ENTREPRENUERSHIP SKILLS NOTES:

ENTREPRENUERSHIP DEFINED:

Schumpeter's View of Entrepreneurship

Schumpeter (1934) defined Entrepreneurship as a process of creative destruction that involves

restructuring a hither to stable market in order to create new and better systems. Austrian
economist Joseph Schumpeter’s definition of entrepreneurship placed an emphasis on
innovation, such as:

 new products
 new production methods
 new markets
 new forms of organization

Wealth is created when such innovation results in new demand. From this viewpoint, one can
define the function of the entrepreneur as one of combining various input factors in an innovative
manner to generate value to the customer with the hope that this value will exceed the cost of the
input factors, thus generating superior returns that result in the creation of wealth.

Ronstadt (1984) argues that entrepreneurship is the dynamic process of creating incremental
wealth. This wealth is created by individuals who assume the major risk in terms of equity, time,
and career commitment or provide value for some product or service

Peter F. Drucker defined Entrepreneurship as the process, of gathering and allocating the
resources like financial, managerial, or technological necessary for a new venture's success.
It is also defined as the attempt to create value through recognition of business opportunities, the
management of risk appropriate to the opportunity and through the communicative and
managerial skills to mobilize human, financial and material resources necessary to bring the
project to fruition.
The role of different theories in explaining entrepreneurship.

As a further attempt in explaining entrepreneurs and entrepreneurship, various theories have

been advanced to explain:

 How entrepreneurs act (what is it they do).

 What happens when entrepreneurs act (what are the out comes of their actions) and
 Why people choose to act as entrepreneurs.

The main theories are economic, social and psychological theories:

Economic theories:

Richard Cantillon (1751) was one of the first economists to critically analyze the role of the
entrepreneur. He argued that the entrepreneur working with existing products and in existing
markets bought at certain prices and sold at uncertain prices therefore assuming the role of a
risk taker. He argued that markets are always in a state of disequilibrium but it is the alertness
of entrepreneurs to profitable transactions that bring demand and supply into equilibrium.

However, this argument was overshadowed by Adam Smith (1776) who showed that even
selfish consumers and selfish producers each with their selfish interests, could always strike
acceptable bargains that could always move the market to equilibrium, this implying that
entrepreneurs were just players responding but never creating consumer needs.

However, Joseph Schumpeter (1934), developed a rule breaking theory of economists in

which he described a creative destruction of industrial cycles. He argued that a normal
healthy economy was not in equilibrium but one that is constantly being disrupted by
technological innovation.

Sociological theories:

These try to explain entrepreneurial behavior as a function of the person and the
environmental conditions or the reality individuals live in. the environment and ideological
values shape people’s attitudes and beliefs which in turn influence the potential
entrepreneur’s view, behavior and perspective.

The nature of populations influences the distribution of resources and indirectly shapes
entrepreneurial processes. This implies that entrepreneurship is situational and varies among
nations and regions and among individuals. Sociologists view environmental factors that
include culture, networks, access to capital, mobility and government policies as a key in
fostering entrepreneurship.

Different sociological models have been developed to try and explain entrepreneurship and
they include:

The social development model, which tries to explain and understand entrepreneurial start
up decisions in terms of the situations encountered and the social groups to which individuals
relate.

The demographic approach. This uses demographic information and variables such as
family background, birth order, role model, marital status, age, educational level of parents
and self-socio-economic status, previous working experience etc.

Social cultural dimensionsi.e. cultural values, risk taking, hard work etc.

Psychological theories:

This examines how primary motivations of or needs may vary across individuals and how
these differences may influence entrepreneurial activity. It also considers various aspects of
the psychological make up and problem solving style of the entrepreneurs. These ascribe
entrepreneurial tendencies to the individual’s personality, mental and physical make up.
Psychological theories include:

The traits approach, which suggests that individuals with certain characteristics always find
the path to entrepreneurship regardless of the environmental conditions. It observes that
personality patterns (characters) in individuals exert a dominant influence on the subsequent
success of their ventures and possessing a greater number of the right personality patterns
contributes a greater likelihood of success.
 The cognitive approach: suggests that entrepreneurial success is closely related to the way
entrepreneurs perceive information, think and possess knowledge, and that this can be used
as a basis for distinguishing between entrepreneurs and other persons. This perspective
advises that different people think and process information differently and that such
variations may help different people.

Who is an entrepreneur?
The term ‘entrepreneur’ has been defined in various ways – an innovator, a risk taker, a resource
assembler, an organization builder, and so on. He introduces new ideas, carries on new
activities, coordinates the factors of production and decides how the business shall run. He
anticipates the future trend of demand and price. He has vision, originality of thought and ability
to take calculated risks.

Oxford English Dictionary (1993), defined entrepreneur as one who undertakes an

enterprise. It involves combining capital and labour for the purpose of production.

Richard Cantillon defined an entrepreneur as the agent who buys means of production at
certain prices in order to combine them into production that he is going to sell at uncertain
prices.

SBA.GOV, The U.S. Small Business Administration website defines an entrepreneur as a person
who organizes and manages a business undertaking, assuming the risk for the sake of profit. An
entrepreneur: Sees an opportunity, Makes a plan, Starts the business.

ADVANTAGES OF BEING AN ENTREPRENEUR

 Salary: Often people do not feel fully compensated for the work they do.
Becoming an entrepreneur means you can reap the benefits of all your hard work. For
example, many of the Uganda’s richest people are successful entrepreneurs.
 Flexibility: Having control over your work schedule means that you can choose when
to take time off and work the schedule that suits you best. Entrepreneurs of small start-up
firms have greater flexibility than owners of larger firms and the capacity to respond
promptly to industry or community developments. They are able to innovate and create
 new products and services more rapidly and creatively than larger companies that are
mired in bureaucracy. Whether reacting to changes in fashion, demographics, or a
competitor’s advertising, a small firm usually can make decisions in days - not months or
years.
 Decisions: Entrepreneurs are able to make all of the decisions relating to their
company themselves; they have complete control. This allows for a huge degree of
independence and a chance to shape one’s own career.
 Excitement: Becoming an entrepreneur is a very exciting time, from the idea and start-
up to the development and realization of the product or service.
 Recognition and self-fulfillment: It is very human to desire the recognition of your
family, friends and the community and is good to have the feeling that you have done
something really good in your life.
 Desire to succeed, the people involved like the entrepreneur, any partners, advisers,
employees, or even family members — have a passionate, almost compulsive, desire to
succeed. This makes them work harder and better.
 An entrepreneur has the ability to modify his products or services in response to unique
customer needs. The entrepreneur or manager of a small business knows his customer
base far better than one in a large company. If a modification in the products or services
offered — or even the business’s hours of operation — would better serve the customers,
it is possible for a small firm to make changes. Customers can even have a role in product
development.
 You control your own destiny. You have the power to make the decisions that
ultimately determine the success or failure of your business.

LIMITATIONS OF BEING AN ENTREPRENEUR

 Salary: Becoming an entrepreneur means you have to leave behind the security of having
a paycheck each month.
 Long hours of hard work: Although entrepreneurs benefit from a flexible schedule they
often have to work very long hours particularly in the start-up phase. Furthermore
entrepreneurs’ work schedules are never predictable and they must deal with emergencies
that may occur at any time.
  Sole decision maker: Being responsible for all decisions can be quite stressful and
handling such responsibility can be difficult since you have to depend on only a limited
number of people to make decisions and there is no input from other sources.
 There is also great risk attached to entrepreneurship. The success or failure of the
business rests with the entrepreneur.
 Competition. Staying competitive is critical as a small business owner. You will need to
differentiate your business from others like yours in order to build a solid customer base
and be profitable.
 Loneliness. It can be lonely and scary to be completely responsible for the success or
failure of your business.
 Lack of adequate skills to manage the business.

Entrepreneurship can offer levels of fulfillment and achievement that are hard matched by any
other type of employment. A great idea teamed with passion and commitment will certainly help
a new entrepreneur overcome many of the challenges posed by starting their own business.

Role of the Entrepreneurs in the economy:

 They create employment, most often than not they start something new in the market
which stimulates the economy. Like new products to franchise and then it becomes a
multiplier, some other businessmen now have other business opportunities.
 Entrepreneurs create products and services. They are usually the source of most new
ideas in the economy. For example, Steve Jobs and partners created Apple computers in
their garage and made computers a household item using technology that some big
companies didn't see. Entrepreneurial companies usually grow quickly and are
responsible for much of the job creation in our economy.
 Value creation. 'Profits' simply mean that the output of a business was more valuable
than the input, which means that something of value to the economy has been created.
The profits are always either invested in new businesses or spent.
 He also makes use of idle resources. Entrepreneurs are creative people who always
come up with new ideas that in the end benefit people. The idle resources could be idle
 land or what is also taken as a waste by some people might be a source of raw for
production to them like making charcoal out of rubbish, animal wastes to get bio gas
and so on.
 Entrepreneurs pay taxes to the economy which is transferred to develop other social
infrastructures like roads, hospitals, schools and so on. This helps in economic
development.

Qualities/ characteristics/ attributes of an entrepreneur:

 Need for independence and autonomy, the always want to be their own boss or
bosses of others not to work for some one else. They do not require external
structures, controls or instructions to do their job. They hate rule and authority which
they regard as stifling and inconveniencing.
 Self belief and internal locus of control, entrepreneurs believe can make a
difference and influence their environment. They are convinced that success or failure
lies in their hands and not the resources at their disposition, the might of their
organization, luck or other external forces beyond their control. An internal locus of
control detests external direction and ascribes outcomes to one’s behavior reinforcing
a sense of self belief.
 Persistence and determination, entrepreneurs have the salient quality of endurance
as the try out new ideas. “It can be done”, is a phrase entrepreneurs commonly
encounter. Scarce resources, novel ideas un expected problems are all part of the
entrepreneurial process and requires persistence in the face of obstacles.
 Flexibility and experimentation, entrepreneurs do not insist on one best solution but
adopt successive approximations to solve immediate problems as they occur. This
calls for constant improvisation in response to challenges in an ever changing
entrepreneurial environment.
 Opportunity orientation, entrepreneurs have a well defined sense of searching for
opportunities. They are always looking ahead and are less concerned about what they
achieved yesterday. They search for or create opportunities all the time, placing
themselves in an opportunity –rich stream and shaping themselves to seize and
quickly take advantage of the opportunity before they are lost.
  Motivation and positive attitude, they are blessed with a positive attitude that
radiates and communicates optimism and hopefulness. They are able to transmit and
pass on this enthusiasm to their employees and other stake holders.
 High levels of energy and capacity to hard work, they expend more physical and
mental effort in operationalizing ideas that may be strange and therefore lack the
support of other stake holders.
 Good business ethics that include clearing or settling debts in time including paying
their suppliers, lending institutions, workers etc.
 Customer orientation. I.e. ability to communicate, persuade and discuss with
customers and clients in order to better comprehend their needs expectations and
requirements.
 Networking is the ability to establish fruitful linkages with other business persons
and other business stake holders for mutual leaning, collaborative undertakings and
other joint activities aimed at achieving a common goal. Entrepreneurs need friend
and allies to compensate for their limited resources.
 Moderate risk taker, this implies assumingthe responsibilityfor the loss that might
occur due to unforeseen contingencies of the future. An entrepreneur invests capital
in order to establish and run an enterprise, he guarantees interest to the lenders, wages
to employees and after making all the payments to these people little or nothing may
left to him.
 Innovative, an entrepreneur is basically an innovator who introduces something new
into the economy. It may be a method of production not yet applied in a particular
branch of manufacturing or product with which consumers are not yet familiar with,
or anew source of raw-material, anew market or new use of certain products.
 High need for achievement

THE ENTREPRENEUR AS A MANAGER:

An entrepreneur is also to play the management roles of planning, organizing, financial

management, human resource management, leadership and control. Along side these traditional
functions, the entrepreneur’s managerial functions extend to the roles of enabler, facilitator, and
coordinator, negotiator and communicator, change manager and internal consultant. The modern
entrepreneur manager needs also to develop new competencies, such as having an international
perspective. Understanding the surrounding chain of production and network of enterprises or
constant alertness to market change and technical trends.

Types of entrepreneurs:

 Push (forced) entrepreneurs, are those whose dissatisfaction with the current position
pushes them start a venture. These are found to be more successful because the are more
determined and persistent because they have no fall back position.
 Pull (motivated) entrepreneurs,the are entrepreneurs that are lured by their new venture
idea and initiate venture activity because of the attractiveness of the business idea and its
implications.
 Innovative entrepreneurs, these assemble a large variety of information and combine a
range of factors experimentally to produce new possibilities in terms of markets,
techniques or products. Countries with a very underdeveloped industrial base hardly
produce this type of entrepreneurs because of lack of the necessary infrastructure.
 Imitative or adoptive entrepreneurs. These imitate and adopt the technology and
techniques innovated by others. They are common in underdeveloped countries although
not highly regarded in more developed economies. However imitative entrepreneurs also
need to be creative in order to modify innovations to suit their special conditions.
 Social entrepreneurs: Social entrepreneurs are the idea champions, people who advance
change, working within, between and beyond established organizations. The social
entrepreneur also help others discover their own power to change by helping them
envision a new possibility and recognize how it can be broken down into doable steps that
build momentum for change. Social entrepreneurship at its essence is a process by which
individuals “build or transform institutions to advance solutions to social problems”.
 Opportunistic entrepreneurs
 Visionary entrepreneurs
 Fabian entrepreneurs
 Drone entrepreneurs
  Part time entrepreneurs
 Small and large entrepreneurs
 Male and female entrepreneurs
 Rural or urban entrepreneurs
 Corporate cast offs and drop outs entrepreneurs

THE NEED FOR ENTREPRENEURSHIP DEVELOPMENT:

Over the past decades, entrepreneurship has gained amazing popularity not only in Uganda
but also in the wider world. This is as a result of the significant changes in the work place
and the social and political environments that are funning the growth of entrepreneurship
world wide the factors include both pull and push as seen below:

Pull factors i.e. factors that lure or attract one to join entrepreneurship.

 Technological advancements that have compromised technological processes and enabled

many things to be made and services to be delivered at a fraction of the original cost.
 Entrepreneurship Education. Since the 1980’s the countries that have invested in the
teaching of entrepreneurship have harvested a rich crop of high caliber entrepreneurs.
 Liberalization and globalization has enabled small entrepreneurial firms to access
international markets without the threat of protectionism and other trade barriers.
 Easier access to venture capital.
 Opportunity availability,
 External rewards i.e. hoe society recognizes successful entrepreneurs.
 Cultural influence , community or family background
 Motivation from biographies of successful entrepreneurs.
 Government policies like infrastructural development, capital availability.
 Perceptions of advantage i.e. a person feels that he can earn better.
 A shift to the service sector that require personalized attention, smaller companies are
able to create profitable niches to compete with larger established firms.
 Property inheritance past experience from previous employment.
 Making use of idle resources.
Push factors or factors that compel of force one to go entrepreneurship:

 Current job dissatisfaction i.e. low salary scale, poor working conditions, transfers and
demotions etc
 Un employment
 Lay offs/ down sizing
 Retirements
 Boredom

ENTREPRENUERSHIP VITALITY:

This is the measure of a country’s level of entrepreneurial activity. Countries with a high
entrepreneurial vitality have high levels of business births.

PROGRAMS AND POLICIES FOR ENTREPRENUERSHIP DEVELOPMENT

 Sound and progressive micro economic policies for example expansionary policies where
the government releases money to the public, lower interest rates, accessibility to
financial institutions.
 A strong educational system should be introduced that it produces skilled and motivated
human resources for example training job makers not job seekers. There should be
teaching of vocational courses and practical things that avails students with the necessary
skills to perform.
 Accessibility to venture capital for example money set aside by the government to fund
business start ups like bona bagagawale funds.
 Change of cultural and social norms for example change people’s mentality to encourage
and start viewing entrepreneurship positively.
 Promotion and building of entrepreneurial networks e.g. business broker to connect
entrepreneurs to ideas and markets.
  Government policy implications for example fiscal policies like tax holiday and
exemptions for new business start ups, low taxation, subsidize and protect them.
 Reduce bureaucracy in the registration system so that entrepreneurs can easily register
and formalize their business.
 Encourage privatization and the role of its bodies like private sector foundation.
 Infrastructural development like repair and maintenance of roads, rural electrification.
 Inflation control.

FUNCTIONS OF AN ENTREPRENUER:

 Searching for and perceiving market opportunities.

 Gaining command over scarce resources
 Purchasing inputs
 Marketing of products and responding to inputs.
 Managing human resources in relation to the firm.
 Managing finance.
 Upgrading process and product quality ie introducing new production techniques and
new products to the market.

Barriers to entrepreneurship development:

Personal barriers

 Poor entrepreneurial skills like being risk averse, low levels of creativity, not flexible etc.
 Lack of business and technical skills. Like skills in marketing, accounting, management
which are highly required by all practicing entrepreneurs to effectively manage their
entrepreneurial ventures.
 Low mobility and exposure, this limits the on acquiring new creative and innovative
ideas that shape entrepreneurship.
 Few role models in entrepreneurship, this limits the number of people that aspire for a
career in entrepreneurship.
 Poor business ethics like unpaid loans, unpaid suppliers, and employees, selling
substandard goods, tax evasion, corruption, and smuggling.
  Complacency or lack of motivation, because of lack of role models most entrepreneurs
tend to be satisfied with the little they have.
 Lack of continuity, very few firms in Uganda tend to survive the death of their founders.
Very few entrepreneurs have the opportunity to pass on their enterprises to new
generations and watch from the side as the enterprise continues to prosper.
 Career dependency, Ugandans especially the educated have long been dependent on their
careers to provide for their livelihoods.

Barriers from the environment:

 Political instability
 Business administrative procedures like complex and burdensome regulations favoritism,
corruption and weak enforcement mechanisms and as a result businesses are forced into
the informal sector.
 Insensitive government institutions and departments, entrepreneurs blame government
institutions and departments for having little qualifications and a minimal appreciation
and understanding of the importance of business. This limits these entrepreneurs access
to these institutions for support and most of the laws are made with the aim of appeasing
the external investors.
 Poor infrastructural development like roads, hospitals, no power and water in most of
rural areas this limits business development in such places.

Economic environment:

 Limited access to finance. This is because the banking system in Uganda imposes
impossible demands to the entrepreneur for instance they have little incentive to the to
extend credit, the terms of credit are un reasonable requiring difficult collateral and
guarantees to secure the loan.
 Low purchasing power. Low income and high rates of unemployment limit the
purchasing power of relatively small Uganda’s population, this make it had for
businesses to acquire the necessary economies of scale.
  Economic instability, due to over reliance on donor support or funds, the import bill that
far overweighs the export earnings and over reliance on imports, the Ugandan economy is
very fragile and easily destabilized by any small shocks in the international environment.
 Excessive, complex and arbitrary taxation. The tax system in Uganda is complicated,
confusing, changes rapidly and in most case beyond comprehension of the entrepreneurs.

THE ENTREPRENEURIAL PROCESS:

The entrepreneurship process is a course of action that involves all functions, activities and
actions associated with identifying and evaluating perceived opportunities and the bringing
together of resources necessary for the successful formation of a new firm to pursue and seize the
opportunities. The birth of a new enterprise and its subsequent success or failure is not a hap hard
process but the art and science of entrepreneurship that can be taught and learnt. The process
involves a number of stages as seen below:
A. Idea generation. Or opportunity identification:

A business idea is a concept that can be used to make money. Usually it centers on a product or
service that can be offered for money. An idea is the first milestone in the process of founding a
business. Every successful business started as someone’s idea.

Although a business idea has the potential to make money, it has no commercial value initially.
In fact, most business ideas exist in abstract form; usually in the mind of its creator or investor
and not all business ideas, no matter how brilliant they may seem, would end up being profitable.
To find out about an idea’s chances in the market and check its innovative content and
feasibility, you need to conduct a plausibility check. A promising business idea must have the
following characteristics:

 Relevant (must fulfill customers’ needs or solve their problems)

 Innovative
 Unique
 Clear focus
 Profitable in the long run
The acceptability and profitability of a business idea hinges largely on how innovative the idea
is. Being innovative means using conventional production or distribution methods that have
rarely been adopted before. In fact, the entire business system could be innovated.

For example, FedEx revolutionized mail post services through 24-hour operation and very quick
delivery worldwide. The company therefore adopted an innovative system, which eventually
spurred it to becoming one of the world’s leading mail and parcel delivery services.

Business opportunity:

A business opportunity on the other hand is a proven concept that generates an on-going income.
In other words, a business opportunity is a business idea that has been researched upon, refined
and packaged into a promising venture that is ready to be launched.

While multiple business ideas may strike you on a daily basis, only few of them will be
profitable in the long run based on market research and feasibility study conducted. These few
are the real business opportunities. An opportunity is regarded as one after it has been found to
meet the following criteria:

 It must have high gross margins.

 It must have the potential to reach break-even cash flow within 12 months – 36 months.
 The startup capital investments must be realistic and within the range of what you can
provide.
 You must have the strength and ability needed to drive the business to success.
 Your level of enthusiasm for the business must be very high.
 It must have the potential for residual income.
 It must have the potential to keep on improving with time.
 It must have a low level of liability risk.

After you have refined and packaged your business opportunity in your mind, you can have it
documented by writing a business plan. You can then either implement on your own or sell it to
someone else for profit (probably because you cannot afford the capital required to flag off the
business).
In conclusion, the world is filled with brilliant ideas but the world lacks entrepreneurs who have
the capacity to turn such ideas to profitable business opportunities. It is one thing to develop an
idea, but it is an entirely different game to turn an idea into a business opportunity.

Sources of ideas include

 There are sometimes gaps between demand and supply (Apparent/Overt Demand)
which can be exploited by an entrepreneur. But such occasions are few and far in
between. Such opportunities do not last long. They are lapped up by the existing players
before an entrepreneur can move in. Entrepreneur’s opportunity lies in coming up with a
better product or same/substitute product at cheaper price. But the better option for
entrepreneurs is to scan the customers’ environment for identifying the dormant/hidden
demand.
 Prospective customers, a customer knows best what he or she wants and habits which
are going to be popular in the near future. Contacts with prospective consumers can also
reveal the features that should be built in the product before launching it to the market.
 Developments in other nations, people in underdeveloped countries generally follow
the fashion trends of developed countries. An entrepreneur can discover a good business
idea by keeping in touch with developments in advanced nations. Some times
entrepreneurs visit foreign countries in search for products and processes.
 Study of government project profiles. Government and private agencies publish
periodic profiles of various projects and industries, these profiles describe in detail the
technical, financial and market requirements. A scrutiny of such a project profile is very
helpful in choosing the line of business.
 Market surveys or relative demand for certain products, chances of producing a
substitute to an imported product, visits to trade fairs or exhibitions, observing markets
i.e. fashions, income levels, technology, Known problem opportunity i.e. related ideas to
a known problem and offer partial solution, , Corporate initiatives, Mandate requirements
like market changes.

Once opportunities or ideas are discovered, screening and testing is carried out and involves
carrying out a feasibility analysis.
B. Feasibility analysis:

This is the process of determining whether the idea is a viable foundation for creating a
successful business. Its purpose is to determine whether a business idea is worthy pursuing.

Feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an
existing business or proposed venture, opportunities and threats present in the environment,
the resources required to carry through, and ultimately the prospects for success. In its simplest
terms, the two criteria to judge feasibility are cost required and value to be attained

Importance of Conducting Feasibility Study before Starting a business:

 Feasibility study will help you to determine the profitability of the business venture.
Before starting a business, seasoned entrepreneurs and investors would want to know if
the business would be worth their time, effort and resources. It is worthwhile to know
that many entrepreneurs have abandoned solid business ideas because the profitability
could not be ascertained on conducting a feasibility study on the business idea.
 A feasibility study report will help prove to the entrepreneur, venture capitalists,
lenders and investors the existence of the market, the liquidity of the business venture
and the expected return on investment.
 Feasibility study will help you identify the flaws, business challenges, strengths,
weaknesses, opportunities, threats and unforeseen circumstances that might affect the
success and sustainability of the business venture.
 Before starting a business, feasibility study will enable you estimate the financial,
human and technological resources that will be needed to ensure the successful
launching of the business. Feasibility study helps to reveal the number and level of skill
or unskilled workers to be employed and their salary scale.
 Feasibility study will help you to determine the amount of capital required to start
the business. It will also help you in establishing the budget plan, working capital and
cash flow projections of the business.

The feasibility study aspects include the following:

1. Product or service feasibility:

Once entrepreneurs discover that sufficient market potential for their idea actually exists, they
can now focus on the product or service to be offered. A product or service feasibility analysis
determines the degree to which a product or services appeals to potential customers.

Product Search and screening

After we come up with product ideas, we look at products presently available andproducts
related to those products ideas. Then pose the exploratory questions –
 Are customers satisfied with what they are getting?
 Can we identify a better method of production?
 Can the basic design be changed?
 What is the present demand, future demand likely to be?
 What are the skills needed?
 Can I handle the technical aspects?
 If not, is the expertise available for hire easily?
 Does the product idea generated match my competencies or do I have todevelop new
competencies?

2. Marketability
 Availability of market, Ease of After Sales Service, Product Variations, products that have
to be made available in a wide range of grade, size, shape,
 Uniqueness of Product etc.

3. Technical Feasibility
Study assesses the details of how you will deliver a product or service (i.e., materials, labor,
transportation, where your business will be located, technology needed, etc.). Think of the
technical feasibility study as the logistical or tactical plan of how your business will produce,
store, deliver, and track its products or services.
A technical feasibility study is an excellent tool for trouble-shooting and long-term planning. In
some regards it serves as a flow chart of how your products and services evolve and move
through your business to physically reach your market.
 4. Economic Feasibility

The purpose of the economic feasibility assessment is to determine the positive economic
benefits to the organization that the proposed system will provide. It includes quantification and
identification of all the benefits expected. This assessment typically involves a cost/ benefits
analysis. Analyzing the economy will help you align your planned business with the economic
situation on ground. Economic feasibility should include analysis on government’s fiscal and
monetary policies, import and export rate, inflation rate, tax rate, and currency exchange rate and
so on.

5. Sensitivity and Risk Analysis

This is the last part of a feasibility study and probably the most important. After all other factors
have been analyzed and proven viable, sensitivity and risk analysis can come in. Building a
business without properly conducting a risk analysis is like flying a plane without regards to
weather condition. Before any business idea is taken to the marketplace, its risk to reward ratio
should be analyzed, the sensitivity to competition should be determined and the liquidation rate
of companies in the industry of your proposed business venture should be calculated. With
results obtained from sensitivity and risk analysis, growth and survival strategies can be
developed for your proposed business.

6. Financial Analysis / feasibility

Financial analysis will be dealing with the estimation of the total capital involved, capital
expenditures, working capital; profit and loss analysis, pricing of products, cash flow projections,
projected sales revenue and the entire project viability. Everything concerning finance should be
dealt with at this moment. If you are trying to raise venture capital for your small business
startup, then you have to do a clean job on the financial section of the feasibility report because
this is where investors focus on. All they are interested in knowing is how much is the
percentage return on investment and the payback period. Evaluation techniques include NPV,
IRR, Pay back period etc

7. Industry and market feasibility:

When evaluating a business idea, entrepreneurs find a basic analysis of the industry and targeted
market segments a good starting point. The focus here is two fold i.e. determine how attractive
the industry is and identify possible niches a small business can occupy profitably. Look at
things like , how large is the industry, how fast is it growing, is it profitable, what threats or
opportunities are facing the industry, how intense is the level of competition. Addressing these
questions helps to determine whether there exists the potential for sufficient demand for the
products or services.

A useful tool for analyzing the industry is by using the five forces model by Michael porter i.e.

 Rivalry in the industry: this looks the level of competition in the industry is it stiff or
not, what is the size competitors, their influence and market share.
 Bargaining power of suppliers. The greater the leverage that suppliers of key raw
materials have, the less attractive the industry is. An industry is attractive when; many
suppliers sell to the company, substitute items are available for the items suppliers
provide, companies find it easy to switch from one supplier to another, items suppliers
provide account for a low proportion of the companies finished goods.
 Bargaining power of buyers. Just like suppliers these also have the potential to exert
significant power over a business making it less attractive. An industry is attractive if the
switching costs are high, customers demand for products that are highly differentiated.
 Threat of new entrants. An industry is attractive when quality substitute products are
not readily available, prices of substitute products are not significantly lower than yours,
switching costs are high.
 Threat of substitutes. An industry is attractive when quality substitute products are not
readily available, prices of substitute products are not significantly lower than those of
the company’s products and when substitute costs are high.

After surveying the power these five forces exert on an industry, the entrepreneur can evaluate
the potential for their company to generate reasonable sales and profits in a particular industry.

c. Idea selection and business planning:

The feasibility report is analyzed to finally choose the most promising idea and the following
considerations influence the selection of the idea:

Products that can be exported easily and profitably, products whose demand exceed their supply
in the there is ready market, products in which an entrepreneur has manufacturing and marketing
experience, products favored by country’s industrial policies and products for which incentives
and subsidies are available. After selecting the best idea then prepare a business plan.

B. Resource mobilization / Input requirements

Once the promoter is convinced with the feasibility and the profitability of the enterprise, he
assembles the necessary resources to launch it. Resources vary from tangible to intangible,
qualitative and quantitative. He has to choose partners, collect the required finances and he
should chose from both short term and long term source of funding like short term and long term
bank loans and acquire land and building, machinery, furniture, patents and employees.

C. Establish the enterprise/ Implement the business

The entrepreneurial process is incomplete until the idea is actualized in form of a business. The
firm is launched by assembling and organizing the physical facilities, developing operation and
production processes, recruiting required labor force advertising the product and initiating a sale,
promotion campaigns.

BUSNESS PLAN:

A business plan is a formal statement or set of business goals, reasons they are believed
attainable and the plans for reaching these goals. It may also contain background information
about the organization or team attempting to reach these goals. Or

Is a document that summarizes operational and financial objectives of a business and showing
how they are to be realized.

Why do we Prepare or write a Business Plan?

Your business plan is going to be useful in a number of ways.

 It will define and keep you focused on your objective using appropriate information and
analysis.

 For financing. You can use it as a selling tool in dealing with important relationships
including your lenders, investors and banks.
 Helps to estimate start up costs.
 You can use the plan to solicit opinions and advice from people, including those in your
intended field of business, who will freely give you invaluable advice.
 Helps in determining the profitability of the business using the projected cash flows,
assets, liabilities, expenses and incomes.
 Helps to identify risks and uncertainties.
 It also helps in the process of registering the business.

The format of a business plan has got the following contents:

1. Title page:
This includes a company’s name, logo, address, telephone number, names and contacts of
the directors.
2. Table of contents:
This includes page numbers and chapters so as to locate a particular section of the plan in
which one is interested in easily.
3. Executive summary:
It comes first though written last and should summarize all the relevant issues of the
business venture. It should be concise a maximum of two pages. It includes a company’s
name and addresses of the venture, names, addresses and contacts of all the key people,
brief description of the business, its products and services, brief overview of the market
for your products or services, strategies that will make your firm a success, managerial
and technical experience of the key people, statement of financial request and how they
will be used.
4. Vision and mission statement:
 A vision is an orientation point that guides a company’s movement in a specific direction.
Where as a mission statement expresses in words an entrepreneur’s vision for what his or
her company is and what it is to become. It is a broad expression of a company’s purpose
and defines the direction in which it will move.

5. Company history for existing businesses:

A brief history of the operation highlighting the significant financial ad operational
events in the company’s life. It should describe when and why the company was formed,
successful accomplishments of past objectives, achieving market share targets.
6. Marketing strategy:
Under here you describe a company’s target market and its characteristics. Creating a
successful business depends on an entrepreneur’s ability to attract real customers who are
willing and able to buy its products and services. Customer’s motivation to buy market
size and trends, is it growing or shrinking, sales advertising and promotional mix as well
as costs, pricing and channels of distribution.
7. Technical aspect:
this looks at the location of the business i.e. why did you choose that particular area, plant
lay out, manufacturing process, machinery and equipment required and their costs, raw
materials required and accessibility, names of the suppliers, labour needs and supply,
wage rates.
8. Organizational aspect or plan of operation;
This includes the form of ownership chosen i.e. sole proprietorship, joint venture, a
company’s structure or organizational chart, decision making authority, compensation
and benefit packages, management team and background, roles and responsibilities,
experience, skills and expertise.
9. Financial aspect including the cash flow projections, projected income statement and
projected balance sheet.
10. Appendices. This contains any relevant additional information that you would like
people to know.
FORMS OF BUSINESS START UPS OR WAYS IN WHICH A BUSINESS CAN BE
STARTED:

There are two fundamental ways of exploiting a business idea. either starting up a business in
your on style or taking ownership of some one else’s business or style of operation.

1. Starting up from scratch. The most common reasons of wanting to start up a business
from scratch usually lie in the direct personal experiences of the business founder some
examples include:
 Sporting a gap in the business environment. This involves taking a new concept that
works well in other place sand finding a new and under supplied market in which you
start up your business. The chances of success when starting up in this way are great if
the founder clearly knows and understands the product or service involved in and the
market.
 Inventions and innovations. Inventions refer to the discovery of completely new ideas for
example computers, Uganda funeral services, property masters. Whereas innovations
refer to doing new things or already existing things in a new way.
 Others peoples failures. Often times small business owners are frustrated by the un
satisfied customers with their products or services, this creates a new business
opportunity.
1. Buying an existing business. When economic growth is virtually static or if you want to
achieve dramatic growth, then buying some ones can be an attractive option but be
careful. The experience of the UK in 1991 was that 90% of the acquisitions took place
under friendly conditions but only 55% were actually rated as successful by both the
buyers and sellers so buying a company is certainly not always a sure fire winning
strategy.
WHY WOULD YOU BUY AN EXISTING BUSINESS?

 To increase the market share and eliminate troublesome competitor.

 To diversify in to new markets, acquire the necessary management, marketing or
technical skills.
 To acquire additional staff, factory, space, ware housing, distribution channels or access
customers more quickly than starting up your self.
 An existing business may already have the best location.
 A successful existing business may continue being successful. Because the previous
management team already has established a customer base, built supplier relationships,
and set up a business system.
 Easier financing. Attracting financing to buy an existing business is often easier than
finding the money to launch a company from scratch since the existing business will have
established relationships with the lenders.
 It’s a bargain. The current owners may need to sell short notice, which may lead them to
sell the business at a low price. Many small companies operate in profitable but tiny
niches, making it easy for potential buyers to overlook them.
 The new owner can use the experience of the previous owner. Despite the fact that he
owner is not around after a sale, the owner will have access to all the business records to
guide him or her until when he or she is used.
 The one acquires an existing business avoids the time, costs, and energy to launch a new
business.
 Inventory is in place and trade credit is already established. The proper amount is
essential to both controlling costs and generating adequate sales volume. If the business
has little inventory, it will not have the quantity and variety of products it needs to satisfy
customer demand.

DISADVANTAGES OF BUYING AN EXISTING BUSINESS:

  The previous owner may have created ill will in that customer, suppliers, employees,
creditors may have extremely negative feelings about a company’s owner because of his
unethical behaviors or actions.
 Employees inherited with the business may not be suitable. Previous managers may have
kept marginal employees because they close friends or because they started with the
company. A new owner may have made some unpopular terminations decisions.
 The business location may have become unsatisfactory. What was once an ideal location
may have become obsolete as market and demographic trends change. Large shopping
malls, new competitors or highway re-routings can spell disaster for small retail shops.
 Equipment and facilities may be obsolete. Potential buyers sometimes neglect to have an
expert evaluate a company’s facilities and equipment before they purchase it. Only later
did they discover the equipment is obsolete and inefficient and that the business may
suffer looses from excessively high operating costs.
 Change and innovation are difficult to implement. It is easier to plan for change than it is
to implement it. Methods, policies, and procedures the previous owner used in business
may have established precedents that a new owner finds it difficult to modify. Customers
may resist changes the new owner wants to bring to business.
 The purchase price may not be justified and therefore it may deplete future profits. If
accounts receivables, inventories and other assets are correctly valued the new owners
might have been able to negotiate a price a level that would allow the business to be
profitable. Making payments on a business that was overpriced is a millstone around the
neck of the new owner:

NATURE AND TYPES OF BUSINESSES:

There are three major types of businesses:

1. Service Business

A service type of business provides intangible products (products with no physical form).
Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks, accounting firms, and
law firms.

2. Merchandising Business

This type of business buys products at wholesale price and sells the same at retail price. They are
known as "buy and sell" businesses. They make profit by selling the products at prices higher
than their purchase costs.

A merchandising business sells a product without changing its form. Examples are: grocery
stores, convenience stores, distributors, and other resellers.

3. Manufacturing Business

Unlike a merchandising business, a manufacturing business buys products with the intention of
using them as materials in making a new product. Thus, there is a transformation of the products
purchased.

A manufacturing business combines raw materials, labour, and factory overhead in its production
process. The manufactured goods will then be sold to customers.

Hybrid Business

Hybrid businesses are companies that may be classified in more than one type of business. A
restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising), and fills customer orders (service).

Nonetheless, these companies may be classified according to their major business interest. In that
case, restaurants are more of the service type – they provide dining services.

FORMS OF BUSINESSES:

Sole proprietorship:

Is the business owned and managed by one individual. Advantages include

  Simple to begin. One simply obtains the necessary resources and license and operates.
 Unshared profits. He owns all the profits of the business alone this motivates them.
 Easy decision making. Since there no a lot of people involved, it becomes to easy for him
to make decisions without interruptions.
 No government intervention.
 It is flexible in that one can exchange from one line of business to another as the
entrepreneur wishes.
 Sole proprietors have direct contact with their customers. This makes it easy for
them to understand their customers and can easily satisfy their needs.
 This form of business is easy to discontinue or to dissolve.

The disadvantages include:

 Un limited personal liability. This is the greatest disadvantage in that he is personally

liable for all the business debts and losses.
 Unlimited skills and capabilities. In most cases the owners lack the necessary skills,
knowledge and experience to run a successful business.
 Limited access to capital. If a business is to grow and expand, a sole proprietor often
needs an additional financial resource. However a sole proprietor has already put all his
resources to business and has personal resources as collateral. This makes it hard for
them to borrow again.
 Lack of continuity of the business. If he dies, retires, or becomes incapacitated the
business automatically comes to an end.
 They are unable to attract and retain highly skilled and qualified workers.

Partnerships:

A partnership is an association of two or more people who co-own a business for the purpose of
making profits. Here the co-owners share the business assets, liabilities and profits according to
the terms of a previously established partnership agreement. Characteristics include: existence of
the business, co-ownership of the business, contractual relationship usually by partnership deed,
profit motive, principal –agent relationship and un limited liability.
Ways of partnership include; by word of mouth (expression or oral agreement), in writing
(partnership deed), implied partnership or implied agreement and partnership by holding out.

Kind of partners include:

Active partners. Are involved in active management of the business and liable to third parities.

 Dormant partners. They are also known as sleeping partners and are liable to third parties.
 Nominal partners. Are also known as quasi partners. They do not have capital in the
business, he is known, he is liable to third parties too and gets something like good will
for using his name.
 Minor partner. he enjoys limited liability and his decisions are not legally binding .
 Partner in profit only. This one shares profits only but not losses.

Contents of a partnership deed includes:

 The nature of the business to be conducted.

 The capital of the firm and proportions to be contributed by each partner.
 The ratios in which profits or losses will be shared.
 Partners salary if any.
 Admissions of new entrants.
 Durations of the partnership.
 Names of partners and their legal addresses.
 The rate of interest to be allowed on capital or charged on drawings .
 Amounts if nay that partners may draw in advance before ascertainment of profits.

Advantages of partnerships include:

Ease of formation. Just like sole proprietorship, a partnership is also easy and inexpensive to
form. The owners must obtain the necessary license and submit a minimal number of forms.

Complementary skills. This is because the partners complement each other in terms of skills
and abilities strengthening the companies managerial foundation.
Division of profits. There are no restrictions on how partners distribute the companies profits as
long as they are consistent with the partnership agreement and do not violate the rights of any
partner.

Larger pool of capital. each partners asset base enhances the business’s pool of capital and
improves on its ability to borrow needed funds. Together each partners personal assets support
greater borrowing capacity.

Spread of risks.

Ability to attract limited partners. These do not participate in the day today management of
the business and have limited liability for the partnership debts.

Little government intervention. Just like sole proprietorships, partnerships are not burdened by
red tape.

Flexibility. They can easily react to changing market conditions because the partners can
respond quickly and creatively to new opportunities.

The disadvantages include:

Un limited liability of at least one partner. at least one member of every partnership must be a
general partner. he has un limited personal liability for any debts that remain after partnership
assets are exhausted.

Limited capital accumulation. Although a partnership form of ownership is superior to

proprietorship in its ability to attract capital, it is generally not effective as the corporate form of
ownership which can raise capital by selling shares of ownership t outside investors.

Difficulty in disposing of partnership interest without dissolving the partnership. Most

partnership agreements restrict how partners can dispose off their shares of the business. Often a
an agreement requires a partner to sell his or her interest to the remaining partners.

Lack of continuity. If one member dies, complications arise in that partnership interest is non
transferable through inheritance because the remaining partners may not want to be in
partnership with the person who inherits the deceased’s partners interest
Less secrecy.

Delays in decision making

Partners are bound by the law of agency. A partner is like a spouse in that decisions made by one
in the name of partnership binds all. Each partner is an agent for the business and can easily can
legally bind the partnership and hence other partners to contracts even without the remaining
partners knowledge or consent.

Corporations.

Is a voluntary association of persons incorporated into business having in capital divided into
transferable shares with limited liability, a common seal and perpetual succession. Corporations
are creations of the state, when it formed, it accepts the regulations and restrictions of the state in
which it is incorporated and any other state in which it chooses to do business. To create a
corporation, every state requires a certificate of incorporation or charter to be filled with the
secretary of state. The following information is generally required to be in the certificate of
charter.

The corporations name. it must not be similar to that of any company in that state that it causes
confusion. It must include a term such as corporation, “incorporated” company or limited to
notify the public that they are dealing with a corporation.

The corporation’s statement of purpose. Incorporators must state in general terms the intended
nature of the business. The purpose must be lawful.

The corporations time horizon. Most corporations are formed with no specific termination date.
The are formed for perpetuity though it is possible to incorporate for a specific duration like 50
years.

Names and addresses of the incorporators. These must be identified in the articles of
incorporations and are liable under the law to attest that all information in article is correct.

Place of business. The street and mailing addresses of the corporation’s principal office must be
listed. For domestic corporation this address must be in the state in which incorporation take
place.
Capital stock authorization. The articles of incorporation must include the amount and class of
capital stock the corporation wants to be authorized to issue. This is not the number of shares it
must issue, it must issue any number of shares up to the total number authorized.

Capital required at the time of incorporation. Some states require a newly formed corporations to
deposit in the bank a specific percentage of the stock’s par value prior to incorporating.

Advantages include;

Limited liability of stock holders. Because it is a separate legal entity, a corporation allows
investors to limit their liability to the total amount of their investment in the business. In other
wards, creditors of the corporation cannot lay claim to share holders personal asset to satisfy the
company’s un paid debts.

Ability to attract capital. Because of limited liability they offer their investors, corporations
have proved to be the most effective form of ownership for accumulating large amounts of
capital.

Ability to continue indefinitely. Unless a corporation fails to pay its taxes or is limited to a
specific length of life by its charter, it can continue indefinitely. Its existence does not depend on
the fate of single individual.

Transferable ownership. Unlike an investment in a partnership, shares of ownership in a

corporation are easily transferable. If stock holders want to liquidate their shares of ownership in
a corporation they can sell their shares to some one else.

Disadvantages.

Corporations are costly and time consuming to establish and maintain. Since the owners are
giving birth an artificial entity, the gestation period can be prolonged especially for a novice.

Double taxation. Because a corporation is a separate legal entity, it must pay taxes on its net
income at the federal level, in some states and to some local governments as well.
Potential for diminished managerial incentives. As corporations grow they often require
additional managerial expertise beyond what the founder can provide. Because they have most of
their personal wealth tied up in companies, entrepreneurs have an intense interest in making
them successful and are willing to make sacrifices for them.

Legal requirements and regulatory red tape. Corporations are subject to more legal reporting
and financial requirements than other forms of ownership. corporate officers must meet stringent
requirements for recording and reporting management decisions and actions. They must also
hold annual meetings and consult the board of directors about major decisions that are beyond
day today operations.

Potential loss of control by the founders, when entrepreneurs sell shares of ownership in their
companies, they relinquish some control. Especially when they need large capital infusions for
start up or growth, entrepreneurs may have to give up significant amounts of control, so much in
fact the founder becomes minorityshare holder.

Companies limited by shares include

Private limited companies which does not invite the public to buy shares, membership does not
exceed 50 and un easy transferability of shares.

public limited companies which does not impose the above three restrictions of a private limited
company and minimum number is 7 and no upper limit, can offer its shares and debentures to the
public at large to subscribe, there is free transferability of shares, has to hold a statutory meeting
and file a statutory report and can not commence business without certificate of commencement
of business.

Government companies which are either parastatals, statutory company or public enterprises.
These are fully owned by the government, they are formed by the decree or act of parliament and
there has to be a special need for them.

Companies limited by guarantee. this is where a person undertakes to guarantee the liabilities of
the organization for example clubs, NGO’s, the persons who float the company undertake at the
time of floating a guarantee that in the event of winding up of the company and the assets of the
company do not sufficiently cover the creditors demands or liabilities they will contribute a
stated sum towards the liquidation of the creditors liabilities. These companies are always
governed by the board of governors and is non profit making organizations.

Cost Accounting Systems

A cost accounting system (also called product costing system or costing system) is a
framework used by firms to estimate the cost of their products for profitability analysis,
inventory valuation and cost control.

Estimating the accurate cost of products is critical for profitable operations. A firm must
know which products are profitable and which ones are not, and this can be ascertained
only when it has estimated the correct cost of the product. Further, a product costing
system helps in estimating the closing value of materials inventory, work-in-progress and
finished goods inventory for the purpose of financial statement preparation.

There are two main cost accounting systems: the job order costing and the process
costing.

 Job costing is a cost accounting system that accumulates manufacturing costs separately
for each job. It is appropriate for firms that are engaged in production of unique products
and special orders. For example, it is the costing accounting system most appropriate for
an event management company, a niche furniture producer, a producer of very high cost
air surveillance system, etc.
 Process order costing is a cost accounting system that accumulates manufacturing costs
separately for each process. It is appropriate for products whose production is a process
involving different departments and costs flow from one department to another. For
example, it is the cost accounting system used by oil refineries, chemical producers, etc.

There are situations when a firm uses a combination of features of both job-order costing
and process costing, in what is called hybrid cost accounting system.
 In a cost accounting system, cost allocation is carried out based on either traditional
costing system or activity-based costing system.

Cost Accounting Uses

 Cost control
 Budgeting
 Performance measurement
 Determining reimbursements
 Setting prices

What is accounting?
The system of recording and summarizing business and financial transactions and analysing,
verifying, and reporting the result

Before making policy, strategy and technique of determining price of goods or services, a
marketer should consider both internal and external environmental factors of the firm that affect
the pricing. All the elements of marketing mix have close relationship with environmental
factors. Among them, pricing is perhaps a very sensitive as well as explosive power. Business
firm itself, consumers or customers, channel members, competitors, government and economy
are the major factors that play significant role at different stages in the process of pricing. These
factors can be discussed as follows:

Internal or controllable pricing factors

 Under the internal organization factors include the objective of the business firm,
production and distribution cost, marketing mix, nature of products, firm's expectations
and reputation, etc. They are called internal pricing determinants and can be controlled by
marketer.
 Cost of manufacturing and marketing
The manufacturing and distribution cost greatly as well as directly affects pricing. If the
cost for production and distribution is high, it becomes impossible to determine low
price.

 The other components of marketing mix i.e. product, place and promotion prepared by
a business organization all affect pricing. The nature of products does not only make it
possible bust also make it is essential to determine price of the product. Similarly,
reputation or goodwill of organization also affect price determination. Likewise
promotion cost also affects pricing decision.

 The external factors include customers, channel members, competitors, government,

economic condition of country etc. These are independent factors and cannot be
controlled by marketer.

 Consumers and market

Consumers and target markets also affect pricing of products. Those who determine price
should pay careful attention to the elements of buying behavior and methods. More
attention should be given to the characteristics of target market, condition of the products,
consumers' perception, thought and attitudes towards the price and quality of the products
etc.

 Channel members
Pricing is also affected by the members of distribution channel. The necessity and
objective of channel members matching with pricing policy of the marketer can make
distribution possible. The discount given to wholesalers or retailers is the important
component in the profit to middlemen. So, the price determiner should get knowledge
about the distributors' attitude towards the price and what price will they sell the products
to consumers. Without written agreement, manufacturers cannot provide authority or
direct the middlemen to fix final price, but can give suggestions.
 Competition
Price of most of products is determine by considering the competition in market price.
The company with having large market share becomes the price leader. When it increases
or decreases price of its products, other company also do the same or adopt the same
policy. But if there is no domination or influence of any single company in the market,
the marketer analyses and evaluates the prices of all main competitor companies, collects
reactions and draws conclusion. In this way, competition among manufacturers affects
price determination.

 Government
Government policy and decisions also affect pricing. The government of each country
have their own policy, decisions, rules and regulations. Price should be determined
considering price control policy of government, sale tax, income tax policy etc. Prices of
some products are controlled by government direction and the government itself
determines prices of some products.
 The predetermined objectives:
While fixing the prices of the product, the marketer should consider the objectives of the
firm. For instance, if the objective of a firm is to increase return on investment, then it
may charge a higher price, and if the objective is to capture a large market share, then it
may charge a lower price.
 Image of the firm:
The price of the product may also be determined on the basis of the image of the firm in
the market. For instance, HUL and Procter & Gamble can demand a higher price for their
brands, as they enjoy goodwill in the market.
 Product life cycle:
The stage at which the product is in its product life cycle also affects its price. For
instance, during the introductory stage the firm may charge lower price to attract the
customers, and during the growth stage, a firm may increase the price.
 Credit period offered:
 The pricing of the product is also affected by the credit period offered by the company.
Longer the credit period, higher may be the price, and shorter the credit period, lower
may be the price of the product.
 Promotional activity:
The promotional activity undertaken by the firm also determines the price. If the firm
incurs heavy advertising and sales promotion costs, then the pricing of the product shall
be kept high in order to recover the cost.
 Economic conditions:

The marketer may also have to consider the economic condition prevailing in the market
while fixing the prices. At the time of recession, the consumer may have less money to
spend, so the marketer may reduce the prices in order to influence the buying decision of
the consumers.

Methods for Determining Price

 Cost-plus pricing
This pricing method is designed to assure that fixed and variable costs are covered and
that profit is built in. To use cost-plus pricing add direct and indirect costs to profit to
arrive at your price. It is crucial that you calculate all costs when using this method to set
pricing because an omission will lead to a reduction in profit.
 Competitive pricing
If the market you are entering has an established price and differentiation between
products is difficult, you may need to use competitive pricing. If you choose to set a
different price in an industry with established pricing for products that are difficult to
differentiate between, be sure you can defend the prices you are setting and that an
awareness of price among your target market does not make this out of the question.

 Mark-up pricing
Usually used by retailers, it is calculated by adding a specific amount to the cost of a
product.
  Demand Pricing

If you sell products to a variety of entities who purchase very different volumes of goods from
you, you may want to use demand pricing. For example, a manufacturer who sells to retailers
and wholesalers will give a better deal to wholesalers for purchasing in greater quantity. Keep in
mind that according to the Robinson-Patman Act of 1939 you must charge the same price to all
customers for identical products. If you want to offer different prices, you must establish pricing
discounts available to any customer who can buy in volume.

Guidelines on Basic Accounting Principles and Concepts

GAAP, is the framework and guidelines of the accounting profession. Its purpose is to
standardise the accounting concepts, principles and procedures.

Here are the basic accounting principles and concepts:

1. Business Entity

A business is considered a separate entity from the owner(s) and should be treated separately.
Any personal transactions of its owner should not be recorded in the business accounting
book unless the owner’s personal transaction involves adding and/or withdrawing resources from
the business.

2. Going Concern

It assumes that an entity will continue to operate indefinitely. In this basis, generally, assets are
recorded based on their original cost and not on market value. Assets are assumed to be held and
used for an indefinite period of time or during its estimated useful life. And that assets are not
intended to be sold immediately or liquidated.

3. Monetary Unit

The business financial transactions recorded and reported should be in monetary unit, such as US
Dollar, Canadian Dollar, Euro, etc. Thus, any non-financial or non-monetary information that
cannot be measured in a monetary unit are not recorded in the accounting books, but instead, a
memorandum will be used.

4. Historical Cost

All business resources acquired should be valued and recorded based on the actual cash
equivalent or original cost of acquisition, not the prevailing market value or future value.
Exception to the rule is when the business is in the process of closure and liquidation.

5. Matching

This principle requires that revenue recorded, in a given accounting period, should have an
equivalent expense recorded, in order to show the true profit of the business.

6. Accounting Period

This principle entails a business to complete the whole accounting process over a specific
operating time period.

Accounting period may be monthly, quarterly or annually. For annual accounting period, it may
follow a Calendar or Fiscal Year.

7. Conservatism

This principle states that given two options in the amount of business transactions, the amount
recorded should be the lower rather than the higher value.

8. Consistency

This principle ensures similar and consistent accounting procedures is used by the business, year
after year, unless change is necessary.

Consistency allows reliable comparison of the financial information between two accounting
periods.
9. Materiality

Business transactions that will affect the decision of a user are considered important or material,
thus, must be reported properly. This principle states that errors or mistakes in accounting
procedures, that which involves immaterial or small amount, may not need attention or
correction.

10. Objectivity

This principle states that the recorded amount should have some form of impartial supporting
evidence or documentation. It also states that recording should be performed with independence,
that’s free from bias and prejudice.

11. Accrual

This principle requires that revenue should be recorded in the period it is earned, regardless of
the time the cash is received. The same is true for expense. Expense should be recognized and
recorded at the time it is incurred, regardless of the time that cash is paid. This is to show the true
picture of the business financial performance.
REFFERENCES:

 C.B.Gupta and N.P Sirivasani (2010) Entreprenuership Development, Sultan Chand and
sons.
 ArunaKaulgad (2003) Entrepreneurship Management. Thompson learning
 Matlin, M. W. & Foley, H. J. (1997). Sensation and perception. Needham Heights, MA:
Allyn & Bacon.
 Matlin, M. W. (2005). Cognition, 6th ed. New York: John Wiley & Sons.
 Nahapiet, J. &Ghoshal, S. (1998). Social capital, intellectual capital, and the
organizational advantage. Academy of Management Review, 23, 242-266.
 Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization
Science, 5, 14-37. Nosofsky, R. M. &Palmeri, T. J. (1998). A rule-plus-exception model
for classifying objects in continuous-dimension spaces. Pyschonomic Bulletin & Review,
5, 345-369.
 Petzinger, T. (1999). The new pioneers. New York: Prentice-Hall.
 Ray, D. M. (1994). The role of risk-taking in Singapore. Journal of Business Venturing,
9, 157-177.
 Ray, S. & Cardozo, R. N. (1996). Sensitivity and creativity in entrepreneurial opportunity
recognition: A framework for empirical investigation. London: Global Entrepreneurship
Research Conference.
 Ronstadt, R. (1988). The corridor principle. Journal of Business Venturing, 3, 31-40.
 Rosenwein, R. (2001). Hiding in plain sight. Inc. Magazine, 23, 54-55. Rousseau, D.,
Sitkin, S., Burt, R. &Camerer, C. (1998). Not so different after all: A cross-discipline
view of trust.
 Rowley, T., Behrens, D. &Krackhardt, D. (2000). Redundant governance structures: An
analysis of structural and relational embeddedness in the steel and semiconductor
industries. Strategic Management Journal, 21, 369-386.
 Salvato, C. (2004). Predictors of entrepreneurship in family firms. Journal of Private
Equity, 7, 68-76.