VIII. other practical recommendations for income-generating activities
Potential money-making activities should be chosen with great care. Certain precautions should therefore be taken when considering the various options.
Bear in mind that this is to be a money-maker and not just a subsistence activity. Our choice of crop should take account of the following:
- the growing cycle should be short (an annual, vegetable crop, preferably);
- to avoid excessive production costs, the crop should not require complicated cropping and maintenance techniques or too much water;
- the harvest should be easy to market to avoid storage costs or spoilage losses;
- in order to justify large-scale production and generate enough income, the end product should have mass-market appeal.
- The end product should be one for which local demand is high. A careful advance market study should therefore be done to estimate potential consumption;
- the end product should be competitive with similar, imported products in terms of price and quality, otherwise it will be hard to sell;
- the necessary raw materials should be guaranteed, so as to ensure that commodity processing, petty trade ventures, and pharmaceutical product depots do not run out of stocks, which would be contrary to the principles of good management.
Anticipate all the operations involved
Once we have carefully chosen our activity, we should identify and list all the operations involved in logical and chronological order. This is very important so as to avoid improvising as and when problems crop up.
Schedule the operations
Once the operations have been identified, draw up a timetable for them. This means that all the facilities and resources needed to carry out a given operation must be available in good time to avoid delay and ensure that the other operations begin on schedule.
Estimating funding and input costs
All possible sources of funding must be sought or, at least, anticipated at the start of the crop season or production process. This means that you must:
- objectively assess what raw materials are needed for production;
- estimate the labour needed (outsiders and family members), bearing in mind long-term availability;
- consider several scenarios for each operation, so that if one fails another can be used instead.
Preparing the estimated operating account
This means estimating all disbursements and receipts. This will give some idea of the profit we can expect if everything goes as planned.
The estimated operating account draws the group's attention to possible constraints and bottlenecks, allowing it to reach decisions before actually embarking on the activity.
For instance: If estimated expenditure is higher than estimated receipts, the group may decide not to undertake the production or manufacturing activity, or to seek ways of reducing expenses or increasing receipts. In any event, this decision should be taken before the activity is launched, not when it is already underway.
Calculating actual production costs
Once the production process gets underway, all expenditure must be closely monitored. So as to be sure not to leave anything out, draw up a detailed list of the operations undertaken and the expenditure corresponding to the implementation of each one. This should be done daily as it allows us to:
- see whether our estimates match the facts and, if not, to take the necessary action if the activity's survival is at risk;
- estimate the outlay (expenditure) to implement all necessary operations. This step is all the more important as it saves the group from uselessly freezing money, especially money obtained through external funding.
Type of activity
If well managed, commodity processing activities quickly generate income. Below are the most important bottlenecks which bring this type of activity, often managed by women, to a standstill:
- the problem of getting large enough quantities for processing and thus making the most of the labour available, materials and processing equipment. Underutilization of these inputs and reduced income is the danger.
One solution to this problem is to match raw material production to the processing activity.
- the problem of satisfactory product quality. This is mainly because the women do not themselves produce the commodities they process, and so must accept what is available (not always up to standard).
Calculating the costs incurred in commodity processing activities
- Calculating the cost of raw material
The cost price of the raw material for processing must be calculated as accurately as possible. The cost components usually included in this calculation are:
- purchase price
- packaging or, where appropriate (e.g. when the product is purchased directly at the farm gate) sacking costs
- transport costs
- miscellaneous costs.
Provided they are all accurately estimated or calculated, the total is the cost price of the raw materials for processing.
Incorporating the equipment depreciation cost into the production cost (here the processing cost)
In time, the equipment used to process the raw materials (shellers, graters, mills, presses, etc.) wears out or depreciates. Money must therefore be set aside so that this equipment can be replaced when no longer usable. Two major factors must be taken into account when calculating the amount needed: the value of the equipment and its life span.
- The value of the equipment: This is its purchase price, which can easily be obtained from the purchase invoices or by asking the group members.
- Estimating the equipment's life span: How long it lasts depends on how it is used and maintained. Generally speaking, equipment and implements last about three years.
When we have these two pieces of information, we first divide the value by the life span (number of years), then divide the result by the number of times the processing operation is done per year. This gives us the amount we must add to the production cost to cover equipment depreciation.
For instance: The Azovè women's group bought a palm oil press for 150 000 CFAF. They have estimated that they will be able to make 10 batches of oil per year, provided they received adequate supplies of palm oil nuts. They have also estimated that, given this rate of utilization, the equipment may last as long as three years.
The depreciation value to be added to the oil manufacturing cost for each processing cycle will be calculated as follows:
150 0300 F /3 = 50 000 F; then 50 000 F /10 = 5 000 F
This means that for each batch of palm oil produced 5 000 F must be added to the production cost to cover equipment depreciation costs.
N.B.: When several pieces of equipment are used for the same manufacturing operation, the depreciation value is calculated for each separate piece and added to the manufacturing cost.
Calculating the cost of labour for processing
This involves evaluating (or estimating) the salary paid (or which would have been paid) to the person(s) working on the processing operation.
We often forget to include labour costs in the production cost, especially in family ventures, such as market gardens, weaving and harvesting activities.
The cost of energy used in the processing operation
In certain processing units, the equipment needs energy (fuel and lubricant, etc.) in order to run. If these items are purchased by the group their cost must be calculated and included in the production (or manufacturing) cost.
All expenditure of this type must be recorded, added up at the appropriate time, and included in the production or manufacturing cost.
To sum up, the components to be calculated as production costs are:
- Raw material purchase (or cost) price
- Equipment depreciation
- Labour costs
- Energy costs.
Storage or store rental costs
The finished product (gari, palm oil, or coconut oil) is not always sent directly to market; the women may decide to wait a while until market prices rise. When this happens, and the commodities have to be stored, the group has two options:
- if it has its own store, then the cost of storing the finished product must be calculated to cover store depreciation. In other words, money must be set aside to rebuild the store when it is old and unusable;
- if the group does not have its own store and has to rent one to store the finished products, the rental must also be entered as expenditure in the operating account.
Depreciation here is calculated in exactly the same way as for the processing material and equipment. The only difference is that the sum is not calculated as a production cost, but only as part of the sale price for the finished products.
The cost of packaging (bags and/or baskets or granaries) must also be added to the depreciation cost.
To sum up, in order to calculate the selling price of the processed (or finished) products, we must take account of the following cost components:
- production costs
- storage costs
- the margin or profit that we wish to make from marketing our product.
Example: The TORI BOSSITO group produced 5 000 kg of gari. The production cost was estimated at 500 000 CFAF. The commodity was stored for three months in a warehouse rented at 3 000 F per month. At the general assembly, the women decided to apply a 1096 profit margin. At what price should one kilo of gari be sold on the TORI BOSSITO market?
- The store rental cost is:
3 000 F x 3 = 9 000 F
- The profit margin is 10%:
500 000 F x 10 / 100 = 50 000 F
- The price of gari will be:
500 000 F + 9 000 F + 50 000 F / 5 000 = 111.80 F
One kilo of gari will therefore be sold on the market for 111.80 F.
N.B.: Should the group have other expenses in addition to those mentioned, they should be included in the total amount. These further costs may be:
- handling (loading and unloading)
- transport to market
- taxes and market dues
Members are strongly recommended to do these tasks themselves, as calling in people from outside will only increase the group's expenses and reduce its profits.