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Entrepreneurship Education Notes

Business Information Systems (Kisii University)

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ENTREPRENEURSHIP EDUCATION
COURSE OUTLINE
1. ENTREPRENUERSHIP- definition of terms
-contribution of entrepreneurship towards national development
-self-employment verses salaried employment
2. EVOLUTION OF ENTREPRENUERSHIP
-history of entrepreneurship in Kenya
-economic, political and social factors affecting entrepreneurial
development
-entrepreneurial cultural practices in Kenya, South Africa and India
3. ENTREPRENUERIAL CULTURE
- The entrepreneurial culture
-cultural factors that promote entrepreneurial culture
-cultural factors inhibiting entrepreneurial development
-ways of managing factors that inhibit development of entrepreneur
culture
4. THE ENTREPRENUER
-myths associated with entrepreneurship
-types of entrepreneurs
-characteristics of an entrepreneur
-role of an entrepreneur in an enterprise

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5. ENTREPRENUERIAL OPPORTUNITIES
-business ideas
-business idea generation
-sources of business ideas
-identification and evaluation of business opportunities
-matching competences with business opportunities

6. STARTING A SMALL BUSINESS

-forms of business ownership
-factors to be considered when starting a small enterprise
-procedure of starting a small enterprise
-business life cycle
-challenges faced when starting a small enterprise
7. ENTERPRISE MANAGEMENT
-definition of terms
-managing enterprise resources
-managing the business finances
-business records
-business support services
-marketing activities in a small enterprise

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8. ENTERPRISE SOCIAL RESPONSIBILITY

-Meaning of enterprise social responsibility
-importance of enterprise social responsibility
-social concerns of an enterprise
9. BUSINESS PLAN -The business plan
-components of a business plan
10. ICT IN ENTREPRENUERSHIP
-benefits of ict to a small enterprise
-use of computer application software in a small business
11. EMERGING TRENDS IN ENTREPRENUERSHIP
-emerging trends in enterprise management
-challenges posed by emerging trends in entrepreneurship
-management of challenges posed by emerging trends and issues in
Entrepreneurship

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TOPIC 1: ENTREPRENUERSHIP
Definition of Entrepreneurship, entrepreneur and enterprise
Definition an entrepreneur
An entrepreneur is basically a person who identifies a business opportunity, harshness and
obtains the resources necessary to initiate a successful basis activity.

 The entrepreneur implements the idea

 Undertakes to operate the business
 An entrepreneur is therefore a central key individual in the society who makes things
happens for economic development.
Entrepreneurship meaning

 In the broader sense entrepreneurship refers to the means of stimulating innovative

and creative undertakings for a better business community or world.
 Entrepreneurship is a French world meaning to undertake and focuses on a business
enterprise
 Entrepreneurship can exist in any situation – therefore it is the creation of values
through establishing a business enterprise.
 Entrepreneurship means having an idea of one’s own and trying to implement the idea
to create values on it.
 Entrepreneurship is a term which encompasses what entrepreneurs do i.e

 Identifying a business opportunity of a particular demand o Look at the opportunity as a

process of creating, something that did not exist.
 Constantly searching/ harnessing ones environment and resources to implement the
activities.
 Creating a totally new product and using it in as new.
 Entrepreneurship there is the practice at starting of a new business or revitalizing
existing businesses in response to identifying opportunities.

What is an Enterprise?
The term “enterprise” has two common meanings:
i. An enterprise is simply another name for a business. You will often come across
the use of the word when reading about start-ups and other businesses…“Simon
Cowell’s enterprise” or “Michelle set up her successful enterprise after leaving
teaching”.

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ii. The word enterprise describes the actions of someone who shows some
initiative by taking a risk by setting up, investing in and running a business.
A person who takes the initiative is someone who “makes things happen”. He or she tends to
be decisive.
A business opportunity is identified and the person does something about it. Showing initiative
is about taking decisions and being bold – not everyone is like that! Risk-taking is slightly
different. In business there is no such thing as a “sure fire bet”.
All business investments carry an element of risk – which is the chance or probability that
things will go wrong. At the worst, the risk of an enterprise might mean the person making the
investment loses all his/her money or becomes personally liable for the debts of the business.
The trick is to take calculated risks, and to ensure that the likely returns from taking a risk are
enough to make the gamble worthwhile. Someone who shows enterprise is an “entrepreneur”.
A business enterprise can also be looked as at:
Any type of operation that is involved in providing goods or services with the anticipated
outcome of earning a profit. Its broad nature allows the term

to be applied to any type of company or firm that is geared toward generating revenue by
selling products of any type. The Terms Company, firm, and business enterprise are often used
interchangeably.
CONTRIBUTION OF ENTREPRENUERSHIP TOWARDS NATIONAL DEVELOPMENT
i) Creates employment; Producers, warehousing, transport, insurance e.t.c
Which are basically levels of employment

ii) Facilitates use of local resources through which

 local and international transactions are established
 production of more goods and services

iii) Rural development which in effect.

 Promotes change to the formal sector from informal sector
 Equitable development
 Reduced rural-urban migrations.

iv) Development of technology through

 establishment of research institutions
 education systems

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v) Government revenue
 through taxes
 from domestic borrowing (TBs)

vi) Facilitating community development through

 Establishment of small businesses
 Participation in community dev. Projects

vii) Providing a positive role model and facilitating.

 Competition between domestic entrepreneurship and imported
 Stimulating dev. Of entrepreneurship.

viii) Reducing dependence on imported goods and services.

ix) Stimulates competition through

 Quality production methods are adopted
 Quality products are produced
 Variety goods and services are produced.

x) Facilitated development of the financial sector through which;

 Capital accumulation is possible through savings
 Loaning is facilitated
 Development of the capital market.

Others
 Improvement of standard of living
 Development of infrastructure by the government in where there are productive
businesses
 Increased consumer choice because a variety of goods and services are provided
 Stability of prices
 Reduced domination of certain sectors by foreighners

SELF-EMPLOYMENT VERSES SALARIED (PAID) EMPLOYMENT

Employed (Paid Employment)
Characteristics
i. Under control of another person (employer)
ii. Supply your labor only
iii. Cannot sub-contract the work
iv. Mutuality of obligation to offer work and perform work

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v. Do not supply equipment/materials for the job

vi. Receive fixed hourly/weekly/monthly wages
vii. Entitled to sick pay/holiday pay etc.
viii. Employer provides insurance cover
ix. Work set number of hours per week
x. Employer deducts tax from wages under PAYE
Self-employed
Characteristics
i. Own your own business
ii. Are exposed to financial risk
iii. Can subcontract the work
iv. No mutuality of obligation
v. Supply necessary equipment for the job
vi. Cost and agree a price for the job
vii. Not entitled to paid leave
viii. Provide your own insurance cover
ix. Control your own hours in fulfilling job
x. You are registered for Self-Assessment and are required to file your own returns

Advantages of Self-Employment
i. Being self-employed means that you're your own boss. Being your own boss
means that you'll be in control of all of the decisions affecting your working life.
You'll decide on your business plan, your quality assurance procedures, your
pricing and marketing strategies-everything. You'll have job security; you can't be
fired for doing things your way. As you perform a variety of tasks related to your
work, you'll learn new skills and broaden your abilities.

ii. If you're working for yourself, chances are you'll be doing work that you enjoy.
You'll get to pick who you'll work for or with, and in most cases you'll work with
your customers or clients directly--no go-betweens muddying the waters. As a
result, you may have days when it hardly feels as if you're working at all. Such
harmony between your working life and the rest of your life is what attracted
you to self-employment in the first place.

iii. You'll even have the flexibility to decide your own hours of operation, working
conditions, and business location. If you're working out of your home, your start-
up costs may be reduced. You'll also experience lower operating costs; after all,
you'll be paying for the rent and utilities anyway. If the location of your work
isn't important (perhaps you're a freelance

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writer or a consultant), you can live wherever you want. At any rate, if you
work at home, you'll greatly reduce your daily commuting time and expense.
iv. If all goes well and you're making money, chances are you can make more than
you did working for someone else. And since you're working for yourself, you
may not have to share the proceeds with anyone else. The fruits of your labor
will be all yours, because you own the vineyard.

v. You get to decide when to spend money to help your business grow. vi. You can
distribute income to family members by hiring them as employees.

vi. Job satisfaction because one engages in a form of business that suits him or her.

vii. Leads to improved living standards of the individual and those who depend on
him or her.

Disadvantages of Self-Employment
i. You must be willing to make sacrifices for the sake of the job.
ii. You're going to work long hours, which means that you won't have as much time
as you used to for family or leisure activities.
iii. If the cash flow becomes a trickle, you're going to be the last one to get paid.
iv. When you're self-employed, particularly if you're starting your own business,
you may have to take on a substantial financial risk. If you need to raise
additional money to get started, you may need a cosigner or collateral (such as
your home) for a loan. Depending on how much or little work you can line up,
you may find that your cash flow varies from a flood to a trickle. You'll need a
cash backup so you can pay your bills while you're waiting for business to come
in or waiting to be paid for completed work. Since you'll have to pay your own
creditors first, this means that sometimes you may eat cereal instead of steak.
v. Remember that you're not making any money if you're not working. You don't
have any employer benefit package, which means that it's going to be hard for
you to:
 go on vacation
 take a day off
 Or even stay home sick without losing income.
It also means that you'll have to provide your own health insurance and
retirement plan.
Remember, too, that you can choose your clients or customers, but you can't
control their expectations or actions. If you don't come through for them, or if
you do something that offends them, you might not get paid for your work.
vi. Social employed people are accorded low social status
vii. Leads to specialization which leads to boredom.

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viii. No assurance of income.

ix. Limited skills in terms of business management.
x.

Paid Employment
Advantages
i. Job Security
ii. Income stability
iii. Predictable work life .
iv. Enjoys certain allowances e.g. house, medical and commuter allowances.
v. Provides room for socialization among employees
vi. Room for growth through promotions
vii. Some organizations provide training facilities to their employees through
seminars and workshops.
viii. Sponsorship opportunities to those who wish to further their studies

Disadvantages
i. You are only paid for your efforts and unlike the entrepreneur; your
brilliant ideas only receive commendation and little or no real monetary
rewards.
ii. You will simply be helping another man create wealth for himself while
you make do with your wages which might be meager
iii. Think of it as a case of not having your cake and eating it. iv. Paid
employment is like Financial Bankruptcy. v. It cages your mind from
soaring to the sky financially.
iv. No opportunity to make money to supplement current earning
v. The organization may not adequately recognize one’s ability
vi. One may not get an opportunity to involve in leisure
vii. No independence-follows orders from the boss
viii. One’s idea may not be easily be implemented by the organization
ix. One may not be accorded adequate and challenging responsibilities that
add to their qualifications

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TOPIC 2: EVOLUTION OF ENTREPRENUERSHIP

History of entrepreneurship in Kenya

Interest in the development of entrepreneurship and small enterprise in Kenya gained
momentum as a possible remedy to the stagnation of economic development and the
escalating unemployment problem between the early 1960 and 1970s

Although there were attempts by the government to develop entrepreneurship, the

main impetus came from the international labor organization (ILO) report.

The report centered on the potential of the informal sector and suggested that the bulk
of Kenya’s urban workers were self –employed in small enterprises.

The report proposed that the development of this sector could;

i) promote employment
ii) facilitate development
iii) Facilitate equitable distribution of resources.

Based on this report the government responded with a seasonal paper in 1973 – which
recognized the role of entrepreneurship in employment creation not just in the formal sector
but also in the formal sector.
Subsequent development plans have devoted time to the development of strategies and to
promote small-scale enterprises and entrepreneurs which include.
 The industrial estate program
 Establishment of development agents egg ICDC and KIE
 Policy and institutional framework to promote entrepreneurs.
 Promoting indigenous Kenyan enterprises.

How the government planned to promote entrepreneurship

The development plan laid down proposed to
i) implement small scale industrial policy
ii) Review the central and local government regulations that a hindrance to
entrepreneurial development.
iii) Provision of direct assistance to the small scale businesses all over Kenya.

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iv) Establishment of an organization that would give extension services to the small
scale enterprises.
v) Creating and strengthening institutions and schemes for the assistance of the
small enterprise sector
vi) Establishment of credit guarantee schemes for loans given by commercial banks
vii) Establish procedures to improve small scale training through the ministry of
technical training and Applied Technology.
viii) Overhaul the education system i.e. introduction of the 8.4.4 system.
ix) Establish a full-fledged small industrial division in the ministry of commerce
and industry – which gave rise to the District focus for rural development.
x) Introduction of entrepreneurship education is all levels of training.

Entrepreneurial Cultural Practices in Kenya

i) The cultural practices of entrepreneurs varies from country depending on the
 The material resources
 The industrial climate
 The social & political systems
ii) The undeveloped regions especially Kenya due to the policing of funds lacks
 Skilled labor
 Existence of minimum social and economic overheads to curb emergencies of innovative
entrepreneurs.
 Entrepreneurship does not emerge out of industrial background with developed
institutions to support and encourage it.
 Kenya has imitator’s entrepreneurs lacking enough innovators unlike other countries
like South Africa.
Iii) However Kenya has established institutions that provide assistance to aspiring
entrepreneurs in terms of
 Establishing a fund to disburse loans to especially youths in the hope of promoting
entrepreneurship
 Some of the entrepreneurial activities that have emerged in our country include.

The Theories of Entrepreneurship

Entrepreneurial Behavior
Several theories have been developed to explain why entrepreneurs behave the way they do.
There has been debate on whether entrepreneurs are born or made Born-hereditary,
entrepreneurs are environmental influenced by where they are born. These are;

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I. Economic
The theory explains entrepreneurial behavior as influenced by economic factors
through which

a) It is possible to introduce new methods

b) It is possible to find new sources of materials
c) It is possible to open new markets
The economic prospective is important since they create enabling environment for the
entrepreneur to combine the factors of production.
II. Psychological factors
The theory states that entrepreneurs have unique values, attitudes and needs within
which drive them. It is mostly concerned with personality traits as the main
determinants of entrepreneurial behavior People are likely to become entrepreneurs
because of high liking of say
a) Independence
b) Attitude
c) Need to satisfy certain needs.
III. Sociological factors
Maintains that environmental factors such as beliefs, culture, social structures determine
entrepreneurial behavior.
IV.Management factors
Emphasizes on the organization of resources in a specific way to attain profits
Leadership impacts on behavior and facilitates pioneer ship, achieving of goals and
provides vision.
a) Richard Cantilon
An entrepreneur as a person with foresight and competence to operate in conditions on
uncertainty. Richard was a particular about an entrepreneur being a person who performed
in uncertain environments because the market demand is not perfectly predictable not
necessarily that his products are untested an untried Cantilon contributed to the
contention that an entrepreneur is somebody who has foresight and confidence to operate
under conditions of uncertainty. He associated risks and uncertainties with administrative
decisions of entrepreneurs. He identified the factor that profit to the entrepreneur arises
out of decision making and risk taking.

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b) John Baptise
Entrepreneurs coordinate and combine the factors of production John described the
entrepreneur as a rare phenomenon who is able to coordinate and combine the factors of
production. He places emphasis on the variety of markers and inputs which the
entrepreneur has to deal with “ successfully” in effect, the entrepreneur is expected to “
perceive and realize potential arbitrage” in addition to taking risks associated with
uncertainty. According to say, the entrepreneur must surmount abundant obstacles,
suppress anxieties, repair misfortunes and devise expedients. As a result, the entrepreneur
accommodates the unexpected and overcome problems successfully in dealing both the
input and consumer market. A possible conclusion form this contention is that the
entrepreneur is a locator of resources in the adjustment process during equilibrium, during
equilibrium, towards equilibrium.
c) Carl Menger, (1950) and the Austrian School Carl Menger and what is known as the
Autrian school in economics emphasizes the locative role in directing that entrepreneurs role is
that of risk taker in an uncertain environment. They added that the entrepreneur needs
information and has to have the ability to analyze and use this information to make the correct
decision in allocating resources. Other followers of the Austrian school of Thought went on to
add that the alertness, superior perception and leadership of the entrepreneur cause factors of
production to be allocated and continuously allocated.
d) Joseph Schumpeter (Innovation)
He in the early 20th century provided perhaps one of the most comprehensive analyses of
entrepreneurship within the context of economic development. He introduced the notion that
the entrepreneur is not just an allocate or director of resources, but combines inputs in untried
combinations (innovator). Schumpeter asserted that the entrepreneur only remained an
entrepreneur for as long as he is innovative, and losses that characteristics as soon as he falls
into the routine management of the business.
Schumpeter described this process as discrete rather than constituting a gradualist change or
evolution.
e) MC Cleland (a function of High Achievement)
According to MC Cleland, the characteristics of entrepreneur have two features- first doing
things in a new better way and second making under uncertainty. He emphasizes achievement
th high achievements
orientation are not influenced by considerations of money or any other external incentives. He
argues that profit and incentives are merely yardsticks of measurement of success of
entrepreneurs with high achievement orientation. The achievement orientation can be taught

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achievement orientation take calculated risks and can make decisions where there are
incomplete information or have tolerance for ambiguity Psychologists call this behavior a type –
A- behavior.

Economic, Social and Political Factors Affecting Entrepreneurial Development

a) High taxation levels. For business and personal incomes .Which in effect reduce profits
earned making it un attractive to engage in business. Taxation of raw materials and other inputs
raise production costs.
b) Corruption and official harassment .Occurs where entrepreneurs are forced to bribe officials
in various government departments to allow operation or start up. Raids under one pretext or
another which tends to be very harassing.
c) Unregulated competition from the outside world due. Liberalization which opened
importation competing locally produced goods.
d) Declining personal incomes of people due to Over-increasing cost of living, Arise in
unemployment
e) The high cost of finance .The cost of borrowing is high .Business collapses because they lack
ability to repay loans
f) Lack of necessary skills and knowledge due to lack of training opportunities and high
education costs
g) Poor transport and communication network
 Making business difficult
 Inconveniencing consumers
 High energy costs
 Lack of entrepreneurial culture

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TOPIC 3: ENTREPRENEURIAL CULTURE

The Entrepreneurship Culture
Culture Definition
Culture is defined as asset of values, perceptions wants and behavior learned by a member of a
society from family and other institutions
Culture is a tool of leaned behavior patterns of living. It is a powerful human tool for survival
constantly changing and easily lost.
Weber argues that “Protestantism encourages a culture which emphasizes individualism,
achievement motivation, legislation of entrepreneurial vocations, rationality and self – reliance.
Hosted – defines culture as a collective programming of the mind which distinguishes the
member of one group or category of people from another.

Entrepreneurial Culture
Refers to the way of embracing the concept of finding new opportunities in business and
gathering the necessary resources to fill the opportunity.
Many governments around the world want to promote entrepreneurship because they have
recognized the importance of entrepreneu
In other words entrepreneurial culture is a way of people embarrassing life by participating in
activities that enable then create new business enterprises.
A country can develop the entrepreneurial culture by forming policies that constitute the
following;
 Integration of entrepreneurship training in the overall education system to tap on
youths.
 Exposure of entrepreneurship those look potential to actual business practices and
activities through the networks and business contacts of rule models.
 Creation of a conducive and enabling that permits new business to immerge and
flourish. The creation of entrepreneurial culture has to come from deep social
convictions based on strong values and systems of the locals’

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It should be created in a way that it welcomes entrepreneurship and respects the investor and
also reflecting the core values.
What Constitutes Entrepreneurial Culture?
 Growth in concentration of firm’s networks and linkages
 Growth in intermediary organizations to which some tasks are delegated and it different
form of entrepreneurship
 High levels of education skills and learning

The cultural habits that promote entrepreneurial development

a) Money orientation. Money oriented people know the value of money and has the
intention of making it. The money oriented people use the need of money as a
motivating factor pushing then to being entrepreneurs.

b) Future orientation .A society that has foresight to know about the future business
environment is likely to have more entrepreneurs. This is because they are likely to
visualize key changes that are likely to create opportunity.

c) Time consciousness .Knowledge that time exists and its importance .Knowing the
right time to start an entrepreneurial activity. Utilization of time. The correct timing of
the market conditions

d) Trust and honesty. Through trust consumer demand is gained on the products and
services available. Entrepreneurs should reciprocate this by ensuring honesty by
providing the expected standards.
e) Hard work i.e. Willingness to work hard distinguishes between successful and
unsuccessful persons.

The cultural factors inhibiting entrepreneurial development.

a) Religion – religious believes may deter entrepreneurial investments in items such as
night clubs and pubs.

b) Language – establishing businesses in areas where language barrier may allow poor
communication or fear of invasion.

c) Personal relationship – Married people may avoid getting involved in business

activities since no time is spared for the family.

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d) Attitude towards innovation. Especially in cultures which oppose innovation due to

fear of change

e) Networks – poor networking and ability to meet people limit new

i) Opportunities
ii) New knowledge
iii) New information.

f) Technology – lack of technical skills and knowledge may slow growth and dev. Of
entrepreneurial
Lock one out of being competitive.

Ways of managing Factors which Inhibits Development of Entrepreneurial Culture.

1. Working in related business to gather the necessary skills required before one starts
his own business.

2. Setting policies that ensure that entrepreneurship training is established in the

school syllabus.

3. Your people to be encouraged to read articles from newspaper, watch television

and business contacts to enable them choose products in demand with a bright
future.

4. Young youths as well as aspiring adults entrepreneurs should be encouraged to get

better and faster access to
a. Knowledge
b. Information or business
c. Competition
d. Internet e.t.c

4. Aspiring entrepreneurs to seek guidance in selection of machines and other

facilities.

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TOPIC 4: THE ENTREPRENUER

Myths associated with entrepreneurship
Entrepreneurs don’t have a personal life. Most people think that entrepreneurs work
throughout and this means that you will not have time for your family, friends and leisure
activities. Since entrepreneurs are their own bosses, they can schedule their own hours and
sticks to that time because a good entrepreneur manages his time well.
Entrepreneurs take lots of risks. Entrepreneurs take some risks and they are not gamblers, they
take calculated risks.
Entrepreneurs are only motivated by money. Financial gain is not the only motivation to small
business owners but achieving a lifelong dream is the main motivation for entrepreneurs.
Entrepreneurs raise money from venture capitalist. This is not true because not all
entrepreneurs raise money from venture capitalists but instead personal loans, friends and
family are other sources that outweigh venture capitalist.
Entrepreneurs have great ideas. This makes some people not to attempt to start their own
business because they do not have a unique idea. You don’t need a new idea to be an
entrepreneur because you can use an existing idea to start a business.
Anyone can be an entrepreneur. This is not true because not everyone has the personality or
resources to do this either.
Entrepreneurs have formal training and education. One does not need to study business or
entrepreneurship to have a successful startup company. Though education helps, it’s not
completely necessary.
Entrepreneurs are young. This is not true because entrepreneurship has no limited age.
Entrepreneurs don’t quit until they succeed. It’s not easy to start and run your own business.
Therefore entrepreneurs should accept failure as a potential reality.
Entrepreneurship is genetic. No one is born an entrepreneur

Types of entrepreneurs
a) Craft entrepreneurs
Exploits and utilizes personal skills to start a business without thinking of its
growth or the expansion objectives
Often times than in this type of entrepreneurship
i. There is no expanding even after a long time
ii. It is not business expansion oriented.

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iii. The skills can be technical skills, professional skill etc.

b) Opportunistic entrepreneurs
This is a person who starts a business, acts as a manager and with a view to
expand the business to maximum. He might not have the sill to profession but
he has the opportunity to start and direct others. He sees beyond and has
abilities to initiate and venture into business that will expand and grow. He is
innovative I.e. somebody able to delegate activities to others, ready and able to
see, scan the environment.

c) Co-operative Entrepreneur
A Co-operative Entrepreneur collaborates with other co-operative
entrepreneurs to start and complete projects where each co-operative
entrepreneur brings different skills and talents to the collaboration.

d) Creative Entrepreneur

A Creative Entrepreneur is a creative artist who values their product above all
else and puts Intellectual Property (IP) first. Creative Entrepreneurs are
dedicated to the artistic and creative expression that is unique to them.

e) Lifestyle Entrepreneur
A Lifestyle Entrepreneur values their lifestyle first and builds their businesses so
that they have a rewarding and sustainable lifestyle founded on and driven by
their personal interests and talents.
f) Social Entrepreneur
A Social Entrepreneur values social change first and is driven to improve and
transform their society, their environment, and economic conditions.
A rapidly growing and vibrant sector, social entrepreneurs play an important
role in providing products and services with the overall intention of creating
social good, operating from a triple bottom line perspective of people, planet,
and profit. Profit is often reinvested into the enterprise rather than being
distributed to shareholders. "Social entrepreneurs are people who recognize
social problems, decide to roll up their sleeves and get into action using
entrepreneurial principles to organize, create, and manage a venture to
implement social change that is sustainable, good for the planet and for the
highest good of humanity."

g) Bottom-Line Entrepreneur
A Bottom-Line Entrepreneur takes the initiative and launches a new enterprise
that takes advantage of market opportunities with the goals of building capital
and profits.

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h) Innovative Entrepreneurs:

An innovative entrepreneur in one, who introduces new goods, inaugurates new

method of production, discovers new market and recognizes the enterprise. It is
important to note that such entrepreneurs can work only when a certain level of
development is already achieved and people look forward to change and
improvement.

i) Imitative Entrepreneurs:
These types of entrepreneurs creatively imitate the innovative technical
achievement made by another firm. Imitative entrepreneurs are suitable for
underdeveloped countries as it is hard for them to bear the high cost of
innovation.

j) Fabian Entrepreneurs
Fabian entrepreneurs are characterized by very great caution and skepticism to
experiment any change in their enterprises. They usually do not take any new
challenge. They imitate only when it becomes perfectly clear that failure to do
not so would result in a loss of the relative position in the enterprise.

The Characteristic of a Potential Entrepreneur.

a) Initiative and risks taken by;
 Doing things before being asked or forced by events
 Acts to extend business in to new areas products etc
 Sees and acts on opportunities
 Looks for and takes action on opportunities.
 Sees and acts on new business opportunities
b) Persistence and patience through
 Taking repeated action to overcome obstacles
 Taking action to overcome obstacles
 Taking action in the face of significant obstacles
c) Information and property seeking
 Takes action on his own to get information to help reach business
objectives
 Does personal research on how to provide a product or service
 Consultation of experts on business and technical advice
 Asks questions to clarify information
 Undertakes market research analysis and investigation.

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d) Concern for high quality work by

 Acting to do things that meet or beat existing standards
 A desire to produce and sell top and better quality products or
services
 Compares own work favorable to other.
d) Commitment to work contract by
 Placing the highest priority on getting the job completed.
 Accepts full responsibility for problems that may arise in getting the
job done
 Expresses concern on customers satisfaction.
e) Efficiency orientation by;
 Finding ways of doing things faster and cost effectively
 Uses information to improve efficiently.
 Express concern on costs improvements change etc.
f) Systematic planning ;
 By developing and using logical plans to meet goals.
 Breaking tasks down to sub-tasks.
 Developing plans which anticipate obstacles.
 Evaluates alternatives.
 Takes logical and systematic approach to activities.
 Identifies new and potential unique ideas to reach goals.
 Switches to alternative strategies to reach goals.

g) Self –confidence
 has a strong belief in self and own abilities
 expresses confidence in own ability to complete task or meet
challenges
 sticks with own judgment in the face of opposition or early lack of
success confronts problems and issues directly
 Tells others what they have to do.
h) Persuasion
 convinces people to buy the products or service
 convinces people on providing funds
 Asserts own competence reliability and the company product
J) Uses strategic influence and networking
 To develop business contact
 Uses influential people as agent to accomplish objectives

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Role of an entrepreneur in an enterprise

i) The bearing of uncertainty is the primary function of the entrepreneur i.e. losses or
profits.
ii) The management of the business enterprise can delegate
iii) Provision of risk capital and invention.
iv) Identifying gaps in the market and turning such gaps to business opportunities i.e.
to initiate a business.
v) Financing the businesses, through raising and mobilizing the necessary resources to
exploit opportunity.
vi) Searching for business opportunities through environmental scans.
vii) Mobilization of resources needed to start and run a business e.g. from
a) Personal savings
b) Friends & relatives
c) Financial institutions etc.

viii) Evaluation of business opportunities to access viability and any other benefits that
might accrue to the business.
ix) Provide the necessary leadership for the business and those working in it.

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TOPIC 5: ENTREPRENUERIAL OPPORTUNITIES

Business ideas
For an entrepreneur, the first step in starting a business begins with an idea (business idea).
Business ideas are all about thoughts on possible businesses an entrepreneur can start or
improve. It indicates among other things;
a) The products to produce/sell
b) Who the business will sell to (market)
c) Where the business will be located
d) How the will be run (management)
e) Why the business is needed (objectives)

Means of Generating a Business Idea

a) Identifying a need
b) Brainstorming
c) Building on ones skill, hobbies or interests
d) Spotting a market niche
e) Listening to what people say
f) Attribute listening
g) Gaining from waste
h) Look to see and listen to hear
i) Research
j) Importing an idea
k) Day dreaming

1. Identifying a Need
A need can be an opportunity and indeed a consumer buys to satisfy need. Abraham Maslow in
his humanistic hierarchy of needs, physical needs to very high personalized needs.
Therefore identifying an unidentified or unserved need is a sure way of generating business
ideas.

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The Maslow’s Hierarchy of needs Self actualization

Safety and security needs
Self-esteem / ego
Social needs
Basic/ Physiological needs
Self-actualization
i)Basic or physiological needs
The first and the most basic need such as thirst hunger and sleep – in the process of satisfying
these needs, entrepreneurs can generate a lot of business ideas- such as cloth stores, food
stores, building materials etc.
ii) Safety and security needs
Human beings require these and entrepreneurs can generate ideas in the process of satisfying
them e.g. security, watchmen etc.
iii) Social needs
Generally speaking to need should be accepted in the society e.g. membership clubs, beauty
clinics etc.
iv) Self-esteem or ego the need only needs recognition e.g. need for luxury cars cellular
phones etc.
v) Self – actualization

The need to prove the ability in one’s self i.e. self-fulfillment – research institutions opportunity
to do something in one’s ability.
2. Brain Storming
This is a process of detaching analysis of an idea from the actual ideas.
The idea may or may not be related to a given product. In brainstorming even silly and stupid
ideas may be generated.
3. Building on One’s Skill, Hobbies or Interests
Business ideas can be generated through
i. personal interests and hobbies
ii. ii. Copying or improving somebody’s ideas. (Skills)

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4. Sporting a Market Niche

Entrepreneurs usually look for gaps in the growing markets, identifying market sections which
are not being utilized.
5. Listening to what People say.
These are people who simply say or speak their needs e.g if these good bus services
6. Attribute listening
This method of generating business ideas is based on changing the way one looks at something
in order to find a new use for it.
It attempts to answer the question – what do we do with this product.
7. Gaining from Waste
What would appear waste can be used- say recycles to create a new opportunity.
Sources of Business Ideas
i. Newspapers-Local newspapers like the Daily Nation, East African etc. especially in the
business and advertising sections have a lot of information about commercial opportunities
as well as personal services.
ii. Shows and exhibition-Visiting shows and exhibitions organized by manufactures and
distributors and asking questions from the sales persons. Entrepreneurs can also get business
ideas from products displayed in such shows.
iii. Magazines and journals-Reading magazines and journals with business information may
equip an entrepreneur with new business ideas.
iv. Hobbies –These are activities pursued for pleasure but they can also serve as a source of
business ideas e.g. photography.
v. Vocational training and experience-A business idea may be developed from one’s own area
of training or experience e.g. a teacher may use ideas from his/her training to start a private
school.
vi. Surveys and market research-This involves conducting an investigation to gather
information from consumers on what products they require.
vii. Recycling/using waste products-Some waste products could be converted into useful
products e.g. scrap metal for making jikos,old tyres for making sandals etc.
viii. Listening to what people say-By listening keenly to what people say, one can identify
unsatisfied needs e.g. complaints about goods and services in the market. These complaints
may form a basis of a business idea for an entrepreneur.
ix. Identifying a market gap (niche)-An entrepreneur may try to identify/spot the needs of
consumers which are not being met by the existing goods and services.
x. Brain storming-An entrepreneur can engage other people in a discussion on how best to
develop businesses.
xi. Listing attributes of a product-By listing the attributes of a product that is already existing in
the market, one can find new use for the product.

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xii. Copying/improving an existing business-This involves identifying the weaknesses of a

business and trying to come up with solutions.

Characteristics of a Good Business idea.

i) Easy to manage and involve minimal risk.
ii) Does not require excessive capital investments
iii) Offers a good returns on capital
iv) The idea has scope for growth, expansion and diversification
v) Comparative with owner’s goal and interest
vi) Not against expectation of the society
vii) Has a short gestation period
viii) Has a readily available market
ix) Easy to exit when necessary.

Identification and evaluation of business opportunities

Business Opportunity
A good business plan is not necessarily a business opportunity. A business idea becomes a
business opportunity if it is viable i.e. it can be developed into a successful/profitable business
enterprise
A business opportunity is a favorable chance that an entrepreneur accepts for investment. It
exists where there is a gap to be filled in the needs of the market. Examples of such gaps
include:
a) In availability of products-This is where goods and services needed by the consumers are
not available at all in the market.
b) Poor quality products-A business opportunity exists if one offers better quality goods and
services than those of the existing businesses.
c) Insufficient quantities-This is where the goods supplied are not enough to meet the
demand/need of the consumers.
d) Unaffordable prices-A business opportunity exists where one would charge affordable
prices.
e) Poor services-A business opportunity exists where customers are not served well.

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Evaluating a business opportunity

This means assessing whether the identified opportunity is viable or not. This helps in arriving
at the best decision concerning the business idea to implement
Evaluation should be done carefully, systematically and without emotions. Evaluation is
necessary even where there is only one business idea. This will help in avoiding starting a
business that cannot succeed.
Factors to consider when evaluating a business opportunity
The following are the factors to consider when evaluating a business opportunity.
a. Personal consideration-These are the abilities and expectations of an entrepreneur.
They include the following;
 Objectives-The entrepreneur should evaluate the business idea to find out whether
it is in line with his/her objectives.
 Skills-Where a business requires certain specialized skills and those skills are lacking
the idea may be dropped.
 Commitments-Where the business is likely to interfere with the entrepreneurs other
commitments it may fail.
 Interest-It is necessary to check whether the intended business will interest the
entrepreneur or not. If the entrepreneur will not enjoy running the business, the
idea should be dropped.
b. Business consideration-These are external factors that are likely to affect the operations
of the business and they include;
i. Availability of market for the product-An entrepreneur should assess the availability of
customers before starting a business. Customers exist where there is a gap/nich in the
market.
ii. Technology-The business should be evaluated in terms of whether there is an
appropriate technology that can be used in production. Factors to be looked into
include;
a. -Appropriateness of the technology
b. -The cost of the technology
c. -The possibility of the business suffering in case the technology becomes
outdated/obsolete.
iii. Availability of raw materials and other resources-The raw materials and resources
required should be within the reach and affordable to the entrepreneur.
iv. Government policy-An entrepreneur should consider the requirements of the
government before starting a business e.g. the government may require certain
businesses to be located in certain areas only.
v. Amount of capital required-The capital required to run and maintain the business
should be considered i.e the source of capital.
vi. Profitability of the business-Within a certain duration of time.
vii. The break-even period-How long the business can take to support itself.
viii. Possibility of expansion i.e. the potential for growth of the business.

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ix. Impact of the business operations on the environments; some businesses lead to
environmental degradation and should be located in appropriate places/effect on
community and environmental health.
x. Security-Availability of security should be considered.
xi. Level of competition-This will help determine whether the business will survive or not.
xii. The risks that the business will face.

CHARACTERISTICS OF A GOOD BUSINESS OPPORTUNITY

Less costly; a good business opportunity should be less expensive may it be an original idea or a
franchise.
Reduced risks of failure; a good business opportunity should have well executed research into
the risks involved, personal strengths and any weaknesses the entrepreneur may deal with.
Ready market; the market needs to be prepared for the product yet to be established
High level of competence; a lot of time may be required to gather the necessary knowledge to
prosper in any given business opportunity.
Better financing options; a business opportunity may require stable cash flows and thus need
to identify secure source of finance form investors.
Professional advertising and promotion of the products to ensure there is competitive
advantage.
Others
 Returns on investment – i.e. the business should be sufficiently profitable.
 Availability of raw materials
 Enough skilled people

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TOPIC 6. STARTING A SMALL BUSINESS

Forms of business ownership
1. SOLE PROPRIETORSHIP
This is a business enterprise owned by one person who is called a sole trader or a sole
proprietor. It is the most common form of business unit and usually found in retail trade
e.g. in small shops, kiosks, agriculture e.t.c and for direct services e.g. cobblers saloons
e.t.c
Characteristics/Features
 The business is owned by one person
 The capital is contributed by the owner and is usually small. The main source is from his
savings and other sources can be from friends, bank or getting an inheritance
 The owner enjoys all the profits alone and also suffers the losses alone
 The owner is personally responsible for the management of the business and sometimes he
is assisted by members of his family or a few employees. He remains responsible for the
success or failure of his/her business.
 The sole proprietor has unlimited liability meaning that incase of failure to meet debts, his
creditor can claim his personal property
 There are very few legal requirements to start the business unit.
 Sole proprietorship is flexible; it is very easy to change the location or the nature of
business.

Formation
The formation of a sole proprietorship is very simple. Few legal formalities are required i.e. to
start a sole proprietorship, one need only to raise the capital required and then apply for a
trading license to operate the business small fee is paid and the trade license issued.
Sources of capital
The amount of capital required to start a sole proprietorship is small compared to other forms
of business organizations. The main source of capital is the Owners savings. Additional capital
may however be raised from the following;
 Borrowing from friends, banks and other money lending institutions such as industries and
commercial Development corporation(ICDC)and Kenya industrial estates
 Inheritance
 Personal savings
 Getting goods on credit
 Getting goods on hire purchase
 Leasing or renting out one’s properties
 Donations from friends and relatives

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 Ploughing back profit.

Management
The management of this kind of a business is under one person. The owner may however
employ other people or get assistance from family members to run the business.
Some sole proprietorship may be big business organizations with several departments and
quite a number of employees. However, the sole proprietor remains solely responsible for the
success of failure of the business
Advantages of sole proprietorship
1. The capital required to start the business is small hence anybody who can spare small
amounts of money can start one.
2. Few formal/legal procedures are required to set up this business
3. Decision making and implementation is fast because the proprietor does not have to
consult anybody
4. The trader has close and personal contact with customers. This helps them in knowing
exactly what the customers need and hence satisfying those needs
5. A sole proprietor is able to assess the credit-worthiness of his or her customers because of
close personal relationship. Extending credit to a few carefully selected customers reduce
the probability of bad debts.
6. The trader is accountable to him/herself
7. A sole trader is able to keep the top secrets of the business operations
8. He/she enjoys all the profit
9. A sole proprietorship is flexible. One can change the nature or even the location of business
as need arises.
Disadvantages of sole proprietorship
1. Has unlimited liability. This means that if the assets available in the business are not enough
to pay all the business debts the personal property of the owner such as house will be sold
to meet the debts
2. There is insufficient capital for expansion because of scarce resources and lack of access to
other sources
3. He/she is overworked and has no time for recreation.
4. There is lack of continuity in the sole proprietorship i.e. the business is affected by sickness
or death of the owner.
5. A sole proprietorship may not benefit from advantages realized by large scale enterprises
(economies of large scale) such as access to loan facilities and large trade discounts.
6. Lack of specialization in the running of the business may lead to poor performance. This is
because one person cannot manage all aspects of the business effectively. One maybe a
good salesman for examples but a poor accountant.
7. Due to the size of the business, sole proprietorships do not attract and retain highly
qualified and trained personnel.
Dissolution of sole proprietorships
Dissolution refers to the termination of the legal life of a business. The following circumstances
may lead to the dissolution of a sole proprietorship:
 Death or insanity of the owner

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 Transfer of the business to another person- this transfers the rights and obligations of the
business to the new owner.
 Bankruptcy of the owner- this means that the owner lacks the financial capability to run the
business.
 The owner voluntarily decides to dissolve the business e.g due to continued loss making.
 Passing of a law which renders the activities of the business illegal.
 The expiry of the period during which the business was meant to operate.

1. PARTNERSHIP:
This is a relationship between persons who engage in a business with an aim of making profits/
an association of two or more persons who run a business as co-owners. The owners are called
Partners.
It is owned by a minimum of 2 and a maximum of 20 except for partnership who provide
professional services e.g medicine and law which have a maximum of 50 persons.
Characteristics of partnership
 Capital is contributed by the partners themselves
 Partnership has limited life that is it may end anytime because of the death, bankruptcy or
withdrawal of partners.
 Each partner acts as an agent of the firm with authority to enter into contracts.
 Partners are co-owners of a business, having an interest or claim in the business.
 Responsibility, profit and losses are shared on an agreed basis.
 All partners have equal right to participate in the management of the business. This right
arises from the interest or claim of the partner as a co-owner of the business.
Types of partnership
Partnerships can be classified/ categorized in either of the following ways:
(a) According to the type/liability of partners
(b) According to the period of operation
(c) According to their activities
(a) According to the type or liability of partners
Under this classification, partnerships can either be:
i) General/ordinary partnership- Here all members have unlimited liability which means
in case a partnership is unable to pay its debts, the personal properties of the partner
will be sold off to pay the debts.
ii) Limited partnerships- In limited partnership members have limited liabilities where
liability or responsibility is restricted to the capital contributed.
This means that incase the partnership cannot pay its debts; the partners only lose the amount
of capital each has contributed to the business and not their personal property. However, there
must be one partner whose liabilities are unlimited.
(b) According to the period/duration of operation
When partnerships are classified according to duration of operation, they can either be;
i) Temporary partnership-These are partnerships that are formed to carry out a specific
task for a specific time after which the business automatically dissolves.

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ii) Permanent partnerships- These are partnerships formed to operate indefinitely. They
are also called a partnership at will.
c) According to their Activity- Under this mode of classification, partnerships can either
be:
i) Trading partnerships
This is a partnership whose main activity is processing, manufacturing, construction or purchase
and sale of goods.
ii) Non – trading partnerships
This is a partnership whose main activity is to offer services such as legal, medical or accounting
services to members of the public.
Types of partners
Partners may be classified according to;
i) Role played by the partners
a) Active partner: He is also known as acting partner as he plays an active part in the day-to-
day running of the business.
b) Sleeping/dormant partner: He does not participate in the management of the partnership
business. Although he invests his capital in the partnership, his profit is lower as he is not
active. He is also referred to as passive or silent partner.
ii) Liabilities of the partners for the business debts:
a) General partner: He/she has unlimited liabilities.
b) Limited partner: He/she has limited liabilities
iii) Ages of partners

a) Major partner: This is a partner who is 18 years and above. He is responsible for all debts of
the business.
b) Minor partner: This is a partner who has not attained the age of 18 years but has been
admitted with the consent of other partners. Once he reaches 18 years, he then decides if
he wants to be a partner or not. Before he attains the age of 18, he takes part in the sharing
of profits but does not take part in the management of the business.
iv) Capital contribution
a) Nominal/Quasi partner: He does not contribute capital but allows the business to use his/
her name as a partner; for the purpose of influencing customers or for prestige.
-He/she can also be a person who was once a partner and has retired in form of a loan. This
loan carries interest at an agreed rate.
-The quasi partner shares the profit of the business as a reward for using his/her name.
b) Real partner: He/she is one who contributes capital to the business.
-Other types of partners include secret partners, retiring partners and incoming partners
i) A secret partner: is one who actively participates in the management of the firm but is not
disclosed to the public. In most cases secret partners are also limited partners.
ii) A retiring partner: Also known as outgoing partner is one who is leaving a partnership
-He may retire with the consent of all the other partners or according to a previous agreement.
iii) Incoming partner: Is one who is admitted to an existing partnership.
Formation

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-People who want to form a partnership must come together and agree on how the proposed
business will be run to avoid future misunderstanding.
-The agreement can either be oral (by use of mouth) or within down. A written agreement is
called a partnership deed.
-The contents of the partnership deed vary from one partnership to another depending on the
nature of the business, but generally it contains:
a) Name, location and address of the business
b) Name, address and occupation of the partners
c) The purpose of the business
d) Capital to be contributed by cash partner
e) Rate of interest on capital
f) Drawings by partners and rate of interest on drawings
g) Salaries and commissions to partners
h) Rate of interests on loans from partners to the business
i) Procedures of dissolving the partnership
j) Profit and loss sharing ratio
k) How to admit a new partner
l) What to do when a partner retires dies or is expelled
m) The rights to inspect books of accounts
n) Who has the authority to act on behalf of other partners.
Once the partnership deed is ready, the business may be registered with the registrar of firms
on payment of a registration fee.
In case a partnership deed is not drawn, the provisions of partnership act of 1963 (Kenya)
applies. The act contains the following rights and duties of a partner:
i) All partners are entitled to equal contribution of capital
ii) No salary is to be allowed to any partner
iii) No interest is to be allowed on capital
iv) No interest is to be charged on drawings
v) All profits and losses are to be shared equally
vi) Every partner has the right to inspect the books of accounts
vii) Every partner has the right to take part in decision making
viii) Interest is to paid on any loans borrowed by partners (The % rate varies from one
country to another)
ix) During dissolution the debts from outside people are paid first then loans from partners
and lastly partners capital.
x) No partner should carry out a competing business
xi) Any change in business such as admission of new partners must be through the
agreement of all existing partners.
xii) Compensation must be given to a partner who incurs any loss when executing the duties
of the business.

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Sources of capital
i) Partners contribution
ii) Loans from banks and other financial institutions
iii) Getting items on hire purchase
iv) Trade credit
v) Ploughing back profit
vi) Leasing and renting.

Advantages of partnership
i) Unlike sole proprietorship, partnership can raise more capital.
ii) Work is distributed among the partners. This reduces the workload for each partner
iii) Varied professional/skilled labour; various partners are professionals in various different
areas leading to specialization
iv) They can undertake any form of business agreed upon by all the partners
v) There are few legal requirements in the formation of a partnership compared to a
limited liability company.
vi) Losses and liabilities are shared among partners
vii) Continuity of business is not affected by death or absence of a partner as would be in
the case of a sole proprietorship
viii) Members of partnership enjoy more free days and are flexible than owners of a
company
ix) A Partnership just like sole proprietorship is exempted from payment of certain taxes
paid by large business organizations.
Disadvantages of partnership
i) A mistake made by one of the partners may result in losses which are shared by all the
partners
ii) Continued disagreement among the partners can lead to termination of the partnership
iii) Decision-making is slow since all the partners must agree
iv) A partnership that relies heavily on one partner may be adversely affected on
retirement or death of the partner
v) A hard working partner may not be rewarded in proportion to his/her effort because the
profits are shared among all the partners
vi) There is sharing of profits by the partners hence less is received by each partner
vii) Few sources of capital, due to uncertainty in the continuity of the business few financial
institutions will be willing to give long-term loans to the firm.
Dissolution of partnership
A partnership may be dissolved under any of the following circumstances:
i) A mutual agreement by all the partners to dissolve the business
ii) Death insanity or bankrupting of a partner
iii) A temporary partnership on completion of the intended purpose or at the end of the
agreed time.
iv) A court order to dissolve the partnership
v) Written request for dissolution by a partner

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vi) If the business engages in unlawful practices

vii) Retirement or admission of a new partner may lead to a permanent or temporary
dissolution
viii) Continued disagreements among the partners

3. CO-OPERATIVES
-A co-operative society is a form of business organization that is owned by and run for the
economic welfare of its members
-It is a body of persons who have joined together to do collectively what they were previously
doing individually for mutual benefit.
Example
In Kenya the co-operative movement was started by white settlers in 1908 to market their
agricultural produce. In this case, they knew that they could sell their produce better if they
were as a group and not alone
Principles of co-operatives
i) Open and voluntary membership
Membership is open and voluntary to any person who has attained the age of 18 years. No
one should be denied membership due to social, political, tribal or religious differences. A
member is also free to leave the society at will
ii) Democratic Administration
The principle is one man one vote. Each member of the co-operative has only one vote
irrespective of the number of shares held by him or how much he buys or sells to the
society
iii) Dividend or repayment
-Any profit/surplus made at the end of every financial year should be distributed to the
members in relations to their contribution.
-Part of the profit may be retained/reserved/put in to strengthen the financial position of
the society.
iv) Limited interest on share capital
-A little or no interest is paid on share capital contributed (co-operatives do not encourage
financial investment habits but to enhance production, to encourage savings and serve the
members)
v) Promotion of Education
Co-operative societies should endeavor to educate their members and staff on the ideas of
the society in order to enhance/improve quality of decisions made by the concerned
parties.
Education is conducted through seminars, study tours, open days
vi) Co-operation with other co-operatives
C-operatives must learn from each other’s experience since they have a lot in common.
-Their co-operation should be extended to local national and international.
Features of co-operatives
 Membership is open to all persons so long as they have a common interest. Members are
also free to discontinue their membership when they desire so

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 Co-operative societies have a perpetual existence; death, bankruptcy or retirement of a

member does not affect its operations
 They are managed in a democratic manner. Every member has one vote when electing the
managerial committee irrespective of the number of shares held.
 The main aim is to serve the interest of the members where profit is not the overriding
factor.
 Co-operative societies have limited liabilities
 There must be a minimum of 10 people with no maximum membership.
 Co-operatives have a separate legal entity from the members who formed it i.e they can
own property sue and be sued
 Any profit made by the society is distributed to the members on the basis of the services
rendered by each member but not according to the capital contributed.
Formation
-Co-operative societies can be formed by people who are over eighteen years regardless of
their economic, political or social background.
-There must be a minimum of 10 persons and no maximum no.
-The members draft rules and regulations to govern the operations of the proposed society i.e.
by-laws, which are then submitted to the commissioner of co-operatives for approval
-The registrar then approves the by-laws and issues a certificate of registration
-If the members are unable to draw up their own by-laws, the co-operative societies Act of
1966 can be adopted in part or whole

Management
-A co-operatives society is composed/run by a committee usually of nine members elected by
the members in a general meeting
-The management committee elects the chairman, secretary and treasurer as the executive
committee members, who act on behalf of all the members and can enter into contracts
borrow money institute and depend suits and other legal proceedings for the society
-The committee members can be voted out in an A.G.M if they don’t perform as expected.
TYPES OF CO-OPERATIVES SOCIETIES IN KENYA
May be grouped according to;
i) Nature of their activities
a) Producer co-operatives
b) Consumer co-operatives
c) Savings and credit co-operatives
ii) Level of operations
a) Primary co-operatives
b) Secondary co-operatives
a) Producer co-operatives
This is an association of producers who have come together to improve the production and
marketing of their products.
Functions

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 Obtaining better prices for their members products

 Providing better storage facilities for their products
 Providing better and reliable transport means for moving the products from the sources
to the market and building feeder roads
 Providing loans to members
 Providing services of grading, packing and processing to the members
 Providing farm inputs e.g. fertilizers, seeds, insecticides e.t.c on credit to members
 Educating and advising members on better methods of farming through seminars, field
trips, films and demonstration
-In this type of co-operative members are paid according to the quantity of the produce a
member has delivered to the society.
Examples,
KCC-Kenya Co-operative Creameries
K.P.C.U-Kenya Planters Co-operatives Union
K.G.G.C.U-Kenya Grain Growers Co-operative Union
b) Consumer Co-operatives
-These are formed by a group of consumers to buy goods on wholesome and sell them to the
members at existing market prices.
-Their aim is to eliminate the wholesalers and retailers and hence obtain goods more cheaply
-The co-operatives allow their members to buy goods on credit or in cash
-Members of the public are also allowed to buy from the society at normal prices thereby
enabling the society to make more profits
-The profits realized is shared among the members in proportion to their purchases i.ethe more
a member buys, the buyer his/her share of profit
Examples;-Nairobi consumer co-operative union, Bee-hive consumer co-operative society and
City-chicken consumer co-operative society
Advantages
 Sell goods of high quality
 Sell goods to members at fair prices
 Sell goods to other people at normal prices thereby making more profit
 Buy goods directly from the producers thereby eliminating middlemen. They are
therefore able to make more profit
 Can give credit facilities to the members
 Can pay interest on capital to the members
 Sell a variety of goods to the members at a place where they can easily get them
Disadvantages
Consumer co-operatives are not popular in Kenya because of the following
i. They face stiff competition from large scale retailers such as supermarkets and multiple
shops who buy goods directly from the producers and sell-them to consumers at low prices
ii. Cannot offer to employ qualified staff
iii. Majority of their members have low income, so raising off capital is a problem
iv. Kenya, being an agricultural country, produces enough subsistence goods for itself. It
therefore does not require consumer co-operatives

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v. Reluctance of non-members to buy from the shops lowers the turn-over

vi. Mismanagement of the shops is rampant

Savings and credit co-operatives societies (SACCO’S)

-They are usually formed by employed persons who save part of their monthly salary with their
co-operative society, through check-off system
-Their money earns goods interest and when one has a significant amount saved, he/she
become entitled to borrow money from the society for any personal project e.g. improving
their farms, constructing houses, paying school fees e.t.c
-The SACCOS charge lower interest on loans given to members than ordinary banks and other
financial institutions.
-The societies have few formalities or requirements to be completed before giving a loan. These
are:
i. Membership
ii. Members salary
iii. Members saving
iv. Guarantee from fellow members
-Profits earned by the SACCO’S maybe shared among the members inform of dividends.
-Most SACCO’S have insured their members savings and loans with co-operative insurance
services (CIS).This means if a member dies his/her beneficiaries are not called upon to repay the
loan and the members savings/shares is given to the beneficiaries.
-They are the main institutions that provide loans to most people who do not qualify for loans
from commercial banks because they do not ask for securities such as title deeds required by
the bank.
d) Primary co-operative societies
-These are co-operative societies composed of individuals who are either actual producers,
consumers or people who join up together to save and obtain credit most conveniently
-Consumer co-operative societies and most SACCO’S are primary co-operative societies because
they are composed of individuals.
-Most primary co-operative societies operate at the village level, others at district levels and a
few at national levels.
e) Secondary co-operative societies
-They are usually referred to as unions
-They are generally composed of primary co-operative societies as their members
-They are either found at district levels or at national levels.

Advantages of co-operative societies:

 Since the properties of co-operatives are owned collectively, they are able to serve the
interest of the members affectively
 They have limited liability
 Membership is free and voluntary
 Members share profits of a co-operative through dividend that are given
 They have improved the standards of living of their members through increased income
from their produce and through savings from incomes.

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 Co-operatives benefit their members through giving them credit facilities and financial
loans which they could not have got from local banks
 They are run on a democratic basis i.e. all members have an equal chance of being elected
to the management committee.
 Many co-operatives are large scale organizations hence able to get the benefits of large
scale organizations e.g low production costs leading to low prices of products
 Co-operative enjoy a lot of support from the government and when they are in financial and
managerial problems, the government steps in to assist them
Disadvantages
 Majority of the co-operatives are small in size and therefore cannot benefit from economies
of scale.
 Members have a right to withdraw from the society and when they do, co-operatives
refunds the capital back which might create financial problems to the society.
 Corruption and embezzlement of funds is a problem for many co-operatives.
 Most co-operatives are not able to attract qualified managerial staff hence leading to
mismanagement.
 Many suffer from political interference. Sometimes; the election of the management
committee is interceded with by some people with personal interest in certain candidates
hence the best person may not be elected to run the affairs of the society. This leads to
poor management and inefficiency.
 Members may not take keen interest in the affairs of a co-operative society because their
capital contribution is small.
Dissolution of co-operative societies
-A co-operative society may be dissolved under any of the following circum-stances.
i. Order from commissioner of co-operatives
ii. Voluntary dissolution by members
iii. Withdrawal of members from the society leaving less than ten members
iv. If the society is declared bankrupt

4. LIMITED LIABILITY COMPANIES (JOINT STOCK COMPANIES)

Defination: A company; Is an association of persons registered under the companies act who
contribute capital in order to carry out business with a view of making a profit.
The act of registering a company is referred to as incorporation. Incorporation creates an
organization that is separate and distinct from the person forming it.
-A company is a legal entity that has the status of an ‘’artificial person”. It therefore has most
of the rights and obligations of a human being. A company can therefore do the following;
 Own property
 Enter into contracts in its own name.
 Borrow money.
 Hire and fire employees.
 Sue and be sued on its own right.
 Form subordinate agencies, ie, agencies under its authority.

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 Disseminate or spread information.

-The owners (members) of a company are referred to as shareholders
FEATURES OF COMPANIES (LIMITED LIABILITY COMPANIES)
-A company in an artificial person and has the same rights as a natural person. It can therefore
sue and be sued in a court of law, own property and enter into contracts in its own name.
-The members have limited liabilities.
-Companies have perpetual life which is independent of the lives of its owners. Death, insanity
or bankruptcy of a member does not affect the existence of the company. (this is referred to as
perpetual existence or perpetual succession)
- A company is created for a particular purpose or purposes.
Formation
-People who wish to form company are referred to as promoters
-The promoters submit the following documents to the registrar of companies:
i) Memorandum of Association
-This is a document that defines the relationship between the company and the outsiders. It
contains the following:
a) Name of the company/Name clause; -The name of the company must be started and
should end with the word “Limited” (Ltd).This indicates that the liability of the company is
limited.
-Some companies end their names with “PLC” which stands for “Public limited company”
which makes the public aware that although it is a limited liability company it is a public not
private.
b) The objects of the company/objective clause;-This set out the activities that the company
should engage in
-The activities listed in this clause serve as a warning to outsiders that the company is
authorized in these activities only.
c) Situation clause;-Every company must have a registered office where official notices and
other communication can be received and sent
d) Capital clause;-It also states that the amount of capital which the business can raise and the
divisions of this capital into units of equal value called shares i.e. authorized share capital also
called registered or nominal share capital.
-It also specifies the types of shares and the value of each share
e) Declaration clause:-This is a declaration signed by the promoters stating that they wish
to form the company and undertake to buy shares in the proposed firm
-The declaration is signed by a minimum of seven promoters for public limited company and a
minimum of two for private company.
-The memorandum of association also contains the names of the promoters
-The promoters signs against the memorandum showing details of their names, addresses,
occupation and shares they intend to buy. Each signatory should agree to take at least one
share.
i) Articles of Association
-This is a document that governs the internal operations of the company
-It also contains rules and regulations affecting the shareholders in relation to the company and
in relation to the shareholders themselves.

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-It contains the following;

 Rights of each type of shareholder e.g. voting rights
 Methods of calling meeting and procedures
 Rules governing election of officials such as chairman of the company, directors and
auditors
 Rules regarding preparation and auditing of accounts
 Powers, duties and rights of directors
 Methods dealing with any alterations on the capital.
ii) A list of directors with details of their names, addresses, occupations, shares subscribed
and statements of agreement to serve as directors
iii) Declaration that registration requirements as laid down by law (by the companies act)
have been met. The declaration must be signed by the secretary or a director or a
lawyer.
iv) A statement signed by the directors stating that they have agreed to act as directors.
v) A statement of share capital- this statement gives the amount of capital that the
company wishes to raise and its subdivision into shares.
-Once the above documents are ready, they are submitted by the promoters to the registrar of
companies. On approval by the Registrar and on payment of a registration fee, a certificate of
incorporation (certificate of registration) is issued
-The certificate of incorporation gives the company a separate legal entity.
Sources of capital
1. Shares; The main source of capital for any company is the sale of shares.
-A share is a unit of capital in a company e.g. if a company states that its capital is
ksh.100,000 divided into equal shares of ksh.10 each.
-Each shareholder is entitled to the company’s profit proportionate to the number of shares
he/she holds in the company.
Types of shares:
a) Ordinary shares
b) Preference shares
a) Ordinary shares;-Ordinary shares have the following rights:
 Have voting rights
 Have no fixed rate of dividends. The dividends on them vary according to the amounts of
profit made
 They have a claim to dividends after the preference shares
 If the company is being liquidated, they are paid last after the preference shares
b) Preference shares;-They have the following characteristics;
 Have a fixed rate of sharing profits(dividends)
 Have a prior claim to dividends over the ordinary shares
 Have no voting rights
 Can be redeemable or irredeemable. Redeemable shares are the ones that can be bought
back by the company at a future date while irredeemable ones are ones that cannot be
bought back

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 Can be cumulative or non-cumulative. Cumulative shares are the ones that are entitled to
dividends whether the company makes profit or not. This means if the company makes a
loss or a profit which is not enough for dividends in a certain year, the dividends to
cumulative shares are carried forward to the next year(s) when enough profit are made
-Non- cumulative shares are the ones whose dividends are not carried forward to the following
year(s)
2. Debentures
This refers to loans from the public to a company or an acknowledgement of a debt by a
company
They carry fixed rate of interest which is payable whether profit are made or not.
They are issued to the public in the same way as shares.
They can be redeemable or irredeemable.
Redeemable debentures are usually secured against the company’s assets in which case they
termed as secured debentures or mortgaged debentures.
NB: Where no security is given, the debentures are called unsecured /naked debentures.
3. Loans from bank and other financial institutions;-A company can borrow long term or
short term loans from banks and other money lending institutions such as Industrial and
Commercial Development Corporation [I.C.D.C]
These loans are repayable with interest of the agreed rates.
4. Profits ploughed back;-A company may decide to set aside part of the profit made to be
used for specified or general purposes instead of sharing out all the profit as dividends. This
money is referred to as a reserve.
5. Bank overdraft;-A customer to a bank may make arrangements with the bank to be allowed
to withdraw more money than he/she has in the account.
6. Leasing and renting of property.
7. Goods brought on credit.
8. Acquiring property through hire purchase

TYPES OF COMPANIES
I. PRIVATE LIMITED COMPANY
Private limited company has the following characteristics;
 Can be formed by a minimum of 2 and a maximum of 50 shareholders, excluding the
employees,
 Does not advertise its shares to the public, but sells them privately to specific people
 Restricts transfer of shares i.e. a shareholder cannot sell his/her shares freely without the
consent of other shareholders.
 Can be managed by one or two directors. A big private company may however, require a
board of directors
 Can start business immediately after receiving the certificate of incorporation without
necessarily having to wait for a certificate of trading.
 It does not have an authorized minimum share capital figure.
 Has a separate legal entity and can own property, enter into contracts, sue or be sued.
 Has limited liability.

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 Has a perpetual existence.

Formation
-It must have a memorandum of association, article of association list of directors, declaration
signed by a director or lawyer and certificate of incorporation.
Advantages of private limited company
i) Formation: The Company can be formed more easily than a public company. The cost of
information is less than that of a public company
ii) Legal personality: A private company is a separate legal entity from its owners. Like a
person, it can own property, sue or be Sued and enter into contacts
iii) Limited liability: Shareholders have limited liability meaning that they are not
responsible for the company’s debts beyond the amount due on the shares
iv) Capital: They have access to a large pool of capital than sole proprietorship or a
partnership. They can borrow money more easily from financial institutions because it
owns assets which can be pledge as security
v) Management: A private company has a larger pool of professional managers than a sole
proprietorship or a partnership. These managers bring in professional skills in their own
areas which are of great advantage to a private company
vi) Assured continuity of the business: Death, bankrupty or withdrawal of a shareholder
does not affect the continuity of the company
vii) Trading: Unlike a public company a private company can commence trading
immediately upon receiving a registration certificate.

Disadvantages of a private company

i) Returns: A private company, unlike sole proprietorship or a partnership, must submit
annual returns on prescribed forms to the registrar of companies immediately after the
annual general meeting
ii) Capital: A private company cannot invite the public to subscribe to its shares like a
public limited company. It therefore limited access to a wide source of capital.
iii) Share transfer: The law restricts the transfer of shares to its members/shareholders are
not free to transfer their shares
II) PUBLIC LIMITED COMPANY; - Public limited companies have the following
characteristics:
a) Can be formed by a minimum of 7 (seven) shareholders and no set maximum.
b) Cannot start business before it is issued with a certificate of trading. This is issued after the
certificate of incorporation and after the company has raised a minimum amount of capital
c) It’s managed by a board of directors
d) The shares and debentures are freely transferable from one person to another.
e) It advertises its shares to the public/ invites the public to subscribe for/buy its shares and
debentures.
f) Must publish their end of year accounts and balance sheets
g) Must have an authorized minimum share capital figure
h) Has a separate legal entity and can own property, enter into contracts, sue or be sued.
i) Has limited liability.
j) Has a perpetual existence.

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Advantages of public limited company

i) Wide range of sources of capital :It has access to wide range of sources of capital especially
through the sale of shares and debentures
-They can also borrow money from financial institutions in large sums and have good security to
offer to the lenders.
ii) Limited liability: Like private companies, public limited company’s shareholders have
limited liability i.e. the shareholders are not liable for the company’s debts beyond the
shareholders capital contribution.
iii) Specialized management: PLC’S are able to hire qualified and experie-nced professional
staff.
iv) Wide choice of business opportunities: Due to large amount of capital a public company
may be suitable for any type of investment
v) Share transferability: Shares are freely transferable from one person to another and affects
neither the company’s capital nor its continuity.
vi) Continuity: PLC has a continuous life as it is not affected by the shareholders death,
insanity, bankruptcy or transfer of shares
vii) Economies of scale: Their large size enables them to enjoy economies of scale operations.
This leads to reduced costs of production which raises the levels of profit
viii) Employee’s motivation: They have schemes which enable employees to be part owners
of the company which encourages them to work harder in anticipation of higher dividends
and growth in the value of the company’s shares.
ix) Share of loss: Large membership and the fact that capital is divided into different classes’
means that the risk of loss is shared and spread.
x) Shareholders are safe guarded; Publicity of company accounts safeguard against frauds.
Disadvantages of public limited companies
i) High costs of formation: The process of registering a public company is expensive and
lengthy. Some of the costs of information are legal costs, registration fees and taxes
ii) Legal restrictions: A public company must comply with many legal requirements making
its operations inflexible and rigid
iii) Alienation of owners: Shareholders non-participation in management is a disadvantage
to them
iv) Lack of secrecy: The public limited companies are required by law to submit annual
returns and accounts to the registrar of companies denying the company the benefit of
keeping its affairs secret. They are also required to publish their end of year accounts
and balance sheets.
v) Conflicts of interests: Directors may have personal interests that may conflict with
those of the company. This may lead to mismanagement.
vi) Decision making; Important decision are made by the directors and shareholders. The
directors and shareholders meet after long periods which make decision making
slow/delayed and expensive.
vii) Diseconomies of scale: The large size and nature of business operations of public
limited companies may result in high running/operation costs and inefficiency
viii) Double taxation: There is double taxation since the company is fixed and dividends
distributed to the shareholders are also taxed

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ix) Inflexibility: Public limited companies cannot easily change its nature of business in
response to the changing circumstances in the market. All shareholders must be
consulted and agree.
DISSOLUTION OF A COMPANY
The following are the circumstances that may lead to the dissolution of a company:
 Failure to commence business within one year- If a company does not commence business
within one year from the date of registration, it may be wound up by a court order on
application of a member of the company.
 Insolvency – when a company is not able to pay its debts, it can be declared insolvent and
wound up.
 Ultra- vires – this means a company is acting contrary to what is in its objective clause. In
such a case, it may be wound up by a court order.
 Amalgamation – two or more companies may join up to form one large company
completely different from the original ones.
 Court order – the court of law can order a company to wind up especially following
complaints from creditors.
 Decision by shareholders – the shareholders may decide to dissolve a company in a general
meeting.
 Accomplishment of purpose or expiry of period of operation – a company may be dissolved
on accomplishment of its objects, or on expiry of period fixed for its existence.
THE ROLE OF STOCK EXCHANGE AS A MARKET FOR SECURITIES
DEFINATIONS
(1) Stock: a group of shares in a public limited company
-Stocks are formed when all the authorized shares in a particular category have been issued and
fully paid for.
(2) Stock exchange market: is a market where stocks from Quoted companies are bought and
sold
-Stock exchange markets enable share holders in public companies to sell their shares to other
people, usually members of the public interested in buying them.
(3) A Quoted Company: is a company that has been registered (listed) as a member of the stock
exchange market.
-Companies that are not quoted cannot have their shares traded in the stock exchange market.
(4) Securities: this could either refer shares or documents used in support of share ownership.
(5) Initial Public Offer (I. P. O): refers to situations in which a company has floated new shares
for public subscription ( Has advertised new shares and has invited members of the public
to buy them.
(6) Secondary market: The market that deals in second hand shares i.e. the transfer of shares
from one person or organization to another.
There is only one stock exchange market in Kenya i.e. The Nairobi Stock Exchange.
A person wishing to acquire shares will do so either at an IPO or in the secondary market.
However, an investor cannot buy or sell stocks directly in the stock exchange market. They can
only do so through stock brokers.
ROLES OF THE STOCK EXCHANGE MARKET

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(a) Facilitates buying of shares- it provides a conducive environment to investors who want to
buy shares in different companies.
(b) Facilitates selling of shares- it creates a market for those who wish to sell their shares.
(c) Safeguarding investors’ interests- it monitors the performance of the already quoted
companies and those found not meeting expectations are struck off. Companies who want
to be quoted must also attain a certain standard of performance.
(d) Provides useful information- it provides timely, accurate and reliable information to
investors which enable them to make decisions on the investments to make. The
information is passed on through mass media and stock brokers.
(e) Assist companies to raise capital- it assists companies to raise capital by creating an
environment through which companies issue new shares to members of the public in an
IPO.
(f) Creation of employment- it creates employment for those who facilitate the buying and
selling of shares eg stock brokers, stock agents etc.
(g) Raising revenue for the government- the government earns revenue by collecting fees and
other levies/ dues from activities carried out in the stock exchange market.
(h) Availing a variety of securities- it avails a variety of securities from which an investor can
choose from. The market therefore satisfies needs of various investors eg investors who
wish to buy from different companies can do so in the market.
(i) Fixing of prices- the stock exchange market is in a position to determine the true market
value of the securities through the forces of demand and supply. This is of great importance
to both the buyer and the seller.
(j) Measures a country’s economic progress- the performance of securities in the stock
exchange market may be an indicator of a country’s economic progress e.g a constant rise
in prices and volumes of securities traded within a given period of time would indicate that
the country’s economy is positively growing.
(k) Promotes the culture of saving- it provides investors with opportunities to channel their
excess funds. Such people act as role models to other members of the society who may
emulate them thereby promoting a saving culture.

5. PUBLIC CORPORATIONS (STATE CORPORATIONS)

These are organizations formed by and/or controlled by the government (the government has a
controlling interest). This means that the government owns more than 50% shares in the
corporation. Where the government has full ownership, the organization is known as a
parastatal
 Public corporations are formed to perform certain/specific functions on behalf of the
government.
 They are formed to provide essential services that are generally in the public interest, and
that may require heavy initial capital investment which few private investors can afford
 They are formed by the act of parliament.
Examples
 Kenya Railways corporation- provides railway transport
 Telkom Kenya-provides telecommunication services

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 Postal corporation of Kenya

 Industrial and commercial Development corporation (ICDC)- financial and management
services
 Mumias and Chemelil sugar companies.
 Kenya air ways- provide air transport services. etc
Characteristics/features of public corporations
 They are formed by the government under the existing laws i.e formed by an act of
parliament eg education act
 Initial capital is provided by the government
 They are jointly owned by the government and members of public/private investors
 They are set up to perform certain specific functions on behalf of the government
 They are managed by a board of directors appointed by the government or appointed by
the government and the joint owners
 They have an entity of their own and can own property, enter contracts, sue and be sued
 They have limited liability
 Some operate without a profit motive while others have a profit motive
Formation
-Some are formed by an act of parliament while others are formed under the existing laws.
-When formed by an act of parliament, the Act defines its status obligations and areas of
operation. The Act outlines the following;
 Proposed name of the corporation
 Aims and objectives
 Goods or services to be produced and provided
 Location(Area of operation)
 The appointment of top executives
 The powers of the Board of directors
 The ministry under which it will operate
Management
-The public corporations are managed by a board of directors appointed by the president or the
relevant minister
-The chairman and the board of directors are responsible for the implementation of the aims
and objectives of the corporations.
-The chairman of the board of directors reports to the government (president) through the
relevant minister.
-The managing director who is usually the secretary of the board of directors in the chief
executive officer of the corporation
Sources of capital
-The initial capital is usually provided by the government as a vote of expenditure for the
ministry concerned
-Those corporations jointly owned by the government and the public raise capital through the
sale of shares
-financial institutions in form of loans
-Retained profits/profits ploughed back.

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-Hire purchase
Advantages of public corporations
 Initial capital is readily available because it is provided by the government
 Can afford to provide goods and services at low prices which would otherwise be
expensive if they were left to the private sector.
 Most of them produce goods and services in large quantities thereby reaping the
benefits of large scale production
 Some are monopolies. They hence enjoy the benefits of being a monopoly e.g. they do
not have to incur costs advertising since there is no competition
 They can be bailed out/assisted by the government when in financial problems
 They have limited liability
 Money for research and development can be made readily available by the government
 Through corporations the government is able to remove foreign domination in the
country
 They can afford to hire qualified personnel.
Disadvantages of public corporations
 They are managed by political appointees who may not have the necessary managerial
know how.
 When they make losses, they are assisted by the government and this could lead to
higher taxation of individuals
 Lack of competition due to monopoly leads to inefficiency and insensitivity to customers
feelings.
 Political interference may hamper efficiency in the achievement of set goals and
objectives.
 Decision-making is slow and difficult because the organizations are large.
 They may lack close supervision because of their large sizes.
 There is embezzlement of large sums of money leading to loss of public funds
 The government is forced to provide goods and services to its citizens in all parts of the
country where at times its uneconomical to provide them because the costs of providing
them may surpass the returns
 Public funds are wasted by keeping poorly managed public corporations.
 Diseconomies of scale apply in these business units because they are usually very large
scale organizations e.g. decision making may take long.
Dissolution of public corporations
They can only be dissolved by the government due to:
1. Persistent loss making
2. Bankruptcy- where the corporation cannot pay its debts
3. Change in the act of parliament that formed the corporation
4. Privatization
5. Mismanagement, resulting in poor management of the corporation

Factors to be considered when starting a small enterprise

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Capital. Entrepreneurs have to invest in a certain amount of personal money for the start of
their business. He should know the sources of capital.
Business opportunity. An entrepreneur should not start a business similar to existing ones
without determining whether the market can accommodate all of them.
Entrepreneurial skills and knowledge. An entrepreneur should know his competencies,
attitudes and skills that will benefit his business.
Competitors. A person wishing to start a small business should know his or her competitors and
the quality of products, so that he or she can make his products even better.
Legal requirements. It’s important for an entrepreneur to know the legal requirements of
starting a business because the legal requirements may prohibit or restrict consumption of
certain commodities.
Business premises. The location of a business is a key factor to consider. The following factors
should be put in mind
 Transport facilities
 Availability of energy power
 Nearness to raw materials
 Expansion ability in future
 Availability of auxiliary services like banking
Procedures of Starting a small Business
 Identification of a business idea
 Development of a business plan
 Location of a business demand evaluation
 Registration of the business
 Choice of the business organization
 Business name
 Trading licenses / permit
 Start-up and management of the business.
 All entrepreneurs are business people – though not all business people are
entrepreneurs.
 Entrepreneurs tend to be more innovative than ordinary business people and end up
developing a business plans.

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Business life cycle

Business life cycles refers to the phases that a business passes from the time the idea is formed
in the entrepreneurs mind to the time business' rolls and expands of even declines Many
businesses go through six stages in their life. Others may go through five stages:
I. Idea Generation stage
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. At this
stage, the to come up with the business idea. Several needs may require to be
fulfilled but the entrepreneur may not meet all of them; it becomes necessary at this
stage to select the most viable business idea from the many available. This stage
may involve creativity and assessment of various ideas. It is at this stage that an
entrepreneur decides on the business mission, scope and direction. This mean, an
entrepreneur gives the prospective business a purpose. Some purposes may include
provision services and to make profit He will carry out due diligence to ensure he has
taken all important factors into Recount setting off the business. He will incur
expenses to execute some of these important activities. He may for instance require
the services of a legal representative to acquire land. He may also hire the services
of a surveyor if he wants to build his own premise, if he will hire personnel to assist
in running the business, he should ensure that he has sufficient funds need to get a
loan to do this.
II. Start - up stage
Activities at the start up stage may involve preparation of a formal business plan,
registration of the business, sourcing capital, recruiting staff and designing also
launch the product and sign up with distributors or dealers. At this stage, the
entrepreneur has already set the business up. The business is operational despite
the setbacks that befall all businesses that he may need to make adjustments in
order to survive. He may see the need to insure the property in case he hadn't He
may also realize that he does not need an extra staff hence he may cut down on
that, sales may be slow in picking up, so he may decide to come up with new
marketing strategies, He may see the need to have proper records for tax purposes.
III. Growth stage
At the growth stage of business common experiences may include:
 Increased sales and profits
 Wider market coverage in terms of geographical regions.
 A growing number of employees
 Variety of products/services
 Increased competition

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 Need for additional expenditure

During this phase, the business will experience rapid growth as customers’ needs
become the main focus for the entrepreneur. It is at this stage that he will realize
there is need to gain a competitive edge in order to make more sales. The
entrepreneur at this stage may think seriously about automating his operations,
hiring professionals like accountants, perhaps even expanding the business. The
signs that these requirements are necessary will be felt by the growing need to meet
the increasing and dynamic needs of the customer
IV. Stabilization Stage
 At this stage, the business sales and profits stagnate. The business may also
experience; intensified competition.
 There is also market saturation by similar (“look like”) products
 Consumers’ indifference to the-product
 Sales may decline and consequently profit may decline.
This is the phase that determines whether the business has managed to meet its
long term objectives and a period to assess how successful the short term objectives
have been met. At this stage, the entrepreneur is more concerned about corporate
governance, issues and how this impacts on customer needs. He will also be
concerned with the management of the business in various departments such as
finance, sales and marketing. The entrepreneur will have his sights on a higher level
of competition with other, firms that belong to a higher circle, hence he see the
need of turning the business into a public limited company in order to compete as
such levels. This model can be applied to the growth or otherwise of a firm. The
entrepreneur thus needs to ensure that the business opportunity he has before him
has a road map charted in advance and based on due diligence. This does not mean
that every firm will follow the above model. The entrepreneur needs to be aware of
the possible outcomes.
V. Innovation Stage
Organizations that fail to innovate at stabilization stage are likely to decline. To
ensure the firm comes back to growth, the entrepreneur is required to re- look at
the ways business has been conducted. The aim is to undertake activities differently
and rescue the firm from decline. It is expected that innovative strategies would
ensure accelerated growth.
Among innovative attempts include:
 Change of management the aim is to bring new-and better ideas that will ensure the
firm is back to the growth path.
 Re- package the product/ service .This would ensure the market gets the impression of
a new product that is modified and. better than the former. It is also a strategy of
winning customers back from competitors.

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 Change the technology. The aim of new technology is to ensure efficiency in production
and enhance customer service. It is important that the entrepreneur chooses a
technology that matches the type of business he is doing
 New distribution methods. The firm may also design new distribution methods.
Changing the distribution strategy would ensure customers access their products at the
convenient places especially providing personalized distributions to customers or even
ensuring 24 hour service to customers
 Advertise and promote differently. The firm may decide go to different regions and
promote its product or services.
VI). Decline Stage
This stage is not in the normal plan of business. The entrepreneur does not foresee business
declining at the start- up stage. Some of the experiences at this stage include:-
 Drastic fall in sales and profits this is as a result of customers moving to competitors
and in large numbers. It is also a result of consistent expenditure against limited income.
 Consumer indifference to the product/ service this means consumers no longer prefer
the product to competing brands. The entrepreneur may experience huge stocks of
unsold product.
 Inability to meet bills/ debts as they fall due this arises from persistent low income or
losses against increased expenditure.
 Key management staffs leave the organizations. This may result-from the
organizations inability to remunerate top managers or provide them ' with adequate
facilities for their performance of various tasks.

Challenges faced when starting a small business

 Poor infrastructure facilities including power is a challenge.
 Deficiency in managerial and technical skills needed for the operation of the business.
 Financial challenges/shortages because it’s difficult or are limited to access external
sources of funds.
 In a male dominated society, women entrepreneurs find it difficult to cope up with
pressure and tensions of managing an enterprise.
 Lack of planning -an entrepreneur should have a well-developed plan with clear
objectives prior to starting any venture.
 Government limitations-the government tends to back the larger business enterprise
making the small enterprise less attractive especially when it comes to bank lending.
 Environmental changes-the economic, political, social and technical environment all are
a challenge to the entrepreneur.
 Legal requirements like licenses is also a challenge to operate certain businesses
 Lack of necessary entrepreneurial skills, knowledge and traits.

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 High level of completion.

Resources for a business

A resource refers to anything that can be used to achieve an objective. These resources include;
a. Human resource-Human resource (personnel) refers to the employees working in an
organization. Employees will only be useful if they have the necessary knowledge and
skills to successfully carry out the assigned tasks. It is therefore necessary for the
management to match the correct people with the correct Job activities; this will ensure
success for the business.
b. Financial resource-Money is required in order to start and operate a business. A
business with adequate finances that are property allocated to various activities and
also monitored is likely to do better than the one lacking such aspects.
c. Physical resources-These include tangible facilities which belong to the business such as
buildings, machinery, furniture and stock. Availability of such facilities enables the
business to operate.
d. Technology-This refers to skills and methods used in production. Use of modern
technology enhances production of goods and services.

Sources of finance for a business

Businesses can acquire finances from various sources. These include;
Owner's Capital
This is often the only source of capital available for the sole trader starting in business. The
same often applies with partnerships, but in this case there are more people involved, so there
should be more capital available. This type of capital though, when invested is often quickly
turned into long term, fixed assets, which cannot be readily converted into cash. If there is a
shortfall on a Cash Flow Forecast, the business owners could invest more money in the
business. For many small businesses the owner may already have all his or her capital invested,
or may not be willing to risk further investment, so this may not be the most likely source of
funding for cash flow problems.
Ploughed back profits
Firms make profit by selling a product for more than it costs to produce. This is the most basic
source of funds for any company and hopefully the method that brings in the most money.
Borrowings

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Like individuals, companies can borrow money. This can be done privately through bank loans,
or it can be done publicly through a debt issue. The drawback of borrowing money is the
interest that must be paid to the lender.
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. The benefit of this is that investors do not require interest
payments like bondholders do. The drawback is that further profits are divided among all the
shareholders
Overdraft
This is a form of loan from a bank. A business becomes overdrawn when it withdraws more
money out of its account than there is in it. This leaves a negative balance on the account. This
is often a cheap way of borrowing money as once an overdraft has been agreed with the bank
the business can use as much as it needs at any time, up to the agreed overdraft limit. But, the
bank will of course, charge interest on the amount overdrawn, and will only allow an overdraft
if they believe the business is credit worthy i.e. is very likely to pay the money back. A bank can
demand the repayment of an overdraft at any time. Many businesses have been forced to
cease trading because of the withdrawal of overdraft facilities by a bank. Even so for short term
borrowing, an overdraft is often the ideal solution, and many businesses often have a rolling
(on going) overdraft agreement with the bank. This then is often the ideal solution for
overcoming short term cash flow problems, e.g. funding purchase of raw materials, whilst
waiting payment on goods produced.
Bank Loan
This is lending by a bank to a business. A fixed amount is lent e.g. Kshs.10,000 for a fixed period
of time, e.g. 3 years. The bank will charge interest on this, and the interest plus part of the
capital, (the amount borrowed), will have to be paid back each month. Again the bank will only
lend if the business is credit worthy, and it may require security. If security is required, this
means the loan is secured against an asset of the borrower, e.g. his house if a Sole Trader, or an
assesst of the business. If the loan is not repaid, then the bank can take possession of the asset
and sell the asset to get its money back. Loans are normally made for capital investment, so
they are unlikely to be used to solve short-term cash flow problems. But if a loan is obtained,
then this frees up other capital held by the business, which can then be used for other
purposes.
Leasing
With leasing a business has the use of an asset, but pays a monthly fee for its use and will
never own it. Think, of, someone setting up business as a Parcel Delivery Service, he could lease
the van he needs from a leasing company. He will have to pay a monthly leasing fee, say
Kshs.50,000, which is very useful if he does not wish to spend Ksh.800,000 on buying a van. This

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will free up capital, which can now be used for other purposes. A business looking to purchase
equipment may decide to lease if it wishes to improve its immediate cash flow. In the example
above, if the van had been purchased, the flow of cash out of the business would have been
Ksh 800,000, but by leasing the flow out of the business over the first year would be Ksh
600,000, leaving a possible Ksh 200,000 for other assets and investment in the business. Leasing
also allows equipment to be updated on a regular basis, but it does cost more than outright
purchase in the long run
In an ideal world, a company would bring in all of its cash simply by selling goods and services
for a profit. At some point the company may need to invest in big investment that will yield
returns in the near future. For this reason, a time will eventually come when the company will
need to acquire funds from any of the above mentioned.

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TOPIC 9: BUSINESS PLAN

BUSINESS PLAN
This is a written document that highlights the objectives of the business and steps to be
followed in order to achieve these objectives. It indicates where the business is, where it wants
to move to, how and when.
Need for the business plan
i. A business plan is necessary to an entrepreneur for the following reasons:
ii. Avoiding mistakes-in the process of drawing a plan; mistakes that would take place in
the business are identified and corrected in the plan. This helps in avoiding the
occurrence of such mistakes in the business.
iii. Identifying strength and weaknesses-A business plan helps in identifying strengths or
weaknesses and where weaknesses are detected, remedial actions may be taken early
enough.
iv. Requirement by financiers-Financial institutions such as banks may require a business
plan before they can accept to finance the activities of the business.
v. Allocation of resources-It helps to determine the resources required and plan on how
and where to use them. This ensures that resources are neither underutilized nor used
for the wrong purpose.
vi. Facilitates business evaluation-A business plan helps an entrepreneur to assess the
progress of the business and any deviation (difference) from the intended plan can be
corrected in good time.
vii. It helps an entrepreneur outline competition-It helps the entrepreneur to be fully aware
of the market she or he plans to operate in, understand important trends and know who
her/his competitors are and their strengths and weaknesses. This information aids the
entrepreneur to develop products that are better than those of the competitors.
viii. A motivating factor-A business plan is communicated to all employees in the business.
This makes them aware of the direction to be taken by the business. This motivates
them to work towards that direction.
ix. Adaptability-Normally, not all events occur as predicted in the business plan. However, a
well drawn business plan should give room to accommodate any changes that might
occur in the future.
x. Tool for control-Planning involves setting of standards against which performances can
be assessed. In case of deviation corrective measures can be taken.

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Components of a business plan

Purpose
Executive summary
Business description
Marketing plan
Management plan
Production/operation plan
Financial plan
Expected performance
Action plan
Appendices
Purpose
This is a short 2-3 paragraph section explaining why the plan is being written. For a plan to be
used in application for funds, it should clearly be stated:-
 The types of the funds being sought
 Whether loan or grant
 The reason for the funds

For loans funds should be indicated:-

 Amount required
 How the funds are to be used
 For how long the loan is required
 Proposed repayment pattern
 Security available
This section helps to understand the rest of the business plan

Executive summary
This is a short section summarizing the key points about the plan. It explains in brief the whole
plan and it should obviously be written after the writing of the whole plan is completed.
Business description

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For an already existing business, the details would include;

 Business form and ownership
 When started
 Past performance, success and failures
 Reason for the required assistance
For a new start up business, it would include:-
 Mission of the new venture
 Your reasons of going into business
 Why you think you will be successful in this venture?
 What development work has been completed to date?
 What are your products or services? Describe them including patent, copyright or
trademark status.
 What is the location of the business and your reason for choosing the location?
 Is your building new? If it needs renovation state the cost of the renovation.
 Is the building leased or owned? (State the terms)
 What office equipment will be needed?
 Will the equipment be purchased or leased?
 What experience do you have to help you successfully implement the business plan?

Marketing plan
The marketing plan is based on the market data received in the market research
activities. The marketing plan describes the marketing conditions, and strategies
proposed for positioning the products and services. It also gives description of pricing
distribution and promotion policies. It will include;
 A description of goods and services being produced or to be produced and their
uses.
 Present market situations and their products.
 Target market and expected market share.
 Advantages of your products against competing goods or services proposed price
and distribution channels.
 Expected future market growth.

Management plan
It gives details on;
 The owner/manager and other key people in the business
 Their qualifications, skills and past experience

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 Their role ability to successfully carry out the proposed business or any
training required.
 Their salaries and benefits.

Production/operation plan
It gives details of the manufacturing process and operations of the proposed venture. It
indicates what items to be subcontracted, the cost and the time frame. It also provides the
production details such as physical plant layout, the technology, the requirements of the
equipment’s, raw materials and the cost of manufacturing.
If the proposed new venture is not manufacturing type but service oriented; in that case, the
operational plans are made. The operational plans describe in details the chronological steps
involved in the business operations. Questions for productions plan include;
 Will the new venture be responsible for all part of the manufacturing operation?
 If some manufacturing is subcontracted, who will be the subcontractors? (Give names
and addresses)
 On what basis will sub-contractors be selected?
 What will be the layout of the production process?
 Which raw materials will be needed for production? And which are critical?
 Who are the suppliers of the new materials and what are the appropriate costs?
 What are the cost of manufacturing the product?
 What are the future capital equipment needs of the venture? And why?

Financial plan
It gives projections of important financial data that determines the productivity of the venture
and financial investments required for the venture. The financial figures are drawn by the
entrepreneurs from the forecast sales and production ventures. It also indicates the projected
balance sheet giving the financial conditions of the business, giving the details of assets and
liabilities investment by entrepreneurs. The financial plan includes;
 Estimated cost of the proposed business
 Purchase of fixed assets including any building and machinery
 Working capital including purchase of stock, raw materials, running costs, wages, power,
transport.
 Proposed sources of required funds
 Amount to be contributed by owners
 Required loan/grant

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Expected performance
This section should show the expected future performance of the business in profits and
increase or decrease in the business asset. This section should be prepared with the help of an
accountant or consultant.
Action plan
This section gives details of the actions to be taken in implementing the business proposal
showing;
 What is to be done?
 When
 By whom
 How long will it take

Appendices
This is attachment of the necessary documents in support of information contained in the
business plan. This includes;
 Projectile income statements, cash flow statements and balance sheets
 Copies of past performance records
 Copies of plot maps, title deeds, allocation letters, building plans
 Copies of c.vs certificates

Common factors that can lead to the failure of a business plan;

 Unreasonable goals set by the entrepreneur
 Lack of commitment to the new enterprise by the entrepreneur and his team
 Inexperience and going by the trial and error method
 No proper SWOT analysis of the business by the entrepreneur
 No customer orientation for the proposed product or service
 Poor handling of finance matters
 Unreasonable time schedule
 No proper control for the business plan to ensure effective implementation

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TOPIC 10: ICT IN ENTREPRENUERSHIP

Information is a product of data which has been given a structure and put into a
context.

Communication is the art of sending and receiving messages or information from one
person to another via a channel.

Technology is the generation of knowledge and processes to develop systems that solve
problems and extend human capabilities.
Benefits of ICT to a small business
 Improved accuracy, internally and externally
 Services to customers that are more comprehensive that before
 Faster processing, leading to prompter responses to customers
 Information for management, not previously available, or available too late to be
useful and tighter financial control.
 New customer services previously not possible.
 New sources of information to allow improved product design and marketing
 Reduced cost arising from the greater productivity of staff who are supported
and assisted by appropriate computer services.
 A more attractive, cleaner working environment in some cases, helping
recruitment and retention of staff.
How ICT can help a small business enterprise
ICT helps in the following activities;
Information processing tasks. This tasks range from computing and printing payroll checks, to
creating presentations, to setting up websites from which customers can order products.
Decision making tasks. Involves the use of online analytical processing to manipulate
information to support decision making. This ranges from performing simple queries on a

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database to determine which customers have overdue accounts to employ sophisticated

artificial intelligence tools such as neutral networks and genetic algorithms to solve a problem.
Shared information through decentralized computing
Decentralized computing is an environment in which an enterprise splits computing power and
locates its functional business areas as well as on the desktop of knowledge workers. This is
possible because of the proliferation of less expensive, more powerful and smaller systems
including desktop computers, laptops and minicomputers. Shared information is an
environment in which an organization information is organized in one central location allowing
anyone to access and use it as they need to.
Innovation. Is something new. It can be a new device, process or idea. Cellular telephones
combined with computer technology may be considered innovative device. Using satellite to
help navigate automobiles is an innovative process.
Questions
1. Explain the role of the following ICTS in business efficiency

 Phone
 Fax machine
 World Wide Web
 Radio
 Television
 Computer
 E-mail

2. Define and describe the following terms explaining their features and benefits.

 E-government
 E-procurement
 E-business

3. Describe the different models of e-government

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TOPIC 11: EMERGING TRENDS IN ENTREPRENEURSHIP

TECHNOLOGICAL TRENDS

Technology is simple that which enables us perform activities, knowledge, skills,

technologies, tools, equipment, machinery and production processes. Business
operations such as production, marketing, research and development and
communications, among others are affected by the level and type of technology
available in the business environment. While discussing the basics of the new
enterprise, the following technological aspects need close study and examination bt the
aspiring entrepreneurs.

Cost of acquiring new technology- the new technologies that are emerging will be costly
as compared to the outdated technologies. A balance has to be achieved between the
stage of the technology and the capital cost.

Standardization- the selection of the technology by the entrepreneur should help in

standardizing the end products for the market acceptance and uniformity in the
industry.

Availability of technical support services and maintenance- the selection of a new

technology should be supported by proper maintenance and other technical services
that are required to keep the equipment in order and give necessary productivity.

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