Human and Financial Resources Planning in Entrepreneurship

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Introduction to Enterprise Resource Planning

What is Resource Planning?

Resource Planning is a process of identifying, forecasting, and allocating various types of business resources to the projects at the right time and cost. It also ensures the efficient and effective utilization of resources across the enterprise.

What is Enterprise Resource Planning explain?

Enterprise Resource Planning (ERP) is defined as the ability to deliver an integrated suite of business applications. ERP tools share a common process and data model, covering broad and deep operational end-to-end processes, such as those found in Finance, Human Resources, Distribution, Manufacturing, Service and the Supply chain.

Concept of Enterprise Resource Planning (ERP) Systems

As stated by Ullah, Bin-Baharun, Nor, and Yasir (2018), the term was introduced by the Gartner Group in the early 1990s. It represents computer and software systems that combine and integrate all related processes of the enterprise, and serve users for the management of all functions within the enterprise. Researchers referred ERP systems as Enterprise System (ES), Enterprise Resource Management (ERM), and Business System (BS) respectively.

Rosemann and Gabble (2000) conceptualized ERP System as comprehensive packaged software solutions of Information System (IS) designed to integrate all business processes and work to present a complete outlook of the business from a singular IT and information architecture. Davenport (1998) had earlier described it (ERP) as an information strategy that merge all information within an organization and create a comprehensive information infrastructure involving all organizational units and functions.

However, Marnewick and Labuschagne (2005) clarified that ERP system is more than just a product or software but that which is conceptualized ERP into four components:

Software component (Finance, Human Resources, Supply Chain Management, Supplier Relationship Management, Customer Relationship Management, Business Intelligence), which is the visible to users and seen as ERP product.
Process flow, which deals with the information flow among modules within ERP system.
Customer mind-set, that define the influence of ERP system on users, team, and organization. And
Change management, which deals with the adoptability of ERP system implementation within the organization, that are user attitude, project changes, business process changes, system changes.

Sources of Finance and Financial Literacy

Sources of Finance

Generally, authors have classified sources of business finance as:

Internal and external sources of funds
Formal; Semi-Formal; Informal; Supplementary
Seed money; Debt financing; Equity financing

Internal and External

Internal Sources of funds

Personal savings (especially in Proprietorships)
Contributions by family and friends

Ploughed back profits/ retained profits

Pooled up capital (especially in Partnerships)
Shares subscriptions (especially in Corporations)

External Sources of funds

Loan from Banks
Loan from other Financial Institutions

Commercial Papers or Public Deposits

Trade Credit
Customers advances
Debentures

Formal; Semi-Formal; Informal; Supplementary

(i) Formal Sources

Bank Sources such as:

Overdraft/ Term Loans;
Project/Produce finance;
Import finance;
Project Loans;
Salary advance; etc

(ii) Semi Formal

Cooperative societies
Hire purchase
Lease
Equipment loans
Trade supply; etc

(iii) Informal

Personal savings
Loans from friends
Loans from relatives; etc

(iv) Supplementary

Venture Capital
Angel investors
Vulture capital
Microcredit; etc

Seed money; Debt financing; Equity financing

(i) Seed Money

Personal savings,
Contributions by family
Contributions by friends
Loans from family members
Loans from friends, etc

(ii) Debt Financing

Borrowing from banks
Funds from venture capitalists
Debenture etc.

(iii) Equity Financing

Preference shares
Ordinary shares, etc.

Financial Literacy

The word financial is connected with money. In this context, our finances are those that have to do with income and expenses in the enterprise. Our income may be from one or more of these sources – seed money (probably from the little savings from earlier job), government grants, agricultural loans, proceeds from sales, gifts from friends and families, money ploughed back from the previous year’s excess, etc.

Our expenses, in agriculture (for example), revolve around land acquisition, cost of clearing and tilling the land (or setting up the premise in case of animal husbandry), seedlings, planting, weeding, irrigation (in some instances where such is required), harvesting, etc.

Literacy, in this context, is used to mean knowledge.

Put in another way then, we are concerned with knowledge of income and expenses management.

Issues in Financial Literacy

On a general note, financial literacy encompass issues of: Needs and wants; Financial planning and budgeting; Record keeping and cash flow management; Savings and borrowings; Risk management; Fraud and scams; Consumer rights and responsibilities; Household financial management; Taxes and their payments; among others.

Needs and Wants:

a need is that ‘thing’ which is necessary for an organism (a human in this context) to live a healthy life. Needs are required for sustenance. This means that deprivation of needs may impair on the existence of ‘a being’ or leads to improper functioning of ‘the being’. On the contrary, a want is something that someone will like to have. It is a desire of a being for entertainment. However, it needs to be stated clearly that unlike the case of need, the inability of a being to satisfy ‘a want’ may not necessarily impact on his existence but rather on his ego!

Looking carefully at the subject matter of needs, it should be noted that though needs seem to be generic, it is actually dichotomized such that one can clearly see the ones that are very pressing – basic – as opposed to the ones that are equally important but are not basic. This is what Abraham Maslow made effort to depict in his triangular shaped ‘hierarchy of needs’.

Fig 1: Maslow’s Hierarchy of Needs

Sizes of the importance of needs to man are depicted in the triangle (Fig. 1) to indicate their extent of importance to man. From this (Fig. 1), the basic needs of man, without which life becomes unbearable, are the physiological (food, water, warmth, and rest); and the safety (security and safety); hence depicted by the biggest strata of the triangle. After the accomplishment of these, availability of additional means, for example, an increase in personal (or household) income, determines the next hierarchy, that is, the psychological needs of intimacy and friendship; and the esteem in the feelings that come with accomplishment. Further increase in the quantum of available resources takes one to the highest level of the ladder, that is, self-actualization, that feeling of ‘I have arrived’.

The knowledge of ‘needs and wants’ is essential to persons in the sense that financial discipline is only ensured when each person understands the most important that must be fulfilled given a particular level of income. This goes with the consciousness of the fact that the revenue accrued to the business is not essentially his (person’s) own in totality, but only a portion of the revenue is his!

Also, it needs to be understood that movement from all issues of needs to spending on wants is determined by the excess income available to a person after the fulfillment of all needs. At some point, wants can be seen reflected at the top of the triangle and at some other points, human wants are completely outside the triangle, that is, wants begin from where self-actualization stops! Whereas there is nothing wrong in spending on wants, it must be done only with the income accruing personally to the person, not on the basis of the general income of the enterprise!

Financial Planning and Budgeting:

planning involves decision on what to do in the future and how to do it. Since a manager who fails to plan, ordinarily plans to fail, the issues of planning is very important in financial knowledge. Whereas planning can be defined as the process of setting goals and objectives in advance and determines way of achieving it, the word budget, in a simple term, can be defined as summary statement of plans expressed in qualitative terms. From this therefore, budgeting can be defined as the process of preparing a summary statement of plans expressed in monetary quantitative terms. Budget involves projections. It is concerned with expectations. However, the projections should be as realistic as possible, that is, it should not be overambitious in its outlook.

To be successful in business, a person needs to plan and do budget. Sometimes, it is not very correct to see capital as a limiting factor to setting up an enterprise. This flows from the fact that a number of persons want to ‘start big’. Whereas there is nothing wrong in starting ‘big’ if the means is available, it has been discovered that some of these ventures can commence in a smaller size (with the little available capital) and then grow up to the desired level over the years with proper planning and budgeting.

With proper planning and budgeting, growth of the business is better assured, that is, the introduction and bringing-in of a bigger equipment, for instance, can be planned over some period of time rather than waiting till the funds required for such equipment is obtained before commencement of the venture! A lot of successful persons in the world started with small capital and with the aid of planning and proper budgeting, the ventures turned multinationals over the years.

From the foregoing, it can be seen that the knowledge of ‘planning/budgeting’ is essential for persons both in circumstances where they are faced with smaller capital than they ordinarily desired to commence business and also in situations where the desire is to transform the enterprise from ‘a bedroom’ business to ‘a multinational’ venture.

Record Keeping and Cash Flow Management:

to be successful, records of income and expense of the enterprise, must be kept for each and every transaction. Ranging from the N10 that was given to the garbage packer to the N100,000 that was given out for the purchase of sets of furniture for the use of the business, books must be opened and each of these movement of cash – in and out – of the business (cash flow) must be written appropriately.

A person does not necessarily have to be an accountant to do this simple task of record keeping. As a matter of fact, the records must not be kept specifically the way accountants are trained to do! Simple notebooks can be used to capture the records of income and also the expenses of the business. The act of doing this is a form of journalizing (in accounting language).

Still on record keeping, it is imperative to note that a businessman does not have right to take anything away from the business without payment for such and/or duly documenting such as amount withdrawn from the business or an amount owed to the business. Note also that if whatever the person has taken away from the business is to be treated as ‘drawings’ at the end of the year, such must be taken away from the capital to obtain ‘owners equity’ at the year end.

Note this and with the seriousness it deserves, the person, who operates a computer business centre, must pay the N5 chargeable for one page photocopy that was done for his personal document, either by paying cash immediately or by being captured as an amount owed to the business. This is what record keeping entails!

Savings and Borrowings:

generally in financial literacy, issues of savings and borrowings are considered both from the angle of the enterprise and that of the household. Savings, by the enterprise, is essentially by way of ploughing-back of a substantial portion of the revenue of the enterprise. It is mandatory for the person to ensure that the revenue of the enterprise is securely kept. This is advised to be by conscious use of the financial institutions such as commercial bank.

Keeping of the income of the enterprise in bank is important except if the business of the enterprise is that which require the daily use of cash, for example, in a buying and selling enterprise such as the selling of wholesale sachet water. In such a situation as this, the person is yet expected to keep a certain income (that is, the excess of income over the amount required for restock), save, for example by giving a certain fixed amount to reputable micro finance bank in a daily contribution form and keeping the lump sum of this excess in a commercial bank weekly.

Excess of revenue over expense, at the end of the financial year, is expected to be appropriated for the benefit of the owner(s) and the business. What goes to the owner(s) is called dividend while savings, in this context, is what is ploughed-back into the business. This (savings) ordinarily is expected to be utilized by the business for the purpose of its growth.

For the purpose of growth and/or expansion, the person may need to take monies from outside finance sources (or even at times from the person’s personal funds outside the capital he had initially invested, where the intention is not to increase the capital from what was initially invested or proposed to be invested). This finance from other sources (including personal loan to the business) is what is called borrowing.

Whereas borrowing is good for the business, it has to be properly planned for and applied ‘only’ for the purpose for which the money was received into the business. It means that borrowing itself requires planning and is expected to be properly analyzed in the budget. Borrowing becomes a ‘curse’, instead of a ‘blessing’, to the business where it is not properly utilized and/or not properly planned for.

It should be noted also that the amount(s) borrowed may require repayment with or without interest. Whatever may be the terms of the borrowing, the utilization of the funds and the repayment must be detailed in the budget. Since the business can borrow from the person aside his/her capital investment, he/she can equally borrow money from the business. This is simply saying that where the person urgently needs money for personal purpose, he can access it if such money is available in the business. Borrowing from the business by the owner must be done with the conscious plan of refund to the business!

Risk Management:

in virtually all endeavours of man, risk is involved. The subject matter of risk management is very important to each person. This is because no person can say with all assurances that the venture he/she is embarking on will definitely ‘hit the ground running’ without any hitch(es). From economists’ point of view, risk and returns are directly proportional, that is, the higher the risk, the higher the returns on investment. Whereas this (risk-return) theory had been proven correct (at least majorly), it shouldn’t be taken for granted that business risks can be taken anyhow.

Each person is expected to take ‘calculated risks’. This means that proper analysis and due diligence must be involved before deciding on, and continuing into, any project no matter how ‘clear the coast seems!’ This takes us back to the issue of planning and budgeting discussed earlier. It may interest one to note that risk evaluation is one of the things that financiers of projects consider whenever a demand is made for business plan.

Despite taking time to do proper analysis before venturing into any business activity however, there is yet some other risks that are not always visible to humans. For example, it may be unthinkable for ‘a garri seller’ to be afraid of possibility and risk of fire outbreak in his/her shop where he/she is selling garri! How can one expect such a business to put fire safety into consideration in the course of business planning?

One of the ways that man, in his own wisdom, has designed to take care of some certain unforeseen circumstances such that the person is not ‘ruined’ in case of eventualities, is the idea of insurance. With insurance, the insured person is ordinarily expected to be restored to the state he/she was prior to the point of disaster, in case it happens. On this note therefore, the person is expected to involve insurance in his/her risk management plan such that possible risks peculiar to and/or around the business activity are identified and prepared against.

By relying on the judgement and expertise of reputable insurance company, the person, having fulfil his/her own aspect of the bargain by paying the agreed premium, is sure of being afloat in business. It needs to be mentioned that insurance goes beyond business to personal but the focus of our discourse here, is on the business.

Fraud and Scams: unfortunately, and in the world of today, the rate of fraudulent activities has increased tremendously! The ‘get-rich-quick’ syndrome of our modern society, coupled with a lot of other factors, had led to the collapse of a lot of businesses and loss of personal income or monies. So many tactics have evolved, with newer ones evolving by the day, to defraud a lot of unsuspecting persons. As a matter of fact, some of these fraudulent practices looks genuine for the fact that their foundations are laid on genuine business activities (such as networking).

Of the fraudulent practices that are evolving in the modern day, which is seriously threatening the business environment is the financial fraud committed through banks and other financial institutions. On this note, the person is expected to keep all information regarding financial instruments such as the Automated Teller Machine (ATM) cards and the Personal Identification Number (pin), including other relevant and confidential information that are attached to financial instruments; the cheque books; and a host of others, as safe as possible.

Where the business operates account(s) with any commercial bank, the person must know his/her account officer and have his/her contact handy. With this, he/she must always take time to authenticate (confirm) any sudden call or request for any information that concerns the business account from the business account officer. Sometimes, this can be done using an alternative phone number or means, especially in a case where phone line highjack is suspected.

Equally, where the enterprise must deal with other financial institutions beyond specific government banks and commercial banks, care must be taken to verify the root of such financial institutions. It is also a risk management technique to ensure that not much of the business income is entrusted into the hands of individual savings collector and/or ‘banks’ that suddenly surfaced in the name of financial institution. Recall the case of “Lawmans and company” of some years ago in Nigerian financial institution’s history!

Another important thing to note, with respect to scams, is the case of ‘too good to be true’ offers. It has been seen that a lot of these ‘send N10,000 to get N20,000’ are usually questionable means of getting rich and are scams! A recent experience in Nigeria is the MMM saga. Aside MMM, a lot other smaller means of scams have evolved. Of the scams that are easily tied to genuine businesses are those connected to networking. Though networking businesses are legal, care must be taken to identify the ‘product’ that the ‘network business is tied’ before investing any ‘investible amount of the business’. The bottom line is that proper analysis must be done before the funds of the business in any other investment under the umbrella of diversification and portfolio management.

Consumer Rights and Responsibilities:

knowledge of the rights, privileges and responsibilities of consumers are very important to the person. This is not unconnected with the fact that the enterprise is sure to continue to remain in business and equally expand when customers are at least relatively satisfied with the product or the service rendered to them by the enterprise. This is where the saying, customer is the king, emanates. Experiences of successful persons equally taught that a good product advertises itself. Though this does not, by any means, suggests that advertisement is not necessary, it is simply saying that beyond direct and conscious advertisement, the product or service rendered should speak volumes about itself.

Especially in the face of unhealthy competitions, for instance, in price wars, some persons lower quality in order to reduce cost so as to compete favourably and stay afloat in business. Unknown to some of these persons however, the business has a lot to lose in case of litigation especially where the consumer can trace his/her challenge directly to the product or service of the enterprise. As a matter of fact, each person is expected to create a niche for the enterprise in the market such that instead of lowering quality, especially where prices cannot be easily increased without losing out in the market, quantity can be carefully tinkered with to level up!

The bottom line is that the extant laws of the land on the product or service must be known by the person and he/she is expected to adhere to the rules of the game. Also, ethical issues should not be taken for granted. What are the ethical matters that affect the product or service? What are the expectations of the consumers with respect to what the producer (or service deliverer) ought to have done before bringing the product or service to the market? These are some of the questions the person needs to ask and answer objectively. Where the enterprise has done its own part, it is the responsibility of the consumer to pay the amounts due to the enterprise, as and when due. This is important for the continued survival of the business. Remember the saying business succeeds when friends and families pay their dues as and when due!

Household Financial Management:

records of household must be clearly separated from the business records. In financial literacy, persons are encouraged to be conscious of household financial management as much as they are conscious of the business financial management. It is important to look at this for the fact that reckless spending by the household may affect the business somehow. Recall that it was mentioned in this segment under the discourse on savings and borrowings that borrowing by the person from the business is not illegal.

All persons are expected to do proper planning and budgeting for their households and live within their income for their own personal happiness aside business survival. The popular saying cut your cloth according to your materials is needed to be domiciled by any person that is genuinely hoping to be successful both as a person and as a person. Everyone should be conscious of his/her source(s) of income and plan his/her expenses in line with his/her regular income.

Of the most important things to note in household financial management is that substantial percentages of gifts and other income from sources other than regular source(s) are expected to be kept by way of savings rather than wasted on frivolities. Such income are expected to be used in case of emergencies outside the regular expense plan. Note that emergencies may not necessarily be such that is attached to negative dispositions. There may be an emergency that has to do with asset acquisition that is available at what the banks call forced sales value, that is, genuine assets offered at extremely cheaper rates. In simple terms, the person is expected to use his/her household money as wisely as possible.

Taxies and Levies:

the consciousness of taxes and taxable items, including levies payable to appropriate government and governmental agencies is another important issue in financial literacy. Before delving into the business activities, the person is expected to know whether or not all of, or a part of, the activities of the enterprise is subjected to tax, and if so, the rate of tax amount payable per annum. Aside the issue of tax, other relevant levies, if they are applicable to the enterprise, must be known.

In some other realms, the activities of the enterprise may be taxable but the tax obligation is to commence only after the enterprise might have operated for some specified period of time. Such scenario as this means that the rules on taxation provided for tax holidays, which covers some periods of time, to enable the business grows and begins to make good returns, before it commences tax payments to the relevant government or governmental agencies.

These vital information are expected to be captured by the person in the course of planning and budgeting. It is very vital to do all these so that the person will not find him/herself in a ‘tight corner’ if sudden demands are made of the enterprise, for instance at an early stage of its commencement of business and there was no money available to meet up the obligations. The disruptions to the business or embarrassment such may bring to the business is not palatable since it is always argued that ignorance of the law is not an excuse.

Why do we need Financial Literacy?

As argued and deducible from the theory of controlled appetite (Adefiranye, 2018), an entrepreneur (even a business man) will always perceive a mere salary earner as better than himself as much as he is not able to understand financial management and carefully apply the knowledge.

From all the issues as discussed above, it is clear that all business owners must be familiar with the issues surrounding business and its finances, including household or personal matters as they affect the business organization, that is, issues on financial literacy. Without proper knowledge on these, the enterprise may not successfully stand and/or grow, as may be anticipated by the person. Having discussed these therefore, the next important issues to be considered are matters of the philosophy of financial success and a guide on budgeting.

ABC of Financial Success and Simple Budgeting

From the theory of controlled appetite, the ABC rules were mentioned as being relevant and very important to be followed by persons, business owners, artisans, and/or individuals. Before looking at simple budgeting, we will consider the ABC rules first.

The ABC Rules

A – Always record all income and expenses
B – Be conscious of what you are to spend on
C – Carefully analyse an expense before you release cash for it
A- Always record all income and expenses

Financial success begins with proper record keeping. Unfortunately, a sizeable number of persons, and most especially small scale business owners do not keep records of what comes in and what goes out of the business not necessarily because they are unable to read or write but because they usually see no tangible need for such and/or they consider that as a ‘sheer’ waste of time and energy.

For the fact that records are not kept for revenue and expenses, many of such business owners see white collar jobs as more enticing and salary earners as better than themselves for the fact that at the end of a calendar month, a certain lump sum is expected to be received. In an interview with an artisan who is into floor tiling, he remembered one of the ‘contracts’ he executed during the year where the excess of income over the direct expenses of the contract was seven hundred thousand naira (N700,000). The man in discourse surprisingly couldn’t explain how he utilized the substantial portion of the money and yet believed that his life would have been better than it currently is if he is engaged in a paid job.

Looking at the current situations in Nigeria, (at least as at this year 2018), a lot of employees, mostly in the private sector, are not earning more than fifty thousand naira (N50,000) per month. This, in a year amounts to six hundred thousand naira (N600,000). Contrasting this with the artisan just discussed, it is obvious that the excess of income over revenue of the ‘one major contract’ executed by the artisan has paid am employee with additional money on the salary. Keeping of records and financial discipline would have made a lot of difference in this situation.

B – Be conscious of what you are to spend on

As a person, what do you spend on and why do you spend what you spent? What is/are the benefit(s) derivable from the spending, first to the business and second, to you as a businessman? Considering the knowledge of cost-benefit analysis, can you happily justify what you spent money on? These are some of the questions every business manager is expected to ask him/herself as far as spending is concerned.

It is important for every business manager, as managers of resources, to practically and consciously apply the knowledge of financial literacy before spending as little as a naira from the revenue of the enterprise. Needs are to be clearly demarcated from wants and beyond this, spending should be carefully done based on prioritized list drawn for the business and also for the person.

In the simplest term, being conscious of what a business manager spends on, is an aspect of planning. It is important to plan towards spending and be conscious of the right time and the right amount to spend at all times. Careful planning towards spending assists the person to a reasonable extent in reducing and/or curtailing financial difficulty, most especially for the business and necessarily for him/herself.

C – Carefully analyse an expense before you release cash for it

Careful analysis of an expense before releasing cash for it is an aspect of budgeting. Budget can simply be seen as summary statement of plans expressed in qualitative terms. Just as put in the case of planning, cost-benefit analysis is needed more especially for substantial spending that is material to the venture. It should be noted that the word ‘materiality’ (a concept in accounting) itself is relative. What is material to a business venture ‘A’ may be immaterial to the business venture ‘B’.

For instance, to a cloth and wares seller whose capital is a million naira, a waste basket of five hundred naira may be considered immaterial whereas to the seller of sachet water whose capital is five thousand naira, the same waste basket is very significant hence material. The point here is that no money should be released for any item considered material to the business until a careful analysis is done, first to the benefit derivable from the item (noting that this benefit may be quantifiable in monetary terms or otherwise), and then to the consideration of the consequences of not having such item in the business.