FIN2603 FINANCE FOR NON-FINANCIAL MANAGERS THIRD EDITION

What's the problem? It is 28 February 20 14 in South Africa, and Joe Vermeulen is vacating his office. He has worked for his employer for 18 years, but has reached the ceiling of his career, and there are no further opportunities for advancement. Joe has decided to resign and take the RI .6 million pension he has accumulated thus far in order to buy an existing courier business. His pension pay-out will be subject to tax, and he will have RI .12 million available for the investment he needs to make. As a result of the affirmative action policy, his son cannot find employment. Joe will employ his son in his new business venture. It is with mixed emotions that he says farewell to his colleagues. He realises he will miss the fun and the jokes Jabulani used to make, and the opportunities he had to attend annual planning and training retreats. He will have to turn the courier business around and continue it under a new name as it has struggled during the past year due to the previous owner's ill health. The firm has two drivers and an administrative manager. There are also two delivery vehicles, and if more transport is needed, an extra one can be rented. Joe's courier business intends to make use of the SA Post Office for some of its deliveries. Other operators in the industry are Fedex, Skynet, United Parcel Services (UPS), RAM couriers, DHL Express, Aramex, UTi Sun Couriers, Globeflight, TNT and Speed Services Couriers (a division of the SA Post Office). Joe realises the courier industry in South Africa is competitive, especially since some Chinese firms have opened new firms in southern Africa recently. The improvement in bandwidth and increasing access to the Internet makes it possible for firms, governmental departments and individuals to send documents via email. During February 20 13, the SA Post Office employees went on strike, and this year the same is expected. Some courier firms do well, but these are usually the ones that have won tenders to render their services to big organisations and government Downloaded by Melissa Van Aardt () lOMoARcPSD| departments, or retail firms. Unisa may once have been a great opportunity for the courier industry, but they have converted to the delivery of their study material online. 1 Joe has considered lowering the salaries of the current employees, and has wondered how else he could reduce the cost of running the business. To make matters worse, an increase in the levy has just pushed up the price of fuel. 00 .2 Downloaded by Melissa Van Aardt () lOMoARcPSD| CHAPTER 1 THE FINANCIAL GOAL OF A FIRM 2 00 .2 Earlier that morning he collected the documentation from the Department of Trade and Industry (DTI) confirming the registration of his new business as JVS Courier Services (Pty) Ltd. His business cards have also been delivered. "That was probably the easy part of my venture", he says to Bongani at security as he leaves the building. Now to make it work.He wishes he had known about the franchises offered by Fastway Couriers before he signed the contract to buy his courier business, but he realises now that it is too late for regrets. As he drives out of the gates of his previous employer for the final time, he feels the pressure of realising that failure is not an option. Question: What are the dilemmas one faces in business? 1.1 INTRODUCTION Some of our most basic human needs are for food, liquid refreshments, clothing, personal hygiene, medicine and medical care, accommodation, transport, sport and recreation, education, rest and security. Firms exist because they satisfy a need by providing a product or service. However, this is not always for consumers, as some firms meet the needs of other firms. An example might be a company that manufactures the steel required by vehicle and ship manufacturers. The emphasis on customers' needs and on providing a quality product or service to meet the needs of customers is normally articulated in a firm's mission statement. A mission statement describes the fundamental purpose that sets a firm apart from other firms of its type and identifies the scope of its operations in product and market terms (Pearce & Robinson 2011: 27). A mission statement is vital in providing focus and direction to the firm's management in deciding how best to utilise the resources of the firm in the competitive environment in which it functions. This environment contains five main forces, namely rivalry within an industry, the bargaining power of suppliers, the bargaining power of clients, the threat of new entrants, and the threat of new technology. This is illustrated in Figure 1.1