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*how to become a successful entrepreneur
*what problems you may expect
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THEY'VE MADE IT -
TRY YOURSELF!
28 questions on starting and running a business
answered by successful entrepreneurs
how to become a successful entrepreneur
what problems you may expect
,ff;SEED
Southeast Europe
Enterprise Development



Author:                    Davorin Paveli6
Associates:                Senada Havic, Tamir Mostarac, Jane Mc Neil,
Stevo Topalovic, Adnan Cobic
Editing:                   Hans Shrader, Lejla Dragnic
Proof reading:             Erika Paine
Prijevod:                  Senada Hadzagic
Text formatting,
cover design:              Christopher Miller
A free publication
First printed in September 2001
Southeast Europe Enterprise Development, SEED
Sarajevo, Bosnia and Herzegovina



Content
Introduction ............................................. 5
TEST AND ANALYSIS OF PERSONAL CHARACTERISTICS .... 7
ANSWERS TO FREQUENTLY ASKED QUESTIONS   ... 12
I .   What kind of business should I start'?    .  .12
2.   How many hours will I have to work     .      .14
3.   What is a business plan and is it necessary to have it
when I am starting my business?    .       .15
3. 1 What is a biusiniess pla?   .        .1 6
Table 1. Business Plani Outlinie anid Checklist . .17
4.   Is it necessary to have a business defined in detail?.  22
5.   How should I choose a name for my business'? .22
5.1 Are there anov legal issues attatched to the tiaHining
of the company ? .........                               - 22
6.   Is the location a factor which can determine
the success of my business'? .25
6.1 How tdo thesefactor.s influetnce diffei-rent business operations? . 26
7.   Is it possible to manage my business from my home? .28
Table 2. Ii,nporttanit elemzents to be considered
when startinig the business firom homie .29
8.   When I am procuring equipment and a plant. which
option is better; to lease (rent) or buy? .30
8. 1 Which ftictors are in fav or otf purcliasinig.
for instance, manuii facturing equipment?..                 31
9.   What legal aspects do I need to consider? .33
9.1 Wlhat steps do 1 need to talke in order
to -egister imy business:.                               33
9.2 Are there any fiscal incentives. for startups?          34
9.3 What type of inspection canl I expect?.                 34
9.4 Whiat shoul0{d I do iJ I want to
buyt lunbld aInld butil aI biusiniess fiwilitv I.  .    34
9.5 Wliat about Taxation and Customs .        .    .         35
9.5. 1 Corporate profit tax (30%oc) ....           .     35
9.5.2 Excise Tax .35
9.5.3 Sales 'lax (10%) .   ........ 36
9.5.4 Cutstomis dulities .36
10.  Which legal form should I choose for my business'? ..       36
11.  What are the key success factors of a private small business? . .40
12.  Should I start my business with a partner(s) or by myself? . 42
13.  Who are the right employees for my business and
how can I find them? .44
14.  How should I determine salaries for my employees?  .        45
15.  How should I determine my salary?    .       .48
16.  Apart from salary, do I have any other financial
obligations towards employees'?    .       .49
17.  Should I involve family members in my business? .50



18.  How much money do I need to make my business idea opera-
tional9? .......................................... 5 1
Table 3. General List of expenditures related
to starting enterprise/business .52
19.  Where can I get the money to start a business? .52
20.  What do 1 have to do to get a loan? .53
21.  What record keeping system do I need for my business? .      55
22.  What financial statements will I need? .56
23.  How do I determine market potential for
my products and services .57
24.  How should I position my business on the market' .59
25. What is marketing? .60
26.  How should I determine prices of my products and services? .. 63
Table 4. Checklist for defining prices of products/services . 63
27.  Where and how can I find suppliers of raw materials
and distributors for my products? .65
28.  Who can provide technical assistance? .66
Bibliography .. ..... 67



Introduction
SEED (Southeast Europe Enterprise Developtnent) is a multi-donor program
managed by the Intemational Finance Corporation (IFC). The goal of the pro-
gram is to provide support and strengthen small and medium size enterprise
(SMEs) in Albania, Bosnia and Herzegovina, Macedonia and FR Yugoslavia.
This five-year program provides a large scope of' different services both
through direct support to SMEs and through working with all other organi-
zations providing support to the private sector.
This brochure, as a part of SEED's overall activities for providing support to
SMEs, is one of the incentives for the development of entrepreneurship in
Bosnia and Herzegovina. First of all, it is intended for people who have
understood that they have to manage both their own destiny as well as the
destiny of their family members, and to ensure better living standards by
using their own incentives and by starting their own business.
Most people who are thinking about starting their own business, at the very
beginning, face a lot of questions such as: what type of business to choose,
what products and services are possible to be placed in the market, what are
the obligations towards the government, etc. This brochure is conceptualized
in such a manner as to answer some of these questions.
You will find this increasingly educational approach is based on the answers
to the frequently asked questions on many web sites. We can recommend,
among others, the web  site  U.S. Small Business Adminisiitretioni,
www.sba.gov. This web site was very helpful to us when defining the struc-
ture of questions to which this brochure gives answers.
The special value of this brochure is in the answers given by the successful
B&H businessmen. They all started their businesses from scratch and with their
own persistence, inventiveness, and efforts, they have managed to develop
respectable enterprises that are currently employing twenty or more employees.
I would like to thank them for their understanding and the time they dedicated
to us during the preparation of this brochure.
The title of this brochure describes the essence and purpose of the questions
and answers. With this brochure, we wish to show you that it is possible to
succeed, to help you learn all that is needed to succeed, and to facilitate the
beginning of your business undertaking.
f particularly want to draw your attention to the fact that we do not intend to
give you "a recipe for success". This brochure is intended to help you con-
sider your business undertaking from a different aspect while starting out, and
to be your guide in increasing your chances of success.
Davorin Pavelic
Senior Analyst
Private Sector Development Team
Southeast Europe Enterprise Development
5



6



TEST AND ANALYSIS OF
PERSONAL CHARACTERISTICS
Before you start your own business, it is very important to be honest with
yourself and to analyze your personal characteristics objectively. The fol-
lowing test will help you understand what individual characteristics an
entrepreneur should have, and how objective entrepreneurs should be.
The greatest value of this test is in helping you compare your own charac-
teristics with those that are considered desirable in business. It will also
help you learn if you are ready to fully accept the new circumstances in
which you will find yourself when you become an entrepreneur.
I wish to repeat once again that the success of this text depends exclusive-
ly on your readiness to assess yourself objectively and without prejudice
when answering the questions.
List of Questions
Are you a self-starter and can you make things happen?
Yes                                              2 points    LI
Sometimes                                         I point    Fl
No                                               0 points   Fl
How well do you get along with a variety of personalities?
I am very good in dealing with
a variety of personalities                       2 points    Cl
I have some problems in dealing with
certain types of personalities                    I point    C1
I have problems in establishing a good
relationship with people                         0 points   FL
How willing and effective are you at making decisions?
I am very good and effective at making decisions  2 points    LI
It takes me a longer time to make a decision
but I am confident that the decision is the right one  I point    L1
I am not good at making decisions                0 points   El
7



How well do you plan and organize? Do you have experience in
organizing and planning business activities?
I am very good at planning and organizing and I have extensive
experience4in business planning4and organizing  2 points  E: 
I am good at planning and organizing but I have limited
experience in business planning and organizing  I point    Ii
I have no experience in business
planning and organizing                        0 points    Z
Are you confident that the motivation which drives you to start
your own business is strong enough to get you through all the
potential hardships that you personally and your family may face?
Yes, absolutely                                2 points.   II
Yes, but I am not 100% sure                     I point    L
No                                             0 points    O
Are you a leader?
es                                             2 pointsS 
Yes, but only in some situations                I point   OL
No                                             0 points   El
Do others turn to you for help in making decisions?
Oth eerealways askme for  helpwhnthy
;make  decision0s-  2l0000  :)iSt.     00000-  .Stli  t0000-  fNENt0  02 };2points   UffS;j;i-S
Other people ask me for help only when they experience some
technical problems in which I am an expert      I point    0
No                                             0 points    U
Do you enjoy competing with others?
Yesi        t   2    ;    W:  ;;-   ;    ;     :2  points  U
Sometimes, depending on the type of competition  I point    Li
No                                             0 points    U
8



Are you prepared to work 12-16 hours a day, six days a week,
and maybe even Sundays and holidays?
Yes, absolutely                                2 points    O
Yes, I am prepared to work from time to time
more than the normal working day                 I point    Ul
No                                             0 points    U
Are you prepared to lower your living standards until your
business is firmly established?
Yes, absolutely                                 2 points    U
I am prepared to lower my
living standards to some extent                  I point   U1
No, I am not, and I expect that my business will
improve my living standards immediately         0 points    U
Is your family prepared to deal with the difficulties
they will experience?
I have the full support of my family and they are aware
of all the potential difficulties they may experience    2 points    U
I have their support, but my family is very
concerned about our future                      I point    U
No                                             0 points    Uz
Are you prepared to take the risk of losing your savings?
I am prepared to take all implied financial risks  2 points   U1
I am prepared to lose a part of my savings      I point    U
I am not prepared to take this risk            0 points    Ul
Do you know what basic skills are needed to
create a successful business?
Yes                                            2 points    U
I have some ideas about it but I am not exactly sure
what is needed to create a successful business   I point    U]
No                                             0 points    Ul
9



When hiring personnel, will you be able to determine if
the applicants' skills meet the requirements for the positions?
I have good managerial skills and am very knowledgeable
about the hiring process and procedure         2 points    L
I think that I know how to choose employees, but I am not
familiar with formal hiring techniques and procedures  I point    U1
No                                             0 points    U1
Have you ever worked in a managerial or supervisory capacity?
I have worked as a manager and supervisor,
managing and supervising more than five people  2 points    U
1 have some limited managerial and
supervisory experience                          I point    U
No                                             0 points   U1
Have you ever worked in a business similar
to the one you want to start?
I have extensive working experience in the business
similartto the one:I want to start             2 points    U
I have little working experience in the business
I want to start                                 I point    U
l have no working experience in the business
I want to start                                0 points    U
Have you had any business training?
I have ad Caextensive business trainig         2 points    U
I attended some short seminars                  I point    U
I have had no business training at all         0 points    U
10



If you determine that you do not have the basic skills necessary
to be a successful entrepreneur, would you be willing to pursue
training opportunities designed to help you develop those skills?
Yes                                              2 points    O
Yes. if I find time                               I point    U1
No                                               0 points    U1
Test Results
0 -17 points
You should reconsider your decision about starting your own business.
Ask yourself again if you could find some other job which will provide
you with a more stable and comfortable living style, as well as security.
18 - 26 points
There is strong indication that you might be on the right track when decid-
ing to start your own business, but you are probably still not confident
about every aspect of that decision. It would be advisable to ask for other
people's opinion. especially from those who are considering taking the
same step, or from people who already run their own business.
27 - 36 points
It is obvious that you have the necessary preconditions, right motivation
and strong determination supporting your decision to start your own busi-
ness.
11



ANSWERS TO
FREQUENTY ASKED QUESTIONS
1.    What kind of business should I start?
The best business for you is in the industry sector in which you are most
knowledgeable, skilled and interested. The majority of people start their
private business in the fields, industry sectors or branches in which they
have worked as employees and gained experience, information, business
connections and knowledge about existing unfilled market niches
(untapped market segments).
Matching your background, skills and experience with the local market
needs will certainly ensure your survival in the market and the growth and
successful development of your business.
How did you choose your business?
My decision regarding what kind of business I should start was first of
all influenced by my educational background and work experience. An
important factor is also that I really love the construction business, and
I consider myself lucky because of this.
I would say, if you have knowledge and experience in the business that
you are planning to start, if you like and enjoy your work, and if you
Mirko Saki        are lucky to recognize the right time and opportunity for business in
General Manager of  that particular industry, then that is the right business for you.
GRAND SM d.o.o.
How did you choose your business?
Since I have a bachelor and masters degree in electronics and I really
love that sector, it was a natural and logical decision to start my busi-
ness in the electronics (computer) industry. My decision was also influ-
enced by my findings that the computer production sector is underde-
veloped and without any serious companies around at that time.
Ilijas Bjelopoljak
General Manager of
Whitefield d.o.o.
12



How did you choose your business?
When I returned home from army service back in sixties, I could not find
a job. The employment Bureau had found me a job in Germany but I did
not have the money to pay the bus ticket to get there. Then I came up with
an idea to collect walnuts from the walnut three that we had in the garden
in front of our house. I took these walnuts to the green market in Belgrade.
I sold them and I bought my ticket for Germany. That was my first busi-
ness. I worked in Germany for many years. first as a construction worker,
Jonus Ikic        and when I realized that the construction business could be a good, prof-
General Manager of  itable business; I started my own company. That company was successful
d.oo     a        and all the capital that I have invested in businesses in B&H comes from
the construction business. So. my answer to why I started as an entrepre-
neur in the construction business is that I had a lot of experience and edu-
cational background in construction, plus I recognized a good moment and
opportunity.
How did I choose my present business, which is production of min-
eral water?
I am the type of person who always, in everyday life, looks for busi-
ness opportunities. I am not focused on only one industry, one branch;
I am simply looking everywhere for a good opportunity that I can use
to develop a good business. When I came to B&H I looked at which
services the B&H market lacked the most. Firstly I found out that in
one area there was no gas station and I opened one that is still opera-
tional today. I am running it beside this mineral water business. Then I
saw an opportunity for a business in the production of plastic frames
for doors and windows and I even completed a feasibility study and
business plan for this idea. Although this idea has never seen its real-
ization I have never completely deserted it. In this quest for business
opportunities, I realized that Sarajevo has good resources of mineral
water of excellent quality and that B&H is importing enormous quan-
tities. These are the two main reasons why I decided to start a business
in mineral water production.
How did you choose your business?
I started my business in 1987 as a small home production of gaskets for
radiators. The reason for choosing that very business was my experi-
ence and the fact that I recognized a good opportunity moment for
starting my own business. At that time I had worked in a State owned
trade company and because of that I had access to information about
the market. I had information about all the producers of heating sys-
tems and elements for them. I had good contacts, and on the other side
Franjo Rajkovic   I had information about customers and market demands.
General Manager of
Economic d.o.o.   The private sector was not developed, there was almost no competition.
and I found out that there was a big demand for these types of products.
That was also a period when we also had big inflation in the country
and I used it to my comparative advantage. It was unfortunate, but true,
that the beginning of the war and tensions between Croatia and Serbia
in former Yugoslavia actually gave B&H companies a chance to act as
facilitators that enabled the flow of goods between these two countries.
All these factors have influenced my overall business results.
13



How did you choose your business?
The first reason for me to start my own business was hunger. Back in
1996 my salary was insufficient to provide food for my family.
The reason for starting a business with metals and metal profiles lay in
the fact that I have a Bachelor of Science in mechanical engineering
and I had some experience in trade.
Zarko Gugic
General Manager of
POZG d.o.o
2. How many hours will I have to work?
Starting your own business will require a lot of hard work and persistence
on your part. During the first two to three years you must be ready to work
12-14 hours a day. Such work hours are not unusual in new companies.
Also, your business will often require you to work weekends, holidays and
will significantly shorten your vacation time.
Because your business will practically becoming your way of life, you
should carefully choose your business and you should be sure that it is not
only a burden and obligation, but something you will enjoy.
How many hours did you work at the beginning?
It is almost impossible to switch off from your business completely.
You always have your business on your mind, but on the other side
there cannot be more than 12 hours of real, effective work. When I
started my business I was working more than 12 hours per day, and that
lasted for about two years.
Now my work schedule varies from day to day. Sometimes I have to
Mirko Sakic       work almost 20 hours per day and sometimes only 5 hours .
General Manager of   It is also very important that you find time for yourself to recharge
GRAND SM d.o.o.   your batteries, otherwise you will burn out.
How many hours did you work at the beginning?
Starting a business requires enormous energy and a lot of sacrifices.
There is practically no limit to how many hours you work and if you do
not enjoy doing your business it will be hard to endure that kind of
workload. I consider myself extremely lucky that I also enjoy running
this business and, generally, people should run the same business for
money, which they would be prepared to run for free.
Ilijas Bjelopoljak  If I have to quantify my working day by the number of working hours,
General Manager of   I would say that I work about 16 hours a day.
Whitefield d.o.o.
14



How many hours did you work at the beginning?
Private business does not recognize the term "working hours". I do not
have working and non-working hours; my entire day consists only of
working hours.
lonus Ikic
General Manager of
llidzanski dijamnant d.o.o.
_             How many hours did you work at the beginning?
When we started our business we had a huge oscillation in the utiliza-
tion of our capacities and my working time. Sometimes, particularly
when we received big orders, we worked two to three days and nights
without a break, and sometimes we had quiet periods of ten days when
we did not have any work at all.
But, as the business developed and we introduced new product lines.
Franjo Ra.jkovie    these oscillations were completely reduced and then we came up with
General Manager of   a continuous production.
Economic d.o.o.   I must also say that 1, as a manager, worked much less at the beginning
than today. At the beginning I worked four or five hours a day, but
today even 24 hours are not enough.
How many hours did you work at the beginning?
-      l        l When I started my business my average work day lasted a minimum of
-    l    14 hours. I worked weekends and holidays. My wife did the same.
If we had continued this way, we would probably have become com-
pletely burnt out.
Now I work nine to ten hours a day.
Zarko Gugic
General Manager of
POZG d.o.o
3.    What is a business plan and is it necessary
to have one when I start my business?
Most people in Bosnia and Herzegovina. including some very successful
business people. started their business without having developed a detailed
business plan, which would satisfy standard form and requirements. This
does not mean that they have not planned their venture at all. They may have
had some some sort of plan which may not have been formalized in a stan-
dard business plan format. Most often, their planning will have consisted of
the calculation of revenues and expenditures. the purpose of which was to
determine the profitability of a venture.
15



Nevertheless, it is necessary to take into consideration that the situation and
environment in which you are starting your business today are quite different
from those during and immediately after the war, when a majority of existing
private businesses started. Now you have to face relatively strong market
competition, a legal system that is beginning to work, and a market that
allows less and less improvisations and bad business decisions. To increase
your chances of survival and to ensure the growth of your business, you
should consider developing a business plan.
As mentioned before when you start your business the best option would be
to make a business plan yourself. In doing so it would be best to use as a
check list and guide an already developed business plan. This will to ensure
that you have addressed all the important aspects that may affect the success
of your business venture.
In time, as your business develops, you will reach the point when it is inevitable
to develop a detailed and professional business plan. At this stage, having or not
having a business plan becomes a decisive factor that distinguishes successful
companies from unsuccessful ones. At this point it would be best to hire a con-
sulting company to do the job professionally.
A consulting firm will be more objective in the analysis and overview of your
business. In other words, you are avoiding introducing too much subjectivity
in to the business plan, which is almost impossible to avoid when you devel-
op the business plan yourself.
In the process of writing a business plan, even if somebody else has devel-
oped it for you (a consultant or consulting company), it is extremely impor-
tant that you are fully involved in the process and that you fully understand
every aspect of it.
3.1 What is a Business Plan?
A business plan is a written document that covers a certain time period, and
shows what benefits the company may expect from engaging its resources,
and what are its potentials in the market. That is the best way to check your
business ideas against problems that may come up during the implementation
of your business venture. The business plan helps you check whether all of
its elements will work together in a satisfactory manner.
A business plan allows you to:
- Analyze different business options
- Define business goals
- Assess feasibility of your business venture
- Research market perspectives
- Identify potential clients and competitors
- Define strengths and weaknesses of your business
- Evaluate available resources and define their appropriate allocation
16



The ultimate goal is to see how successful your business will be in terms of
profitability, and to give other financial and operational indicators.
A well prepared business plan may be used for the following purposes:
- to define activities that you will have to undertake
- as a guide in the steps that you need to take in order to position your-
self in the market
- to help you face unforeseen problems, and enable you to make good
business decisions
- to define concrete strategies that you will use in order to achicve iden-
tified goals
- to analyze your past and current business results, explore options for
expansion of your business, and to project the growth of your compa-
ny
- as the basic doctIment required by financial institutions and business
partners when you approach them for credit funds. A business plan
gives the necessary information to financial institutions and explains
how you intend to pay back the borrowed funds.
A business plan can be shott-term ( I year), medium-term (3 to 5 years). or
long-term (over 5 years).
Table 1. gives you an outline of the main elements of a standard business
plan. You can use the table as a check-list in the process of developing your
own business plan.
Taible 1: Business Plait Schemiei and Check List
Business Plan Content             Content of Chapters          Content of sub-chapters
1. Executive Summary              tescribe your business       Namile and location
Business plain dcscription
Product/scrs ice
NMarket andl conipetition
Management experiencc/expertise
What are your business goals
Describe your market
Dcscribe your financial
needs and which fLnnds
you arc applying for
Prepare a projection of
soLur business financial
perl ormancc
2. Company description            Write a brief history ol your
and Organization               business / company
(for existing businicss 
Describe ownership structure
of your bLIsiness
Dcscribe who works in        Officers
yoLir Iliantieiiet tcam     Resumes of your- key personnel
17



Describe organization          Form of busincss organization
structure of your business     Organization chart
and responsibilities
3. Operations                       Describe your business location
What buildlings
you oWIs / rent / use
Describe equipment
that you hasve
Supply and Inventory           Raw materials
Key supplicrs
Purchasing
Inventory  taniagement
Human resources                Number of employees
Employees structure
_  _  _  _  _   _   _  _  _ 04; ;;:;i; ;;;#;;:; ;;;$;0:;Staffing   plan
Operational process            Production and work
(manuffacloring, servising)    Flow production perforimiance
Production Planning
Quality Management
Describe how sonL
distribute your products
4. Project Description"a;           Describe scope of projects fo-
which you are developtng
a business plan
Describe project costs and
available and planed financial
resources for covering these costs
Describe project timeframe
: :   ;   ; and define time table of
financing ior your project
Project rationale
Describe what financial
pertormance you expect
form the project
5. Market AnAlis             0      Define and describe market
deinand for your product
Describe what is existing
iiiarket supply
What are the trends in
F   the industry in which you are
planning your project
Describe how your company is  Sales status
positioned in the market       Competition
Competitive advantages
6. MarketIng &  Sattegy             What is your overall strategy
Describe which markets your   Targeted sales volume
company is targeting and       Sales strategy
what level of sale you         Customers
want to achieve                Target markets
18



Describe how you organize    Method ol selling
your sale and how you        Distributing
organize distribution        Servicing products or services
of your products
Define your sale by          Description of product lines
producLt lines or services   or services
Comparison with competitors
products or services
Sales by product lines or service
7. Financial Data                If youl have already had a
business, write an analysis of
your last two to three years
Iinancial perlormance
What system of bookkeeping
and financial reporting
you havc in place
Describe your costs and pricing
Hows do you manage your      Receivables
working capital              Pavables
Inventory
Describe your financiiig
requirements
Analyze your business by
using key business rations
Explain how you will use
new funds (loan. credit. etc.)
8. Conclusion                     Describe the key risks
and make recommendations
When you started your business, had you aiready developed a busi-
ness plan?
No, when I started my business I did not have a business plan. At the
beginning I had one goal and that was survival, but as time went by, the
business started to shape itself and to inflict some goals that I had not
N -         even been aware of at the beginning. Now I think that recognizing and
defining the goals of your business is almost half the job. Now every
Mirko Saki           deal/project that I am starting is being analyzed and planed in detail.
General Manager oif   You cannot start a business venture without proper analysis of your
GRAND SM d.o.o       capacities, of your product and proper analysis and prediction of the
potential results of that particular business venture.
19



When you started your business, had you already developed a busi-
ness plan?
No, when I started I had no business plan. That is not to say that I did not
plan anything. Everything I did was done with some plan, it is just a ques-
tion of the level of complexity and sophistication of the planning process
that I used. When you are a small company which employs up to ten
employees, you are able to control all the processes and all the areas of the
.ijas Bjellopolljk . business almost visually. But, as your business grows, you are reaching a
General Manager of   kind of break-point when you are unable to control all areas of your busi-
Whitefield d.o.o.  ness and when you are unable to define the direction for development with-
out a good business plan.
Did you develop your business plan by yourself, or did you employ a
consulting company to do it for you?
For the development of a business plan we used external consultants. I
would also recommend that any serious business that needs a business plan
should employ external consultants, because that way you are getting inde-
pendent and objective analysis of your business.
Do you consider a business plan a useful tool?
When I started cooperating with SEED, I must admit that I was not fully
aware of the usefulness of a business plan. But my cooperation with SEED
and the resulting business plan have provided me with a comprehensive
overview and analysis of my business.
How do you use your business plan to operate your business more
effectively?
I use my business plan as a tool for analysis of my operations, to determine
my position in the market, to estimate market potential and to define ways
to achieve business goals.
When you started your business, had you already developed a busi-
ness plan?
In the beginning we had some kind of plan but it was not a formally writ-
ten business plan and it was not even close to what we have today. Now
we have a strategy for the development of our company created together
with the Economic Institute in Sarajevo, and every new project that we
are starting is backed up by market research, business and investment
Franjo Rajkovic   plans.
General Manager of   Did you develop your business plan by yourself,  or did you
Economic d.o.o.   employed a consulting company to do it for you?
We developed all these documents with the Economic Institute
inSarajevo and in cooperation with Sarajevo Economic Faculty profes-
sors, and I would like to mention especially professor Boris Tihi who
helped us a lot.
Do you consider a business plan a useful tool?
All these plans. especially development strategy, are very useful tools
that have laid milestones and have shown us a direction that we had to
take in order to develop our business.
20



When you started your business, had you already developed a busi-
ness plan?
When I started my construction business, it happened spontaneously and I
did not have a written business plan. But when I entered into the business
of mineral water production, since I was looking for additional financial
resources, I was forced to develop a business plan in order to explain how
I would organize production, how, where and to whom I am going to sell
my products, how I will repay a loan, etc. Creditors asked for a business
JGonus IkM     ot  plan developed by an international consulting company, and I did it that
fid&anski dijamant   way. It so happened that this company charged me DM 70,000.00 for the
d.o.o,            development of a business plan and I never got a credit approved on the
basis of that business plan. After they denied my application for credit. I
swore that I would open this factory with or without them and I managed
to do so.
Did you develop your business plan by yourself, or did you emplov a
consulting company to do it for you?
As I said, an international consulting company developed a business plan.
Do you consider a business plan a useful tool?
I think that a business a plan can be a useful tool, but in normal and stabile
states where things are regulated and you can plan something, and with
reasonable reliability predict outcomes of your business activities.
But in the situation where the market and the entire business environment
are unregulated and you do not have clear rules of the game, you cannot
plan your business activities because you cannot safely predict outcomes.
How do you use your business plan to operate your business more
effectively?
Again, I will repeat that a business plan is a good tool, but you can suc-
cessfully use it only in a stabile state and predictable environment.
Otherwise a business plan is not useful.
When you started your business, had you already developed a busi-
ness plan?
Everything I do is based on detailed planning. Within the plan I analvze
products, market. financing, all elements that are part of a good busi-
ness plan. I love to review plans from time to time and to see what por-
tion of the planed activities has actually been achieved. It is a pleasure
to see that something planned in the past has become a reality.
Zarko Gugic       Did you develop your business plan by yourself, or did you employ
General Manager of   a consulting company to do it for you?
POZG cl.o.o.      The business plan was developed by myself with the assistance of my
wife and other associates.
21



4.    Is it necessary to have a business
defined in detail?
By defining a business in detail you will be able to make focused opera-
tional decisions and set your investment priorities.
Managerial time is a limited resource and if your business is not defined
in detail, there is a danger that management efforts will not be focused on
the main priority of the business.
Whether you are a manufacturer or a retailer, you have to decide what
range of products or models you offer. By increasing the number of mod-
els you offer, you will be adding complexity and cost to your operation.
This becomes visible through a more complex production process, new
and different servicing and maintenance requirements or simply by carry-
ing more models or products in your inventory. Becausc of all this, it is
very important for you to define your business operations in great detail,
and this is especially significant for a new company that lacks manage-
ment experience.
Lastly. by defining your business in detail, you will be able to build a bet-
ter marketing plan and a better brand for your company. The question is
raised if you have not defined your business, then how are the consumers
going to know what products and services you deliver?
5. How should I choose a name
for my business?
Consider your business name carefully; you'll have to live with it for a long
time. The name you choose should give people some idea of the natui-e of
your business and should also help you and your enterprise in creating the
image you want to have. Try to pick a name that will not limiit you at some
point in the future. In addition to the name, you should pay great attention
to the development of your company's logo that will become its graphic
symbol. As with the name, your logo should be carefully developed to proj-
ect the image you want for your business.
Once you select a name, make sure it is not alreadv in use by somebody else.
5.1 Are there any legal issues attached
to naming the company?
A company name is the name under which the company conducts its busi-
ness and it should be displayed on the company business premises. Also.
all btisiness correspondence and orders need to dispiay the full company
name and address of the head office of the company.
22



The company name as such may not be transferred to another person.
except in the case of selling the whole company.
While choosing your company name be aware that it can not contain:
- words and signs that are prohibited by law
- protected trademarks of other legal and natural persons
- official symbols and signs
- names or signs of foreign states or international organizations
- words and designations that could create confusion about type and
scope of business operations or that could lead to mistaking the identi-
ty of yours with the another company's name or sign or that could vio-
late the rights of other legal or natural persons.
If you wish so, your company name may contain words "Bosnia and
Herzegovina" and "Federation" as well as their derivations and abbrevia-
tions but only upon approval by the federal Ministry responsible for pub-
lic administration and justice.
The company name may also contain the name of the canton, city or
municipality and its derivations and abbreviations only upon authorization
of the cantonal ministry competent for public administration and justice.
mayor or municipal executive in the area where the head office of your
company is located. Also. your company name may contain the first name
and family name of the person who is not a founder of the company only
upon authorization of the person concerned or his / her legal successor.
Furthermore. the company name needs to be clearly distinguished from
other company names and a registry court can deny entry into the court
register of your company if it's name is not clearly distinguished from
already registered companies in the FB&H and Republika Srpska. A com-
pany believing it was harmed by use of its name by another has a right to
request cessation of use and deletion from the court register of the name
of your company and compensation of the damages caused by legal action
at the court within three years from the day of entry of your company
name into the court register.
How did you choose the name of your company?
I have to admit that I didn't put too much thought in to naming my com-
pany. The name came out in a relaxed atmosphere of small-talking with
my friends. Now I would do it differently and I would like to change
the name but this one has become already well known and it is not a
good idea to change it now.
I think that the name of the company is very important and deserves
Mirko Sakk        serious consideration.
General Manager of
GRAND SM d.o.o.
23



How did you choose the name of your company?
Usually when people are choosing a name for their business, they are
v OM         trying to create a name that is simple and easy to remember. I decided
to name my business with the English translation of my second name,
which is a little bit unusual and complicated. If you decide that you will
build on and fight for your name it is not important if your company
name is complicated, easy to remember or not.
Ilijas Bjelopoljak  Do you consider the name of the company important for the com-
General Manager of  pany image, marketing and success?
Whitefield d.o.o.  The name, of your business is your trademark and when positioning
your business in the market you are doing that also through positioning
your name in the market. If you win in the struggle to position your
name in the market and make it recognizable, you have increased your
chances for survival and growth tremendously.
How did you choose the name of your companv?
The name of my first company was actually my first name and it was
given by a lawyer, a very good friend of mine, who registered my com-
pany in that name without my knowledge. When I objected he said that
if I was serious about making this business successful, then I should not
avoid using my name because I will then be known by the good repu-
tation of my company. However, for this business of mineral water pro-
Jonus kic        duction, I have composed my company name from the name of the geo-
General Manager of  graphical location of the water source, and diamond - because this
llidzanski dijamant   water is pure, clear and as precious as a pure diamond.
d.o.o.           Do you consider the name of the company important for the com-
pany image, marketing and success?
The name of your business is important, but I think whatever name you
give to your company, first you have to develop that business and make
it successful and only after that your company name will become an
important element that you can use in marketing and image development.
How did you choose the name of your company?
-    .       We have changed the name of our business several times. One of these
names was may second name, Rajkovic, and it lasted for about two
years when we realized that it was not the best solution and we changed
it to Economic. This was done through a public competition for the cre-
ation of the logo and the name of the company. The name Economic is
also related to the name of one product, radiator, which was a product
Franjo Rajkovic    of the Lipovica Factory that was one of our biggest customers when I
General Manager of  started my business.
Economic d.o.o.  Do you consider the name of the company important for the com-
pany image, marketing and success?
I think that the name is very important. The logo of the company,
selected colors that we use and the name; all these elements are impor-
tant in marketing, promotional activities and in the process of creating
the company image.
24



6.  Is location a factor which can
determine the success of my business?
Ditfterent businesses have different needs in terms of location require-
ments. Elements defining appropriateness of the location and degree of its
importance vary a great deal from business to business. First of all, con-
sider your type of business and analyze your location needs. That will
give you answers to the questions like the following: Do you require heavy
traffic (either foot or car) or will people come to you no matter whether
you are in an attractive location?
For some businesses, such as retail stores, hotels, location is critical for
success. Your choice of a location can make or break your business, so put
careful thought and analysis into your needs. This is not a decision to be
made quickly or lightly.
Sometimes. startups do not have to consider this issue. Location becomes
more of a problem only when the company starts to develop and grow.
An important element that limits the number of options in selection of
location for new business is the lack of funding. A significant number of
enterprises are started in the owners' apartment, house or in other types of
facilities whose original purpose was not business related.
If you are starting your business with a premises that you plan to rent, and
especially if you are planning to build new ones, you should carefully ana-
lyze all characteristics of the location, because those characteristics may
become additional factors to contribute to the successfulness of your busi-
ness.
Consider the following factors as they apply to your unique business needs
when choosing a location:
Specific needs of your business-space, special installations needed. etc.:
Zoning requirements (check with your Municipality urban planning office);
Appearance of the area;
*Existence of needed infrastructure at the location:
Customer base of the area:
Population density:
* Traffic infrastructurc. accessibility of the location and parking space:
Competition and nature of the competition in the given area:
Closeness of resources:
Availability of adequate work force and work force related costs:
25



The amount of costs that can be called location costs, which include costs
of connecting to power networks, PTT network, connection to public
roads, and costs related to construction of buildings are available at the
web site www.seebiz.net.
This web site. developed by SEED, is an internet service for small and
medium enterprises.
There you may find that some of the costs are standard and equal for the
whole entity, while the costs related to construction of buildings (acquir-
ing urban development approval, marking the plots, construction permit,
permit for use, costs related to location convenience), differ from one
municipality to another. In some cases, the amount of those costs vary sig-
nificantlv.
This information can also be found in a publication available from our
organization's office in Sarajevo.
6.1. How do these factors influence different
business operations?
When choosing a location for a manufacturing plant, one of the key require-
ments is to identify a large pool of skilled labor in the area of the operations
specific to the company.
Also, with any manufacturing operation you have to consider any future
expansion. Therefore, a location should have suitable adjacent land for this
purpose.
Transportation requirements will have a significant impact on the location of
a business. Any business with requirements for transportation of bulky sup-
plies or heavy final product will need to be accessible by heavy trucks. The
further a company is located from these links, the higher the cost will be for
its products.
Manufacturing plants are large consumers of water and electricity. If these
two factors are a significant part of the cost in the final product, then a loca-
tion with plentiful supply of both at cheap rates is essential. This can be an
important factor in business success.
For a retail or service industry, the key is the customer base. The higher the
customer base and customer traffic, the higher the cost factor your business
will be willing to pay. Your location has to be easily accessible to the largest
possible number of buyers (if possible, a location in the trade center of the
city), however, when choosing the location you must take into account your
profit margins. Even with high customer traffic (supermarkets),because of
low profit margin (selling goods of general consumption), the business can
not bear costs of a location in the heart of the city.
26



How did you choose a location for your business?
The location of my business, and for the construction business in gen-
eral, does not play a particularly important role. It is only important that
you have all the necessary infrastructure; road, phone, electricity, etc.
When I was starting my business I was not in a position to choose a
location. I was forced to start with the location that was available.
Mirko Sakic
General Manager of
GRAND SM d.o.o.
How did you choose a location for your business?
I must say that when I started my business, I had almost no financial
resources and I did not choose a location, a location chose me.
But, as the business developed, location has become a more and more
important issue. We needed a better infrastructure. more space and easy
access for customers and we were looking for a location with higher
traffic frequency, both in terms of vehicles and pedestrians.
llijas Bjelopoljak
General Manager of
Whitefield d.o.o.
How did you choose a location for your business?
The location of my business was determined by the source of raw mate-
rials that I use in the production process. My factory is located near a
mineral water source.
Of what importance is location for your business?
The location can be very important for some busiihesses like hotels and
shops, which, in order to be successful, need a location with a high pop-
onus Ikk           ulation density, high traffic etc. But, for production it is more important
General Manager of  to locate your business near to the resources that are inputs in your pro-
flidzanski dijainant    duction process, and, of course, it is important to have access to the
d.o.o.             necessary infrastructure such as electricity, sewage, roads, etc.
How did you choose a location for your business?
I started my business in my family house. Afterwards, as the business
*X        |  developed, we moved it to downtown Vitez, into a rented space. After
that we built our own facilities downtown.
A few years ago entrepreneurs from Vitez and the Vitez Municipality
created a plan for the development of the Vitez business center / zone.
I have joined that venture: actually I was one of the initiators. We have
Franjo Rajkovic    moved our business into that area and that is our present location,
General Manager of   Business Center 96, Vitez.
Economic d.o.o.    Of what importance is location for your business?
The location is very important, especially for a developed, relatively
big business.
27



How did you choose a location for your business?
In the beginning we used a location that we could afford. We started the
business in a shed, but after we managed to stand on our own two feet,
we moved to the Vitez business center, which is probably the best loca-
tion in the region. The reason for moving there was a business concen-
tration, which brings a lot of customers, high frequency of traffic, good
infrastructure, etc.
Zarko Gugc        Of what importance is location for your business?
General Manager of   Obviously, location can contribute to the business success and I think
POZG d.o.o.       that if you want to express that contribution in percent, it would be
around 10%. However, as I said before, in the beginning we worked in
a shed, former stable, and we had good business results. If your business
is managed well, it is not all that important where your location is.
7.    Is it possible to start and manage my
business from home?
Experts say that around 20 % of new small enterprises are started in the
owners' houses.
If you have planned to start your business in your apartment or house, it is
necessary that you conduct a thorough analysis of all the advantages and
disadvantages.
Time and use of time is one of the most significant problems many entre-
preneurs face. This problem is even more significant when the business is
run from home.
When organizing your business at home, most problems stem from the dif-
ficulty of separating the time devoted exclusively to the venture from the
time devoted to house and family obligations. The problem of separating
business from private life is a problem all entrepreneurs face, but when the
business is run from home, this problem becomes very significant as your
work is physically in your house all the time.
You have to decide what part of your apartment you will assign to busi-
ness operations only. In addition to assigning part of the house or apart-
ment exclusively to your business, you must see what kind of adjustments
you have to make in your apartment and analyze the costs of such changes.
You have to analyze whether the direct and indirect costs related to organ-
izing the business at home exceed the costs of renting a business premis-
es, for instance, whether you can get another phone line only for business
purposes.
Also, you have to examine the legal requirements for registering a busi-
ness in a home.
28



The advantage of having your business at home is that you should have
lower start up costs, lower fixed costs, and flexible working hours.
Potential problems and dangers are possible isolation from the outside
world, space restrictions, family problems and interferences from your
family members that can have a negative impact on your business, etc.
Table 2. is a check list of things that you should consider when making the
decision about location for your business. Using the check list will allow
you to determine which option is better for you; starting your business at
your home or renting space.
Different businesses have different important issues to consider, so we
encourage you to list factors that are important to your own business.
Having defined the list of elements, rate them from 0 to 10. This will help
you compare the options and see which solution is the better one.
The location with the highest score, especially if the difference in scores
is high, should be a good indicator of where to locate your business.
Table 2: Elements to be analyzed when startng the business from home
LOCATION OF YOUR BUSINESS
IMORTANT FACTORS TO BE                   YOUR                     RENTED
CONSIDERED WHEN CHOOS-                   HOME                BUSINESS SPACE
fNG LOCATION                             HOME10              BUINS  SPACE
Image of your business
The number of your cUStomers
Taxation
Appropriateness of the
space for business
Access to necessary infrastructure
Operational costs
Visibility of your business
Existence of parking space
Growth and expansion
of your business
Other
Total score
29



8. When I am procuring equipment and a
plant, which option is better; to lease
(rent) or buy?
In the countries where the market economy is well developed, new busi-
nesses generally procure their equipment and plants through leasing from
financial institutions or equipment manufacturers.
Currently in the B&H market, the only two options for procurement of
equipment and plants are leasing (renting) or purchasing.
Companies that do financial leasing (brockering) do not exist in B&H yet,
but there is a strong indication that very soon, both national and interna-
tional such companies will arrive in B&H. Although, as previously men-
tioned, financial leasing is not yet an option in B&H, in answering this
question we will consider two options for procuring equipment and plants
- leasing and purchase. We wish to show the advantages and disadvan-
tages of leasing, as well as advantages and disadvantages of purchasing
equipment and plants. We also wish to demonstrate how you can calcu-
late which of the two options is financially viable for you.
Once the decision has been made of what equipment or property will be
required, the next decision is how it will be acquired.
There are two options: buying or renting. After careful consideration of
the advantages and disadvantages of these two options, the company needs
to make a decision . When the company buys the equipment or property it
assumes the ownership. 11 the company decides to lease, the ownership
remains with the leasing company but with a fixed length rental period and
a set of specified payments. Therefore this kind of leasing is more like
renting than purchasing. At the end of the lease you can give back the
equipment or decide to buy it at a fair market value or at a price predeter-
mined in the contract.
When leasing the company has a very low initial investment cost.
Therefore, it frees up valuable working capital and the company is able to
hold on to cash while generating revenue. Leasing allows you to use cash
for critical purposes such as payroll, repaying loans or expansion. Hence,
the company shows a better Balance Sheet of financial ratios, and is in a
better position to obtain additional credits.
Leasing will allow the company to have the most modern equipment in its
operation and be able to keep up with new competitors. Leasing also elim-
inates concern about the equipment becoming obsolete by providing
"upgrade" opportunities. It allows the company to acquire new and mod-
ern equipment or even a new facility when needed.
30



In contrast to the above, since the company is not the owner of the equip-
ment and plants, the company has no collateral. In addition, the lease is a
liability and the company cannot renounce it easily. That is why it is
important for the company to understand the terms of the lease carefully.
This will help the company avoid unexpected expenses.
For long life equipment buying could be more advantageous. That way
you avoid paying the interest from the leasing company that is built into
the installments you repay on a regular basis.
Additionally, ownership allows the company a bit more flexibility in the
use of equipment or buildings. The company is free to modify the equip-
ment or the building. This can also be done under a lease agreement. but
the procedures and processes are more complex and cumbersome.
For the owners the value of real estate could appreciate, which translates
into increased equity of the firm. The company that has bought the real
estate and is its owner avoids potential problems related to continual rent
increases or any potential problems that may develop in the relationship
with the landlord.
8.1 What factors influence your decision?
It is probably better for you to buy equipment if: you want to own equip-
ment and use it as potential collateral, you have a lot of cash, your equip-
ment will last for a long time, and your equipment is fixed and very hard
to move,
On the other hand, if your business requires you to follow changes in tech-
nology and to always have the most modern equipment. your equipment will
lose its value very fast. Leasing is probably a better option for you: if your
business will need to expand: if you want to begin using the equipment with-
out a large down payment because you do not have a lot ot' cash and you
want to leave room for additional debt.
Hcrc is the very simple and basic formula which you can use in the process
of cost analysis when you are deciding between these two options.
Leasing
Leasc Rate per Year x Length of Equipment Life = Total Cost
31



Buying
(Cost of Machine x Interesi Rate per Year (12% - 14%) x Length of loan)
+ (Cost of Machine - Value Left over at end of useful life) = Total Cost
Careful weighing of alternatives and a cost analysis will help you make the
best decision.
When you started your business, did you rent or lease your
business premisses (plant)?
Before I started my business I was the owner of a premisess. I sold that
location and with the money I started my business in a rented space. It
is good to have your own facilities if you can afford them, but at the
begining, having cash was more important to me.
Mirko Sakic
General Manager of
GRAND SM d.o.o.
When you started your business, did you rent or lease your busi-
ness premisses (plant)?
In my opinion people should avoid facilities, equipment and machinery
procurement for cash. If it is possible, the best option is to get a credit
line and then with the money build a facility, procure all the equipment
and then repay the borrowed money from your operation profits.
Jonus Ikic
General Manager of
llidzanski dijamant
d.o.o.
When you started your business, did you rent or lease your busi-
ness premisses (plant)?
-#   g     |There is no universal answer to this question. It depends on the type of
business. As I mentioned earlier, we started in my house, then we rent-
ed a space. It is nice to have your own business premisess but you have
to know what happens once your money is invested, tied up in the
premisess. Many entrperenuers have built their own premisess and con-
Franjo Rajkovik    sequently they faced big problems with working capital.
General Manager of
Economic d.o.o.
32



When you started your business, did you rent or lease your busi-
ness premisses (plant)?
We started in a rented space. My recomendation to people who are just
starting a business is to follow the business, to follow its own dynamic
of development. It is normal that people would like to have everything
set when they start up. They want to have their own premisess, to have
a clear market situation, etc. If they are not financially strong enough
Zarko Gugk       to build their own facilities without jeopardizing the business itself
General Manager of  (resulting in a problem with the amount of working capital that
POZG d.o.o.      remains), there is no single reason why they should not start in a rent-
ed space.
9. What legal aspects do I need to consider?
B&H companies have to take into account fairly excessive legislation pre-
scribed at different levels (state, entity, cantons. municipalities). Further
on in the text we provide information on the most important provisions
related to business establishment and operation.
9.1. What steps do I need to take in order to
register my business?
When planning to register your business you need to follow these steps:
- establish company address
- draft Founding Act and notarize it
- open an interim bank account
- apply for approval to engage in trade with Federal Ministry of Trade
(only if your company would be engaged with foreign trade)
- apply for court registration with Cantonal Court
- buy company stamp
- apply for ID with Federal Statistical Office
- apply for customs number with Federal Customs Office
- open a final bank account
- register with Federal Tax Authorities
apply for premisess approval with municipality
receive certificate from private electrical company
- apply for inspection and permission with the Cantonal Ministry of
Economics
The information on costs related to business registration is available at
www.seebiz.net. This information can also be found in a SEED publica-
tion available at SEED office in Sarajevo.
33



9.2. What are the fiscal
incentives for startups?
From the time when a company is registered until the end of the first cal-
endar year, the company is 100% exempt from. the Corporate Income Tax.
During the second year of its existence it is exempt from 75% of taxable
income, and 30% during the third year.
Another way to be exempt is to reinvest taxable income, since the tax lia-
bility is reduced by the invested amount. This is applicable for investment
in direct production only. When the company invests its taxable income in
some other activities, then the corporate income tax can be reduced up to
75% of the taxable income.
9.3. What type of inspections can I expect?
When already conducting business, these are the inspectorates that you
need to be aware of:
- Financial Police
- Labor Inspectorate
- Market Inspectorate
- Sanitary Inspectorate
- Firefighting Inspectorate
- Environmental Inspectorate
- Institute for the Protection of Cultural Monuments
- Tourism and Catering Inspectorate
- Veterinary Inspectorate
- Communal Inspectorate
- Construction Inspectorate
9.4. What should I do if I want to buy land
and build a business facility?
Location and building permits are required before any construction can
begin in order to ensure conformity with urban and environmental plans
and building codes.
A company investing in the construction of business a premisess needs to
take the following steps:
- First of all, a lawyer and an architect need to be selected and hired
- Then, the land acquisition process needs to be followed in order to
identify all claims and rights to property and to establish proof of land
ownership. The best way is to contact the Institute of Canton
Development Planning to obtain a list of locations designated for con-
struction according to the urban plan.
- Identify and select the site
34



- Submit an application for an urban development permit to the canton
authority (for 5000 sq. meters of land or more). and/or to the munici-
pality authority (for land less than 5000 sq. meters). This application
goes along with a general project description outlining the purpose of
construction, size, type of business activity and production process if
applicable. The urban development permit confirms that the proposed
development for a particular lot of land conforms to the requirements
of the urban plan. It does not authorize construction. The construction
permit itself is issued with a detailed list of conditions related to the
use of that land.
- Apply to utilities for connection permits
- Apply to Department of Construction for Building Permit
As part of the application for a construction permit, it is necessary to submit:
- the urban planning consent
- evidence of the right of use on the land (copies of the finalized con-
tracts with the Institute for construction)
- the actual complete design plans (2 copies)
- utility approvals for electricity, water, telecommunications, fire protec-
tion. sanitary and road (if the construction is near a main road from
Roads Directorate)
Stamp charge of 50 KM
9.5 What about Taxation and Customs?
Businesses operating in B&H are subject to different types of taxes:
9.5.1 Corporate profit tax (30%)
Deductible expenses are: material costs, labor costs, depreciation, dona-
tions for humanitarian, cultural and sporting funds up to a maximum of
0.5% of the total turnover, membership in chambers of commerce and con-
tributions to political organizations up to a maximum of 0. I % of total
income, paid interest rates. estate duty, stamp duties and other local taxes.
9.5.2 Excise tax (varying percentages,
depending on the type of goods)
There are special laws regulating payment of special taxes (excise) on all
goods manufactured, imported and sold in B&H.
Excise goods include: tobacco, alcoholic beverages, imported non-alco-
holic beverages. coffee, fuel products, luxury products, timber for export.
35



9.5.3 Sales taxes (10%)
Sales taxes on goods and services has to be paid within 5 days of the last
day of sale of goods and services. It means that the tax payments have to
be made latest by Friday of the following week for goods and services sold
between Monday and Sunday of the previous week.
9.5.4 Import duties
Depending on the type of goods, a customs tariff of 0%, 5%, 10% or 15% is
imposed. A book on the tariff nomenclature with detailed annotations is issued.
10. Which Legal Status should
I choose for my business?
When choosing a legal status, the majority of entrepreneurs in B&H make
this decision without any in depth analysis of what affect it will have on
their business and its operations.
Usually the main factor which influences the choice of the legal status of
a business is how you plan to acquire financial resources. For example, if
you have the need for additional financing which you have planed to
obtain from one or more people, you will choose one of the legal setups
which define partnership. If, however, you have planed to have a much
broader base of people that can financially contribute to your business,
you might choose the legal status of joint stock company.
The second important factor which will influence your decision, is the level of
risk you are willing to undertake when starting your business. Different legal
setups will put you in different positions of risk in terms of the exposure of
your entire property or just the part of the property that you invested in your
business. For instance, if you choose to establish a general partnership, then
you are considered responsible for the liabilities incurred by your company
with your complete property. If you choose a limited liability company as a
form of organization, you are considered responsible for the company's liabil-
ity only up to the value of property you have brought into the company.
The third issue is the level of control that you would like to have over the
business operation. Different legal types of business are providing you dif-
ferent levels of control.
There are some other elements that could be taken into consideration, but
the above mentioned are the basic ones which we have described to show
you that it might be important to analyze the different types of legal setups
that are available and choose one that best suits your plans.
36



The legal framework for establishment and regulation of activities of legal
persons is defined by the Law on Commercial Companies in FB&H and
the Law on Enterprises in the Republika Srpska. The provisions of those
two laws are not very different. The operating of independent entrepre-
neurs is regulated under the Law of Self-Employment.
Law on Commercial Companies defines several types of commercial enti-
ties. Those are: joint stock company (d.d.). limited liability company
(d.o.o.), limited partnership (k.d.) and general partnership.
In the Republika Srpska, the Law on Enterprises provides for the same
four forms. Those are general partnership. limited partnership (k.d.). lim-
ited liability company (d.o.o.) and joint stock company (a.d.)
Independent entrepreneur
You may perform your work without even establishing a company, but
then you have to register as a physical person performing business activi-
ty as an independent entrepreneur.
Although the operation of independent entrepreneurs (sole proprietorship)
is regulated under the Law of Self-Employment, the independent entre-
preneur who has earned more than 1,000.000 KM in the previous year has
the duty to apply for deletion from the registry of independent entrepre-
neurs. To continue operating. the independent entrepreneur has to estab-
lish a company in accordance with provisions of the Law on Commercial
Companies. If the independent entrepreneur does not take steps in that
direction, the responsible body will ex officio remove his name from the
registry.
General Partnership
In the General Partnership all partners (at least two of them). are jointly
and severally liable, without limitation, for the obligations of the compa-
ny. There is no minimum capital required to form this type of company.
The partnership is dissolved upon the death (unless Act of Association
provides for a successor). personal bankruptcy of one of the general part-
ners, loss or limitation of legal capacity or termination of a partner which
is a legal person.
Those are the general conditions of termination of a general partnership.
There are, however, circumstances where continuity can be provided by
changing the partnership in an Act of Association.
37



Limited Partnership
The Limited Partnership has one or more members that are jointly and sever-
ally liable for company obligations with their entire property (general part-
ners), and one or more members are liable for company obligations only to the
extent of their investment as entered into the court register (limited partners).
In contrast to General Partnership, the death of a partner does not immediate-
ly dissolve the Limited Partnership.
Limited Liability Company
The Limited Liability Company (d.o.o.) is the most commonly used legal
entity by entrepreneurs entering the market. To establish a Limited
Liability Company requires a minimum initial capital of 10,000 KM (if
there are several founders), or 2.000 KM (if there is only one founder).
This initial capital is divided into stakes and each company member is
liable for obligations of the company with his/her stake only.
Joint Stock Company
Joint stock companies are set up by a contract signed by the founders or their
agents, and the law prescribes the matters that must be included in the contract.
The minimum capital is 50,000 KM and nominal value of one share cannot be
less than 10 KM. Joint stock companies have a three-tier management struc-
ture, with the general assembly, management and supervisory board.
From when you started your business until now, how did the legal
status of your business change and why?
There is no special reason that influenced my decision on the legal sta-
tus of my business. Simply, limited liability the most popular type of
business in the private sector and I chose that legal status.
From the beginning until now I changed the legal status of my business
three times, and I always did it just because of changes in legislation.
Mirko Sakic
General Manager of
GRAND SM d.o.o.
From when you started your business until now, how did the legal
form of your business change and why?
When I started this business I was an employee of the TV B&H broad-
casting company. I registered my business as an additional, second job,
and that gave me the opportunity to make an easy transition from a state
job to the private sector, without a lot of risk, and with enough time to
see what my chances might be for success. When the business was
Ilijas Bjelopoijak  developed enough that I had to leave my state job, I had my business
General Manager of  reregistered as limited liability company. There is no special reason for
Whitefield d.o.o.  choosing this status, it was simply the most common type of private
business at that time.
38



From when you started your business until now, how did the legal
status of your business change and why?
During my business registration process, on the basis of lawyers rec-
ommendations I chose limited liability as a the legal status of my com-
pany. There was no single reason why except that this was the most
common legal type of registration.
I know when you ask this question you actually want to know if we
Jonus Ikk         considered different levels of risk that you personally take with differ-
General Manager of   ent organizational setups. But, in the State with week law enforcement
J]id2anski dijamant   it does not really matter what type of business you have, because once
d.o.o.            you register your business you can do whatever you want without any
consequences. You can buy and sell things without paying for goods
and services, and because the State is slow and not interested in deal-
ing with these cases, you will not suffer any negative consequences.
This is a small joke but it is also our sad reality.
From when you started your business until now, how did the legal
status of your business change and why?
So far. we have changed the legal status of our business several times.
Z      i         From 1987 until now we have been registered as all exesting legal
types of business starting form sole proprietorship up to the joint stock
company.
These changes occurred because of frequent changes in legislation and
Franjo Rajkovic   also because of the growth of our business, increase of turnover,
General Manager of  increase in number of employees required, and hence new status for the
Economic d.o.o.   business. These reasons are the only reasons that influenced the
changes in legal setup of our business.
From when you started your business until now, how did the legal
status of your business change and why?
We are registered as limited liability because we were told to according
to the new Company Law. There are no other reasons and I think that,
for a small and medium size company, that is the best legal status to
have.
Zarko Gugic
General Manager of
POZG d.o.o.
39



11. What are the key success factors
of a private small business?
There are many factors that can determine if your business is going to be
successful or not.
These factors can be roughly divided in to "soft" factors which mainly
depend on you and "hard" factors which are mainly determined by the
environment in which you are starting your business.
Soft Factors                    Hard Factors
Determination and commitment to work    Availability of financing
Level of aversion to risk           Market size and potential
Work experience                     Competition and its characteristics
Managerial skills                   Legislation
Relevant skills and knowledge       Functioning of legal system
As you can see, "soft" factors are mainly related to your individual char-
acteristics.
Without your determination to devote yourself completely to the business,
your willingness to deal with all the risks and hardships, your management
skills and experience, your experience in the industry in which your busi-
ness operates, it is not likely that you will manage to survive.
"Hard" factors are important, but as you can see, those are the factors
which you cannot influence.
Everything depends on those "soft" factors, meaning that everything
depends on you and your skills in dealing with the "hard" factors and turn-
ing them in to positive factors that will help your operations.
We repeat how crucial it is for the success of your business endeavor to
honestly assess you personal characteristics, knowledge and skills. If you
approach your business in such a way, you will know your strengths and
weaknesses, and you will be able to find the right people to help you com-
pensate for all your weaknesses.
What are the key factors that have contributed to the success or
failure of your business?
The most important success factors are your attitude towards your
business, clear vision and a picture of what you would like to achieve,
development of product or services, which have their place in the mar-
ket and skills and knowledge about the business that you are running.
llijas Bjelopoljak
General Manager of
Whitefield d.o.o.
40



What are the key factors that have contributed to the success or
failure of your business?
For business success it is extremely important to have the ability to rec-
ognize a good business opportunity and to use it. These kind of oppor-
tunities do not turn up too often. So if you were lucky enough and able
to recognize a good business opportunity, you must work very hard
I           with extreme dedication to turn that opportunity into a good business.
Mirko Sakk        Besides all of this. you also have to have an extremely wide network of
General Manager of  contacts outside the company. That includes good contacts with other
GRAND SM d.o.o.   business people. governmental institutions, experts. etc.
In short I can say that the main success factors are a good business
opportunity, hard work and a wide network of contacts that will provide
you with information, which is also a crucial factor of business success.
What are the key factors that have contributed to the success or
failure of your business?
Everything that you do must be done in accordance with the highest
standards and professionalism. Through professionalism and high stan-
dards. you have to build a position for your company. It is those val-
ues you have to build your name on. When I say this. I am speaking
about building trust with your business partners. with your customers,
Zarko Gugi~    which is the basis for good. long-term business relationships, which is
Gencral Manager of  a key element for business success.
POZG d.o.o.
What are the key factors that have contributed to the success or
failure of your business?
To succeed in business you must know what you are doing, you must
know where you are going. you must be able to recognize a good busi-
ness opportunity and you need a little luck to put it all together and
make it work.
Jonus Ikic
General Manager of
llidzanski dijamant d.o.o.
What are the key factors that have contributed to the success or
failure of your business?
| |   - -*  |Idea, idea and again idea. That is the most important element for suc-
cess. You might have a lot of money or other resources but if you do
not have an idea of how to use it in order to do business, you have noth-
ing.
Franjo Rajkovic
General Manager of
Economic d.o.o.
41



12. Should I start my business
with a partner(s) or by myself?
There is no universal answer to this question. This decision depends on the
level of honesty with which you have analyzed yourself and what the short-
comings are in your knowledge and skills. If you think that you cannot do
everything by your self because of a lack of knowledge and skills, it is advis-
able to consider starting your business with one or more partner(s).
The success of a partnership depends on the personal characteristics of these
partners, or, simply said, how they get along in their private and business life.
A partnership may mean a simpler start in terms of acquiring the necessary
financing, in terms of skills and knowledge, distribution of work burden, etc.
Conversely, a partnership may lead to numerous conflict situations if all part-
ners do not precisely specify what their inputs and contributions are to the
business, what are their rights and responsibilities, etc.
If there is a difference in the commitment to the business, different views of
how the business should run and be managed and different visions of goals to
be achieved, it would probably lead to the dissolution of the partnership.
What are the advantages and disadvantages of a partnership in set-
ting up a business? What are your experiences?
I think that starting a business with a partner is a better option than start-
ing it alone. Setting up a new business requires a lot of hard work and
time and it is almost impossible for one person to deal with the workload
and risk.
If two or more persons have common interests and if they are willing
Mirko Sakic        to invest most of their abilities into a business, there is no reason why
General Manager of  they should not start a business together.
GRAND SM d.oo.   The balance of professional knowledge and skills is not that important
because that it is something that they will gain through running their
business, but, again, it is important that they are willing to invest their
time and effort to make it work to the best of their abilities.
It is very important that the roles of the partners are strictly defined
and separated. If there is overlapping of their roles and work, it is the
first signal that something is wrong in their relations. The overlapping
is a result of either poor work organization or lack of trust between
partners and they are monitoring and controlling what the other one
is doing.
42



What are the advantages and disadvantages of a partnership in set-
ting up a business? What are your experiences?
I think that both options are equally good, starting a business with part-
j   4     ' ners or starting a business by yourself. I think that it mainly depends on
the type of the business. If your business requires strong management,
strong technical skills and strong marketing, then we are talking about
a complex type of business which is requiring the involvement of a few
Iijas Bjelopk     people. In this case it would be best to start that business with partner(s).
General Manager of   But if we are talking about a chicken farm, which is an individual busi-
Whitefield d.o.o.  ness, it is normal that you will start this kind of business by yourself.
What are the advantages and disadvantages of a partnership in set-
ting up a business? What are your experiences?
I would recommend everybody to start his or her business alone by
him/herself. I think that first people should test themselves in order to
find out what skills they have and to find out if they are entrepreneurs
able to start and run their own business. If you are not able to run a busi-
ness by yourself, then no other person or partner can help you to suc-
Jonus Ikk  ceed. I think that a partnership is OK, at some point. However, after
Genera Manager of  some time it might become a problem because some partners may tend
Gencral Manager of      
lfid2anski dijamant   to work more then others, they may invest greater effort. knowledge and
d.o.o             money than others etc. This kind of misunderstanding usually leads to
the dissolution of a partnership.
What are the advantages and disadvantages of a partnership in set-
ting up a business? What are your experiences?
I started my business alone from scratch and 1 am happy that 1 did so.
I proved to myself that I am able and competent to run a business and
I value much more everything that I have achieved and gained because
I did it all by myself.
Franjo Rajkovic
General Manager of
Economic d.o.o.
What are the advantages and disadvantages of a partnership in set-
ting up a business? What are your experiences?
Those who know how to run a business and who know what they are
doing should start and run a business by themselves. With a partnership
you usually find yourself with several people who have different views
on how a business should be run. They might have the same interest but
different views on how a business should be managed and that is quite
Zarko Gugic       enough to dissolve the partnership, or in some cases to destroy a busi-
General Manager of   ness completely. I started this business with my brother and we had dif-
POZG d.o.o.       ferent views on how things should be done, so we split up. I would rec-
ommend that, if you think you know what you are doing. what you
want to achieve and you know how to run a business, you should start
a business by yourself.
43



13. Who are right employees for my business
and how can I find them?
What is your experience in finding qualified employees for your
business, at the beginning and now?
Since I have been in the construction business for a long time now, I have a
clear definition and expectation for each job. I also have the ability to deter-
mine after only a few days if the selected person is capable of meeting all
the job requirements. Finding skilled workers in the construction business,
and I believe in other industries, has become a problem. War has created a
big exodus of the workforce and, for example, if before the war there were
Mirko Sakic       good carpenters, they have moved out of the area and we now have a lot of,
General Manager of  chemistry technicians. Because of that we were forced to improvise a lot.
We employ inadequate workers and then we have to train them almost from
scratch in the area in which they are employed. I do not have some official
procedures for the employment of new workers. The majority of my
employees are employed on the basis of recommendations. There is also a
trail period, after which I make a decision, together with my construction
site manager, whether or not that worker is going to stay with us. For me the
workers' attitude towards the job as well as his attitude towards his working
colleagues is most important.
What is your experience in finding qualified employees for your
business, at the beginning and now?
It is very hard to find a skilled and qualified workforce, especially in this
business. The main reason is brain drain through the exodus of young edu-
cated people to third countries. The second reason is that our companies are
not able to pay this workforce adequately. I have been in the situation many
times, at the beginning and even now, of having to choose and select less
t1ijas Bjelopoak  skilled and qualified employees because I was not able to meet the salaries
General Manaer of  requested by the best ones. I have a policy of employing less skilled
Whitefield d.o.o.  employees and then training them on the job. Of course they have to be
young, bright people, with a good attitude towards the job. hard workers,
loyal to the company and interested in the development of their skills.
I think this is a good decision, because from the beginning I have been
choosing young, smart and relatively inexperienced people that have a
chance to learn and develop together with the company. In this way, I have
created employees that know every phase of growth of my business.
What is your experience in finding qualified employees for your
business, at the beginning and now?
The majority of my workforce was found through advertising positions
in newspapers, which were then followed up by interviews of a select-
ed few. During these interviews I try to find out what the person's atti-
tude is towards the job.
I do not employ people because they are friends of my friends or
Jonus Ikic        because they are recomnmended.
General Manager of
lfidzanski dijamant d.o.o.
44



What is your experience in finding qualified employees for your
business, at the beginning and now?
-M          In the beginning I employed people I knew personally as good workers
and people who were recommended by those I trusted. Now we have a
Human Resources Department that takes care of hiring new people. the
development of existing employees, investing in potential future employ-
ees through providing scholarships to the best students who are willing to
Franjo Rajkovic    continue their education at a University level.
General Manager of   Finding and keeping good and qualified employees for me is one of the
Economic d.o.o.   most important aspects of a running business.
What is your experience in finding qualified employees for your
business, at the beginning and now?
We are oriented towards young, bright people who are willing to learn.
I think that is the best option. To take young people and provide them
with a good working environment where he/she has a chance to learn
and to develop him/herself. You can employ the most skillful and
knowledgeable employee, but if he/she works in a corrupt and bad
arko G            environment, he/she will become useless in a short period of time.
General Manager of
POZG d.o.o.
14. How should I determine salaries
for my employees?
To be able to hire and keep good employees, you need a good payroll sys-
tem that will make you competitive in the labor market.
Although the salaries are not the only incentive, a badly defined and inad-
equate salary system may become a cause for dissatisfaction of your
employees, frequent changes of workers and a bad work environment.
All this may cause unexpected additional costs for your company.
A clearly defined salary system will give you the chance to offer your
employees adequate salaries. Empoyees can then be promoted through
the salary increase system. which will enable them to develop their
careers. Your emplyees' salaries should be based on the importance of the
job they do.
Before you start hiring new employees, you should write job descriptions
for all the positions in your company. All jobs should be divided into
salary levels that reflect the importance of each position in your compa-
ny. In addition, other elements to be taken into consideration when deter-
mining the employees' salary levels are: expertise, skills and abilities of
the employee, work experience. etc.
45



It is also important that you monitor how competitors are paying their
employees and keep an eye on what the average salaries are in the mar-
ket for that type of job.
When deciding on salary levels, you should take into account the level of
living expenses and enable your employees to have decent living standards.
Having collected all available information on the above elements and
analyzed the financial situation of your company determining the level of
salaries you can afford, you should have enough information to decide
your employees' salaries.
How did you define salary levels in your company?
When I started my busienss and even now the avarage salary for con-
struction workers paid by other companies was extremely low. In order
to attract skilled and good workers I was paying them up to 50% more
than the avarage salary, and I still am. On one hand, this is a good
approach, but on the other hand, with the extremely volatile and unreg-
ulated market in construction, I have a problem with maintaining that
Mirko Sakic       level of salary and I am concerend about the posibillty of losing some
General Manager of   of my workforce due to this.
GRAND SM d.o.o.   How do you use salaries as an incentive for your employees?
My workers know, that if they perform well, they will be financialy
rewarded. But, in my opinion, the salary level is not a crucial incentive
for employees. I think that it is more important to create the feeling
with employees that they are a part of the company, that they are need-
ed, and to show them that their contribution to the success of the busi-
ness is recognized and appreciated.
How did you define salary levels in your company?
Salary levels are determined according to the respective job descrip-
tions of each position, employee qualifications and skills, the level of
salaries for the position dicated by the labor market and, of course,
acording to the financial capability of the company.
How do you use salaries as an incentive for your employees?
I do not think that salary has to be an incetive that will push an employ-
Ilijas Bielopoijak  ee to be a good performer. I think that salary should be something that
General Manager of   normally follows the good work of an employee.
Whitefield d.o.o.  Employees have to work to the best of their abilities in order to con-
tribute to the success of the company and a salary should not be a the
main driving force for them in doing so.
46



How did you define salary levels in your company?
The salaries of my employees are determined by the labor market. My
workers are paid according the type of work within the marketplace.
How do you use salaries as an incentive for your employees?
My workers on the production floor have strictly defined salaries, but
my employees from the sales department are paid on the basis of their
results. In that way they are stimulated to provide better results.
Jonus Ikic
General Manager of
llidzanski dijamant
d.o.o.
How did you define salary levels in your company?
In our company we have written policies that completely cover human
resource issues, starting form job description for every single position,
.  _    ~~methodoloay for determining salary levels, other benefits of employees
for which they are entitled, etc. In our company we have a number of
employees with whom  we have made managerial contracts, which
means that their salaries depend on their business results.
How do vou use salaries as an incentive for your employees?
Granjo RMajkovrc     On one hand, as I explained, we have a writen policy that determines
Economic d.o.o.    salaries. But other elements that influence the level of salaries are, for
exampleE the company monthly plan of sale. If this plan is exceeded,
the salaries are higher and vice versa. Salaries are not a problem for us.
I think that we reached a point where we have all the necessary condi-
tions to match all potential requests in terms of salary and other type of
benefits for the existing and new employees. But, they have to be able
to justify their requests and explain what their contribution is to the
success of the company, and how the company will benefit from their
work.
How did you define salary levels in your company?
They are partialy determined by salary levels presently existing in labor
market. But the most important thing with salaries is to provide emply-
ees with good living standards. I always try to give my emplyees high-
er salaries than ones paid by competition for the same type of work.
Zarko Gugic
General Manager of
POZG d.o.o.
47



15. How do I determine my own salary?
When you were starting your business, how did you determine
your salary?
I did not put much thought into salary when I started my business. I have
an official salary which is a few percent higher than the salary of my
best-paid employee. All the money that I have and even my salary is
money from my company, which I use for business operations.
Do you make a distinction between the company's money and your
Mirko Saki~ personal money?
Mirko Makin     f  make a clear distinction between money that is company money, and
General Manager of
GRAND SM d.ono    money for general expenditures, such as my living costs. It is not possible
to carry out business with any other attitude. But again, I do not have per-
sonal money because, except for my normal living costs, any other money
is invested back in to the developement and growth of the business.
When you were starting your business, how did you determine
J i      your salary?
I do not work for the salary, and my salary officially exists just because
of the needs and requirements of the accounting and financial reports.
So my salary is defined as a necessity when preparing financial state-
ments. As I have said, I do not work for a salary, I work for the pros-
perity and growth of my business.
Ilijas Bjelopoijak  Do you make a distinction between the company's money and your
General Manager of   personal money?
Whitefield d.o.o.  No, I do not make distinction between company's money and my per-
sonal money. All money is company money.
When you were starting your business, how did you determine
your salary?
I do not have a salary. I am taking as much money as needed to cover
my basic living costs.
Do you make a distinction between the company's money and your
personal money?
There is no distinction between the company and me. Everything I do
Jonus Ikk         and spend is business related and for the business.
General Manager of
llidzanski dijamant d.o.o.
Do you make a distinction between the company's money and your
personal money?
At the beginning I didn't have a salary. The level of my salary was
directly linked to the growth of my enterprise and the growth of the all
business activities. If my business grows, so too does my salary.
Zarko Gugic
General Manager of
POZG d.o.o.
48



When you were starting your business, how did you determine
your salary?
At the beginning I did not have salary.
Do you make a distinction between company's money and your
personal money?
Again. at the beginning it was a small business and all the money I had
was company money. Now it is completely different and, 1. like all
Franjo RajkoviW   other employees, have a salary that I receive at the end of the month.
General Manager of
Economic d.o.o.
16. Apart from salary, do I have any other
financial obligations towards employees?
In addition to salaries, the employer has to allocate funds for different con-
tributions on gross salary for each employee.
The types of contributions and their amounts are as follows (expressed as
percentages of gross salaries):
Federation of Bosnia and Herzegovina
- Pensions                          17%
- Health insurance                   3%
- Unemployment insurance             2 %
TOTAL:                              22%
Republika Srpska
- Pensions                           9%
- Health insurance                   7.5 c%
- Unemployment insurance             0.5 %
- Child protection                   I %
TOTAL:                              18%
49



17. Should I involve family members in my
business?
When you started vour business did you hire familv members to
work for you?
The decision to hire family members or not depends on the type of
business. My personal opinion is that, in the very beginning it can
cause a lot of problems because many business problems relect in your
private family life. Once your business is developed and shaped
L           enough, there is no reason why you should not involve them in the
Mirko Sakk        business, according, of course, to their knowledge and skills.
General Manager of   How would you evaluate your relationship with them being your
GRAND SM d.o.o.   employees?
That relationship is strictly professional with strictly defined obliga-
tions and responsibilities as is the case with other employees.
When you started your business did you hire family members to
work for you?
When I started my business I made it clear to everyone, including my
family members, that I am the head of that business, and if they wish
to become a part of it, it is not a problem at all.
How would you evaluate your relationship with them being your
employees?
Ilijas Bjelopoijak    If, from the very beginning, you make sure all aspects of family rela-
General Manager of  tionships are on the right footing, it should not become a problem. On
Whitefield d.o.o.  one hand, it is good to have a family member involved in your business
because you are benefiting from having someone who is providing
unconditional support, plus you have a different dimension of trust with
your family members. A potential disadvantage is the lack of a clear
border between professional and emotional relationships between fami-
ly members when they are employees.
When you started your business did you hire family members to
work for you?
I think that family members should be included in a business and it is
i s     good to have them working with you. But it is extremely important to
clarify that one person is the head of the business and the decision
S       S    ~~~maker.
Jonus Ikic
General Manager of
llidzanski dijamant d.o.o.
50



When you started your business did you hire family members to
I,        work for you?
so *  e      My first employee was my wife, and other family members are
involved in the business, but relationships are strictly professional.
I think that the dilemma of employing family members or not is some-
thing that cannot be answered. In some cases it works well. but you will
also hear from other people that they have had bad experiences.
Franjo Rajkovic
General Manager of
Economic d.o.o.
When you started your business did you hire family members to
work for you?
Unless you have good, healthy relations with family members you
should not involve them in your business. But if relations are good,
organising your business as a family one can have a very positive influ-
ence on business development.
Zarko Gugic
General Manager of
POZG d.o.o.
18. How much money do I need to make my
business idea operational?
The short answer is "much more than you expect." A more concrete
answer is "enough to cover all operating expenses, investments and debt
service requirements. provided that you, as a new company. got access to
credit financing in the first place."
To establish a more accurate amount of financing needed, you need to
make a projection of all potential expenditures related to starting your
business. Table 3 defines a list of expenditures most companies incurr.
This is not a final list, when developing the cost projections of your busi-
ness you will probably have to omit and add new items to the list.
Try to make sure your cost projections cover at least six months of your
work.
51



Table 3: General list of expenditures related to business startup
Expenditre i                                                          KM
Purchase of land
Purchase of building_
Purchase of plant equipment
Purchase of office equipment
Purchase of office supplies
Purchase of plant supplies
Purchase of spare parts
Repairs and maintenance of buildings
Repairs and maintenance of equipment
Rent
Salaries including social benefits
Purchases of Raw Materials
Electricity
Telephone
Water
Other utilities
Fuel for vehicles
Marketing Expenses
Travel Expenses
Interest on loans
Principal payments on loans
Registration and licensing fees
Legal fees
Accountants fees
Insurance
19. Where can I get the money
to start a business?
It is very rare that new companies in B&H can obtian credit from finan-
cial institutions.
The reason for this is that banks are willing to provide loans only to exist-
ing companies that have been running already for two to three years. This
means there is enough historical information for analysis of the compa-
ny's credit worthiness.
Another possibility is a venture capital fund, and presently in B&H we
have only one, Horizonte Venture Management, based in Sarajevo. They
are a potential source of finance for startups but only if you can provide a
minimum of 50% of the resources by yourself and if your investment is
within a range from 500,000.00 KM up to 4.500,000.00 KM.
52



The difference between banks and venture capital funds is that a banks' are
mainly influenced by the financial past of a company. Venture capital
funds are also interested in analysis of the company's history. but the deci-
sion to invest is influenced more by future perspectives of the business
and the market for your products or services.
Hence, new companies in B&H stand little chance of obtaining financing
from financial institutions. Most Bosnia and Herzegovina entrepreneurs
will probably have to rely on personal finances. This means that you will
have to finance the beginning of your business from your own savings, or
with money borrowed from family or friends. Alternatively find a busi-
ness partner able to financially support the venture.
You will have to run your business for a ccrtain period. which is defined
by the credit policies of a bank in order to apply for a loan from some of
thc financial institutions.
You can find a list of financial institutions and credit conditions at
www.seebiz.net.
20. What do I have to do to get a loan?
It is very important to carefully choose the bank where you open your
accounit in the registration phase of setting up your business. You should
choose a bank with a good reputation. which has a proven good track
record ol' cooperation with small businesses. When choosing a bank. you
are not just opening your bank account. you arc also choosing a potential
partner that will be willing and able to financially support your business in
the future and which will be able to follow the growth of your business.
The selection of a bank igiiht become one of the most important business
decisions for your company.
As previous]y mentioned, most banks do not financc startup companies. so
you have to have had a working bank account for a minimum of six
months before a bank will consider your application for credit.
Once you have established that your company needs external financing
you have to send an application for credit with the following attachments:
* Investimienit or business plan ( you have to explain why your company
needs financing)
Financial statements for the last one or two years
Proof of court registry of a legal entity
53



When you submit a request for financing it is very important to think about
adequate collateral (e.g. promissory note, mortgage on movable assets and
real estate), that you will have to give as insurance should you get loan.
It is also advisable to ask the loan officer or bank official to pay you an on-
site visit to give a better picture of your business and justify your request
for financial support.
What is your experience of getting a loan in B&H?
I started my business with my own money. In the beginning I did not
have access to a credit line. As the business developed I managed to get
a few short-term loans.
Generally, the banking sector is not developed enough and does not
provide adequate support to SMEs for their growth and development.
Only short-term loans are available under unfavorable conditions.
Mirko Sakic        The entire growth and development of my company is financed by the
General Manager of   company's internal resources.
GRAND SM d.o.o.
What is your experience of getting a loan in B&H?
The situation of the banking sector offering support to new and exist-
ing enterprises in terms of access to the credit lines and loans is cata-
strophic.
There is no normal and regular business that can afford such expensive
capital for it's business operations and investments. For businesses that
are of production nature, interest rates above 6% are simply unaccept-
llijas Bjelopoljak  able.
General Manager of
Whitefield d.o.o.
What is your experience of getting a loan in B&H?
_  _       There is not a single bank in B&H, except Universal Bank, that is ready
.   _to support entrepreneurs and their business. I am in a situation where I can
more easily find and obtain money or credit outside of B&H than within.
It is not that I cannot find credit under reasonable terms, I cannot even
get a gurantee letter.
Again I would like to stress that all the money I received from the bank-
Jonus ki           ing sector came from  foreign financial institutions outside B&H.
General Manager of   Credits in B&H are very expensive and, also, they are usually only
lfidzanski dijamant   short term credits.
d.o.o.
54



What is your experience of getting a loan in B&H?
I did not receive any support or understanding from the banking sector,
but I also understand their position in the existing circumstances they
did not want to expose themselves to high risks.
Today we have some indications, but only indications that their attitude
towards businesses is changing. We are now in a situation where banks
are scrambling for good clients.
Franjo Rajkovic
General Manager of
Economic d.o.o.
What is your experience of getting a loan in B&H?
The application process for credits and loans is a very complicated
one. Capital is very expensive under unfavorable terms.
Zarko Gugic
General Manager of
POZG d.o.o.
21. What record keeping system
do I need for my business?
The first thing you should be aware of is that bookkeepers are not substi-
tutes for accountants. Bookkeepers are trained to record basic transactions
such as maintaining a sales journal and accounts receivable ledger.
Accountants have knowledge of the entire process of compiling and ana-
lyzing an enterprise's records that reflect all its transactions and use the
financial compilations to more effectively manage a business.
While it is necessary for a successful company to have accurate and com-
plete financial information, a successful entrepreneur does not need to be
either a trained bookkeeper or an educated accountant.
However, the successful entrepreneur will understand the message his
company's financial statements deliver:
Is my company profitable? If not, why not? What can be done to
make it profitable?
Are all of my company's lines of business profitable'? If not, why not?
What should be done about the lines of business that are not profitable?
If my company is profitable, why is there not enough cash to pay all
the bills on time?
What can be done to improve my company's cash flow?
Does my company have too much debt'?
Is my company's dcbt structured appropriately? Should some of the
short-tern debt be restructured for long-term repayment'?
55



22. What financial statements will I need?
A company's financial records begin with documents such as sales invoic-
es, purchase invoices, utility bills, cash disbursement records, cash
receipts records, bank statements, cash register receipts. These and all
other documents that represent a transaction of the company's are record-
ed in books of original entry called Journals.
Cash Receipts Journal-record of all receipts of cash
Cash Disbursements Journal-record of all payments made in cash
* Sales Journal-record of all credit sales, sales of merchandise except
those for which the company received cash immediately
Purchases Journal-record of all credit purchases, purchases of raw
materials or inventory to be resold
* General Journal-record of all transactions that are not recorded in
either of the other four journals
Transactions are "posted" from the books of original entry (journals) to
ledgers.
* General Ledger-includes all accounts that make up the Balance Sheet
and Income Statement
Accounts Receivable Ledger-includes all accounts of customers that
purchase merchandise from the company "on account" rather than pay-
ing cash for it immediately
Accounts Payable Ledger-includes all accounts of vendors to whom
the company owes money.
These five journals and three ledgers will be maintained manually and
kept in a file.
One example of a manual accounting system is, for instance, in case of a
credit sale, when you prepare a sales invoice. The invoice will be record-
ed in the Sales Journal and finally posted to the appropriate customer's
account in the Accounts Receivable Ledger. All of this is done by hand.
Computer-based systems include these journals and ledgers but they are not
"visible." In the case of a credit sale, a sales invoice will be prepared on the
computer and the information will automatically be recorded in a sales jour-
nal and posted to the customer's account in the Accounts Receivable Ledger.
Bookkeepers can be employed to maintain the journals and ledgers.
At the end of specified periods such as monthly, quarterly, semi-annually
and yearly, the information recorded in the journals and ledgers is sum-
marized in a Balance Sheet, Income Statement, Statement of Sources and
Uses, Reconciliation of Net Worth and Cash-flow Statement. Accountants
are required to generate these statements.
56



These are the financial statements with which the successful entrepreneur
must be familiar and know how to use to manage his company effectively.
23. How do I determine market potential for
my products and services?
Many new businesses have started their operations without prior market
research or defining market potential for their products and services. That was
possible because they have started small, offering limited quantities or type of
products. usually for known buyers. The quantities of products such compa-
nies had to offer were such as to be easily assimilated in the market.
You can estimate your market potential by using the following formula:
PT = bk*q*cp
abbreviations meaning the following:
PT - Market Potential:
bk - Number of buyers;
q - quantity of product units bought by an average buyer
cp - average price of one unit of your product
When evaluating market potential, you can expect to have most problems
with assessing the number of buyers.
If you are starting production of a significant volume of products, you
should try to find as much information as possible about market potential
for your products. who are your main competitors, what are the volumes
of their production, what are their market shares, and on the basis of gath-
ered information estimate what share of the market you can count on.
In any case when starting a business it is recommendable to find out who
your customers are and to estimate the size of the target market, e.g. how
many customers you expect to have.
What do you think about B&H marketwise?
It is a small market and population-buying power is extremely low.
Because of that you can't expect spectacular financial results. The mar-
ket for the construction sector is extremely volatile and it greatly depends
on foreign donations. It is almost impossible for me to determine what
will happen in the future, what future needs are going to be, etc.
Mirko Sakir
General Manager of
GRAND SM d.o.o.
57



What do you think about B&H marketwise?
I think that the B&H market is a good market with good market potential,
but what is missing is a legal framework that defines the functioning of
that market. Another problem is week law enforcement, where the state
has to protect the basic, existential interest of businesses that operate in
that market. For example, if I sell my products and services to some-
one and they refuse to pay for them, I expect that the state, through
Ilijas Bjelopoljak  using it instruments, will resolve that problem timely and efficiently.
General Manager of  It is an unacceptable situation that the state is just taking money from
Whitefield d.o.o.  businesses that are paying their taxes and provides nothing in return,
even the basic protection of the enterprise.
The solution for such problems does not depend on how rich the state
is, it is just a matter of good will to improve the business environment.
When you were starting you businesses, how did you determine
market potential?
In the very beginning, I did not have market research, I simply fol-
lowed my instincts. At that time there were no other companies doing
this kind of business in the B&H market, so it was easy for me to deter-
mine whether there was a need for these kinds of products and servic-
es. But, if you are launching a new business into an already developed
market, the first thing an entrepreneur should do is determine the mar-
ket potential for his/her products and services.
What do you think about B&H marketwise?
B&H as a market is a good market and, for example, according to mar-
-fl_   ket research, it consumes two times more mineral water than I am able
to produce.
When you were starting you businesses, how did you determine
market potential?
L s               We conducted market research that lasted for six months. During these
Jonus Ikic        six months we collected information from all wholesalers and other
General Manager of  sellers about the sales volume of mineral water.
Ilidzanski dijamant
d.o.o.
What do you think about B&H marketwise?
I consider the B&H market a very small one.
A market with less than twenty million people is a small market for any
serious, relatively big business.
When you were starting you businesses, how did you determine
market potential?
In the beginning, everything was going on more or less spontaneously
Franjo Rajkovk    and I was following my intuition. But, today, for every project we do,
General Manager of   before we start to develop it, we conduct market research.
Economic d.o.o.
58



What do you think about B&H marketwise?
The B&H market is a small and poor one. My business is connected
with the metal processing industry that is almost completely destroyed
and if it works it works with at only 20% of it's capacity.
When you were starting you businesses, how did you determine
market potential?
My market is the entire B&H metal processing industry. Prewar com-
Zarko Gugic       panies, that were suppliers of metal and metal profiles to this industry,
General Manager of  are almost all bankrupted. This has produced a gap in the market and I
POZG d.o.o.       took that opportunity to start my business. We started small, we offered
small quantities of products and we had no problems with sales. As a
result we did not need to conduct detailed market research in order to
define market potential.
24. How should I position
my business in the market?
Once you have decided what business you are interested in, you have to
establish how you will position the business or products and services in the
market.
You have to find out what kind of needs your products or services will be sat-
isfying and how they differ from the same or similar products and services
provided by your competitors. You have to analyze your competitors and
establish what the advantages your business offers over your competitors.
Upon defining your advantages and upon finding market segments that are
not sufficiently covered by other companies, you should direct your activ-
ities towards development of products and services that will cover that
market segment.
It does not have to be a completely new product or service. You should try
to differentiate yourself by adding a kind of unique value to your products
or service. This could mean that you will provide the best quality products
and services or is it your preference to provide substitute products and serv-
ices which will satisfy customers' needs as much as existing ones but for
much lower prices, etc.
When you started your business did you determine your position in
the market? If so, how did you do that?
We have positioned ourselves as a domestic producer of domestic,
good quality mineral water which is supplying customers with a good
quality product for a much more acceptable price.
Jonus Ikic
General Manager of
Ilidzanski dijamant d.o.o.
59



When you started your business did you determine your position in
the market? If so, how did you do that?
. +  ffi     When starting the business, we focused on a few customers and their
needs, so we had a very limited and very specific market to cover.
Today our market is entire B&H and neighboring countries.
We positioned ourselves in the market as suppliers of a wide specter of
goods for households of optimal quality for relatively low prices.
Franjo Rajkovi
General Manager of
Economic d.o.o.
25. What is marketing?
Markets are where buyers meet sellers. Competition that exists in markets
is a mechanism that provides the customers with wider choices. Buyers
have specific needs. and they go to find a product to satisfy that need, and
they buy the product and services On the other hand, the sellers are the
ones designing products and services, and offering them for sale. This
gives a definition of marketing as a process of harmonizing production
capacities of companies and needs of the buyers, for the purpose of meet-
ing the goals of both sides.
Marketing process involves
Analysis of market capacities
Selecting and exploring target markets;
Creation of marketing strategy:
Planning a marketing program:
* Organizing, implementing and supervising marketing activities
Marketing strategy is a set of general rules used by the company to achieve
the set business and marketing goals.
Marketing strategy defines:
- Set of marketing instrunients used by the companies to achieve the
defined goals at the target market;
- Amount of funds available, i.e. budget for marketing activities:
- Allocation of funds.
By allocating the funds, the company determines to what products and
what sales areas and what media it will spend the funds approved for mar-
keting activities.
In order to choose a proper marketing strategy for your company. you must
take into consideration the following:
60



Customers
What do customers value and how much will they pay?
How do customers view my product relative to that of my competi-
tors?
* What demand will be there in the future and what factors will affect it?
Competitors
* Who are my competitors?
* What are their advantages and disadvantages?
* How do the customers value their products?
* How do the competitors manage their costs?
Costs
* What are the costs of my products'?
What is the relationship between fixed and variable costs?
* What drives costs?
* How do my costs compare to that of my competitors?
Which costs add value to my product that customers want?
What are you considering under marketing?
In my opinion, marketing is a set of activities that businesses must use
in order to promote themselves within the market place and to find or
establish a position in that market.
When you started your business, what was the level of your mar-
keting activities?
To be honest, at the beginning I did not have carry out any marketing
Ilijas Bjelopoljak    in the real sense of the word. I had some activities that served to intro-
General Manager of  duce myself to potential customers, actually to inform them that I exist-
Whitefield d.o.o.  ed and that I was offering certain products and services. I did this main-
ly through adds in newspapers.
When have you started to consider marketing as an important ele-
ment of company success?
It is the same situation as explained for the business plan. As your busi-
ness develops and grows, it reaches a point when it becomes a kind of
entity in itself, a living thing that has its own needs. At that point you
must develop a strong and comprehensive marketing plan.
Is it profitable to invest in marketing and what percentage of your
turnover do you usually spend on marketing?
I think that investment in marketing is very important. I cannot say
exactly what percent of turnover we usually spend on marketing but I
can assure you that we spend significant amounts of money.
61



What are you considering under marketing?
Marketing should be a continuous activity, and I am constantly invest-
ing in marketing. I think it is an extremely important activity, which in
my case, but also generally among our business people, it is not given
the necessary attention.
My approach, as well as that of others, is very basic.
I think that a minimum of 5% of business turnover should be invested
Mirko Sakic       in marketing activities.
General Manager of
GRAND SM d.o.o.
What are you considering under marketing?
Through marketing you are defining your customers, their preferences,
-i .       you are promoting your product, ways to sell your product, etc.
When have you started to consider marketing as an important ele-
ment of the company success?
From the very beginning. I am in a kind of business where marketing
has a very important role for business success.
Jonus Ikic        Is it profitable to invest in marketing and what percentage of your
General Manager of  turnover do you usually spend on marketing?
llidzanski dijamant   I do not know the exact percentage that we invested in marketing, but
d.o.o.            roughly, in the beginning, it was up to 10% of turnover.
What are you considering under marketing?
Since we are a Trade Company, everything that we do is based or relat-
ed to marketing.
Every employee's job is to meet customers' expectation and to promote
our company.
When have you started to consider marketing as an important ele-
ment of the company success?
Franjo Rajkovic   Marketing is an extremely important element that can contribute to the
General Manager of  success of the company, only, of course, if your statements about your
Economic d.o.o.   business are correct and true. If they are not, marketing and promo-
tional campaigns can have a negative impact on the success of your
business.
Is it profitable to invest in marketing and what percentage of your
turnover do you usually spend on marketing?
We invest 2% of our turnover into marketing activities.
62



What are you considering under marketing?
For us. marketing means promotion of the business through honest
dealings business partners and customers, professionalism  and high
business operation standards.
When have you started to consider marketing as an important ele-
ment of the company success?
We have started from zero, and developed the marketing and promo-
Zarko Gugi          tional activities as the company developed.
General Manager of   Is it profltable to invest in marketing and what percentage of your
POZG d.o.o.         turnover do you usually spend on marketing?
I must admit that up to now we have not given appropriate attention to
this part of the business. It is an area were we can and must improve
our activities.  Presently we are investing about 0.5%  of company
turnover in marketing activities.
26. How should I determine prices
of my products and services?
Procedures for determining prices are different for different types of business.
In most cases, companies in B&H determine the prices of their products on
the basis of the calculation of direct and indirect production costs, adding
additional amounts that will insure that their business is profitable. At the
same time, the price including these elements should be competitive in the
existing market.
Beside these, there are also many other factors that should be taken into con-
sideration when determining prices of your products and services, such as:
cost of distribution, the product life cycle, changes in demands, level of pro-
motional activities undertaken. quality of the product, etc.
During the process of determining prices, please use the following checklist
shown in Table 4. This checklist should help you consider most of the ele-
ments that may influence the price of the goods or services you are offering.
Table 4: Checklist for Price Determination
I. Collect information about prices
of products of your competitors
2. Try to predict the total number of units
of your products the market can absorb
3. Try to determine how many product units
you will be able to sell
4. Try to determine what your customers willing to pay
5. Set your volume production plan
6. Deternine your production costs, direct and indirect
7. Determine your distribution costs 
8. Determine costs of promotional activities
9. Set your profit goals
63



What methodology have you used for determining prices of your
products (when you started the business and now)?
The prices of my products and services are determined according to
.   normal calculations including fixed costs, variable costs and profit
margin. But in the end, the final price of products and services are
determined by market and competition, which are extremely strong
in the construction business.
Mirko Sakic
General Manager of
GRAND SM d.o.o.
What methodology have you used for determining prices of your
products (when you started the business and now)?
nF % r        The first element that influences prices of products and services is the mar-
/       ket situation, competitors prices, market demand, customer's preferences,
etc. Other elements are normal input costs, costs of business operations and
projected profit. You are the one who determines all elements and criteria
that will influence the price of your products and services, and first you
Ilijas Bjelopoljak  have to determine the lowest price (the price that will ensure that you break
General Manager of  even), which is the minimum that will enable your business to operate at
Whitefield d.o.o.  minimal profitability. If you ask the difference in determining prices at the
beginning and now, I can say that it was much easier in the beginning
because it was easier to control the entire business operation. Now business
operations are much more complex, and as a result, a much more complex
methodology is required for determining prices.
What methodology have you used for determining prices of your
products (when you started the business and now)?
We used a normal methodology, taking into account all production
_   +_   costs direct, and indirect and adding a margin.
These are the elements that defined price from one direction. Another
direction or influence for price determination were prices of competi-
tors and our strategy to penetrate the market with prices that are lower
Jonus Ikic        than those of our competitors.
General Manager of
llidzanski dijamant d.o.o.
What methodology have you used for determining prices of your
products (when you started the business and now)?
When we started our business we were trying to match the prices of
our competitors and even to offer lower prices, if that was possible.
Now, besides standard elements that are part of the calculation
methodology, the price of the product also depends on our goals,
depends on what we want to do in that specific market, what our
Franjo Rajkovi    position is on the market, etc.
General Manager of
Economic d.o.o.
64



27. Where and how can I find suppliers of raw
materials and distributors for my products?
Where and how did you find your suppliers / distributors?
Suppliers
Main sources of informatoution available supplier   s of raw materials
and components  for production were specialized     magazines, phone
.books, yellow pages and direct visits to producers and wholesalers.
You then have to create a list of potential suppliers and analyze them
considering elements such as price, quality, delivery terms, etc.
Distributors
Ilijas Bjelopoljak  I tried to animate potential customers and distributors by using adver-
General Manager of
Whitefield d.o.o.  tisements in newspapers and through direct contacts. If they prove
themself as reliable business partners and you manage to build rela-
tions based on mutual trust, then you have created a good distribu-
tion network.
Where and how did you find your suppliers / distributors?
Distributors
Our sales department gathered information about all wholesalers who
we then contacted in order to make them distributors of our products.
Jonus Iki
General Manager of
llidzanski dijamant d.o.o.
Where and how did you find your suppliers / distributors?
Suppliers
We have an employee whose job is solely market research, which
involves research on suppliers. We use all available resources: yellow
pages, exhibitions, promotion materials, internet, etc.
Distributors
We have over three hundred distributors of our own in B&H and I I dis-
Franjo Rajkovic    tribution centers in bigger towns.
General Manager of   Majority of distributors were found through public invitations pub-
Economic d.o.o.   lished in newspapers.
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Where and how did you find your suppliers / distributors?
Suppliers
We find information about suppliers from other companies, through
participation in fairs, etc. Also, now that we are becoming recognized
as a good business, suppliers are contacting us.
Zarko Gugic
General Manager of
POZG d.o.o.
28. Who can provide technical assistance?
When starting your business, you might need technical assistance and sup-
port in some areas where you do not have enough knowledge or experi-
ence. This assistance can be obtained from local and international business
development agencies, business support centers, consulting companies
and from individual consultants.
A list of those organizations, consulting companies and individual con-
sultants, together with a description of the services they provide, is avail-
able at www.seebiz.com. At the same web site you can find a list of busi-
ness associations and their addresses and phone numbers.
You can obtain the same information by contacting our organization by
phone.
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Bibliography
1) 'Kako zapoceti sopstveni biznis
Dr. G. Howard Poteet; 1997; CID Podgorica
2) Pocetna pomoc, uspjesan put u samostalnost
Njemacko ministarstvo za gospodarstvo i tehnologiju (BMWi); 2000;
Sarajevo
3) Wage and Salary System
The Mekong Project Development Facility; 2001; Youth Publishing
House
4) Pricing and Pricing Strategy"
The Mekong Project Development Facility; 2001; Youth Publishing
House
5) "Handbook for Small Business"
U.S. Small Business Administration; 1989; Washington, DC
6) "Marketing Plans; How to Prepare Them, How to Use Them '
Malcom H. B. McDonald; 1995; Butterworth-Heinmann, Oxford.
7) Upravljanje marketingom'
Philip Kotler; 1994; Informator, Zagreb
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