CAP Tool 24. Group Enterprises

Objective:

For vulnerable households it may be a good idea to start a group enterprise. The word enterprise implies an income-generating activity - one that will generate profit. The aim is for each group member to increase their individual income by taking a share of the group enterprise profit. It is important to introduce people both to the potential and the problems of starting a group enterprise.

Method:

Discuss the following points with the group and help them make a business plan. If possible, get hold of a copy of “The group enterprise resource book” published by FAO and read it.

A lot of enthusiasm is needed to make a small business enterprise successful. A group will need to be very sure that this is what they want to do before they start.

• Advantages of running an enterprise as a group:

• Group members can share their skills, time and resources together to make it work.

• Work can be divided amongst the group members, making the best of the time everybody has available.

• It is easier for groups to get assistance from outside - training, grants, loans, advice from rural development agencies, etc.

• Groups give members more self-confidence, especially women.

• Decisions taken in a group are often better and more realistic than those made by individuals.

Problems that arise in group enterprises:

• Deciding who will do what is not easy - it can cause arguments.

• Decision-making in groups takes longer and people do not always agree.

• One or more group members may contribute less than others in time or money but still want an equal share of profits.

• Nobody likes sharing losses.

The group needs to agree on the reasons for starting the business and what expectations they have from it. Is the main aim to raise some extra cash, to fill in spare time or develop it into their major source of income?

All members must agree on how much time and other resources they will each put into the business and then honour the agreement. It is not advisable to have more than five or six people involved in the operation.

A group enterprise must be planned just like an individual business. It has to be profitable or it will fail. Market research must be carried out and costs and returns estimated to establish the feasibility of the enterprise.

It is so important to manage the enterprise in a business like manner that the following roles are better than the traditional chairman, secretary, etc.:

A cash flow budget and business plan should be prepared in a similar way to an individual planning a new enterprise. Some of the forms have been modified for use by groups planning an income-generating project and are shown on the following pages. The time plans remain the same.

The principles for completing these are the same as described in the earlier sections on business plans and cash flow budgets. There are just some minor differences. Normally a group will only have one income-generating activity. One of the sources of cash inflow will be members’ contributions and instead of household expenses, there is space for planning cash withdrawals by members if required.

The cash flow budget from start-up to established operation indicates how much money members will need to find to make the enterprise work. As with an individual’s cash flow, the closing balance must be positive. If there is a negative figure this must be overcome by increasing contributions or seeking a grant or loan.

It is very unwise for members to take cash out of the business until they have completed a production period and know how much profit they have made. If there is no profit there is no income for members - nobody is paying them a salary. They must make a profit to ensure they get some benefit from participating in a group enterprise.

BUSINESS PLAN FOR INCOME-GENERATING PROJECTS: GROUP

Group Name: _________________________ Kushet/Gott: _______________________

Project description:

________________________________________________________________________________________

Names of group members and their designated role in the management of this group enterprise, e.g., supply co-ordinator, production co-ordinator, marketing co-ordinator, accountant, business manager.

Date of legal registration if applicable __________________

Previous experience as a group, if any

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What capital equipment do you need to buy for the new project?

Which suppliers have in stock the inputs you need to buy for the new project?

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Estimate the profitability of the new enterprise:

INCOME

COSTS (Only include a share of the full cost of buildings, machines, tools, oxen)

Has the group established rules for sharing profit and covering losses? Give brief details.

____________________________________________________________________________________________

Has the group opened a bank / MFI account? The account details must be supplied if applying for a grant or loan.

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How will you sell your new products or services?

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What are the main risks to the success of this new enterprise and how will you counteract these?

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