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The BSM – Business Sophistication Model Jacky Galpin 1 Background

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The BSM – Business Sophistication Model Jacky Galpin 1 Background Powered By Docstoc
					The BSM – Business Sophistication Model Jacky Galpin 1. Background One of the objectives of the Finscope study was to assess the degree of sophistication of the small businesses operating in Gauteng. With this in mind a Business Sophistication Model (BSM) consisting of 7 groups has been developed from a wide range of aspects measured on the survey. 2. Questions used to create the BSM The questions chosen, in consultation with the Finscope team, were: • • • • • • • • • • • • • • • • • • • • • • • • • • A5# A6# A13# A15# A16 #: A17# E1 E3 F1# F2# F3 G1 H1 H2 I.1# I.3 J1# J2# L1 L3 P2 Q2# Q9# Q16# Q17# Q20 What type of business is it? Do you sell the goods as you buy them or do you add value or both? Do you have a written employment contract for your employees What type of premises do you operate your business from? Do you own, rent or just use the place where you trade / run your business from? Services and equipment Partners or shareholders Do you have a written shareholders/partnership/ members agreement Do you keep financial records or accounts? Do you keep these financial records yourself/internally or does someone from outside help you? Are your financial records audited? Is this business a franchise? Is your company / business a subsidiary / part of another company? Do you have any affiliations with international companies? Do you do any business / trade with anyone outside South Africa? Do you Import/ export/both? Do you offer goods or services on credit? Type of credit offered Payment of taxes Compliance with acts Professional services handled by staff Any bank used for the business Type of banking services Do you have any loans for your business? From where did you get the loan? Types of insurance paid for by the business

3. Forming the BSM index and BSM groups The variables used were based on the questions above, including all subcategories. This yielded 126 possible variables, which were coded to 1 or 0, depending on whether the respondent responded yes or no. This coding places all questions on the same scale, which makes principal component analysis the appropriate technique to be used to create an index.

All data were weighted to the population figures, as provided by Prof D.Stoker, using population group, gender and age groups (16-24, 25-34, 35-49, 50+). The scores on the first principal component obtained from these variables formed the BSM score. This principal component captures 19.7% of the variability in the data. Appendix A gives full details of the questions and options, who the question was asked of, and the number of informants answering ‘yes’ to the question. The coefficients for the BSM score (based on all questions) are also listed there, as are the factor loadings on the first principal component. The seven groups were based on these scores, using cutoffs initially based on forming 20 equi-sized groups (in terms of estimated population). Combining adjacent groups was investigated using the profiles of the population in these groups. Seven groups were finally formed, based on the following cutoffs for the BSM index. Greater than GP 1 GP 2 GP 3 GP 4 GP 5 GP 6 GP 7 -0.5086 -0.4472 -0.357 -0.196 0.0392 0.8917 Less than or equal to -0.5086 -0.4472 -0.357 -0.196 0.0392 0.8917

Due to the high correlation between the variables, the coefficients of the BSM index listed in Appendix A cannot be directly interpreted as to the importance of the variables. In order to obtain more interpretable weights, a stepwise regression was used to investigate a subset of 50 variables that play a major role in the equation. This subset creates an index with a correlation of 0.995 with the BSM index. The subset of questions does not adequately recreate the 7 BSM groups, which must be done using the full equation Note that the questions relating to use of any bank or no bank for the business are equivalent.

Appendix A: Detailed questions used for the creation of the BSM’s, number of informants answering ‘yes’ to the question, weights for calculation of the BSM’s using all variables and using the 50 dominant variables, and loadings on the first principal component
Q number A5 A5 A5 A5 A5 A6 A6 A13_1 A15_1 A15_3 A15_6 A15_9 A15_12 A15_14 A15_16 A16 A16 A16 A16 A17a_1 A17a_2 A17a_3 A17a_4 A17a_5 A17a_6 A17a_7 A17a_8 A17a_9 A17a_10 A17a_11 A17a_12 A17a_13 A17a_14 A17a_None A17b_15 A17b_16 A17b_17 A17b_18 A17b_19 A17b_20 Variable definition Informal / street / market / stall trader (small) # (option 1) Unregistered individual or sole proprietor / trader (options 2 or 3) Partnership or Co-operative (options 4 / 5) close corporation (option 6) Pty Ltd or Other (options 7 or 8) Sell them as you buy them Add value (cook, sew) or both Contract ft or pt employees House /part of house rented for business Own house / room(s) in own house or Garage or Backyard Office block: whole building or Part of Shop in a large/small complex or stand alone shop From a container or a stall / table in a designated trading/market Footpath/street/street corner/open space/Car boot / truck / bakkie No fixed location/Door to door selling/Other Own premises Rent premises Use premises (no rent) Premises: Other Running water inside Running water outside Hot running water / geyser Electricity Toilet facilities inside Toilet facilities outside Storeroom/Access to storeroom Company car or cars/ bakkies/ minibus Kitchen Telephone/landline Cell phone Fax machine Photostat/copying machine Computers None Credit card machine Switch Board email address Website Internet Access Own network (LAN) and Server Room ask of All All All All All informal only informal only >1 employee All All All All All All All All All All All All All All All All All All All All All All All All All All not informal not informal not informal not informal not informal not informal yes Regn full Reg 50 loading 1290 -0.1345 -0.1386 -0.4617 572 47 68 24 691 270 106 168 1247 24 71 74 284 164 1210 290 457 44 704 1275 368 1317 506 1111 293 125 986 297 1276 82 68 125 305 31 16 62 22 65 17 -0.0944 -0.0036 -0.0357 -0.0234 -0.0172 0.0975 0.0138 -0.0022 0.0948 0.0287 -0.0126 -0.0230 0.0052 0.0173 0.0274 -0.0080 0.0357 0.0132 0.0509 0.0230 0.0408 0.0100 0.0538 0.0767 0.0191 0.0553 0.0151 0.1178 0.1249 0.1039 -0.0225 0.1438 0.1713 0.1354 0.1693 0.1321 0.1773 0.0212 0.4005 0.5436 0.1813 -0.2728 -0.1426 0.1141 0.6168 0.0981 -0.0266 0.2217 0.2884 0.1476 -0.0589 -0.1994 0.0358 0.0743 0.1466 -0.2012 -0.0402 0.0575 0.4314 0.1579 0.0803 0.5266 0.0530 0.2698 0.4602 0.1 244 0.5135 0.5579 0.2379 0.5236

0.0765

0.0548 0.1662 0.2402

0.1792 0.7415 0.7100 0.7628 -0.0647 -0.1983 0.2354 0.5839 0.5164 0.3437 0.7718 0.4169 0.6016 0.7640 0.5427

Q number A17b_21 A17b_22 A17b_23 A17b_24 A17b_25 A17b_26 A17b_27 A17b_28 A17b_29 A17b_30 A17b_31 A17b_32 A17b_33 A17b_34 A17b_35 A17b_36 A17b_None E1 E3 F1 F2 F3 G1 H1 H2 I1 I3 J1 J2_1 J2_2 J2_3 J2_4 J2_5 L1_1 L1_2 L3_1 L3_2 l3_3 L3_4 L3_5 L3_6 L5 P2_1 P2_2 P2_3

Variable definition Security system Staff access control Canteen or dining room Training room Executive dining room Separate presentation or function room Library Board room Reception area or waiting room Vision or mission statement Written business plan Written marketing plan Up to date financial or accounting records Formal training programme Written business strategy Business budget None Have partners /shareholders Written shareholders/partnership/ members agreement Keep financial records Help with financial record Books audited Franchise Subsidiary/ part of another company

ask of not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal not informal All partners=yes all Fin records Fin records All All

yes Regn full Reg 50 67 0.1158 26 0.2998 22 19 10 9 8 16 38 30 86 26 69 44 65 144 431 58 24 667 566 56 14 10 9 43 14 533 341 42 48 326 191 134 87 44 51 47 51 79 29 138 65 66 39 0.1352 0.1279 0.1800 0.0961 0.1093 0.1569 0.1175 0.1366 0.0937 0.1153 0.1074 0.1006 0.0678 -0.0100 0.0939 0.1457 0.0358 0.0162 0.0927 0.0720 0.0903 0.1654 0.0684 0.1575 -0.0041 -0.0004 0.0297 0.0229 0.0023 0.0064 0.1024 0.1205 0.1280 0.1343 0.1384 0.1357 0.1099 0.1034 0.0976 0.1246 0.1189 0.1328 0.0996 0.2127 0.1467 0.2284 0.2778

loading 0.6562 0.5442 0.4199 0.3852 0.3971 0.2107 0.2163 0.4742 0.5118 0.4939

0.3098 0.3442 0.1533 0.1855

0.5480 0.5442 0.6527 0.4496 0.5095 0.4806 -0.0859 -0.1009 0.3069 0.0601 0.1724 0.4354 0.4772 0.4315 0.1853 0.4316 0.1647 0.1964 0.3692 0.2702 0.4267 -0.0449 -0.0040 0.1121 0.0900 0.0212 0.0468 0.7750 0.7688 0.5862 0.6546 0.6778 0.6903 0.6591 0.3707 0.7271 0.6824 0.6469 0.5757

have international affiliations All tTade outside SA All Export and/or import or other (options 1-4) Trade outside SA Offer credit? All Have credit forms/book for customers to credit=y sign when buying on credit Charge interest on credit sales credit=y Charge interest on late payments credit=y Keep a record of debtors credit=y Have a bad debt management process credit=y Pay Income tax All Pay PAYE All Access to information act (comply with) All Employment equity act (comply with) All Return of Earnings / Workman’s All compensation (comply with) LRA (Labour Relations Act) (comply with) All Minimum wage requirements (comply All with) SETA (Sector Education and Training All Authority) (comply with) Registered for VAT All IT / Computer All Accounting / book-keeper All Secretarial All

0.2577

0.2034 0.2204 0.1825 0.1197 0.1893 0.1114 0.1069

Q number P2_4 P2_5 P2_6 P2_7 P2_8 P2_9 P2_10 P2_12 Q2 Q2_19 Q9_1 Q9_2 Q9_3 Q9_4 Q9_5 Q9_6 Q9_7 Q9_8 Q9_9 Q9_10 Q9_11 Q9_12 Q9_13 Q9_14 Q16 Q17_1 Q17_2-10 Q20_1 Q20_2 Q20_3 Q20_4 Q20_5 Q20_6 Q20_7 Q20_8 Q20_9 Q20_10 Q20_11 Q20_12 Q20_13 Q22

Variable definition Human Resources / Personnel / Payroll Public Relations Marketing and sales Customer management Debt management Recruitment Legal services None Any bank (options 1-18) (business use) No bank used for business Savings/Transaction account Current or Cheque account ATM Card Debit Card Credit card – Visa/Master/American Express/Diners Club Fixed Deposit bank account Garage Card/petrol card Call / Investment / money market account Internet Banking Cell phone banking Vehicle finance An overdraft Mortgage Bond None Have a loan for the business Business loan from Bank / financial institution Business loan from other source (options 2-10 combined) Motor vehicle insurance Legal insurance Property insurance Office equipment insurance Medical aid Pension/provident fund Personal injury or accident Travel insurance Key man insurance Professional indemnity Workman’s compensation Liability Insurance No insurance Belong to an informal society

Ask of All All All All All All All All All All if banked if banked if banked if banked if banked if banked if banked if banked if banked if banked if banked if banked if banked if banked all Bank loan loan other sources All All All All All All All All All All All All All All Regression constant

yes Regn full Reg 50 loading 24 0.1486 0.2171 0.5015 39 0.1415 0.1853 0.5942 64 78 27 38 32 546 766 1235 832 132 273 80 53 27 17 13 32 25 16 17 7 29 22 15 9 81 31 62 25 44 30 21 11 4 6 23 14 579 221 0.1131 0.1048 0.1424 0.1066 0.1106 -0.0016 0.0708 0.0160 0.0725 0.0283 0.0492 0.0980 0.0928 0.1450 0.1141 0.1377 0.0796 0.1538 0.1370 0.1432 -0.0099 0.0854 0.1042 0.0599 0.1081 0.1234 0.1080 0.1471 0.1211 0.1410 0.1343 0.1629 0.1723 0.1786 0.1618 0.1140 -0.0015 0.0056 -0.3602 0.2593 0.6033 0.5998 0.2574 0.4997 0.4024 0.4048 -0.0175 0.4353 -0.1008 -0.4353 0.1072 0.1968 0.5393 0.2526 0.2667 0.4811 0.2276

0.3202 0.4607 0.3016 0.2142 0.5803 0.2548 0.3450 0.4541 0.1978 0.4298 0.2898 -0.0291 0.1695 0.2635 0.2776 0.1130 0.6597 0.4720 0.1052 0.5837 0.5360 0.5771 0.1567 0.5590 0.4630 0.4223 0.2667 0.3150 0.2483 0.5774 0.3225 -0.0166 0.0428 -0.2451

0.1797

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Description: The BSM – Business Sophistication Model Jacky Galpin 1 Background