
today
since the cheque act of 1957, the cheque itself when it has been paid in the seller’s
account,and returned to the drawer, acts as a receipt. If payment is made through
the credit transfer system, the statementand the attached credit transfer slip are
stamped by the bank cashier which act as a receipt.
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TRANSPORT
Definition:It is an aid to trade that is concerned with the movement of
goods and people from one place toanother.
Importance of efficient means of transportEfficiency means of
transport is important
to a company or factory such as Zambia – China MulungushiTextiles
which may a have branch within and outside the country due to the following
reasons:-
-
It creates utility by bringing goods within the consumers’ reach
-
Provides consumers with a much wide variety of goods
-
Enables consumers to enjoy a high standard of living
-
It levels out supply by transferring goods from where they are
p r o d u c e d t o w h e r e t h e y a r e needed, therefore helps to prevent scarcity
-
Provides more opportunity for specialisation
-
This leads to cheaper goods to consumers
-
It clears the line of production for manufacturers
-
It is used for the delivery of raw materials to the factory.
-
It is used to ferry partly finished and finished goods to the warehouses and
customers.
-
Used to move equipment or space parts to the factory, offices and between sites.
-
Allows the executive/management to travel between offices and factories.
-
Allows sales represents/agents to move efficiently both within the country and
overseas to meettheir customers.
-
It enables goods to reach the customer at the right time, right place, and right
condition in order tosatisfy human wants.
-
It may bring revenue to the company if it operates its own fleet of vehicles.
-
It encourages tourism throughout the world.
-
It provides employment to those who work in various transport forms.
-
It helps countries to develop their economics by opening up wider market for the
products.
-
The above would usually include sea and air transport for overseas transactions or
road and railtransport for transactions within the country.
-
Air transport is particularly important to a form for urgently needed goods or travel
worldwide.
-
Road transport is important for the carriage of goods and people door to door.
Factors influencing the choice of transport
The following are the factors that may influence the choice of transport.
-
Cost of transport
; for example sea transport being cheaper than air transport.
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-
Speed
of transport or
urgency
required such as perishable goods and pharmaceutical goods needto be delivered
quickly of the fast means of transport.
-
Size or bulk and weight
of the consignment for example oil by pipeline or tankers not by air.
-
Value
of the goods; for example, coal can’t bear the cost of road transport but rail.
-
The
nature
of goods; for instance, products like oil require special finilities.
-
Accessibility
of transport to the terminals
-
The
reputation
and
reliability
of the transport/carrier of the goods.
-
Security
or
safety
 involved e.g. air trasnport
-
The
distanc
e involved.
-
Type of transport
-
Flexibility of the transportENVIROMENTAL PROBLEMS ASSOCIATED WITH
TRANSPORT
-
Pollution (air, water, land and noise)
-
Ecological changes caused by the construction of the infrastructure,
such as roads, dams, ports,pipeline and railThe Possible Solutions
-
government policy
-
civic education
FORMS OF TRANSPORTOwn fleet
Many large companies find it more convenient to buy, and operate own
fleet of trucks for delivery goodsand collecting raw materials
Advantages of own fleet:
-
It can be cheaper if the company produces enough goods to keep the trucks busy.
-
It gives direct contact between customers and supplier. This means
problems can be identifiedand solved more quickly before they become too
serious/big.
-
Better care can be taken to the goods as the business will be handling its own
goods
-
Deliveries can be arranged more flexible with respect to time and routes.
-
The Company’s vehicle can be painted with advertisements on the sides so the flee
t providesfree advertisement for the business whenever the vehicle goes.
-
The use of own fleet means that fewer documentation will be required.
-
Raw materials and equipment can be collected on and when they are needed.
-
Own fleet is more convenient as goods can be delivered when necessary.
Disadvantages of own fleet:
-
It is expensive to operate one’s own fleet of vehicles, as vehicles have to be
bought, licence used,maintenance fuel and insurance.
-
Drivers, have to be paid regularly and transport managers have to be paid.
-
Long distance deliveries to over seas customers for example, may not be
possible on own fleet.This simply means that sea, air or possibly rail has
to be hired even if the company has its ownfleet.
-
It may not be economical to have its own fleet if the output is too small.
-
The other problem of road transport like traffic congestions, limit the
carrying capacity and thefact that trucks have to return empty from trip, remains
a problem.
Road transport
Road transport is by for the most important form of transport on most countries. It
has drastically increaseddue to the following reasons,
Advantages of road transport
-
It carries goods direct to their destination without any transhipment.
-
Door to door delivery is possible by road.
-
It is convenient and fast over short distances
-
It is more flexible as far as time concerned, that is no timetables and schedule may
be followed.
-
May be economical due to less capital costs/transhipment cost.
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-
Goods may better be protected or less pilferage/theft as the driver may
keep an eye on them allthe time.
-
Roads reach almost everywhere
-
Goods may be delivered anytime
-
It is suitable for delivery perishables
-
It is suitable for small loads of consignment
-
It is suitable for most type of goods
-
It is possible to use own fleet of vehicles
Disadvantages of Road transport
-
It is slower over long distances than rail
-
It is no feasible to ferry large quantities or bulk goods as coal.
-
It is reliable to break down and delays due to poor weather conditions.
-
If the vehicle returns empty to the depot the cost of delivery the load will be most
costly than ne-cessary.
-
The driver may have to stay overnight at a hotel for long distances. This
may increase over allcosts.
-
It is not suitable for carrying dangerous goods such as petroleum.
-
It causes more damages to the environment and ozone layer due to air pollution
emitted
-
By the burning fuel and noise produced by some vehicle.
RAILWAY TRANSPORT
Railway transport is the most ideal form of delivery bulk Cargo such as coal, Iron
ores, building materials,petroleum etc.
Advantages of railway transport over road transport
-
Railway transport is faster over long distance than road transport.
-
It is cheaper especially when carrying bulk goods.
-
There is no congestion on the railway line (trains are free from congestion).
-
It is not so badly affected by adverse weather conditions
-
It is economical in the use of fuel
-
A railway line may have direct access to the seaport
-
Railway transport has relatively low running costs.
-
It is safer for carrying dangerous products such as fuel.
-
Special facilities have been developed in railway transport for carrying bulk
deliveries dangerousproducts such as fuel or oil, coal, cobalt, cement, iron ores etc.
Disadvantages of Railway transport
-
Timetables make railway transport less flexible than road transport.
-
The transhipment of goods, apart from causing inconvenience and damage
of goods.
-
The expense of equipment and keeping the train in good condition is considerably
high.
-
door to door delivery is not possible by rail
-
It is not suitable for urgent deliveries
-
It is generally slower than road transport over short distance.
-
It is not economical for small load, and short distances
Sea transport
This is by for the most important form of water transport for the carriage
of goods. There are various clas-sifications of vessels used in sea transport and
these are:-1.
Passenger lines
-
These are mainly used for the carriage of passengers to various parts of the world.
-
They may curry some Cargo such as mails.
-
They follow strict timetables and schedules
-
They cannot wait for any delayed Cargo or passengers to arrive.
-
They follow fixed routes
-
They usually call at the main parts of the world.
-
Their main advantage of this form of transport is that transport can be planned
ahead of time andspace.
-
The charges are usually fixed jointly by the shipping conference to which their
owners belong.
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2 . C a r g o l i n e s
-
These are ships used mainly for the delivery of goods although
t h e y m a y a l s o c a r r y f e w passengers
-
They operate on fixed routes and adhere to regular timetable.
-
The ship will leave the port on time even if some of the scheduled cargo has
not yet arrived.
-
They too belong to the shopping conference and their charges are also fixed.
3.– Tramp vessels (steamers)
-
These do not operate on regular routes or fixed timetables but sail
whenever traders want theircargo to be taken.
-
They do not carry passengers/carries goods only
-
They move from one part to another while awaiting demand for their services
-
They normally hired or chartered by whoever wants their services (his/her goods to
be ferried)
-
Usually a charter part/agreement is signed between the ship owners and
the trader who wantsthe ship to carry his/her good.
-
Charges are usually based on space available, bulk of the consignment, weight and
distance in-volved.
SPECIALED VESSELS AND GENERAL CARGO
Such ships are specialty designed for a specific purpose
(a)Roll on and Roll off ships (Roros) or vessels
-
These are specially designed to allow vehicles to drive on and off with its
cargo/passengerswithout difficulties.
-
It speeds up door to door delivery to overseas destination eliminating delays on
loading of goods(serving time)
-
It also reduces possibilities of pilferage and damage to the goods in transit /on
routes.
(b)Container ships/vessels

are specially designed vessels

usually cellular in design

 to carry standardised containers

which may be metal or wooden

in order to save space on board when storing containers on board

and maximise security of the goods.

The problem of loading and unloading is eliminated (simplified)

as cranes are able to load and unload quickly.

Such vessels assist in turn-round time on ports

and serving harbour dues or levies (reducing freight cost).
( c ) T a n k e r s
-
These are bulk carriers specially designed to carry liquids
-
Such as oil and any bulk liquid.
-
They are specially designed to minimise safety, and loading and unloading liquids.
-
There size helps to cut off freight charged and harbour dues.
-
They are able to ferry large amount of oil demands worldwide.
(d)Oil Bulk Ore (OBO) ships
-
They are large ships specially designed to carry one type of goods at a time.
-
They are also known as bulk carriers
-
Oil tankers are a good example of OBO ships.
REQUIREMENTS OF A GOOD SEA PORT
The control of seaports and their facilities is done by the Port Authority. The Port
Authority assists tradersand other users of seaports by taking responsibility
for efficiency of the seaport. The following are the re-quirements of a good
sea port/harbour:-
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-
It should be sited as near as possible to a town or city, but not near high buildings
and cause as lit-ter pollution as possible.
-
It should have speed and efficient roads and rail network to provide easy access
and departureof travellers and goods.
-
It should have good equipment and repair service necessary to keep aircraft flying
such as sophis-cated radios, radars, computers and technical equipment.
-
It should have customs facilities to regulate the importation of goods and to check
for prohibitedgoods such as firearms and mandrax.
-
Should have migration offices to ensure that only people with valid documents do
enter or leavethe country.
-
Should have buildings for hotel and accommodation, police stations,
health centres, banks, res-taurants, post offices etc.
-
Must have safety procedures such as fire engines and ambulances.
-
Must have good warehousing facilities.
Functions of the Port Authority
-
They maintain the approach to the port by road, rail sea etc.
-
They provide warehousing facilities for the goods
-
they provide customs and immigration offices
-
the provide ship repair yards
-
they provide landing facilities such as lock gates, buoys and wharves.
-
they maintain port equipment and charge users
-
provides communication by radio and telephone
-
they provide markets, dock rooms, banking facilities, rest houses and restaurants
forpassengers
-
provides offices for agents
-
provides security offices such as police offices
-
provides health and sanitation facilities
-
provides efficiency labour supply by hiring dock labourers, engineers, maintaining
goodindustrial relations and licensing lighter men
-
the provide refuelling and fresh water
-
they dredge the port to maintain the depth
-
they levy port labours and dock dues to pay for the above
-
they undertake all clerical work concerned with the above
Advantage of sea transport
-
It is relatively cheap particularly over long distances for the Carriage bulk goods
which are not ur-gently needed.
-
Large quantities/weight can be moved in one vessel, such as bulk consignment of
grains.
-
The use of containers keeps costs to a minimum vessel, such as bulk consignment
of grains.
-
The use of containers keeps costs to a minimum and increases the safety
goods as it minimisehandling of goods in transit.
-
The seaport provides cheap transport linking all containers of the world as all
countries have longsea costs.
-
Tranships provide a very flexible service as they bound to any fixed routes.
-
Special vessels, such as oil tankers and reapers can be built for special cargo.
Disadvantages
-
It is relatively slow for urgently needed goods.
-
It has high insurance costs because of high risks jettisoning of goods.
-
There is high risk of pilferage and theft.
-
It does not offer door to door services as some countries/areas may not have
seaports. (Tranship-ment is inevitable).
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-
Bad weather can cause delays and loss of goods.
-
Land locked countries like Zambia, Botswana, Lesotho, etc do not get the
full benefit of seatransport.
CONTAINERISATION

This is the system of transporting or delivering goods by the use of containers.

Containers are large metal boxes of standard sizes/specified sizes

in which goods are picked at the manufactures premises/warehouse

and are secured by the supervision of customs authorities

and not opened until they reach their final destination.

This form of transport is mostly used in road, rail and sea transport.

The freight is based on the size of the container

It reduces handling of the goods

It reduces the risk of theft and damage to the goods

It reduces insurance rates
Advantages of containerisation
-
Increased speed of delivery
-
as containers can be transferred quickly/past between different form of transport.
-
Goods are not taken out of the containers until they reach their final destination
-
which eases the problem of loading and saves time.
-
Eliminates the use of warehouses as the containers can be stocked outside.
-
Increases safety as there is less risk of pilferage thefts and damage.
-
There is a quick turn round for vehicle/ship,
-
which may reduce transport costs or handling costs.
-
T.I.R. (Transport International Routier) allows increased speed through customers.
-
Packing and insurance costs are reduced as containers improve safety of goods.
Disadvantages
-
not all vehicles and ships are standardized to carry containers.
-
This means the company might still need to hire standardized trucks.
-
Not all terminals (Ports) have mechanised container handling facilities.
-
This will require expensive upgrading of ports for them to be able to handle
containers.
-
It requires large capital investment to establish container ports.
-
They are not economical for carrying small loads, as there would be wastage of
space.
-
Many bulk goods such as timber, iron have limited capacity in air transport
-
 as it has weight limits/restrictions.
AIR TRANSPORT
Air transport has seen a marked improvement in recent years and as a result, there
has been a rapid growthin the volume of cargo traffic and passengers using air
transport. Some of these include:
-
The increased the importance of air freight due to more airports world wide, bigger
air craft andbetter airport facilities
-
The building of larger aircraft which are porter and move reliable.
-
An improved design such as fuse long and enquire has increased fuel economic.
-
Improved loading through large class at the nose and tail has cut loading capacity.
-
Increased in the number and improvement of handle facilities, provision
of better storage andhandle facilities worldwide has seen remarkable change in
air transport.
Advantages of air transport
-
The speed of our transport is particularly essential for urgent deliveries and
emergencies.
-
Packaging and Insurance costs are minimal due to short transit period.
-
There is more security for goods as there is less chances of theft/pilferage.
-
There is less damage, to goods due to less handlings and travelling time.
-
It operates on direct routes
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-
It is economical over long distances
-
Airports may even be found in jungles/deserts.
Disadvantages of air transport
-
It has higher operational cost.
-
Aircrafts have a limit carrying capacity, very sensitive to weight and size of Cargo.
-
It relies on other forms of transport.
-
It is not suitable for short list distances
-
It may also cause noise and pollution
-
If a phone crushes usually there is total loss of lives and Cargo.
-
There is a threat of hi-jacking aeroplanes
Modern Trends in Transport
The modern trends in transport includes the following

The growth of containerisation of goods by road, rail, sea and air transport system

Improvement in roads and motorways

Improvement in modern handling facilities at airports, seaports and railway
stations

The growing in importance of high speed trains

The growing in importance of air transport because of large aircrafts, large
airports, more airportsand more air routes allowing more goods to be carried by air

The development of roll on, roll off ferries

Improvement in security measures for goods being transported

The increased movement of goods because of the formation of trading blocks such
as the Southernand Central African Development Community (SADC), European
Economic Community (EEC) etc.

The decline in volume of goods carried by railways in many parts of the world

The removal of customs barriers at entry points to the country has facilitated the
use of transcontin-ental vehicles.

The general improvement in transport facilities have speeded up the
movement of goods world-wide.
Pipeline
This is the system most used in the delivery of liquids such as crude oil/petroleum
products.
Advantages of pipeline
o
They are cheaper to maintain
o
They carry large volumes of goods
o
They save on labour
o
There is no congestion or does not pollute the environment
o
Can be used for alternative fluids/gases/liquids
o
May offer direct delivery/door to door
o
Goods are protected from contamination
Disadvantages of pipeline
o
The initial cost of constructing a pipeline is too high
o
It is not suitable for irregular cargo
o
It is limited to transportation of fluids
o
It has no return loads
o
Can easily be attacked by enemies in times of war/ open to sabotage
o
It requires many pumping stations if the gradient is high
o
There could be high losses in case of leakages
o
May be subject to theft/vandalism
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o
Leakage may pollute the environment
Insurance
Insurance is an aid to trade, which under takes to cover risks, that may or may not
(probabilities) in businessand if they happen, they will cause financial losses. It
involves the insurer and the insured.
Insurer
This is the party (insurance Company) which under take/ giving the cover or
Insurance
Insured
:This is the party (person) seeking for insurance or guarantee of
compensation.
Definition
:Insurance is the legally binding guarantee given by the insurer to
compensate/indemnify/restore or coverthe insured for any financial loss
which may be suffered as a result of the occurancy of a specified
eventwhich may or not occur(probabilities). In return for this guarantee the
insured makes a periodic paymentcalled premium to the Insurer. The premiums are
paid into a central fund (pool) for the claims of the unfor-tunate few (ones). The
profit on the Insurance Company is based on the statistical probability
that only asmall percentage of the insured person will ever have to make
claims. Therefore, the premium of many paysthe claims of the unfortunate few
who have suffered financial loss as a result of an insurable risk leaving theexcess
as a profit for the insurer for the services he provides. The larger the number of
people contributingto an Insurance pool for a particular risks the less likelihood of
that group suffering a large percentage ofless than the average for all the
people open to the risk. This is known as law of average. This is
becausethere is less chance of loss to the Insurance company. When the number
insuring a particular risks with it, islarge, the amount or premium likely to be
charged is lower.
Purpose/Functions of Insurance
-
To pool the risks of many insured persons and spread the financial losses of the
unfortunate fewover the fortunate few over the fortunate many.
-
It reduces the risk of financial loss by giving indemnity i.e. giving security to the
insured.
-
It reduces, fear by increasing funds, which might otherwise have to be set aside in
case of a calam-ity.
-
It allows businessmen and businesswomen to enter into large-scale contract, which
might other-wise be avoided for fear of loss.
-
It is also on invisible export and means of saving for some people (in the case of
an endowmentpolicy)
Why it is important for the business people to insure their items

If a loss occurs, the businessperson will receive compensation. Where the business
person does notinsure, his/her goods and suffer a loss s/he will receive no
compensation and he may end up goingout of business

It gives people the confidence to continue conducting businesses knowing well that
should they suf-fer a financial loss, the insurance company will compensate them
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
Claims against business people may be too large and without insurance,
they may not be able tomeet huge claims arising from the members of public
who may suffer losses. It is for this reason thatbusiness people are required by law
to take public liability insurance, for example, employer’s liabil-ity insurance.
Pooling of Risks

Pooling of risks is the basis of insurance which enables the fortunate ones to help t
he unfortunateones.

A policy holder pays a premium into the pool from which compensation is paid to
those who claim.

The funds in a pool must be sufficient to cover compensation, administration cases
and leave someprofits for the insurance company.

There is likely to be a separate pool for each risk.

Some companies like Konkola Copper mine and Mopani Copper mine may run
their own risk, thatis use self insurance.

If there are many who wish to insure against a particular risk, more premium is
contributed, but ifthere are few calamities, the premium is low.

For the principle of pooling of risks to work, the insured persons must
not suffer losses all at thesame time. If they all suffer the loss at once, they can
be no enough funds in the insurance pool topay everyone.
PRINCIPLES OF INSURANCE
There are the basic ‘rules’ of insurance which are applied to ensure that
the policy is effective and it is notprone (open) to abuse:
( i ) U t m o s t g o o d f a i t h

Both the insured and insurer must reveal every relevant and material
facts relating to the policybeing undertaken.

The insured must fill in the proposal form by telling the truth without leaving out
any materialfacts relating to the contact.

This enables insurance company to assess the risk and decide whether of
not to accept it and thendetermine the amount of premium

The insurance company must also act in the utmost good faith by settling material
facts relating tothe contract.

The contract may be declared null and void if utmost good faith is not
followed by both parties(breach or utmost good faith) renders the contract well
and avoid.
( i i ) I n d e m n i f y

This principal states that the policy holder must be restored/compensated to his or
her former finan-cial position without making profits out of a loss. In either
words he/she must be placed in thesame financial position as before.

She is not allowed to make profit out of a loss as she may cause the risk to occur.

Indemnity does not apply to life assurance and is limited to the sum insured or the
market value ofthe object, therefore the insured must not over insure or under
insure.

Contribution applies if the policy holder insured with more than one insurance
company.

In this case, insurance companies contribute proportional amounts to make up for
the loss.

Subrogation applies if the insured is fully compensated/Indemnified for the loss
E.g. in the case of avehicle stolen or damaged, the damaged (scrap vehicle)
or recovered property belongs to theinsurance company.

The principle of average under indemnity means that if the insured does not
increase the amount ofthe cover when the value of the insured object. increases, he
will not receive the full compensationin the event of the claim, instead he will
receive part of the compensation based on the averagecause or the ratio of
the amount to cover the market value of the objecti.e
. amount insured x Amount of compensation Actual value of
object( i i i ) I n s u r a b l e I n t e r e s t

It states that only the person who stands to lose financially if the risk insured
against has the legalright to insure the property or life

That is, the person must own the property if s/he has to insure it.
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
It prevents people who are not owners of the item from insuring the property

If people were allowed to insure items or lives which do not belong to them, they
might be temptedto deliberately cause the loss in order to claim compensation

And thus making profit out of the loss

This will defeat the principle of indemnity because

The insured was not in the position to lose financially hence s/he could not be
indemnified
Proximate cause
This doctrine entails that the insurance company can only compensate a person
who has suffered a loss if therisk insured against is the immediate cause of the loss.
-
There is no compensation payable if the loss caused by the risk is not insured
against
-
For instance, if Mr. Masimpe assures his life against death by motor accident and
as he is travel-ling from Mazabuka to very far place, he dies of a heart
attack no compensation would be paid,this is because, the immediate cause of
his death is a risk which he did not insure his life against.
-
The application of this doctrine of proximate cause is further illustrated in fire
insurance.
-
A fire insurance policy will not only cover losses caused directly by fire,
but use of water or de-molition of part of the building to prevent the
spread of fire to other parts or to neighbouringbuilding.
Taking out an Insurance Policy
-
The person seeking insurance cover approaches the insurance broker
-
S/he obtains and completes the proposal form which an an application for
insurance
-
It gives details of the risk to be covered against and details of the applicant.
-
The proposal form must be filled in utmost good faith.
-
The proposal form is important to the insured because;
-
It enables the insurance company assess the risk and decide whether or not to
accept the risks andfix/set premium and finally issue the insurance policy, setting
the terms of the contract (it formsthe basis of the contract).
-
*An insurance policy is a paper written as evidence between the
insurance company and theperson insured.
-
Where the important information relating to the object being insured is not
disclosed on the pro-posal form, the contract may be declared null and void
Procedure involved in making a claim

Inform the police immediately the loss occurs/happens

Notify the insurance company of the loss as soon as it happens(possible)

Notify the insurance company if the object was insured with the other insurance
company

Complete the claim form giving full details of the loss suffered

Insurance company employees (assessors) inspects the damage

They assess and determine the amount of financial loss suffered

In order to arrive at a fair and reasonable amount of compensation, the client signs
an agreement ofloss form to bind him to accept the amount of compensation
arrived at

The insurance company settles the claim by paying money

Or by paying in kind, eg, buying the same object of the same model

The remains of the object are subrogated to the insurance company
An Insurance Policy

It is a document which sets out terms and conditions of an insurance

Covering the precise risk

Period of cover

Exceptions such as life assurance like suicide

And the amount of premium to be paid
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The Insurance Broker
-
He acts as a link between the insurance company (underwriter) and the clients as
the clients.
-
Can not approach the underwriters directly.
-
He gives information on the policy for a number of insurance companies.
-
They are not employed by the Insurance company but they are
independent professionals, whoare on insurance business on their own account.
-
They advice clients on the best insurance policy to the damage (scrapped vehicles)
or recoveredproperty of the insurance company.
-
He may deal with the full amount of the policy recovered
-
He may deal with claims and particular problems affecting the client.
-
They collect premium from their clients on behalf of the insurance company.
-
They arrange insurance cover and administration (papers) work or clerical work for
their clients.
-
Brokers are paid commission by the insurance company for their work.
-
Their commission is known as brokerage.
The Lloyds Insurance Corporation of London
This is international/ world market for Marine insurance and other risks such as
aviation and life insurance.
o
They have a high reputation to meet claims under writers offers insurance cover
when approachedby brothers
o
Lloyds of London corporation is not on insurance but rather an organisation which
providesaccommodation and other facilities for the member (underwriter and
brokers who wish to provideor negotiate insurance business.
o
The Lloyds co-operation originated in the 18
th
Century from a coffee house.
Under writers
o
These are principals who accept Insurance risks or cover a risk such as marine
o
They receive insurance premiums from the clients
o
If the risk occurs they pay out compensation from their own pockets
o
They are rich people(they need enough resources) with a considerable financial
stand, which enablesthem to meet claims.
o
They have unlimited liability
o
They work/operates in syndicates (groups)
o
They do not have contact with members of the public directly but through an
insurance broker.
o
They may be represented by an underwriter agent to “LEAD” who accepts
insurance on his behalf.
o
Their remunerations is profits
Branches of insurance
Because there are many risks facing individuals and businesses, many different
insurance policies have beendesigned to offer various insurance cover. These are:-
Life Assurance

The term assurance refers to certainties,

that is, risks that must certainly occur such as death.

The term insurance refers to probabilities,

that is, risks that may or may not happen such as fire, theft, accident and flood..The
principle of indemnity, does not apply to life assurance. This is because when a
person dies, no amountof monetary compensation will restore him/her to
life. Assurance is looked at as a form of serving planrather than
insurance. It is true and we all know that we are going to die but we are not sure
when we willdie.Life assurance is a good way of ensuring that surviving members
of the family are taken care ofUsually, if we live for a very long time and die long
after retirement, it is possible that our savings may besufficient to meet the
demands of our dependants. But if we die young we are likely to leave a
widow andyoung children with no money to look after them. This is where life
assurance will be helpful.Life policies are normally sold by insurance agents who
are different from brokers.I n s u r a n c e a g e n t s u s u a l l y a c t o n b e h a l f o f
a p a r t i c u l a r c o m p a n y . T h e y n e v e r h a n d l e p r e m i u m s . T h e premiums
are paid directly to the insurance company – Life assurance policy covers
the following:
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(a)Whole life policy
This is a policy under which a person assures his/her life for a certain sum of
money which will be paid tohis/her dependants after his/her death.
-
the person divides how much he wants to assure his life for and the insurance
companycalculates the amount of premium to be paid monthly or yearly.
-
The assured pays premium for his/her entire working life until death.
-
To fix premium, the Insurance company will look at the age, health records
occupation as well asthe duration and the amount of cover required – if the
assured dies, the money is then paid tohis/her dependants and beneficiaries.
( b ) T e r m P o l i c y
-
This is a policy which covers a person for a fixed period of time e.g. twenty years.
-
The premium is cheaper as the insurance company does not have to pay
anything if the personlives up to the period covered.
-
It may act as a form of saving for some people.
-
She/he can take the policy for the duration of the loan.
-
It is good for someone buying a house through mortgage.
-
If he/she dies before furnishing paying for the loan, the procedures are used to pay
off the loan.
-
The main disadvantages of this policy is that no value at the end of its full period.
© ENDONMENT POLICY
Under this policy the assured is covered for certain period of time.
-
The period may be from 5 years to 20 years.
-
It provides compensation in money (sum assured) either at maturity date or death
of the assuredperson whichever comes first.
-
Endowment policy serves two useful purposes f:
-
Endowment policy profit with profit assures the assured person to share profit
made by the insur-ance company from the premiums.
Fire Insurance
-
Fire is a risk that has caused untold misery to mankind.
-
The major Insurance cover available are(a)
Ordinary fire insurance
-
Provides cover/insurance protection to a wide range of property such as personal
and businessbuildings, and there content against damage caused by fire.
(b)Consequential Loss

this is the loss of profit suffered as result of an insured risk

for example; a trader may insure his/her retail shop against fire.

If later fire totally destroys the retail shop,

then the trader has not only lost the business buildings and contents

but also the profit she/he was making.

The loss of profit is a consequence of fire destroying business building and the
contents.Therefore, a consequential loss insurance provides compensation for:

Loss of normal business profits as a result of an insured risk. e.g. fire

Business expenses required to be paid when the business buildings are not in use.

i.e. expense that may continue to be paid after the building are destroyed are
salaries, intereston loan etc.

Renting or an alternative building.
Factors considered when fixing the premium for the insurance.

The number of people wishing to insure

So as to apply the law of big numbers

Type of cover required

Age of the person or the object
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
Purpose for which the object is used for

Value of the object

Number of people using the object

Security gadgets fitted to the object

Make of the objectThe size of the premium for pure insurance depends on the
likely hold of fire breaking out and the followingare some of the factors considered
are.

Materials used in the construction of the building i.e. whether materials
are bricks or wood orconcrete and whether roofing is a thatch or iron sheets or
asbestos.

Whether inflammable materials such as petrol, diesel, paraffin etc are stored in the
house or not.

Nature of the surroundings of the house i.e. whether there is danger of
fire breaking out fromthe neighbouring houses or not.

Whether additional fire protection facilities are available or not e
. g . f i r e b r i g a d e s e r v i c e s provided by local government.
Accidental Insurance
This branch of insurance covers a wide range of Insurance policies and includes
the following:
(a)Motor Vehicle Insurance

It is compulsory by law far motor vehicle owners to Insure

against loss or damage to third parties.

In a contract of motor insurance, the two parties actually connected with
the Contract ofInsurance are the insurer who is known as the first party

and the insured person who is called the second party.

The third party is any member of the general public

to whom death or body injury may be caused

e.g. passengers, pedestrians, other motorists etc.A variety of motor Insurance
policy exists. The main ones include the following:
(i)Third party motor insurance

Third party motor insurance is the minimum motor insurance

any vehicle that moves on the road is required to have

third party provides compensation only to third parties

for death or body injury caused to them damage to their property.

The insured’s own vehicle is not covered.
(ii)Third party, fire and theft motor insurance
This type of insurance covers
-
Third parties for death or body injuries caused to them and their property.
-
The insured’s own vehicle
-
for accidental damage to the vehicle,
-
injury to the driver, loss of the vehicle by fire, theft or by instant mob justice.
(iii)Full comprehensive
Full comprehensive insurance covers a variety or risks that may happen
to the vehicle. It is therefore thebest and at the same time the most expensive
type of motor insurance.
Factors considered when fixing the premium for motor
insurance
The size of the premium payable on motor insurance depends on many factors
which include the following:

Experience of the number of accidents the type of vehicle being insured
has been involved inbased on statistics insurance companies have in their
possession.

The number of people wishing to insure against the risk or say, road
traffic accident, so as toapply the low of big number.

The type of motor insurance required whether it is third party or
comprehensive insurance etccomprehensive insurance covers many risks and
therefore higher are charged.
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
The age of the driver young people are charged higher premiums because
they drive fast, andtherefore more likely to cause accident.

The purpose for which the vehicle is used e.g. higher premiums are charged on
sport cars thanon family cars which are not used for car racing.

The value of the vehicle – A new car stolen or damaged would require
more money to repealthan an old car. Therefore higher premiums are paid on
new cars than old ones.

The number of people using the vehicle premiums are lower when the motor
insurance requiredis meant to cover one driver. Higher premiums are charged
where the vehicle is used by manydrivers.

Occupation of the user. The size of premium for a teacher driver, for example may
be less thanthat of sales person when is always travelling across the
country selling goods. A teacher isfound in class most of the day and is
therefore less likely to cause accidents. Female drivers areusually better drivers
than male drivers and so less premiums for ladies than gentlemen.
(b)Employer’s Liability Insurance

This class of accident insurance provides compensation of employees for deaths,
diseases etc

. Suffered whilst at work

or as a result of the employer’s negligence

for example a shutter in Zambia Railways may lose both legs in an accident while
on duty.

If employer’s liability insurance was taken by Zambia Railways, then the
insurance companywould compensate the injured employee

without employer’s liability, the employer might not be able to continue
if a substantialclaim was made as all the money of the company can just be used
to pay compensation to theemployee.
Public Liability
Public liability insurance covers business owners and manufacturers against claims
by members of the pub-lic for deaths, accidents etc. caused to them due to business
owner’s negligence.
Examples
(i)A minibus owner may insure his/her minibus against the
p o s s i b i l i t y o f a c c i d e n t h a p p e n i n g to members of the public whilst
travelling on the bus.( i i ) A m a n u f a c t u r e r m a y i n s u r e a g a i n s t
claims for death or injuries resulting from the use
h i s / h e r product e.g. a meat pie manufacturer can insure against the possibility of
poisoning to mem-bers of the public after eating the meat pie.The money that may
be required in compensating injured members of the public might amountto a
billions of Kwacha. A business without a public liability insurance may not be able
to con-tinue carrying out its business activities if large claims for deaths
or injuries is made on it bymembers of the public. It is important therefore that
a business takes up a public liability insur-ance so that claims made by
members of the public for injury or deaths are not by
insurancecompanies. This would leave the operation of the business unaffected.
(d)Fidelity guarantee Insurance policy
This class of insurance provides to employing for money or goods embezzled
(stolen) by employees.Company employees who handle large sums of
money such as accountants take Fidelity Guaranteeinsurance and pay
premiums. The benefits of the insurance guarantee policy are however, paid
to theemployee when an employee is convicted in a court of law of having had
stolen goods or cash.
(e)Credit Insurance
Credit insurance provides cover to traders for losses resulting from bad debts
i.e. loss of money due tonon-payment by customers who obtained goods one
sources on credit but later fail to pay for them.
( f ) T h e f t I n s u r a n c e
This, class of insurance provides compensation to insured persons whose
goods are stolen fromhomes or businesses or goods in transit.
(g)Air travel insurance
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This class of insurance provides compensation to insured person who suffer deaths
orinjuries caused by air accident.
4 . M a r i n e I n s u r a n c e
Marine Insurance Covers losses or damage to property and life caused by sea
risks. The main types ofmarine insurance are:
( a ) H u l l I n s u r a n c e
This class of marine insurance covers losses caused to the body of the
ships, its machinery and fix-tures. The sea risks that may cause loss or damage
to the ship or goods including bad weather, colli-sion with other ships, fire, sinking
of a ship, bond storage in the ship, theft, etc.
(b)Cargo Insurance
Cargo Insurance covers importers and Exporters for loss or damage to goods
beingtransported by sea transport to various parts of the world.
(c)Ship Owners Liability Insurance
This class of insurance covers ship owners against claims that may be made against
them.( i ) D e a t h o r i n j u r i e s c a u s e d t o c r e w m e m b e r s a n d
passengers.(ii)Loss or damage caused to other shop in
a collision.(iii)Loss or damage caused to beaches etc.
(d)Freight Insurance
Freight is the sum of money paid to the shop owners whose shop was hired for
thetransportation of goods.At certain times, freight is not paid in advance until the
goods reach their final destination.Freight insurance therefore, covers ship owners
against the possibility of not being paid freight or hiremoney by clients who do not
pay transport charges in advance.
(e)Sellers interest insurance
Where goods are sent to a buyer in a foreign country and the buyer refuses to
accept delivery of thesegoods possibly because he/she is bankrupt, the
seller’s interest insurance would cover the goodswhile arrangement are
being made to sell them for the best price possible. Compensation is paid tothe
seller if the goods are stolen or damaged in anyway before they are sold.
MARINE POLICIES
Types of marine policies include;
( a ) V o y a g e p o l i c y
This type of marine policy is taken out for a particular journey e.g. from Dar e
slam toNew York: USA: Cargo insurance is usually taken on voyage policy rather
than on a time policy.
( b ) T i m e p o l i c y
Time policy is marine insurance taken for a particular period of time to cover the
hired ship,for instance for a period of six months.
( c ) M i x e d p o l i c y
Mixed policy requires that a sum of money agreed upon between the person seekin
g insur-ance cover and the insurer is deposited with under risks so that each time a
ship makes a journey thepremium is deducted from the amount deposited with
underwriters. Floating policies are appropri-ate where regular shipments of goods
are made. They save time and troubles of taking out separateinsurance policies for
each trip made.
MARINE LOSS
Marine costs may be classified as:
(a)Particular average
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Particular average refers to any form of cars or injury that may be suffered whilst
the ship orgoods are in transit. The losses suffered may be complete or partial loss
but it should be asresult of the risks insured against.
COMMUNICATIONS
Communication is an aid to trade concerned with informing people on goods and
services avail-able, and enabling businesses and individuals to be in contact with
other businesses and relationswithin the country and abroad.
Importance of Communications

provides business people with efficient means of contact within the business organ
ization

e.g. communication between the branches of an organization, or between
departments etc.

informs the public on goods and services available on markets, where they can get
them and at what price.

enables businesses to be conducted world wide. Today, the whole
world is one huge market. No matter where a person lives, the various

facilities available allow him or her to conduct businesses anywhere in the world.

widens the markets for the firm’s products in both home and overseas trade.

enables customers and suppliers in home and overseas trade to be contacted
speedily

 by telephones, fax, electronic mail, telex, internet, air mail etc. thereby allowing
for quick:

Placement of orders for goods urgently required e.g. spare parts etc

Dealing with customers’ complaints, and for

Settlement of payment and queries that may arise in a business transaction.

enables businesses to compete with one another.

enables businesses to penetrate new markets or widening of markets.

allows businesses to be in contact with sales representatives in home and overseas

markets
.

enables businesses to be in contact

with stock markets world

wide for detailed information on existingshare prices

.

is essential in organizing surveys or trade fairs to promote business activities.
Types of Communication services
The two main types of communication services are postal services and
telecommunication services
.A . P o s t a l s e r v i c e s
Postal services are services provided by post offices for posting and delivering of
letters, parcels etc. Thefollowing are just some of the postal services:1)
Business reply service

is a postal service that enables licensed businesses useto receive replies or orders
from potential clientsusing special envelopes or forms provided by the seller

which do not require postage stamps to be affixed on them.The firms are issued
with licences to use business reply service

by the post office on payment of a deposit

.

Used by mail order
firmsThe reason why firms use a Business rely service is to encourage cus
tomers correspond with them sincethere is no additional expense on
postage of letters. Mail order companies usually use business reply ser-
vices to encourage customers to order goods from them.Business reply service may
be used to send first and second-class mail. First class mails are letters that arerequi
red to be delivered the same day of posting. Second class mails include mails that
do not require ur-gent delivery
.
2)
Poste restante
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Poste restante is a postal service provided for visitors and travellers to town or
city where they do not have apermanent address.
Letters, of a town from where the letters are collected. For example, Miss
MaamboPhiri, a visitor with no permanent address to Livingstone city can have her
letters addressed as follows
Stamp
Miss Maambo PhiriLivingstone main post officePoste restante
LIVINGSTONE.
In the above example, Miss Lubasi who is expecting to receive letters from friends,
relatives etc. byposte restante service would be checking for her poste restante
letters at Livingstone Main post office
.3 ) D a t a p o s t
Data post is a postal service that provides a speedy, secure and highly reliable
means of sending and deliver-ing urgent and important packages containing
business documents and goods. It’s particularly useful forexchange of computer
materials such as tapes, diskettes etc. Data post offers overnight door-to-
door deliv-ery of packages or parcels handed in at post offices counter displaying d
ata post sign. Packages are givenspecial security treatment. Data post is operated b
oth locally and internally.
4 ) R e g i s t e r e d l e t t e r s
This post service enables valuable items such as cash notes to be
sent through the post office. An envelopeor package being used in sending
items by registered letter must have a large blue cross on it. Compensa-
tion in proportion to the value of packet and registration fee paid on posting is paid
if the item gets lost inthe post
office.A certificate of posting is issued to the sender as proof of posting.
Upon delivery of a registered article,signature of the person receiving the item
is obtained as proof of delivery.
5 ) R e c o r d e d d e l i v e r y
Recorded delivery is a postal service used when proof of delivery
is required. It is used when sending im-portant documents such as examination
certificates, plans, designs, legal documents etc
.
Recorded delivery letters travel together with ordinary mail but
are separated at the delivery point wherethey are recorded in a book and
signature requested from the person receiving letters.
6)Cash on delivery (COD)
A cash on delivery service requires the customer to pay the trade charge before the
goods can be delivered tohim or her. Mail order companies that sell goods through
the post office mainly use cash on
delivery. Thepost office acts as an agent for the seller. For example, a mail order c
ompany in South Africa can send aparcel by post to a customer in Livingstone,
Zambia. On receipt, the Livingstone main post office will sendan advice note to the
customer requesting him or her to collect the parcel. The customer will only be
given
aparcel on payment of trade charge specified by the sender of goods for collection
on delivery
.
All items sent on cash on delivery service are registered on posting.
7 ) E x p r e s s m a i l s e r v i c e
Express Mail service is fast and safe. It is used for sending important and urgent do
cuments. It enablesquick sorting and delivery of mail in return for extra fee from
post office
customers.Mail is personally accepted at post office and delivered to the destinatio
n. Parcels up to a certain size andweight are delivered the same day of posting by s
pecial messengers. Individuals may use this service tosend special gifts to friends
and relations e.g. birthday presents etc.
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8 ) P r i v a t e b a g s
Private bags are used for posting and receiving letters. There are two keys to a
bag. One is kept at the postoffice another is kept by the owner of the bag. When
letters are locked in the mail bag at the post office, theycan not be removed until
the owner opens the bag at his or her own place of work. Therefore, private
bagsprovide more security to letters than post office boxes
.9 ) P o s t O f f i c e B o x e s
A post off ice box is used for receiving letters only. An
individual or organization renting a post box col-lects letters from the post
office at any time.10)
Franking Machine
Franking machine prints postal impressions on envelopes. The postal impressions
show the amount of post-age, place and date of posting. Franking machines are
used by organizations that send many letters at once.They save time in affixing
postage stamps on each
letter.A franking machine can be bought or hired from a company that sale
manufactures franking machines.However before the franking machine can be
used, a license to use it must be obtained from the post office.The post office sets
meters for the franking machines. The hirer of franking machine pays the
post office ac-cording to units of postage value used.
1 1 ) P h i l a t e l y
This postal services is concerned with issuing of postal stamps and historical items
of the post office. Phila-tely produces such as postage stamps, neckties
etc depicting postal services are sold at the post office.There are several more
postal services provided by the post office.
The continuing need for postal services
Despite the abundant sophisticated telecommunication systems currently
available in our communities,there will be a continuing need for postal
services. The reasons for continuing need for postal services in-clude the
following:

Postal services are usually cheaper than telecommunication services, and
therefore there will al-ways be people using the cheaper postal services for their
communication in preference to expensivetelecommunication services.

Postal services are used in sending goods in parcels at distant places. It is
not possible for one tosend a parcel of goods by telephone or by fax, or by
telex. Therefore, there will be a continuing needfor postal services.

Postal services do not require special equipment to transmit or to receive messages.
Thus postalservices are usually used to send messages to the remotest areas.B.
Telecommunication services
Telecommunication services that are use by people engaged
in commerce include telephones,telegrams, telex, electronic mail, internet, fax, radi
o paging, radio messages etc.1)
Telephone
Telephone provides people engaged in commerce with speedy means of contacting
other business peopleover any distance either within the country or abroad. The
circumstances in which a telephone may be usedinclude:

When a customer wishes to inform his or her supplier that he or
s h e w a s s e n t w i t h w r o n g o r incorrect quantity or type of goods.

When a trader needs to hold a discussion or conversation with a customer.

When a person wants to speak to a particular person

When a person wants an immediate response to a query etc.

When a person wishes to leave a message on answering machine.

When the supplier wishes to urgently inform his or her customer of a consignment
of goods before itarrives.
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
When a potential customer wishes to discover the company stocked an item that he
or she needs ur-gently.

When a businessman wishes to conduct an urgent business with a client.

When a fax machine is not available
Importance of a telephone to people engaged in commerce
A telephone provides immediate contact between businessmen over a distance
locally or internallyA discussion or conversation to clear the problem or seek
advice or take other orders may take placeon telephone between the supplier and
his or her customer.The problems to people engaged in commercea ) A
telephone does not provide a written confirmation of
the conversation. Therefore contracts
m a d e on telephones are risky because they may be disputed later.b ) A t e l e p h o n
e is not reliable for messages that are highly technical and
c o m p l i c a t e d i n n a t u r e . F o r example it may not be advisable for trader to
place for an urgent order for a spare part for acomplicated piece of equipment
using a telephone.c ) C o m m u n i c a t i o n c a n p r o v e d i f f i c u l t f o r t e l e p h o n e
users who do not understand each other’s language.
Telephone services of commercial value to business people
.These include:

Personal calls
: -A person call is a telephone call that specifies a
person to whom the caller wishesto speak

Local call
: -A local call is a telephone call to another telephone number within the
same area orwithin the same telephone exchange

Trunk call
: -Trunk means long distance calls. A trunk call is another distant exchange.

International calls
: -An international call is a call from one country to
a n o t h e r c o u n t r y e.g. A telephone call from Botswana to Zambia.

Transfer Charge Calls
: -A transfer charge telephone service enables telephone subscriber providedhe or
she agrees to pay for the telephone call before it is made.

There are many more telephone services available for businessmen and
individuals.
2 T e l e x S e r v i c e
Telex uses teleprinter, which is a combination of typewriter and telephone for
sending
writtenmessages via a typewriter keyboard over any distance locally or internation
ally. Each tele-printer has a telex number, which is used to connect one teleprinter
with another to a telex line
The message is sent first by dialling the telex number of the receiving teleprinter.
As the message is beingtyped on the sending teleprinter, the same message
is automatically being received on the receiver’s tele-printer,
The circumstances in which a teleprinter may be used include:
-

When sending highly technical and complicated messages e.g. when a customer

wishes to place foe an urgent order for a spare part of a complicated piece of
equipment.

When written confirmation of the message is required e.g. When sending a
quotation, let-ter of query, invoice, statement of account etc.Importance of a telex
to people engaged in commerce

Messages may be printed on a teleprinter even when offices are closed.

Messages requiring written confirmation may be sent by telex

Messages of highly technical and complicated may be sent by telex

Telex can be used to send computer data

Telex offers a twenty-four service and therefore message can be received
even when offices areclosed because the recording of message is automatic.

Foreign languages can easily be translated

Telex provide instant written messages.3)
Facsimile (fax)
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Fax is telecommunication service which is used for sending and receiving exact
copies of documents includ-ing exact copies of signature, pictures, diagrams and
text over any distance either locally or
internationally.Each fax machine has a fax number that is used to connect one fax
machine with another by way of tele-phone numbers.The message is sent by
first calling the fax number of the receiving fax machine. Once an initial
contact ismade, the document will be put on the fax machine for transmission. As
the copy comes out of the send-ing fax machine, the exact copy of the same
document is being obtained at the receiving fax machine. A faxmachine is indeed a
long distance photocopier.
Importance of a fax to people engaged in commerce

A fax can be used to send and receive messages when the office is closed on 24
hours basis.

A fax provides an instant written communication

A fax can be used to transmit highly technical and complicated messages.

Foreign languages can be easily translated.

Fax transmission may be useful to lawyers who may need exact copies of text, sign
atures, doc-uments etc, needed in settling court cases.4)
Telegrams
A telegram is a telecommunication service that provides business people
with
a sseedy means of sendingurgent written messages to most parts of the country
or the world. The message is telephoned or faxed
tothe post office nearest to the addressee and then delivered by
hand. The charge for a telegram is calcu-lated per word and therefore unnecessary
punctuated marks and statements should be left out in the mes-sage.The use of
electronic mail has reduced the use of telegrams service.5)
Confravision (or video conferencing)
Confravission is a communication service that links a group of people
in distance studio location
by soundand vision. Confravision enables people separated by long distances to ho
ld conferences. One of the re-quirements for holding a confravision is for people to
be at a local television station.For example, a group of people in Kitwe,
Zambia, can hold a conference by confravision with one group inUK. The group in
Kitwe would go to a local radio station and the one in UK would do the same. The
twogroups will then be able to exchange ideas on various issues.6)
Electronic mail
Electronic mail is a way of sending messages electronically via the telephone
line without the need to postletters.The person sending a message by electronic
mail first prepares his or her information on a microcomputer.He or she
then transmits the message via a telephone network to a central computer. The
person receivingthat message has to use another microcomputer and a telephone in
order to get the message from the cent-ral computer.Electronic mail works
much in the same way like the traditional post mailbox
that the letters (ie the mes-sages) are sent in an electronic form and the post
boxes (ie. Computers) are opened via the telephone
Advantages of Electronic Mail

Electronic mail is fast

Electronic mail gives a written record of communication

Electronic mail has many facilities such as internets

Information is secret since subscribers use secret codes or pass word to access
information.

Electronic Mail allows the use of computers.7)
Teletext
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Teletext is a communication service that enables people who have television
with teletext to obtain a widevariety network into a television or a computer
reports, sports, news, cooking hints and other items of gen-eral interest8)
View data
View data is a telecommunication service that enables a person to transmit
information through a telephonenetwork into a television or a through the same
view data
network.The most important characteristic of view data service therefore is that it e
nables view data customers tosend and receive information.The importance of
view data to people who are engaged in commerce include:-

It provides electronic mails

It enables goods and services to be advertised

It enables goods to be ordered on sale order forms transmitted by the
supplier to the customer’sview data. (i.e. computer) screen.9)
Radio paging
A person to be contacted carries a bleeper and when it indicated that he or she is
wanted by giving a bleez-ing or buzzing sound. The person picks up the nearest
telephone, dials a number and is then put through

tohis or her call.Radio paging is usually used in large working places such as
hospitals factories, plants etc.10)
Radio Message
Radios can be used to send urgent radio messages. For example, the owner of OBO
ship who wish to diverthis ship from the original destination because of a local
political crisis would communicate his message tothe ship master by radio11)
Internet
Internet
is a global network of computers which allows users to access world wide informat
ion. It isused for education, entertainment, business, electronic mails,
advertisements, and World Wide Web.
Advantages of Internet

Attractive and interesting adverts are shown in colour

It has the widest coverage

It combines visual impact with sound

The user is able to receive the response immediately/it is fast
Disadvantages of Internet

It is expensive to maintain the website

Needs specialised equipment (computers) to access the information

May have limited coverage in certain countries12)
Computers
Computers are used for storing and providing of
information.Information in a particular topic can be produced on a visual display u
nit (VDU) that is like a televisionscreen within seconds. Computers are used i
n all fields such as construction, medicine, the law, science,economics, acc
ountancy, and commerce. Sooner or later there will be
no office without a computer.The benefits of a computer include: -

It provides speeder response to customer enquiries about the availability of good
sin the retail shop,warehouse or factory

It improves customer’s relation due to fewer arithmetic errors more timely invoices
and statement ofaccounts.

It provides Internet facilities useful for advertising the business and for sale of
goods.

It provides electronic facilities useful for exchange of information between the
departments.

It allows for managers to make better decisions

It simplifies the resolving problems in various fields of work
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
It improves the flow of information between information users

It is useful in stock control and storerooms etc.
ADVERTISING.
INTRODUCTION
Advertising is a French word which means “bring to notice”. Goods and services
produced must be madeknown or be brought to the attention of the general public,
thereby promoting and maintaining the manu-facturers’ market for the
products.What is the purpose of advertising?
Aims of Advertising
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
to increase the sales

to widen/increase the market

to maintain the good will of the business/favourable image of thebusiness

to educate the general public on the new and existing products

to inform the general public on the nature of the goods and where the good are
found and atwhat price.

to introduce or launch new products on the market

to persuade the general public to buy the product or change their brand

to keep/maintain the brand name in the minds of the public

to sustain or create demand for the product

Remain competitive

Achieve market penetration

Increase market shares
Other purposes for which advertising might be used for apart
from increasing sales
-making announcements in
the change of business premises-death of an
e m p l o y e e / t e r m i n a t i o n o f e m p l o y m e n t -warning
customers of a faulty product/withdrawal of a product-
calling for an Annual General Meeting-
Declaration of dividends paid and financial statement-
To make government announcements such as national
i n s u r a n c e r a t e s o r c h a n g e o f t h e school calendar by the Ministry of
Education and new tax charges.- T o m a k e p u b l i c a n n o u n c e m e n t s s u c h
a s l e g a l a n d c o m p a n y n o t i c e s a n d a n n o u n c e m e n t s t o p u b l i c by Zesco
of mass electricity disconnections and load shedding- A d v e r t i s e n a t i o n a l
campaigns e.g. road safety, health campaign against
HIV/Aids.- T o a d v e r t i s e n e w j o b s a n d v a c a n c i e s -
To announce births, deaths, marriages,
charity appeals, lost and found property etc.
How Advertising help companies to maintain and increase sales

Advertising helps a company to maintain and increase its sales by

informing customers or traders of new goods

Reminding them of the existing goods.

Persuading them to purchase the goods

Inducing customers to change brands

Using various methods of appeal

Informing customers where goods are available and what price

Possibly by reducing prices of goods to customersMETHODS OF
APPEALAdvertising must be effective to reach the intended people and it must be
appealing to them, and cost less inrelation to the anticipated sales. To achieve this,
the following method of appeal must be used:
Personality
famous people may be shown using a product in the advertisement such as Dr
Kenneth Kaunda and Cheriseto give the product/service an acceptable image
(Colgate and Ditto)
Ambition for success
The advertisement suggests that the use will be successful in his/her ambition such
as Milo drink and MuziHigh School
 Work Simplification
The product is shown in the advertisement to simplify work performance such as
computers and cell phones
Social Acceptability
The product is claimed to make the user more acceptable to other people
Health
The product is claimed to make the user more healthier such as lifebuoy and protex
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Display of goods
Attractive display of goods on windows and shelves may be used to win the
consumer’s minds.
Excellence
The advertisement suggests that the services offered are of high quality such as
Palmodzi Hotel and LakeRoad PTA School
Comedy
comedians may be used so that the advert can easily be remembered and the
product will easily be bought,such as Bikilon and Difficult.
Romance
The advertisement suggests that the user of the product will be more attractive to
the opposite sex, eg Fairand lovely cream, Romance soap and Geisha
Types of Advertising A. Information Advertising

This gives publicity by merely starting facts.

It therefore gives services and does not seek to induce the consumer to buy the
product.

Examples information advertising would include health warning on a packet of
cigarettes, the use ofsafety belts in a motor vehicle, the announcement of an
election results etc.

It is aimed at creating a demand for a new product(usually used when launching a
new product onthe market), changes made in the product and reminds the people of
the existing products.
B. Persuasive Advertising

This tries to induce the consumer to buy, by the use of certain key words, models
or ideas

It aims to create in the mind of the consumer pleasant association with product

For example the use of female models to advertise cars and tobacco makes appear
that buying suchgoods the consumer will be able to attract the opposite sex.

It can be instructional or product oriented

Also the advertiser may use a good personality so that there is the implication that
if you buy it youwill be as successful as the famous person advertising it.

Advertising slogans are usually used to persuade the public to buy.
Dangers of Persuasive advertising

It emphases only on the good point of the product, that is it does not mention the
bad side of theproduct

It makes people to live beyond their means(extravagant)

May promote dangerous and harmful products

It contributes to the lowering of moral standards in the society

It may go to extremes

It may be indecent

It encourages impulse buying

May mislead or deceive customers
C. Collective/Generic Advertising

It is where a group of organizations in the same trade or industry join together to
advertise theproduct for mutual benefit instead of competing with each other.

They promote a product in general terms.

For instance, the advertisement could be arranged by a Marketing Board, Tourist
Board.

Examples would include the advertising of eggs, milk industries, insurance
companies and bankinginstitutions.
Advantages of Collective Advertising

gives general information about the product

may be cheaper as cost is spread between several producers

should increase overall demand for product

allows competitors to group together for mutual support
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Why many companies who use collective advertising find it
essential to use competitive advertising

to defeat competitors

to sell more goods

to earn greater profits

to give information on new products

to obtain greater market share

to emphasise own particular products

to make use of other media

to target different markets/market segments

may not believe collective advertising is effective
Competitive Advertising

This is undertaken by an individual company/competitors usually promoting it’s
own product.

By brand name

Against similar products of competitors

The product is highly high lighted as the most outstanding

For example Uni-Lever South East Africa may advertise its products as the most
outstanding ones.
Dangers of Competitive Advertising to the Consumer

adds to cost of the product

may be misleading

may be harmful/emphasises on good points of product only

encourages impulse buying

provided insufficient informationmay promote dangerous products

encourages spending beyond means/being extravagant
What are the Benefits (Advantages) of Advertising to the
manufacturer?Advantages of advertising to the manufacturer:

Enables the manufacturer to publicize the products

Informs on both new and existing products

Enables manufacturer to persuade the public to buy the product.

Which may lead to increased sales ( stimulating demands)

Increased sales may lower costs

And increased profit may result

Advertising brings competition amongst manufacturers of similar products

Manufacturing may obtain information from advertisements on goods and services
which are avail-able

Manufacturers may advertise for staff vacancies.
What are the benefits (Advantages) of Advertising to the
consumer?Advantages to consumers:

They are informed of goods services where they are found of which they might
otherwise not beaware and at what price..

Especially new products

It allows them to choose from a wide range of goods brought to their notice

And may improve standards of living for many of the consumers

It informs them of when, where, price, quantity, size and brand.

Competition between manufacturers may lower prices improve quality of goods
and services.

Advertising revenues subsidizes the prices/cost for newspapers, entertainment,
magazines andother forms of media.

It informs consumers of events, weddings, fairs, and air time tables.

Introduced to new products

Allows for a more choice form a wide range of goods

Encourages competition between forms – lowers prices/ prices

Allow for the spread of government information
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
Local notices e.g births, marriages, deaths

Local events notices.
What are the dangers (disadvantages) of Advertising to
consumers

Encourages overspending/impulse buying

Makes people buy what they do not need

and indeed what might harm them e. g smoking

Encourages duplication of brands

Encourages discrimination as a result of persuasive, as or appeals to the emotions

It may mislead the consumers

Sometimes makes false claims by publicizing only the better points of the product
are mentioned.

It may exploit the consumers, such as sex appeals and hero worship

It may restrict the consumer’s choice of goods

It contributes to the lowering of moral standards(moral decay) in the society
What are the dangers (disadvantages) of Advertising to the
manufacturer

It may add to the cost of production especially if it is unsuccessful. The goods
therefore, may be-come too expensive for the consumer to buy

Much money is used on advertising, and many people feel would be better spent on
improving thequality and efficiency of the product

It may lead to reduction of competition, large firms are able to afford the best type
of the media aswell as the wide spread of the media.

In consequence, the small firms may not be able to compete and possibly close
down

some advertisements may not only be misleading but also wasteful, for example a
firm may advert-ise similar goods in direct competition of each other, giving the
impression that the goods are com-peting against each other, when in fact they are
made by the same manufacturer

this leads to duplication and waste of resources
How can a manufacturer of breakfast cereal whose products are
well known justify the expense of a na-tional advertising
campaign?

The manufacturer of breakfast cereals must continue to advertise his well-known
products because:-

The manufacturer must keep his products before the public

To keep them informed that the products are still available

Otherwise the public might buy his competitor’s goods, which were continuing to
the advertised.

It is also necessary to persuade new customers to buy the manufacturer products in
preference totheir existing brands.

A national advertising campaign is necessary because breakfast cereal is a family
product nationallydistributed and formed in most households.

It is therefore necessary to reach most consumers in the country.
Why it is necessary to control advertise standards or protect
consumers from some forms of advertising?

Advertisers may attempt to mislead or deceive customers in an effort to improve
sales.

And may make untrue statements/false

Some advertising may undermine social standards.
What is a code of Advertising Practice?

it is a voluntary agreement

Set- up by the advertisers themselves

To establish professional standards

By which the public are protected

From dishonest or misleading advertising

The basis of the code is that all adverts should be legal, decent, honest and truthful.

And should be prepared with the sense of responsibility to both the consumer and
the advertisingindustry in general.
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What is the purpose of a code of advertising practice?

To protect consumers from misleading dishonest, untruthful advertisement

From unscrupulous advertisers

By laying down rules, which require that all advertisement are legal, honest, decent
and truthful
How may such protection be given?
- Protection is given by:-

A code of Advertising Practice Administered by Advertising standards Authority

By law

The Government

The Law

The law has some control over advertising

The Trade Description Act 1968, the Misrepresentation Act 1967 and the Theft Act
1968 providesome control over untruthfulness in advertising.
The Government
May also place control on advertisingFor example, it places a Government health
warning on all cigarettes packets sold, like tobacco is harmful foryour health
What are Advertising Agencies?
These are separate firms specialising in helping the product of a seller to reach
potential buyers andstimulating demand.They are a business which specialists in
helping the seller with his advertising requirements.
What are the functions of advertising agencies?
they perform such functions as:-

Giving advice and assistance on choice of media

Reserving or booking space or time on media

Placing the advert on the media

Creating or preparing or designing the advertisement.

Undertaking market research relating to packaging price etc.

Produce the advertisement

They supply market information on what will stimulate an increase in demand of
the goods(marketresearch).

They assist in general public relations work for the seller.
Why are most National Advertising Campaigns undertaken by
advertising agenciesAdvertising agency used because:-

it may not be economic for the company to have its own full time advertising staff
or department.

Or it may not have staff with necessary experience in large scale advertising.

An advertising agency however undertakes work for many.

And has highly specialised staff to assist with all aspects of advertising Such as:-

Give advice on choice of media

Booking space and time on media

Produce the advertisement

Market research-commercial with obtained information.
What should you consider when designing an advertisement for a part- time
job in a shop?

Content of the advertisement

Display of the Advertisement

Layout of the advertisement or the key words.

Where the advertise to be placed

Cost of advertising

Whether it is a one-off or a repeat
Advertising Media
A channel for communicating advertisement
Factors which would influence the choice of media
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The factors which would influence the choice of media are

what type/ class of person will buy the product (i.e to what type of person is the
product aimed (Target group).

What area is to be covered by advertising campaign i.e Extent of Market

What type of the product i.e nature of the product (some must be demonstrated)

How much is the advertising budget for the campaign (how much can the company
afford e.g T. V expensive.

What profits are expected from the sale of the product (cost of advertising must be
covered)?
1. National/National Press and Local Newspapers
Commonly used because of it’s wide coverageLarge number of consumer But
limited only to those who are literate
Advantages of Newspaper advertisement

they give a wider national coverage

they are relatively cheap than television adverts

the advert can be placed in appropriate places in the paper to catch the eyes of the
leaders

information can be stored and referred to later, so it gives a long life to adverts

the use of daily newspapers for advertising ensures an immediate coverage of the
intended audience.

The advert may be more detailed

It may be passed on to others

Can circulate amongst readers

Space can easily be booked
Disadvantages of Newspaper advertisements

they are perishable, as a result advertisements have short life because very few
people keep newspapers for fu-ture reference and they may be used by traders for
wrapping things.

Poor quality of print may reduce the effectiveness of the adverts

Newspaper advertisements are not accessible to illiterate people

They may not be taken very serious by some readers.2
. Magazines e.g Women’s magazines

This can give attractive coloured illustration of Advertisements]

Can be kept people for a quite a length time (more permanent)

Special coupon offers can be made.

Magazines may be seen by a number of customers

Magazines may have limited leadership

And appeal only to a certain classes e. g to women
Advantages of magazines for advertising

they offer targeted advertising

they are aimed at a specific class of people who are expected to buy the product,
for example, breakfast cerealsin the women’s magazines is appropriate as it would
target the women.

They may also be seen by many readers other than the person who bought it

The advert can be illustrated in a colourful way and on good quality paper to create
aspiration

Special coupon offers can be made

They have a long term impact as they can be kept and referred to later

It is cheaper to advertise in magazines than television
Disadvantages of magazine advertising

they are relatively more expensive than, henceforth, they are not as widely read as
newspapers, as a result theyreach fewer people

they may have a limited readership

they appeal only to a certain class of people
3. Television

it reaches a wide range of customers

Visual impact as well as sound( Easy to remember what you see and hear)

It shows (demonstrated) visually) the usefulness of the product, its quality and how
it is used.

It can be shown or appropriate times for housewives/family
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
It is very expensive

Not always well received by the viewing public
Advantages of television advertising

it combines visual impact with sound, so it is very effective(lasting impression –
sound and vision)

it gives the widest coverage(massive coverage)

it can be seen by many viewers especially at peak hours

it can be shown at the right time for the right audience(time selectivity, that is
can be shown at specific time)

it reaches people’s homes when they are relaxing, so it can create an aspiration

can be booked at peak hours, eg. News time

the advert can be repeatedly be shown
Disadvantage of television advertisements

it is very expensive

it is not always well received by the viewers

they tend to be short lived and may not produce a long lasting impact

they are very few television sets in rural areas

not all the places have television signals

some people may take them as entertainment

they may be submerged in a large number of others if not well planned
4. Radio

Reaches a wide range of customers, even people in remote areas in the country.

Many people own Radio

Cheaper for the producer to advertise on Radio

Advertisements are broadcasted at various times during their programmes
transmissions.

Advantages of radio advertising

it has the widest coverage

many people have access to the radio

radio signals reach almost everywhere, including the remotest place

many radio stations are now available, this provides an opportunity to target a
particular ethnic group

repeated adverts are possible

the specific audience can be targeted at specific time/language

it is cheaper than television

it has a lasting impression through catchy tune or jingle
Disadvantage of radio advertisements

the advert can only be heard and not seen- no visual stimuli

the advert may only be received by a secondary audience who may not may much
attention to the advert

radio adverts tend to be short lived
5. Window Dressing
Designed to attract consumers into a retail outletAnd keep their attention to buy
goods when inside the store.
6. Free samples
Are often given to advertise a product which is new on the marketFor example a
brewery may allow its customers a free first point of a new beer to persuade them
to buy more of it after-wards.
7. Posters
Can be seen on hoardings everywherePersuades and informs the local people or
communityLocal people can afford the type of mediaCheaper than any other forms
of mediaThey convey the message visually to passers by
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Advertisements can be placed on bill boards or on sports stadium headings.
8. Leaflets/Hand Bills
Can be handed out by advertisers Normally done by local advertisers such as by a
hairdressing salon showing reduced pricesMay be cheaper than either television or
Magazines Not permanent
9. Plastic Bags
Can be printed with the name of a firm and given away with each purchase.This is
a cheap form of advertising.
10. Clothing
Manufacturing will often print their name or symbol in a prominent place for every
one to seeFor example the word “Levi” is seen on Jessie and Pullovers.Footballers
have sponsor’s name displayed on their football shirts.
11. Illuminated Signs
These are frequently found on premises near busy centres.12.
Trade Journal
Used by companies when:-Targeting a particular groupAs trying to attract
wholesalers and retailer Because arising to sell through themAble to give detailed
information (full description)Wholesalers and retailers read these magazinesOther
means of advertising may not be so effective
.13
Trade exhibition/fare Advantages of Trade Fare
o
customers are able to see the actual product/service
o
able to target certain group for various products/goods
o
clever display
may attract/encourage impulse buying
Disadvantages of Trade Fares
o
customers who do not attend shows may miss out
o
as it appeals only to people who attend the show
o
or are passing near the exhibition place
BUSINESS UNITS
By Business Units we mean the way businesses are owned and operated. These are
determined by the way they raise their capital,ownership, control and
objectives. Zambia is a mixed economy, this means that it has both privately
owned businesses (the privatesector) and state owned industries (the public sector).The
following are the various types of business
units1 . S o l e t r a d e r 2 . P a r t n e r s h i p 3 . P r i v a t e
Limited Company4.Public Limited
Company5.Public Corporation6 . C o -
o p e r a t i v e
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7 . H o l d i n g c o m p a n y 1.
Sole TraderCHARACTERISTICS OF A SOLE TRADER
- I t i s o w n e d a n d c o n t r l l e d b y o n e p e r s o n -Owner raises
the capital to operate the business from personal savings or from
borrowing from relatives of friends.- T h i s i s t h e r e f o r e a d i f f i c u l t w a y
t o r a i s i n g c a p i t a l -The owner manages the business without assistance
from his employees-He can therefore make any independent decisions
and changes any time he wants to.-All the profits go to him (sole
proprietor) and has to bear all the risks or losses.-There is no legal
distinction between personal property or the owner or the business and
the assets of the business(has noseparate legal entity).- A s a r e s u l t i n s u c h a
b u s i n e s s t h e o w n e r h a s u n l i m i t e d l i a b i l i t y -Meaning that if the
business owes money to a lot of people such that money from the
business can not be enough to repay,the can go to the extent of selling the personal
property in order to recover the money.-The sole proprietor does not pay company
tax but personal income tax.- I t l a c k s c o n t i n u i t y a s t h e b u s i n e s s
dies with the owner -Has great flexibility when it comes
to decision making- T h e o w n e r e n j o y s a l l t h e p r o f i t s a l o n e -He
p r o v i d e s p e r s o n a l s e r v i c e t o h e r / h i s c l i e n t s -s/he needs
little documentation to start the operation of the business-does not need
to communicate or inform the general public on the operations of
the business
Advantages of a Sole Trader
-No sharing of profits because all profits go to her/him.-
The owner makes independent decisions(has great flexibility)- H e d o e s
n o t p a y c o m p a n y t a x b u t o n l y p e r s o n a l i n c o m e t a x -It is easy to
establish such business as there are less formalities required to set up the
business-It is easy to organize and manage because the owner does not
need to consult anyone in making decisions.-The owners of the business
give personal attention to customers.- N e e d s l e s s
documentation to start the business- A b l e t o s u p e r v i s e ( i f a n y )
staff closely
Disadvantages of Sole Trader
- I t i s d i f f i c u l t t o r a i s e c a p i t a l a n d h e n c e d i f f i c u l t t o e x p a n d -May
not enjoy the economies of large scale production due to limited capital
such as favourable discount from the manu-facturer -Unable to employ
specialist workers in order to provide the expertise to the business-
H e h a s u n l i m i t e d l i a b i l i t y -There is no legal distinction
between the owner nd the business-Lack of continuity in case of
death or illness of the owner.- S u f f e r s a l l t h e l o s s e s a l o n e -
Has all the worries/risks of the business
Partnership-
A partnership is merely agreement, usually in writing by means of which several
individuals trade together with view of making profit. A written arrangement
usually take the form of
Articles of Partnership or Partnership DeedPartnership deed
This written agreement is known as a partnership deed and it staes the following:- T h e
names of the partners-The name of the business-
The amount of capital each partner contributes-The ratio in which
partners are to share contributes-The ratio in which partners are
t o s h a r e t h e p r o f i t s / l o s s e s -Also the rate of interest payable on capital
e.g. 6% of each partner’s capital- T h e d u r a t i o n o f t h e p a r t n e r
s h i p . -The amount each partner may withdraw for private use-
The manner in which the accounts are to be kept and audited.-
Whether any partner is going to receive a salary or not- T h e
r i g h t s o f e a c h p a r t n e r -The procedure of admittinf
a n e w p a t n e r -In the case of disputes how shall they be resolved
Types of Partnership
-the two types of partners are
Ordinary Partnership
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-All the partners in this partnership have unlimited liability i.e. they all
stand to lose their personal property in case of busi-ness failures.-In
this partnership each partner has equal powers and responsibility-
Each partner takes an active part in the management of the business.
Limited Partnership
-The type of partnership in which some of the Partners have limited
liability-This means that the liability or the limited partners is only
confined to the amount they have invested in the business.- H o w e v e r h e
d o e s n ’ t s h a r e i n t h e p r o f i t s -Although in a limited partnership there
must be at least one general partner whose liabilities is unlimited.-A
limited partnership must not be registered with the register of the
companies
Differences between Ordinary and limited Partnership
-In an ordinary partnership all partners have unlimited liability where as
in limited partnership some partners have limitedliability-The limited
partner do not have the final voice in the Management of business though
they share in the pofits where as inan ordinary partnership all the partners take part in
the management of the business.
Types of Partners
-There are three types of partners
Active Partner
-This is a type of partners who take active role in the running of the
business and has unlimited liability.
Sleeping Partner
-This is a type of partner who does not take part in the running of the
business but has contributed some money towards thecapital and only
participates in the sharing of the profits.
Nominal Partner
-This is a type of partner who allows his name to be used in the business
but does not contribute money towards the capitalneither does he participate in
the sharing of the profits.
Characteristics/features of partnership
-Its has two partners and maximumof 20 membersexcept for professional
partnerships who are allowed to be more thattwenty- A p a r t n e r s h i p i s
based on a partnership deed.- A p a r t n e r s h i p i s n o t a s e p a r a t e
legal entity-Partner usually have unlimited liability-
C o n t r o l l e d a n d o w n e d b y p a r t n e r s -A partnership ceases
on the death of a member(lacks continuity)-Easy to set up because they
are few documentations e.g. partnership deed.- A c c o u n t s o f p a r t n e r s h i p
are not made public (they are private)-Capital is raised through
the contributions from the partners
The Advantages of changing from a Sole Trader to a Partnership
-They will have more capital than that of a sole trader.-Partners
a r e a b l e t o r a i s e a d d i t i o n a l c a p i t a l m o r e e a s i l y . -The business
benefits from the expertise of both/all the partners e.g. one may be an
accountant and the other a marketer - T h e r e w i l l b e d i v i s i o n o f l a b o u r
b e t w e e n / a m o n g t h e p a r t n e r s -The partners can consult each other
(sharing of ideas) in solving problems.-The overhead expenses may be
saved by closing one shop or premises and concentrate on one side.-
Additional savings may be made because duplication of advertising will
be avoided.- T h e r e i s b e t t e r u t i l i s a t i o n o f c a p i t a l
Disadvantages with the Partnership type of Business
-The Profits of partnership have to be shared amongst partners-
There may be disagreements between/among the partners-
D e c i s i o n s m a y n o t b e s o s p e e d y -Decisions are binding on all
partners even if one of them has not been consulted and may cause
problems.-Relationship in partners can be broken up by conflict between
partners- C a p i t a l m a y b e m o r e d i f f i c u l t t o w i t h d r a w -Lacks
continuity as the Partnership becomes dissolved on the death/retirement
of an individual partner -Partners have unlimited liability except for
limited partners in limited partnership- L a c k o f c a p i t a l m a y l i m i t
e x p a n s i o n -Membership in partnership is limited to 20; this restricts the
firm’s ability to raise more capital.- T h e b u s i n e s s h a s n o s e p a r a t e
legal entity
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SIMILARITIES BETWEEN THE SOLE TRADER AND
THE PARTNERSHIP

both the sole trader and the partnership have unlimited liability
both have no separate legal entity

both lacks continuity as they come to an end upon the death of the partner or sole
trader.

Both are directly controlled by the owners

Both keep their financial records separately

DIFFERENCES BETWEEN THE SOLE TRADER AND THE
PARTNERSHIP

A sole trader is formed by one person while the partner is formed by 2 to 20 people except for
professional partnerships

A sole trader does not share profits with any one while profits of a partnership are shared
amongst the partners

There is no division of labour in sole trader while in partnership there is division of labour

A sole trader raises capital from personal savings while capital in partnership is
raised from contributions from the part-ners
JOINT STOCK COMPANIES
-These are a types of business where the owners have limited liability i.e.
their liability is limited to the amount inversed inthe business.-The owners
of limited companies are called share holders because they buy shares-
The capital of limited companies is divided into shares and it is known as
share capital.-Shareholders elect board of
directors who control the business.-The board of directors appoints
managing director who is responsible for day to day running of the
business.-The board of directors appoints managing director who is
responsible for day to day running of the business.-The share holder have
little say or powers in the general running of the company except that
they have a role at the AnnualGeneral Meeting (A.G.M.)- t h e
s h a r e h o l d e r s h a v e l i m i t e d l i a b i l i t y , -limited companies have
separate legal entity from its owners
Procedure in the formation of companies
-There are certain legal requirements that must be before a limited
company can be formed.The following are the requirements:1.
MEMORANDUM OF ASSOCIATION
-This is an application to the registrar of companies that a
company may be formed by promoters of the companies. Itrelates to the
external affairs of the business-This memorandum is given to the registrar of
companies before a company is incorporated- I t s t a t e s t h e
f o l l o w i n g : -The name of the company with the word Ltd or plc
after its name-The objective (aim) for which a company is
e s t a b l i s h e d . -The address where the registered company will
be situated (Headquarters)- T h e s t a t e m e n t t h a t t h e l i a b i l i t y o f
shareholders is limited.-The amount of capital showing its
divisions (shares)- A s t a t e m e n t w h e t h e r i t i s p r i v a t e o r
p u b l i c -The number of shares to be taken by each of the
Directors.
Reasons for including these items
-The name of the company is there because no other name will be mixed
with the name of another company.-The company must state the objective
of the company because it is required in order to make known what the
com- pany is going to do.-The company must state the address where it
will be situated for easy contact-The statement that liability is limited to
show that shareholders’ liability is limited to the amount invested.-A
statement of amount or capital is necessary in order to let what would be
shareholders to know the amount toshares and types.2.
Articles of Association
-it is a document setting out the constitution and regulations (set of rules)
of a registered company.-These rules are drawn up to govern the internal
affairs/working of the company.There rules include:-
the rights of shareholders-the powers of directors-
the procedure of meeting-
the procedure of dividing profits-the procedure of dividing
profits- b o r r o w i n g p o w e r s o f c o m p a n y - T h e i s s u e a n d
t r a n s f e r o f s h a r e s - T h e m e t h o d o f a u d i t -the articles of
association is then submitted to the registrar of companies.
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-The registrar of companies examines the two documents (memorandum
of association and articles of associations)-If the registrar is satisfied, he
allows the company to start by issue certificate of corporation.3.
Certificate of incorporation
-It is a confirmation by the registrar of companies that a company can
start trading- I t r e c o g n i z e s t h e c o m p a n y a s a s e p a r a t e l e g a l b o d y -
But a public limited company must first issue the prospectus.-
The certificate or incorporation contains the following information:
(a)The name of the company and its registered number (b)A statement
that it has been registered in accordance with the law.( c ) T h e s i g n a t u r e
o f t h e r e g i s t r a r . 4.
Prospectus
-it is an invitation to the public to come and subscribe/buy shares.-It
gives details of the shares of the company and the price at which they are
offered.-It also provides details of the company’s past result (history) as
well as as future prospects.-
I n o t h e r w o r d t h e p r o s e c t u s i s a n a d v e r t i s e m e n t -The registrar will
then issue the certificate of trading so that the public limited company
can start its operations.5.
Certificate of Trading
-It is authority issued by the registrar of companies to allow the formed
company to start the business.The two types of limited companies
are:1 . P r i v a t e l i m i t e d
company2.Public limited company
Characteristic of Private Limited Company
- o w n e r s a r e s h a r e h o l d e r s -Minimum of two share holders
but no maximum number -It has a separate legal existence
f r o m i t s s h a r e h o l d e r s -Shareholders have limited liability i.e. can only
lose amount paid for shares- I t m u s t b e r e g i s t e r e d w i t h t h e r e g i s t r a r
o f c o m p a n i e s . -Many legal requirements to set up a private limited
company e.g. memorandum of association and articles of associationhave
to be submitted to the registrar of companies.- a private limited company does not
need a certificate of trading to start operating- P r o f i t s a r e d i s t r i b u t e d t o
share holders as dividends-Managed by board of directors who are
e l e c t e d b y s h a r e h o l d e r s -Board of directors appoints the managing
director who is responsible for the day to day running of the business.-
C a p i t a l i s r a i s e d t h r o u g h S a l e o f s h a r e s -shares for a private
limited company cannot be offered for sale to the general public i.e. they
cannot be quoted at the stock exchange.- M o r e c a p i t a l a n d b o r r o w i n g
c a p a c i t y -There is continuity of business even when one share holder
dies- P r i v a t e l i m i t e d c o m p a n y h a s L T D a f t e r i t s n a m e -Accounts are
filled with the registrar of companies and are not published-The capital
and ownership of a private limited company is divided into shares
The Characteristics of Business Units can be summarized as follows:
- o w n e r s h i p - c a p i t a l r a i s e d - c o n t r o l -
p r o f i t s - f o r m a t i o n -relationship
(unlimited and limited liability)
Characteristics of Public Limited Company
-The company is owned by share holders-
I t i s a s e p a r a t e l e g a l e n t i t y -Share holders have limited
l i a b i l i t y -Set up by minimum of two shareholders but
n o m a x i m u m - R e g i s t e r e d w i t h t h e r e g i s t r a r o f c o m p a n i e s -Many
legal requirements e.g submits memorandum and articles of association-
A n d i t r e q u i r e s t r a d i n g c e r t i f i c a t e -Capital is raised through
t h e s a l e o f s h a r e s t o t h e p u b l i c -It issues a prospectus in order to
appeal to the public for them to buy shares-Share holders elect a board of
directors at the Annual General Meeting.- B o a r d o f d i r e c t o r s
controls the workings of the company
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-Day to day running of the business in under the control of managing
director - P u b l i c l i m i t e d c o m p a n y h a s t h e m o t i v e s o f m a k i n g
profits-Profits are distributed to share holders as dividends-Name
ends with PLC after the name of the company.
Advantages of a public Limited Company
- A l l t h e s h a r e h o l d e r s h a v e l i m i t e d l i a b i l i t y -It has greater borrowing
capacity as banks are more willing to lend money to large businesses- It
has greater continuity as the business continues despite the death of a
shareholder - I t h a s s e p a r a t e l e g a l e n t i t y f r o m i t s s h a r e h o l d e r s -
Shares are quoted on the stock exchange hence greater possibility of
raising capital- T h e y e n j o y e c o n o m i e s o f s c a l e - I t i s a b l e t o
merger or takeover or acquire other businesses
Disadvantages of a Public Limited Company
-It has more cost and more legal formalities in forming a public
company, for example registration of the company with theregistrar of
companies and issuing of the prospectus-They are subject to takeover
if another company buys 51% of shares-Management of the public
Limited Company becomes difficult as the company grows in size-The
separation between shareholders and the people managing the company may lead
to conflicts with the shareholders-The publication of financial accounts for
public inspection reduces the privacy of a public limited company-There
are more formalities in running a public limited company, eg holding of
the Annual General Meeting and quoting of the share on the stock exchange.
Explanation of the following terms:Public
-The general public is invited to buy shares through the prospectors i.e.
open to the public.-And the information regarding the company is made
available to the member of the public.
Limited
-This means that the liability of individual shareholders is
confined/restricted to the amount they have invested in the busi-ness.-
Therefore the shareholders’ personal possessions are not risk -
This protection enables small investors to invest in
industries without fear.-And therefore enables companies to obtain
larger amount of capital.
A Separate Legal Entity
-This means that the company has its own legal existence- I t i s
s e p a r a t e f r o m t h a t o f i t s s h a r e h o l d e r s -Thus a company can enter
into contracts in its own name and it can sue or be sued.
Board of Directors
-These are leaders of the company.- T h e y c o n t r o l t h e
b u s i n e s s -They are elected by shareholders at the Annual
G e n e r a l M e e t i n g -They appoint the managing director who is in charge
of day to day running of the business-
They recommend the rate of divindeds p[ayable to shareholders
Managing Directors
-He is charge of day to day running of the business-He co-
ordinates policy matter of the company
AnnualGeneral Meeting
- A m e e t i n g h e l d y e a r l y b y s h a r e h o l d e r s o f t h e c o m p a n y . -At this
meeting, Board of Directors gives financial report and other reports.-At
this meeting accounts of a company are approved nd board of directors
are elected.- T h e a i m s o f e l e c t i n g t h e B o a r d o f D i r e c t o r s a r e
a s f o l l o w s (a)Approve the audited accunts presented by the managing
Director ( b ) E l e c t B o a r d o f
D i r e c t o r s (c)Receive the Directors reports(d)Discuss the
a f f a i r s o f t h e c o m p a n y (e)Deal with issues that could not be sealed by
the Board of Directors
Share Capital of the Limited Company
- A s h a r e i s a u n i t o f c a p i t a l . -The capital of a limited company
is divided into small units called shares-As such the capital of
a limited company is known as share capital
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- T h e r e a r e t h r e e t y p e s o f s h a r e c a p i t a l . 1.Authorised
or nominal capital, the maximum capital the company is allowed to issue
to its shareholders2 . I s s u e d C a p i t a l , t h e a m o u n t o f c a p i t a l a l r e a d y
t a k e n u p b y t h e s h a r e h o l d e r s 3.called up capital or paid up capital, the
amount of capital already taken up, received and paid for by the
shareholdersThese include:1.
Founder or Deferred Shares
-These are sahres sold to the original founders of the company.-
The holders of these shares receive a divident after the claim of all other
shareholders have been met.-They are referred to as deferred shares
because at times they may not receive the dividends in a given year but
will have to be paid the following year.2.
Ordinary Shares
-These received divident after preference shareholders have been paid-
These receive a variable rate of divident dependent on the profit made-
A n d h a v e v o t i n g r i g h t s -Ordinary shares are more to risk form
of investiment than preference shares so it appropriate.-For example
when a company is forced into liquidation, the ordinary shareholders are
usually the last in the distribution of assets.3.
Preference Shares
- T h e s e r e c e i v e d i v i d e n t b e f o r e o r d i n a r y s h a r e s . -They receive
a fixed ate of dividends, e.g. 8% of K100,000 preference
shares means8 x 100 =K8,000100-Preference shareholders have no voting
right at the A.G.M. therefore have no say in the running of the company.-
In the invent of business failure, they have the first claim in the
distribution of company assets.-Prefrence shares may be participating
preferences shares or cumulative preference shares and redeemable
preferenceshares.
Participation Preference Shares
- T h e s e h a v e t h e r i g h t t o c l a i m i n t h e e x c e s s p r o f i t s -They are able to
receive a bonus from profits made in a good trading year.-They receive
such bonus fter payments have been made to all types of shares.
Cumulative Preference Shares
- T h e s e h a v e a c l a i m t o d i v i d e n t a r r e a r s . -This means that if the
business cnnot aford to give the cumulative preference the right amount
of divident in one year, theamount to be paid is carried forward in the next year.-It
may be a number of years before te business makes a good profits and all
divident arrears from previous years will beadded together to form payment to
cumulative preference shares.
Redeemable Preference Shares
-These are type of shares which a company buys back from such
shareholders after a given period of time e.g. 3 years.-This means that
after such a given period of time any holder of such shares ceases to be a
shareholder.
The Difference Between Preference and Ordinary Shares
-Preference Shares receive divident before ordinary shares usually at a
fixed rate (percentage)-
P r e f e r e n c e s h a r e h o l d e r s h a v e n o v o t i n g r i g h t s -And they may be
participating, cumulative and redeemable preference sharesWhiles ordinary
share:-Receive a variable rate of divident (no fixed percentage) dependent
on the profits made.- A n d t h e y h a v e v o t i n g r i g h t s -
Ordinary shares are more risk form of investment than preference shares
What are the sources of finance for public company
1.
Debentures
-These are a long term loam to a company which receive a fixed rate of
interest-This fixed rate of interest is payable to debenture holders
whether profits are made or not.- D e b e n t u r s h o l d e r s a r e c r e d i t o r s t o a
c o m p a n y -They have no voting rghts because they are not shares and
have no say in the controlling at the business- A n d u s u a l l y t h e y m a y
h a v e t o b e s e c u r e d a g a i n s t a s s e t s . -Debenture holders can force the
company into liquidation take over and sell the business if the company
fails to pay inter-est or repay capital.
Differences between a share and a Debenture
-Shares represent ownership of a company and receive a divident out
of profit
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-Debentures represent a loan to a company and receives interest at a fixed
rate whether a company makes a profit or not.-Debenture holders have no
voting rights while some shareholders have voting rights.-Shareholders
are owners of the compay while debentureholders are creditors of the
company
Loans from commercial Banks (see notes on banking)
-for a specific sum of money repayable by instalments- u s u a l l y
for capital items
Overdrafts (see notes on banking)
-they overdraft on a current account-usually to meet
day to day expenses
Share issue/RIGHT ISSUE
The reason for the choice of share issue include:- S h a r e i s s u e c a n a t t r a c t c a p i t a l
from many potential investors.- N o i n t e r e s t i s p a i d o n c a p i t a l
r a i s e d . -The large sum of money required for the purchase of additional
premises and equipment can be easily raised by saleof shares to public.-There
is not repayment of capital once a person has bought shares.-
S h a r e h o l d e r s c a n p a y f o r s h a r e s i n i n s t a l m e n t s . -Share issue can be
used to raise more money only if the company has not exceeded
itsauthorised capital.The sale of shares of a public limited company is easily organised through
stock exchanges
Ploughing Back the Profits
-A company that makes good profit may not distribute all of it to its
shareholder - M a y r e t a i n s o m e o f t h e p r o f i t s t o f u n d b u s i n e s s
a c t i v i t i e s - w h e r e s o m e p r o f i t s a r e p u t b a c k i n t o t h e b u s s i n e s s The
reasons for the choice of ploughing back the profit as a method of financing includes:

no collateral security may be required

there is no cost of borrowing the money

retained profits are readily available

some profits may be kept for emergency or difficult times

retained profit can be used to repair company machinery or buildings
Trade credit
 might be used as a source of finance for the firm by
:- b y a l l o w i n g t h e f i r m t o p u r c h a s e g o o d s w i t h o u t i m m e d i a t e
payment for them.- b y a l l o w i n g t h e f i r m t o s e l l g o o d s
at increased price before payment.- b y a l l o w i n g t h e f i r m
to pay for goods from the sales revenue.
Leasing of Equipment
- this is where company property is mortgaged.
Differences between Public limited Company and Private limited Company
-A private limited company is open only to private individual whiles a
public limited is open to the public to buy shares-In a private limited
company shares are not freely transferred whilst in a public limited
company shares are freely transfer-able at the stock exchange market where the
buying and selling of shares takes place-It is easy to from a private limited
company because formalities are less whilst it is harder and more costly
to form a publiclimited company because they are more formalities in setting it up.-A
Public limited company can raise more capital whilst in a private limited
company the number of shareholders restrictsits capital.-A Private Limited
Company can start trading as soon as it is incorporated but a Public
Limited Company must wait for theCertificate of Trading which is given after the
norminal capital has been raised
Similarities between a Private Limited Company and Public Limited
Company
-Both are registered with a registrar of companies-Both
are separated legal entity from their shareholders-
S h a r e h o l d e r s f o r b o t h e n j o y l i m i t e d l i a b i l i t y -Both companies submit
memorandum of Association and Articles of Association-A minimum of
2 members and no limit is required for both companies- B o t h a r e s u b j e c t
to company tax of the profit earned per annum.-Bot are legally
required to hold an Annual General Meeting- B o t h a r e
o w n e d b y t h e s h a r e h o l d e r s -They are both controlled by the
Board of Directors
Why may a private limited Company not wish to become public
-Cost in time and money in the formation of a plc e.g. stock Exchange
quotation.
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-Publication of accounts: simplify files accounts with the registrar of
companies.-Public companies may be easilysubject to take over by the
government by obtaining 51% of shares.
Difference between a private limited Company and a Partnership
-A private limited company has two to unlimited number of shareholders
whilst a partnership limied to 20 partners.-In a private limited owners are
shareholders wishing in a partnership, owners are partners.-A private
limited company shareholders have limited liability while partners have
unlimited liability.-A private limited company has continuity on the
death of a member whilst with a partnership no continuity on death of
a pertner.-Many legal requiremnet to set up a private limited company e.g.
memorandum of association aand Articles or Associationwhilst with a
partnership it is easy to up few documents required e.g. partnership deed.-A private
limited company has more capital and have borrowing capacity whilst
partnership lack capital and borrowing ca- pacity to expand.
Advantages of a private limited company
-a private limited company has greater continuity on the death of
a shareholder - m o r e c a p i t a l i s a v a i l a b l e a n d h a v e b o r r o w i n g
capacity-It confers limited liability for all the shareholders- I t i s
a s e p a r a t e l e g a l e n t i t y -Shareholders are protected from
malpractices and fraud due to some formalities required- T h e y a r e
not easily subjected to takeovers-They do not
publicise their information
Disadvantages of Private Limited Company
-more formalities in forming of a private limited company e.g. register
with registrar of companies.-More formalities in the running of a
company e.g. the Annual General Meeting must be held each year.-
Activities of private limited company are limited to what is memorandum
of Association.-Private limited company cannot advertise their shares
through the prospectus to the public-If it want to expand further it should
become a public limited company-It is less flexible than a sole trader
because its activities are restricted by the Meomorandum of Association
and Article of Association
Multinational Companies
These are enterprises which have subsidiaries or branches in many countries. They
are usually Public Limited Company. Examplesincludes shoprite, BP (Z) Plc,
CocaCola Bottlers, First Quantum Minerals (FQM) Plc, Unilever South East
Africa, PEP Stores,Shoprite checkers etc. They provide employment to the host
government and they are a source of income to the host government,hence they are
welcome by most of the countries. Their decision making is controlled by the head office
where the parent companyis and implement to all the subsidiaries.
Advantages of Multinational Companies
-They pay tax to the host government which boosts the economy of the
country- T h e y b r i n g n e w t e c h n o l o g i c a l s k i l l s t o t h e c o u n t r y - T h e y
provide employment to the local citizens- T h e y
b r i n g f o r e i g n e x c h a n g e -They provide vital goods
and services
-
they improve mutual understanding between the host country and the parent country
Disadvantages of Multinational Companies
- T h e y t e n d t o e x p l o i t t h e u n d e r d e v e l o p e d e c o n o m i e s -They usually
bring their own experts instead of training the locals to participate in the
decision making process-They can prevent the transfer of technology by
ensuring that all the research is done in the parent country-They
disadvantage the local industries by offering better conditions of service
and salaries-They are centrally controlled and do not take into account of
the conditions in the host country when changing policies-The companies take
back home with them to their home countries all the profits made in the
host country. This drainsaway the host country’s foreign exchange reserves
Public Corporation
These are state owned businesses and they are referred to as nationalize
industries. It can either be controlled by either the cen-tral or local government for
conducting business for the benefit of its citizens. It is set up by an act of Parliament.
Characteristics of a Public Corporation
-
Ownership
:They are owned by the government on behalf of all the citizens in the country i.e. community
as a wide.-
Formation:
It is set up by an act of parliament.-
Control
: Board of directors are appointed by a minister in charge of ministry- I t i s t h e m i n i s t e r
w h o h a s t h e o v e r a l l r e s p o n s i b i l i t y -And it is the board of directors
who take charge of the day to day running of the business-Parliament
investigates the working of corporations through select committees
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-
Source of Capital
: Capital is raised through the government grants (loan) e.g. by the government giving treasure
advancesfrom taxation bonds.-
Purpose
: The motive for setting up public corporation is to provide goods and services at reasonable
price- T h e r e f o r e
profits are used
for improvement of infrastructures e.g. education and helath service.-Public corporation
may plough back any profits they may make and they may borrow money
from the banks.
Difference Between a Public Corporation and a Public Limited Company
-A public limited company is owned by shareholders whilst a public
corporation is owned by the government.-In a public limited company,
profits are distributed to share holders as dividend as for a public
corporation, profits are usedfor improvement of infrastructures.-For a public
limited company, capital is raised through sale of shares to the public
whilst in a public corporation capital israised through government grants.-In a
public limited company board of directors are elected by the shareholders
whilst in a public corporation board of direc-tors are appointed by a minister in
charge of a ministry.-Board of directors control the working of public limited
company whilst parliament investigate the working of corporationthrough
select committees.-The public limited company is set up by a minimum of
two shareholders whilst the corporation is set up by an act of parlia-ment.-
The motive of selling up the public limited company is to make profit
while that of a public corporation is to provide ser-vice.
ADVANTAGES (arguments for) setting up a Public Corporation
-the government can control the provision of essential or strategic goods
and services such as electricity-they are usually big, so they enjoy
the economies of scale which results in cheaper goods and services- t h e y
provide secure employment to a large number of the local people-
they help to implement government policies such as on prices of
essential goods an services- t h e y p r o v i d e c o m p r e h e n s i v e s e r v i c e s
such as health, education and energy-they are a source of income
to the government, thereby helping to reduce tax-they reduce
duplication of employment and necessary wastage of resources
Disadvantages (Arguments against) setting public co-operations
- t h e y c a n b e i n e f f i c i e n t a n d w a s t e f u l -because of
their monopolistic nature, they tend to provide poor quality of
goods and services- a l l l o s e s m a d e b y p u b l i c c o r p o r a t i o n s a r e t o b e
borne by the tax payers-the “I do not care” attitude dampens
the enthusiasm of workers-they are too expensive to run and over
stretches the tax payers money-lack of initiative amongst workers
leads to inefficiency-workers do not usually identify themselves
with the enterprise-there is too much bureaucracy and red tape
i n d e c i s i o n m a k i n g - they are highly subsidised
by the government to keep them afloat- some politicians have little commercial expertise
or experience to run businesses along efficient lines.
The Finance of Business Units
A.
The Trader’s Capital
The money invested in abusiness is called its capital. It includes everything that is used in the
business fromthe money used to set it up to the labour hired and equipment purchased to help
run it. The capital of a busi-ness consists of fixed capital and working capital.1.
Fixed Capital
Fixed capital is the money usd to buy fixed assets i.e. items which are bought to be used
permanently over a period of years and which enable the business to run. Fixed assets
do not form part of the end product orthey are not for general sale. They include land,
buildings, machinery, furniture, office equipment, and mo-
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tor vehicles. All these are used to enable production to take place or to enable business to
generate profit.2.
Working Capital
Working capital is the money which a business must have available to meet its day to day
expenses such as paying workers’ salaries, buying raw materials or stock, paying
water, electricity and telephone bills, and soon. It also includes money owed to the
business by customers and balance (as well as cash in the till).Working capital is, in fact, th
amount by which current assets exceed current liabilities. It can be calculated by the
formula:Working Capital = Current Assets – Current Liability.The word
current
here means short term. That is to say, the assets and liabilities are constantly changing,for
example cash, stock of goods and or raw materials, and the like.( a ) W o r k i n g c a p i t a l
can be increased in the following ways:

By the injection of more cash by the owners of the business

By borrowing from outside sources and in the case of public limited companies, by issuing
debentures.

By ploughing back profits made during past trading years.

By selling some of the fixed assets (thereby increasing the cash balance).
(b)Working capital can be reduced by the following ways:

By the owners of the business withdrawing cash for their own use;

By the company making a loss on its trading;

By purchasing more fixed assets for cash.Adequate working capital is important because it is
what enables the company to pay its creditors promptlyand buy or replace stock easily without
looking for further financial assistance. Lack of working capital willnot only restrict expansion
but may push the business into insolvency, closure or liquidation.3.
Capital owned
This is the total amount that the business owes its owners. It is a measure of the net worth of
a business. It iscalculated as assets minus external liabilities. Capital owned can be increased
by a company making a profitand decreased by the company making a loss.4.
Capital employed
The capital employed is the sum of the company’s assets, both fixed and current that the
company has in-vested, whether borrowed or not. It is in fact, the amount of wealth or assets
which are being usedin thecompany to earn income. It is calculated as: Total assets minus
debtors.5.
Liquid capital
This refers to thoose assets, such as cash at bank till and any assets that can be easily converted
into cash e.g.stocks and bonds held by the business.
B . S o u r c e s o f C a p i t a l t o a T r a d e r
The sole trader and perhaps a partnership will raise capital from personal savings, borrowing
from commer-cial banks as well as from friends and relatives. A limited company, especially a
public limited company,however, has many more sources of capital some of which are given
below.1.
The sale of shares
The capital of a limited company is divided into units of uniform value called shares. The
company raises itscapital by selling these shares to the public and such a capital is known as the
share capital. Different typesof shares are discussed in detail at a later stage in this chapter.2.
Debentures
These are not shares but long-term loans given to the company by the investing public. They
may have to besecured against some assets. A company wishing to raise extra capital can
borrow money from the publicand issue them with stock certificates showing the loans. What
this means is that the company sells deben-tures. They may be issued for a fixed number of
years after which they are redeemed.It should be made clear that debentures are loans for which
a fixed rate of interest is paid (to debenture hold-ers) whether the company makes a profit or
not. If the company should be liquidated, debenture holders are
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repaid first before the shareholders can get anything. Debentures are, thefore, a subrogationr
means of in-vesting in a company and can bring assured returns if they are issued by profitable
companies.3.
Loans
The traditional way of raising capital is by applying for a loan. A loan from commercial banks,
insurancecompanies and other financial institutions can be very vital to a business. Loans are
usually given for a spe-cific purpose, mainly for the purchase of capital items and are repayable
by instalment with interest.4.
Overdrafts
These are givnen on a current account to help the company or business meet its day to
day expenses. It isnormally given for short term needs only and interest has to be paid on
fluctuating daily overdraft balance.After spwnding large sums in establishing the capital items
necessary for production to take place, a com- pany may find itself short of working
capital. It can then obtain an overdraft to help run the business, i.e. bystock, pay bills
and salaries and so forth.5.
Ploughing back profits
When a company makes a good profit, it may decide not to distribute all of it to the
shareholders and insteadretain some of it and reinvest it to expand the business. The company
can also keep some of its profit as areserve to cater for emergency or difficult times.6.
Trade credit
A retailer who has little working capital can approach the supplier and obtain stock on short
term credit.Getting supplies on credit means the retailer takes the goods and pays for them a
few weeks later after sellingthem. This helps to increase the retailers’ working capital, as
the goods would be paid for from the sales rev-enue generated.7.
Leasing or renting equipment
Leasing enables a company to acquire up-to-date equipment or machinery without the large
amounts ofmoney needed to buy it cash. Lease agreement eneables a firm to obtain equipment
by paying a monthlyrental fee which includes maintenance. At the end of the lease period the
ownership is usually transferred tothe company.8.
Factoring
This enables a company to sell goods to customers on credit and then sell their invoices to a
finance com- pany at less than the full amount. For example, a furniture dealer
like Supreme Furnishers may sell a loungesuite to a customer for P1000 on credit and
take the invoice to a finance company and get P900 for it. In thiscase, Supreme Furnishers gets
its money immediately, leaving the factor to collect the amount outstandingand deal with any
possible bad debts.9.
Government grants and loans
Another sources of capital to a business is the grants offered by the government. For example,
the FinancialAssistance Policy (FAP) in Botswana, which provides firms a certain amount of
money, to help them set upa manufacturing business in the country, has been very helpful to
many companies.10.
Mortgaging property
Mortgaging refers to getting a loan from a financial institution and offering the company’s
assets such as buildings and or land as security. It is also an important souce of
capital.11.
Hire purchase
Buying vehicles or equipment on hire purchase or credit can also relieve the company of
financial problems.The firm will pay a deposit and get the goods and then pay the balance
outstanding by monthly instalmentsover a period of 2 to 5 years. The advantage here is that the
company spreads the costs of the item over anumbr of years hence lessens the financial burden.
Factors to consider before choosing a method of financing
There are many reasons why a firm may need additional capital. It could be to finance it
expansion or to up-
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grade or modernise its operations. But, whatever the reason, before a business chooses which
method to useto finance its projects the following factors need be considered.

Interest rates

Amount of finance repayment

Time allowed or duration of the loan

Security available, which the company can provide

Purpose and availability of the various methods.C.
THE CAPITAL OF A LIMITED COMPANY
The capital of a limited company is raised by selling shares or debentures. The total amount of
money that alimited company is allowed to raised through issuing shares is called authorised
capital. This may be issuedin stages as and when the company wants extra capital. The actual
amount of capital which has been raisedand paid for at any one time is called issued capital.The
capital of a limited company1.
What are shares?
A share is a unit of a limited company’s capital. When a person buys share in a company
he/she is given ashare certificate showing the number, value and type of share
he/she owns. He/she then becomes a share-holder, in fact, a part-owner of the company. This
is because limited companies are owned by shareholders.Buying a share In a company is an
investment the reward of which is a dividend or share of any profits made by the
company. The market where shares are bought and sold is known as the stock
exchange.
( a ) T y p e s o f s h a r e s
In general there are two types of shares namely, ordinary shares and preference shares.(i)
Ordinary shares
These are shares which receive variable rates of dividend dependent upon the profits
made. They normallyget dividends after the preference shares have already received
theirs. Ordinary shares have voting rights.This is possibly because ordinary shares are a more
risky form of investment, so it is appropriate for theirholders to be responsible for all decision
making in the company. Anyone who holds a majority of ordinaryshares controls the company
because each share has one vote at annual general meetings.If The company fails altogether,
the holders of ordinary shares will only be paid after all the debts of the com- pany have been
paid. In exceptionally good years, when good profits are made, however, ordinary
sharhold-ers may get more dividends than preference shareholders. All companies issue
ordinary shares.(ii)
Preference shares
These are shares which receive dividend before the ordinary shares. They get a fixed rate e.g.
10%, whichmeans when the company makes a profit each preference shareholders gets a
dividend equal to 10% of thevalue of shares they hold. Preference shares have no voting rights
at annual general meetings. By selling preference shares a company can raise capital
without the exisiting owners losing control over it. There arefour main types of
preference shares and these are:
72
A u t h o r i s e d c a i t a l SharesDebentures
OrdinarysharesPreference
shares
NakeddebenturesRedeemableMortgagedIrredeemable

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
Cumulative preference shares
These preference shares get a fixed dividend every year. If in oneyear no profits are made, they
are paid in arrears in the next year when profits are made. But even ifthe company makes a
very big profit, they receive no more than their fixed rate of return.

Non cumulative preferenceshares
These type of preference shares do not have any right arrers ofdividend. So if the company
makes no profit this year, they get nothing and the next year the companymakes a good profit
they will still get their fixed amount and nothing else (even if better than usual profits are
realised.)

Redeemable preference shares

These are shares which will be bought back by the company at a later date, either out of
accumulated profitsfrom the money got from a fresh sale of shares. They are usually used to
help start a company.

Participation preference shares
There is another type of preference shares called participating preference shares which entitle
the holders toget a bonus if a very big profit is made in the particular year. Their holders also
participate in decision mak-ing in the company.
Differences between ordinary and preference shares
There are three main diffferences between ordinary and preference shares.

Firstly, preference shares receive a dividend before ordinary shares, usually at a fixed
percentage andthe shares may be cumulative, participating or non-commutative. Ordinary
shares receive a variablerate of dividend, dependent upon the amount of profits made. (This
means the more profits the com- pany makes the more individend the ordinary
shareholders are paid and vice versa).

Secondly, ordinary shares have voting rights so their holders are the ones who control the
company.Preference shares, on the other hand, have
no
voting rights because their holders are assured of theirfixed rate of dividend one way or the
other.

Lastly, ordinary shares are a more risky form of investment than preference shares. They only
get divi-dend after the preference shareholders have already got, and in bad years when little
profits are madethey get nothing at all.2.
Debentures
When a company wants to raise additional capital it can ussue debentures. A debenture is a
loan given to acompany on which a fixed rate of interest must be paid whether the company
makes a profit or not. It isnothing other than a ceritificate showing the amount of money lent to
the company and the interest that must be paid on it. In case the company is liquidated,
debenture holders must be paid before any of the sharehold-ers are. The main features
of debentures are that:

They are long term loans to the company;

Debenture holders are not the owners of the company they are creditors of the company;

Debenture holders are paid a fixed rate of interest every year irrespective of the level of profits;

Debentures may be redeemable as they are loans.(a)
Types of debentures
Debentures may be classisfied in two ways:(i)According to
the security pledged against them, they may be naked or motorgaged.

Naked debentures
are the ones issued without any property or security pledged against them. Theyare not very
secure.

Mortgaged debentures
have some property pledged against them. They are more secure and if thecompany is
liquidated, the proceeds of the sale of the pledged property are used to pay off the holders.
(ii)According to redemption, they may be redeemable or
irredeemable.

Redeemable debentures
are usually issued for a fixed period of time and can be bought back by thecompany. This
means the amount borrowed against them is repaid by the company possibly after theexpiry of
the fixed period.

Irredeemable debentures
can never be bought back. The money borrowed against them remains out-standing until the
company is liquidated. The holders of irredeemable debentures keep getting interestagainst
their debentures indefinitely.
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(b)
Differences between debentures and shares
Debentures and shares are fundamentally very different.

A share is a unit of capital whilst a debenture is a loan borrowed from members of the public.

A shareholder is a part-owner of the company and may vote but a debenture holder is a creditor
andhas no voting right.

Shares are paid dividends when profits are made but debentures are paid interest, whether or not
thecompany makes a profit.

Shares are usually irredeemable although they may be transferred, whilst debentures are
redeemable asthey are loans.

When a company is liquidated, debenture holders are paid only the face value (plus any
outstanding in-terests) of the debentures held. But, if more money is raised by the sale of assets
shareholders may getmore than the face value of their shares.

The interest paid to debenture holders is fixed but dividends paid to especially ordinary
shareholders isvariable.
E . B u s i n e s s C a l a c u l a t i o n s
Every firm needs to keep a detailed and accurate record of:

the value of assets, that is, properties owned by the firm;

the value of liabilities, that is, the amount owed by the business to others;

changes in assets and liabiolities;

the value of sales; and

the value of purchases.Proper and accurate record is particularly essential:

if the firm is to calculate and make available to owners details of the value of the fime and
profitsmade;

if managers are to effectively control the firm and plan its future developments;

so that tax can be assessed (both income tax, corporation tax and value added tax);

to meet the provision of the Company’s Act 1980, which requires that a company’s account be
filled inthe company registration office annually.1.
Profits
Profit is the reward for doing business. The business person takes the risk of manufactuirn
something or pro-viding some service so as to get profit. The profitability of a business can
be looked at from the point ofview of either gross profit or net profit.(a)
Gross profits
Gross profit is the differences between the cost of goods sold and the proceeds from their
sale. Put simply,gross profit is
selling price minus cost price.
 Gross profit is not the true profit since the expenses incurredin selling the goods have not been
taken into account. It is calculated as:Gross profit = Turnover minus Cost of goods sold.For
example: If a trader buys a bicycle at P100 from the wholesaler and sells it at P145 the
difference is his/her gross profit.The price at which the trader bought the bicycle is called cost
price. (C.P) and the price at which the tradersold the bicycle is called the selling price
(SP.). The gross profit is calculated as follows:G r o s s P r o f i t , G P = S e l l i n g P r i c e –
Cost
Pricei . e . G P = S P – C P
. I n o u r e x a m p l e , G P = P 1 4 5 – 1 0 0 =
P45.( b ) N e t P r o f i t
This is the true profit obtained from trading. (In other words, it is the real reqard of
the trader). It is theamount left after allowances have been made for all expenses such as rent,
salaries, storage, insurance, water,telephone and electricity bills, advertising, transport etc. Net
profit is very important since it

enables the trader to know the actual benefit of trading;
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
enables the trader to compare what he/she investments;

it assists in forward planning;

it helps him/her to obtain a loan from the bank;

it is important for tax purposes Net profit is calculated as follows: Net Profit = Gross
profit (plus other incomes) minus Expenses.In our example above, suppose all the
expenses amount to P15, the net profit would then be calculated as fol-lows: Net Profit =
Gross Profit – Expensesi . e . P 4 5 – P 1 5 =
P30.
When gross profit is expressed as a percentage of cost price it is called
profit mark-up
but when it is ex- pressed as a percentage of selling price it is called
profit margin
.The following example shows how the profit mark-up is calculated:To use the same example
as above, let us say, a trader goes to the wholesaler and buys a bicycle at P100 andsells it at
P145, the difference being his/her gross profit.Percentage mark-up = Selling Price – Cost price
x 100Cost Pricei . e . P 1 4 5 – 1 0 0 ) x 1 0 0 =
31%
145
(d)The relationship between profit mark-up and profit margin
W h e n p r o f i t m a r k - u p
i s P r o f i t m a r g i n w i l l b e
1
/
3
¼¼
1
/
52
/
52
/
73
/
83
/
11
Table 4 The relationship between profit mark-up and profit marginYou arrive at profit margin
by adding the numerator to the denominator while using the same numerator.When margin is
given you do the opposite (i.e. subtracting the numerator from the denominator).The calculation
of gross profit shown above assumes that the trader buts only one commodity, the bicycle.
In practice traders, usually buy several types of goods. Also at the beginning of the
year there could have beensome old stock of unsold goods carried forward from the
previous year. The stock at the beginning of theyear is called
opening stock
and the stock of goods lying unsold at the end of the year is called
closingstock.
Therefore, in practice, to calculate the gross profit you have to sum up the total value of goods
sold duringthe year, called
Turnover
. . You can do this following the steps given below.( i ) D e t e r m i n e t h e v a l u e
o f o p e n i n g s t o c k . (ii)Determine the total value of goods bought
d u r i n g t h e y e a r . (iii)Find out if any goods were returned to the supplier
during the year.(iv)The difference between (2) and (3) is called Net
purchase of the year.
(v)Add (1) to (4) i.e. opening stock to net purchases to get the total value
of goods available forsale during the year.( v i ) F i n d t h e v a l u e o f c l o s i n g
s t o c k b y s t o c k t a k i n g . (vii)Subtract (6) from (5) i.e. closing stock
from the goods available for sale, to get the final cost ofgoods sold during
the year. This is called the “Cost of Sales”.(viii)Calculate the gross profit
i.e. Net sales minus cost of sales.
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SUMMARY

Cost of sales = Opening stock plus net purchases minus closing stock.

Net Sales = cost of sales minus gross profit.

Gross profit = net sales minus cost of sales.

Net profit = gross profit minus expenses.

Expenses = gross profit minus net profit.2.
TURNOVER
The turnover or net sales is the net value of goods sold during an accounting period. It is
calculated as fol-lows:Turnover = Sales minus Returns inwards
OR
Turnover = Sales minus Cost of goods sold plus gross profit.3.
COST OF GOODS SOLD
This is the cost price of goods that have been sold. It is calculated as:Cost of goods sold =
opening stock plus net purchases minus Closing stock
or
;Cost of goods sold = Turnover minus gross profit.4.
RATE OF TURNOVER OR RATE OF STOCK TURN
This is the number of times the average stock can be sold in an accounting period. (It is actually
the numberof times a firm orders and sells out its stock each year.). It is calculate as
follows:Rate of stock turn = Turnoveror Average stock R a t e o f s t o c k t u r n
= C o s t o f g o o d s s o l d Average stock 5.
Average Stock
This is the average number of stock held in the business for the accounting period. It is actually
the averageof the opening and closing stock. It is calculated as:Average stock = Opening
+ closing stock 26.
Gross Profit Percentage
This net profit percentage shopws actual average profit made adter taking into account all costs
and expensesincurred. It is also known as the net profit percentage of turnover. It is calaculated
as:G r o s s p r o f i t p e r c e n t a g e = G r o s s P r o f i t x 1 0 0 T
u r n o v e r 1 8.
Rate of Return on Capital Invested
The rate of return on capital invested is extremely important to a businessman or woman for it
tells him/herexactly how much he/she is getting from the investment. It is calculated
as:Rate of return on capital invested = Net profit x 100 Capital at start of the year This ratio
helps the businessman or woman to determine the probability of his/her business. He/she is
thusable to decide whether it is worthwhile or not to keep his/her money in that investment.9.
Mark up
This is the percentage of gross profit to the cost of goods sold or the percentage of profit to cost
price. It iscalculated as follows:
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Page 77 of 89
Mark up = Gross profit x 100Cost of goods sold10.
Margin
This is the percentage of gross to turnover or selling price. It is calculated as:Margin = Gross
profit x 100Turnover
F . T H E B A L A N C E S H E E T
A balance sheet is a statement of the financial position of the business or an individual at a given
time. Itshows the company’s assets and liabilities. It is usually drawn a tabular form as follows:
A S S E T S L I
A B I L I T I E
S
B u i l d i n g
s C a p i t a l
S h o p f i t t i n g s , v e h i c l e s , m a c h i n
e r y B a n k l o a n S t o c k ( r a w m a
t e r i a l /
g o o d s ) C r e d i t o r s Cash (at bank and in till)
T O T A L
T O T A L
The Balance sheetThe balance sheet equation can be written as Capital = Assets minus
Liabilities.1.
THE BALANCE SHEET INTERPRETATION
The balance sheet of a firm shows the financial position at a particular date. It gives the
summary of its re-serves, capital, liabilities and assets.
( a ) A s s e t s
These are the properties of a business. Assets can be divided into two: fixed assets and current
assets.
Fixed assets
are the properties, of a business, whose values do not change from day to day, e.g. land, build-
ings, equipment, etc.
Current assets
are the propertis of a businesses or individuals and can be divided into fixed or long –
termliabilities and current liabilities.
( b ) L i a b i l i t i e s
This is money owed by a firm to other businesses or individuals and can be divided into fixed
or long-termliabilities and current liabilities.
Long term liabilities
are amounts which have to be repaid over a number of year, for example, a ten yearloan or
mortgage on premises.
Current liabilities
are short term and have to be paid in less than a year’s time, for example, creditors (i.e.goods or
stock obtained on credit).
G.HOW PROFITS AND LOSSES AFFECT CA
PITAL
When a company makes a profit, its capital increases, especially if it is reinvested in the
business. A loss,however, represents a decrease in capital and may eventually lead to the
closure of the company if it persists.
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Page 78 of 89
STOCK EXCHANGE
(a)Describe the functions of a stock exchange and ex[plain its
importance to investors( b ) E x p a i n t h e r o l e o f :
( i ) s t o c k b r o k e r (ii)dealers on the st
o c k e x v h a n g e ©What are the functions of
t h e s t o c k e x c h a n g e c o u n c i l ? (d)What factors determine the
price of shares on the stock exchange?(e)What are the functions
of the contract note on the stock exchange?
(a)Functions of the Stock Exchange and its importance
to investors

Providing a market where stocks and shares can be sold and bought.

Stock exchange approval gives indication to the investors that the company quoted
is reputable.

It provides a pace where people with savings can invest and lend those companies
that need to raise finance.

Prepares reports and data concerning all organisation on the Stock Exchange

It establishes a code of conduct which members of the stock exchange must follow.

Enable government to raise funds.

Gives savers opportunity of investing in industry and commerce.
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
Regulates members of the market

Provides rules to protect investors against fraud.

Enables transfer of second hand securities.

Provides place where prices can be determined freely on basis of supply and
demand.

Vetting companies applying for stock exchange quotations/listing.
(b)(i)The Work of the Stock Brokers on
the Stock Exchange
Because members of the public are not allowed to trade on the stock exchange:

the Stock broker acts as agents, buying and selling shares on behalf of the general
public.

They try hard to obtain the best possible prices for their clients

The brokers compare prices in the market and usually buy and sell acording to
their clients’ instructions

They prepare a contract note setting out the amounts to pay or receive their
commission.

The arrange for share certificate’s or stock transfer forms to be dealt with.

The broker advise their clients on matters relating to market conditions.
(ii)The work of Dealers on the stock exchange

These are principal who buy and sell shares on their own behalf with a hope of
making profit

They deals with stock brokers only as the members of the public are not allowed to
deal directly with them

The may specialise in certain types of securities such as dealing in oil shares or
mining shares
©Functions of the Stock Exchange Council

to control the admission of new members

to discipline members who are guilty of misconduct

to formulate the stock exchange rules

to settle disputes between members

to provide information services to members

to accept and publish shares of companies to be quoted on the stock exchange.
(d)Factors that Determine the prices of Shares at the Stock Exchange

To supply and demand for the shares

Political changes in the country e.g. change of gov-ernment

Changes in interest rates or taxation

Strike/industrial disputes in the company

Take overs and merges being considered

Recent performance of the company

The popularity of the company’s product

The general prosperity of the country

Changes in market trends
(e)Functions of the Contract Note on the Stock Exchange

Informs the client number of shares bought or sold

Shows the type and the unity price of shares

Shows the commission to be paid by the client

Shows the total amount to be paid or due to the client

Shows settlement date, when payment or delivery of share to be made
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