Entrepreneurship notes, Lecture notes of Financial Accounting

Download Entrepreneurship notes and more Lecture notes Financial Accounting in PDF only on Docsity! Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 1 ENTREPRENEURSHIP LECTURE NOTES Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 2 CHAPTER ONE ENTREPRENEURSHIP INTRODUCTION: Course content: This course is intended to equip the learner with the necessary knowledge, skills and the attitudes that will enable them to start, operate and maintain a good personal relationship of a business enterprise General objective At the end of this course the learner should be able to;- i. Demonstrate positive attitude towards self-employment ii. Identify viable business opportunity iii. Understand factors likely to affect the success of a business iv. Acquire management skills necessary for running a successful enterprise  There has been a great deal of confusion and contradiction in literature about entrepreneurship; it is however interesting about entrepreneurship came about into existence.  Adam Smith looked upon an entrepreneurship as the process of owning business to which he/she supplies the capital, therefore the classical economist‘s lumped interest and profit together.  Cantillon after separating the called entrepreneurship from capitalist recognized it as a separate process that has a definite function in an economy.  J.B.S a French economist felt that there was also an aspect of risk in daily life transactions. Prf. B.R Knigut conceived the dual functions of risk taking and control whereas Schumpeter identified entrepreneur with innovation. Entrepreneur An entrepreneur is an agent of change i.e. the person who innovates visual ties and realizes the ideas of creating a venture. Entrepreneurship. i. A.H Cole, defines it as the purposeful activity of an individual or group of associated individuals undertaken to iniate, maintain or aggrandize profit by production of goods and services. ii. Peter Drucker Knew it as a practice .It has a knowledge base .Knowledge in entrepreneurship is a means to an end. That‘s by the practice. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 5 o Non-availability of labour and skills. Social factors: Less developed countries are characteristised by the presence of social set-up which is generally hostile to entrepreneurship compared to developed countries whereby societies are rational and decision making Cultural factors They are as follows;  Hander disparity where certain group of the society are viewed as superior  Belief for instance the case of Muslim vs. the park industry  Religion Certain religion group prohibits the members from participating in certain economic social dysfunction Personality factors: In certain undeveloped countries the entrepreneur is looked upon with suspicion thus his/her personality is greatly affected, he/she is seen as profit makers and exporters. NATURE AND CHARACTERISTICS OF ENTREPRENEURSHIP  Innovation :-It involves problem solving and the entrepreneur is the problem solver.Enterpreneurship is a creative activity  Achievement _People having higher achievement needs are mere likely to succeed as entrepreneurs  Organizational building: It‘s the most critical skill required for industrial development  Status withdrawal: An entrepreneur should feel a sense of increased pleasure‘ when facing a problem and tolerates disorder without discomfort .In tradition societies position of an charity was granted on the basis of status rather than industrial ability.  Managerial skill and leadership: They are most important facet industrial entrepreneur must have more than the drive to earn profit i.e ability to lead and marriage.  Help filling function –The entrepreneur must fill the gap or make-up deficiencies which always exist in the knowledge about the production function.He /she has to meshall all the inputs to realize the final product.  Group level pattern –Entrepreneural activity is y the particular family background experience as a member of certain groups and as a reflection of general values.  A function of social political and economic structure: Enterpreneurial structure opportunity strut and labour structure .Entrepreneurship depends on rather specific ambition of circumstance which are difficult to create and easy to destroy. ECONOMIC SYSTEM AND ENTERPRENEURSHIP An economic system is a that form under which a given business enterprise endeavors to operate i.e the industry the monetary policies prevailing etc .The economic system can be broadly classified into three  Capitalism  Socialism  Mixed economy Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 6  Role of entrepreneur in capitalism; Capitalism is a system in which an individual controls and runs the country business and industry without the interference by the government It characterized by: -Free enterprise -Freedom of investments -Health competition -Consumes sovereignty Role of entrepreneur in socialism-This is where the government plays an important tale in economic activities. Almost all the industries a controlled by government. The enterprises are run for natural interest or for social interest and not for profit motive e.g. the U.S.S.R China and East European countries. At present it exists in Cuba and North Korea. Role of entrepreneur in mixed economy .This is where the ownership and management of some industries especially of national importance is with the government i.e certain industries are open for private sectors e.g.  Industrial exclusively reserved for public sector, for instance Defense energy railways and running  Industries meant for joint sector: fertilizers and machinery industries.  Industries meant for private sectors The entrepreneur is mixed economy can play an important role in the area below  Regional development  Capital formation  General employment  Generation of foreign exchange through exports  Revenue to the government OBSTACLES INHIBITING ENTREPRENEURSHIP They include the following;  Lack of sufficient infrustructive and high cot of capital  High risk involved in new enterprise  Low status of businessmen in the eyes of public  Restrictive effects of customs and traditions  Lack of adequate response to monitory incentive  Market imperfections  Unwillingness to devote organizational abilities to business purposes Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 7 IMPORTANCE OF ENTREPRENEURSHIP DEVELOPING ECONOMY Developing economy is that which is geared towards industrialization or an industry that is in its infancy stage lacking advanced technology. Hence its importance can be summaries below.  General employment  Revenue to the government  Contribution to social development  Technology development  Balance regional development  Organization of human resources. REASON FOR SLOW GROWTH OF ENTRENEURING IN DEVELOPING COUNTRIES: These are reasons for slow growth of entrepreneurship in developing countries thus espouse of:  Financial problem formalities in obtaining loans high interest rates  Lack of entrepreneurship training  Reluctance to assurance risk e.g. being risk averse  Lack of infrasture e.g. power transport communication act  Insecurity THEORIES OF ENTERPRENEURSHIP; OBJECTIVES; By the end of the topic trainee should be able to :  Explain entrepreneur ship theories in detail  Outline various views of diriment theories of entrepreneurship.  Be able to identify and explain different theoretical views of different theorists Theories of entrepreneurship There are three theories namely i. Economic theory ii. Sociological theory iii. Physiological theory i)Economic Theory According to their theory Entrepreneurship and economic growth will take place in those situations where economic conditions are favorable. J.B suggests that it is a function of Entrepreneur to combine the forces of production into a new production of organization. I.S Mill vies superintendence control and direction as entrepreneurial functions. Superintended is to assemble the means to supervise the work and to turn out maximum at the minimum cost. Therefore Mills emphasizes on the managerial and administrative functions. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 10 He analyzed religion and its impacts on enterprising culture. To him the spirit of capitalism is a set of attitudes towards requisition of money and other activities involved. ―The spirit of capitalization ―subjected to a strick discipline while capitalism can be generated only when the mental attitude is favorable to capitalism. McClelland’s views on Entrepreneurship; He indentifies two characteristics of entrepreneurship  Doing things in a new better way  Making decisions under uncertainty He stressed the need for achievement as the most relevant factors for explaining economics behavior i.e those people with high need of achievement motive is stable characteristics of an individual i.e. one does not expect later events to change the achievement motive and behavior. Hagen’s views on Entrepreneurship; Hagen visualizes on innovative personality it require creativity and individuals to bring about economic growth. He has formulated a sequence for the formation of creative personality i.e.the child rearing practice is the main element in personality ,he therefore suggests that whenever there is withdrawal of status respect,it will give rise to your different responses and four different, Types of personality would emerge they are;-  Retreats: One who does not have any expectations nor he is ambition he belongs to withdrawal status.  Ritualist: He acts in the ways accepted and approved in the society but with no hopes of improving his position i.e he his of defensive attitude/self centered.  Reformist He his rebellion and condones the wrong dongs the hopes for the new society.  Innovator: Creative indidual always searching for new ideas and ways of doing things. ENTREPRENEUR; Objectives; At the end of this chapter the learner should be able to simply the following. 1. Definition of entrepreneur 2. The contribution of entrepreneur to developing economy of country 3. Outline various characteristic of a successful entrepreneur. 4. Distinguish between entrepreneur and entrepreneurship entrepreneur and manager. 5. Identify different types of entrepreneurs 6. Classify entrepreneurs based on motivation Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 11 A case study of an entrepreneur A case study of Shahnaz Hussein-a successful woman entrepreneur She belongs to a royal Muslim family which migrated from the smerkhand to India later held high positions in the princely kingdom of Bhopal Hyderabad before indies‘ independence. She received her schooling in Irish convent and because of the influence of her father c.j nu beg, she developed love for poetry and literature. She was married at the age of 15 and she was a mother by next year. when her husband moved out ,she developed an interest in beauty treatment and decided to study cosmetology. To sport her carrier, she wrote articles for Iran tribune on various topics under different names In the course of her studies, she learnt of harmful effects of chemicals on the human body,consequently,she turned her attention to Ayurreda,which she believed was the ideal alternative to chemical cosmetics which not only harmed the human system but also led to determination of the environment in the long-run After leaving Tehran she trained extensively in the cosmetic industry for 10 years in some of the leading institute of London,paris,new York and coppenhagen.on her return to Nadia in 1977,she set up own salon at her house in Delhi with initial investment of rs.35000.in contrast to salons offering chemical treatment,shahnas offered Ayuverdic products. she uses Ayuvedic method of terament,which uses natural formulation to cure ailments. she is the pioneer and the leader of Ayuvedic beauty products in the world offering ‗natural care and cure‘, the saunas Hussein group offers today exclusive salon treatments greed towards individual needs as well as a number of commercial formulations for the treatment of specific problems like acne,pimples,pigmentation,dehydration,alopecia etc. Shana has recently launched the oxygen cream, an oxygen mask and facials using ingredients which breathe life into the skin and revitalize it. a degree of control is exercised its every stage of the product development right from the raw materials to the end. Despite the huge business hues has never advertised, she has relied entirely on the word of the mouth publicly to make her product known to customers..She believes that a satisfied customer is the best form advertising. She has been able to achieve growth to quality of her products and the results oriented treatment she offers. she has the largest network of over 600 franchises and the associates clinics around the world. all the franchises are required to undergo training in specialized treatment at saunas school of beauty bad therapy. the group has however diversified into ayuvedic center for Panchkarms,Dhana and Kerala. Question; Based on the above, highlight various characteristics of an entrepreneur and how they contribute to economic development clearly citing relevant cases room the text. Definition; Entrepreneur; a) R. Cantillon define it as the agent who buys means of production at certain prices in order to combine in to a product that cell able at a given price having incurred a cost. b) J.B say define as an economic agent who unites all the factors of production and finds value of the products that comes from the employment, the reconstitution of the entire capital, the value of the wages interest and the rent which he pays as well as the profits Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 12 c) Joseph Schumpeter Define as an individual who introduce something new in the economic i.e a faction to reform the pattern production through exploitation and invention of untried technology. d) Peter Duckers define as one who always search for changes response to it and exploit the opportunity. e) Evans defines as a person who an initiate organizes manages and controls the affairs of a business unit that combine the factors of production. From the above definitions it is clear that an Entrepreneur is a person who organizes undertakes innovation and assumes risks with the aim of gaining competitive advantage. Entrepreneurship is the process of setting and managing enterprises. Entrepreneurship management: Is the process of planning organizing directing and controlling the objective of an enterprise. Evolution of the concept of entrepreneur; Before the French men applied the term ―entrepreneur to mean an organizer of entertainment in the early 16 th century it was applied in those who engaged in military expeditions. It was later extended to cover civil engineering activities. Late 18 th century .It was used to refer to economic aspects. Since then its used views are risk bearer, organizer, decision maker and innovator. Entrepreneur as a risk –Bearer We can say an entrepreneur ventures into business to earn profit but the profit is uncertain as business is always subject to risk can be broadly divided into two groups: Insurable risks i.e loss due to changes in fashion and technology, competition, bad debts etcEntrepreneur can ensure that insurable risk but not no-insurable risks hence he has to bear them. Entrepreneur J.B say argues that on entrepreneur is the one who combine all the factors of production to produce a product. He further elaborates that the undertaking of complex operation anxieties to be encountered, misfourtunes to e handled, three more factors are implicit and essential. These are: Entrepreneur as an innovator Joseph A. Schumpeter looks at entrepreneur as person who introduces new combination of factors production which may occur in any of the following forms; a) New product market b) New source of supply of raw material c) New form of organization creating a monopoly d) New production technology. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 15 Development has several definitions including;  Act of improving by expanding or enlarging or refining.  It is a process in which something passes by degrees to a different stage (especially a more advanced or mature stage). A cycle can be defined as a complete set or series. It can also be defined as the fact of a series of events being repeated many times, always in the same order. Growth In a business perspective, growth can be defined as an investment style that looks for stock with strong earnings and/or revenue growth or growth potential. STAGES OF ENTREPRENEURAL DEVELOPMENT SEED STAGE This is when the business is just a thought or an idea. This is the very conception or birth of a new business. Challenge Most seed stage enterprises will have to overcome the challenges of market acceptance and pursue one niche opportunity. Time and money resources are thin. Focus At this stage of the business the focus is on matching the business opportunity with skills, experience and passions. Other focal points include;  Deciding on a business ownership structure  Finding professional advisors and  Business planning. Money Sources Early in the business life cycle with no proven market or customers, the entrepreneur will rely on cash from equity (i.e. sale of equity shares), micro finance institutions, and sale of personal asset, retained profits, inheritance, friends and family. Other potential sources include suppliers, customers, government grants and banks. START UP STAGE The business is born and now exists legally. Products and services are created and the business has its first customers. This stage mostly is an acid test where many things go wrong that is the product/service may face serious challenges; therefore entrepreneurs should focus on surviving in the market at this stage. Challenges Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 16  Over estimated money needs and the time to market. The main challenge for the entrepreneur is not to burn through what little cash he has. He has to learn what profitable needs his clients have and also carry out a reality check to see if the business is on the right track.  The product may not work in the market.  The product may not sell.  Cost may exceed expectations.  The product may be in the wrong market. Focus Start-ups require establishing a customer base and market presence along with tracking and conserving cash flow. It focuses on two objectives; Operative Objectives which include;  Sales: To achieve projected sales, mix of product and services are summarized in feasibility plan.  Revenue: To achieve cash flow within budget based on sales volume and price projections. It helps to meet target above variable cost with appropriate operating margins.  Growth: To realize incremental growth within seasonal pattern of forecasts.  Position: To solidify a long term position in appropriate markets as a result of adaptation during start-up. The focus is also on identifying market strategy for niches or opportunities in new products and services or market. Entrepreneurs also focus on positioning the enterprise for long term growth. Money Sources Owner, friends, family, suppliers, customers, grants and banks. GROWTH STAGE This is a period of intense growth which can occur at different rates ranging from slow growth through incremental higher sales to explosive growth through quantum changes in consumer demand. At this stage revenues and customers are increasing with many new opportunities and issues. Profits are strong, but competition is surfacing. Challenge The biggest challenge entrepreneurs face at this stage is dealing with the constant range of issues with financers, human resource and suppliers to ensure the business continues with its production process. Effective management with a possible new business plan is required. Entrepreneurs should learn how to train, delegate and motivate their staff to conquer this stage of development. Focus Growth life cycle businesses are focused on running the business in a more formal fashion to deal with the increased sales and customers. Better accounting and management systems will have to be set up. New employees will have to be hired to deal with the influx of business. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 17 Money Sources Banks, profits, partnerships, grants and leasing options. ESTABLISHED STAGE The enterprise is now mature and thriving into a company with a place in the market and loyal customers. Sales growth is not explosive but manageable. Business life has become a routine to the entrepreneur. Challenge The market place is relentless and competitive. The company needs to stay focused on the bigger picture. Issues like the economy, competitors or changing customer tastes can end everything the company has worked for. Focus An established life cycle company will be focused on improvement and productivity. To compete in an established market, the company will require better business practices along with automation and outsourcing to improve productivity. Money Sources Profits, banks, investors (e.g. shareholders) and government. EXPANSION STAGE This life cycle is characterized by a new period of growth into new markets and distribution channels. At this stage, it is often the choice of the business owner (entrepreneur or shareholders) to gain a larger market share and find new revenue and profit channels. Challenge Moving into new markets requires the planning and research of a seed or start up stage business. Focus should be on businesses that compliment the existing experience and capabilities. Moving into unrelated businesses can be disastrous. Focus Adding new products or services to existing markets or expand existing business into new markets and customer types. Money Sources Joint ventures, banks, licensing, new investors and partners. MATURE/DECLINE STAGE Year after year sales and profits tend to be stable, however competition remains fierce. Eventually sales start to fall and a decision is urgently needed whether to expand or exit the business. Challenge Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 20 Decline Stage 2005 – Uchumi closes ten of perennially loss making branches. It raises 1.2 billion shillings in a successful rights issue that saw majority shareholders whittle their shareholding from 52% to less than 20%. Exit Stage 2006 – Uchumi Board of Directors declares the company insolvent. The company is put under receivership by the secured lenders. (Being in receivership is not an enviable situation for a company. Oftentimes, receivers find that the best way to pay back loans is to liquidate company assets, which effectively puts the company out of business). In the same year, following the closure of Uchumi retail trading by the board in the financial year ending June 2006, revival of the chained stores was commenced in July 2006 to February 2007. 2008 – The company returns a profit of 106 million Kenyan shillings against a loss of 257 million Kenyan shillings of the previous year making a turnaround of 356 million Kenyan shillings. This is marked as a milestone for the chain stores as the last recorded profit was back in 2001/02 financial year. Uchumi Supermarket has 15 operating branches ; eleven in Nairobi, one in Meru, one in Karatina, one in Eldoret and one in Kampala. The Supermarket has a workforce of over 1000 employees. RECOMMENDATION Whether the business is a glowing success or a dismal failure depends on the ability to adapt to its changing life cycles. What one will focus on and overcome today will change in the future. Understanding where a business fits on the life cycle will help one to foresee upcoming challenges and make the best business decisions. CONCLUSION Each stage of the business life cycle may not occur in chronological order. Some businesses may be built to flip quickly; going from start-up to exit. Others will choose to avoid expansion and stay at the established stage. The enterprise process does not stand alone. It is set in the context of a support infrastructure and an operational environment that determine the strength and development of the process in a region. To reach a point where the process is self-sustaining, attention has to be paid to the internal elements as well as the external infrastructure and environment factors. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 21 REFERENCES Darrel Zahorsky, 7 Stages of Business Life Cycle Bill Bolton, John Thompson (2004). Entrepreneurs Talent, Temperament, Technique. David H. Holt. Entrepreneurship New Venture Creation. Distinction between an entrepreneur and a manager: The terms are to economics concepts meaning two different meaning as illustrated in the table below; Point Entrepreneur Managers Motive To start a venture/enterprise Render the services Status Owner of the enterprise Servant to entrepreneur Risk-bearing Assumes all the risks of the enterprise Does not bear any risk Rewards Profits from the business Gets salary as a reward for the services Innovation Thinks over what how and when to produce goods to meat changing demands Execute the plans of the entrepreneur Qualifications Needs to posses qualities and qualifications i.e risk taking foresight goal setting etc Needs to posses district qualification in terms of knowledge management & theory FUNCTIONS OF AN ENTREPRENEUR An entrepreneur performs all the necessary functions. From the genesis upto the Exodus of the enterprise. They can be listed as: -Idea generation and scanning of suitable ideas -Determination of business ideas -Product analysis and market research -Raising of necessary funds -Recruitment of staff -Completion promotions formalities Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 22 -Procurement of materials -Determination of form of ownership -Undertaking business operations Therefore entrepreneurial functions can be classified into 3 broad functions Risk bearing Organization Innovation Classification and types of Entrepreneurs Clarence Dan of-Carried out a study on American agriculture and on the basis classified entrepreneur into four categories:  Innovating Entrepreneurs One who introduced new goods new methods of production, new market and reorganize enterprise. They are only able to work when certain level of development are already achieved.  Imitative Entrepreneurs They do not innovate the change themselves they only copy techniques and technology invited by others they are suitable for undeveloped countries.  Fabian Entrepreneurs They imitated when it becomes perfectly clear loss of relative position in the enterprise  Drone Entrepreneurs This is those who do not adopt opportunities to make changes in production formulae, they may suffer losses but can not change  tSolo operatorsThey are those who work alone  Active partners. who are willing to start /carryon and joint venture  Inventors Those with the competence and willingness to invent new products the focus on research and innovation.  Challengers Those are those who entre into the industry because of the challenges it presents. Amongst others includes buyer lifetimes etc. Classification of Entrepreneur; According to type of business; i. Business Entrepreneurs: They are those individuals who conceive idea for a new product creates business to turn the ideas into reality. They tap both production and marketing resources to develop new business opportunity ii. Trading entrepreneurial .He is only conceived with franchising activities. Basically he is marketing person iii. Industrial entrepreneur: Is product oriented man who starts an industrial unit for making some new product he identifies the potential needs of customers and tailors a product or a service to meet the marketing needs. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 25 3. Employment for others 4. Healthy competition hence high quality product s 5. More goods and service available 6. Development of new markets 7. Promotion of use of modern technology 8. Reduction of informal economy 9. Improvement in standard of living 10. Contributing to economic development. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 26 ENTREPRENEURIAL MOTIVATION; Objectives; i) The learner should be able to: ii) Define motivation and explain different factors that motivator‘s people to become entrepreneurs iii) Explain the meaning of internal and external factors of motivation iv) Discuss about achievement motivation v) Describe in detail Maslow Hierarchy of needs CONTENT; The motives of an entrepreneur are numerous some are purely totally focused on developing their innovation and money is just the mechanism that allows it to happen. Most entrepreneurs are after both some wants a sense of self –importance.Othersget satisfaction by being self employed. Def; Motivation It is derived from the word‘motive‘Motives may be defined as drive or impulses within and individual i.e something within a person which prompts him into action. According to Floppy ―Motivation is a process of attempting to influence others to do your will through the possibility of gain or rewards According to Mc Farland ―motivation refers to ways in which urges, drives, desire and aspirations striving or needs direct control or explain the behavior of human beings‖ Nature of Motivation The descriptions above reveal the following characteristics of motivation. I) Motivation is a personal and internal feeling It rises in the mind of and individual when his needs and wants satisfied. ii) Motivation is a continuous process Satisfaction of one need leads to feeling of another and the process goes on. iii) Human needs are inter related. The inter relation of human needs influence human behavior in different ways. iv) Motivation causes goal-directed behavior Feeling of a need creates tension .A person works for the goal to obtain rewards that satisfy his needs. Theories of Motivation. Prominent Theories include the following; Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 27 Maslow’s need Hierarchy Theory; Maslow is known for the conceptualization of hierarchy of human needs. In his theory he indentified five sets of human needs arranged in hierarchy of the importance and priority i.e when a set of needs is satisfied it causes to be a motivator, thereafter the next set takes the position. At the lowest level there will be basic needs followed by other sets. The theory is based on the following assumption  Man is wanting being  Needs have definite is not motivator  A satisfied need is not motivator  As one need is satisfied another replaces it. MASLOW HIERARCHY OF NEED; Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 30  Availability of technology  Heavy demand  Profit margin  Accommodation in industrial estates  Encouragements from other business  Instable units at a cheap price  Financial assistance from institutional sources McClelland suggests that executive have a higher need for achievement than men Arnold has stated three main factors which influence the behavior of an entrepreneur; 1. The internal factors e.g. age family background education etc which makes him more or less inclined to entrepreneurship. 2. The organization in which ha has been working earlier also called incubator organization 3. Complex of external factors refer above ) A further study of entrepreneur motivation has classified the factors behind entrepreneur growth in three categories;- -To make money -To fulfill desire -Continue family business -Gain social prestige -Self employment etc Compelling reasons; 1. Unemployment 2. Dissatisfaction with the current job 3. Making use of idle funds 4. Make use of professional skills 5. Maintenance of large families Facilitating factors; 1. Previous association 2. Influence 3. Success stories of other entrepreneurs 4. Property inherited 5. Previous employment in the same activity The Achievement Motivation; According to McClelland the need for achievement refers to the need for personal accomplishment i.e the drive to excel or success. It is the need for achievement that motivates people to take risks. It stimulates a person to be an entrepreneur. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 31 The psychological factors which contribute to entrepreneurial motivation are as follows; 1. Need for achievement through self study 2. Desire for personal responsibility 3. Anticipation of future responsibilities 4. Organizational skills 5. Keen interesting situation 6. Concrete measures of task performance 7. Energetic or instrumental activity According to McClelland if the “inner spirit is higher it would produce more energetic entrepreneur INNOVATION AND ENTERPRENEURSHIP Specific objectives: The following should be the qualities to be attended at end of the Chapter: Define innovative and explain why innovative is important to entrepreneur. Define creativity and the different stages of creating. Identify and single our different elements of innovation process. List the benefits of innovation to; customer employees business Differentiate between entrepreneurship manger and intrepreneur. Defn. (Innovation It a way of doing something new different and better than those that exist before egg Major changes in M That has led into post industrial information system. According to J.A Schumper innovation can take place in different forms i.e 1. Introduction of new product 2. Installation of technology 3. New source of raw materials 4. New form of organization of any industry. Creativity and innovation: Defn: Creating is the ability to bring something into existence their definition emphasizes the ability not the activity not the activity of bringing something new into existence. Innovation is the process of doing new things its therefore the process of transformation of creative ideas into use applications The creativity process There are five stages in the creative process. They are as follows: Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 32 1. Idea germination;- It the seeding stages of a new recognition, these can be traced to individuals interest or curiosity about specific problem.e.g Alexander Graham Bell with the sound of childhood that drove him study human hearing systems 2. Preparation; –Once an idea have been germinated the inventors will sep up a laboratory experiments designers would begin engineering new products and ideas and marketers will study consumer buying habits .However in every rare cases this stage will produce results. 3. Incubation;-This stage has been called the art of synaptic meaning joining together of different and related ideas. It is therefore open to unusual information and knowledge. 4. Illumination;-It occurs when the idea surface as a realistic creation e.g. a bell discovered harmonic telegraphy. This stages is very crucial for entrepreneur because the ideas have little meaning..This is also whereby day dreamers and the serious thinker are separated. 5. Verification;- This is the stage of refining knowledge into application. In this stage many ideas fall by the way side as they prove to be impossible or have little value. Elements of innovation process.; 1. Analytical planning i.e. identify product design market strategy and financial needs 2. Organizing resources i.e obtains materials technology human resources and capital. 3. Implementation i.e. accomplishment of organizational product design and manufacturing services. 4. Commercial application i.e. proving the value to customers records to employees and satisfaction founders. N.B An idea to have value it must be proven useful marketable and in order to achieve status must be developed. Importance of innovation; 1. Reduced cost of production and distribution this is evident due to knew and cost effective methods and processes, 2. Improvement in quality and quantity i.e. The new technology, methods and machines can generate high speed hence high quantity, improvement in production methods lead to better quality. 3. Expansion of business 4. Due to innovation a firm can gain competitive advantages which results into better performance and profits hence expansion. 5. Motivation to employees The employees do not only provide suggestion but also reward for better innovation and suggestions. 6) Competitive advantages There is always possibility to improve in order to gain 100% market share. 7) Customer loyalty Satisfied customers will always act as ambassadors to the firm, This involves -Repeat purchase by customers Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 35 An entrepreneur who communicates effectively with employees and outsiders is more successful of a business depends on maintaining good relation with employees customers creditors and the community as a whole. x) Communication skill –An entrepreneur who communication effectively with employees and outsiders is more successful in business than others. N.B Other qualities includes-Discipline Business secrecy systematic planning self-confidence opportunity seeker, ability to leave from experience etc Role and significance of entrepreneurial management Entrepreneurial management is a process of planning organizing directly controlling performance and accomplishment of objectives in business enterprises. The roles and significance are as follows: 1. Contributor to economic development: By producing goods and services the entrepreneur aids in economic development e.g. countries like USA<Germany, England etc then success to entrepreneurship. 2. Support social development: they contribution funds forward education health environment etc it thus goes alongside entrepreneurship. 3. Facilitates regional development the entrepreneur sets up industries not only urban areas but also in rural areas. 4. Capital formation: They provide employment to the people where they some part of this income which in turn facilitates capital formation to start-up investments. 5. Generates employment-The entrepreneur provide direct employment in their business units. 6. Revenue to the government :through direct and indirect taxes direct resources include such as personal income tax, 7. Indirect revenue include exercise duty Vat custom duties etc LEADERSHIP QUALITIES OF AN ENTERPRENEUR. A leader is a person who takes care of or guides a performance of a duty. The leadership qualities of an entrepreneur include;- 1. Good personality: Personality is the sum total of physical mental and social qualities hence a successful entrepreneur must have good personality 2. Intelligence –Good education technical knowledge to be respected of the followers 3. Innovative –Should have the imagination to develop new ideas or new ways in handling the activities. 4. Self-confidence: This will enable them solve problems and face challenging situation. 5. Communication skills _He should not only issue orders and instructions but ensure that his employees have understand Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 36 6. Human skills: He should have the ability to plan organize direct and control the activities of the group. N.B Others include proper judgment, coach and guide initiative discipline and patience. Necessity of profit orientation in Entrepreneurship. The role of profit in business can be justified in the following grounds;- 1. Indicator of efficiency :An enterprise that minimizes recourses and maximize output is said to be efficient one the higher the profit the higher the efficiency 2. Industrial growth: Profitable businesses are attracts more investments and ensure speedy growth. 3. Return on investment: Profit is always justifies as a return on investment i.e profit is a reward to those who risk their investment in anticipation of a good return 4. Survival of business-A business enterprise must ensure survival against competition change in technology, consumer behavior, political situation govt policies e 5. Social obligation: Through good profits the business is able to provide such things as dividend to investors‘ better working condition and welfare facilities to enployees.In absence of profit the enterprise will not meet the social responsibility. 6. Basic for comparison: It‘s a universal accepted measure to distinguish between successful and unsuccessful I firms. Can also be used to evaluate the performance of individual companies. 7. Means of control: Profit is an indicate of effective managerial control no business will survive 8. Provide facilities to employees: A good profit making organization can provide to it employees facilities like good working condition medical and creational facilities in addition medical and creational facilities in addition to regular salary and otter monetary incentive which adds to efficiently of employees 9. Profit is a source of revenue for the government 10. Profit improves good will and prestige of the enterprise. Need for self-assessment of An entrepreneur and His firm. This helps to consolidate the strength and overcome the weakness. The weakness may include: 1)Problems relating to systoles of management: By making decision without consulting it employees this have to interfere managerial duties the employees have no scope to question the entrepreneur. 2)Problem of communication :-Entrepreneur emphasize on upward and lateral which fair to all this helps to develop and maintain better relation with employees. 3) Problem of production: They may face the following problems in area of production;- -Poor product design -Poor inventory control -Improper material planning -Poor production planning and control -Lack of research and development Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 37 -Problem of personnel policies this may include -Unscientific selection -Lack of training and development -Faculty placement etc problem of personnel policies this may include -Unscientific selection -Lack of training and development faulty placement etc Problem of organizational structure: These are characterized by centralization of authority in flexible organization structure. -Problem of finance e.g. -Poor management of fixed capital -Poor management working capital (W.C) -Misuse of funds -Improper source of funds Problems of external agencies e.g customers suppliers and Govert agencies Entrepreneurship Vs Management Their difference between an entrepreneurial and manager can be illustrated below. Point Entrepreneurial styles Managerial styles Reward Direct effort –reward relationship Based in the percentage of profit/fixed salary Ownership/control Possesses direct ownership May lack ownership but may have control over the resources Management structure They have informal & flat organizational structure (Non- scalar) Formal rigid and hierarchical nature (scalar chain) Risk bearing They bear all the risks fully They do not bear risk but follow instruction Innovative Always need to be Need to be innovative but Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 40 Activities excluded from business; 1. Social service activities i.e. provided by non- profit organization. 2. Personal consumption activities i.e. goods and service for personal use falls outside the scope or business 3. Illegal activities- i.e. counterfeit goods; smuggling hoarding all are done for money but not included in economic activities. 4. N.B 5. Business is a human activity general toward providing o acquiring wealth through buying selling. Characteristic of a business They can be imputed society from the description above as follows;- o Dealing with goods and service i.e. business implies buying and selling of goods o Sale or transfer of goods for value o The purchase or sale of a good for the purpose of gaining profit involves the exchange of on transfer of goods for value. Personal use does not provide for such. o Series of deals As Opined by Opine and Peterson business involves recurring or repeated transaction of sale and purchase of sale therefore a single purchase of goods with the aim of selling them at a profit. A firm must therefore earn profit to stay in business. Risk involved i.e. there must be an element of risk uncertainty involved in easy business The main risk involved in business operation include;- 1. Competition 2. Theft 3. Fine 4. Labor strike 5. Marketing misjudgments 6. Natural calamities 7. Cash flow problems vi) Capital In every business money is required for investment for investment in fixed assets e.g. land building machinery etc Creation of utilities i.e. businessman must transport goods form one place to another where is need and when is required. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 41 Importance of business 1. Protection of useful goods: Manufacturing uses raw materials of agriculture, mining forestry, fishing etc and makes variety of goods and service needed by consumers without this business will stay idle 2. Distribution aspects of services: The goods produced should reach the final consumer at the right place right time at the right price 3. Supply of service: Through the services organization do not contribute directly in the production of goods but they facilitate in the production of goods to customers. 4. Business has helped in raising standards of living: The mass production of goods and services have helped increase the income of those directly or indirectly engage in business. Higher income have helped increase the standards of living Criticism of business. Though the fact that business has raised the standards of living It has also raised discontentment with the economic and social system The main criticism are:- 1. Business have become for much profit oriented. Employees are exploited 2. It also quality of polluting our and water which directly affects the health of people. 3. Human values are ignored by business 4. Business of because of selfish interest ignore welfare of consumers 5. People due to the effects of telecommunication or media adverts they are losing the sight of spiritual values. N.B Without business in the word, all the processes surrounding the human entity will come to a halt.Hoever business will not succeed without the co-operation of education religion, government and other social organization. Requisites of successful Business. a. Clear objectives the Objective should be clearly defined and realistic. As a traveler must know whereby he/she has to reach i.e. destruction b. Planning: It helps in accomplishing the objectives sets its proposal based on experience and present trends for further actions. c. Creation of customers: Every business enterprise is concerned in terms of production of sorts that meets the needs of the public. An enterprise cannot survive .unless there are enough people to buy the products & service offered. Thus the creation and satisfaction of customers is an important objective on the business as it amount to creating the market of goods and service. d. Sound organization: A business organization is harmonious combination of various relating parts of achieving a defined objective in an effective manner. e. Finance: It brings together the labour machines and raw material and combines them into production. Thereafter proper arrangements should be made of security the required finance for the firm. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 42 f. Research: The business needs to know and appreciate the factors like cultural social personal and psychological factors through market research, It enables the business to find out new methods of products as per the changing tastes and wants of customers g. Plan location layout and size: location of the business should be convenient from various point of vies such as availability of infrasture, raw material & labour markets e.t.c. h. The size is necessary because the requirement of infrastructural facilities and inputs varies as per the size of the business e.g. form than in a large sized form. Others include the forthcoming –Innovation harmonious relation with employees‘ effective management etc. The Aims of Business; The various aims of modern business are as follows: o Survival o Social responsibility o Profit maximization o Service permission o Growth o Expansion of market share o Break even o Relationship with other business Objective /Aim of Business;- Economic objectives;- - Earning profit: The income of an eEnterprise should exceed expenditure over a period of time to retain profit for growth and expansion. - Creation of markets: The more the customers are created the wider will be the market for the goods and larger the profits - Technological improvement: For a business to stay in market it must off set stagnation by using efficient methods of production. - B) Social objective - Supply of standard quality of goods If the enterprise is producing inferior or substandard good, adulated it will be doing it service to their society - Avoidance of antisocial practices e.g. hoarding ,black marketing smuggling over pricing etc etc to earn profit - Provision of more employment :Through employment it increase the smuggling over pricing etc to earn profit - Provision of more employment: Through employment it increase the standard of living for the members of the society - Co-operation with government: All business activities should be carried within the legal framework of a county - Use of natural resources: Natural resources should be used in the best interest of the countryside wastage should be minimized and the environment should be protected. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 45 10) Commerce; It is concerned with the distribution of goods and services and all those activities which facilities trade e.g. staring grading packing, financing insurance and transportation, In short common include trade and Aids to Trade. TRADE AND AIDS TO TRADE i) Trade It‘s the exchange of goods and services among buyers and sellers in which bothe the parties are benefited Types of trade: Internal trade –buying and selling of goods within the boundaries of a country. External trade >Buying and selling of goods outside the country. Whole trade –Purchase of goods in large quantities for the manufacturer for their re-sale to retailers who in turn sale through goods consumers. Retail trade =All those activities which are related to sale of goods and service to the final consumer. Those goods are sold in small quantities. Aids to trade; Activities which facilitates in the sale and purchase of goods and service. The aids which are essential for the expansion of the trade e.g. transport, insurance,, warehousing ,banking, advertising and marketing commercial agents. The principle function of trade are to remove the hindrance of persons place time exchange information etc and ensure free and smooth flow of goods from producer to the consumer Hindrance of trade; - Hindrance of person>Buyers and sellers are situated far from each other thus they are hindered by distance between than commerce remove such hindrance between the two by way of trade while trade makes contact between them. - Hindrance of exchange>Money Bering the medium of exchange payment for good and service is made possible and convenient through institution like banks.The hindrance ie removed by the Bank by availing the credit facility to the buyers to get the goods and services. - Hindrance of place >Commerce removes barrier of places through the different mean of transport by which goods are carried from one place to another. - Hindreance of time>Warehousing removes the hindrance of time by adjusting the time lag involved between production and consumption. - Hinderance of information>Commerce helps to remove this barrier by means advertising and marketing which gives the potential customers information about the new products. Importance of trade. Its importance is established by three basic facts of human life; Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 46 - Unequal distribution of resources: Commerce helps to neutralize geographical disadvantages by bringing about exchange of goods between different region e.g Tea grown in Kenya is availed to consumers all over the world. - Different in standard of living: The various commercial activities help effort of other through the use of money commerce of caller to the convenience of man and is ready described as the Index of human progress. Function of Modern Business. The main function of all the modern business is under ;- 1. Production function –A business is concerned with the production of goods and services that satisfies human wants and sale them at a profit to the consumers. 2. Financial function >A continuous supply of funds is required to rul the business>Basically are two sources; -Owners capital -Borrowed funds 3. Management >It‘s basically the principle of getting things done though others. 4. Innovation function >the innovative function is based on the two elements -Individuals should be encouraged to create new idea -Communicate freely. 5. Organization function > if helps in elimination of wastage of time maternal and many efficient use of specialized talent education etc 6. Controlling function>i.e. If the manager finds that the performance standard in his area of control is falling, he takes quick action. 7. Motivating function >is an important factor which encourage employees to give to their best performance and help in achieving the business goals. 8. Risk taking function >every business faces risk and uncertainties‘ business therefore, must determine the risk a business faces. 9. Marketing function –This is basically making the consumers aware of certain products and make them buy the product. 10. Social responsibility function –i.eSharing such functions as the social cost of pollution-The business should play an active roll in the conservation of natural resources. 11. Amongst others include marketing functions and social responsibility function. PROBLEMS WHEN STARTING A NEW BUSINESS. - Selection of the business-Once a decision is take and business is established it then becomes different to change it as they sa‖ investigate before you invest Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 47 - Demand for the product>If the demand for a product is irregular seasonal is very low its no use in starting such a business. - Size of business unit-i.e. the scale of the business it defunds upon the demand for the commodity in the market availability of resources technical and organization ability of the entrepreneur. If its carried out in large –scale it brings economics in expenses i.e. the cost of production reduces due to greater output - Provision of capital Before starting a business the capital needs of business is to be abscessed-the capital needs defends upon its fixed and working capital (W.C) - Location :suitable place for the establishment of a most importance for the success of business - Selection of physical facilities =It depends upon the nature of new business incase of trading concern the purchase hire of shop in shopping centre provision and proper display of goods etc need proper consideration - Other include: plan –layout office equipment fulfillment of legal requirement. Importance of business organization - Product growth>All activities directed towards production are better grouped through organization - Efficient use=It helps in the efficient use of factors of production and reduce the cost of production. - Creative thinking-It stimulates independent creative thinking in various departments of production. - Fixing of responsibilities –fixing of responsibility can easily be pointed - Feedback Organization makes it possible to take decision about production based on facts gathered from the market; - Business operation –All the function such as buying selling transporting storage financing risk taking product standardization and grading - Minimum cost –Organization helps to attain the goals and objectives of the business at minimum cost - Technological improvement. - The basic personal skill or qualities which a goal businessman must posses include the following; - Knowledge of business-He /she should have a through knowledge of his business it should be supplemented by the knowledge of fiancé made marketing. - Ability to plan and organize -Must be able to plan if plan if he to prosper - Foresight-he must have an eye on the past performance of his business the capacity to meet the future demanded of its product - Ethical standard –it‘s a rule that they should be no cheating fraud and bribery in business if found operating without ethics then the business will soon close down. - Initiative and creavity.Entrepreneur should take the initiative by producing new things use new methods of the product and sources. - Industrious –A businessman must be balanced man of cool temperature and capable of working long hours. He must be bear the business strain - Some financial management –An intelligent businessman tries to meet the financial needs of the business from within as well as from outside sources and manages them effectively. - Technical skill-Entrepreneurs should have specialized skill for understanding carrying out and completing a particular job which he as undertaken to perform. Amongst others include team spirit conceptual skill honesty Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 50 -High level is very high and the firm has a high level of borrowing. This means it will have level repay huge sums of money. 3. Common opportunities They are always external factors they creates areas where the firm can develop. Opportunities include; - New markets due to political change - New technology e.g the rapid growth of internet emergency of economic commerce etc. Has let to expansion N.B Opportunity is only an opportunity if a firm can actually take advantage of it 4. Common Treats. Firm may face variety of threats; -Economic change -New competitors -Changes in legislation Why undertake SWOT analysis: -To identify the existing position of the firm and to flag up possible future external changes in ts environment -A firm is able to examine the nature of its market it depth this forces managers to think about the present situation of the firm -It can help a firm in its planning they do not guarantee that the right plan in a actually chosen. -N.B The problem with SWOT analysis is that managers are often reluctant to identify firm weakness or possible threats. There‘s also a tendency within any organization to over emphasize its strengths without realizing the true significance of threats which exists and without fully appreciating the opportunities e.g. IBM Xerox Every ready ,British Airways etc. Corporate Aims and Goals. This is the overall purpose of the business.;- The mission statement This is a written statement of firm‘s aims; - Mission statement communicate to all stakeholders what the company is trying to achieve; - Mission statement can be short and memorable or they can be wildly long-wide depending on the organization. - They are intended to motivated employee and encourage everyone in the organization to works towards the organization‘s ultimate aim. - Mission statement need to be renewed from time to time ,to that they aren‘t gone out - Makes the corporate aims of the organization clear for everyone to see. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 51 Factors that determines firms’ aims. 1 State of the business environment if the economy is in recession the firm aim might be just to survive. 2. Changes in time e.g. when people first set up in business they sometime thinks it will be then path to future and future 3. What the mangers are thinking of dang. 4. It will also be determined by firms was managers OBJECTIVE-Are the targets that need to be achieved to reach the overall aim. SMART objective i.e specific it must set out what the firm is trying to do -Measurable-Must be possible to measure -Agreed-the partners must agree their appointment target -Realistic-the targets must be achievable -Time specific-Specify how long people have to complete objective. Formation of a limited company To form a company it requires a minimum of 2 and maximum of seven promoters. Steps taken register a company. Search for name –A small fee is needed to register the company with the register of companies which had been approved by the promotions Once the name is approved, they go ahead and prepare certain document e.g. CHAPTER THREE ENTERPRENEURSHIP & SELF EMPLOYMENT Specific objectives; The learner should. - Explain the meaning of self employment - Outline the benefits of self employment - Identify areas where a person can be self employed Define business idea - Describe how you can protect your business - Expound business finance and describe the sources of finance. - Identify business opportunities. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 52 Def.Self employment is where person look for themselves rather someone else or a company that they do not own. Reasons why people choose self employment;- -Desire to sell their skills -Desire to prove an idea -The need to generate second income -Peer or family pressure -Lack of other options Benefits;- - Being your own boss - Independence - Working fewer hours - Earn more money - Chose work you enjoy. Self employment: Common area of work - Information technology (IT) - Visual arts - Health and exercise - Performing arts - Business and Loan Other occupations of self-employment include; 1. Interior desisign 2. Photography 3. Language translation 4. Freelance teaching 5. Importing 6. Swimming instructions 7. Catering Myths about self employment I.self employed people have to work for long hours; Some people enjoy working for long hours than others; the reason is that they choose to start up the venture in which they are operating. Thus working for long hours is a symptom of the kind of the business you are taking. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 55  Different phases of trade cycles are cumulative  Rural from depression is very rapid  Price of a Agriculture commodities change more rapidly Quiz Through illustrations explain the law of demand and supply. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 56 FORMS OF BUSINESS OWNERSHIP Business enterprise (firm) It is an organization formed by one or more person with a view to engaging in a production process. Types of firms 1. Private enterprises 2. Public enterprises 3. Non-profit making bodies Private enterprises Are formed by individual with the aim of making profit. They include 1. Sole proprietorship 2. General or ordinary partnership 3. Limited partnership 4. Joint stock company 5. Holding company 6. Private limited company Legal classification of private enterprise i)Unincorporated or unlimited They are not recognized by the laws existing separately from the founder‘s e.g. a sole trade partnership ii) Incorporated or limited i.e. A private limited liability company formation of limited company To form a company it requires a mini of 2 and maximum of 7 promoters. Steps taken register a company: Search for name –A small fee is needed to register the company with the register of companies which had been approved by the promoters. Once the name is approved ,they go ahead and prepare certain document e.g -Memorandum of association -Articles of Association -Registered office -List of Directors Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 57 -Form of statutory deductions This are discussed below;- i) M.O.A –The document outlines 1. Name of the Company with word ltd e.g. XYX limited. 2. City and country of registration 3. Liability of the members 4. The normal /authorized capital 5. A declaration that they wish to form a company The purpose of M.O.A is their to define the compares objective and serve as a guideline to the outside public. ii) Article of Association-It define the regulation governing the internal management and administration of company incase of private company but public may adopt a ―TABLE‖ Contents of A.O.A 1. Clases and right of shareholders 2. The issue and transfer of share 3. Methods of dealing with any alteration on the capital 4. Procedure of general meetings and roting rights 5. Qualifications duties and pures of directors 6. Borrowing dividend and reserve policies 7. Auding of the books etc. Regitered office –The situation of the company list of Directors-List of the persons along with their particulars who have agreed to act as director.Note that they will be called directors once the company is incorporated and certificate issued. Part Private Public Cost Less costly to start Highly expensive to establish. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 60  Share-Smaller units and each unit into several values  Stock-A block of share which is traded on the stock exchange  Debentures-Long –term finance raised by a via public borrowing  Dividends-They are the profits of the trading company distributed amongst members in proportion to them shares. It should be noted that dividend are part of company profits.  Phloughing back of profit-Also called self-financing. This is the current of profit after all the dividends have been allocated.  Equties-Aword synonym for ordinary shares and common stock of companies.  Liquid assets-Assets that can be converted into money with minimum delay and risk of loss.  Listing-If a company has a listing on the stock exchange it can offer its shares for sale.  Securities-Stocks and shares in a company.  Portfolio-List of holding securities owned by a company.  Share premium-Amount payable for shares in a company itself in excess of their normal value.  Share Index-An official and public of share prices. Main causes of state undertakings; 1. Provide general welfare of the public that is some activities are undertaken by state to promote healthy safety e.g. water, power, drugs. 2. To encourage private investment in activities which required heavy capital but takes long to bring returns: e.g. Research, mining, education? 3. Avoid wastage and sufficient i.e. some establishment is normalized to avoid duplication. 4. Source of revenue-The state may need to raise revenue of its own. 5. Control prices-The aim may be to control prices by producing those commodities produced by private firms. 6. To take up business pricing costly Criticism of Public undertakings; 1. There tendency towards influencing due to lack of strikes profits. 2. As finance is raised by the Govt it many encourage unofficially 3. Absence of competition may lead is poor series 4. Waste are encourage since losses are bone by taxpayers 5. There fear political repercussion. SELECTION OF AN APPRORIATE FORM OF OWNERSHIP STRUCTURE; The best farm of ownership is that which will help entrepreneur attain his goals or objectives. While selecting the best form the entrepreneur should keep the following. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 61 1. Nature of Business –The selection of business farm depends upon the types of the proposed business itself. 2. Area of operation; if the operation of business is confirmed to an area or locality the appropriate form will be a proprietorship. 3. Ease of formation the form of organization should be without mush difficulty e.g. less costly 4. Ease of raising capital :if the organization how the ability to attract required capital from the public by assuming safety of investment fair return and transferability then no need of hesitating on the type of the business. 5. Degree of control: Incase direct control is required; the best form would be proprietorship/partnership. 6. Capital requirement: if small capital is required, then bet form would be proprietorship or partnership incase of huge capital company farm would be appropriate. Others include extend of risk duration of Business govt idea -Assumed continuity of business-the death bankruptcy or withdrawal of any member does not affect the company. -Expert management –It may have directors who manage more professionally. -More sources of funds –money can be raised through sale of debentures. -Large scale production—due to large capital available production can be done on a bigger scale. -Job opportunities-It provides job opportunities to many people working in various industrial enterprise Disadvantages of limited company. They include the following;- 1. Formation of company is complicated –There are more legal formalities which are to be observing which consumed a greater amount of time energy and money. 2. Delay in decision making-decision may be delayed since business is conducted by a few elected members. 3. Poor workers relationship-absence of personnel offices to keep in touch with employee are weak 4. Operational expenses-it costly to start certain fees and changes are paid to the govt. 5. His ownership belongs to thousands of people who do not know each other. 6. They pay higher rate taxes as their income the management. PROBLEMS OF STARTING OR OPERATIING A SMALLL SCALE ENTERPRISES  Lack of managerial skills i.e. misusing business items  Poor start e.g. Where the business is located  Poor location of the business i.e. a business should be located near or where people can reach it easily.  Insecurity e.g. Near a centre. THE SWOT ANALYSIS Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 62 Market Calls for a thorough research on market ability of your outputs – sales promotion advertising Community and cultures I.e. Taboos, traditions, dressing patterns or styles. Sell what the surrounding like or use Contribution of entrepreneur in National Development positive change in the welfare of the people in a country is what is called development these changes include economy increase in income improvement of in services like education, Medical, transport and communication, water and power, innovation(Technology) Creating employment opportunities for one and others- Foreign exchange earner. They generate income by paying the employees paying takes to the government (Government Revenue). It therefore improves the living standards of the people- conservation of foreign exchange. Utilizing local resources By acting as role models who portray the success of business, they would induce other to start other business in rural areas- Export promotion They promote technology by new inventions and innovative e.g. Upesi jiko SOURCES OF CAPITAL FOR BUSINESSES ADVANTAGES & DISADVANTAGES OF SMALL SCALE USING THE FOLLOWING SOURCES OF MONEY FOR BUSINESS ;- A)USE OF PERSONAL SAVINGS Advantages/merits  They readily available  The Interest charged is always free  No collateral security requirements e.g no guarantor is required Disadvantages /demerits  It is limited in quality  He may have no alternative I the business fails B). BORROWING FROM FRIENDS & RELATIVES Advantages  It is easier to raise funds  It does not require security  No interest is charged  Normally no pressure in repayment Disadvantages Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 65  The amount of money that they get to start the business (i.e. partners) is not limited since they can rise as much as they can be able in order for the business to start. Disadvantages The individuals (partners) may not work hard in order to get their rate of return on investment service, no body will want to wok for the rest of other partners gain. It may result into loss in the business, there will be fraud i.e. if a proper finance records are not kept this also secrete personal withdrawing from the business. When frauds age reclined in the business it leads to the disputes amongst the partners. It leads to possible early winding up of the business once the partners have conflicted teach other since each will want to withdraw the amount that he or she has invested in the business. When it comes to decision making , it may take long since each partners have his opinion regarding r the running of the business SOURCES OF SMALL BUSINESS FINANCE;- It is where the finance needed for starting and running the business comes from. It is grouped into two;- 1. Equity financing (personal financing) That one has in his saving account. the share capital in the cooperative society. Your building for the businesses, your assets e.g. land , animal your inheritance which you convert into your business.. Family contribution e.g. they contribute funds, free labour. Friend‘s .They may organize find fund raising to you. Retained profit (ploughing back your profits) It requires careful planning. It needs tightening your belts. Partners or shareholders e.g. by selling part of your shares to somebody and you get money. Equity financing - It is the money acquired which will not 2. Growth Capital This is required for expansion of the business e.g.  Increase in stock  Increasing production of goods & services  Introducing a new product line  Venturing into a new market. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 66 PURPOSE OF BUSINESS FINANCE Start up cost Operating expensive Personal expenses e.g. food, clothing, transport school Start up cost These are funds or money to commence the business. It is sometimes called seed capital. It is also used to purchase equipment, fixtures, Beginning stock- Deposit for rents to cater for water, power and telephone Business legal fees e.g. license. Start up cost These are funds or money to commence the businesses. It is sometimes called seed capital. It is also call used to purchase equipment, fixtures, beginning stock, - Depositor rents To cater for water, power and telephone Business legal fees e.g. license, health license Operation Expenses/Working Capital It is the expense incurred during the day to day running of the busies e.g. Purchase of goods Monthly rent for the premises Taxes including VAT Water, Telephone bills & Electricity Repairs and maintenance. Estimating Finance Requirement For your new business your estimate will be based on three (3) elements. Projected sales revenue Estimated cost of generating that level of sales. Additional cost necessary to get the business the activities of an entrepreneur. BUSINESS FINANCE FOR SMALL SCALE ENTERPRISES This is the money needed to start and run a business. It is sometimes called capital. Many prospective entrepreneurs are aware of the various types of business finance, however they cannot tell which one suit them most hence they need to develop knowledge and ability o choose the type of finance available. Types of finance These are three basic types of finances or capital;- Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 67  Working capital  Fixed capital  Growth capital  Fixed capital It is the capital used for the purchase of fixed or permanent assets e.g. land, fixture buildings. Working Capital It is the capital used to support the business in the normal short term operations. Constituting current assists. It is used to buy stock and pay for expenses also to finance credit sales and meet any unexpectedly emergency. Operations have played a key role in motivation many such family members to become entrepreneurs. Survival An entrepreneur has to face many challenges, competition, internal and external forces. To succeed, entrepreneurs have had to strive to overcome those obstacle. This spirit of survival sustains them through spirit of survival sustains them through the challenging environment to achieve his goals. A denture is a way of taking risk or challenge without knowing the end result. This gives a potential entrepreneur the opportunity to explain new areas and opportunities and thus help to enhance his knowledge and innovation. Independence/Self Reliance An entrepreneur does not like being controlled by others. They have heir original thoughts and ideas and generally do not conform to routine jobs and practices. To satisfy their needs they seek opportunities that provide independence where they set challenging goals and make efforts to achieve them. In such situations they become masters of their own activities and take full responsibility for the outcome of their actions. MARKETING MIX It refers to the facilities that one will use to influence the target market e.g. the 4p‘s Product Price Place Promotion Product : It includes choosing the products or services you can offer to satisfy customer‘s needs e.g. product design, quality of your work fashion, features, packaging and guarantees, servicing, warranties, image and branding. Packaging means what is used for packing Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 70 Advantages of sole proprietor  All profit goes to the owner  Little capital start up  No taxation  Flexibility in decision making  His own bass  There is secrecy  Disadvantages of sole proprietor  Unlimited liability  Bearing all losses himself  Difficulty in raising capital  Lack of managerial skills  Lack of managerial skills  Lack of continuity  Decision made may not be the best Limited partnership It is formed by two to maximum of two persons. Itm ust be registered under the limited partnership act. It must be at least one general partner with unlimited liabilities. General partnerships It can be registered under the partnership act. All the partners have unlimited liability Kinds of partners(n/b refer to chapter one for details)  Active  Dormant/sleeping  Nominal partner  Quasi partner  Partners under the age of 18  Active partner takes part in the running and management of the business  Dormant/sleeping partner; does not take an active part of a business  Nominal partner is not a member of the partners but the business uses his name. He does not contribute any minimum legal formalities PARTNERSHIPS Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 71 It s a relationship btw persons who carry own a business until a common view of making and sharing profit Formation ( 2 -20 members) ESSENTIAL ELEMENTS OF PATNERSHIP  Association of at least two persons  Their a contractual relationships  The agreement is to share profits  The business is carried out by all partners SIGNIFICANT FEATURES OF PARTNERSHIPS  Formed by an agreement oral or written AMONG THE PARTNERS  There is no special mode of creation for partnerships  The capital is available to the firm as per the terms of agreement  Every partner as a right to take part in the running of the business  No partner can transfer his shares without the approval of other members  The liability of partners is unlimited  Profits and losses are shred equally  The business rests solely on utmost good faith and trust among the partners  Every partner is an agent to the partnership Kinds of partnerships Temporary Formed by two or more persons to carry out a specific time as then it is distorted. Permanent partnership It is formed by two or more persons for an indefinite period of time manned managed and run by more that one person usually 2- 20 persons Partnership advantages  Profits and losses are shared  Better decision can be made i.e. two heads are better than one  Diverse talent  Division of labor  Low starting cost  Easy to form  Possible tax advantage  Advantage of secrecy Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 72  Freedom of action  Retention of skilled labour The agreement must include the contributions per member, effective date of the partnership, business name, sharing of profit, sharing of the authority and remuneration process. How the matter of disputes will be handled, how assets liabilities at the event of dissolution of the company, how a partner will withdraw. Disadvantages of partnership  Reduced share of profits  Lack of quick decision making  Unlimited liability  Lose of sincerity  Operational disputes e.g. Who is the boss?  Sharing of partners mistakes.  Reasonable duration of business i.e. each individual partner contributes to a limited life to a partner contributes to a business.  Difficulty in terminating the business. Partnership Agreement/Deed Importance of partnership deed  Forms the basis for the formation of the business  Defines the mutual rights, duties and the liabilities of partners  Helps in minimizing the areas of dispute  Serves as the guide post for the conduct of the business Agreement deed contains the following clauses;-  Name of the firm  Nature of the business  Names of the partners  Place of the business  Amount of the capital to be contributed  Profit sharing ratio  Loans and advances  Drawing and allowances  Amount of salary and commission ,if any,payable to partners  Duties,powes and obligations of each partners Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 75  The shareholders have no direct control  Extensive record keeping  Much more expensive to start and run  Extensive regulations to establish e.g. lawyer may be needed.  Personal interest of directors and shareholders e.g. employing only relatives.  Double taxation since the business and the owners is taxed separately. PROSPECTUS Contents of prospectus;-  The names, addresses of the directors.  The minimum subscription on which the directors may proceed to allotment  The names address of the auditors  The number of shares and debentures which a company wants to issue. Certificate of incorporation It is not issued until the promotes has five the following documents with the registrar.  Memorandum of association  Article of association  List of directors  Prospectors  The statement of nominal capital After this the registrar issues the certificate of incorporation and this means that: The company possesses a separate legal identity The company can be considered as an artificial person A company is free to do all the legal things that a person can do such as buy land. NB Only private companies can start business after receiving certificate of incorporation but for public companies they require or needs certificate of trading which is issued after filling the The following with the registrar;-  A statement that the minimum capital has been raised  A statement that directors have paid for their shares  A satisfactory declaration that the company act have compiled Private company  Needs at least 2 members  Its minimum 50 members Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 76  Has at least one director  This type of a company is entitled to \Start job immediately  They don‘t file prospectus with the registrar  Audit of the account is not compulsory. Public company i) Needs at least 7 members ii) No maximum limit members iii) At least 3 directors iv) Requires certificate of license to start v) Must file prospectus with the registrar. vi) Audit of the account is compulsory Contents of article of associations i) Election of the chairman –voting rights of members ii) Powers of directors and their appointment duties iii) How to govern meetings iv) Classes and rights of shares v) Issue and transfer of shares vi) qualifications, duties and powers of the directors Table A It is model of article for the regulation and management a company limited bay shares. Major difference btw memorandum and article of association. Each company must prepare memorandum while article of association must when the company can adopt the classification in table. Both of them can be altered bay a special resolution of the company. Prospectus of the company A prospectus of any notice ,circulars, advertisement or any other invitation offering to the public subscription to the purchase of shares or debentures of a company. NB Private companies are not allowed to subscribe to the shares Private firm Non profit making body‘s Public firm Clubs Co-operatives Municipal Marketer Undertaking board Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 77 Partnership Companies Private ltd company Public ltd Liability co. Limited by Limited by guarantee Shares Formation of companies Bring into separate legal existence so that it become a separate legal entity apart from its members. This can be done in one of the following ways By royal charter Registered companies Royal charter a company can be formed by obtaining a royal charter from the reigning monarch. The chief characteristic of such companies were Did not have the word initial as the last word Its members were not liable for company debts Its purpose of formation was to protect competition. They were formed for trading in foreign countries Registered companies: This name is given to any company formed in accordance with the companies act cap 486 of 1962 Procedures for the formation of companies Its a registered by filing the following documents with the registrar Memorandum of association Articles of association List of the board of directors Statutory declaration that the requirement of the company act have been with -Memorandum of association Statutory declaration Notice of the situation of the registered official the company. Memorandum of Association It is a document that contains the basic information of the company which include the following;-  Name of the company  Situation of the company  Objective of the company – Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 80 They are either formed by the government to the purpose of serving the public .g marketing boards state undertaking Non-profit making bodies They are formed by interested groups for the purpose of meeting their needs in the most efficient such as clubs, societies. PROSPECTUS Only public companies are allowed to offer for sale their shares and debentures (securities) this is because their articles authorities into do so. Contents of the prospectus 1. Share capital 2. Financial position 3. Directors; Person particulars 4. Auditors: Names and address 5. The securities offered- time of opening of the subscription list, the amount payable on application and allotment and in the case of an offer of shares to the public the minimum subscription should must have been raised Advantages of limited company 1. Members have limited liability i.e. if the business fails , then a members personal item cannot be taken to cover the liability. 2. High capacity of financing 3. Economies of scale 4. Professional management e.g. Hiring Accountants. 5. Ownership is readily transferable 6. Possibility of continuity Disadvantages of limited company 1. It is very expensive to establish i.e. The legal aspects required for it‘s establish e.g. legal a lawyer may be required. 2. It has a double taxation since the business and owners are taxes.etc Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 81 ENTREPRENEURAL OPPPORTUNITY BUSINESS OPPORTUNITY A business opportunity is an attractive business ideas which an entrepreneur accepts as a basis fro investment decision. A business opportunity does not always become good. i) What is a good business opportunity? A good businesses opportunity is an attractive project idea an entrepreneur accepts o the basis of what is know about possible success of that business. It has to have a real business opportunity has to have two ingredients which are:-  A good market scope- the gap between the present and the likely demand.  An attractive return on the investment Characteristics of a good business opportunity 1. There has to be demand-good market scope for the product. The people should be wiling to pay for the price you are offering. 2. Return on investment has to be there. The level expected of investment and the level of returns, should be higher. 3. Availability of resources- raw materials, production and selling items. (It s viable, it has hope). 4. Skill requirement – people who works and run the plant for production. Methods of identifying a business opportunity  Interviewing people – use questionnaires etc  Try to study the available information  Carry out observations.  Listen to complaints, comment and suggestions from customers, competitors. Etc Guidelines or indicators in identifying a business opportunity (at local level)  The environment- Access the features of an area, resources population, occupation etc  The current business scene –business activities carried out in the area.  Target group – the expectation from the group targeted  Change in technology Identifying potential business opportunities;-  Resources - the existing ones, wastes.  Linkage from one business to the other  Export oriented import substitution products Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 82  Special products or services- products based on research ,specific skills and knowledge.  Service sector- They cater for house hold goods or need. Trends, implications and business opportunities Trend is a occurrence taking place , implications refer to outcome emanating from a particular trend . Business opportunities that can be obtained out of the trend Example;- Trend Implications Business Opportunities Increase of road accidents Death, loss of life of loved one Injuries, disablement. Damage or destruction of property. Higher cost of insurance. Population decrease. Insecurity (fear Coffin industry, selling. Start a dispensary/chemist. Set up a garage. School for disabled. Wheelchairs manufacturing. Insurance Brokerage Road Bumps (construction) Funeral homes Artificial limbs, transportation. Praying Increased women participation in National Development Improved standard of living Business growth Utilization of latent Human resource at women no idleness. Equality of rights . Low morality rate Create employment Single parenthood. Divorce, prostitution everyone is working. Insecurity in home Counseling firm Bureau for house helps Lodging, Bar, Social recreating service Saloons- Training firms Boutigue, Dispensary. Securicor firm. Cost-sharing VIABILITY OF GOOD BUSINESS AND SELECTION Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 85 When considering resources think of know-how, manpower labour, raw materials, political environment etc. Selecting a good business opportunity The opportunity so identified should be the one that;-  One that is attractive, timely, one dealing with upcoming services or product.  Evaluate yourself in the family, society etc  Explore the in fracture availability  Start with what the market demand, what do they need at that specific time. Elements that constitutes an Entrepreneurial process Identifying a business opportunity  Evaluate and identify the business opportunity in the environment  Gather resources to take the advantages of the opporunity  Initiate appropriate action for the success of our business.  Factors to consider in selecting of a business opportunity  Risk  Cost of the whole project  Personal financial needs  Return of the investment  Size of the business project  Time for return on investment  Availability of physical, human and financial resources Personal capabilities; They amount to be personal factors i.e. characteristics, that you have abilities skills, interests and hobbies family and their hobbies your health( physical &mental) Resource factors i.e. finance, labour, equipment, machinery, tools and raw materials. Environmental factors i.e. location, government policies, government regulations, economy of the society, market and competition, community and culture, security etc NB Timely action is when you are seizing a rare chance or creating a favorable chance opportunity. Opportunity should not e affected by changes. Self assessment is the gauging of strengthen, weakness so as to retain ability and improve the inabilities. Identify the business that is within your abilities. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 86 Choose a business name. A business name should: 1. Reflect one on who you are 2. What you do 3. How you do it 4. It should be easy to write, today and to remember. It should look good on the leaflets and stationery ASSESSING PRODUCT DEMAND Market and the market concepts Market; is all the population within specific geographical area who need the product and services that you are going to provide and are willing to pay for it. Market concept:- the concept which directs the entrepreneur to focus on identifying , satisfying the customers need all at a profit. Application of the concept 1. Determine the needs of the customers (carry out a market research) 2. Analyze the competitive advantages within a particular area . 3. Select specific market to serve (concentrate on certain group‘s segmentation) 4. Advantages of (2) 5. Match product with specific design 6. Use of medial effectively 7. Promotional messages go to a certain groups Components of a market mix 5 Ps – Product, price, promotion, place and people Place affects the distribution , product or service is what is sold to customers packing content, etc) price the value of service or product have a policy in your price fixing , credit facilities etc , How do you get customers hat promotion refers to Place also involves communication channels is through wholesalers, retailers, agents, etc. The transport offered is also included. People are those concerned with services delivery, the sales team, how they are encouraged. Group of techniques by which you acquire marketing information and analyze it systematically independently in order to assist in solving marketing problems. PUROPSE OF MARKETING RESEARCH Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 87  Build credibility for the business idea  Develop a realistic market entry strategy – get something unique to overdo you competitors. TYPES OF MARKET RESEARCH  Desk research – Carry out the study of published information covering the population, sex, occupation etc  Filed Research- Involving you infield work in collecting information and surveying how the field is. Where is market Research needed? In starting a business the aspects to be researched o are:-  Customers –who will buy goods, nature of group to be served how many are they?  Competitors – Who are your threats, strength, weakness what need are they making  Product/services-how are they to be like quality, quantity.  Price- What favorable prices can your customers afford.  Promotion materials  Location – Where will you place you‘re your business to reach your customers easily and at a low cost. MARKET SURVEY Part of market research. It is a systematic gathering , recording and analyzing and interpretation of data of problems relating to the market for the market of services and goods. Steps (6) in conducting a market survey;-  Define the objective of study and specify information that is required.  Work out the details of the study.  Select samples and decide on the contacts or visits you are going to make.  Prepare a questionnaire or plan for surveys and interviews that you are going to carry out  Collect the data and analyze it.  Prepare a report of findings There are two types of data collection which are;-  Primary data source- originates form contact with the people directly involved with the relevant activities.  Secondary data source- It is the information which is already in existence. Methods of collection data  Through the use of existing information e.g. In Kenya bureau of services.  Carry out experiments  Observations  Interviews Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 90 Emotional reasons or Rational ambitions, cleanliness etc (emotional) Purchase is derived by durability in terms price, operation reliability etc Segmentation: Is the process where customers and potential customers are organized into groups of similar kinds, classified into manageable groups; they could be Geographical benefit, demographical. Geographical is involving regions or areas. Benefit segmentation;- refers to different people getting satisfaction from different products of similarity. Demographically segment variable;-e.g. in terms of age,sex, education, income levels. Determining of a worth market trying (trial)  Measurability- can you measure their number  Accessibility- Can you communicate with these people and know their needs, taste etc  Size- A segment should have a large number of customers .  Practical development – customer must have money to spend. Factors affecting /influencing consumers/customers market They include the following;-  The population changes-mobility in an area.  Size and distribution of income including increase of total purchasing power (reduce luxury)  Change in lifestyle  Increase of women in workforce.  More purchase of credit.  Higher education level of the people  When there‘s a healthier conscious population, environment conscious, increased computerization affects consumption. Matching skills, Resources with changing technology a) Definition of term Ways and means you can use to produce goods and services including the production process and the equipment involved is termed as technology. Various categories include;- 1. Appropriate technology is the technology which fits best in product of service development in response to ever changing customer requirement. Technology that is bleeding indigenous and alternative technologies to suit particular situations. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 91 2. Alternative technology is an adapted technology and is usually imported from other places and mostly has to be modified before application 3. Technology based on when it was developed includes indigenous is the locally develop and passed through generation before colonization. There‗s high use of local skills and material. 4. Modern technology is that which is in use in a century or after colonization. 5. Emerging technology is the one which is presently being introduced and refined. 6. Technology based on characteristics in includes:- Low- relatively simple involving little capital and is labour. High –complex and involves heavy capital and is labour intensive. Intermediate- Is neither low not high Consider what there is, modify technology levels and use. Look at the different methods of production used, diversify the products to improve market opportunity. Factors considered in introducing new technology  How the technology will affect the position of your enterprise/business.  Effects of technology on profits over long term or short  The extent to which you and the staff are involved in developing the new technology.  Expansion of the business in the futures (5-10 years)  Extent at which it affect the future size of your business.  Anticipated growth of the enterprise in terms of personnel and your market. Developing your own technology  Generate an idea innovative  Evaluate the idea in relation to what exists comparison  Transform the idea into a viable business opportunity  Adopt existing products and processes that suit your situations. EVALUATION BUSINESS ENVIRONMENT Business evaluation- reasons for evaluation Business Environment is where business opportunities do exist. What‗s evaluated Approaches Methods Factors considered in the Evaluation  Infrastructure – facilities existing in an environment to raise standard of life. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 92  Market condition- patterns of trading and activities in an environment.  Price structure- Focus on various prices indifferent area e.g. (Wetlands and Oronoco)  Cultural values – ways of life, it affects the exploitation of a particular people.  Incentives- Government s, NGO‘s and private, How do they encourage business settlement it organize seminars, workshops provides loans.  Conditions of good environment /success GENERATION OF BUSINESS IDEA BUSINESS IDEA This involves understanding self, market (demand and product/service. Searching business idea-business ideas develop form creative thinking the prerequisite for a person venturing into business\. You should be able to identify potential business idea that match your training, ability interests and the experience you have. There are unlimited business ideas and opportunity if you know where and how to find them. Finding a good idea is the first step in the task of converting of an idea into an opportunity. Sources that generate business ideas;-  Services that are required by others  Entertainment marketing of others products,  Repair services required New invention,  home business,  Products improvement extension of hobbies. Nature of business  Servicing business, land, horticulture, dairy and animal business entertainment etc.  Manufacturing business- bakery, posho mills, etc  Construction business – Road making Quarrying etc  Repair and maintenance - auto garage, metal workshops.  Wholesaling and Retailing – manufacturer, metal wholesaler.  Agency – there are specialist, general business. OTHER FACTORS USED AS INDICATORS TO IDENTIFY BUSINESS OPPPORTNITY  Resources: Industries based on minerals, marines and agriculture  Linkages- It is where already used materials are used to produce other products. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 95 Medical officer Manager Manager Manager Training & (Part-time) (Employment) Payment Development Occupational Recruitment Job Training officer Health Nurse Officer Analysis How do you identify a business opportunity? What is the importance of the business opportunity? State the process of selecting and assessing business opportunity. State the guides which will help one to identify & assess the business the business opportunity. How do you identify a business opportunity. Needs of target groups (market place want) Find out what is lacking Checking the populations (demand) of the target group. Identify the dislikes and like of the target group. Potential competitor‘s e.g. Resources availability What is the importance of business opportunity It leads to the start of business and one satisfactions - it leads to self employment. Identification of a business opportunity business opportunity - is one which is attraction durable, timely and it is anchored into product or services which creates value enterprise objectives and to convince other director s to consider their views. Personal Manger Personnel Personnel officer Personnel officer Personnel officer Officer (Health, safety) (administration) (Remuneration) welfare Lack of inventory control Lack of adequately expenses control Lack of adequate records. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 96 i.e. sales receipts , purchases receipts or cash receipts to enable the preparation of other documents. C) Failure to plan In appropriate location( it should be located near people and where security can be provided or neat a centre. Lack of customer information. You should consider the needs assessment test, One should self what people I the surrounding like most. Value how much can be consumed per day. Most people fail to determine who their target customers if you fail or do not know who, how where, when to sell your goods. Knowing your customers needs Inadequate sales Unplanned expansion Lack of administrative coordination The owner may give a conflicting instruction i.e. sending different persons to do the same jobs vi) Improper attitude Lack of commitment Hard work is required Absentee management Absenting yourself from the business hence it is hard to concentrate on the business efficiently. Power delegation should be out in business Delegate is to give power to somebody. Neglect – Neglecting his daily for a commitment Nepotism- Favouring your next of kin appointing somebody simply because he or she is a relative. Over extending yourself. This is the committing of oneself in other activities outside the business e.g. being a maendeleo ya wanawake chairperson and also a business man. Prepared by Serem Vincent, BCOM (Hons), MBA (Financial Management), MBA (Strategic Management) Page 97 CHAPTER SIX ENTREPRENEURAL CULTURE BUSINESS ENVIRONMENT It refers to social, economic and political factors surrounding business. Social Environment of business This includes culture that hinders development. Cultural values of a business, social values, social class, Religious , belief and practices, Stereo types including gender issues production and distribution of products and services- language- personal relation Efficiency of business operation They rely on such aspects as;-  Attitudes towards innovation  Networks  Technology  Culture that promotes entrepreneur development  Trust/honesty  Future orientation  Time consciousness ECONOMIC ENVIRONMENT This referees to prevailing to economic policies and market force which influences the pattern of production such market includes wage, Rates, competitive. POLITICAL ENVIRONMENT Political stability and development strategies. TECHNOLOGY Leading questions to the study;-  What is technology  Types of technology  Factors determining choice of technology TECHNOLOGY It is the way of doing things it includes the skills you requires to produce a product or provides a service and the necessary machine to be used. These classes of technology include.