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ENTREPRENEURSHIP AND FREE BUSINESS ENTERPRISE 1.

Levels of Entrepreneurial Development Level One: The Self-Employed Mindset Level Two: The Managerial Perspective Level Three: The Attitude of Owner/Leader Level Four: The Entrepreneurial Investor Level Five: The True Entrepreneur Idealization Visualization Verbalization Materialization 2. The Relationship between Creativity, Innovation and Entrepreneurship creativity-thinking new thing Innovation-Doing new thing Entrepreneurship-Creating value in the market place Modeling creativity Phase1. Preparation Phase 2: Incubation process Phase 3: Idea generation or Eureka experience, Phase 4: Evaluation and implementation, e.g. prototypes Innovation Innovation Extension Duplication Synthesis Entrepreneurship: SMALL BUSINESS MANAGEMENT 2.1. Concepts and definition of Small Business 1. Size criteria 2. Economic/control criteria. 1. Size criteria Financing of the business is supplied by one individual or a small group. Only in a rare case would the business have more than 15 or 20 owners. Except for its marketing function, the firms operations are geographically localized. Compared to the biggest firms in the industry, the business is small. The number of employees in the business is usually fewer than 100. 2. Economic/control criteria Market share Independence Personalized management Technology Geographical area of operation 2.2. Economic, Social & Political Contributions of small business enterprise Equitable distribution of wealth and decentralization of economic power More Employment creation capacity Removing Regional Imbalance Ancillary (Subsidiary) Function Export Promotion 2.3 Small Business Failure factors Poor operations management Lack of experience Poor financial management Over-investing in fixed assets Poor credit practices Failure to plan Inappropriate location 2.4. Entrepreneurship and Business Enterprise Creation 2.4.1. Opportunity scouting/ sensing

2.4.2. Opportunity scanning I. Environmental analysis a. Macro environment Political Environment Technological Environment Socio-Cultural Environment Legal Environment Economic Environment b. Sectorial Analysis c. SWOT analysis d. Product/Service

3. FEASIBILITY ANALYSIS, PROJECT REPORT AND BUSINESS PLAN 3.1. Feasibility Analysis 3.1.1 Market Analysis A market, whether a place or not, is the arena for interaction among buyers and sellers. 3.1.2 Financial Analysis 3.1,3 Technical Analysis 3.1.4 Economic Analysis 3.1.5 Ecological Analysis 3.1.6. Legal and Administrative Analysis 3.2. Types of Business Ownership in Ethiopia A. Sole proprietorships Advantages of a Sole Proprietorship: Easiest and the least expensive to organize. Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business. Profits from the business flow directly to the owner's personal tax return. The business is easy to dissolve, if desired. Disadvantages of a Sole Proprietorship: Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or bank loans. May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to own a part of the business. Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income. B. Partnerships Advantages of a Partnership: =Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. =With more than one owner, the ability to raise funds may be increased. =The profits from the business flow directly to the partners' personal tax returns. =Prospective employees may be attracted to the business if given the incentive to become a partner. =The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership: =Partners are jointly and individually (legally) responsible for the actions of one or more partners. =Profits must be shared. =Since decisions are shared, disagreements can occur. =Some employee benefits are not deductible from business income on tax returns. =The partnership may have a limited life; it may end upon the withdrawal or death of a partner C. Corporations Advantages of a Corporation: Shareholders have limited liability for the corporation's debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.) Corporations can raise additional funds through the sale of stock. A corporation may deduct the cost of benefits it provides to officers and employees. Disadvantages of a Corporation: =The process of incorporation requires more time and money than other forms of organization. =Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. =Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice 3.3 Business Plan 3 .3.1 What Is A Business Plan? It is a carefully elaborated plan on how a new business venture will be implemented. It explains how a new business is to be created. It explains how an existing business is to be expanded or restructured. WHY A BUSINESS PLAN needed to be PREPARED? THE BUSINESS PLAN: CLARIFIES THE BUSINESS STRATEGY IDENTIFIES RISKS IDENTIFIES WEAKNESSES WILL HELP SAVE MONEY PROVIDES INFORMATION FOR DECISION- MAKING IS REQUIRED BY LENDERS, ETC... WHO MAKES A BUSINESS PLAN PROMOTERS OF A NEW BUSINESS VENTURE ENTREPRENEURS BUSINESS MANAGERS TECHNICAL SPECIALISTS INDEPENDENT BUSINESS ADVISERS ACCOUNTANTS .but Who can be the best business planner?...... WHO FOR? BUSINESS OWNERS INVESTORS BANK MANAGERS GOVERNMENT DECISION MAKERS BUSINESS MANAGERS PROMOTERS OF NEW ENTERPRISES Business Plan Segments EXECUTIVE SUMMARY Management & Organization Plan Market Analysis

Product/Service Plan Sales and Marketing Plan Financial Plan Executive Summary One of the most important parts of the business plan Captures the attention of the reader Explains why the reader should invest time and money Provide clear overview of the company Future growth Marketplace differentiation Business Description General description of business Industry background-trends, analysis of competitors Company history or background Goals and potential of the business and milestones (if any) Uniqueness of product or service Research, Design, and Development A. Development and design B. Technical research results C. Research assistance needs D. Cost structure Manufacturing A. Location analysis B. Production needs: raw materials, facilities and equipment C. Suppliers/transportation cost D. Labor supply E. Manufacturing cost data Management A. Management team key personnel B. Legal structure stock agreements, employment agreements, ownership C. Board of directors, advisors, and consultants

2.7 Future Capacity 2.8 Terms and Conditions of Purchase of Equipment 2.9 Factory Location and Layout 2.10 Raw Materials Needed 2.11 Cost of Raw Materials 2.12 Raw Materials Availability 2.13 Labor 2.14 Cost of Labor 2.15 Labor Availability 2.16 Labor Productivity 2.17 Factory Overhead Expenses 2.18 Production Cost 3. Organization and Management 3.1 Form of Business 3.2 Organizational Structure 3.3 Business Experience and Qualifications of the Entrepreneur 3.4 Pre-Operating Activities 3.5 Pre-Operating Expenses 3.6 Office Equipment 3.7 Administrative Expenses 4. Financial plan 4.1 Project Cost 4.2 Financing Plan and Loan Requirement 4.3 Security for Loan 4.4 Profit and Loss Statement 4.5 Cash Flow Statement 4.6 Balance Sheet 4.7 Loan Repayment Schedule 4.8 Break-even Point (BEP) 4.9 Return on Investment (ROI) 4.10 Financial Analysis

SAMPLE BUSSINES PLANE Executive summary 1. Brief Description of the Project 2. Brief Profile of the Entrepreneur 3.ProjectsContributions to the Economy 1. Sales and Marketing 1.1 Product description 1.2 Competitors' 1.3 Location 1.4 Market Area 1.5 Main Customers 1.6 Total Demand 1.7 Market Share 1.8 Selling Price 1.9 Sales Forecast 1.10 Promotional Measures 1.11 Marketing Strategy 1.12 Marketing Budget 2. Production 2.1 Production Process 2.2 Fixed Capital 2.3 Life of Fixed Capital 2.4 Maintenance and Repairs 2.5 Sources of Equipment 2.6 Planned Capacity

QUESTION WITH ANSWER 1. How creativity, innovation, and entrepreneurship are related? Entrepreneurship is the result of a disciplined, systematic process of applying creativity and innovation to needs and opportunities in the marketplace. Creativity is the ability to develop new ideas and to discover new ways of looking at problems and opportunities. Innovation is the ability to apply creative solutions to those problems and opportunities in order to enhance peoples lives or to enrich society. Entrepreneurship = creativity + innovation 2. What contributions does entrepreneurship have for the economic development of the country? Increasing the per capital output and income of the people of the country. Initiating and creating change in the structure of business and society . Generation of innovation that leads to the creation of new products and services. Improvisation and modification on existing product to better suit market and customers needs. Creation of self-employment and to cut back the dependency of potential employment of new workers in government sectors. Streamline of the private sector and encourage the inclusion of new technology that is less labor dependent. Increase in the national outputs which in turn lead to greater and stronger economic growth.

Laying the seed bed for creating new entrepreneurs in various new technologies Acting as a catalyst to nurture entrepreneurs in a business organization 3. Can entrepreneurship be a career option? The entrepreneurship option prepares students for an entrepreneurial career by offering a combination of coursework and practical experience. The required coursework lays out the fundamentals of entrepreneurship including the necessary tools and perspectives in strategy, marketing, and finance. We may define entrepreneurship as a career in your own business [YOB] rather than wage employment [JOB] .If you opt for a job then you will work for others. In case you opt for entrepreneurship you will be your own boss. In case of wage employment one is engaged in routine work carried on for others for which he receives salary or wages.. 4. What are the major causes for failure of most small business? Poor operations management Lack of experience Poor financial management Over-investing in fixed assets Poor credit practices Failure to plan Unplanned and uncontrolled growth Inappropriate location 5. How can the small business owner avoid the common pitfalls that lead to business failure? Knowing the business in depth Developing a solid business plan Managing financial resources Understanding financial statements Learning to manage people effectively 6. What crucial roles do you think from the well managed small business? Independence Financial Opportunities Community Service Job Security Family Employment Learning from Challenge Introducing Innovation Catering for small or niche markets 7. What do you understand by the term business opportunity? What is its relevance for an entrepreneur? The entrepreneurial process begins with identifying an opportunity and evaluating it through an initial screening process. If it appears reasonable, a detailed business plan can be made. If not it can be discarded. 8. Do you think it is important for an entrepreneur to scan for opportunities in the small scale sectors? Give reasons. This will help to put the proposed venture in the proper context. The purpose of industry analysis is to determine what makes an industry attractive- this is usually indicated either by above normal profits or high growth rates. For such analysis one should study the history of the industry, the future trends, new products developed in the industry, forecasts made by the government or the industry. It is also advisable to study the existing or potential competition, threat of substitutes and entry barriers. 9. In your opinion what precautions should a potential entrepreneur take at the Idea Generation Stage in an ever-changing business environment? It is a true statement as the business environment is constantly changing for any number of reasons. There can be technological break thorough like the IT revolution, demographic changes like nuclear families, working parents, which have fueled a demand for day care centers, old peoples homes, fast food etc.

Changes in tastes and preferences have resulted in mushrooming of restaurants and designer clothes. A natural disaster can create a demand for tents, blankets, medicines, torches, food etc. 10. What are the important facets of a project feasibility study? Market Analysis Financial Analysis Technical Analysis Economic Analysis Ecological Analysis Legal and Administrative Analysis 11. What factors are to be kept in mind while deciding on product/service? It is necessary to know beforehand Whether there exists a sizeable market for the proposed product/service, What would be the investment requirements and where to get the funding from? Whether and wherefrom the necessary technical know-how to convert the idea into a tangible product may be available, and so on. 12. Describe the various forms of business organization? Sole Proprietorship-The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. Partnerships-In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. Corporations A Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders 13. Explain legal considerations in the establishment of a small scale enterprise? Prepare a business plan. A properly written business plan will serve not only as a blueprint for your company's future operations, but will be pivotal to obtaining capital and financing. Choose a location to set up your business. While the first thought may be to organize your business in your home state, there are certain advantages to organizing in other jurisdictions. Delaware is a popular state given its favorable corporate laws. There are even reasons to consider incorporating overseas. Obtain financing or other forms of startup capital. Determine a legal structure for your business . Sometimes an S corps is the way to go, other times an LLC or a partnership. There are multiple forms of business entities and they vary slightly by state. Each will have different tax implications, different forms of business governance, and varying legal and procedural requirements. Register your business. Once you have selected the form of legal structure, you will need to register your company with the jurisdiction you choose. You will also need to renew that registration each year to ensure that your company remains legally in existence. Obtain a Tax ID. One of the most important steps to establishing a company is obtaining a tax ID from the IRS. This is an integral step to creating the separate identify of the business entity, establishing its separate taxation, and activating the tax benefits of the chosen form of business entity. Obtain business licenses and permits. Most businesses will need to obtain a license to legally operate in its given place of business from the local municipality. Failing to do so could result in fines or other penalties.

14. What is business plan? Write the importance of business plan for the entrepreneur, financial sources and customers. Business Plan is a written document describing all relevant internal and external elements and strategies for starting a new venture. For entrepreneur the time, effort, research, and discipline needed to put together a formal business plan force the entrepreneur to view the venture critically and objectively. All aspects of the business venture must be addressed in the plane; the entrepreneur develops and examines operating strategies and expected results for outside evaluators. The business plan quantifies objectives, providing measurable benchmarks for comparing forecasts with actual results. The completed business plan provides the entrepreneur with a communication tool for outside financial sources as well as an operational tool for guiding the venture towards success. For the financial sources Details of the market potential and plans for securing a share of that market. The ventures ability to service debt or provide an adequate return on equity. Critical risks and crucial events with a discussion of contingency plans. A clear, concise document that contains the necessary information for a thorough business and financial evaluation of the feasibility of the new venture. 15. Discuss the pitfalls to avoid in planning and their respective solutions. Pitfall 1: No Realistic Goals -Indicators: lack of attainable goals, time frame, priorities and action steps Pitfall 2: Failure to Anticipate Roadblocks: Indicators: no recognition of future problems, no admission of possible weaknesses of the plan, no contingency plans Pitfall 3: No Commitment or Dedication- Indicators: excessive procrastination, missed appointments, no desire to invest personal money Pitfall 4: Lack of Demonstrated Experience (Business or Technical)Indicators: no experience in business, no experience in specific area of the venture, not understanding the industry. Pitfall 5: No Market Segment- Indicators: uncertainty regarding who will buy, no proof of unsatisfied need 7. List and describe the different elements of a business plan. 16. Executive Summary: Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. Clearly state what you're asking for in the summary. The statement should be kept short and businesslike. It should be kept to a of a page to 1 full-page depending on how complicated the use of funds may be. Within that space, you'll need to provide a synopsis of your entire businessplan. 2. Market Analysis: This section should illustrate your knowledge about the particular industry your business is in. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to collect its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and marketing strategies that will allow the company to become profitable within a competitive environment. In addition, it gives one an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future. Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential. 3. Company Description: This section should include a high level look at how all of the different elements of your business fit together. The company description should include information about the nature of your business as well as the crucial factors that you believe will make your business a success.

4. Organization and Management: This section includes your company's organizational structure, details about the ownership of your company, descriptions of your management team and qualifications of your panel of experts or board of directors. 5. Marketing and Sales Strategies: This is the lifeblood of your business. Marketing creates customers and customers generate sales. In this section, define your marketing strategies. Start with strategies, tactics and channels that you have used to create your greatest successes. Next, branch out to others that may be working for your competitors. Remember that this section will be constantly updated based on your results. 6. Service and/or Product Line: In this section describe your service and product. What is it that you are actually selling? Make sure to emphasize the benefits (not the features). Establish your unique selling proposition. This means you have to show not only how your product is different but also why it is better. 7. Funding Requirements: In this section state the amount of funding you will need to start or expand your business. Include best and worst case scenarios. Be realistic. 8. Financials: Develop the financials AFTER you have analyzed the market and set clear objectives. You should include three to five years of historical data.