CBET

Entrepreneurship
Education
ENTREPRENEURSHIP EDUCATION
1. The critical aspects of competency to be covered includes; distinguish entrepreneur and business
persons, identify entrepreneurship opportunities and their legal aspects, identify business resources
for self-employment, generate business ideas, analyze business life cycle, develop business and
financial plan, prepare executive summary and present business plan in accordance with principles
and policies governing entrepreneurship. The basic resources required include check list, research
tools and machines. The unit of competency cover seven learning outcomes. Each of the learning
outcome presents; learning activities that covers performance criteria statements, thus creating
trainee9s an opportunity to demonstrate knowledge and skills in the occupational standards and
content in curriculum. Information sheet provides; definition of key terms, content and illustration
to guide in training. The competency may be assessed through written test, demonstration,
practical assignment, interview/oral questioning and case study. Self-assessment is provided at the
end of each learning outcome. Holistic assessment with other units relevant to the industry sector
workplace and job role is recommended.

2. Performance Standard
Apply entrepreneurship and self-employment understanding, identify entrepreneurship
opportunities and develop innovative business strategies in accordance to principles of
entrepreneurship, business procedures and strategies and requirement for entry into self-
employment and government policies.

3. Learning Outcomes (TOPICS)

a) Demonstrate understanding of who an entrepreneur is
b) Demonstrate knowledge of entrepreneurship and self-employment
c) Identify entrepreneurship opportunities
d) Create entrepreneurial awareness
e) Apply entrepreneurial motivation
f) Develop business innovative strategies
g) Develop business plan

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ONE
I. DEMONSTRATE UNDERSTANDING OF WHO AN ENTREPRENEUR IS
This learning outcome will equip you with knowledge of understanding best who is an
entrepreneur, how an entrepreneur differs from business person, types of entrepreneurs,
characteristics of entrepreneurs, factors affecting entrepreneurship development and ways of
becoming an entrepreneur as per the principles of entrepreneurship.

Definition of key terms

Entrepreneur: An entrepreneur is an energetic moderate risk taker. It is a person who creates
initially small business and strives to maximize potential of their venture while simultaneously
minimizing risk.

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Entrepreneurship: This is a process of designing, launching and running a new business which
often initially a small business along with its financial risks. It9s a process of creating something
new with value by devoting the necessary time and effort, assuming the accompanying financial,
social risks and receiving the resulting rewards of monetary and personal satisfaction and
independence.
Self-employment: This is where an individual is in control of his/her own business, makes
decisions affecting and enjoys all the profits of that business and incurring all the losses. They
include family stores, professionals and traders who work alone or with very few people. They do
most of the work personally while they get all the profits.
Business environment: Are those factors that affect the operations of a business. They may be
internal or external environment.
Micro and Small Enterprise Act No. 55 of 2012 define MSE’s by their volume of annual sales,
size of their employees and enterprise assets and financial investments.
Micro enterprises: are businesses whose annual turnover does not exceed five hundred thousand
shillings, employs less than ten people, and whose total assets and financial investments for
manufacturing sector in plant does not exceed ten million shillings and for the service sector and
farming enterprises investment in equipment does not exceed five million shillings.
Small scale enterprises: are defined as those businesses whose annual turnover ranges between
five hundred thousand shillings and five million shillings, employs between ten and fifty people,
and whose total assets and financial investments for manufacturing sector in plant and machinery
is between ten million and fifty million shillings and for the service sector and farming enterprises
investment in equipment is between five million and twenty million shillings.

Distinction between Entrepreneurs and Business person

Entrepreneur Business person
An entrepreneur is an investor and the first A business person can make a business out
creator of a product. He invests time, of an unoriginal business or product idea.
energy and money on his own idea. He He enters into existing business, such as
doesn9t start business from an unoriginal franchising and retailing. He chooses a hot
idea. and profitable business idea regardless of
whether it is original or a borrowed idea.
Entrepreneurs are more concerned on Most business persons are doing business for
changing the world. They want to pursue their profit, livelihood, for reaching their own boss.
passion and achieve an ultimate goal.
Entrepreneurs takes crazy risks, and don9t care Business persons take calculated and managed
of losing time and money just to pursue their risks. They cannot afford to lose money or
passion. suffer from bankruptcy.

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 An entrepreneur is a friend and a leader. He A businessman is an employer and a manager.
finds peers and people whom he will never He hires to help his business grow.
treat as machines.
An entrepreneur sees customers as his source Business person sees customers as his source
of duty and fulfillment. of sales and revenues
Entrepreneurs try hard to beat his worst A business person tries harder to beat his
competition. competitors and win the competition
Entrepreneur sees the world as duty rather than Businessmen sees the world as an opportunity.
an opportunity. Works as an artist his product Businessmen doesn9t waste any time
is a masterpiece.

Types of entrepreneurs
a) Innovator: They come up with completely new ideas and turn them into viable business ideas.
Inventors who build an organization to produce and sell an invention, includes high technology.
b) Imitators: They are the types who copy certain business ideas and improve upon them.
c) Small scale entrepreneur: It is a type of entrepreneur that involves small business ventures.
They lack the scale to attract venture capital but are funded by family and friends. Examples are;
groceries, Consultants, carpenters and hairdressers.
d) Scalable start-up entrepreneur: Entrepreneurs start their company believing that their vision
can change the world. Their funding comes from venture capital and they hire the best employees.
Finding a scalable and repeatable business is the ultimate goal of the business. Examples are;
Facebook, online shops, Instagram etc.
e) Large company entrepreneurship: through sustaining innovation, offering new products in
order to meet with changing customers needs and advanced technology. Often companies do this
by partnering with or buying innovative companies. Examples are; Microsoft, Samsung, Google,
etc.
f) Social entrepreneur: It is where an entrepreneur creates product and services to solve social
need and problems. This can be non- profit, profit or hybrid. E.g., safe point trust by Marc Koska
which works to redesign medical tools and introduce inexpensive non-reusable syringes for
underfunded clinics in the world.
h) Craftsman entrepreneur: With the following characteristics; narrow technology, low work
experience, 8mechanical genius, most business contacts are on plant floor, he/she identifies neither
with management nor with labour unions, has limited cultural background, limited social
involvement, not aggressive, not ambitious, not motivated and not confident.
i) Opportunistic entrepreneur: With the following characteristics; they are of middle-class
origins, have well-rounded education, have a variety of work experience, most of his/her contacts
are with the top management, has reputation across industries, has a broader social involvement,
has a more aggressive approach, highly motivated and confident.

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j) Pattern multipliers: Entrepreneurs who expand a business concept through franchises or chains
of similar businesses.
k) Economy of scale exploiters: Entrepreneurs who increase volume and lower price by large
scale productions or sales. They benefit from large volume of sales through offering discount
prices and operating with very low overheads.

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l) Capital aggregators: They include banks, saving and loan institutions, insurance companies
and venture capital organizations.
m) Acquirers: Entrepreneurs who purchase or inherit an ongoing business.
n) Buy-sell artists: Entrepreneurs who buy companies to later resell them at a profit. They improve
these companies before selling them. They are also known as turn-around artists, corporate raiders
and take over experts.
o) Speculators: The purchase of an asset such as land and used to leverage the purchase of other
assets e.g. more land, construction and later resold at a profit. To leverage is the ability to use the
existing to buy others.
p) Apparent value manipulators: The buy low-sell high entrepreneur. They are those who
repackage, redefine, or restructure to add apparent value.
q) Self-employed: They include family stores, professionals and traders who work alone or with
very few people. They do most of the work personally while they get all the profits.

Characteristics of Entrepreneurs
• Self-motivated: when you want to succeed you need to be able to push yourself. You aren9t
answerable to anyone else as an entrepreneur.
• Risk taker: successful entrepreneurs know that sometimes it9s important to take risks.
Playing it safe sometimes never lead to success as a business owner.
• Flexible: Have the ability to be able to change as needed. Staying on top of your industry
and be ready to adopt changes in the process and product as they are needed.
• Passion: Successful entrepreneurs are passionate. They feel deeply about their product or
service or mission.
• Basic money management skills and knowledge: Understand how money works so that
you know where you stand and so that you run your business on sound principles.
• Network: Being able to connect with others and recognize partnership opportunities can
take you a long way as a business owner
• Seekers of feedback- Often called recognition seekers. They seek positive and negative
feedback and use it as learning opportunities.
• Internal locus of control- They enjoy taking personal responsibility for actions and
decisions made by them. Believes he/she is personally responsible for the way their life
turns out to be. Success to them is a product of personal effort not luck or fate.
• Knowledgeable- Majority of entrepreneurs never reach High school and college. However,
they are experts in their trade and recognize the value of current knowledge. They read
widely and are well informed.
• Persuasive abilities in that they talk in a way that excites other people. They might be poor,
no big family or name, but they dream and talks of their dreams in a way that makes other
people to dream with them. They are able to convince people around them in soliciting
resources.

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 • Managerial abilities: As a leader he/she runs his people in a way that makes them willing
and able to do things for him. Delegates some functions so that he/she has more time for
creative activities to improve his/her business. In the face of pressure, he decides and acts
on the basis of what will work best for the business. He/she is decisive and firm, strict but
fair in decision making.
E- Energetic Are full of energy of the mind and body,
mobile and makes the world go round. They
work beyond 8 hours daily and boring,
routinely jobs don9t attract them.
N- Novelty-oriented (innovativeness) Think creatively, continually seek to create
improvements in their performance
T- Tolerant Tolerate long hours of hard work- are
persevering and enduring even in the face of
adversity. Pursues his goals to the best of his
ability, harnessing for it all his talents, skills,
abilities and emotions.
R- Result-oriented Have high desire for achievement, do not like
ending a task without seeing results. They
cannot stand unfinished tasks
E- Enterprising Have the courage and willingness to engage
in difficult undertakings
P- Profit-oriented See money as a source for more money, don9t
squander money, they invest it
R- Resourceful Quickly and usefully employ their minds

E- Efficiency-conscious Hate wasting resources, are economical

N- Networking Love interacting and making connections

E- Envisages Have dreams of foresight; plan ahead; set clear

attainable goals. They are emotionally
involved with the goal reflecting hope of
success and fear of failure. He/she becomes
preoccupied with winning that he/she plans his
strategies and tactics well in advance. Fearing
failure, he/she identifies possible obstacles and
barriers to the goal and prepares how to
prevent them.

U- Unstoppable Believe that a slip is not a fall; are optimistic

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 R- Risk-loving Take calculated risks; like challenges.
Entrepreneurs like to win and win the hard
way. They do not set out on anything that is
either too risky or too easy (moderate). He/she
assesses the risks involved in terms of all his
resources and asks- 8Do I have what it takes?9
They favour ventures where there is about 60%
chance that they will win.

S- Self-confident Believe in themselves, are self-reliant and

willing to plunge into the unknown. They are
men of guts and steel. Many people find
entrepreneurs too risky to support. They seem
to be overconfident- Researchers have
discovered that successful entrepreneurs have
a history of failure due to overconfidence- but
they kept on going.

Factors affecting entrepreneurship development: Entrepreneurship is influenced by various

factors: (PESTLIED)
• Economic development.
• Culture.
• Technological development.
• Education.
• Political factor
• Legal factor
These conditions may have both positive and negative influences on the emergence of
entrepreneurship.
a) Economic factors: Economic environment exercise the most direct and immediate influence on
entrepreneurship. These factors include:
• Capital.
• Labor.
• Raw materials.
• Market.
• Infrastructure.
b) Social factors: These can go a long way in encouraging entrepreneurship. In fact it was the
highly helpful society that made the industrial revolution a glorious success in Europe. Main
components of social environment include:

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 • Caste factor.
• Family background.
• Attitude of the society.
• Education.
• Cultural values, taboos, beliefs, norms etc
• Religion
c) Technological factors: Technology has influenced entrepreneurship development through
innovations and use of internet to gather new and existing information.
d) Education: Many entrepreneurial theorists have propounded theories of entrepreneurship that
concentrates especially upon psychological factors. They may include:
Need achievement.
Withdrawal of status respect.
Motives.
e) Political and government changes in government policy can have a very huge effect on the
business in question. Example the tobacco industries have been on forced to put warning labels on
their product and lost the right to advertise on the television.

Ways of becoming an entrepreneur

• Be a risk taker: Humans are generally risk averse, but part of being an entrepreneur is
recognizing the risk that you should take. Successful entrepreneurs know which risk to take
and which they shouldn9t.
• Exercise: That is put the idea into action
• Learning: Getting new ideas from established entrepreneurs.
• Networking: Analyzing gaps in the market where you can invest in and working together
with entrepreneurs of your area of specialization.
• Trust yourself: Being determined to achieve your goals.
• Challenge yourself: Compare yourself with the already established entrepreneurs.
• Visualize goals: Determine the needs and requirements of your goals.

Importance’s of entrepreneurship
• Create jobs: As much as entrepreneurs create job themselves. They also create a number
of jobs opportunities with their business venture and as their businesses grow so the
opportunities available increases.
• Creates change: When entrepreneurs make a product or explores ideas, it brings in change
and improvement in the world.
• Entrepreneur give to the society: The more the money they make the more in taxes they
pay which in turn funds public services. E.g. Bill Gates the founder of Microsoft is the
biggest donor in charities and non-profit organization.
• Entrepreneurship have independence: They are their own boss this enables to work to their
capacity and towards achieving the specific goal.

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 • Freedom of ideas: They are free to implement and make any change in the operation of the
business

Disadvantages of entrepreneurship
• Risk of business failure - There is no certainty of success.
• Long working hours especially in early stages of implementation.
• Income is varied and uncertain - It is difficult to estimate the income that you will be able
to get in particular day or month

PRACTICAL ASSESSMENT
Practical Assessment Kamau has got a good business idea, capital and has identified a good
location to conduct his business. Using examples, identify ten factors that Kamau should
consider that his business lasts longer.

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TWO
II. DEMONSTRATE KNOWLEDGE OF ENTREPRENEURSHIP AND SELF-
EMPLOYMENT
This learning outcome will equip you with knowledge on how to differentiate and understand
the relationship between entrepreneurship and self-employment, the importance of self-
employment, requirements for entry into self-employment, the role of an entrepreneur in
business, the contributions of entrepreneurs to the economy, entrepreneurship culture in Kenya
and distinguish between born or made entrepreneurs.

Definition of key terms

Entrepreneurial traits: These refer to characteristics of entrepreneurship and are always
possessed by the entrepreneurs. All the entrepreneurs possess these characteristics and they
distinguish them from the other persons.
Entrepreneurship culture: It is the behavior that is possessed by most of the individuals. Are
also the attributes, values, beliefs, and behavior in which an individual learns from one
generation to another i.e., behaviors of carrying out entrepreneurship activities e.g., starting
up a business.
Self-employment: This is where one is his/her own boss, is in full control of the business,
makes all decisions affecting the business and enjoys all the profits of the business or incurs
all the losses of the business, an individual can even hire employees to work for him or her.
National Development: This explains the benefits accrued from entrepreneurship to the
nation. It may include benefits like revenues, employment, cohesion, infrastructure
[communication, roads, electricity] increased imports and exports among others.

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Differences/ Distinguish between entrepreneurship and self-employment

Entrepreneurship Self-employment
Doesn9t have to physically be at the The individual is very hardworking and
workplace, they have partners and employees should be at the workplace for them to make
who run the entire business for them hence money hence rigid.
flexible.
Emphasizes on creating opportunity even Emphasizes on maintaining a secure income
though there may be no actual work or no and remain working – not tolerant of risks.
income. Hopes for growth and expansion, is
tolerant of risk i.e., he is concerned about
risk and reward
Has invested in different businesses. Normally have one business
Not everyone can be an entrepreneur, it is a Anyone can be self-employed because
title bestowed upon you. To becomes an anyone can have a business idea, register a
entrepreneur when people see you as company and try to make the business work
creative, inspired and overcome challenges
One cannot start a business as entrepreneur One can start as self-employed and not as an
i.e., I am self-employed, but one day I strive entrepreneur.
to be an entrepreneur.
You can have people who are working with You can have people working for you i.e.,
you and not just under you i.e., partners. employees
The business outruns the existence of the If one decides to retire, the business dies as
owner because, workers are working with well because workers are working for him,
him hence understand vision, mission and hence just run the business of the owner, they
value of the business. do not understand the mind of the owner.

The importance/advantages of self-employment

i. Being your own boss: One is control of all key decisions affecting his business because it
is your business you have started. Control over working conditions the working surroundings-
you cannot be fired, transferred etc. Gives individuals opportunities to be independent.
You work for your clients. Clients state what results they expect from you, but they do not
direct your work. You are your own boss therefore you decide when and where and how to
work to get the job done.
ii. Flexibility: To decide hours of operation, working conditions, business location. You do
not have to go where your employer forces you to do work.
iii. Harmony with your life: If you are working for yourself, chances are you will be doing
ok that you enjoy hence self-fulfillment.
iv. Income generating: If all goes well and you are making money, chances are you will make
more money than you did while working for someone else.

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 v. Profitable: You get to enjoy all the business profits. If your business is doing well, you may
not have to share proceeds with anyone else. The fruits of your labor will all be yours because
you own the vineyard.
vi. Opportunities to own enterprises.
vii. Opportunity to become a leader and employer rather than a follower.
viii. Prestige.

Requirements for entry into self-employment

i. Identify the legal business structure: Determine whether your business will operate as a
sole proprietorship /partnership /corporation. You can also set your business up as a limited
liability
company or as a corporation.
ii. Register your business: Apply to receive employer identification number. Also register
your business with state and local tax offices.
iii. Licenses and permits: Seek for licenses and permits required to operate a business.
iv. Record keeping: Create and maintain accurate records. Items to list in your records are
details of customers, dates of sales or purchases, amount of sales, taxes collected on sold items
and unsold.
v. Taxes: be aware of the taxes that apply to the business to ensure you are fully compliant.
vi. Will you enjoy your work? – You can only run a business you are passionate about because
it brings happiness that satisfies your life goals. You will have to run a business that fulfills the
sense of your purpose.
vii. Skills- Technical knowhow or ability to tactfully respond positively to a given situation.
Skills help the entrepreneur to start and operate an enterprise.
viii. Entrepreneurial skills: Acquired through attending formal courses, working with
qualified people or listening to friends.
ix. Capital: includes personal savings, money from friends and relatives or from financial
institutions.
x. Assets- Machinery, equipment and tools acquired using entrepreneur9s capital raised. Can
be obtained from hiring from established firms at a rate, partnership with other entrepreneurs
to share the cost, or using their skills to modify or innovate the existing one or buying second
hand.
xi. Premises: Can be rented, family-owned premises, construct their own. Permanent premises
give confidence to customers.

The role of an entrepreneur in business

• Initiator: One who initiates the process of creating a business by coming up with the idea
for the business and planning out how to turn that idea into a reality.
• Risk taker: He/she is the biggest risk taker in business because he is the one who invests
capital and accountable in the face of failure. Accepting risk: Through enterprising they

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 accept risk to provide solutions to people9s problems. Most people are risk averse (avoid
risk) and they therefore pay entrepreneurs who provide products/services after taking
risks.
• Combination of economic factors i.e., gathering (soliciting) firm resources for
commercialization /production. They combine the factors of production including land,
Labour, capital and entrepreneurship in the firm creating value that satisfies human needs.
Allocator: He allocates various resources in the organization. These resources include;
manpower, machines, funds, etc.
• Forecasting: He should be prepared on how to deal with various forecast changes such as
strikes, machine breakdowns, budget cuts, legal policies, political or social unrest,
technological advancement etc.
• Adhering to legal norms: To ensure the enterprise adheres to legal norms and policies.
Not pertaining to this can mean serious legal consequences.
• Reduces risk: Best achieved by bringing people that can help the organization grow. These
people can be stakeholders or investors that have stake in the company.
• Providing market efficiency: They ensure that resources are distributed efficiently and
therefore customers gain maximumly from these resources.
• Processing market information: They exploit unused information in the business
environment, making markets more efficient and they are rewarded from profits.
• Maximizing investor returns: Through enterprising (starting and managing
organizations) entrepreneurs generate profits on behalf of the investors.
• Ensuring participation of others: They ensure the participation of other persons in the
business project. They understand that for a business to succeed more than one person is
needed with varying experience and influence in relation to business success. They do this
to ensure business success while minimizing any failure.
• Shareholding: Entrepreneurs make decisions on whether to encourage shareholding in
case of the following:
➢ The enterprise is too big for them to buy
➢ They do not want to commit their full time in the enterprise
➢ They want to spread their investment portfolio to reduce risks
➢ They do not have the capacity to manage such an enterprise
• Entrepreneurs are responsible in developing an organization structure. It is important
to have an organization structure so that the entrepreneur can effectively control, monitor
operations and facilitate communication with workers. The entrepreneur should be at the
top of all business operations as the (CEO, business manager, general manager, managing
director etc.). The entrepreneur should clearly indicate the position of other workers with
different responsibilities in the organization structure.
• Entrepreneurs are responsible in structuring the organization design. It reflects the
following:
➢ Organization time schedule

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 ➢ Business operations
➢ How the business should relate with the external environment
• Entrepreneurs are organizational directors. They contribute ideas to advance the
enterprises objectives and convincing other workers to consider their views

The contributions of entrepreneurs to national development

• Entrepreneurs spur economic growth. Entrepreneurs contribute to the Gross domestic
product by selling their services and products thus reducing expenditures for imports. New
products or services created by entrepreneurs can produce a cascading effect, where it
stimulates related businesses or sectors that need support the new venture, furthering
economic development.
• Boosts national income. Entrepreneurial ventures help generate new wealth, additionally
increased employment and higher earnings (raises the standard of living of the people) and
contribute to better national income in the form of higher tax revenue and license fee for
government spending.
• Entrepreneurs create social change. Through offering unique goods and services,
entrepreneurs break away from tradition and reduce dependence on obsolete systems and
technologies. Small and growing businesses created through the process of
entrepreneurship initiates and constitutes change in the structure of business and society.
This Change is accompanied by growth and increased output which allows more wealth to
be divided by the various participants. This entrepreneurial activity the process through
which innovation develops and commercializes further stimulates economic growth.
• Community development. Entrepreneurs regularly nurture venture by other likeminded
individuals. They also invest in community projects and provide financial support to local
charities. Entrepreneurship facilitates community development when factories and
businesses are established in different areas not only in big towns. The government is
giving subsidies (incentives) to attract investors in the rural areas e.g. importing machinery
worth ten million and below for a firm established in the rural areas (outside Mombasa and
Nairobi), no custom duties charged.
• Conservation of foreign exchange – they are able to produce goods hence no need to
import (reducing expenditures for imports) therefore contributing to conservation of
foreign exchange.
• Entrepreneurship serves as a conservation agent e.g., businesses established that
either uses the waste products (waste paper recycling) or the business activities calls for
conservation measures e.g., saw miller- ensures continued supply of trees
• Promotion of entrepreneurial culture – They encourage individuals to set up and manage
their business and this reduces importation of goods.
• Promotion of the use of local resources which otherwise could be idle. Examples here
may include scrap metal, which is widely used for making jikos, frying pans etc.
• Utilisation of simple technology which is locally available.

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 • Promotion of industrialization in an economy. Within an enterprise, employees develop
specific skills, which are used for even future industrialization.
• Proper and adequate utilization of local labour, talents which could be idle.
• Enhances link between micro, small, medium and large companies especially in sub-
construction
• Curb rural-urban migration when Jobs are found in the rural areas. People need not go
to the towns in search of jobs.

Entrepreneurship culture in Kenya:

Culture is a people9s way of life. It is a set of values, beliefs, customs, attitudes, perceptions and
behaviours shared by members of a group or social community. Culture distinguishes members of
one group of people from another.
• Entrepreneurship culture is about identifying new opportunities in the business
environment and soliciting (gathering) the necessary resources to commercialize the
opportunity. Entrepreneurship culture enhances economic development, employment and
acts as a primary source of innovation.
Entrepreneurship culture in Kenya is influenced by the following factors:
• Availability of funds • Modern technology • Availability of developed infrastructure •
Appropriate knowledge and skills • Appropriate training • Government policies • Individual
strength and talents • Availability of markets • Availability of resources • Culture • Natural factors
• Political stability • Competition • Resource persons and entrepreneurs • Social security

Other factors that promote Entrepreneurship Culture

1) Money orientation- Use and the need for money as a motivating factor. Such an individual
knows the value of money and purposes to make it through entrepreneurship.
2) Future orientation: A society that has foresight in understanding about future business
environment is likely to have more entrepreneurs. They have foresight in market changes,
consumer attitude, technological changes using this information as basis to entrepreneurial
action. They forego immediate satisfaction for huge future rewards.
3) Time consciousness- Appreciating the importance and existence of time, using it well
through time scheduling, prioritizing and valuing it.
4) Work ethics: A culture that appreciates honest and productive work and punish laziness
promotes entrepreneurship. Entrepreneurs should provide quality products of expected
standards to the consumers who will buy their products/service due to the trust they have
on them.
5) Hard work.
6) Social status: A culture that promotes entrepreneurship holds that a person can move up or
down the ranks of the community based on their achievements. Circumstances of birth
therefore do not define social status. Through honest and hard work, one can be rich

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 irrespective of whether he/she was born of a beggar. Indian caste system born for life as
priests, landowners, traders, farmers, craftsmen and the untouchable.
7) Reward: Appropriate rewards to start-up entrepreneurs motivates them to grow.
8) Competition: Entrepreneurship thrives in an environment of healthy competition where
organizations involved resolve to utilize their resources more efficiently to have an edge
against their competitors.

Factors inhibiting Entrepreneurship culture:

1) Religion: Religious beliefs control people9s behaviours e.g., a Christian believer will not
establish a night club or a bar even if an opportunity arises and they have the resources due
to their faith.
2) Language barrier: The absence of a common language inhibits one from investing in
particular areas, for people tend to relate with people who speak their language.
3) Attitudes towards innovations: There are some cultural practices that are against
innovations, change or new ways. They fear that new things will interfere with their way
of life (norms, beliefs and traditions).
4) Networks: Without proper networks to provide information entrepreneurship cannot thrive.
5) Technology: Many people completely have not adopted to technology out of free will,
while others have not been able to access technical skills and new knowledge inhibiting
entrepreneurship.
6) Beliefs: Beliefs in the existence of all-powerful forces that controls everything hinder
human activities in entrepreneurship.
7) Mentality on imported goods that they are better- Kills local entrepreneurial creativity as
well as reducing market for locally manufactured products/services.
8) Extended family issue: Where they demand to be given free things and unlimited money
making them lazy hindering enterprising.
9) Child rearing practices: Where parents insist on traditional, authoritative way of rearing
children, this hinders the development of an independent spirit. They are discouraged from
asking questions, exploring their surroundings and taking initiatives.

Ways of Managing Factors that inhibit the Development of Entrepreneurial Culture:

1) Aspire to get necessary information related to business competition through the social
media and internet.
2) Develop an entrepreneurial culture before starting a business.
3) Initiate and implement policies ensuring that entrepreneurship teaching is incorporated in
the school curriculum at all levels.
4) Read successful entrepreneurial profiles.
5) Receive mentoring from successful entrepreneurs who will guide them in starting and
managing successful businesses.

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Psychological theory: Advocated by David McClelland; Indicative approach to
entrepreneurship.
• This school of thought argues that entrepreneurs have unique values, attitudes and needs
that drives them to do what they do- to satisfy these needs and values.
• People’s actions are dictated by these values irrespective of the prevailing environmental
circumstances.
• Entrepreneurial personality characteristics therefore differentiates them from non-
entrepreneurs.
These personality characteristics includes among the following:
i. The need for achievement (n-Arch) i.e., the entrepreneurial need for achievement as
indicated by McClelland (1961) in his study on entrepreneurship contribution to economic
development.
o According to McClelland (1961) people with High levels of achievement drive
(entrepreneurs) have a strong desire to solve problems, they set goals and achieve them
through their own efforts. They do not take 8no9 for an answer.
o McClelland uses the achievement motive to explain why there is differential development
in the world between countries, communities and individuals. Achievers are entrepreneurs
who focuses all their energies to achieve results. Entrepreneurs are hardworking and have
great confidence in their ability to succeed. They do not just sit waiting for something to
happen but they make things happen. They are opportunity seekers- turning them into
businesses.
o Psychological theory focuses on micro (intrinsic) values of the individual that propels them
to be what they want, thereby arguing that entrepreneurs are born.
ii. Internal locus of control- Entrepreneurs enjoy taking personal responsibility for actions
and decisions made by them. Believes he is personally responsible for the way his life turns
out to be. Success to them is a product of personal effort not luck or fate.
iii. Risk taking propensity- The probability of receiving rewards associated with success of
a proposed venture which is required by an individual before he/she will subject
himself/herself to the consequences associated with failure (Brockhaus, 1980).
o A risk situation occurs when you are required to make a choice between two or more
alternatives whose potential outcomes are not known and must be subjectively evaluated-
It involves a potential loss/potential success.
Entrepreneurs are born

Sociological theory:
This school of thought highlights the social conditions which preclude the emergence of an
entrepreneur and the social factors that anchors the decision to be an entrepreneur.
According to Dollinger, J (1999) from a social perspective there are two schools of thought that
explains the making of an entrepreneur. These two schools of thought are the impetus for
entrepreneurship factors and the situational factors.

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 • The impetus for entrepreneurship forces includes the following:
i. Negative displacement which includes marginalization of a person or groups of people
from the mainstream of society (Somalis, Jews etc).
ii. Between things- People who are between things are not in the 8middle of things9 do not
belong in either and therefore are likely to seek entrepreneurial activities e.g. between
student life and career/ prison and freedom.
iii. Positive pull from potential partners, mentors, parents or customers through
encouragement by sharing experience, helping the work and spreading the risk.
iv. Positive push through such things as a career path, education, experience may offer
entrepreneurial opportunities.
• The situational factors determines if entrepreneurship will take place once the individual9s
inclination for the same has been activated. This is dictated by the following factors:
i. Perception for desirability which may be derived from an individual culture, family,
peers, colleagues and mentors.
ii. Perception of feasibility (actualization) enhanced through emotional, financial and
physical support. (Entrepreneurs are made)
Entrepreneurs are made

Practical Assessment: Identify any successful entrepreneur around your locality. Write his/her
profile.

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THREE
III. IDENTIFY ENTREPRENEURSHIP OPPORTUNITIES
This learning outcome aims at equipping you with the knowledge on many opportunities in
entrepreneurship. It entails sources of business ideas and generation, analyzing life cycle of a
business, identify legal aspects of business, assess product demand as per market strategies and
identify and evaluate types of business environment, and explore factors to consider when
evaluating business environment and incorporate technology in business as per best practice.

Definition of key terms

Sources of business ideas: These are the origins of business ideas that can be used for financial
gain that is centered on a product that can be offered money.
Product demand: A customers willingness to purchase a product or services at a given price.
Business life cycle: They are phases that a business idea passes through from the time it is
formed in the entrepreneur9s mind to the time business rolls and expands or declines.
Business legal aspects: They are legal frameworks through which a business operates.

What is a business idea?

o An opportunity in the business environment which, can be translated into a business
activity.

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 o The existence of a situation in the business environment which, can be advantageously
turned into a business activity.
o The existence of an opportunity which can be exploited for making money through the
operation of business activities.

Sources of business ideas: Some people in business just copy others the 8me too9 syndrome type.
The best entry path into business is creativity. It makes one recognize needs and generate winning
business ideas. There are no magic formulas for generating business ideas (anybody can).
• Customer surveys: Customer needs and wants to justify for the service or product that
you can offer them.
• Interests and hobbies: Most people have founded great successful businesses while
pursuing their interests and hobbies i.e., by doing what they love doing in their leisure
times.
• Brainstorming and dreams: This starts with identifying a problem statement or question.
Designing solution to these problems lead to business ideas.
• Franchising: It is a situation where sole traders mark distributor of a product gives
exclusive rights to independent retailers for local distribution.
• Mass media: Include T.V. newspapers, internet, radio, and magazines. They are also a
great source of ideas, information and opportunities.
• Personal experience and talents: Most of the ideas are also as a result of experience in a
workplace.
• Trade fairs and exhibitions: Attending such events regularly makes one discover new
services and products.
• Combining two existing business ideas in a new way.
• Spotting a market niche- 8Gaps9 in growing markets. Identify needs of sections of markets
which are not being met by existing businesses through identifying emerging trends e.g.,
increased crime, sex abuse such as rape cases, increased cases of single parents, greater
body fitness (desire for body beauty) etc.
• Listening to what people say e.g., 8if only…9.
• Existing companies- Monitoring and evaluating competitive products and services in the
market, uncover ways to improve and come up with a new product that may be appealing
to the market.
• Distribution channel- Members of the distribution channels are good sources for new ideas
because of their familiarity with the needs of the market. These are the wholesalers,
retailers and other middlemen. They not only are sources of new ideas but can also help in
marketing the newly developed products.
• Government can suggest marketable product ideas. New product ideas can come in
response to government regulations and policies e.g., clean environment, ban on the use of
polythene papers etc.

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 • Research and development- At the place of work or just on your own. Can assess the
environment, economic, political, socio-cultural and technological. Identify trends in these
environments.
• Identifying human needs: Maslow9s hierarchy of needs by Abraham Maslow a
psychologist classifies human needs into five levels. In every business an entrepreneur is
in, tries to satisfy different human needs, therefore when the entrepreneur identifies the
needs of different segments of the population, they are able to come up with ideas.
• Importing a business idea from another place to satisfy the local societal needs.
• Occasional events e.g., graduations, games, elections etc.
• Gaining from waste- Use of waste paper to make kiondos, toilet paper, sawdust to make
chip boards, sewage waste to make fertilizers.
• Substitute products.
• Utilizing technical skills.
• Marketing the products of others in wholesaling, retailing or other marketing
intermediaries.

Generate business ideas and opportunities

To generate more business ideas and opportunities, one must be able to do the following:
• Meet new people
• Tap into your interests
• Keep <pain point= journal
• Travel
• Explore new ways of thinking
• Do your market research
• Go online
• Attending educational event

Business life cycle: refers to the phases that a business passes through from time the idea is formed
in the entrepreneur9s mind to the time business rolls and expands or even declines. Many
businesses go through six stages in their life as shown below;
a) Idea generation: This is the preliminary stage for the business. Here, the entrepreneur does a
lot of ground work to access the viability of the venture he is about to get into.
b) Start – up stage: Activities may involve preparation of a formal business plan, registration of
the business, sourcing capital, recruiting and designing the product. During this phase, sales are
low but slowly increasing its sales as the time passes by. At this phase entrepreneurs concentrate
with marketing their product and services to their target customers (aggressive promotions)
businesses are prone to incur losses in this phase.
c) Survival stage: Break-even level
d) Growth stage: at this stage of business common experiences may include:
• Increased sales and profit

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 • Wider market coverage in terms of geographical region
• A growing number of employees
• Variety of products and services
• Increased competition
• Need for additional expenditures
e) Stabilization/maturity stage: At this stage, business sales and profits stagnate. The business
may also experience intensified competition. Sales may go down due to the presence of
competitors in the market, profit margin starts to go down.
f) Innovation stage: Organizations that fail to innovate at stabilization stage are likely to decline.
To ensure come back to growth, the entrepreneur is required to re-look at the way9s businesses
have been conducted. The cash generation is higher than the profit on the income statement.
Among innovative attempts include:
• Change of management
• Repackage the product/service (product diversification)
• Change the technology
• New distribution methods
• Advertise and promote differently
g) Decline stage: This stage is not in normal plan of business. The entrepreneur does not foresee
business declining at the start-up stage. Sales and cash flow all decline. Companies accept to
extend their business venture by adapting to the changing environment. Firms loses their
competitive advantages and finally exits the market.

Business Legal aspects

Businesses operate within a legal framework that for the most part, works. The legal aspects
include:
1. Legal entity: All businesses are categorized as some sort of legal entity that governs the way
they are treated under the law. Some business structures are considered free standing entities that
have special rights and the owners have limited liability. Others like sole proprietorship, the owner
assumes all the liability and rewards.
Legal forms of business ownership
a). Sole Proprietorship
b). Partnerships
c). Corporation
d). Limited liability company
e). Cooperative
a). Sole Proprietorship
• The owner is the individual who starts the business.
• Has full responsibility for the operations, i.e., unlimited liability controls all decisions and
receives all profits.
• No distinction is made between the business entity and the owner.

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 • To pay outstanding debts of the business creditors may seize any assets the owners have
outside the business.
• Least expensive business to start only fee required is business name registration
• In an individual proprietorship the death of the owner results in the termination of the
business
• A sole proprietorship has a right to sell or transfer any assets in the business.
• New capital can come only from loans or increased contribution by entrepreneur.
• May require collateral to borrow from the banks
• Sole proprietorship has the most control and flexibility in making business decisions.
(Single owner of the venture)
• Attractiveness of raising capital depends on capability of proprietor and success of business
• Proprietorship is not recognized as a separate tax entity – all profits and losses are part of
the entrepreneur tax return
Advantages
i. No double tax when profits are distributed to the owner.
ii. No penalty for retained earnings in the business.
b). Partnerships
Two or more individuals having unlimited liability, who have pooled resources to own a business;
It has a minimum membership of two (2) and a maximum of fifty (50) except for professions firms,
e.g., lawyers, doctors whose maximum membership is twenty (20). There are two types of
partnerships.
Contents of partnership agreement
• Name and address (s) of the firm and the partners.
• Capital to be contributed by each partner.
• The profit-sharing ratios expressed as a fraction or percentage.
• Salaries to be paid to the partners.
• Any interest to be charged on drawings by the partners.
• Interests to be given on partners on their capital balances.
• Procedures to be taken on retirement or admission of a new partner
General partnerships:
• No distinction is made between the business entity and the owners
• Creditors may seize any assets the owners have, outside to offset an outstanding debt,
• Partners share the amount of personal liability equally, regardless of their capital
contribution,
• Death or withdrawal of a general partner terminates partnership unless partnership
agreement specifies otherwise,
• A general partner can transfer their interest only with consent of all other general partners,
• Remaining partners have a right to refuse of any new partner.
Limited partnership:
• Liable for amount of capital contribution,
• Requires a partnership agreement, business name registration (requires legal advice), must
comply strictly with statutory requirements,

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• The death or withdrawal of a limited partner (6 months9 notice in case of withdrawal) – has
no effect on the existence of the partnership,
• A limited partner may be replaced depending on the agreement,

[26]
 • Limited partners can sell their interests without consent of limited partners.
• Separation of ownership and business control. (Such that the limited partners have no
control over business decisions).
• New capital may be obtained from banking but may require a change in the partnership
agreement.
• The majority rules.
• Delicate decisions are spelled out in the partnership agreement.
• Distribution of profit and losses depends on the partnership agreement – mostly will depend
on the partners investments.
• Attractiveness of raising capital depends on capability of partners and success of business.
c). Corporation:
• Separate legal entity that is run by stock holders having limited liability.
• Ownership is reflected by ownership of shares of stock
• No limit to the maximum number of shareholders but in an (S) corporation should have 70.
• Corporation is an entity i.e., a legal <person= taxable and absorbs liability
• The proprietor and general partners are liable for all aspects of the business i.e., they are
liable only for the amount of their investment.
• Corporation created only by statute i.e., before the corporation may be legally formed the
owners are required to; Register the name and articles of incorporation and meet the state
statutory requirements
• Have the most continuity of all the forms of business
• Death or withdrawal has no effect on the business, the corporate charter requires that the
corporation or the remaining shareholders purchase the shares
• Shareholders may transfer their shares at any time without consent from the other
shareholders.
• New capital can be raised through:
❖ Selling stock through voting or non- voting, protects major stock holders
❖ Selling of bonds
❖ Borrowing money in the name of the corporation
• Decisions are made by the management - May or may not be major stockholders
• Major long- Term decisions many require a vote of the major stockholders.

d). Limited Liability Company (LLC):

• It is a partnership/Corporation hybrid.
• Partnerships has partners, corporations have shareholder and the LLC has members.
• No shares of stock are issued
• Each member owns an interest in the business according to the articles of organization -
similar to articles of incorporation or certificates of partnerships.
• Liability is within the member9s capital contribution to the business.
• Members transfer their interest only with majority written consent of the remaining
members
• Standard acceptable term of LLC is 30years

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• Can dissolve when one of the members die or goes bankrupt or the members choose to
dissolve the business

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e). Cooperatives
It is a group of individuals who have specific common needs. Its purpose is to improve the
economic status of the members.
Advantages
• Tax advantage: Exempted from income tax and surcharge on its earnings up to a certain
limit.it is also exempted from stamp duty and registration fee.
• Democratic management: Managing committee elected by members on the basis of one
member one vote irrespective of the numbers of shares held.
• State assistance: This is done by the government as they see cooperatives as an effective
socio-economic instrument of change therefore offered grants, loans, financial assistance
to make their work more effective.
• Open membership: Anyone can join irrespective of their color, age, religion, economic
status and there is no limit on maximum members.
• Limited liability: The liability is reduced to the extent of their capital in the cooperative
societies.
• Social service: The basic philosophy of cooperatives is self-help and mutual help. Thus,
cooperative foster fellow feeling among their members and inculcate moral values in them
for a better living.
Disadvantages
• Lack of mutual interest: All members are not imbued with a spirit of cooperation and such
absence breeds mutual rivalries among its members.
• Corruption: In a way, lack of profit motive breeds fraud and corruption in management.
This is reflected in misappropriation of funds by the officials for their personal gains.
• There is slow decision making since all members of the managing committee have to be
consulted.
• Less capital incentives which does not appeal to long term investors.
2. Contracts: Most businesses will enter into a contract with a person or another business at some
point in their existence. These contracts are what define how the working relationship will be
carried out and who will be responsible for deliverables and payments. Law regulates business and
business must operate on the constraints of law.

A contract is an agreement enforceable at law made between two or more persons by which rights
are acquired by one or more to acts or forbearance on the part of the other, or others
Agreements with no legal relations e.g.
▪ Domestic arrangement
▪ Gentleman promise
▪ Social invitation
Essentials of a contract
▪ Two or more persons
▪ Intention to create legal relations
▪ Each party give consideration

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 ▪ May require writing
▪ Both parties must have contractual capacity
▪ Law must treat the contract as legal
▪ Time of performance
Contracts that must be written
• Stamped contracts
• Acknowledgement of statute – barred debts
• Transfer of immovable property
• Representation of character or credit worthiness
• Contracts of guarantees
• Contracts for the sale of land
• Contracts for the sale of goods of over KES200
• Hire – purchase agreement
• Contracts of employment of over 1 month
• Money lending contacts
Components of a legal contract
• Agreement- There must be a definite understanding between the parties – an offer is made
followed by acceptance both create a reasonably definite understanding between the
parties.
• Consideration-Something of value that is given to the offer or by the offeree
• Contractual capacity- All parties to the contract must be able to make legally binding
agreements – Those in the capacity to contract are known as competent parties.
Incompetent contractors include mentally ill, intoxicated by drugs or liquor, under legal
age
• Legality of purpose- Contract must be legal in its objective. Must not be contrary to the
interest of society in its objective
• Reality of consent- There should not be fraud, innocent misrepresentation or mistakes in a
contract.
Types of contracts
1) Contracts of records – Includes the judgments of the courts and personal recognizance
(acknowledgement in writing that he/she will not cause a breach). Both not true contracts
2) Specialty contracts – It9s a contract under deed and seal
▪ Must be in writing
▪ Signed --It9s real formal contract
3) Simple contract- Does not satisfy the requirement of a contract under deed. It may be oral
written or partly of these or merely implied by conduct e.g. somebody boarding a bus,
eating in a hotel.
What is evidence in writing in a contract – Notes prepared by the parties must contain the
following.
• The names of the parties or sufficient description of them
• The subject-matter of the contract with sufficient clarity
• The signature of the party to be charged or his/her agent
• The consideration must be shown except in case of contract of guarantee
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• The memorandum in writing may consist of more than one document provided they could
be interrelated expressly or by implication.

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Sale of Goods and Services Contract- Sale of Goods act (cap 31)
Seller agrees to transfer property in goods to the buyer for a price (Contract between the seller and
buyer).
Property: according to the act property means ownership of the goods
Goods – anything that can be touched or moved and which is visible and which physical possession
can be taken, does not include land or rights such as debts or shares in a company, money which
is exchanged as currency (that which cannot be physically transferred).
Implied terms in the sale of goods
• Seller has the right to sell the goods
• Goods sold by description will correspond with the description
• Goods will be of merchantable quality and fit for the purpose
• The bulk must correspond the sample
Acceptance – How is a buyer believed to have accepted the goods?
• When the buyer clearly states to the seller that he accepts the goods either by signing or
• After examining them for some time and selling them to another person or using the goods
to make something, or
• When the buyer keeps the goods for a reasonable time without telling the seller that he/she
will reject them
Title of goods
When sold the tittle is transferred but a thief with no title, if sells the goods the buyer cannot obtain
title of the goods
Rights of unpaid seller
When whole of the purchase price has not been paid or tendered to him/her or given a conditional
payment that has been dishonored the seller has the right to:
• Retain the physical possession of the goods
• Stop good in transit
3. Compliance: Compliance to local (city and county), state and federal laws will be something
that all businesses will need to deal with.
4. Resolving disputes: The legal system is set up to solve disputes. These disputes usually revolve
around some sort of breach of contracts, violation of intellectual property or breaking the law.
5. A necessity that’s not the evil: Having good corporate counsel will make your
business better

Product demand Assessment: This involves determining how many units of products will be
sold over the course of a year. Factors to consider:
• Go over past sale records
• Use marketing projections to help estimate demand
• Use a competitor9s sales data
• Pay attention to the local and global economy
• Estimate sales on recent performance

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Types of business environment
Are factors that affect the function of the organization and how organization works directly or
indirectly? They include internal environment which affects operations of a company; are within
the control of management and external environment which are beyond the control of the
organization.
Internal business environment: These are forces close to the company that affect its ability to
serve its customers. The components of the micro environment include the customers, competition,
labour, suppliers, and international issues.
• Financial: Finances determine whether your company survives or dies. When money is
limited, it affects the operations of the business.
• Employees and managers: Employees are the major part of your company internal
environment. They should be good at their jobs. On other hand managers should be good
at handling lower-level employees and overseeing other parts of internal environment.
➢ Areas of concern within the organization include communication network,
organization structure, goals, policies, procedures, rules and ability of the top
management.
➢ On personnel matters; include labour relations, recruitment practices, training
programmes, performance appraisal systems, labour turnover and incentive
systems.
➢ Marketing aspect include: Market segmentation, product strategy, pricing,
promotion and distribution strategy.
➢ Production aspect include plant facility layout, R&D, technology used, purchasing
of raw materials and inventory control.
➢ Financial aspects include liquidity, profitability and investment opportunity.
Manipulating the internal (company) environment to achieve business goals.
➢ Train personnel.
➢ Motivate workers
➢ Establish good performance appraisal systems.
➢ Good location.
➢ Proper incentives.
➢ Use of inventory control systems.
• Resources: Availability of resources can also determine how the business performs. Scarce
resources will affect the number of sales made, quality of products or services produced
and even the period which the business will last.
• Company culture: This consist of values, attitude and priorities that your employees live
by. Your staff will infer your values based on the type of people you hire, fire and promote.
• Customers- this involves characteristics and behaviour of those who purchase goods from
the organization. The company need to profile these behaviours and characteristics.
Different kinds of customers include:

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 ➢ Consumer markets- Individuals and households that buy goods and services for personal
consumption.
➢ Business markets/ Commercial buyers- Buy goods and services for further processing or
store in bulk and resell in retail.
➢ Reseller markets- Buy goods and services to sell at a profit.
➢ Government market- Government agencies
➢ International buyers- Include consumers, producers, and resellers.
• Suppliers- Those who provide resources to the organization. Is your firm single sourcing
or multiple? The entrepreneur should analyse the price trend of inputs sourced from
suppliers for they have effects on their products. Analyse whether inputs are available all
the time to avoid interfering with production affecting sales and profits.
➢ Companies should prefer multiple sourcing instead of single sourcing. Avoid low quality
inputs.
➢ In case of technical inputs- Use single sourcing.
• Marketing intermediaries- Assist other firms in the promotion, selling and distribution
of products/services. They include:
1). Middle men- Assist in the selling process, creating sales, place and time utilities. Different
types of Middle men including:
➢ Agent middlemen whose role is to look for consumers and negotiate sale contracts.
➢ Commission agents- The product is consigned to them by the principal and their role is to
sell the goods on behalf of the principal. They promote the goods, sell and receive the
payment from the buyer. They then pay the principal less the marketing goal and
commission. The agent must be able to disclose all the material facts, like he/she is an agent
and not the principal in order to avoid the liability.
➢ Brokers- Their role is to bring the seller and the buyer together and assist in the negotiation.
They do not receive the payment. Their commission is paid by the one who hires them.
➢ Merchant middlemen: They are the wholesalers and retailers- Both of these agents own the
goods and they earn profit through taking risk.
2). Physical distribution agents: Their role is to assist in the moving and storage of goods. They
own the transportation firms and the warehousing firms.
Transportation firms include rail roads, trucking companies and airlines. Warehousing companies
could be public or private.
3). Marketing services agencies: They are firms that provide research, promotions and consultancy
services. They are advertising agencies, media firms and marketing consulting firms.
4). Financial intermediaries: They include banks, credit companies, and insurance companies
which all finance or insure marketing activities.
• Publics: Any group which have an actual or potential interest in impact on an organization
ability to achieve its objectives. These may include:
➢ Financial publics- Influence company to obtain funds e.g., banks and investment
companies.

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 ➢ Media publics- Carry news and their opinions e.g., newspapers, magazines, radio and TV
stations.
➢ Citizen action public: Marketing decisions of a company can be questioned by consumer
organizations, minority groups, environmental groups e.g., the Green Belt movement.
➢ Local publics: e.g., organizational neighbourhoods, residents and community
organizations.
➢ Government publics
➢ General publics- They do not act together; they do not meet anywhere but have a big impact
on the business- The public image of the company affects its buying.
➢ Internal publics: - Workers, top management etc.

External factors:
1. Competition: Unless a company has unique features, competition will always be there. When
you start a company, you will compete against more established and experienced businesses.
Competition can either make or break your business. Undertake the SWOT analysis to be able to
battle with competitors. Kenya has a free-market economy and thus the entrepreneur must be aware
of the competition in the business environment.
• Entrepreneur should consider the business opportunity with the least amount of
competition within that business environment.
• Competition in terms of the price of goods /service
• Also affects the methods you use to market
• And it also influences what you will offer for sales
• To protect yourself from competitors you must stay a step ahead in every aspect of your
marketing operation etc.
• Your product or service line can usually be tailored to provide a uniqueness which will
appeal to the market you are trying to reach, whether it is in product selection, service,
price, location or some other quality
2. Political & legal: Political environment involves the role of the government in promoting
economic development
• Involves therefore the rules and regulations that govern doing business in a particular
country – can affect the business positively or negatively
• Political risks e.g., political instability, corruption and violence in a country also affect our
businesses. In areas where political risks are high it is difficult and expensive to do business
– Need to restrict the amount of investment until the situation stabilizes not to expose your
business to too much risk
• Taxation laws may encourage or discourage the performance of businesses e.g., reduction
of tax paid on agricultural exports encourages the sale of products to foreign countries.
Taxes are under the fiscal policies which determine the amount of tax that a producer has
to pay on the sale of their goods or on the importation of machines to be used by his/her
business. Tax consists of money used to promote the public good and to do the will of the
people who exercise political power. Taxation reduces the cash available for the business
for reinvestments

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 • Regulatory arm of the government issues trade licenses through the ministry of commerce
• Rules on the minimum technical standards which the goods must meet affects what we sell
e.g., flowers should be fresh before they can be accepted by the European countries (Kenya
bureau of standards)
• Entrepreneurs should also be able to understand laws on patenting. A patent is a legal
property i.e., protection that enables its holder to prevent others from employing this
property for their own use for a specified period of time
• Changes in government policy can have a very huge effect on the business in question.
Example the tobacco industries have been on forced to put warning labels on their product
and lost the right to advertise on the television.
3. Customers and suppliers: Next to the employees, customers and suppliers are the second most
important in your business. Suppliers have a huge impact on the cost and customers depend on
how good your products are and whether you9re advertising makes customers want to buy from
you among others.
4. Economical factor: In a bad economy, even a well-run business may not survive. High interest
rates on banks and credit cards will discourage / limit the entrepreneur and customers spending on
your products or services.

5. The international component: Forces related to the international implications of organizational

operations. They include international laws, political practices, culture and the economic
environment that prevails in other countries. Has implication for managing the organization.
International issues that may affect our business operations e.g. trade barriers, tariffs, trade
agreements and political risks (we are interconnected in a global economy). Trade barriers and
tariffs hinder the free flow of resources across national boundaries (preventing trans-national
competition). To reduce these barriers many countries are encouraging trade agreements such as
the European union, COMESA (Common Market of Eastern and Southern Africa), East African
Community. Government needs to maintain good relations with other foreign governments.
6. Social-Cultural environment: affects changes in people and their needs e.g. Changes in
religious belief, Changes in customs and beliefs, Demographic changes –shifts in people
characteristics e.g. incomes, education and age levels, people distribution geographically) and
people growth. Much of Kenyans live in the rural areas though there has been a significant people
shift from the rural areas to urban centers. Provides a clue to where one can locate a business for
market or sources of labour. Kenyans are pursuing education achievement for better life9s and
large incomes purchasing power etc. A business environment consists of people with different
cultural values, which affects the exploitation of a business opportunity in the business
environment. Knowledge on this environment would direct the opportunity to the right
environment and reduce the risk of failure
7. Technological environment affects other forms of environments. It influences the countries
productivity, the standard of living, the peoples buying power, the rate of social change, consumer
values and lifestyle.
8. Ecological environment influencing business is connected to actions and processes necessary
to protect natural environment and at the same time maintain or increase efficiency of the

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corporation. Corporate environmentalism is about all actions promoting sustainability, where
consumers appreciate ecofriendly products and services. There are several ecological factors
influencing businesses and management decisions including; climate, soil, water, air, sunlight,
temperature, minerals (abiotic) and biotic factors such as animals, plants, fungi and bacteria.

Factors to consider when evaluating business environment

• Ability to manage cash: You need to look at the ability to manage cash flow. Is there a
start-up funding for your business? What about ways to keep funding your business each
month. Figure out how cash flows will be managed and take a look at your business plan.
• Passion and persistence: Are you working with people who will get their jobs done? Do
you trust they have passion for the work assigned to them? How will they approach
difficulties in case they face them in the future? You need to ensure that you have the
passion to be in that business and the desire to come out of challenges.
• Market size: It9s one of the most important factors when evaluating a business
opportunity. Researching the market and figuring out whether there will be market for your
products and how big it is.
• Relationships: What is your relationship with the potential investors or customers? When
you have more relationships the chances for your business to run smoothly is high.
• Management skill sets: What are the skills of those involved in your business? When
looking for the business opportunity to invest in or expand into, look at the management.
What skills do they have? Are they appropriate?
Why business environment analysis
• It9s important to evaluate the business environment to determine the various components
that may influence the business opportunity.
• Helps in assessing the ability to start, grow, survive and compete favorably in the business
environment.
• Discovery of windows of opportunity so entrepreneurs can take advantage to exploit
• These environments are becoming more complex and global, need to be aware for the
success of our businesses- Includes all those things that lie outside the business but which
can greatly affect its operation (macro)
• Reveals risks/threats so entrepreneurs can mitigate them
• Align business, financial and human resources to opportunities
• Understand business regulations thus compliance
• Form reliable networks
• Understand customer needs and purchasing power better hence appropriate marketing mix
and competitor strengths

Why incorporation of technology in business

• Provides for communication with customer: technology affects a firm9s ability to
communicate with customers. This is best achieved by use of internet.
• Efficiency of operations: Technology also helps a business understand its cash flow
needs and preserve precious resources such as time and physical space.
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• Security: Most businesses of the modern era are subject to security threats and
vandalism. Technology can be used to protect financial data, confidential execution
decisions and other proprietary information.
• Business culture and relations: Technology creates a team dynamic within a business
because employees of different locations have better interactions.
• Research capacity: A business that has the technological capacity to research new
opportunities will stay a step ahead of its competition. For a business to survive, it must
grow and acquire new opportunities.

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FOUR
IV. CREATE ENTREPRENEURIAL AWARENESS
This topic aims at equipping you with knowledge on making awareness on entrepreneurship
by identifying legal forms of business ownership, sources of business finances and factors to
consider when selecting them, determine governing policies and explore problems of starting
and operating SMEs.

Definition of key terms

Forms of Business legal ownership: They are different business structures like sole
proprietorship, partnerships, limited companies, corporations among others.
Governing policies: These are written regulations and laws laid by the government that
businesses must comply with.
Small Scale Enterprises: This is a privately owned and operated business characterized by a
small number of employees, require small capital to start etc. A business is regarded as small
depending on the regulations of a country

Sources of business finance: Two types of business financing:

Debt financing: - Obtaining borrowed funds for the company – Also called asset-based
financing since it requires some assets e.g., a car, land, house, machine, etc. be used as
collateral (security).
It is a financing method involving an interest- bearing instrument, usually a loan, the
payment of which is only indirectly related to the sales and profits of the venture (pay back
the principal and interest).
Equity financing: - Obtaining funds for the company in exchange for ownership. Does
not require collateral and offers the investor some form of ownership position in the
venture.
An entrepreneur uses both debt and equity financing to meet financial needs. All ventures will
have some equity, as all ventures are owned by someone in a market economy.

Types of sources of funds

Internal Source of Funds.
Can come from several sources within the company e.g.
❖ Ploughed back profit: It is the most basic source of funds for a company. Firms profit by
selling a product for more than it cost to produce.

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 ❖ Personal Funds: - Least expensive funds, used in many start-up businesses, essential in
attracting outside funding e.g., banks, private investors and venture capitalists. Outside
investors want entrepreneurs to be wholly committed by contributing to their ventures
❖ Sale of assets.
❖ Reduction in working capital.
❖ Extended payment terms, from suppliers.
❖ Accounts receivables.

❖ Overdraft: Is a form of a loan from a bank. A business becomes overdrawn when it

withdraws more money than is available in the account. This leaves a negative balance on
the account. It is often a cheaper way of raising capital.
❖ Leasing: A business has the use of an asset but pays a monthly fee for its use and will
never own it. A business looking to purchase equipment may decide to lease if it wishes
to improve its immediate cash flow.
❖ Issue of shares: A company can generate money by selling part of itself in the form of
shares to investors which is known as equity funding
External Sources of Funds:
(a) Family and Friends
- Invest due to their relationship with the entrepreneur.
- If the finance is equity the family member or friend then has an ownership
position in the venture and all rights and privileges of that position – may have
a negative effect on employees, facilities, sales and profits.
- More patient than other investors in deriving return on their investment.
- To minimize problems the entrepreneur can do the following:
(i) Treat such loans in the same businesslike manner as if the financing is
from an impersonal investor.
(ii) Every loan should specify the interest rate, proposed repayment
schedule of interest and principal.
(iii) Timing of future dividends should not be put in terms of an equity.
(iv) Treat the family or the friend as any other investor.
(v) Settle everything (entrepreneur) before in writing, i.e., amount of
money involved.
- Terms of the money.
- Rights and responsibilities of the investor.
- What happens if the business fails?
(b) Commercial Banks:
- Used mostly for short term funds.
- Receive debt financing which usually requires collateral.
- Collateral can be in the form of;
(i) Business Assets e.g., land, equipment or the building of the venture.
(ii) Personal Assets (entrepreneurs9 house, car, land, stock or bond.
(iii) Or the asset of the consigner of the note.
Bank handling decisions
Decisions made according to the 5C9s of lending; i.e., character, capacity, capital, collateral
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and conditions – The bank will review the following:

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 - Past financial statements.
- Future projections on market size, sales and profitability.
- Banks also require a business plan for loan assessment which include:
o Executive summary
o Business description.
o Owner/manager profiles.
o Business projections.
o Financial statements.
o Amount and use of the loan.
o Repayment schedule.
- This information provides the loan officer and his/her committee with
insight into the credit worthiness of the entrepreneur and the venture and
their ability to make enough sales to cover repayment.
- Entrepreneur should evaluate several alternative banks and select the best
that suits him/her and the business considering cost of loan, control of the
business, availability and the amount given.
(c) Small Business Administration loan:
- Used when one is not able to secure a regular commercial bank loan.
- Various organizations in Kenya stand in the gap as collateral for small business
that cannot provide bank collaterals e.g., KWFT (Kenya Women Finance
Trust).
(d) Research and Development Limited Partnerships
- Especially used by entrepreneurs in high technology areas.
- Provides funds from investors looking for Tax shelters – The sponsoring
company give money to a firm for developing a technology
A Research and Development Limited Partnership progresses through 3 stages.
- The funding stage – signing of a contract between the sponsoring company
and the limited partners, money is invested on the proposed research and
development, proper documentation of all terms, conditions of ownership
is done.
- Development stage – sponsoring company performs the actual research
using the funds from the limited partners.
- Exit stage – if the technology is successful – sponsoring company and the
limited partners commercially reap the benefits of the effort in 3 main
arrangements;
1) Equity partnerships.
2) Royalty partnerships.
3) Joint ventures – to manufacture and market the developed
technology.
(e) Government Grants:
Currently there is various government programmes designed to assist small scale
enterprises e.g., Youth fund, women fund etc.
(f) Private Placement
- Private investors could be family and friends or wealthy individuals.
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- An investor usually takes an equity position in the company and therefore can
be involved in the business operation.
- An area that the entrepreneur needs to consider.

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 (g) Risk-Capital markets that can be involved in financing a firm’s growth.

- Informal risk – capital market.

- The venture – capital markets.
- Public equity market
Informal Risk – Capital Markets
- Markets providing debt and equity to non-secure financing situations.
- Consists of a virtually invisible group of wealthy investors usually known as:
BUSINESS ANGELS, who are looking for equity-type investment opportunities in
a wide variety of entrepreneurial ventures.
- The angels provide financing in all stages of financing particularly in start-up less
than 5 years.
- Majority of the angels expect to play an active role in ventures financed.
- They reject proposals if:
(i) Return ratio not adequate.
(ii) Inadequate management team.
(iii) Not interested in proposed business idea.
(iv) Unfamiliar with area of business.

Venture Capital:
- Professionally managed pool of equity capital.
- The equity pool is formed from the resources of wealthy limited partners – such as pension
funds, endowment funds and foreign investors.
- The pool is managed by a general partner (i.e., the venture capital firm).
- Venture capital provides long term investment, discipline usually occurring over a 5-year
period – Their funding is usually later stages.
- In each investment the venture capitalist takes an equity participation through: -
o Stock.
o Warrants.
o Convertible securities.
- Venture capital has an active role in each company by: -
o Bringing investment.
o Financing planning.
o Bringing business skills to the firm.
- The main aim of venture – capital firm is to generate long-term capital appreciation through
debt and equity investments.
- Venture – capitalists do not necessarily seek control of a company, but would rather have
the firm and the entrepreneur at the most risk – requiring about one seat in the Board of
directors.
The company requiring joining the venture capital must meet the following criteria: -
- Strong management team.
- Product/market opportunity must be unique having a differential advantage in a
growing market.

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- Business opportunity must have significant capital appreciation usually the venture
capital expects a 40 – 60% return on investment in most investment situations.

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Factors to consider in selecting source of finance of the business.
(i) Length of time the funds are available.
(ii) Flexibility- conditions imposed by the source, whether they restrict you in
further capital search or using generated capital in operations.
(iii) Available source of finance to your business.
(iv) Cost of capital: Every source of capital comes with a cost. The cost of getting
capital should not be extremely high. Most businesspeople prefer debt to equity
because its cost is low due to interest tax shield they are not taxed, which lowers
the cost of capital.
(v) Risk of the business: When choosing a source of finance, one should consider
how much risk the business will face when they acquire that source of capital.
That source of capital should not put the business at a very high risk.

(vi) Control of the business: Owners of the business who do not want to lose the
control of the business would rather finance the business using debt rather than
equity which will dilute the ownership of the business.
(vii) Purpose of the borrowing: If the reason for acquiring the source of finance
is to purchase noncurrent assets, the business would rather use long term
sources of finance to fund acquisition of non-current asset.
(viii) The size, status and ability of the business to borrow: If the business has
assets which it can use as collateral, it can consider borrowing loans from
financial institution.

Governing policies on Micro and Small-Scale Enterprises

All the state governments provide technical and other support services to businesses through their
directorates of industries. The government accords the highest preference to development of the
micro and small-scale enterprises by forming and implementing suitable policies and promotional
schemes. Thus, government play supportive role in developing entrepreneurs. The following are
common areas of support:
• Development and management of industrial estates.
• Suspension/deferment of sales tax.
• Power subsidies.
• Capital investment subsidies for new units set up in a particular area.
• Seed capital/margin money assistance scheme.
• Priority in allotment of power connection, water connection.
• Consultancy and technical support.

Problems of starting and operating MSEs

• Financial constraints: Finance has made it difficult to progress and provide quality services.
Financial institutions find it hard to consider lending loans to them as they have little assets that
could be used as collateral. They also face inadequate estimate of cash requirement or faulty capital
planning
• Competition: The low comparative advantage in production of certain goods as compared to our
trading partners. This has restricted entry to the businesses as production costs may be higher
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relative to the cheap imported goods.

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• Lack of advanced technology: Technology is fundamental and a prerequisite to higher output
levels and reduced production costs. This has made them not to flourish and participate in regional
trading due to low quality output because of the use of obsolete technology.
• Insecurity: Security poses a great challenge to small scale business owners in Kenya. Many of
the businesses suffer loss due to theft or thug9s invasion who steal from them which lead to loss in
terms of destruction.
• Hawkers: Pose a challenge to small scale businesses because they sell cheaper and their goods
are of high quality. Competing with hawkers on prices is debatable since hawkers move from one
place to another bargaining on price. Since most of them don9t consider a lot of profit but sale of
goods.

• Lack of all – round managerial experience or understanding in the particular line of

production
• Lack of adequate accounting system leading to non- availability of basic figures necessary
for decision making
• Inadequate knowledge of tax related matters
• Weak marketing skills
• Lack of strategic plan
• Uncontrolled growth
• Poor location
• Improper inventory control
• Poor pricing strategies
• Inability to make <entrepreneurial transition=

Assignment: Differentiate between private and public limited companies.

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FIVE

V. APPLY ENTREPRENEURIAL MOTIVATION

This topic aims at enlightening students with information on how to apply entrepreneurial
motivation through determining both internal and external motivation factors in accordance with
motivational theories, conduct self-assessment as per entrepreneurial orientation, carry out
effective communications in accordance with communication principles and how to apply
entrepreneurial motivation into the business as per motivational theories.

Definition of key terms

Internal motivation Factors: These are factors that aim to motivate the behavior of an individual
arising from within the individual because it9s naturally satisfying them. Internal Motivational
factors are the (Push factors/intrinsic factors/micro factors). Those personal traits that induce a
person to become an entrepreneur.
External Motivation factors: These are those factors that aim to motivate the behavior of
individual in order to receive an external reward or outcome. These are also referred as (Pull
factors/extrinsic factors/macro factors). They are macro factors which influences entrepreneurial
development of individuals. They are incentives within the environment (provided by others) that

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promote entrepreneurship development. They provide an <enabling environment= for
entrepreneurship.

Motivation theories: These are the forces acting on or within a person that causes the arousal,
direction and persistence of reaching a goal.
Communication Principles: These are the proven guidelines that are followed in giving and
receiving a message to another person with an intention to evoke a response.
Entrepreneurial Motivation: A motive is a need that is sufficiently pressing to direct the person
to seek satisfaction. The need becomes a motive when it is aroused to a sufficient level of intensity.
A person is bound to take a certain positive action so as to reduce or eliminate this felt deficiency.
Those forces that moved the person to react in the manner are his/her motivations.
Entrepreneurial Motivation is the process that activates and motivates the entrepreneur to exert
higher level of efforts for the achievement of his/her entrepreneurial goals.

Factors for internal motivation

• Curiosity: The desire to know pushes us to explore and learn the sole pleasure of learning and
mastering.
• Challenges: These makes us to work at a continuous pace and work hard towards achieving our
meaningful goals.
. • Cooperation: Cooperation with others satisfies our need of belonging and achieving our shared
goal.
• Fantasy: This involves using our mental and visual image to stimulate your behavior.
• Need to create employment
- Failure to get any form of salaried employment irrespective of the person level of education
may lead to the creation of an entrepreneurial venture. One could also be more concerned
about creating employment for others maybe dear to them
- Our current education strategy is aimed at self-reliance which is an enough motivator for a
person to become an entrepreneur
• Self-reliance /independence
- Entrepreneurs do not like taking orders from others. Entrepreneurs want to be masters of
their own actions
- They seek greater flexibility in the utilization of their time free from dependence
- They thus seek opportunities that provide independence where they set challenging goals
and make efforts to achieve them
• Competition – Man is generally competitive in nature and would in most cases try to prove
that whatever others can do he/she can do better. This can be in response to the
achievements of your peers, friends or family members
- The competitive challenge posed will provide good stimulus and standards by which you
will gauge your performance
• Need for recognition

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 - Man, normally acts in a manner that will impress others, especially those people whose
opinion about us we hold dear e.g., family, peers and society
- Success in a personal business venture is one of the most effective ways of getting
recognition from society
- This may lead you to become a pillar of society, a symbol and a role model, a person whose
opinion will be sought and appreciated
• Need for security – we all strive to be free from anxiety; anxiety about the future about
our very survival etc. Entrepreneurship does provide an avenue through which you may
achieve a greater measure of such security.
- You will be in control of your destiny, will have greater certainty in terms of your continued
future earnings etc.
• Need for adventure – in salaried employment your duties are well specified, your work
may be routine therefore posing no challenges
- Adventure is a way of taking risks or challenge without knowing the end results
- Adventure gives a potential entrepreneur the opportunity to explore new areas and
opportunities thus enhancing his/her knowledge and innovativeness
• Need for self-actualization
- Refers to the need for a personal identity, the need to feel that you are unique, that you
have been able to accomplish that which you as a person are capable of achieving, that you
have achieved your maximum.
• Profit maximization – the motivation to maximize profit will make potential
entrepreneurs work harder be innovative and even venture into other enterprises.
• Desire to succeed: Desire to succeed towards one’s welfare to maximize pleasure and
happiness. This gives entrepreneurs public appreciation and recognition, especially if they
have accomplished difficult tasks where others have failed.
• Survival: to succeed entrepreneurs have to strive to overcome micro and macro factors
such as hyper competition. The spirit of survival sustains them through the challenging
environment to achieve their goals.
• Power: the desire to feel in total control in all situations <hands on=. Power brings
satisfaction which ultimately becomes the driving force behind the activities of an
entrepreneur- should be power that respects the humanity and the dignity of others.

External Motivational factors:

1. Infrastructure- power, water, transport, communication and premises. Most businesses
will also require the services of banks, post offices etc. The provision of these facilities is
the responsibility of established authorities. Basic infrastructure helps in creating place
utility i.e., making it possible for manufactured goods to reach the end user.
2. Credit Facilities- To start and operate a business we usually require financing from
external sources e.g., from government agencies, banks and non-bank financial institutions,
NGO9s etc. One has to meet the lending institutions criteria to get the finances where they

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 consider; amount required, period of the loan, viability of the proposed business, collateral
(security) required, the interest charged and the repayment terms i.e. (debt servicing)
3. Information support – especially relating to the market (domestic and foreign), the nature
of the competition, financing requirements, documentation requirements, legal
requirements (licensing), and foreign exchange requirements, barriers to trade etc.
- The government gathers and provides such information through its embassies for use by
our entrepreneurs
- Information can also be provided by trade associations such the Kenya National Chamber
of Commerce and also the N.G. O9s
4. Pricing policy – governments pricing policy should be an incentive to entrepreneurs,
should not be too restrictive
- However, in the case of certain essential commodities, some elements of price control is
necessary to prevent unscrupulous business persons from exploiting the consumers in their
pre occupation of reaping as much profit as possible
- However, where price controls are necessary, they should take into account all the
material facts e.g., the costs of production and the reasonable profit margin.
5. Tax policy – taxes should not be too exorbitant for this could be counterproductive in the
long run. The tax levied on a commodity can easily be passed on to the consumer raising
the market price and in situations where it cannot it then would erode the earnings of the
entrepreneur
6. Legal controls – manifested in the licensing requirements for establishing various types of
businesses. Sometimes the licenses amount to an added tax-burden, they are too many and
at times they are a mere duplication.
7. Political climate- relates to absence of war, fairness in the granting of licenses,
consideration for credit facilities, tax concessions etc. where issues of tribalism, nepotism,
racism and any form of discrimination should be discouraged. Peace and respect of law
and order is necessary in the country. The government also gives export and import
incentive schemes to entrepreneurs: Provide monetary concessions e.g., custom duties, tax
deductions and licensing. These are financial deductions which accrue to entrepreneurs
who invest in particular assets for their business operations e.g., Investment allowances of
85% to entrepreneurs who have invested outside the cities of Nairobi and Mombasa.

Motivation Theories
They are divided into content theories that focus on what, while other motivation theories focus
on how. The main content theories are; Maslow9s hierarchy of needs, Alderfer9s ERG theory, Mc
Cleland9s achievement motivation and Herzberg9s two factor theory. Process theories are; skinners
reinforcement, Victor Vroom9s expectancy, locker’s goal setting theory.
Abraham Maslow hierarchy of need theory:
Maslow hierarchy of needs theory is identified with the psychologist Abraham Maslow. This
theory is based on 3 assumptions:

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1). That human beings are never satisfied, their needs/wants are determined by what they
have. After the current need is satisfied the same person wants something else.
2). A satisfied need does not cause behaviour.
3). Human needs are arranged in a hierarchy of importance. They range from low level
biological (physiological) needs to high level needs of self-actualization

Self−actualization needs

Ego & Self−esteem needs

Social & Belonging needs

Safety needs

Physiological needs

Entrepreneurs are motivated to enter into entrepreneurial venture to satisfy human needs for
themselves or other people. In every business an entrepreneur is in tries to satisfy different human
needs, therefore when an entrepreneur identifies the needs of different segments of the population,
they come up with business ideas which they commercialize.
Examples of business ideas in the 5 levels of human needs:
Physiological needs: Providing basic needs (food, shelter, clothing and education) through Real
Estate in building houses and selling, Hotels, offering education through private schools and
universities
Safety needs: Providing security, stability, and safe environment through insurance companies,
security firms and street lighting projects
Social and belonging needs: Providing social interaction, friendship, affection and love through
bars, entertainment halls and event management
Ego and self-esteem need: Providing products and services that makes one feel good about
themselves, their capabilities achieving respect from others, recognition and appreciation. Such
businesses include car selling, selling or leasing flats in upper market as well as retailing
differentiated products in upper markets.

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Self-actualization: Providing products and services that makes one realize their full potential as
human beings. Such businesses include hiring helicopters and leadership seminars.
NOTE: According to Maslow, <what humans can be then they must be=.

Alderfer –ERG THEORY: Existence needs, relatedness needs and growth needs. ERG theory
says, if the manager concentrates only on one need at a time, he/she won9t be able to motivate the
employee effectively. He therefore divided the needs into;
i. Existence needs: it includes needs for basic material necessities.
ii. Growth needs: is the need for self-development, personal growth and advancement form. This
class contains Maslow9s social needs and external component of esteem needs.
iii. Relatedness needs: these are individual need significant relationships. It contains Maslow9s
social needs and external component of esteem needs.

McClelland theory: Need for achievement, affiliation and power.

This theory differs from Maslow9s and Alderfer9s theory. This dominant motivator depends on our
culture and life experiences. The motivators are:
i. Achievement motivation: It9s influenced by internal drivers for action and pressure used by the
prospects of others. Individuals with high need of achievement like to receive regular feedback on
their progress and achievements and often like high degree of independence.
ii. Affiliation motivation: It is a need for love, belongingness and relatedness. They have a strong
need for friendships and want to belong within a social group, need to be liked and held in popular
regard.
iii. Authority/power motivation is a need to control over one9s own work or work for others. These
persons are authority motivated. There is a strong need to lead and succeed in their ideas.

Herzberg-two factor theory. Also known as motivation-hygiene theory.

This theory says that there are some factors that cause job satisfaction and motivation and some
separated factors (hygiene factors).
Hertzberg’s five factors of job dissatisfaction
• Company policy and administration
• Supervision
• Salary
• Interpersonal relations
• Working conditions
Hertzberg’s five factors of job satisfaction
• Achievement
• Recognition
• Work itself
• Responsibility
• Advancement

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Process theories
a) Skinner’s reinforcement theory
It says that behavior can be formed by its consequences. In it is stated that reward must meet
someone9s needs, expectations, must be applied equitably and must be consistent. The desired
behavior must be clear and realistic.
b) Vroom’s expectancy theory
Emphasizes on the process and content of motivation. It aims to explain how people choose from
the available actions. The motivation to engage in an activity is determined by appraising three
factors. They are;
i. Expectancy: A person9s belief that more effort will result in success.
ii. Instrumentality: The person9s belief that there is a connection between activity and goal. If you
perform well, you will get a reward.
iii. Valence: It is the degree to which a person9s values the reward; The result is success.
c) Locker’s goal setting theory
It is an integrative model of motivation. It emphasizes that setting specific, challenging
performance goals and the commitment to these goals are key determinants of motivation. Goals
describe a desired future and these established goals can drive the behavior. Achieving the goals,
the goal accomplished further motivates individuals to perform. It is a useful theory which can be
applied in various fields.

Assessment for entrepreneurial Orientation

The first dimensions of entrepreneurial orientation to be consistently identified by organizational
research were innovativeness, risk taking and pro-activeness. Innovativeness refers to the
propensity towards creativity and experimentation through the introduction of new products and
services. Risk taking is the degree to which firms, or managers are willing to consider investing in
resources. The relationship between pro-activeness and personal initiative is congruent with
studies conducted in organizational settings.

Entrepreneurial Communication Principles

• Completeness: The message must be complete and geared to the receiver perception of the world.
• Concreteness: The clearness of the message
• Courtesy: Approaching the audience in a friendly manner
• Correctness: Message should be grammatically correct and avoid wrong use of verbs.
• Clarity: Clear language is characterized by short and concrete words.

Application of Entrepreneurial motivation theories

• In the case where there is need for achievement, affiliation and need for power as stipulated by
McClelland.
• Where there is need to establish entrepreneurial personality.

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• If there is need for high achievement in a particular form of business.

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SIX
VI. DEVELOP BUSINESS INNOVATIVE STRATEGIES
This topic aims at equipping the trainers with knowledge on business innovative strategies in
accordance with organizational strategies, how to demonstrate creativity in business development,
develop innovative business strategies, how to create linkages with other entrepreneurs as per best
practice and how to incorporate ICT in business growth and development as per best practice.

Definition of key terms

Business innovative strategies: A plan used by a company to encourage advancements in
technology or services usually by investing money in research and development activities.
Business growth: This is a stage where the business reaches a point of expansion and seeks
additional options to generate more profit.
Business Development: Is the creation of long-term value for an organization from customer,
markets and relationships normally focuses in achieving long term goals.
Business strategies: Are plans put in place by an entrepreneur to undertake business operations
and ensure that the strategies are implemented to achieve business goals and objectives.

Business innovation strategies

Types of business innovation strategies:
They can be classified as active, pro-active, passive and reactive.
a) Proactive: Companies with proactive innovative strategies tend to have strong research
orientation and first-mover advantage and are technological market leader. They access knowledge
from a broad range of sources and take big bets/high risks. Types of innovative technologies used
in proactive strategy are:
• Incremental: The constant technological process changes that lead to improved performance of
products and services.
• Radial: Breakthroughs that change the nature of products and services.
b) Active: It involves defending existing technologies and markets while being prepared to
respond quickly on markets and technologies are proven. Companies using this approach also have
broad sources of knowledge and medium to low-risk exposure. They tend to hedge their bets. They

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mainly use incremental strategies.
c) Reactive: It is by companies:
• Which are followers
• Have a focus on operations.
• Take a wait and see approach.
• Look for low risk opportunities. They copy proven innovation and use entirely incremental
innovations.
d) Passive: Companies with passive innovative strategies wait until their customers demand a
change in their products or services.

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Importance of innovation in business: Innovation refers to creating more effective processes,
products and ideas. Their benefits include:
• It helps to solve problems easily in business.
• It increases the productivity of the business.
• Innovation makes it easier to market your business hence gaining market share.
• Have a competitive advantage thus making it easier to beat your competitors.
• Enables the business to sustain in any particular environment.
• A business is able to maximize on its return on investment.
• It brings about a positive impact on the company9s culture.
• Helps in communication, coming up with effective innovative communication strategies that
ensures that communication flows all around the organization.

Creativity in business development

The two important aspects:
• Process: The process is goal oriented and designed to attain a solution to a problem.
• People: The people are the active resources that determine the solution. They will sometimes
adapt a solution and at other times they will formulate a highly innovative solution. This innovator
approaches tasks from unusual angles, discover problems and avenues of solution, questions basic
assumptions related to current practices, is more interested in ends, has little tolerance for routine
work, little or no need for con-census and often insensitive to others.

Developing innovative business strategies: The five steps for developing the strategies are:
• Determine objectives and strategic approach to innovation.
• Know your market i.e., customers and competitors.
• Define your value proposition.
• Access and develop your core capabilities.
• Establish your innovation techniques and systems.

Ways of developing linkages with other entrepreneurs.

• Identify the competitive advantage of a given region and resident enterprises for certain products
and services.
• Developing a joint strategy with participation of local stakeholders.
• Linking the local PSD measures to the strategy. Fostering business linkages between
entrepreneurs of this sub-sector and related sub-sectors.
• Developing capacity of public and private business service providers.

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ICT in business growth and development: ICT: Includes any communication device or
application encompassing radio, television, cellular phones, computers, hardware and software.
ICT can be used in expanding, growing and developing the business through the following ways:
i. Social media: Refers to a wide range of internet based and mobile services that allow users to
participate in online purchases, sales, advertising hence the business is able to expand the number
of audiences that can be able to see and purchase their products. Social media platforms encourage
knowledge sharing and businesses. With the current information age, most individuals are
connecting using various technological platforms. Here someone can post their products or
services freely among the members and consultation is real time as answers and questions are
readily available. This promotes flexibility and customers are able to order from anywhere and
their products will be delivered hence convenient for the customers.
ii. Blogs: These are online journals hosted on platforms that help advertise the different products
of business hence a high probability of increasing market share.
iii. Wikis: A collective website where any participant can modify any page or create any new page
using a browser, hence people can see images, prices of the products of your business and they
can order online hence increased flexibility of the business.
iv. Media sharing sites: Allows users to post videos or photographs.

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SEVEN
VII. DEVELOP A BUSINESS PLAN
This topic aims at equipping you with knowledge on how to plan a business. You should know
the types of businesses, develop market plan, prepare organizational/management plan, prepare
production plan, financial plan and an executive summary.

Definition of key terms

Marketing plan: involves identifying target customers, how to reach them and the retention
process.
Organizational/management plan: describes how an organization or business is run.
Financial Plan: it is a comprehensive evaluation of an individual9s current pay and future
financial state.
Business plan: a written description of your business future/current, a document that tells what
you plan to do and how you plan to do it.

Types of Businesses as per business procedures and strategies

There are three major types of businesses:
1. Service business: is a type of business that provides intangible products. They offer
professional skills, expertise advice and other products.
2. Merchandising business: this type of business buys products at wholesale price and sells
the same at retail price. They make profit by selling the products at prices higher than their
purchase cost.

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3. Manufacturing business: it buys products with the intention of using them as raw materials
in making new products. It combines raw materials, labor and factory overhead in its
production process.

What is a business plan?

A business plan is a document that demonstrates that your business can sell enough of its
products or services so as to make a satisfactory profit and be attractive to potential lenders. It
is therefore a selling document. A business plan can help you get where you are going. It is a
roadmap you can follow to start and manage a successful business. It is thus a managing tool.
An effective business plan should be written by the entrepreneur. It comes from your
experiences, your goals, your thoughts, your vision, your philosophies and your research into
the opportunity you hope to pursue. A business plan is a blueprint of your company presented
in a logical manner. It is a strategic plan of your proposed company.
A business plan has various components including: Cover page, declaration, Table of contents,
Executive summary, Business (Company) description, Marketing plan (analysis),
Organizational and management plan, Operational and production plan, Financial plan
(projections), Request for funding, Potential risks and measures to overcome and Appendices.

COMPONENTS AND FORMAT OF BUSINESS PLAN WRITING

• Cover page; Name of business, Business physical address, Title of document, Presenter,
Presented to who and Series
• Declaration
• Dedication
• Acknowledgement
• Table of contents
• Executive summary; summary of all chapters below (in one paragraph, single spacing
without chapter headings). It is a short document or section of a document produced for
business purposes. It summarizes the business plan in such a way that readers can rapidly
become acquainted with the large body of material without having to read it all. It is
intended as an aid to decision making by managers and has been described as the most
important part of a business plan.
Chapter I: Business (company) description: Business Sponsor(s)Business Name, Business
Name, Form of Business Legal Ownership, Type of Business, Product(s)/ Service(s),
Justification of Business Opportunity, Industry, Business Goals, Entry and Growth Strategy.
Chapter II: Marketing Plan: market/ customers, market share, competitors, method of
promotion, pricing strategy, sales tactics, distribution strategy
Chapter III: Organizational/ Management Plan: Business manager, other personal9s (duties
experience and qualifications), recruitment, training and promotion, remuneration and
incentives, licenses, permits and By-laws, support services.

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 Chapter IV: Operational/ production plan: Production and operational facilities, production
and operational strategy, production and operational process, regulations affecting operation.
Chapter V: Financial Plan: Pre-Operational Costs, working capital, projected cash flow
statement, pro-forma income statement, pro-forma balance sheet, calculating break-even point,
profitability ratios, desired financing proposed capitalization

Request for funding

1.0 CHAPTER ONE: BUSINESS (COMPANY) DESCRIPTION

This chapter gives a detailed description on the background information about the business.
Each sub-topic provides vital information about the proposed business. Use continuous prose
(complete sentences, in full paragraphs to give a description about your business). The points
raised in this handout are intended to assist in organizing your thoughts and ideas in a coherent
manner. They are not to be treated as dis-jointed pieces but one continuous report, broken into
various subheadings.
1.1. BUSINESS SPONSORS
Provide brief background information about the owner(s) of the business in relation to the
education, skills and experience relevant to the operation of the business chosen.
1.2. BUSIENSS NAME
Identify a suitable name for your business, which is relevant, easy to remember and appealing
to customers. Explain why you have chosen the name.
1.3. BUSINESS LOCATION AND ADDRESS
Describe your business physical address, by giving the name of the city/town/street/avenue,
building, and floor and room numbers. In cases where these do not exist, identify your business
location in relation to a significant trade marking the area e.g., hospital, petrol station, police
station, Post office, school, church etc. Provide also a postal address for your business
including a telephone number where possible. Explain the reasons why you have chosen this
location. You may illustrate your business location on a map.
1.4. FORM OF BUSINESS LEGAL OWNERSHIP
Indicate how the business is to be owned e.g., sole- proprietorship, partnership or private
limited company. Show the role the owner(s) will play in the business operation. In case of
partnership develop a partnership agreement.
1.5. TYPE OF BUSINESS
Level of business growth
1.6. PRODUCT/SERVICES
Describe the product(s) to be offered by the business in detail, giving the physical features of
the product such as various types, color, size, quantities, shapes etc. Explain the competitive
edge your product has over those of your competitors which will justify why your customers
will buy from you but not from them. In case of services describe the quality, promptness,
types of services to be offered etc. Show the competitive edge of your services.

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1.7. JUSTIFICATION OF BUSINESS OPPORTUNITY
Give at least 5 good reasons why you decided on this particular business opportunity/ idea.
1.8. INDUSTRY
Industry is a cluster of businesses producing the similar kinds of product/ services and serving
similar market segment to solve similar customer needs. Identify the industry your business
falls under. Describe this industry in detail in regard to size, business trends, technology,
current and past performance and projected future performance of the industry. (Note
information on all industries in the country is available from economic publications – do your
research)
1.9. BUSINESS GOALS
State your business goals in the short, medium and long term. Your business goals must be
specific, measurable, achievable, and realistic and time phased (SMART).
1.10. ENTRY AND GROWTH STRATEGY
This provides your plans / tactics formulated to enable you gain entry and acceptance into the
market as a new business. Show how you will attract and retain customers.
Growth strategy shows your expansion plans. Outline the steps to be taken in expanding your
business showing the time frame within which these plans will be implemented.

2.0 CHAPTER TWO: MARKETING PLAN

2.1 TARGET CUSTOMERS
Describe your potential customers in detail, in terms of who they are, where they live/located,
their occupation and their income levels (individual customers). Describe other categories of
customer9s e.g., commercial, institutional and government. Describe in detail their needs in
relation to the product(s) or services(s) you intend to offer in terms of quantities, frequency of
purchase, method of payment, terms of sales etc.
2.2 MARKET SHARE
Describe the market area and size you intend to operate in. Estimate a market share
(percentage) in relation to your competitors that you intend to capture and retain as your market
share. You may illustrate this using a pie chart, graph etc.
2.3 COMPETITORS
Identify your business competitors by name. Where are they located in relation to your
business? Describe each of your competitors in detail in relation to:
• Methods of operation/production (technology)
• Capital outlay (invested)
• Market share
• Quality of products/ services
• Variety of products/ services
• Pricing techniques
• Distribution strategies and any other competitive areas

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Show your competitive edge/advantage over your competitors. Show how you plan to cope
with competition. Unique selling proposition: having a unique selling proposition is very
critical since it distinguishes your company from its competitors.
2.4 METHOD OF PROMOTION
Describe how you plan to create awareness for your product/ services. Describe methods of
Sales promotion, Publicity, Personal selling and advertising. The advertising can be primarily
done online via a search engine. We should choose best marketing network for your products.
Show how these methods of promotion will be used to increase sales. Keys to success: there
are several benefits of using social media to market our small business. Each of the postings
on social media sites will include a traceable link. We need to know how many people click to
each link. Identify suitable times when promotions will be carried out in your business.
Estimate costs in promotions.
2.5 PRICING STRATEGY
Describe the factors to be considered when setting prices for your products/services. Describe
the various pricing techniques you will apply in order to appeal to your potential customers.
Show the terms of sale and mode(s) of payment to be used. Pricing and positioning strategy:
it must be aligned. You should detail the positioning you desire and how your pricing will
support it.
2.6 SALES TACTICS
Describe your selling methods- Direct or Indirect. Describe your customer9s service strategies.
Describe your public relations strategies and after sales services to be offered to your potential
customers.
2.7 DISTRIBUTION STRATEGY
Describe the channels of distribution to be used, to enable product/ service flow from your
business to be accessible to your final consumers. Identify possible problems to be
encountered in distribution endeavor and possible solutions you are likely to apply. Estimate
distribution costs per month and lay down strategies to minimize this cost and achieve
efficiency.

3.0 CHAPTER THREE: ORGANISATION AND MANAGEMENT PLAN

It describes how an organization or business is run. It allows you to formalize your
management structure and operations.
In the description of management, you should: 1. Name your board members. 2. Introduce the
key management members. 3. Present the strengths (qualifications, experience and duties)
of each individual in the management team. 4. Describe hiring process. 5. Name any outside
consultants or advisors you will be hiring. 6. Summarize your management team abilities. 7.
Describe relationships between management, ownership and employees.
3.1 BUSINESS MANAGER
• Describe in detail the qualification and duties and experience of the business manager.

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 • Describe in detail, your organization (management) structure, showing clearly the lines of
authority and responsibility, supervision, accountability etc.
• Show you organization chart.
3.2 OTHER PERSONNEL
Show all the employees you plan to work with their titles, duties and qualifications, experience
and any special skills or qualities required.
3.3 RECRUITMENT, TRAINING AND PROMOTION
• Show your source of recruitment, the procedure to be followed in selection of qualified
personnel.
• Show how you plan to determine the training needs of your employees, how they will be
trained when and who pays for the training.
• As each employee expects some form of promotion, show how you will go about this
exercise. Who qualifies for promotion? When and how will you promote your employees?
3.4 REMUNERATION AND INCENTIVES
Every employee deserves to be paid and paid well for the job they do. Your employees will
have to be paid a salary and some may have to enjoy certain allowances. Show how you plan
to compensate your employees. Use the format below.
Serial Job Title Basic Allowance Total Total
Number Salary (Specific) Monthly Annual
(Kshs) (Kshs.) Salary Salary
1
2
3
4
5
6
7
Total
Incentives represent the extras, over and above the salary and allowances. Incentives can be both
financial e.g., bonuses or non-financial e.g., good working conditions etc.
• What financial incentives do you plan to give to your employees?
• What non-financial incentives to you plan to give to your employees?
3.5 LICENSES, PERMITS AND BY-LAWS
For a business to operate, it has to obtain certain licenses and permits from the relevant
authorities. These documents vary from one business to another. You should do some research
and find out.
• What kind of licenses you will need to operate your business? And where you will obtain
them from, for how much, and how often?

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• What special permits must you obtain from government authorities to allow you to operate
your business? (If any) Where will it be obtained from? For how much and how frequently
will you need to renew it?
• Are there any special Country council or National by-laws you have to adhere to? Give
details of what is expected of you.
3.6 SUPPORT SERVICES
They represent all the necessary services that can enhance the success and efficiency of the
business, yet they are not required continually. They can therefore be outsourced at regular
intervals, depending on when they are required. Examples include financial management
consultancy, legal services, banking services, insurance, technical services, environmental
management consultancy etc. Identify the support services you will need for your kind of
business and for each of them show the source i.e., the specific provider, the exact services that
will be offered, how often and in some cases for how much? NB: Be specific in the firm or
organization.

4.0 CHAPTER FOUR: PRODUCTION/OPERATIONAL PLAN

This chapter is key to the success of the business. Just like marketing and finance, operations
or the production function of the business is very important. It is the technical part that takes
care of the aspects of the business that result in the final product or service for the customer.
How this is achieved must be planned for carefully, to ensure that the output is acceptable and
of good quality that customers will be willing to spend their money on. It is a highly detailed
plan that provides a clear picture of how a team, section or department will contribute to the
achievement of the organization9s goals. It is a manual for operating your organization. It is
designed to ensure you accomplish your goals. It is a key piece of the puzzle for any goal-
oriented team.
4.1 PRODUCTION/ OPERATIONAL FACILITIES & CAPACITY
To be able to process products and services a business needs to carefully identify the facilities
to be used for that. These include the machines, tools and equipment that may be required for
operations. Other facilities include furniture and fittings, necessary for smooth operations.
The entrepreneurs also identify other facilities such as transport vehicles that may be hired
from time to time or other sophisticated equipment that cannot be afforded during the start-up
phase of the business.
• Give a brief description of your requirement in terms of the resources it requires for
production.
• Format those requirements in the following:
Facility
Machines/tools/equipment No. Capacity Cost Total cost
required per Supplier/source
unit

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 Total xxxxxxxxx
Furniture & fittings

Total xxxxxxxxx
Total xxxxxxxx

• Describe your business premises giving details of the room/hall/yard etc., how it will be
partitioned, what task will be carried out where etc. Follow up with a drawing (sketch) to
illustrate the layout of your premises.
• Provide any other relevant information on production facilities that may be unique to your
type of business.
4.2 PRODUCTION / OPERATIONAL STRATEGY
Production planning and control is important if the operation of your business is to be carried
out effectively and efficiently. In this portion, you describe how your business operations will
be organized, costs involved and techniques for ensuring efficiency.
• Describe in detail, how your business operations/ production activities will be supervised.
Who will do the supervision? What measures will you put in place to ensure that costs are
minimized, wastage of resources eliminated, production or operations are optimized, and
resource utilization is used efficiently?
• Provide details of the costs involved in the operations.

Cost of materials per month

Item Amount(kshs)

Total costs

Cost of labour per month

Item Amount(kshs.)

Total costs

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Overhead Costs
Overheads are expenses that the business pays on a monthly basis, or otherwise, expenses
incurred as operational costs mostly for the amenities, energy and other utilities that support
the efficient running of the business. These may include; electricity, water, telephone,
insurance premiums, transport, postage etc. Show what overhead costs your business will
incur. Follow the format below;
Item Amount(kshs)

Total costs

Total Costs of Production per Month

This takes into account the costs for material, labour and overheads. This gives the total cost
of production/operations that the business will incur every month.
Item Amount(kshs)
Cost of materials
Cost of labour
Overhead costs
Total costs

4.3 PRODUCTION / OPERATIONAL PROCESS

The production process describes the procedure to be followed in ensuring that the product or
the service gets to the final customer. Give a detailed step-by-step process of your operations
right from the time the customers make an order to the point where the customer pays for the
product and leaves.

Note: Do not just list the steps. Give details of exactly what happens in each stage.

4.4 REGULATIONS AFFECTING OPERATION

Production or operations of any business are affected and regulated by certain government
laws and regulations. These may be varied ranging from taxation laws, factory act etc. find
out which government regulations are likely to affect your operation. Show how you plan to
adhere or fulfill the requirements.

5.0 CHAPTER FIVE: FINANCIAL PLAN

It is a comprehensive evaluation of an individual9s current finances and future financial state
by using current known variables to plan. It often includes a budget which organizes an
individual9s finances and sometimes includes a series of steps or specific goals for spending
or saving. It can refer to the three primary financial statements, that is: 1. Balance sheet. 2.

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 Income statement. 3. Cash-flow statement. Financial plans are the overall/entire financial
accounting overview of a company.
5.1. PRE-OPERATIONAL COSTS
Item costs
Business registration
Trading licenses and permits
Rent + rent deposit
Insurance policy
Machines, equipment and tools
Stock
Installation of electricity
Water installation
Telephone installation
Internet installation
Total cost

5.2. WORKING CAPITAL

Draw up the capital (expenses) you will require to sustain your business.
Item Amount

Total Working Capital

5.3. PROJECTED CASH FLOW STATEMENT

Item Jan Feb Mar April May June July Aug S
Cash inflow
/Receipts
Opening
balance
Cash sales
Other cash
inflows
Total cash
inflow

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 Cash outflow
Cash
purchases
Payment to
creditors
Wages/salaries
Rent
Water
Telephone
Electricity
Transport
Stationery
Loan
repayment
Interest
Repairs
Advertising
Taxes
Other cash
outflow
Total cash
outflow
Net cash
Cumulative
cash flow

5.4. PRO-FORMA INCOME STATEMENT (Profit & Loss Account)

Pro-forma income statement for the year ending……….
Item Year 1 Year 2 Year 3
Sales
Less cost of goods
sold/purchases
Gross profit
Expenses
Wages
Rent

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 Water
Telephone
Electricity
Advertising
Stationery
Postage
Transport
Depreciation
Loan repayment
Interest
Repairs
Total profit
before tax
Tax
Net p r of i t
after
tax

5.5. PRO-FORMA BALANCE SHEET

Assets At start End of year 1 End of year 2
Current assets
Cash
Debtors
Stock of finished
goods
Stock of raw material
Work in progress
Total current assets
Fixed assets
Machines and
equipment (costs)
Depreciation
Vehicles (cost)
Furniture and fittings
(cost)
Depreciation
Other fixed assets
(cost)

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 Depreciation
Total fixed assets
Total assets

Liabilities
Current liabilities
Creditors
Short-term loans
Bank overdraft
Total current
liabilities
Long-term liabilities
Bank loan
Owners9 equity
Net profit (retained)
Total liabilities &
equity

5.6. CALCULATING BREAK-EVEN ANALYSIS

Total contribution margin = sales – total variable costs
List total variable costs table from cash flow (total variable costs =kshs.)
Sales – total variable costs = kshs. (Total contribution margin)

Calculate the contribution margin percentage

Contribution margin percentage = contribution margin x 100 / sales
Determine the total fixed costs i.e., Operating expenses for year 1
List all fixed costs table from cash flow (Total fixed costs = kshs)
Calculate the break-even level of sales in shillings.
Break-even level =kshs
Break-even level = fixed costs /contribution margin percentage = kshs
Break-even (level of production at B.E.P) = Contribution margin/fixed costs=kshs.

5.7. PROFITABILITY RATIOS

Gross profit ratio = Gross profit x 100
. Sales
Net profit ratio = Net profit before tax x 100 /sales

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 Net profit before tax x 100
Sales

Return on equity = Net profit after tax x 100

Owner’s equity

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 Return on Investment = Net profit after tax x 100 /total investment
Net profit after tax x 100
Total investment

5.8. DESIRED FINANCING

Item Amount (kshs)
Pre-operational costs
Working capital
Fixed Assets
Contingencies
Total desired (start-up) financing

5.9. PROPOSED CAPITALIZATION

Source Amount(kshs)
Personal savings
Friends/ relatives contribution
Bank loan
Total Investment

6.0. POTENTIAL RISKS AND MEASURES TO MITIGATE (a page)

APPENDICES

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