School In A Box/How to generate school Income
The objective of this chapter is to help you learn the processes of how to generate income for your FSS School
In many developing countries governments just can’t (or won’t) cover the cost of providing high-level education for all income levels. Struggling with budgets, lack of access to good teachers and many other reason contribute to third world schooling lacking the resources both human and financial, to achieve what is needed to create successful education programs.
The model of a FSS school that can generate its own income can provide this schooling system and It can provide the needed education to even the poorest students without relying on government support or charging students fees.
By setting up profitable businesses you are not only funding the school, you are also empowering the students to have confidence upon leaving school to be successful. This is crucial in the quest against poverty as we will now be able to send students out into the market knowing their capabilities and being able to put theory into practice.
Most individuals involved in education and development work will have had little first-hand experience of running a profitable business, this can make the idea of setting up school business units quite scary. Moreover it increases the chance of making basic mistakes, which could have easily been avoided. It again is absolutely crucial to ensure training and support is offered to these individuals.
As you work through the sections in this chapter, we’ll take you step-by-step through the process of thinking about what businesses your school could successfully run, how to manage the business effectively and how to grow the school’s businesses and profit over time.
- 1 INCOME GENERATION IN SCHOOLS
- 2 BASIC PRINCIPLES OF INCOME GENERATION
- 3 GOOD RECORD KEEPING
- 4 DAILY CONTROLS
- 5 UNDERSTANDING THE MARKET
- 5.1 a. Origin of the market
- 5.2 b. The concept of a market
- 5.3 c. Marchet research
- 5.4 d. What should we research?
- 5.5 e. Types of market
- 5.6 f. Marketing strategies in broad product market
- 5.7 g. Market charateristics
- 5.8 h. What is market penetration development?
- 5.9 i: What is product development?
- 5.10 j. What is product/market diversification?
- 5.11 k.What is marketing?
- 6 ADDING VALUE & MAXIMIZING PROFITS
- 7 HOW TO PREPARATE A BUSINESS PLAN
- 8 INCOME GENARATION IN SCHOOL
- 9 EXAMPLES OF SUPPORTING EDUCATION THROUGH INCOME GENERATION
INCOME GENERATION IN SCHOOLS
The objective of this chapter is to provide you with some effective strategies for increasing the income generated by your school business.
a. How does income generation in schools support education
1. FROM “LEARNING BY DOING” TO “SELF-SUFFICIENCY”
The aim of any school should be to deliver the best possible education to its students. Whatever the subject being taught, one of the most effective ways to build understanding of a new concept is to use real-life examples. When it comes to acquiring practical skills this is even more important – you can read as many books as you like but you can’t really learn how to milk a cow without having milked a cow!
For this reason we believe the best education a young person can receive is based on “learning by doing” approach.
Offering a practical education is however a more expensive option than just using a blackboard. Agricultural schools for example, need facilities for raising livestock, fields and gardens, workshops, machinery and other equipment to implement the “learning by doing” methodology.
What we’re really aiming at is not to just teach young people about a specific crop or type of livestock but rather how to create a business based on a given agricultural activity. Connecting “learning by doing” to teaching students how to earn income from their skills, results in an even more powerful methodology of “learning by doing and earning”.
It follows that if a school needs a milking shed to teach students how to milk cows, it needs a school dairy business to teach students how to make money from milking cows. For a school business to provide students a genuine understanding of how to make money it must be able to generate a profit.
This is at the core of the FSS School model, offering as it does both a more effective educational approach, and the means to pay for the higher costs of using such an approach.
2. A CHANGING ROLE FOR TEACHERS
As part of a FSS School, teachers will no longer limit themselves to theoretical classes in the classroom isolated from the real world. Alongside theory they will teach the practical uses for their subjects and the hands-on skills associated with it. Moreover they will take the lead in production and business decisions within the school businesses, which relate to their expertise.
Let’s look at a practical example:
At the San Francisco Agricultural High School, run by the Fundación Paraguaya, educators in both technical and traditional subjects, employ the methodology of learning by doing while running a number of profitable business units. Within this methodology the instructor in charge of large livestock takes on the function of a dairy manager. Among his or her responsibilities are:
1. Teaching students to work with the cows and calves
2. Teaching students the milking process
3. Teaching students about the importance of hygiene in keeping animals healthy
4. Monitoring how many liters of milk the dairy produces per day as well as the production per animal
5. Ensuring sufficient labor is available and budgeted for
6. Keeping track of production costs, e.g. cost of feeding the herd
7. Managing other costs that may be generated
By fully understanding not only the production process but also the costs of production, the instructor can play a central role in:
• Marketing strategy: where and how to sell
• Sales strategy: how much to sell and at what price
Decisions about the productive areas, which are going to generate income towards the self-sufficiency of the school, are based on meeting the needs of the market, identifying profit-making opportunities and value-added areas.
3. LINKING REWARDS, RESPONSIBILITY AND PERFORMANCE
Changing the role of the teacher increases their level of responsibility, but offers them a chance to broaden their skill-set and a greater sense of satisfaction through expressing their entrepreneurial flair. In recognition of this greater responsibility and the contribution of these extra efforts to the school’s improved financial position, as well to increase their motivation to succeed, it is recommended that a performance based incentive plan is put in place.
NOTE THIS WAS COVERED IN DETAIL IN CHAPTER 3
BASIC PRINCIPLES OF INCOME GENERATION
The objective of this section is to provide you with the basic principles of income generation and how to begin implementing them at your school.
a. Step one: identification of potential business
The school should start by concurrently doing a local market analysis and taking a look at the production resources of the school. Thereafter doing a comparative analysis of the school and market to decide the best fit of business opportunities.
The below chart gives a summary of some typical business opportunities which can be conducted an agricultural school:
|Primary activity/Product||Secondary Product||Processed Product|
|A N I M A L|
Offspring for meat (lamb etc.)
Offspring for fattening (calves, piglets etc)
Offspring as pets (rabbits, guinea pigs)
| Dairy |
Yoghurt, cheese, butter, cream, ice cream
| Poultry & Birds
|Eggs|| Meat: Sausages, pies, dried & smoked meat, mayonnaise etc.
Non-food: Down & feathers
Seedlings / Plants
Preserved (dried, pickled, salted)
Condiments (Sauces, Chutneys, Pickles etc..) Processed (vegetable crisps, peanut butter etc.)
Oils & flavoured oils
Medicinal: Dried herbs
Seedlings / Plants
Jams & Preserves
| Cash Crops
Ground roasted coffee
Chocolate, cocoa butter etc.
| Staple Crops
Cassava / Yucca
|Trees (Wood)||Seeds|| Farm products e.g. fences, bee-hives etc..|
Household products e.g. furniture
Artisan & Craft products
Processed products e.g. paper, charcoal etc..
Dried, oils etc..
|S E R V I C E S|
| Skilled Services|
Agricultural / Educational Consultancy
Export / import services
| Facility Based Services|
Catered events e.g. weddings Tourism / Eco-tourism facilities
Short courses & evening classes
Workshop / Processing facilities
The need for an agricultural school to provide a broad education means that many of these activities will already be conducted for demonstration purposes. The key choice therefore is to about which opportunities to pursue at a greater scale. When the time comes to decide what businesses to develop at the school the most important thing is to know the market.
Relevant market knowledge is normally highly specific to a country and normally to a region or locality within that country. This makes it very hard to give useful general advice on what activities will best suit all schools.
Nonetheless there are some common experiences worth taking into account:
• Demand for good quality meat and dairy products is normally strong in most countries hence livestock can represent a very important source of income.
• Products with a higher market value for example flowers and decorative plants can be highly profitable and reduce the school’s need to compete with local farmers. However, often they require greater attention, specialized knowledge and more developed marketing expertise.
• Traditional bulk crops and staple foods such as wheat, maize, sugar cane, cassava etc tend to have low profit margins and require large-scale operations to be profitable. These are often an important source of income for local farmers, which would put the school in direct competition with them. This is not recommended!
• Services and other non-agricultural businesses often represent very interesting sources of income and an enriching educational experience for students. They frequently offer relatively high profit margin, can be conducted with less available space and may create new business opportunities and jobs elsewhere in the local community.
NOTE SECTION 8 HAS FURTHER EXAMPLES OF BUSINESSES THAT CAN GENERATE INCOME FOR THE SCHOOL
b. Higher margin approach
1. ADDING VALUE
Creating a product using raw materials already produced at the school itself is the most common form of adding value to production. Fruits and vegetables can be used to make homemade jams and pickles in the school’s own kitchen. Industrial-scale production requires fairly expensive equipment and infrastructure, but will quickly be able to generate more income than homemade production.
Manure from animals can be converted into gas for fuel or into natural fertilizer. It is a fairly novel product by using worms, manure can be turned into an effective fertilizer that can be packaged and marketed to plant nurseries.
Often value addition through processing will result in multiple new products. One example would be the milk produced in a dairy, which can be used to make cheese and yoghurt. The whey left over from cheese production can be used again to make ricotta and can also be fed to pigs (if the school has any).
The industrialization processes often required for value addition also offer an important source of training and learning for the students.
2. TECHNICAL ASSISTANCE
For schools, which have gained solid experience in managing profitable business activities, providing technical assistance is also an interesting source of income. The local community is an important potential client for this service given that the school has trained technicians on staff who could develop programs in partnership with local government or civil society groups, as well as other educational institutions.
Assistance can be offered not only in any of the business areas which the school operates but also in academic and organizational matters to other academic institutions that seek to fully or partially replicate the Self-Sufficient School model. The experience and knowledge acquired by the school’s management, technicians, instructors and administrators is highly valuable.
Providing technical assistance moreover, has advantages beyond generating additional school income. It can form part of the school team’s ongoing training, requiring them to update their skills and knowledge and generate direct contact with the market – including potential employers for graduates.
Having students participate in technical assistance projects gives them additional training that will expand their opportunities for employment when they finish their secondary schooling.
3. FROM HAND-CRAFTED TO INDUSTRIAL
First case: The kitchen at Fundación Paraguaya’s agricultural school can produce cheese from up to 100 liters of milk per day using its normal equipment, furnishings and utensils. No significant investment is necessary to carry out production and usually the product is some type of fresh cheese. In most cases this is the cheapest and most frequently consumed cheese on the market.
Second case: In order to go from hand-crafted production to more industrial-level production an investment of at least US$4,000 is necessary, assuming that the infrastructure for installing the cheese vat and accompanying components is available.
However, to make other products other equipment is necessary and consequently a larger investment will be necessary. A small dairy plant not operating continuously and expected to process 300 to 500 liters of milk a day will require an investment of approximately US$30,000.
Both methods are viable, and it is possible to make a long list of the advantages and disadvantages of each type of production. Both options can provide a chance for the school to generate income. In daily life we have observed many successful small-scale cheese makers and of course we have also seen successful factories. Likewise we have certainly seen small-scale cheese makers fail and industrial operations shut their doors. The best way to operate will be shown by a responsibly designed business plan with accurate information.
NOTE: SECTION 7 BRIEFLY COVERS THE BUSINESS PLAN. CHAPTER 8 WILL COVER IT IN DETAIL
GOOD RECORD KEEPING
The objective of this section is to convey the importance of keeping records of production and commercial activities, which will be crucial in assisting the school in making business decisions going forward.
a. The importance of record keeping
Rural entrepreneurs are often found to be “bad with a pen”. This isn’t necessarily because they don’t know how to read and write but more often they just don’t see the value of recording the events and activities that occur in the process of their work. They feel they know pretty much how well their business is doing if they know how many pigs they sold that month and at what price.
This culture of “keeping it in your head” at best means that small scale entrepreneurs can miss out on simple opportunities to improve their profitability. More often it means that increasing the size of their businesses becomes more and more difficult to manage.Record keeping is a key discipline to master in running a business.
For schools looking to generate income from diversified activities each involving several people, it becomes even more critical without good record keeping these activities will fail. Moreover where a schools teaches business skills to its students, it has a responsibility to develop a culture of record keeping amongst their students and a chance to give them first-hand realistic experience of doing so.
b. Benefits of good record keeping
Rural entrepreneurs often find it hard to influence the market price of their products. Therefore if an entrepreneur wants to improve their profits, his or her best option is to lower production costs or increase output.
In order to do this he or she must know what the production costs are, what they include, and their relative importance to total costs. The only way to have adequate knowledge about these costs is by keeping production records. The records should be designed to provide the entrepreneur the key information needed to manage costs.
The exact items of information, which are most important, will vary depending on the specific business activity and deciding what records to keep is therefore good business management.
1. AT A MINIMUN RECORDS SHOULD CONTAIN THE FOLLOWING:
• Tasks carried out within an activity.
• Cost associated with each task.
• Value or amount corresponding to the activity overall.
For a typical agricultural activity costs can be broken down into the following elements each of which may be associated with a particular task:
• Labor, expressed in man-hours (MH).
• Machinery or tool use, expressed in tool-hours (TH).
• Inputs used example seed, fertilizer, pesticide, etc expressed in the relevant units (Kilos, liters etc).
• Other, example tractor use, expressed in tractor-hours (TrH).
Using the example of applying fertilizer to a field as an activity, the basic records should include the following information:
Cost Element Unit Cost Quantity Total Cost
Labour $1 8 $8
Tool use $0.50 8 $4
Fertilizer $12 2 $24
Total Activity Cost $36
Record keeping is of no value if they are not referred to and utilized by the school or the business. The real value of record keeping is in providing you a tool which you can use to make important business decisions and which will ultimately affect your profits.
2. THE ROLE OF RECORD KEEPING IN DECISION MAKING
Keeping effective records makes it simple to understand how the total costs of each element that makes up an activity are derived and their importance to the cost of the activity overall. This knowledge allows the entrepreneur to decide whether s/he can lower the unit costs of each component (overall activity) or compare the activity with an alternative method of carrying out the work in question
This is decision-making cannot be done without having the background information provided by good record keeping.
3. PRACTICAL CONSIDERATIONS
To keep good records it is important to clearly identify the units of measure that will be used. Once decided these are simple and practical calculations but if they are not made with the proper care they can distort the records and lead to poor business decisions.
For example a dairy usually measures milk production in kilos, whereas the milk is generally sold by the liter. It is therefore necessary to convert the kilos to liters. This situation is also common with fruits and vegetables, which can be sold either by unit or by weight. In some cases there also exist traditional ways of selling products: two live chickens, packages or bunches of vegetables or medicinal plants etc.
The objective of this section is to look at of the benefits of maintaining a daily operations report system and how you can design and implement one at your school.
a. The daily operations report
The daily operations report allows you to understand what has been happening within the school’s businesses on a given day. It will asist you in analyzing the performance of individual business units and monitor business activity as it develops over the month. Through this you will be able to take effective business decisions in order to improve the business’s performance towards the school’s income targets
Alongside production information the daily operations report also contains entries showing income received, checks issued and purchases on credit. This same information will also be recorded in the accounting books to be used for generating financial statements.
To be effective this information included in the daily operations report should be able to be recorded easily, quickly and with a minimal margin of error. The structure used should be designed according to the present needs of the business but with the flexibility to later be adapted to new possibilities.
The system used needs to ensure information is gathered, recorded and summarized in such a way that you can evaluate it, interpret it, formulate plans and begin to take action while the data is still current.
b. Reporting breakdown
The daily operations report will be divided into the following main sections:
- Income and the corresponding charges
- Checks issued and purchases on credit
- Balance review section
- Section for date and Report / Invoice number
To facilitate the daily task of writing reports, these can be grouped in separate notebooks for each month with an original and a tear-out copy for each day. The original version stays filed in the notebook and the copy is filed in chronological order, along with the documents, which support the information recorded in each section.
The daily operations report should clearly and precisely compile the transactions a business carries out daily, such as income received, checks issued, purchases on credit and others. The report will be designed based on the nature of the business’ activities and needs, and can be modified as changes or new operations are incorporated.
A chart of accounts must be used to record the information, which will make it possible to codify the accounts and sub-accounts when necessary. Below, you can see the daily report of the person responsible for livestock production at Fundación Paraguaya’s agricultural school.
In order to better understand the current production situation, this table representing a daily report on production and sales from the school’s livestock division has been created, which compares the actual production and sales with the goals established for the month of October. The table shows that several days before the end of the month, milk production is 27 liters short of the established goal. It can also be observed that there may be problems in reaching the goal for pork production.
PRODUCTION AND SALES, OCTOBER 2007
Production of chard has surpassed the established goal of 200 bunches, by producing 356 bunches, however the goals for sales have not been reached. For broccoli, it can be seen that the goal of 80 bunches and Gs. 80,000 will not be reached given that several days before the end of the month production is at 16 bunches and sales at Gs. 14,544.
The fundamental objective of a daily operations report is to provide managerial decision-makers with a fast, simple, updated and precise method of compiling daily activities, which allows them to follow the daily behavior of the available economic resources and at the same time control finances.
c. Immediate benefits for users of the information
Immediate benefits are obtained by providing quantitative information (usually financial) as one of the elements in the decision-making processes of various users such as managers, administrators and accountants. This allows the administration to make decisions about creditors, clients, government entities and others.
The daily operations report makes it possible to measure the accounting data’s ability to represent, through words and amounts, the state of the institution at different points in time and the results of operations. This information should allow the user to obtain results and act on the information to achieve his or her particular objectives.
Accounting data should include events that have already occurred and should be entered into the accounts according to generally accepted accounting principles. These should be passed on to the appropriate user in a timely manner so that she or he can make decisions in time and thus achieve his or her goals.
This information is vital for the following people:
The institution’s management needs accounting information to assess the success of its activities. The daily operations report will provide them with real and timely information about income, costs, expenses, inventory, balances in different bank accounts, balances of accounts payable and accounts receivable. This will allow managers to evaluate the effectiveness of the administration and safeguard the resources under their control.
Administrators will use the data contained in the report to assess the results of operations, determine where cash is needed, evaluate the payment of accounts receivable and the inventory available for sale. A historical comparison of income and expenses can be done, in order to take the steps necessary to improve activity day by day. This report is a great help to administrators as they plan and monitor the institution’s activities.
The daily report is the most efficient means of providing financial information to the accountant because it has been put together by the collaborators who know the transactions taken and hence can properly codify each of them. The accountant therefore has more time to use the report in other areas of interest to the institution, such as overseeing the internal control, analyzing financial statements, financial and administrative consulting and others.
UNDERSTANDING THE MARKET
The objective of this section is to introduce you to marketing concepts so that you can reach the market and the most effective way possible.
In a globalized world with highly competitive products and services it is necessary to remain aware of the demands and expectations of the market. It is vitally important, when seeking to ensure the success of a business, to make use of marketing techniques. These include market research analysis of the competition, structure of distribution channels, points of sale and to investigate advertising and pricing strategies.
The key is to know the market and its needs. Consumers are the ones who provide the guidelines which allow us to better define what we are going to sell and to whom, as well as where and how we will do it.
a. Origin of the market
A market is a space physical or not, in which sellers and buyers of goods and services come together to conduct their purchases and sales transactions including the exchange of information which allows both to best meet their needs.
The market goes back to the time when primitive people came to realize that they needed things, which they did not produce. This realization process gave rise to the barter process with other individuals, communities and tribes.
As communities became more complex so did their needs, which hence supported the development growth of yet more markets for goods and services. Society’s very existence of in most parts of the world today has come to depend on being able to meet its member’s needs through the market system.
b. The concept of a market
A market is a place where the forces of supply and demand operate and prompt the exchange of goods and services at an agreed price. It includes all of the people, households, businesses and institutions that have needs to satisfy. Markets can be defined or ‘segmented’ into the different types of customers they are composed of.
The existing market is the group in which the product or service is actually consumed. By comparison, the potential market is a group in which the product is not being consumed, but could be in the future.Rural entrepreneurs cannot ignore the need to operate within the market, and meet its requirement if they are to succeed.
c. Marchet research
Market Research offers the information that can link a rural business to its consumers, clients and the public. It is used to:
• Identify opportunities and analyse problems within a market.
• Generate, refine and evaluate marketing techniques.
• Improve understanding of the marketing process.
The need for market research arises out marketing problem, which we cannot solve without better information. Carrying out market research can be costly, complicated and always requires the time and efforts of many people. It helps to lower the risk that decision-making carries as it allows for a better understanding of the background of the problem.
Market research is therefore meant to ensure top management make the best possible decisions, however it does not guarantee success in all cases. Research is only a guide for better targeting of business activities and reducing the chances of costly mistakes.
d. What should we research?
Many objectives can be achieved through market research. These are some of the most important aspects to analyze:
• His or her reasons for consuming.
• His or her purchasing habits.
• His or her opinions on our product and the competition’s product.
• His or her approval of price, preferences etc.
• Research on the uses/applications of the product.
• Tests of the product’s acceptance.
• Comparative tests with the competition’s product.
• Research on shapes, sizes and packaging.
• Research on distribution.
• What is the product reach in stores?
• Acceptance and opinion on products in distribution channels.
• Research on points of sale etc.
• Trials of advertisements and campaigns.
• Research before and after a campaign is carried out on consumer attitudes towards a brand.
• Research on advertising effectiveness etc.
e. Types of market
Given that markets are composed of people, households, companies or institutions that demand products, an institution’s marketing activities should be systematically directed at meeting the particular needs of these markets to provide them with greater satisfaction of their specific needs.
1. The general market is composed of anyone with needs that can be met by what a company sells.
2. The potential market is composed of all entities in the general market that not only want the product or service but are also in a position to acquire it.
3. The target market is composed of the segments of the potential market that have been specifically selected as targets of marketing efforts; this is the market that the company wants and chooses to capture.
4. The existing market is represented by the segments of the target market, which have been successfully captured.
OTHER TYPES OF MARKET
These are markets where merchandise is sold wholesale i.e. in large quantities. This market is made up of intermediaries and distributors who buy products in large quantities, which they will later sell to other merchants.
These can range from farmers or street markets to regular high-street or village shops. Businesses in these markets sell in small quantities directly to consumers.
An ever more important format within this market exists is the supermarket, a sector often dominated by large chains with significant power in the market.
f. Marketing strategies in broad product market
Below you will find several methods for segmenting the market:
1. The single target market method consists of dividing the market into segments and choosing one of the homogenous segments as the company’s target market.
2. The multiple target market method consists of dividing the market into segments and choosing two or more segments each of which will be treated as a separate target market, which needs a different marketing strategy.
3. The combined target market method consists of combining two or more sub-markets into a larger target market on which to base a marketing strategy.
g. Market charateristics
The market is composed of sellers and buyers who generate supply and demand, thus creating an opportunity for the exchange of goods and services. The price of goods and services tends towards an equilibrium point, which is reached when supply equals demand.
The market is constantly changing so we must be able to find opportunities for new businesses. As an example: musical records first were replaced by cassette tapes, which were then successfully replaced by CDs and now finally with MP3 digital formats. Although there are many creative ways of describing opportunities, there are four formal ways of identifying new business opportunities:
• Market penetration
• Market development
• Product development
h. What is market penetration development?
Market penetration means attempting to lure clients away from the competition by means of for example, better advertising, better distribution, price reductions or new packaging.
Market development tries to capture new clients without modifying the product for example, when supermarkets and restaurants open branches in new areas where there previously has been none.
i: What is product development?
Product development is taking an existing product and looking at how to make changes to the existing product that will create increased demand.
How to approach product development:
Step '1:' Research
Analysis of the market and competitor’s tactics; it is important to make preliminary calculations of the product’s cost at this point.
Step 2: Product concept development
Creation of a preliminary product with a corresponding preliminary design considering the product specifications needed.
Step 3: Production process development
The design is now finalized, specifications are created for each of the components and a preliminary production plan is created.
Step 4: Finalization of design and production process
The first products are made on the production line, their quality is thoroughly examined and workers are trained in production. Additionally, marketing and sales teams are organized.
Step 5: Regular production
Production goals are set and manufacturing begins.
j. What is product/market diversification?
Diversification involves a company either increasing its product range or targeting new markets i.e. diversification can be effectively divided into two categories: industry or product diversification and geographic or market diversification.
Alongside creating new business opportunities, it reduces the risks associated with maintaining a limited range of products or targeting a limited range of markets. This said, attempting to increase your product range or enter new markets will definitely introduce new risks.
k.What is marketing?
The word marketing originates from the word market, which represents a group of buyers and sellers who wish to exchange goods and/or services for something of value.
Meeting your clients needs and desires means understanding what motivates them to make a purchase. Once you have this understanding you can then present your product to them in a way that makes them want to buy it and at its simplest level that’s what marketing is!
It’s about making sure they know your product exists, that it’s a product they need, that it delivers value for money and from where they can purchase it.
ADDING VALUE & MAXIMIZING PROFITS
The objective of this chapter is to provide you with some effective strategies for increasing the income generated by your school business.
Making money might be a challenge, but at least if your teacher knows how to do it there’s a much better chance they might be able to teach you how to do it too! Teachers at a Self-Sufficient School have a credibility, which teachers at regular schools don’t have. Their students know that they not only have the knowledge to help them pass exams – but the knowledge and experience needed to teach them how to make money.
a. Adding value
In today’s economy characterized by globalization and stiff competition, it is very difficult for rural entrepreneurs who focus only on producing basic goods to earn an income that allows them a decent standard of living.
Basic goods example staple food crops such as wheat, rice, maize or cassava, normally sell at a relatively low price and with a relatively low profit margin. This means for example, that if you want to get rich as a wheat farmer you need to produce a huge volume of wheat very efficiently. But if you’re a school starting off with only a modest amount of land you’re never going to be able to produce in these huge volumes, and if you can’t compete on the same terms as your rivals, you will fail.
The good news is that when they leave school, the students that you’re teaching aren’t likely to be able to produce in such huge volumes either, so you’ll actually be doing them a favor if you can teach them something they do have a chance of taking up when they leave school.
As the chapter on basic principles suggests one option to get round this problem is to produce higher margin products. With higher margins you can produce smaller quantities for sale and still make a reasonable profit for example, the profit from one acre of tomato plants will be many times more than for one acre of maize.
This is one strategy for increasing the income your school can generate and it is certainly worth pursuing. When your students graduate and return to their families’ two acre farms, they will live much better if they know how to plant one acre with tomatoes and how to successfully market this crop.
Nonetheless it will take a very large number of acres of tomato plants to pay for all the costs of running your school! Unless the margins are very good indeed, sticking to higher margin products alone is probably not a good enough solution.
If you’re serious about running a school, which is 100% financially sustainable without relying on fees or outside support you need to consider adding value.
b. What is added value?
Added value is the extra value which is imparted to the product at each stage of the production & development process, and which is ultimately reflected in the sales price.
Imagine you take some basic product say a few potatoes, and turn them into another product say some potato chips, then the difference between the sales price of the potato chips and the cost of the potatoes (along with other ingredients) is the added value!
In the above example added value is the result of processing which one of the most obvious ways of creating a new product but not the only one. Other ways of adding value typically focus more on creating the perception that the product is new through the use of marketing strategies such as improved packaging and ‘branding’.
For small rural businesses including those run by schools, adding value to their basic products can be a highly effective strategy for increasing income. There are many ways of adding value to the school’s products and to the school itself.
Various types of value-added foodstuffs can be made from agricultural products from those requiring simple preparation such as drying, preserving or cooking to others needing more industrial processing such as cheese-making or canned vegetables, to hand-crafted items requiring skilled employees such as decorated cakes.
Prepared foods are a simple and very profitable example of added value. Something as simple as a sandwich should sell for at least 4 times what its ingredients costs by themselves.
It’s worth remembering that in the context of a school when value is added to a product we are not only are generating more income but also sending a powerful message to our students about how they can make money for themselves, as well as providing them the knowledge and training that will allow them to put this into practice!
c. How to add value
How many times have we heard that the solution to the problems or the road to ensuring the success of small and medium-sized businesses, regardless of the sector in which they operate is to add value to the products and services offered to the client?
What is not mentioned however is that adding value normally requires INVESTMENT and INNOVATION.
Adding value is not about doing what is already being done in the market, and then trying to charge a little more for the same thing.
Nor is it about trying to improve the quality of an existing product or service to better serve regular clients.
It is also not about increasing distribution or promotion of the company, product or service.
To truly say that value is being added, there must be a positive transformation of either the product, the quality of the product or service or the perception of the product or service being offered.
A company that hopes to differentiate itself by adding value to its products or services must first and foremost understand the market for its ‘new’ product or service and above all what characteristics for this products or services are the most important for the client at the moment of deciding whether to make a purchase.
In order to acquire this knowledge about buyers it is fundamental to be very familiar with clients and potential customers, their habits and their values. This makes it difficult to add value if we do not interact frequently with clients and pay attention to what they reveal about their true needs, desires and anxieties. Only by truly knowing what the customer wants is it possible to create a product, which they will pay more for. The ultimate goal of adding value!
As a starting point it is vital to know who the client is. The sheer number of possible markets and market segments make it impossible to satisfy the needs of all customers. For this reason, you need to know what segment/s of the market you can best serve and target them closely.
There is some wisdom in the saying “don’t bite off more than you can chew.” If you spread yourself too thinly by trying to serve more segments of the market than you are really capable of you will fail. It is better to serve just one segment where you believe you will be able to consistently outperform your competition.
Innovation does not necessarily depend on advanced, expensive or complicated technology. The most important thing is always that the client recognizes this innovation as added value and is prepared to pay for it! See below for suggested ways in which you may be able to add value to your products.
1. ORGANIC PRODUCTION
There is a growing demand for organic products, which generally have a higher market price than conventionally grown products. At a FSS School there are also other important reasons for considering organic production: caring for the environment and minimal dependence on external resources, which in turn contributes to the school’s self-sufficiency and offers an interesting tool for learning.
2. COMBINED RESTAURANT AND RETAIL SHOP
Since the ‘90s supermarkets have offered “new products” in the form of prepared foods, both to sit and eat in food-court areas or to take home.
This is a very interesting example for an FSS School that generally produces unprocessed raw material and could learn about the market and apply creativity to obtain greater income for its products.
These large businesses have two competitive advantages that they have learned to benefit from: they have the raw material to make food for a lower price than someone with a small or medium-sized business would purchase at and they have a market, a guaranteed flow of people coming to their shop. Putting these advantages together they offer the public high-quality prepared food to eat on the spot or to take away at a good price.
Additionally, clients that go there to eat often end up buying something as well and likewise those who go to shop may find it convenient to pick up something prepared or to eat there. In either case a drink may also be added to the sale.
Your school might not be able to do this on the same scale as the supermarkets, but the same principle can be successfully applied. We believe that having its own retail outlet is something most schools should aspire to (for reasons outlined in the next section).
Where schools can achieve this ambition, combing a regular store with a restaurant or café selling prepared foods made from school products, a simple value-added activity should be a natural next step.
e. Maximizing profits
Entrepreneurship is about seeing the opportunities that exist to make money and employing all your skills and resources to exploit them.
A school that wants to generate income has two choices:
1. To produce standard goods better than everyone else.
2. To serve unmet or under-met needs with new products and services.
Within each choice there will be several tried-and-tested strategies for maximizing income.
1. NEW PRODUCTS & UNMET OR UNDER MET NEEDS
When competition is high as is often the case with standard agricultural products, profit margins are likely to be low. Unless you can be a better producer than your competitors, with higher yields and lower costs, it may be difficult to generate useful income for your school from these products.
When competition is low, as with new products, profit margins are likely to be much higher. A new product does not have to be entirely new (in fact it is probably better if it’s not) but rather one that is not widely available locally.
Any successful new product should fulfill an unmet or under-met need. Unless this is the case, demand will be weak and the product will not generate much income. Hence the importance of proper market research!
2. THE VALUE CHAIN: CAPTURING vs. ADDING VALUE
There are many stages in the product’s life before it is sold to the final customer. At each of these stages the responsible person will also have to make a profit for their part of the chain.
A simple example might be a tomato farmer who sells to a stallholder who sells to the public. The farmer and the stallholder each have to make a profit for it to be worth their while. If the farmer could sell directly to the public without incurring too many additional costs, he might be able to ‘capture’ more of the value of his product and therefore generate more income.
It is about ‘how’ you sell versus ‘what’ you sell. Compare the above example with a tomato farmer who chose to sun-dry his tomatoes thereby turning them into a new product, thereby adding value to them. ‘What’ is being sold has changed in this case.
Of course your choices will depend heavily on the local operating environment, however in most cases schools will find it a useful strategy to try and capture more of the value of their produce by selling it through a school-run outlet.
Obviously combining both approaches and selling ‘value added’ products as directly as possibly to the final customer offers the best of both worlds.
3. ECONOMIES OF SCALE & THE DIVISION OF LABOUR
Normally the more you can produce of one product the lower your costs will be, this is known as economies of scale.
There are very good reasons for a school to sell many products, principally so that students can learn as wide a variety of skills as possible.
However where a school has a particular advantage in a certain activity, it may find it can generate much more income by focusing on this particular product, and producing it on a much larger scale.
Another option for lowering production costs is to use the people you have as efficiently as possible.
An example might be constructing a beehive, where we assume the three steps involved are cutting the wood, nailing the pieces together and painting the finished hive. If we have three workers, each worker could do all three steps themselves.
However if each worker focused on just one step of the process, it is likely they could produce more hives in a day increasing production, lowering the per hive cost, increasing the profit margin and thereby increasing the income generated!
This is known as the division of labor. The difference it can make is particularly noticeable the more steps there are in production.
HOW TO PREPARATE A BUSINESS PLAN
The objective of this chapter is to provide you an overview of how to prepare a business plan for a business unit or ‘company’ within your FSS School.
Creating a business plan is a necessary requirement for the creation or development of a business. The business plan is the “navigation chart” which orientates the company’s decision-making and is presented to financial institutions and other entities or people that could support the enterprise.
Here are some questions that should be properly clarified in the business plan:
• What is the business?
• What product or service is being offered?
• What profile should the company’s staff have?
• What characterizes potential clients?
• Who are your competitors?
• Who are your suppliers and under what conditions will you negotiate with them?
• How will your product or service differ from that of the competition?
• How will you price your product or service?
• What distribution and marketing strategies will you apply?
• How much does it cost to produce the good or service?
• How much financial support does it require and what sources will you go to obtain that support?
• What will the sales conditions be?
• How much time do you expect it to take to recover the investment?
• What projections do you have for the company in the short, medium and long term?
a. What is a business plan?
A business plan is a document that sets out the overall purpose of a business, including topics such as the business model, the organization chart, the source of initial investments, the staff that will be necessary and the method of selection, the company philosophy and the exit plan.
A business plan is usually considered to be a living document in the sense that it should be updated continuously to reflect unforeseen changes. A reasonable business plan, which explains the company’s expectations of success, is fundamental to obtaining financing and capital partners.
The main value of the business plan will be the creation of a written document, which evaluates all aspects of the economic feasibility of your commercial enterprise with a description and analysis of your business perspectives.
Business plans can vary considerably. Libraries and bookstores have books dedicated to business plan formats. However this section is a place to start, you can use it as a basis for designing a plan that is ideal for your business.
b. Why making a business plan?
Your business plan will be useful in various ways. Here are several reasons why you should not pass up this valuable tool:
• You can define and refine your goal with the use of relevant information.
• You can use it as a sales tool when entering into important relationships, including with creditors and investors.
• You can use the plan to ask for opinions and advice, including from people who are in the commercial area that interests you who will offer invaluable advice.
• A business plan may reveal omissions or weaknesses in your planning process.
c. 5 tips to write your business plan
1. Limit your long-term projections for the future (long-term being more than one year.) It is better to establish short-term objectives and modify the plan as the business progresses. Often long-term planning becomes irrelevant to the reality of the business, which may be different from the initial idea.
2. Avoid exaggerated optimism. Be extremely conservative when predicting requirements for capital, time frames, sales and profits. Few business plans correctly anticipate how much money and time will be required.
3. Don’t forget to decide what your strategy will be in the case of commercial adversity.
4. Use simple language to explain problems. Put the plan together in a way that is easy to read and understand.
5. Don’t depend completely on the exclusivity of your business or on a patent invention.
Sample business plan for a laying hen operation (egg production):
|AREAS OF CONCERN||PLAN||MARKET UNDERSTANDING|
|PRUDUCT||High-quality fresh eggs||The plan is to produce high-quality eggs, which will arrive fresh at the market, to sell to retail establishments. A lesser portion of the production will be used in the school|
|MARKET||Retail establishments, growing demand, un-served market||Potential clients are the retail establishments located near the school, and people from the area who will make direct purchases. Sale to establishments whose clientèle has greater purchasing power will be the priority.|
|COMPETITION||Other national distributors and local producers. For example, total production by small local producers plus local sales of large distributors.||There are usually large egg producers who operate on a national level, as well as small producers who serve regional markets.|
|COMPETITIVE ADVANTAGE||Quality and freshness of the product||The quality and freshness of the eggs produced will make them successful in comparison to those produced by the main brands. Additionally, once the institution and the product are known in the area they will have the added value of social responsibility on the part of the consumers.|
|MARKETING AND DISTRIBUTION||Sales directly to the establishments; direct delivery|| The product will be marketed in retail businesses in the area and neighboring communities, taking into account that a small-scale business aims to have a minimum of 15 to 20 “permanent” or semi-permanent clients. A visiting campaign to potential clients to offer the product should be organized. In each case it is important to know where they are currently acquiring the product. This is also an opportunity to learn about the client’s level of satisfaction in relation to their supplier.
|INVESTMENT REQUIRED||An investment of US$6,750 is necessary to construct a henhouse and buy 500 chicks, assuming that construction costs US$50 per square meter, and each chick costs US$1. Equipping the house with feeding boxes, drinking troughs and nesting boxes will cost US$250. Therefore the necessary investment for a facility with 500 birds is US$7,000.||The necessary investment needs to be thoroughly researched including a quote from different suppliers on the hardware needing to be purchased for the construction of the henhouse. In this case because of the cost, it will be have a simple, rustic design, but be very well-constructed.|
|STAFF||The director of the school can be in charge of marketing to begin with. All of the staff working at the henhouse should be included in the school’s organization chart. External assistance from a veterinarian will be used when consultations are necessary.||The production director is responsible for everything produced in the school. They will have the support of a production assistant who helps with specific tasks around the farm.|
|PROJECTED INCOME||With this flock we can estimate a daily production level of 350 to 400 eggs. If we assume that each egg costs US$0.10, yearly income will be US$13,500.|| Profit and loss statements should be drawn up with hypothetical situations, enabling the school to create a projected-income statement.
|LEGAL ASPECTS||As in any new enterprise, it is necessary to ensure that the henhouse complies with all environmental requirements and local law|| It needs to have all of the relevant authorizations issued by the corresponding authorities. This also ensures, that no complaints will be made by neighbors about the school’s facilities. |
NOTE: CHAPTER 8 IS A DETAILED GUIDE TO CREATING A BUSINESS PLAN
INCOME GENARATION IN SCHOOL
The objective of this chapter is to illustrate some real-life examples.
The following two examples demonstrate how non-agricultural and service business can help schools to generate income.
a. Arts and crafts
As well as using local resources crafts are a means of recycling many materials. They are also an opportunity to encourage the personal creativity of the students. This source of income should be examined carefully, considering that developing crafts and artisan-style products does not require a large investment. Some processes, which are begun manually, might be finished using machinery.
At the Fundación Paraguaya’s agricultural school one of the instructors in charge of the workshop discovered a business opportunity by putting to use two types of bamboo, which grow at the school. Previously the bamboo had been left to grow pretty much as a decorative weed at the school taking up space that could have been used for productive purposes. By cutting the bamboo into different length sections and placing candles in the hollowed centers. They have developed a distinctive multi-tiered ornamental candle range.
With attractive but rustic packaging the candles make an ideal gift item for special occasions at are sold at the capital’s craft shops at a good price despite each arrangement only taking minutes to make using low cost materials.
b. Rural tourism
Developing opportunities for tourism and outdoor education programs offers an interesting way for agricultural schools seeking self-sufficiency to generate resources.
- Whether tourism is viable at a school will depend mainly on:
• The geographic location of the school.
• Whether any of the productive activities carried out at the school represent an attraction.
- Some of the benefits tourism can bring as a business activity include:
• Fuller use of school infrastructure.
• Service skills training opportunities for staff and students.
• Increased institutional visibility for the school.
• New sources of employment for the local community.
• Creation of new markets for the school’s products.
• Strengthening of alliances with a range of business, civil society and government partners at the local, national and international level.
The Fundación Paraguaya’s agricultural school lies 48km outside the capital city of Asuncion. To create an additional income stream based on tourism they made a strategic investment of US$60,000 to remodel a former religious retreat center, which was located on its property.
It now functions as a profitable rural hotel and conference center with capacity to house up to 120 people in a modern, comfortable and economical setting. The center has been used for outdoor education programs, congresses, seminars and other events.
Not only is revenue generated from accommodation and room hire, but the hotel also consumes a wide variety of other products generated at the school including fruits, vegetables, dairy products and decorative crafts.
Although the business required a relatively large up-front investment, it now generates an impressive $100,000+ per year in income - roughly 30% of the total income of the school.
- Unless your school is based in an area, which already has a developed tourist industry, it can be quite hard to develop sufficient interest to attract visitors just by your own efforts. So when the time comes to develop your tourism “product”, be sure to find out whether there are other initiatives targeting tourists in the area.
Offering several attractive activities or elements in a “package” can often substantially improve the attractiveness of your offering, along with the final price making it more competitive.
EXAMPLES OF SUPPORTING EDUCATION THROUGH INCOME GENERATION
Teach a Man To Fish organized a project contest for schools interested in beginning to generate their own income.
What each of these demonstrates is that with a little creativity you can implement income-generation initiatives on a small scale even if you don’t have the funds to start a Self-Sufficient School straight away.
Several of these projects from various parts of the world are briefly described below. If you are interested in learning more about these projects, you can refer to:
- NIGERIA - AKWAFOM SUSTAINABLE COMMUNITY ASSOCIATION (ASCA)
Based in southern Nigeria, a combined crop/fruit/vegetable/livestock project is being established, involving a diverse range of production methods ranging from snail cultivation to pineapple growing. Students are involved in all stages and sell the products in local village markets to support the Ikpe Udok Rural Education scheme.
- UGANDA - VODA UGANDA
Youth from local poor families have been selected to undergo a short pig-rearing course and are supported to construct a sty on their household land.
A piglet is loaned to each student who establishes a cassava garden to help feed the pig. As the pigs grow they produce valuable manure used to fertilize household land. When the pigs reproduce each student gets two piglets back, which are then distributed to two other students. Remaining piglets can then be sold to pay for school fees or kept at the household piggery. Students sell their mature Pigs to local 'Pork Joints' for a handsome profit.
- KENYA - LWANDI DUDI SECONDARY SCHOOL, IN PARTNERSHIP WITH ECO-FINDERS YOUTH MOVEMENT
This integrated project in Western Kenya involves the establishment of a poultry unit, which aside from producing eggs also provides fertilizer for horticultural plots and a fruit tree nursery. Eggs, vegetables and tree seedlings are sold through a ‘Green Food Kiosk’ at the local market and profits reinvested into the school. On top of this, awareness of the project is being spread through drama, videos and ‘eco-information’ talks given by the students.
- SUDAN - MOTHER LAND PROGRESSIVE SECONDARY SCHOOL, IN BY MRDA
A vegetable garden is being set up at this secondary school, which receives no government funding. 12 groups of 20 students will use innovative crop mixing and irrigation technologies to ensure regular harvests throughout the year. With students selling their products at local town markets and restaurants, the schools wavering budget is bolstered, ensuring that its doors are kept open into the future.
- GHANA - FAIR RIVER INTERNATIONAL ASSOCIATION FOR DEVELOPMENT (FARIAD)
Students from three different secondary schools in Ghana will be trained and involved in setting up a large Snail Farming project. Snails will be sold to local restaurants and hotels, with students taking the lead with marketing and advertising. Profits will be ploughed back into the schools themselves and used to expand the Snail Farm in the future.
- ARMENIA - DEVELOPMENT PRINCIPLES
This rural Youth Club in Armenia is establishing a one million strong worm farm in an abandoned cattle shed to produce premium quality compost for sale to local farmers.
This form of organic fertilizer is much cheaper than its in-organic competitors, giving it a healthy market, cutting down costs for farmers and benefiting the environment. The healthy profits from the project are used to support the Youth Club, allowing it to reach more and more young people.
- THE PHILIPPINES - PINE TREE
Six groups of students who cannot afford to pay college fees are selected from the local area to take courses in Horticulture, Nursery Establishment and Soil and Water management. During and after completion of the courses they work with local farmers in a process of knowledge exchange.
Products are marketed by the students in a Community Support scheme, whereby community families order all their vegetable and spice needs from the project. Profits are reinvested in the educational scheme, allowing it to support more and more students each year.
- NEPAL - NEPAL POLYTECHNIC
Youth from farming backgrounds, high school dropouts and ethnic minorities are being trained in this vocational floriculture project. A shade house is being constructed along with nursery equipment, to teach students cut flower production, flower arrangement and nursery management techniques.
Flowers are marketed by students in the commercial hubs of Kathmandu and Pokhara and the profits reinvested to the project, whilst job placements are arranged with local nurseries, parks and hotels.