Silicon valley COLLEGE

BASIC CLERICAL WORKS

LEVEL I
Learning Guide #14
DEVELOP UNDERSTANDING OF
ENTREPRENEURSHIP
LG Code: EIS BCW1 M14 LO1-LO5
TTLM Code: EIS BCW1 M14 TTLM 0119V1
LEARNING OUTCOMES:
LO-1:-Describe and explain the principles, concept and
scope of entrepreneurship
LO-2:-Discuss how to become entrepreneur
LO-3:-Discuss how to organize an enterprise
LO-4:-Discuss how to operate an enterprise
LO-5:-Discuss one’s own business plan
June, 2019

INFORMATION SHEET LEARNING GUIDE # 01 APPLY 5S (KAIZEN)

Unit purpose

This unit describes the performance outcomes, skills and knowledge required to deliver all aspects of
customer service at an introductory level. It includes creating a relationship with customers, identifying
their needs, delivering services or products and processing customer feedback.

Learning outcomes

1. Describe and explain the principles, concept and scope of entrepreneurship

2. Discuss how to become entrepreneur
3. Discuss how to organize an enterprise
4. Discuss how to operate an enterprise
5. Discuss one’s own business plan

Reporting of assessment outcomes

Your result will be recorded and reported to your as competent or not yet

Competent

Requirement of successfully complete this unit of competency

You are required to complete

 Your work book

 Work experience
 Practical task
 Work exercise
Occupational Standard: Basic Clerical Works Level I
Unit Title Develop Understanding of Entrepreneurship
Unit Code EIS BCW1 13 0119
Unit Descriptor This unit covers skills, knowledge and attitude required to understand the principles, functions,
strategies and methods of entrepreneurship. It also covers identifying and developing the major
entrepreneurial competences.
Elements Performance Criteria
1. Describe and 1.1 The principles, concept and terminology of entrepreneurship are analyzed and discussed
explain the 1.2 The different / various forms of enterprises in the community are identified and their roles
principles, concept understood
and scope of 1.3 The identified enterprises are categorized and classified
entrepreneurship 1.4 The terms and elements involved in the concept of enterprising, both on a personal level and
in the context of being enterprising in business are identified and interpreted
1.5 Functions of entrepreneurship in business and how the entrepreneurs improved business and
economic environment are explained
2. Discuss how to 2.1 Self-employment as an alternative option for an individual economic independence and
become personal growth is discussed and analyzed
entrepreneur 2.2 Advantages and disadvantages of self-employment are discussed and explained
2.3 Entrepreneurial characteristics and traits are identified and discussed
2.4 Self-potential is assessed to determine if qualified to become future entrepreneur
2.5 Major competences of successful entrepreneurship are identified and explained
3. Discuss how to 3.1 The importance and role of business entrepreneurship in the society are discussed and
organize an correlated to the operations of the economy
enterprise 3.2 Facts about small and medium enterprises are discussed, clarified and understood
3.3 Key success factor in setting up small and medium business are identified and explained
3.4 Business opportunities are identified and assessed
3.5 Business ideas are generated using appropriate tools, techniques and steps
3.6 Procedures for identifying suitable market for business are discussed and understood
3.7 Major factors to consider in selecting a location for a business are identified and discussed
3.8 Basic types of business ownership are identified and explained
3.9 Amount of money needed to start an enterprise estimated and distinction between pre
operations and initial operation payments clarified
3.10 Advantages and disadvantages of using various sources of capital to start an enterprise
are identified
4. Discuss how to 4.1 Disadvantages and advantages of three alternatives means of becoming an entrepreneur
operate an are identified and understood
enterprise 4.2 Process of hiring and managing people is discussed and explained
4.3 The importance and techniques of managing time are discussed and understood
4.4 The techniques and procedures of managing sales are discussed and explained
4.5 Factors to consider in selecting suppliers and the steps to follow when doing business with
them are identified and discussed
4.6 Awareness of how new technologies can affect small and medium business are developed
4.7 Characteristics of appropriate technology for use in small and medium business are identified
and explained
4.8 Different types of cost that occur in a business and how to manage them are discussed and
understood
4.9 Factors and procedures in knowing the cost of the enterprise are discussed and understood
4.10 Importance of financial record keeping and preparing simple financial statement are
explained and understood
4.11 The application of self-management skills and negotiation skills are discussed in
operating a business
4.12 Risk assessment and management of business enterprise are performed
5. Develop one’s own 5.1 Process of preparing/ writing a business plan is discussed and applied
business plan 5.2 Standard structure and format are applied in preparing business plan
5.3 Findings of the business plan are interpreted, assessed and analyzed
5.4 Feasibility of the business idea is made clear and understandable
5.5 Problems that may arise or encounter when starting a business are identified and
understand
5.6 Techniques and procedures in obtaining and sourcing information are discussed and
understood
Variables Range
Classification May include but not limited to:
 Private vs. public
 Profit vs. non-profit
 Formal vs. Non-formal
 Individual vs. Community
 Local vs. Foreign
 Business vs. Social
 Small vs. Large
 Manufacturing vs. Service
 Consumer vs. Industrial
Major factors May include but not limited to:
 Economics (local economy)
 Population
 Competition
Three alternatives May include but not limited to:
 Buying an existing business
 Starting a new business
 Operating a franchising business
Evidence Guide
Critical Aspects of Demonstrates skills and knowledge in:
Competence  explained principles and concept of entrepreneurship
 discussed how to become entrepreneur
 discussed how to organize an enterprise
 discussed how to operate an enterprise
 develop business plan
Underpinning Demonstrate knowledge of:
Knowledge and  Entrepreneurship principles, concepts and terminologies
Attitudes  Entrepreneurial competence
 Entrepreneurial motivation
 Risk assessment and evaluation
 Principles and process of negotiations
 Self-management and self-employment
 Managing sales, people and time
 Factors in setting up small and medium business
 Small and Medium Enterprise
 Business plan development
 Discussion techniques and procedures
Underpinning Skills Demonstrate skills in:
 Planning and Leading
 Presentation skills
 Using technology
 Managing money
 Preparing simple financial statement
 Selecting suppliers
Resource Implications Access is required to real or appropriately simulated situations, including work areas,
materials and equipment, and to information on workplace practices and OHS practices.
Methods of Competence may be assessed through:
Assessment  Interview / Written Test
 Observation / Demonstration with Oral Questioning
Context of Assessment Competence may be assessed in the work place or in a simulated work place setting.

Information Sheet 1 OVERVIEW OF ENTREPRENEURSHIP

1.1. Definition and concept of Entrepreneurship.
Entrepreneurship is an organizational and management approach that enables persons to respond to change and solve
problems in whatever situation (either business or non-business) they may find themselves.

There are five elements of entrepreneurship: observing the environment, identifying opportunities, gathering the necessary
resources, implementing the activity and receiving rewards for engaging in the activity.

Entrepreneurship involves the use of economic resources (money and equipment) as well as individual human resources
(energy, skills, knowledge, time).
Defining an Entrepreneur
An entrepreneur:
1. Observes the environment
3. Gathers the necessary resources
4. Implements the activity and
5. Receives financial or social rewards.
1.2. Reasons for Entrepreneurship in Business.
Principles of Entrepreneurship
It has been said “if a man/woman builds a better mousetrap, the world will beat a path to his/her door”. In a market
economy there is an opportunity for profit, recognition and service for those with the imagination, energy and drive to do
a job better, or provide a better service than others. The essence of the free enterprise system is competition. It is
competition that makes those doing a good job try harder.

Competition provides a better standard of living for consumers by offering choices.

Consumers “shop” to get the best value and quality goods and services. When a purchase is made, the money paid is
“votes” in favor of the product or the service chosen. Those products or stores or services which do not receive sufficient
support (sales) in the way of “dollar-votes” from customers will fail.

Entrepreneurs who want to be successful provide a little extra service or a little better product than their competition.
Many businesses fail each year, but many succeed.

Those that succeed perform services or offer merchandise in such a way to satisfy their customers.

As the population expands, there develops a need for more businesses. Every year several million babies are born and
these “babies are big business”. When these babies grow they become the children, the learners, the workers, the
managers and the customers of tomorrow.

An entrepreneur does not have to be the best manager, or have the biggest store, to compete successfully. If entrepreneurs
see a need for a new store in a growing community and begin operating before others, they can get a head start on their
competition.

Anyone with imagination and a little courage to take a chance on his/her own ability and ambition can generally be
successful in business provided the individual has progressed to the point of being a good business risk. One must have
the basic education, skills, knowledge and maturity to reduce the chances of failure. Any business is a risk.

The chances of failure can be greatly reduced by education, experience and the exercise of good judgment. There is an
element of chance in all businesses. Some entrepreneurs are lucky, but you must not depend on luck alone!
Features of Entrepreneurship
ECONOMIC PRINCIPLES
 OPEN MARKET ECONOMY
 PRIVATE ENTERPRISE
 ADDING VALUE (CREATING WEALTH)
 NEEDED PRODUCTS/SERVICE
 NEW MARKETS

ENTREPRENEURIAL COMPETENCIES

 TAKING INITIATIVES
 BEING HIGHLY COMPETITIVE
 EXPLOITING CHANGE
 DEALING WITH UNCERTAINTIES
 SEEKING OPPORTUNITIES

Entrepreneurial Rewards and Efforts

REWARDS FOR BEING AN ENTREPRENEUR:
 Self-actualization/personal fulfillment
 Feeling of freedom and independence
 Providing jobs and benefits (investors, suppliers, bankers, subcontractors, work force, customers)
 Economic goods (product/service, incomes for workers, profits for shareholders/partners)

PERSONAL EFFORTS TO BE AN ENTREPRENEUR

 Working long hours
 High Energy
 Sacrificing other important aspects of life
 Limited social life
 Less time with family and friends
 Large financial investment
1.3. Function of Entrepreneurship in business.
Entrepreneurial Function in Business
a) Entrepreneurs are the prime movers in the business or social sectors. Without entrepreneurs, there would be no
business or social development. They are the ones who identify gaps in the market and then turn these gaps into
business opportunities.
b) It is the entrepreneur who obtains finances for the business. After identifying a business opportunity, the
entrepreneur mobilizes the necessary resources to implement the opportunity and becomes the financier of the
enterprise. The entrepreneur does not of course have to finance the business from personal savings alone. The
necessary finances and other resources could be borrowed. It is, therefore, a function of the entrepreneur to provide
financing for the business.
c) Another function of the entrepreneur is to manage the business. This is also a function that he/she can delegate to
other people. Even where other people are employed to manage the business, the ultimate responsibility for
management remains with the entrepreneur. Management functions involve a wide range of activities such as
organizing, coordinating, leading, recruiting, rewarding and evaluating employees. The entrepreneur manages
production, marketing, personnel and all other aspects of the business.
d) The entrepreneur also has the function of bearing the uncertainties and risks of the business. Entrepreneurs try
to avoid risk situations whenever possible. Entrepreneurs take only calculated risks; before taking a risk, they know
the costs and the benefits of the risk situation.
e) Through the entrepreneurial function, many jobs are created in the economy. In addition, wealth is made available
to the individual, the community and society through the actions of entrepreneurs. Entrepreneurs encourage
competition, which is critical in sustaining a free market system and promotes economic growth, social progress
and the spread of prosperity among a country’s population. Entrepreneurship is an effective mechanism for
ensuring innovation and creativity as well as achieving economic development at the grassroots level.
1.4. Forms of Enterprises.
 Meaning and Scope of Enterprising
On a personal level, enterprising can be any identified idea that a person can translate into a planned and
satisfactorily implemented activity. In the business sense, enterprising refers to the implementation of a business
venture or undertaking.
Practically all undertakings can be referred to as enterprising, i.e. idea identification, planning, implementation,
successful completion of an activity and receiving the rewards.

You are enterprising if you follow the above process whenever you are involved with issues in your life. By
understanding the enterprising concept, you can appreciate that all people have the potential to be enterprising. Some
people are enterprising when they own a business. Enterprising men and women are able to deal positively with the
challenges and problems they face in their daily lives.

Being enterprising can bring benefits to you and also help you to become a valued member of your family,
community, place of work and society. By adopting an enterprising approach to your activities, you will know what
to do in whatever circumstances you find yourself in. This kind of approach will enable you to appreciate the
challenges of life because you will be able to translate challenges into positive results.

Enterprising women and men exhibit the following characteristics:

E-Energy
Working hard, but in a smart way, is key to being enterprising. Lots of mental and physical energy is needed to
provide solutions to issues and for the successful completion of projects. To sustain this energy, you need to stimulate
your brains and all your senses – sight, hearing, touch, smell and taste – so that they all stay alert in identifying what
needs to be done in variety of situations. You also need to be healthy and physically fit, and this can be achieved
through diet and exercise.

N- Need to achieve
You need to have the motivation to achieve success and accomplish all the activities you engage in. Your positive
attitude and perceptiveness will enable you to achieve acceptable results whenever you do something. This approach
enables you to work harder than ordinary people.

T- Task oriented
To gain satisfying rewards, tasks have to be well executed and completed on time. Efficiency, effectiveness and time
management are important aspects that enable you to complete tasks. Focusing on results helps you to concentrate on
whatever you set out to do.

E- Empathy.
You are able to mentally put yourself in the position of the people you intend to influence. You try to feel what they
are feeling. You are able to put yourself in their shoes. In the case of owning a business enterprise you are able to
imagine how a potential customer would feel.

R- Resourcefulness.
You are able to provide the leadership and guidance needed to manage the enterprise.
Identification, mobilization and effective utilization of both the physical and the nonphysical resources needed in
undertaking a venture are very important in managing the enterprise.

P- Planning.
To see the total picture of the enterprise, it is necessary to establish a written plan.
This will help clarify the situation and permit decisions regarding whether an enterprise should be initiated or not.
Through planning, judgments regarding profits or losses will be made.

R- Risk-taking.
 The decision to go ahead and start the enterprise or undertake the activity must be made. All enterprising men and
women take risks only after they have conducted research, so that they can achieve the desired results and receive the
rewards. You will always have to take this first step, as it marks the difference between enterprising and non-
enterprising men and women. Success begins with the decision to move in the desired direction.

I- Innovation.
The ability to apply new ideas that will enable you to undertake unique activities is another hallmark of enterprising
people. Through individual initiative, imagination, intuition and insight you will be able to devise new ways of doing
things to accommodate whatever new situation you may find yourself in. Gathering information is an important input
for being innovative. Enterprising men and women therefore place great value on information and are always alert
and constantly engaging in research.

S- Skills.
Enterprising men and women have the ability or know-how that enables them to undertake and complete activities.
Most men and women have a certain amount of knowledge, attitudes and practical skills that can be useful when
realizing an enterprise. You should therefore evaluate the talents and level of skills you have and how they can be
harnessed to realize an enterprise. Talents and acquired skills have to be constantly utilized and applied, otherwise
they can also be forgotten and wasted.

I- Independence.
Independence means freedom from dependence on others. Enterprising people are able to make their own decisions
and are self-reliant. They exercise their own will without the control of others.

N- Networking.
Networking is important because through this activity, enterprising people obtain information and learn from
feedback they receive from others. Enterprising people seek the advice of others and through the exchange of
information formulate their own ideas and beliefs.

G- Goal oriented.
Enterprising people are results-oriented experts at setting their own goals. They have personal control over their own
activities. Their goals are usually challenging, but attainable. These goals are a mix of long-term goals and short-term
goals. These goals are specific in the sense that they can be measurable.

Different Forms of Enterprise

People in a community have many interests and different needs and wants. Enterprising men and women are able to
identify these needs and wants and establish specific enterprises to satisfy them. Enterprises can provide satisfying
rewards for those who successfully establish them.

Terms used to classify enterprises include private, public, formal, informal, individual, community, local, foreign, small,
large, business, social, manufacturing, and service, consumer goods or industrial goods. Enterprises that succeed,
irrespective of their nature, come up with valued approaches to providing solutions to problems, and satisfying the desired
needs and wants. The key difference between all types of enterprise lies in the rewards they provide. Business ventures
provide profits as rewards, while non-business ventures provide other types of rewards that could be either physical or
psychological. Entrepreneurs engage in enterprises depending on what kind of rewards they expect from them.

Enterprises in a community have the potential to benefit from each other. Output from one enterprise normally becomes
input for other enterprises, and this helps in money circulation among the enterprises within the community. The more
money circulates in the community, the more prosperous the community becomes. The synergistic nature of all
enterprises in a community creates an environment where there are lots of opportunities to be exploited by enterprising
men and women. It is up to these men and women to identify the opportunities available and exploit them. Almost all
communities have lots of unexploited opportunities that can create more advantages for everyone.
Men and women acquire different skills that lead to different careers. They are applied in trade, services, manufacturing,
food processing, recreation, information and communication, and other forms of enterprises. The existence of many types
of enterprise in your community offers you opportunities to apply the skills you have acquired. All types of skill learnt
have a chance to be applied if opportunities are sought in all types of enterprise. It is normal for men and women to
consider the compatibility of personal values, interests and expectations with the type of enterprise they desire.

The first step is to evaluate the various enterprises in your community and note their potential. The next step is to identify
how your skills match the various possible enterprises. You can, therefore, do what you can, with what you have, where
you are, and still succeed.

Classification of Enterprises
 Private Vs Public
 Profit vs Non-profit
 Formal vs Informal
 Individual vs Community
 Local vs Foreign
 Business vs Social (non- business)
 Small vs Large
 Manufacturing vs Service
 Consumer vs Industrial
1.7. Small and medium enterprises.
Meaning of Small Business
A. Elements constituting the meaning of small business:
• Independent management
• Owner supplied capital
• Mainly local area of operation
• Relatively small size within an industry
B. Definitions of small businesses
• “A business is small if the owner has direct lines of communication with the operating managers and has personal
contact with a large proportion of the work force, including key personnel.”
• “Individually owned and operated business”
• “A business employing not more than fifty people” (this number may differ from one country to another)

Weaknesses and Strengths of Small Enterprises

SMALL ENTERPRISE WEAKNESSES:

Financial limitations:
Balancing “cash in” and “cash out” is a struggle, especially when trying to expand. Instead of receiving the red carpet
treatment by financiers when asking for a loan, the small businessperson is often made to feel like a second-class
citizen. Small enterprises can’t use credit as a selling tool as readily as companies with large financial reserves.
Additionally, many small enterprises have trouble staying afloat while waiting for their products to win acceptance in
the marketplace.

Staffing problems:
Small companies cannot pay top salaries and provide the opportunities and status normally associated with a big
company job. Small enterprise owners must also concentrate on the day-to-day problems of running the business and
generally have little time left to think about objectives.
Higher direct costs:
A small enterprise cannot buy raw materials, machinery or supplies as cheaply as a large company, or obtain a large
producer’s economies of scale. So per unit production costs are usually higher for a small enterprise, but overhead
costs are generally somewhat lower.
 Too many eggs in one basket:
A large diversified company can take a licking in one sector of its business and still remain strong. This is not so for
the small business with only a few product lines. A small company is vulnerable if a new product doesn’t catch on, if
one of its markets is hit by a sharp recession, or if an old product suddenly becomes obsolete.

Lack of credibility:
The public accepts a large company’s products because its name is well known and usually respected. A small
enterprise must struggle to prove itself each time it offers a new product or enters a new market. Its reputation and
past successes in the marketplace seldom carry weight.

SMALL ENTERPRISE STRENGTHS:

Personal touch:
Customers will often pay a premium for personalized attention. In fact, in many industries where product and price differences
are minimal, the human factor emerges as a prime competitive advantage.

Greater motivation:
Key management of a small enterprise normally consists of the owner(s). Consequently, they work harder, longer and with
more personal involvement. Profits and losses have more meaning to them than salaries and bonuses have to the employees of a
larger company.

Greater flexibility:
A small enterprise has the prime competitive advantage of flexibility. A big business cannot close a plant without opposition
from organized labor, or even raise prices without possible intervention from the government, but a small enterprise can react
quickly to competitive changes. A small enterprise also has shorter lines of communication. Its product lines are narrow, its
markets limited and its factories and warehouses close by. It can quickly spot trouble or opportunity and take appropriate action.

Less bureaucracy:
Grasping the big picture is difficult for executives of large companies. This “management myopia” leads to redundant actions
and bureaucratic inefficiencies. In a small business the whole problem can be understood readily, decisions can be made quickly
and the results can be checked easily.

Unremarkable (less conspicuous):

Because it is not quite as noticeable, the small company can try new sales tactics or introduce new products without attracting
undue attention or opposition. Large companies are constantly faced with proxy battles, antitrust actions and government
regulations. They are also inflexible and hard to change or restructure.

Information Sheet 2 Becoming an entrepreneur

2.1 Self-employment and self-management.
Self-employment
Your personal values and interests are things you think are most important. Your choice of job may depend on what
you value and what interest you most.

1. The job you choose may affect where you live. If you choose to be a forest ranger, you will probably have to
live near a national forest. If you choose to work in the movie business, you will probably have to live near a big
city.
2. The amount of money you earn may affect how you live. For example, if your job earns you 10,000 a year, you
will live differently than someone earning 100,000 a year. You need to decide how important money is to you.
3. The job you choose may affect how you live.
• Alemayehu, a nurse’s assistant, often has to work late hours or overnight and cannot always count on a full
night’s sleep. But he likes to help people feel better.
• Fatie works in a plastics factory. She works the night shift and sleeps during the day. But she likes the night
shift because she earns more money, and she likes working with machines and tools.
• Amha, a salesman, often works 70 hours a week, including travel. But he likes to see new places.
 4. The job you choose may affect who your friends are. Many of your coworkers will become you friends. You
may lose touch with friends you have now.
5. The job you choose may affect your family life. For example, Susan, a hotel manager, works 80 hours a week.
She has decided she does not have time for relatives or children.
6. The job you choose may affect your personality. Some jobs put more pressure on you than others. This pressure
may make you nervous or grouchy.

Only you can decide how you want to live. Choose a career that fits what you value most.
After graduation, you may have an opportunity to get employment in a job carrying any of the titles listed below. Identify
two jobs from the following list. For each job title identify a corresponding self-employment opportunity and its title.

Policeperson Helper in bowling alley Sheet metal worker Custodian's helper

Carrier (mail) Army soldier Cement mason Waiter or waitress

Assembly line worker Beautician Painter's helper Cook

Railway car loader Shoe repair person Painter Hospital dietician helper

Auto repair person Receptionist Taxicab driver Practical nurse

Car washer Sales clerk Household worker Baker's helper

Carpenter's helper Nursery school helper Auto or truck mechanic Dishwasher

Carpenter Baby sitter Butcher Food store checker

Small motor repairperson's Nurse's aide Library clerk Gas meter person
helper
Guard & watchperson Cattle raiser Forest ranger
Appliance service person
Street worker Dairy person Window display person
Typist
Forklift operator Golf course handyman/ Motel maid
Telephone operator
Driver's helper Handy woman Cook's helper
Farm laborer
Petrol station attendant Laundry route person Diesel mechanic
Playground assistant
Plumber & pipe fitter Custodian/janitor Barber

Entrepreneurial Self-Management
1. Complete High Priority Tasks First.
Most people do the easy tasks first. What often happens, however, is that difficult tasks don’t get done because too much
time is spent doing the easy tasks. You may run out of time to do the difficult tasks. Most entrepreneurs do the important
task first when their energy level is high. If time is available at the end of the day, the low priority tasks are completed.

2. Use of Time.
Ask yourself, “What is the most important use of my time right now?” Asking this question will help focus on “important
tasks.”

3. Delegate Tasks to Subordinates.

This is an essential task for entrepreneurs. Entrepreneurs must be able to delegate work to staff. Delegating tasks is a good
way to build staff morale and allows the entrepreneur to focus on other essential tasks. As a general rule, if a worker can
do the task almost as well as the entrepreneur, then the task should be delegated to an employee.
4. Group Tasks.
This step will minimize interruptions and economize on the utilization of resources and efforts. For example, instead of
making calls sporadically throughout the day, make out-going calls at specific times each day. Frequent callers can also be
informed of the best time to call you.

5. Maintain a Clean Office.

Try to clear your desk of everything except the work you intend to do immediately. Effective entrepreneurs are organized
and work from clear desks.

6. Be Ready to Say “no!”

If staff can have you do their work, they will do it. Most stress comes from the entrepreneur’s lack of the skill to “just say
no” for fear of upsetting people. People are always asking for of an entrepreneur’s time. Instead of being honest and
saying “no” to the request, the tendency is to end up accepting a responsibility you neither want nor have time to perform.
Saying “no” takes courage and tact.

7. Have Daily Objectives.

Those entrepreneurs who accomplish the most during the day know exactly what they want to accomplish. However,
many people think that goals and objectives should only be prepared on a monthly or yearly basis. Define objectives as
clearly as possible. One factor that marks successful entrepreneurs is their ability to work out what they want to achieve
and have written objectives that they can review constantly. Long- term objectives should impact on daily activities and
be included on a daily “to do” list. Without objectives, entrepreneurs become ineffective.

8. Don’t Try to do too much.

Many entrepreneurs feel that they have not accomplished enough and don’t give themselves enough time to do important
tasks properly.

9. Control Paper Flow.

Deal with each piece of paper just once. Being a paper shuffler wastes time. Keep important papers and throw away the
rest.

10. Plan Effectively.

Some people say they don’t have time to plan. These individuals may be very busy, but they probably are not very
effective. By taking time to plan, you will actually save time. Develop a daily “TO DO” list for doing the essential tasks
that must be completed in the available time.

11. Be Proactive.
Don’t avoid making decisions. Reducing the amount of time you use to make a decision can substantially increase the
amount of time available to you.

1.1. Advantages and disadvantages of Self-employment.

1. Advantages of self-employment
Those who choose self-employment as a career usually do so for five basic reasons: personal satisfaction, independence,
profits, job security and status.

a. Personal satisfaction:
To some people, the chief reward of working for your self is personal satisfaction. Personal satisfaction means doing
what you want with your life. Being self-employed will enable you to spend each work day in a job you enjoy. For
example, if you like photography, you may start your own studio. Each time a customer is pleased with a portrait, you
will receive personal satisfaction. You may receive satisfaction from aiding the community in which you live. Self-
 employed persons supply goods and services and create jobs for others. They also buy goods and services from other
local enterprises, borrow money from local banks, and pay taxes.

b. Independence:
Another advantage of being a self-employed person is independence. Independence is freedom from control of others.
You are able to use your knowledge, skills and abilities as you see fit. When you are self-employed you are driven by
spirit of self-reliance and individual survival.
Compared to those who work for others, self-employed persons have more freedom of action. They are in charge and can
make decisions without first having to get the approval of someone else.

c. Profit and income:

One of the major rewards expected when starting a new business is profit. Profit is the amount of income left after all
expenses have been paid. Profits go to the owner of a business. Being self-employed, you would be able to control your
income. Very often, increased time and effort put into the enterprise results in increased income. This is not often the case
when you work for someone else. How much do you want to earn each year after your business is running smoothly? Do
you want to make 2,000, 5,000, 10,000 or more a year? It’s important to decide on income because different types of
businesses have different income potentials. A fast-food restaurant has one income potential while a small manufacturing
business may have quite another. It’s probably tempting to set your goal at a very high level – say 15,000 a year. Many
businesses have the long-run potential of being successful; however, many businesses don’t become profitable operations
very quickly. One way to establish a personal income goal is to answer the question “How much do I want to be making
(per year) six years from now?”

d. Job security:
Many enterprises are created by persons who are seeking the kind of job security that is not available elsewhere. Job
security is the assurance of continued employment and income. Self-employed persons cannot be laid off, fired, or forced
to retire at a certain age.

e. Status:
Status is a term used to describe a person’s social rank or position. Self-employed persons receive attention and
recognition through customer contact and public exposure. As a result, they may enjoy status above that of many other
types of workers. Closely related to social status is pride in ownership; most people enjoy seeing their names on buildings,
vehicles, stationery and advertisements. To some degree, all people seek status.
Businesses have their status too. There are high-status businesses and low status businesses. For example, garbage
collection is a low-status business. Some people are very interested in the status of their business and others are not
interested at all. It may be an important consideration in selecting the type of business for you. The key is to choose a
business that has a status that you’ll feel comfortable with.

f. Flexibility:
Individuals who become self-employed have options to start enterprises in all categories and sizes depending on their
capabilities. Self-employment also gives the individual the job of being an employer and a leader rather than an employee
and a follower.

2. Disadvantages of self-employment
In addition to knowing the advantages of self-employment, you should also be familiar with the disadvantages: possible
loss of invested capital, uncertain or low income, long hours and routine chores.

a. Possible loss of invested capital:

One risk of being self-employed is the possibility of losing your invested capital. The term invested capital refers to the
money the entrepreneur put into starting the enterprise. As a general rule the riskier the business, the greater the profit
potential. If the enterprise succeeds, profits may be high. If the business fails, invested capital may be lost; the
entrepreneur stands to lose a lifetime of personal and family savings.
It may take years to repay banks, suppliers and individuals who loaned the money to get the business started.

b. Uncertain or low income:

Another disadvantage of owning your business is the possibility of uncertain or low income. Unlike the salaries of
employed workers, profits usually vary from one month to another. This is true even in well-established businesses. When
income is available, there still may not be enough to meet personal and family needs. This is often the case during the first
six to twelve months of operation.

c. Long business hours:

Entrepreneurs do not work just forty hours a week; they do not punch time clocks. Many self-employed persons work
fourteen or more hours a day, six or seven days a week. The owner is often the first to arrive at the business in the
morning and the last to leave at night. Business hours are set at the convenience of customers, not the desire of the owner.

For example, many market shops are open from 8:00 a.m. to 9:00 p.m. Some entrepreneurs feel they cannot leave their
businesses for more than one or two days at a time.

d. Routine chores:
Running your own business may involve routine chores you do not like to do. You also need to be a jack of all trades.
This can sometimes be a challenge if you do not join with others in a partnership or you cannot raise sufficient funds to
allow you to employ other people.

e. Risks:
You stand the best chance of success if you are prepared to take calculated risks. Calculated risks allow you to estimate
the chances of failure or success without taking a gamble. Very low risk ventures have less reward in terms of profits and
may lead to limiting your ideas and their follow-up.

1.2. Entrepreneurial characteristics and traits.

Important Entrepreneurial Traits

1. Hard Working: running a business requires a lot of energy and drive. This involves the ability to work for long hours
when necessary, to work intensely in spurts and to cope with less than a normal amount of sleep.
2. Self-Confident: to succeed, entrepreneurs have to believe in themselves and in their ability to achieve the goals they
have set for themselves. This is often shown by a belief that “if you want something badly enough and are prepared to
work at it, you’ll usually get it”.
3. Builds for the Future: the goal for most successful business people is to build a secure job and income for
themselves and improved livelihood and wealth for their families, which is based on their own abilities. This means
entrepreneurs understand that it may take several years to build up business income to a reasonable standard.
4. Profit-Oriented: interest in generating money is a clear indicator of an entrepreneur’s suitability for being a business
owner. This means recognizing that the business comes first and competing family care roles might need to be
reorganized. Once profits are generated, the entrepreneur can make decisions about how the profits can be used – to
expand the enterprise or for personal or family use.
5. Goal-Oriented: success in business depends upon being able to set realistic goals or targets and to work with
determination to achieve them. This ability to set goals (for things the person thinks are worthwhile) and to work to
achieve them is fundamental to being an entrepreneur.
6. Persistent: all businesses have their problems and disappointments. Being persistent in solving a problem is one of
the keys to being a successful entrepreneur.
7. Copes with Failure: all business ventures inevitably contain disappointments and failures as well as successes.
Coping with failures involves recognizing these failures, learning from them and seeking new opportunities. Without
this characteristic, early failures may end a person’s attempt at self-employment.
8. Responds to Feedback: entrepreneurs are concerned to know how well they are doing and to keep track of their
performance. Obtaining useful feedback and advice from others is another important characteristic of entrepreneurs.
9. Demonstrates Initiative: research shows that successful entrepreneurs take the initiative and put themselves in
positions where they are personally responsible for success or failure.
10. Willing to listen: the successful entrepreneur is not an inward looking person that never uses outside resources. Self-
reliance does not exclude the ability to ask for help when needed from such people as bank officials, accountants and
business advisers. Being able to listen to the advice of others is a key characteristic of an entrepreneur.
11. Sets Own Standards: setting standards of performance and then working to achieve them is another indicator of a
successful entrepreneur. These standards can be income, quality, sales or product turnover. Most entrepreneurs want
to do better each year, to set and achieve higher standards from year to year.
12. Copes with Uncertainty: being an entrepreneur is much more uncertain than employment. This uncertainty is about
sales and turnover, but it often also exists in other areas such as material delivery and prices, and bank support. An
ability to cope with this uncertainty without becoming too stressed is a necessary trait of being an entrepreneur.
13. Committed: starting and running an enterprise demands total commitment by the entrepreneur in terms of time,
money and lifestyle. It has to be a major priority in the entrepreneur’s life. Committed individuals find it easier to gain
the support of others to their business project.
14. Builds on Strengths: successful business people base their work upon the strength(s) they have, such as manual
skills, interpersonal skills, selling skills, organizational skills, writing skills, knowledge of a particular product or
service, knowledge of people in a trade and ability to make and use a network of contacts.
15. Reliable and Has Integrity: the qualities of honesty, fair dealing and reliability in terms of doing what one has
promised to do are essential traits of an entrepreneur.
16. Risk-Taker: being an entrepreneur involves some risks. Entrepreneurs have the ability to take measured or calculated
risks. Such risks involve working out the likely costs and gains both on the business and on private life, the chance of
success and the belief in oneself to make the risk pay off. Entrepreneurs may be considered risk avoiders when they
reduce their risks by having others assume part of the risk. Those who assume the entrepreneur’s risk may be bankers,
suppliers and customers.
1.3. Assessing Entrepreneurial potential
1.4. Competencies of successful entrepreneurs.
Major Competencies Required for Successful Entrepreneurship

Competencies may be defined as:

• a body of knowledge
• a set of skills
• a cluster of traits
DEFINITIONS
Knowledge consists of a set or body of information stored, which may be recalled at an appropriate time.
Skill is the ability to apply knowledge.
Trait is the total of peculiar qualities or characteristics that constitutes personal individuality.
Fig.1. Competencies Needed to Be an Entrepreneur

There are three major competencies for successful entrepreneurship. These may be defined as:
• a body of knowledge
• a set of skills
• a cluster of traits.
A. Knowledge has been defined as a set or body of information stored, which may be recalled at an appropriate time.
Knowledge in the context of business may be manifested by information on, or familiarity with aspects such as:

• A business opportunity • the market

 • Customers • competitors
• Production processes • technical matters
• Business management • sources of assistance
Knowledge of business or entrepreneurship, however, is not enough for success in setting up and operating a business – in
the same way as, for example, reading or learning about flying, driving or swimming will not on its own enable you to fly
a plane, drive a car or swim in a pool.

B. Skill has been defined as the ability to apply knowledge and can be acquired or developed through practice, e.g. flying,
driving or swimming. In the context of business, it is possible to distinguish between skills of a technical and managerial
nature. Some examples are listed below:

Technical Managerial

• Engineering • Marketing (including selling)

• Computing • Time management
• Sewing • Financial management
• Carpentry • Organization
• Mechanics • Planning
• Catering • Leadership
In many societies women and men are directed toward acquiring only some technical and managerial skills, which are
considered appropriate for individuals of their sex. This is often why women and men tend to concentrate on specific
business sectors, even when these are not the most profitable ones. In many societies women have less access to training
and education. Yet, both women and men can acquire knowledge and skills relatively easy if given adequate support.
However, traits take time to develop and are not easily changed or acquired.

C. Traits have been defined as the aggregate of peculiar qualities or characteristics which constitutes personal
individuality. In a cross-cultural study of India, Malawi and Ecuador, 14 personal entrepreneurial characteristics (PECs)
that appear to depict the behavior of successful entrepreneurs were identified. The research was funded by USAID and
undertaken by McBer & Company and Management Systems International. The 14 PECs can be summarized as follows:

A successful entrepreneur:

• Takes initiative • Sees and acts on opportunities

• Is persistent • Personally seeks information
• Is concerned for high quality • Is committed to fulfilling contracts
• Is oriented to efficiency • Plans systematically
• Solves problems in original ways • Demonstrates self-confidence
• Takes calculated risks • Is assertive
• Is persuasive • Uses influential strategies
It is more likely than not that a person who does not have all 3 competencies in his/her business will encounter difficulties
in operating the venture successfully.

What would happen if a person had:

• Knowledge and skills only?

An individual with only knowledge and skills is unlikely to survive for long, even if he/she manages to start at all. For
example, without the traits, he/she might exhibit little persistence when faced with major obstacles; or the person may
neither see nor act on opportunities; or he/she might simply be unwilling to take the calculated risk of venturing into
business in the first place.

• Knowledge and traits only?

A person with only knowledge and personal traits might find nothing of value to which these might be applied, without
technical skills. Or they may find that they are too dependent on outsiders and, therefore, possibly too vulnerable. The
solution might be to find a partner or employ people with the requisite skills.
 • Skills and traits only?
A potential entrepreneur with skills and entrepreneurial traits, but lacking in knowledge, might be able to start a business.
In a competitive environment, however, the lack of knowledge or familiarity with, for example, customers, or the market
(including trends) could lead to failure. Information is essential for any business to succeed.

Information Sheet 3 Organizing an enterprise P

3.1. Importance of Business Entrepreneurship in Society

The Operations of an Economy

Much of the economic activity of a country is based on decisions made in the private sector of the economy. There is a
circular flow of money spent by CONSUMERS and BUSINESS FIRMS in one direction (output market), and a
corresponding flow of goods and services from RESOURCES OWNERS, and BUSINESS FIRMS (input market) in the
opposite direction. This flows show how the INPUT MARKET and the OUTPUT MARKET are joined together to
coordinate and determine how resources are used in a basically private enterprise economy. It also show the position of
government, which is normally the custodian of the regulations and also referee. Wealth is made available to all when
resources are processed into goods and services and successfully sold in the markets.

The Role of Business Entrepreneurship in Society

It is now generally accepted that the private sector is more cost-effective and efficient in performing certain basic
economic functions than the public sector. Entrepreneurs play a key role in business and the private sector. Most of the
wealth in a society or nation is created by business activity.

1. Products and Services

The fundamental economic function of business is to make and distribute the products and services that people want.
Business entrepreneurs fulfil the role both to discover consumer demands and to do whatever is required to satisfy them

2. Employment
Business ventures are the major providers of “real” jobs – i.e. employment for people who need and want to work. The
level of gainful employment is crucial to a nation’s well-being.

3. Income
Through its employment creation, business provides an income base to its stakeholders in terms of salaries, wages, profits
and taxes.

3.1 Wages, Salaries and Profits

The task of business to enable the earning of wages, salaries and profits is of crucial importance in order to pay taxes and
to provide disposable income to finance consumer spending and savings (investment capital).

4. Taxes
Without taxes on the incomes of individuals and businesses, social institutions and services cannot be afforded.

5. Disposable Income
Disposable income refers to income after taxes available for spending on consumer goods, or for savings.

5.1 Consumer Spending

Consumer spending is not only required for basic needs satisfaction, but also to create a demand for the production of
goods and services.

5.2 Personal Savings

Personal savings represent income not allocated to immediate consumption expenditure.

6. Investment in Productive Assets

Business investment funding is generated either through provisions, retained profits borrowings or through sale of equity.
For non-profitable business such sources of funding will become limited. A business needs capital investments to create
productive capacity: innovative technology, modernization, and the expansion of its productive assets.
 7. National Well-being
Most of the capital goods, commercial and social services as well as technological know-how required to satisfy our needs
come from business activity, i.e. through economic development of privately owned resources.

Entrepreneurs Answer to Demand from the Society

• WHAT IS TO BE PRODUCED?
Since two-thirds of the total production of goods and services focus on the consumer sector, consumers comprise the
group who determines what is to be produced.

• FOR WHOM IS IT TO BE PRODUCED?

In the economy, the “For Whom” question is generally defined as whoever has the most money to buy the items which are
made from the factors of production. Generally speaking, the people with the most money are those who own a successful
business (consumers want their goods and services) and/or those who are in occupations in high demand (businesses want
their skills).

• HOW WILL IT BE PRODUCED?

This is determined with the consumer in mind, primarily through the interaction of businesses and consumers. For
example, the Rolls Royce is a luxurious car made with high expenses and lasts a long time. Many consumers however
cannot afford a Rolls Royce. Entrepreneurs note this point and produce less exclusive cars at a lower price in order to
satisfy the needs and wants of those who cannot afford a Rolls Royce.

In addressing these questions, it is important to point out how the market operates in each one. For example, if consumers
do not buy certain items which are produced, this is a signal to business to stop producing them (what is to be produced).
If consumers will not pay the price for an item, even though it is of high quality, producers might have to find ways to use
other technologies for the item in order to make it less expensive (how to produce). Those people who choose to enter
occupations or establish businesses, which produce goods and services that are in big demand, will get more of the output
(for whom).

Characteristics of an Enterprising Society

- Useful goods and services constantly produced/provided
- Wide distribution of needed goods and services throughout the population
- New ideas continuously infused for revitalization and growth of economy
- Continuous discovery of unidentified needs of Society
- Constant solving of problems experienced in society
- Avoids stagnation through giving individuals a chance to be innovative and creative

Entrepreneurship Provides Society with Small Enterprises Which:

- Grow into medium and large enterprises
- Promote potential innovators for new services, new processes, new products – for the good of the society
- Serve as suppliers, customers and subcontractors of larger organizations – a big market in the society
- Provide competition throughout the economy among small, medium and large firms alike, leading to improved
products, services and efficiency in society – for the good of the society
Economic Goals of a Society
- Full employment
- Stable growth
- Freedom of choice
- Equality of opportunities for women and men
- Economic security
- Economic justice
- International economic balance
Contribution of entrepreneurs to Economic Goals
- Increase of the quantity of productive resources
- Improvement in the quality of resources
- Advances in technology
- Greater efficiency
Goals of individuals and society
Setting goals, and then working to achieve them, is a sign of maturity and responsibility in a society, just as it is a sign of
maturity in an individual. What goals have people set for themselves in their economic life? And how well are these goals
being achieved? These are the questions discussed in this handout. One important goal that the people have set for their
economy is

FULL PRODUCTION
In order to achieve full employment. We want to make full use of the productive resources that are available –labor,
capital and natural resources – and use these resources efficiently.

How well are we achieving the goal of full employment and full production? The nation can’t realistically expect to
provide jobs continuously for 100% of the men and women who are able and willing to work. There will always be some
unemployment – roughly 2 to 5% of the labor force. But when millions of people are unnecessarily unemployed, it means
they are not making a productive contribution to the country and they are not earning an income. For this reason, the goal
of full production – which requires both full employment and efficiency – is one of the most important in our economy.

A second major goal is STABLE GROWTH. We want the economy to become bigger and better through the years. We
measure the amount of our national output of goods and services by looking at statistics of Gross National Product.
Economic growth is a steady increase in GNP per person (total GNP divided by the nation’s population). We want GNP to
increase more or less at a steady rate – about 4 or 5% each year (informal sector estimate) – without having business
recessions or rapidly rising prices (inflation), or increases in unemployment. Production, employment and growth of GNP
are all pretty easy to measure. When we come to certain other economic goals, however, we have to talk about them in
more general terms.

FREEDOM OF CHOICE is a goal that practically everyone would include high on the list. But what does it mean in
concrete terms? Economists have pointed out that freedom of choice is important for consumers, for workers, and for
business. Freedom of consumer choice means that consumers will be able to select the goods they want to buy from a
fairly wide range of alternatives, according to individual needs and preferences. We are not satisfied with a system where
the consumer is told: “You can have any size and colour that you want – as long as it’s medium and black!”

Freedom of occupational choice is an important area of economic freedom. Men and women want to be able to choose the
kind of work they will enjoy doing and that will provide adequate wages and personal satisfaction.

Finally, there is much talk about the importance of “free enterprise”. This is an important aspect of freedom of choice. It
gives people the freedom to start their own business and use the factors of production in such a way as to make a profit.
Much of the current economic system is built on the foundation of this particular freedom.

EQUALITY OF OPPORTUNITY for men and women in the society is another goal. It refers to women and men having
equal human and workers’ rights and equal chances as consumers, workers and entrepreneurs. Gender equality is about a
just society, in which responsibilities, opportunities, workload, decision making and income are distributed fairly.
Women’s economic empowerment leads to economic growth and poverty reduction. Promoting gender equality,
therefore, is not only the right thing but also the smart thing to do.

The goal of ECONOMIC SECURITY means that we want the members of our economic society to have enough money
to be able to buy adequate food, clothing, shelter and other necessities. Widespread poverty not only means failure to
achieve the goal of economic security for these people, but it also raises serious questions about whether we are achieving
the goal of

ECONOMIC JUSTICE in society. Not everyone agrees on the meaning of fairness and justice in economic life, but it is a
goal that nearly everyone feels is important to define and work toward.

Finally, there is one economic goal that is not limited to the boundaries of the country, but spreads overseas to other
countries. This is the goal of INTERNATIONAL BALANCE. We want to maintain a strong and balanced relationship in
foreign trade and international payments. Failure to achieve this goal not only causes serious economic problems at home
and abroad, but also increases international tensions that threaten world peace.
3.2. Key Success Factors in Setting up a Small Business
Key success factors in setting up a small business
1. Motivation and determination
2. Idea and market
3. Resources
4. Ability
5. Plan
6. Organization and Management

Key Success Factors in Setting up a Small Business

How do I become an entrepreneur? How can I set up a successful business? These are questions that people often ask.
Unfortunately, however, no foolproof answer or formula has been identified as yet. Notwithstanding this, success –
according to the literature, observations and experience – depends on that peculiar ability to spot opportunities in the
market and act on them by organizing the necessary resources to offer something attractive to customers and take on the
attendant risks. This is the essence of entrepreneurship in a business context. The crucial ingredient in the whole process is
the entrepreneur. He/she takes the initiative and also bears the risk in creating and/or organizing an attractive offer of
value to potential customers. The entrepreneur’s ability to do this successfully depends on 4 factors, namely: Motivation,
Ability, Idea and Resources. The acronym – MAIR – may help you remember these factors more easily. These are
explained in turn

Idea and Market

The important issue to be determined here is the viability of the idea, project, product or service to be offered. In other
words, does the idea, product or service meet a need or want for which there are customers who can afford it and are
willing to use/purchase it in sufficient quantities to make the whole project worthwhile (i.e. return a profit, in a business
context)? How the proposition to be offered is more desirable or better than what is currently available and how will
competitors react?

Motivation and Determination

It is widely acknowledged that, to be successful, the individual or group needs to be highly motivated and determined to
set up the business to make it succeed. This will be reflected, for example, in how persistent they are in overcoming
obstacles that might get in the way, how they go about seeking information and how they act on opportunities. Additional
indicators might be their commitment and attitude to work (quality, efficiency, and long hours), previous attempts to set
up a business and the support of family or partners.

Ability
Another important question is whether the individual or others involved have particular abilities these may be knowledge,
technical or managerial skills.

Resources
Finally, the extent to which the person(s) involved can acquire or organize resources in adequate measure will not only
influence performance but also, in some cases, whether they start at all. Examples here include capital, cash, premises,
materials, equipment and labor. The availability of infrastructure (e.g. utilities like electricity, telephone, roads) and
support services might also be important.

Business plan
In order to turn the above 4 components into reality, a plan would be required. In business, this is normally referred to as a
Business Plan. On the whole a business plan should show four main things, namely:
• Where you currently are with your idea, project or business;
• What you wish to do;
• How you propose to go about it;
• And that the project is worthwhile.
Organization and Management
The business then needs to actually start operating and, once this is done, it would need to be managed. In setting up the
business, or before starting to operate, there may be legal or other statutory requirements to be met. There may be a need
to consult professionals such as lawyers, accountants and/or staff from small business support agencies for advice. The
whole business and the process need to be managed, and how well this is done – in particular, finding and dealing with
customers, management of cash and finances, marketing, handling employees, dealing with suppliers, control systems –
will all affect performance.

Key Success Factors in Setting up a Small Business – Example of an Internet Café

Resources
• Desktop PCs, all networked
• Dial-up, broadband or wireless connection
• Account with an Internet Service Provider (ISP) or satellite provider
• Software to manage transactions and accounts
• Desks and chairs
• Air conditioners or fans
• Staff to run/supervise
[

Ability
• IT or computing knowledge and skills
• Able to install software and do routine maintenance and repair
• Book-keeping and basic organization
• Able to teach/train clients in basic computing and internet browsing
• Familiar with internet search engines/e-mail
Motivation and Determination
• Able to work or operate long hours for 6 or 7 days a week
• Innovative
• Able to use influential strategies
• Problem-solver
• Takes initiative
• Concern for efficiency
Idea and Market
• Viability: number and nature of internet or cyber cafés in the neighborhood or within, say, a 3 kms radius – the fewer the
better
• Speed and prices vis-à-vis other cafés in area – should be competitive
• Number of people living and/or working in the area – the more, the better
• Profile of people living or working in the area: low to middle income best – not so rich as to be able to afford their own
PCs and internet connection, but not so poor as not to be able to afford the service
• Nice ambiance – with soft drinks and snacks for sale; and background music in a well-ventilated room
• Provision of ancillary services for sale, such as fax, printing, photocopying, sale of diskettes, CD-ROMs, etc.

3.3. Generating business Ideas

What is a Business Idea?

1. A business idea is the response of a person or persons, or an organization to solving an identified problem or
to meeting perceived needs in the environment (markets, community, etc.).
2. Finding a good idea is the first step in transforming the entrepreneur’s desire and creativity into a business
opportunity.

Why Generate Business Ideas?

1. You need a great idea to start a new business
2. Business ideas need to respond to market needs
3. Business ideas need to respond to changing consumer wants and needs
4. Business ideas help entrepreneurs to stay ahead of the competition
 5. Business ideas use technology to do things better
6. Business ideas are needed because the life cycles of products are limited
7. Business ideas help to ensure that businesses operate effectively and efficiently

Why should you Generate Business Ideas?

There are many reasons why entrepreneurs or would-be entrepreneurs need to generate business ideas. Here are just a few:

• You need an idea – and a good one at that – for business. As indicated earlier, in looking at the rationale for this
topic, a good idea is essential for a successful business venture – both when starting a business and to stay
competitive afterwards.
• To respond to market needs. Markets are made up essentially of customers who have needs and wants waiting
to be satisfied. A business can become successful if it provides new products or services, or manages to reach a
new group of clients, or finds a new channel to reach customers better. Many businesses starters who copy the
business idea of others, are not successful because they do not respond to a market need.
• Changing fashions and requirements provide opportunities for entrepreneurs to respond to demand with new
ideas, products and services.
• To stay ahead of the competition. Remember, if you do not come up with new ideas, products and services, a
competitor will. The challenge is to be different or better than others.
• To exploit technology – do things better? Technology has become a major competitive tool in today’s markets,
with the rate of change forcing many firms to innovate. There are several companies in the world, operating in
the electronics and home appliances industries, which come up with dozens of new products every month. For
these and many others in today’s global markets, generation of business ideas is crucial.
• Because of product life cycle. All products have a finite life. As the product life cycle chart shows, even new
products eventually become obsolete or outmoded. Thus, there is a need to plan for new products and the growth
of these. The firm’s prosperity and growth depends on its ability to introduce new products and to manage their
growth.
• To spread risk and allow for failure. Linked to the product life cycle concept is the fact that over 80 per cent of
new products fail. It is therefore necessary for firms to try to spread their risk and allow for failures that may
occur from time to time by constantly generating new ideas.

Sources of Business Ideas

 Hobbies/Personal Interests
 Personal Skills and Experience
 Franchises
 Mass Media (newspapers, magazines, TV, Internet)
 Business Exhibitions
 Surveys
 Customer Complaints
 Changes in Society
 Brainstorming
 Being Creative
How Do I Find a Good Business Idea?
A good business idea is essential, or even a prerequisite, for a successful business venture. However, good business ideas
do not usually just occur to an entrepreneur. Rather, they are the result of hard work and effort on the part of the
entrepreneur in generating, identifying and evaluating business ideas that can be developed into a business opportunity.

What is a Business Idea?

A business idea is the response of a person or an organization to solving an identified problem or to meeting perceived
needs in the local environment (markets, community, etc.). Finding a good idea is the first step in transforming the
entrepreneur’s desire and creativity into a business opportunity.

Two things should however be noted:

(a) Although it is a prerequisite, a business idea is only a tool;
(b) An idea by itself, however good, is not sufficient for success.
In other words, notwithstanding its importance, an idea is only a tool that needs to be developed and transformed into a
viable business opportunity. Out of 30 business ideas, there may be only one good business opportunity.

What is Creativity?
Creativity is the ability to design, form, make or do something in a new or different way. The ability to come up with
creative solutions to needs/problems and to market them often marks the difference between success and failure in
business. It also distinguishes high-growth or dynamic businesses from ordinary, average firms. Real, successful
entrepreneurs are creative in identifying a new product, service or business idea and turning it into a business opportunity.
To be creative, you need to keep your mind and eyes open as you work through the sources of business ideas explained
below, and apply the techniques.

Sources of Business Ideas

There are millions of entrepreneurs throughout the world and their testimonies suggest that there are many potential
sources of business ideas. Some of the more useful ones are outlined below.

Hobbies/Interests
A hobby is a favorite leisure-time activity or occupation. Many people, in pursuit of their hobbies or interests, have
founded businesses. If, for example, you enjoy playing with computers, cooking, music, traveling, sport or performing (to
name but a few), you may be able to develop this hobby/interest into a business. To illustrate this, if you enjoy traveling,
performing and/or hospitality, you may consider going into tourism, which is one of the biggest industries in the world.

Personal Skills and Experience

Over half of the ideas for successful businesses come from experiences in the work place. For example, a mechanic with
experience in working for a large garage who eventually sets up his/her own car repair or used car business. Thus, the
background of potential entrepreneurs can play a crucial role in the decision to go into business as well as the type of
venture to be created. Your skills and experience are probably your most important resource, not only in generating ideas
but also in capitalizing on them to develop a good business opportunity.

Franchises
A franchise is an arrangement whereby the manufacturer or sole distributor of a trademark, product or service gives
exclusive rights for local distribution to independent retailers in return for their payment of royalties and their willingness
to conform to standardized operating procedures. Franchising may take several forms, but the ones of interest to potential
entrepreneurs are the types that offer a name, image and method of doing business and operating procedures.

In the 1990s franchising experienced tremendous growth, becoming a much-used method of going into business for the
millions of enterprises that were starting up in the USA and Europe. In the 1990s, there were over 2,000 types of franchise
businesses, accounting for over US$300 billion in annual sales revenue and about a third of all retail sales in the United
States. There are many directories and handbooks as well as associations, including the International Franchise
Association, which can provide further information.

Mass Media
The mass media is a great source of information, ideas and often opportunity. Newspapers, magazines, television, and the
Internet are all examples of mass media. Take a careful look, for example, at the commercial advertisements in a
newspaper or magazine and you may well find businesses for sale. One way to become an entrepreneur is to buy an
existing business.

Articles in the printed press or on the Internet or documentaries on television may report on changes in fashions or
specific consumer needs. For example, you may read or hear that people are now increasingly interested in healthy eating
or maintaining their physical fitness. You may also find advertisements calling for the provision of certain services based
on skills, for example accounting, catering or security. Or you may discover a new business concept, but investors would
be needed.

Exhibitions
Another way to find ideas for a business is to attend exhibitions and trade fairs. These are usually advertised on the radio
or in newspapers. By visiting such events regularly, you will not only discover new products and services, but you will
also meet sales representatives, manufacturers, wholesalers, distributors and franchisers. These are often excellent sources
of business ideas, information and help you in getting your business started. Some of them may also be looking for
someone just like you to be a business partner.

Surveys
The focal point for a new business idea should be the customer. The needs and wants of the customer, which provide the
rationale for a new product or service, can be ascertained through a survey. Such a survey might be conducted informally
or formally by talking to people. Surveys may be conducted using a questionnaire, through interviews or through
observation.

You may start by talking to your family and friends to find out what product or service they think is needed or wanted but
is not available in the market. Or, for example, whether they are dissatisfied with an existing product or service and what
improvements or changes they would like to see. You can then talk to people who are part of the distribution chain that is
manufacturers, wholesalers, distributors, agents and retailers. It would be useful to prepare a set of questions which might
be put on a questionnaire or used in an interview. Given their close contact with customers, these people have a good
sense of what is required and what will sell and what will not sell. Finally, you should talk to as many customers as
possible (both existing and potential customers). The more information you can get from them, the better.

Besides talking to people, you could also get information through observation. For example, in deciding whether to open a
shop on a particular street, you can observe and count the number of people going past on given days and compare these
numbers to other sites. Or, if you are interested in an area frequented by tourists, you might sell products from a craft
business. Or you may have noticed that there is no decent restaurant or hotel on a tourist route or in a given town.

One way of ensuring that you are not negligent in identifying new business ideas is to be alert at all times to customer
needs. One entrepreneur apparently went round at every cocktail party asking if anyone was using a product that did not
adequately fulfil its intended purpose. Another monitored the toys of a relative’s children looking for ideas for a market
niche.

Complaints
Complaints and frustrations on the part of customers have led to many a new product or service. Whenever consumers or
customers complain bitterly about a product or service, or when you hear someone say “I wish there was .....” or “If only
there were a product/service that could ....” you have the potential for a business idea. The idea could be to set up a rival
firm offering a better product or service, or it might be a new product or service which could be sold to the firm in
question and/or to others.

Change
The world is constantly changing. Change can be a threat; however, most entrepreneurs consider change as a challenge
and opportunity to trigger new needs for products and services. An innovative entrepreneur always responds to changes in
a positive manner.

Brainstorming
Brainstorming is a technique for creative problem-solving as well as for generating ideas. The objective is to come up
with as many ideas as possible.

3.4. Identifying and Assessing Business Opportunities

What is a Business Opportunity?

A business opportunity may be defined simply as an attractive investment idea or proposition that provides the possibility
of a monetary return for the person taking the risk. Such opportunities are represented by customer requirements and lead
to the provision of a product or service which creates or adds value for the buyers or end-users.

Distinction between ideas and opportunities

 A good idea is not necessarily a good business opportunity. Consider, for example, that over 80% of all new
products fail.
 So, what turns an idea into a business opportunity?
  To put it simply in economic terms, Income must exceed Costs to earn a Profit.
 The characteristics of a good business opportunity need to be carefully examined.

Identifying Business Opportunities

Seeing, seeking and acting on opportunities is one of the characteristics of successful entrepreneurs. It is also the basis for
starting and maintaining successful ventures. It involves not only generating ideas and recognizing opportunities, but also
screening and evaluating them to determine the most viable, attractive propositions to be pursued.

What is a business opportunity?

A business opportunity may be defined simply as an attractive idea or proposition that provides the possibility of a return
for the investor or the person taking the risk. Such opportunities are determined by customer requirements and lead to the
provision of a product or service which creates or adds value for its buyers or end-users.

However, a good idea is not necessarily a good business opportunity. For example, you may have invented a brilliant
product from a technical point of view and yet the market may not be ready for it. Or the idea may be sound, but the level
of competition, and the resources required may be such that it is not worth pursuing. Sometimes there may even be a
ready market for the idea, but the return on investment may not be acceptable. To underscore the point further, consider
the fact that over 80% of all new products fail. Surely, to the inventors (and their backers) the idea seemed a good one, yet
clearly it could not withstand the test of the market.

What turns an idea into a business opportunity? A simplified answer is when income exceeds costs and generates a profit.
In practice, to be comprehensive, you need to examine the factors listed below.

Characteristics of a good business opportunity

To be a good business opportunity, it must fulfil, or be capable of meeting, the following criteria:

• Real demand: responds to unsatisfied needs or requirements of customers who have the ability to purchase and
who are willing to buy
• Return on investment, provides acceptable returns or rewards for the risk and effort required
• Be competitive: be equal to or better (from the viewpoint of the customer) than other available products or
services
• Meet objectives: meet the goals and aspirations of the person or organization taking the risk
• Availability of resources and skills: the entrepreneur is able to obtain the necessary resources.

Assessing Business Opportunities

Ideas and opportunities need to be screened and assessed for viability once they have been identified. This is not an easy
task, and yet at the same time, the assessment of business opportunities is extremely important. This assessment can make
the difference between success and failure, between making a fortune and losing everything. While the assessment
exercise does not guarantee success, it certainly helps in minimizing the risks and reduces the odds for failure.

Identifying and assessing business opportunities involves, in essence, determining risks and rewards/returns reflecting the
following factors discussed below.

Industry and market

The key question to be answered is whether there is a market for the idea. A market in this context consists of customers –
potential or actual – who have needs and wants, and who have the ability to purchase your intended product or service.
There is also a need to consider whether what the customer wants can be provided at the right price, in the right place, and
in a timely manner.

Another important consideration is the size of the market and the growth rate of the market. The ideal situation is a market
that is large and growing, where getting even a small market share can represent a significant and increasing volume of
sales.

For this assessment exercise, the would-be entrepreneur needs to gather information. If some potential entrepreneurs are
tempted to think that it involves too much hard work, they might take some comfort from the saying that the data
available about markets (size, characteristics, competitors etc.) is often inversely related to the real potential of an
opportunity. In other words, if market data is readily available and if the data clearly shows significant potential, then it is
likely that a large number of competitors will enter the market and the opportunity will not be as good. There are several
sources of published information (also called secondary information), including libraries, chambers of commerce,
investment promotion centers, government ministries, universities, foreign embassies, the Internet, newspapers, and so on.

In addition to the above, there is often the need to collect information at the source (also called primary research) by
interviewing key people, such as customers and suppliers. In that case, you will need to conduct survey research.

Length of the ‘window of opportunity'

Opportunities are said to have a ‘window of opportunity.’ That is, they do exist, but they do not remain open forever.
Markets grow at different rates over time, and as a market gets bigger and more well-established, conditions for success
are not as favorable. Timing is therefore important. The issue then is to determine the length of time the window will be
open, and whether the opportunity can be created or seized before the window closes.

Personal goals and competencies of the entrepreneur

An important question for anyone venturing into business is whether they want to undertake that particular venture.
Personal motivation is an essential attribute of a successful entrepreneur. Unless a person really wants to do that kind of
business, he or she should not venture into it.

A related question is whether the potential entrepreneur has the necessary competencies (including the knowledge, skills
and abilities) for the requirements of the business and, if not, whether other people could be brought in. Many small
business owners/managers have entered into business based on the strengths of their own skills and ability.

When the above aspects are combined, the issue then becomes one of whether there is a good fit between the requirements
of the business and what the entrepreneur wants or desires. This is important, not only for success, but also for the
entrepreneur’s happiness. As the saying goes, “Success is getting what you want; happiness is wanting what you get.”

Management team
In many ventures, particularly those involving a large amount of capital, high risk, sophisticated markets and high
competition, the management team is usually the most important dimension in determining the success of a business. The
experience and skills that the team possess in relation to the same or a similar industry often determine success or failure
of a new business. This explains why venture capitalists, or those people who provide finance for businesses, put so much
emphasis on the management factor. Investors often say that they would rather have good management with an average
idea/product/service than a brilliant idea/product/service with bad management.

Competition
To be attractive, an opportunity must have a unique competitive advantage. For example, a business may have a
competitive advantage by lowering costs in terms of production and marketing. Or better, a business may offer better
quality. In addition, the availability of entry barriers – which could take the form of high amounts of capital required,
protection such as patents or regulatory requirements, contractual advantage such as exclusive rights to a market or with a
supplier – can make the crucial difference between a ‘go’ and a ‘no go’ investment decision. If a business cannot keep
most would-be competitors out of its market, or if it faces existing entry barriers, then the opportunity may not be very
attractive.

Capital, technology and other resource requirements

The availability and access to capital, technology and other resources such as skills determine the extent to which certain
opportunities can be pursued. As a general rule, the more difficult the resource requirements are to obtain, the more
attractive the proposition, provided of course that there is a market for the idea/product/ service. To give an example,
while marketing a breakthrough product based on a patented technology is no guarantee of success, it certainly creates a
formidable competitive advantage.

Business environment
The environment within which the business will operate has a great influence on the attractiveness of any opportunity. By
business environment, we are referring not only to the physical environment, which is important and increasingly so, but
also the political, economic, geographical, legal and regulatory contexts. Political instability, for example, renders
business opportunities unattractive in many countries, especially for those ventures requiring high investment with a long
payback period. Similarly, inflation and exchange rate fluctuations, or a weak judiciary system, are not a good
environment to start a business, even if the potential returns are high. The lack of infrastructure and services (such as
roads, electricity, water supply, telecommunications, transportation, and even schools and hospitals) also affect the
attractiveness of an opportunity in a given environment.

Business Plan
The process of examining the factors discussed above is often the initial step in developing a business plan. Investors and
lenders may require these issues to be considered and set out in the form of a business plan.

Identifying and Assessing Business Opportunities

 Not an easy task. Out of approximately 30 business ideas, there may only be one good business opportunity
 A good business opportunity should take into account:
 Industry and market, real demand for a product or service
 Length of the ‘window of opportunity’
 Personal goals and competencies of the entrepreneur
 Management team (human resources)
 Competition
 Capital, technology and other resource requirements
 Business environment (political, economic, legal, government regulations etc.)

3.5 Source of finance to start an Enterprise

Setting up a business requires a certain amount of money that has to be spent before the business activities can start to
generate income though sales. Often potential entrepreneurs underestimate the amount needed because they only take into
account the expenditures for investment items such as machines and equipment’s, cars, and so on. They are not aware that
during the first weeks or months of operations (trading, manufacturing or providing services) the sales revenues do not
cover the expenditures for running the business. This can lead to a problem of liquidity whereby the entrepreneur cannot
pay salaries or suppliers.

• The amount needed as start-up capital is generally much higher than the money the future businesswoman or
businessman has at her/his disposal. As the difference has to be found from other resources, it is important to know
exactly how much money is needed.

Estimating the Start-Up Capital

If someone wants to start a business he/she must be aware that a certain amount of money is needed during the start-up
process of a business for payments before the business begins to earn its own income. This money is called start-up
capital. It serves two purposes.

• Pre-operation payments or investment capital: This means money that a person starting a business will have to pay
before his business starts operating. The money needed for these payments is invested in the business as long as the
business is operating.

Buying land, constructing a workshop, purchasing machinery, tools, equipment office furniture, etc. are all pre-operation
payments, as are legal fees, connections for water, electricity and telephone, publicity and advertisement before opening,
and so on.

Business starters are generally aware that they need money for machines, tools or equipment for a shop. However, in
particular young people, very often do not realize that a number of other payments have to be made before they can really
start their business. For example, the cost for installation of machines and the training of workers to use them can
constitute quite a high percentage of the total cost of the machines. Fees for licenses and insurance are also part of
investment capital.
• Initial operation payments or working capital: Initial operation payments will occur when a new business starts to
operate, to cover immediate expenses until revenues from sales flow back into the business. This time span depends on the
nature of the business. In general, in trading activities this period can be less than one month while in manufacturing
activities the time span between the starting date of the production (processing time of the product, the time it remains in
the distribution system, e.g. store of finished goods in the factory, delivery to wholesalers or retailers or to the customer)
and receipt of money in the bank account or cash box can be several months.

This money is also invested permanently in the business and is working capital. When the business expands the working
capital needs to be increase. The need for working capital is also often underestimated. Business starters think they will be
paid immediately. This is often the case in trading activities; however, the shop owner has to have a stock of goods
because she/he cannot replace every article sold immediately. Sometimes customers who place bigger orders ask for credit
and payments are not always made on time. In manufacturing activities, working capital has to cover a longer period that
can last several months. If the working capital is underestimated, an entrepreneur may have a flourishing business, but
may run out of money to pay salaries, buy additional merchandise for sale, or is not able to make bank repayments. It is
recommended that a certain percentage is included in the investment capital for unforeseen items. Working capital should
also include additional funds for unforeseen expenses.

The distinction between these two categories of payments depends on the moment when the payments are made: either
before the business starts to operate (investment capital) or after it has started (working capital). The start-up capital for a
new business is the sum of the expenditures for the investment items and the working capital. The future entrepreneur
needs to have this amount of money by: using his/her own savings, finding partners and negotiating loans with banks. As
a general rule, 30% of the start-up capital should be from the entrepreneur’s own resources.

Pre-operation Payments for Investment Items

Investment item Specification Amount

 Land  (technical specifications)

 Building  Vehicles
 Registered capital  Office furniture
 Consultancy fees  _ Office equipment
 Power connection kVA  Licences/permits
 Water connection Pipe diameter  Staff training
 Phone connection lines  Owner’s salary
 Machinery/Equipment  Advertisement
 (technical specifications)  Other
 Installation of machines  Total Investment

Sources of Business Financing

Many prospective entrepreneurs have promising business ideas and plans. However, the capital necessary to initiate their
plans may not be readily available. As a result, many prospective small enterprises never become operational. The small
business owner will have to invest a certain amount of personal money to start a business.

However, with sound preparation and planning, financing can be obtained from other sources. The two primary sources of
financing to establish a business may be (a) the owner’s equity or (b) borrowing from lending institutions.

1. Equity financing
The main source of equity financing for most entrepreneurs is their personal savings. Financial experts say that one-half of
the money needed to start a small business should come from the owner. This means future owners must work and save to
have enough money to start a business. Another popular source of equity financing is money from other sources such as
family, friends, venture capitalists, or another business that is generating surpluses.

However, there are a few points to consider. For example, will such investors want to get involved with operating the
business? What will happen if the business doesn’t succeed? Will it ruin your relationship, especially with family and
friends?
Equity financing can also be obtained by selling part of the business to one or more partners. With partners putting in
money, it is usually easier to raise the total amount needed. However, partners must be able to get along and sometimes
this is not easy.

Since many people starting their own business want to make their own decisions, the partnership alternative may not be a
good idea.

2. Borrow from lending institutions

When equity sources are not enough, the entrepreneur has the option of borrowing from other sources. Lenders will
usually lend money for starting a business to people they know and trust. Lenders are careful not to lend money if the risk
is too great. Lenders do not want to lose money if the business fails. Most lenders will, therefore, review the business plan
very carefully. This plan should describe how the business will be operated, how much money will be needed and how it
will be used, and at what point the business will be profitable.

Most people think of banks when borrowing money. However, it is not always easy for small enterprises to borrow from
banks. Banks only lend money when the risk of losing it is very low. Frequently, they will only lend to customers whom
they have known for a long time. If someone is thinking of borrowing money at some time in the future, it might be a
good idea to develop a good personal relationship with a local banker as soon as possible.

3. Considerations in applying for a business loan

Different lending institutions have different procedures which have to be followed by the loan applicant. While lending
institutions want to help potential borrowers, these institutions have to be assured that repayment of the loan will take
place as agreed by the borrower. It is necessary to understand the following factors that are taken into consideration when
a banker is appraising a loan application.

• Type of loan: short-term (up to one year) or long-term (longer than one year).

• Purpose of the loan: it is essential to determine that the applicant will not invest the money in a business venture which
is illegal, not favored by government policy, or is viewed unfavorably by the local community.

• Credit worthiness and integrity of the borrower. Can the borrower be trusted?

• Capability: the business profile of the applicant becomes an indicator of the entrepreneur’s capability to operate the
project with professional expertise and effectiveness. Capability helps the lender to understand whether the borrower will
be able to utilize the loan for the intended purpose.

• Repayment period: this is a very important requirement for both the borrower and the lender. The lender needs to know
whether the offer of the borrower to repay is realistic. The lender can ascertain this through statistical and financial
projections and advise the applicant regarding a realistic repayment period as well as other details such as the amount of
monthly installments.

• Security: security or collateral for the loan must be acceptable to the lender. Even if all other conditions are fulfilled, the
lender may not grant the loan if security conditions and terms required by the bank are not satisfied. This is especially true
when applying for a business loan for the first time.

• Guarantors: some lenders call for security both in the form of property and tangible assets and guarantees from friends.

• Business plan: this is the major instrument used by any lending institution to decide whether a loan applicant deserves a
loan. A business plan discloses whether the intended business is viable or not. A loan applicant may have his own expert
prepare a business plan to prove that the loan he is applying for deserves due consideration by the lending organization.
The lender always appraises the business plan presented by the applicant and comes to his own conclusions, or prepares
his own feasibility study to assess and appraise the viability of the proposed business. A very significant aspect of the
business plan is the cost involved and the cash flow. Cash flow, as well as financial and statistical projections, indicates
whether the project can generate more money than the costs incurred. These results will indicate to the lender whether the
loan is safe and the borrower can repay according to the agreed terms.
• Current customers of a lending institution have an easier position when applying for a business loan if the loan is to be
used as working capital. The bank will study the customer’s past financial records and these financial records will help the
banker to decide what action to take. If the customer intends to start a new business, then the procedures will almost be
similar to that of a new applicant. By keeping written financial records, the entrepreneurs will have written proof of the
past history of the business.

There are several sources of money available to entrepreneurs. Frequently, the key decision is to determine which source
of money is most appropriate for their current needs. Selection of the right source of financing for their needs can have a
pronounced effect on the future of their business. Receiving a short-term bank loan when a longer-term loan is required
can soon create a crisis. Selling a part of the business to raise capital that could have been borrowed may be extremely
costly. Over-extended credit to customers can be costly and restrict operations. There are many opportunities for mistakes
in the choice of capital source. However, the right choice of financing the business can provide the capital needed while
freeing entrepreneurs from unnecessary costs, risks, or the possibility of losing control of their own business.

Sources of Business Financing Equity Financing

• Personal savings
• Having one or more partners
Borrowing from Lending Institutions
Considerations in applying for a business loan
• Type of loan
• Purpose of loan
• Credit worthiness and integrity
• Capability
• Repayment period
• Security
• Guarantors
• Flexibility of project
• Customer status with banks

3.6: Selecting a Suitable Market

•A businesses more likely to succeed fit is based on a product or service that enough customers will buy to
generate a profit. For a business to be successful and profitable there must be an adequate market for its
products or services.

•Many small business failures can be traced to this problem of determining a suitable product and market.
Then thus is Mo the prospective entrepreneur can often cause him or her to overlook this most basic business
concept: “The basic purpose of a business is to satisfy customer needs and wants”. Before starting a business,
it is essential to determine whether a market exists for a specific product or service.

•The purpose of this to pica is to discuss the elements of a market and identify characteristics that should be
known about the customers and the competitors with in the market .Market research will give the answer to
what market share potential entrepreneurs can expect for the products or
servicestheywanttosell.Thisisparticularlyimportantwhentheyplanto start a business because all decisions
concerning the amount of space neededforthebusiness,equipment,materialsorfinishedgoodstobuy,the staff to
hire all depend on a realistic estimate of the potential market the business in tends to serve.

Market Information
1) What is a suitable market?

Themarketforabusinessisallthepeoplewithinaspecificgeographicalarea
whoneedaspecificproductorserviceandarewillingandabletobuyit.Every business sells some type of product or
service to people. Potential customers can be described as:
1. People who need or want the product or service.
2. People who are able to buy the product or service.
3. People who are willing to buy the product or service.

Competition must be considered. If competitors are serving the same market, it must be decided if the
market Is large enough to support another business. It should also be determined how the product or service
is unique and different from that of the competitors.

2) What should entrepreneurs know about potential customers?

a. Know the customers:

The market can be segmented either by dividing it into meaningful buyer groups or dividing it according
to characteristics such as age, sex, marital and family status, employment, income and trends regarding any
of these characteristics.
b. Know what different customer groups wants:
By segmenting the marketing into groups, it is easier for entrepreneurs to determine what products or
services each group wants or needs.

c. Know where the customer buys:

Entrepreneurs need to find out where the customers in their market are presently buying, and determine
what factors will cause them to switch and buy from their new businesses.

d. Know when the customer buys:

By knowing when customers buy (daily, weekly, monthly, yearly, seasonally), entrepreneurs will be able to
determine such things as possible hours of operation, when to advertise and quantity of merchandise to have
on hand at specific times of the year. Know how the customer buys: Knowing how the customer pays
for products and services can help the entrepreneur to determine a credit policy as well as a pricing policy
for the business.

3.7. Selecting a Business Location

Locating the Business
Selecting the business location is one of several factors which is vitally important to the success or failure of a small
business. In many instances, the small business owner looks no further than the nearest vacancy sign for locating the
business. To increase the chances of success, it is important that considerable thought and research be given to selecting a
location. It should be emphasized that although a good location may allow a mediocre business to survive, a bad location
may spell failure for even the best planned business.
Analysis of the location should be a continuous process throughout the life of the business. Such factors as changing
population, changes in customer buying habits, new methods of transportation and the direction of community growth can
adversely affect the suitability of the business location. Two basic aspects of selecting a location for a business are:

(1) Deciding on a particular community, and

(2) Selecting a particular site within that community.

Importance of Business Location

Location is more important for some types of businesses than for others. The right location is very important for retail
stores and service businesses. Clothing stores, dry cleaning establishments and service stations all depend on a great deal
of customer traffic to survive. These types of businesses must locate near their customers to succeed.

For other types of retail and service businesses and most wholesale businesses, location is not as important in attracting
customers. Retail stores that sell high-cost items such as furniture and appliances draw customers to them. Services such
as accounting and tax firms and wholesale businesses can be located “off the compressed path” and still have high sales.
Customers will spend time searching for the product or service offered by these businesses.
Manufacturing, construction and some of the other services are not interested in attracting customers on the basis of the
firm’s location. These types of firms find customers through either personal selling or advertising. The location of these
businesses may be selected on the basis of costs, environmental impact, or supply of raw materials.

Economics, population and competition are important factors to consider when selecting a business location. These factors
will also help in selecting a promising city or town in which to locate the business.

General Factors in Selecting a Business Location

1. ECONOMICS
A major concern in choosing a community in which to initiate a small business is the economic base of the community.
Why do people live in the area? What is their standard of living? Why are other businesses located in the area? A study
should be made of the industries in the area. Do 80 per cent of the people work in one industry or very few businesses, or
does the community contain a variety of businesses? Is the industry healthy in the area? Is the business activity in the
community seasonal? Are businesses moving in or moving out of the community? You will need to study the effect the
responses to these questions will have on your business.

How much people in an area earn determines the demand for goods and services.

Entrepreneurs should therefore gather information about income in the area they have selected. Specific questions include:
What is the average family income? What are the income levels (low, medium, high) in the area? What are the
employment/unemployment trends? Other important economic factors might include good highways and access to
railroads.

2. POPULATION
`Entrepreneurs should identify the groups of people who will be their customers. For example, if you are interested in
opening a music store, it would be important to know where the greatest population of teenagers/youths and young adults
is located because they buy the most music CDs. Other population factors include: How stable is the area? Do people
move in and out regularly? Is the population growing or declining? If the area is rapidly growing, there will probably be a
large number of young families. All these factors need to be considered when locating a business.

3. COMPETITION
You must study your competitors by gathering information on their strengths and weaknesses. You should know how
many competitors you have and where they are located. You should also find out how many businesses similar to yours
have opened or closed in the past two years. Indirect competition that provides similar kinds of goods and services should
also be studied.

There are three favorable conditions for opening a new firm.

 First, no competitors are located in the area.
 Second, competitors’ businesses are poorly managed.
 Third, customer demand for your product is growing.
Basic site factors to be reviewed for every type of business include: lease-purchase terms, competition, parking and costs
of operating at the location. In addition to these basic concerns, some specific questions also need to be answered that
depend on whether you plan to open a retail establishment, a manufacturing firm, a wholesale business or a service
business.

Location by Types of Businesses

RETAIL FIRMS
Parking facilities and access to major roads have become a prime problem for many retailers. Retailers located in
shopping malls have less parking problems. Retailers need to consider the types of businesses that surround a site. For
example, studies have shown that clothing stores should not be located next to service stations.

The number of persons walking by a business location is also important to a retailer. For example, the retailer should ask
“are the pedestrians who pass this site on their way to public transportation or to the local theatre?” Those going to the
theatre are not likely to stop and make purchases.
WHOLESALE FIRMS
Wholesale firms buy products from manufacturers in large quantities and then sell their products to retailers in smaller
quantities. Two major factors should be considered in selecting a wholesale site. One major factor is a good transportation
service, including rail and road. Another major factor is proper facilities which include buildings, fixtures and public
utilities. Without these facilities, a wholesaler may not be able to maintain inventories large enough to handle customer
needs. Most cities have zoning laws that restrict the location of wholesale firms. These laws need to be known. Wholesale
firms should also be located as close as possible to their customers.

SERVICE FIRMS
Being close to a large shopping Centre is usually considered ideal for service businesses. However, it is not necessary for
a TV repair shop, a dry cleaner’s, a dentist’s, a shoe repair shop or a child-care facility to be located in high-rent locations.
Customers are willing to seek out and go further away to obtain a good service. These establishments can be located
somewhat “out of the way”. But even among service firms there are important differences as to which site is better. For
example, a dry cleaner’s located near a grocery store and drugstore is usually a good choice. The same location may not
be suitable for a dentist, who does not require the traffic movement and convenient drop-off point that makes a dry
cleaner’s successful.

MANUFACTURING FIRMS
Sites that are suitable for manufacturing firms differ from sites that are good for retailers, wholesalers and services firms.
When considering opening a manufacturing firm, check transportation facilities and distance from raw materials.
Nearness to customers, proper facilities and zoning laws are other important factors. As you study the general and specific
factors of a business location, keep in mind future as well as present location needs.

Importance of Business Location

1. Why is location important to business success?
2. Two basic aspects of selecting a location:
a. deciding on a particular community b. deciding on a particular site within that community
3. Why is location more important for some businesses than for other businesses?
4. Factors to consider when selecting a location:
a. economics (local economy) b. population c. competition
5. Location factors based on type of business
a. retail firms c. service firms
b. wholesale firms d. manufacturing firms
Procedures for Selecting a Specific Location
The following procedures are recommended when selecting a business location:

1. Make a list of factors you feel are “necessary” for considering a business location.

Also include a list of factors that would be “desirable” but are not necessary.

2. Find all the possible locations in a community that meet your list of factors.

3. Visit the locations to get an idea of their general appearance and eliminate those locations that are not suitable for your
needs. Reduce the number to 2 or 3 locations that appear suitable.

4. Visit the locations again and use a checklist to compare locations against the factors you have identified. Consider the
factors that are critical to the success of your business.

5. Return to the locations at various times of the day and evening to get a better understanding of the suitability of each
location.

6. Conduct a traffic count at each location. Count the number of cars and pedestrians that pass each location at various
times to calculate the number of potential customers.

7. Ask the opinion of experienced consultants and business people in the area to help you decide on one location.
8. Analyze all the facts and opinions you have gathered before making a final decision regarding the location of your
business.

Specific Location Factors

Traffic (potential customers) and accessibility are more important to some businesses than others. Think about how you
will sell your products and services to your customers; what kind of business do they expect you to run? What is really
important to them? You will need to balance the advantages and disadvantages of the specific sites for your business.

Suppose you have identified the best neighbor hoods or shopping areas for your business. Now, you are ready to begin
looking at specific locations within these areas. Your first concern will be for traffic patterns and accessibility of
customers to your business. You must have a good customer base in the areas you’ve targeted; the task will then be to find
the best location within each area.

In central and suburban business districts, small retail stores depend upon traffic generated by large stores. Large stores
and small stores alike must attract business from the existing flow of traffic. The same is true for restaurants and other
businesses that depend on buyers who decide impulsively on the basis of convenience. If you operate one of these kinds of
businesses, the more money you spend on getting a good location, the less money you will have to spend on advertising.
Study the flow Know About Business. of traffic, especially around shopping centers and large stores. Note one-way
streets, street widths and parking lots. Look for the best traffic situation for your needs.

When you have narrowed down your site alternatives to a few, determine how important traffic will be to your business
success. Depending upon how important you rank traffic, consider the following factors. Public transportation may be
important for both customers and employees. Pay attention to locations in or near public transportation terminals.

Parking availability will be important to drive-by traffic. Cost and access to a parking lot are the most important
considerations. Remember, it should be easy for the customer to stop and buy. Locating your business on a busy street
will not help if your customers can’t park their car. Distance from residential areas or other business areas will be
important for some types of businesses. Traffic congestion can cause some people to actually avoid an intersection or
shopping centre. If there is too much traffic around the business, it will hurt sales.

The side of the street the business is located on may be important. Research done for petrol service station locations
applies to many other businesses that would sell to the customer driving by. People want to buy certain things on their
way to or from their homes. For example, newspapers and petrol are bought on the way to work, while food is purchased
and dry cleaning collected on the way home. If you sell better during the afternoon, cater to the afternoon rush-hour on the
side of the street that carries the outbound traffic going home.

The width of the street may be important. Street width indicates how well-travelled the road is or will be. Generally, the
wider the road, the better the location. A main thoroughfare is a better location than a “feeder” street because more
potential customers per day travel on it. A wider road is easier for customers, too. Remember to think like a prospective
customer in a hurry: Will there be traffic jams because of double-parked cars?

The part of the block in which you locate your business may be important. A corner is more visible than a mid-block
location because it can more easily be noticed from the crossroads. However, rental rates are usually higher for corner
locations.

Neighbors can be your greatest help if you choose your location well. Neighboring stores may do a lot of advertising to
increase sales. Some business owners may pool a portion of their promotion money to fund merchant’s associations that
promote a distinct shopping district.

Selecting a Specific Location

- List “necessary” and “desirable” location factors
- Identify potential sites that match location factors
- Visit sites and select 2 or 3 best sites
 - Compare locations to “necessary” and “desirable” location factors
- Visit sites at various times of day and evening and conduct traffic count
- Ask experienced business people and consultants to help
- Analyse all facts and opinions
- Make final decision on business location

3.8. Legal Forms of Business Ownership

RATIONALE
Questions Concerning Business Ownership

1. How many owners are there in a sole proprietorship, a partnership, a limited company and a cooperative?
A. The sole proprietorship has only one owner.
B. A partnership has two or more co-owners.
C. A limited company is an association of stockholders or owners chartered by the government. It has the
authority to transact business in same manner as one person.
D. A cooperative is a group of people operating a business through a jointly owned and democratically run
organization.
2. What are the legal costs and procedures for starting all four types of business ownership?
A. Sole proprietorship. The requirements are to determine (a) if a licence is required for the particular business, (b) if a
tax or licence fee must be paid. The sole proprietorship is the easiest business to start and the initialcosts are usually lower
than those for other legal forms.

B. Partnership. In addition to any necessary licences, it is recommended that a partnership agreement, called the Articles
of Partnership, be prepared in writing by a competent attorney. The Articles of Partnership should contain at least the
following provisions:
• division of profit or loss
• compensation to each partner
• distribution of assets in the event of dissolution
• duration of the partnership
• duties of each partner
C. Limited company. It is more difficult to form a limited company than the other two types of business given above,
and it is usually more costly. This kind of business is usually in the best position to obtain additional capital.

In addition to pledging corporate assets as collateral, a limited company may sell additional stock in the company to raise
funds.

D. Cooperative. The cost of registering a cooperative is usually lower than the cost or registering a limited company. A
written cooperative agreement is required and must be filed with the appropriate government authorities.

In some countries the cost of registering a business is high and the procedure is long. The costs and procedures differ from
country to country

3. Why consult a lawyer when starting a new business?

All forms of legal ownership should be discussed with a competent attorney before any decision regarding the form to
select is made. The attorney will need to know as much about the business and its owner(s) as possible, including the
personal financial position(s) of the owner(s), so that sound recommendation can be made.

4. What liability is involved in the four types of business ownership?

A. Sole proprietorship. A sole proprietor is personally liable for all the debts of the business. If necessary, this liability
includes all of the proprietor’s personal property and assets.
B. Partnership. Each member of a general partnership is fully liable for all the debts owed by the business regardless of
their personal investment in the business, and this liability includes all personal property and assets. Each partner is also
responsible and liable for the acts of the other partners with regard to business obligations.

C. Limited company. The stockholders, or owners, of a corporation are liable only for the amount corresponding to their
investment. While stockholders may lose the money they have invested in the business, they cannot be forced to pay off
company debts with additional money from their personal funds.

D. Cooperative. Each member of the cooperative is fully liable for the debts of the cooperative.

5. How does the legal ownership affect the continuity of the business?

A. Sole proprietorship. The business is terminated upon the death or incapacity of the owner.

B. Partnership. The partnership is terminated upon the death, incapacity or withdrawal of any one of the partners, unless
the remaining business partners buy the deceased, incapacitated or withdrawn partner’s interest.

C. Limited company. This kind of company has a separate and continuous life of its own, and does not dissolve if a
stockholder dies or the stock is sold to another person.

D. Cooperative. The cooperative has a life of its own. 1 International Finance Corporation, Doing Business in 2004
7. How does the legal structure affect management of the business?
A. Sole proprietorship. The sole proprietor may operate the business in any way he or she likes, as long as the law is not
broken. When all management decisions are made by one person, it can be a disadvantage.
B. Partnership. In a general partnership, each partner typically has an equal role in management with the various duties
divided among them. Their combined abilities and knowledge may give the partnership an advantage over the sole
proprietorship regarding management. The division of management duties may, however, lead to disagreements.

C. Limited company. Legal procedures must be followed strictly according to company law. The officials of the limited
company must file a special document, called the Articles of Incorporation, with the government, pay initial taxes and
filing fees, and hold official meetings to deal with specific details of operation and organization.

D. Cooperative. The management of a cooperative is elected by the members of the cooperative.

7. How will the legal structure affect taxes?

A. Sole proprietorship. Personal income tax must be paid on all business profits.
B. Partnership. Personal income tax must be paid by all partners on their individual share of the business profits.
C. Limited company. It is taxed twice. First there is tax on the amount of the business profits. Then the owners are also
taxed on any dividends they may receive.
D. Cooperative. Depending on government regulations, taxes may be paid by the cooperative.
Questions Concerning Business Ownership
1. How many owners are there in a sole proprietorship, a partnership, a limited company and a cooperative?
2. What are the legal costs and procedures for starting all four types of business ownership?
3. Why should a lawyer be consulted when starting a new business?
4. What liability is involved in the four types of business ownership?
5. How does the legal ownership affect the continuity of the business?
6. How does the legal structure affect management of the business?
7. How will the legal structure affect taxes?
8. How will the legal structure affect conditions of employment?
Advantages and Disadvantages of Different Forms of Ownerships
Forms of Ownerships Advantages Disadvantages
Sole Proprietorship 1. Low costs to start 1. Unlimited liability
2. Minimum regulations 2. Lack of continuity
3. Direct control of business 3. Difficulty in raising capital
4. Low working capital requirements 4. Responsible for all Decisions
 5. Tax advantages
6. Owner receives all Profits
Partnership Advantages 1. Unlimited liability
1. Easy to form 2. Lack of continuity
2. Low costs to start 3. Shared authority
3. Added capital sources 4. Difficulty in raising additional capital
4. Shared management 5. Difficulty in finding suitable partners
5. Possible tax advantages
Limited Company 1. Limited liability 1. Closely regulated
2. Management can specialize 2. Most expensive form to organize
3. Transferable ownership 3. Charter restrictions
4. Continuous existence 4. Extensive record keeping required
5. Legal entity 5. Double taxation (company and
6. Potential tax advantages stockholders)
7. Easier to raise capita
Cooperatives 1. Means to empower poor 1. Hard to keep qualified members
2. Joint self-help 2. Members contributing to cooperative
3. Organizational structure helps all unequal
members 3. Shared authority
4. Shared risk-taking 4. Gender issue
5. Easier to raise capital
6. Combines individual Skills

Information Sheet 1 Operating an Enterprise

4.1. Ways of getting in to business
4.1.1. Starting a new business

Most people who want to be entrepreneurs think that the best approach is to start their own new business and not
to buy one that already exists. This approach gives the potential owner a great deal of satisfaction. It also means
taking a relatively high risk compared to buying an established business.

Starting a new business means allocating a great deal of time to planning and investigating the potential market
for the products or services to be sold by the new business.

4.1.2. Buying an existing business

If someone has never owned a business, buying and operating an existing business offers many advantages such
as established customers and business procedures, trained employees, inventory and premises which are in place
and a business which already has a name in the market.

There are many questions which the potential entrepreneur needs to ask about any business which is for sale:

• Why do I want to buy this business?

• Why does the owner want to sell?
• Does the business have a future where it is and the way it is operating?
• Will I be happy operating this business?
 • Do I have the skills?
The question of price is a difficult one. Consider what you are getting for the price you are paying.

• Are you getting land and buildings?

• Are you buying the stock, furniture and appliances?
• Are you buying the name of the business and the rights to use that name forever?
• Are you paying for the present owner of the business not to set up another business nearby?
There are several ways of putting a price on a business. By comparing several similar businesses you will get a
“feel” for a reasonable price. However, no matter how much you pay, that amount is your investment in the new
business.

4.1.3. Franchising
Franchising is a system where a franchiser has developed and implemented a business that he offers for replication
to a franchisee. The franchisee opens a business by using the business idea of the franchiser against a fee. In return,
the franchisee gets training, the marketing concept, the brand name and the product or service. He also has the
guarantee that no other franchisee from the same franchiser will have the right to do business in the same area.

All these elements are fixed in a franchising contact that is binding for both parties. Franchising lowers the risk as
the product is usually well known in the market. On the other hand it limits entrepreneurial decision-making and
shrinks the profit margin as a fee or a percentage of the turnover has to be paid to the franchiser.

4.2. Managing PEOPLE, SALES and TIME.

1. Managing people
Hiring and Orienting New Employees

A. The Hiring Process

Hiring a new employee is as important to the entrepreneur as it is to the person hired. It can either be the beginning
of a mutually rewarding relationship, or the beginning of a long series of mistakes.

Two of the major influences on high employee turnover are the recruiting and selection procedures used. The way
entrepreneurs advertise a position, handle applications, conduct interviews, and select and introduce a new worker
to a job are all elements in the effort to cut down on employee turnover.

1. Sources of Potential Employees

• Within the business • Educational institutions
• Want advertisements • Former employees
• Employment agencies • Current employees

2. Selection Procedures
• Application form • Checking of references
• Interview • Testing applicant’s skills

Successful entrepreneurs hire staff on the basis of their skills, motivation and experience, not on the basis of their
sex, ethnic origin or disability.

B. Orientation Process

As a general rule, on their first day new employees should be shown around the business. The new employee should
be introduced to the rest of the employees, given an overall view of the entire operation, and shown exactly how
their jobs fit into the total operation of the business. Such small gestures take little effort and will probably save
both time and money in the long run.

Remember, it is important to start the new employee off on the right foot. Proper orientation will help a great deal in
getting a more productive, long-term employee.
 1. Four Basic Rules of Orientation
• Prepare the employee
• Present the work
• Try the employee out under supervision
• Follow-up

2. Six factors in preparing for the orientation of a new employee

• Know the job
• Have a current employee serve as a mentor
• Prepare a simple job breakdown
• Set a training timetable
• Arrange the work area
• Evaluate new employee’s work on a daily basis

C. Employee Considerations
Pay Plans. To employees, wages are an important part of their jobs. They expect their pay to reflect the skills and energy
they put into a business. If entrepreneurs want to attract and keep good workers, they must take into consideration the rate
paid by other firms for a similar job.

Fringe Benefits. Of all fringe (peripheral) benefits, those for sick leave and holidays are the most widely appreciated by
employees. Entrepreneurs should have a set policy regarding all fringe benefits.

Employee Relations. Good pay and fringe benefits aren’t all it takes to make employees happy; job satisfaction means
much more to them. Entrepreneurs have a responsibility to provide the best kind of physical surroundings and to make
sure that there is always two-way communication with the staff.

Working Conditions. The health, comfort and safety of employees, as well as decent working conditions, should be of
genuine concern to entrepreneurs. A good environment can do much to encourage efficiency and good attitudes in
addition to preventing accidents. The premises should have good ventilation, sufficient heating and cooling, good lighting
and proper sanitation, and safety facilities. Having a first-aid kit and a doctor’s telephone number are necessities in a
health and safety programme in any business.

3. Managing sales
The success of a business depends on the art of selling. If entrepreneurs take advantage of the opportunity to serve people,
to satisfy their needs and to solve their problems, there will be satisfied customers. Satisfied customers continue doing
business with an entrepreneur and recommend the products and services to others.

No matter what type of business, the entrepreneur must focus not only on producing the product or service, but on selling
the product or service as well. Entrepreneurs are salespersons in the sense that they are always selling their
products/services to the public. They must maintain their sales image wherever they go and whatever they do in the
community.

Selling Requires Communication

When selling, you communicate to prospective clients something about yourself and the product or service you are
selling. This process can be viewed as a series of steps, and each step involves a higher level of communication.

Step 1: approach the prospective customer and introduce yourself and your company
Step 2: specify your reason for approaching the prospective customer
Step 3: show or describe the product/service you are selling
Step 4: demonstrate how the product/service will benefit the prospective customer
Step 5: negotiate terms and conditions of the sale
 Step 6: ask the prospective customer to make a decision regarding the purchase of the product/service.
Step 7: once customers do start to buy your product or service, develop strategies to help you to keep your
customers. One research study has indicated that it costs 10 times as much to attract a new customer
than it does to keep an old customer.

Like effective communication, selling is a two-way process. Selling is more of an art than a skill. You have to be good at
asking questions and being an active listener to understand customer needs and interests. You have to adapt your message
and communication style to the personality and buying motives of the prospective customer. Through effective
communication, you build a relationship with the customer based on trust and confidence; this forms the foundation for
the present sale transaction and for future sales as well.

Characteristics of Successful Salespersons

1. Results Oriented 8. Good Listener

2. Highly Motivated 9. Enthusiastic
3. Self-Confident 10. Pleasing Personality
4. Professional Appearance 11. Communicator
5. Honest 12. Sociable
6. Dependable 13. Courteous
7. Knowledge of Products

4. Managing time
Managing Time

To be successful, all entrepreneurs must be good managers. However, most managers are not entrepreneurial. People are
the most important resource in a business. It is important for entrepreneurs to hire the best qualified people. All employees
are really members of a team, and for the business to succeed the team members must cooperate with each other in their
work.

In addition to managing people, managing money is also a critical function in operating a business. Entrepreneurs need to
balance the financial needs of operating a business with the financial resources within the business. Money coming into
the business through sales, and money going out of the business, requires the entrepreneur to keep accurate written
financial records. Because entrepreneurs are generally very optimistic and aggressive people, accurate financial records
will provide a more realistic financial picture of the business.

Many entrepreneurs use cell phones to help them not only to manage their business activities, but also to manage their
home responsibilities as well.

Managing sales is essential. Unless sales are at a level that covers all business expenses and provides a profit, the business
cannot succeed. Business success is ultimately determined by the level of sales.

Entrepreneurs must be able to manage their time if they are to be successful. In many instances, they are multi-tasking by
being involved in several tasks at one time. “If you want to have something done, have a busy person do the task.” In most
instances, this quote is true. It is also true that entrepreneurs are busy people, but they have the skill of managing their
time and resources to accomplish their business goals.

Time Management Techniques

 Identify specific goals with deadlines
 Be motivated
 Use telephone/cell phone
 Take notes
 Do only essential activities
 Work in blocks of time and question your use of time.
 Ask questions
  Be action-oriented
 Be reflective
 Plan for each day’s work
 Learn from experience
 Question your use of time

4.3. Selecting Suppliers.

Doing Business with Suppliers
Entrepreneurs should follow specific procedures when purchasing goods, materials and equipment from suppliers.

Step 1: Determine your business needs. By conducting market surveys you will know who your customers are
and what products they want. These customer needs will determine:
• Materials and equipment your business will need to produce goods for sale to customers.
• finished goods to buy from suppliers for resale to customers.
• Amount of each product to buy as inventory.
• Price to pay for quantities of goods purchased from suppliers.
• Specific time’s goods and materials need to be received from suppliers.

Step 2: Identifying potential suppliers. Determine which suppliers sell the goods, materials or equipment you
need by:
• Asking people who work with you, your business friends and others. Try to find out where your
competitors buy.
• Contacting organizations that support small businesses, for example, the local chamber of commerce
may be able to identify honest and reliable suppliers.
• Reviewing newspapers, magazines, trade journals and businesses in the telephone directory for names
and addresses of potential suppliers.
• Determining what goods, materials or equipment each supplier has to sell and the prices, discounts,
credit and delivery service they provide.
• Determining with the help of other entrepreneurs the reliability of each supplier.

For example: Does the supplier usually deliver on time? Does the supplier accept returned goods or
materials? How responsible is the supplier for the quality of goods or materials? Is the supplier honest in
conducting business?

Step 3: Contact a supplier either by visiting the supplier’s office personally, telephoning the supplier, or writing a
letter to the supplier. Each potential supplier should provide written information to you regarding the kinds of
goods, materials or equipment each supplier can provide. Specific questions include:

Does the supplier have what you need in the qualities and quantities you need?

• What is the smallest quantity you can purchase?

• Do you need to pay cash or can you get credit?
• How much credit can you get and how soon do you need to pay it back?
• Can you get discounts if you buy large quantities or pay quickly?
• How much discount can you get?
• Will the supplier deliver to your business?
• How soon after the order is placed will they deliver?
• Do you have to pay for transport or is delivery free?

Note: Make sure that the supplier provides a response to your questions in writing. Ask for a written quotation. If there are
any disagreements between you and your suppliers at a later date, a written quotation makes them easier to resolve.

Step 4: Select the best suppliers. Compare the quotations received from various suppliers to determine what each
of the different suppliers can offer. A quotation is a written response to your enquiry to the supplier. In a quotation,
 the supplier provides you with detailed information about the goods, materials or equipment, prices, payment,
delivery and any other conditions related to your order.

The entrepreneur must decide what conditions and priorities are most important in selecting suppliers. Is it credit,
reliability, prices, discounts or other considerations?

When a decision has been made regarding the suppliers who best match the needs of the business:
• try to negotiate with the suppliers to receive even better conditions.
• choose the best suppliers for your business.

Step 5: Order goods, but make sure your order is in writing. Think carefully about the quantities you need:

• What is the smallest quantity you can order?

• How much is there in each bulk package?
• Can you order less than one bulk package?

Step 6: Check the goods as soon as they are received. The supplier usually sends a delivery note with the goods
or materials. The delivery note lists details of the goods. The supplier will want you to sign the delivery note as
proof that you have received the goods listed.

Some suppliers send an invoice instead of a delivery note. Check the goods against the invoice. If you yourself
collect the goods or materials from the supplier, the type and quality should be checked before taking them away.

Check the delivery note or invoice against your order. Check that everything ordered has been received on time. If
there is something wrong, notify the supplier immediately. Do not sign the delivery note or pay for the goods until
the problem has been resolved.

Step 7: Check the invoice because the invoice lists what you have bought and when and how the supplier is to be
paid. Make sure that the invoice is correct. If you are buying on credit, compare the invoice with the delivery note.
The list of goods or materials must be the same on both. Make sure that you have received everything you are asked
to pay for and that the prices and totals are correct. If the invoice is not correct, notify the supplier immediately and
determine the best way to solve the problem.

Step 8: Make the payment to the supplier by cash or check. Make sure to get a receipt so there is proof of
payment.

4.4. Using technology in Small Business

Introducing new technology, such as a computer or cell phone, into a business helps to improve productivity and product
innovation. In small businesses, simple technological innovations help to improve product quality and product design, as
well as reducing production costs.

Entrepreneurs should be made aware of new technologies by attending trade exhibitions, contacting small business
development agencies, and visiting other areas of their own country as well as neighboring countries to gain ideas
regarding technologies which would be appropriate to their local conditions. In some countries, government agencies,
business associations or NGOs offer specialized services to women entrepreneurs to overcome difficulties in accessing
new technology, since this has been identified as one of the major barriers to women entrepreneurship.

Sponsorships and subsidies to encourage women entrepreneurs’ participation to trade fairs are sometimes available
through chambers of commerce and business development programs.

Technology for Small Enterprises

Technology is constantly changing the demands of consumers. Businesses use new technologies to produce new products
and services. Entrepreneurs should realize that new technological developments such as the internet and cell phones
increase the exchange of information and may have an effect on the operations of their business.
Entrepreneurs may not be aware of the nature and effects of all new technologies, yet, they must try to determine technical
developments which are likely to have the greatest impact on their business operations.

Small businesses are flexible and can innovate and introduce new products. Conversely, small businesses may not have
the expertise, time or capital to develop and market a new product. A small business must be realistic in judging: the
demand for a new product, the financial aspects of developing a new market and the time required to introduce the new
technology.

Through planning and forecasting, it may be possible to predict some technological changes that might affect sales of
current products and the potential for developing new products. Purchasing new technologies, such as a computer, implies
a long-term commitment of resources, which most small businesses do not have. Because of day-to-day operational
problems, entrepreneurs have little time to do long-range planning, even though new technologies may have a great
impact on their businesses in the future.

Smaller companies must develop products and markets where they have a chance to succeed and be competitive. Because
of shortage of capital resources, entrepreneurs must be able to react quickly to changes in the market and be concerned
with the future needs of their customers.

Characteristics of Appropriate Technologies

The appropriateness of technology for use in a small business is determined by a number of characteristics. For the
following seven characteristics, explain how the purchase of a cell phone will increase the efficiency and effectiveness of
an accounting firm that serves 60 local businesses.

1. SIMPLE: For technology to be considered appropriate, it must be simple to operate. The user of such technology must
be able to apply it without encountering problems.
2. EFFECTIVENESS: Effectiveness of technology is judged by how well it fits in with the objectives of the user.
3. AVAILABILITY: Some technology may be appropriate for certain purposes but not available locally. Information
technology, for example, may be the most appropriate for certain tasks, but it may not be readily available locally.
4. FLEXIBILITY: As time changes so do the requirements of technology.
Appropriate technology must be flexible enough to adapt to changing times in the future.
5. DURABLE: Technology that is durable requires less maintenance and repairs.
6. EFFICIENT: Technology should be efficient in its utilization of local resources.
7. COST EFFECTIVE: The cost of technology should be justified by the benefits achieved. The overall benefits should
be greater than the cost of the technology.
4.5. Knowing the Costs of an Enterprise
Direct and Indirect Costs

Every business generates costs even if there is no ongoing production, service or trading activities. To understand
this, it is essential to know that there are direct costs and indirect costs.

Direct costs are those that only occur when an enterprise is manufacturing goods or producing a service or buying
goods to resell. These costs depend directly on the number of products, services or goods produced.

Direct costs are composed of two cost sub-groups:

Direct material costs:

Expenditures for all items that become part of a product or are used to produce a service or are bought for resale
enter into the category of direct material costs.
 Costs linked to the acquisition of raw materials such as transport from the supplier to the enterprise are included in
the direct costs.

Direct labor costs:

All wages for workers and helpers that are directly involved in the production or the delivery of services. This also
includes costs for social security.

Staff wages for the retailer and wholesaler are not considered as direct costs because one person generally sells
many different items.

Indirect costs are all other costs generated from business activities that are not direct costs.

These are costs that cannot directly be attributed to a specific product or service, for example rent for the office
premises, salary for the bookkeeper, interest on the bank loan, telephone costs, fire and car insurance, etc.

In wholesale or retail business all staff costs are indirect costs. To be able to calculate the manufacturing costs of one
single product or one single service, the indirect costs have to be attributed proportionally. If the business produces a
single product or service, or if the products are quite similar, for example chairs, beds, trousers or shirts, the indirect costs
are divided by the number of products and this proportion is added to the direct costs to calculate the total cost per unit of
an item. In a service business the indirect costs are generally calculated on the basis of working hours and added to the
time spent in delivering the service.

Indirect costs are also called overhead costs.

To make the distinction between direct costs and indirect costs is not always easy, for example the glue used in furniture
making. The quantity used for one chair is so small that it represents only a very small portion of the price of the glue. The
expenditure for a pot of glue is therefore considered as an indirect cost. Also, if a helper serves several workers, his/her
salary cannot be attributed to one single product. The salary will therefore be counted as an indirect cost.

Total cost of a product or service:

Sum of Direct Material Costs

+ Sum of Direct Labor Costs

+ Proportion of indirect costs

= Total cost per product or service

4.6. Managing Money.

Business money and private money should always be kept separate. Where the business money and the household
money is kept together, money will leak and be spent for private expenses. At the end of the month, the
entrepreneurs will not be able to calculate whether the business made a profit or not.

Various people will want to know about the financial conditions of a business. Bankers may be interested because
you have applied for a financial loan. Tax collectors are interested in your business condition, as are partners,
relatives and others who may have lent you money. Suppliers will also want to know things about the finances of
your firm, because when they ship you merchandise for which you have not yet paid, it is as though they are
extending a form of credit.

An efficient record keeping system is required for any business. All business transactions should be fully recorded
on paper. Many small businesses fail because of inadequate record keeping. The business may have an excellent
product, a high sales volume and a good profit margin. However, without proper records the business is inviting
disaster. Too often, small business owners have the attitude that keeping records is not necessary in a small
 business. The person who owns a small business is confronted with problems and decisions every day. Sound
decisions require a anger who is informed about all aspects of the business.

Proper record keeping system can provide the financial information necessary to solve management problems more
easily and to make sound business decisions what kinds of records should a small business keep?

A. Payroll. The owner must know the amount paid to himself or herself and to employees. This information alone
requires a mini-accounting system to keep

things accurate and in order.

B. Cash Balance. The owner must know how much cash is available at any given time to determine if bills can be
paid. Money comes into and goes out of the firm every day, but without records entrepreneurs would not know what
they can afford.

C. Accounts Receivable. Under certain conditions, the owner extends credit to some customers. The money owed
is called accounts receivable. They are important records. Without them, how would the owner know when to bill
and for how much? When to discontinue credit? When to make aggressive efforts to collect overdue bills? When to
charge interest, if any?

D. Accounts Payable. The amount of money owed by a business to others (such as suppliers) is called accounts
payable. These bills need to be paid on time for two reasons:

(1) sometimes by paying a bill on time you will receive a cash discount, and

(2) you must maintain a good reputation in relation to those with whom you do business. Without accurate records
you may make mistakes.

E. Inventory Records. Even in a small retail business, an owner must have control of inventory. What products are
selling? What products aren’t moving?

Is there a good supply on hand? Entrepreneurs can keep some of this information in their head, but not enough to do
the kind of job necessary to make a profit.

F. Government Requirements. The owner must file financial statements for tax purposes. Taxes are calculated on
the profit a business earns. Even a small retail business must file certain reports.

G. Financial Statement. At least once a year the owner should have a comprehensive financial statement on the
business prepared – this is similar to an individual having an annual medical check-up. How well did the business
do in terms of total sales? What were its expenses? What are its profits before and after taxes? What can the owner
do to improve things next year? When borrowing money, entrepreneurs must present such a statement to a banker;
if they want to sell their business, they must show financial statements to prospective buyers.

4.7. Preparing Simple Financial Statement.

Financial statements help to determine the financial performance of a particular business. By using financial
statements, the business can compare current performance with performance in previous years. These comparisons
are essential for planning the future and also highlighting the strengths and weaknesses of the business operation.

Understanding financial statements is important because they are the primary means of determining the financial health of
the business.

Entrepreneurs need to be able to:

• prepare simple financial statements
• interpret and analyze the information contained in the statements
• identify strengths and weaknesses in the financial condition of the business based on the statements
• make changes in business operations to improve the financial conditions of the business
Profit and Loss Statement

A profit and loss statement helps to determine whether a business is operating at aprofit or a loss for a given time period
of one month to one year.

The more frequently you calculate your profits and losses, the sooner you will know the financial position of the business.

There are five specific steps to calculating the profit and loss statements:

1. Sales: including sales for cash and credit,

2. Cost of Goods Sold: this is the price paid by the business for merchandise sold; it can be computed by adding the value
of the goods purchased during the period to the initial stock (the initial stock figure can be obtained from the previous
income statement), and then subtracting the value of the stock on hand at the end of the period.

3. Gross Profit: calculated by subtracting the cost of goods sold from sales

4. Expenses: this includes labor costs and other costs of operating the business

5. Net Profit: this is the amount remaining when the expenses are deducted from the gross profit.

The Balance Sheet

The balance sheet is a financial statement which indicates what you own and what you owe on any given day in the life of
a business. The financial figures on the balance sheet change from day to day because money is always coming in and
going out of the business. A primary reason for preparing a balance sheet is to determine if the business is making a profit
or a loss.

The formula used to prepare a balance sheet is:

Assets = Liabilities + Net Worth

Assets: These include everything a business owns, such as cash, equipment, buildings and inventory.

• Current assets include cash and anything that can be converted into cash within twelve months. Current assets include
cash, bank accounts, accounts receivable (what people owe you), and inventory.

• Fixed assets are things that cannot be changed into cash easily (within twelvemonths). They are items that the business
acquired for long-term use. Fixed assets include land, buildings, machinery, equipment, and vehicles.

Liabilities: These include anything that the business owes. Liabilities might include loans, credit notes, taxes and
mortgages.

• Current liabilities: a current liability is anything you owe that has to be paid by using a current asset. Current liabilities
are usually items to be paid within twelve months, including taxes, loans and bills due to creditors.

• Long-term liabilities: any debt that cannot be paid within twelve months, such as a mortgage.

Net Worth: This is what is actually owned by the business after subtracting liabilities. It represents the initial investment
of the owners and retained earnings.