Develop Understanding Enterprenership

Admas University
Misrak TVET College
Basic Clerical Works Level I
Learning guide
Unit of Competence: Develop Understanding of Entrepreneurship
Module Title : Develop Understanding of Entrepreneurship
TTLM Code : EIS BCW1 14 0812
LO -1: Describe and explain the principles, concept and scope of entrepreneurship
LO -2: Discuss how to become entrepreneur
LO -3: Discuss how to organize an enterprise
LO -4: Discuss how to operate an enterprise
LO -5: Discuss one’s own business plan
Develop Understanding of Entrepreneurship
Occupational Standard: Basic Clerical Works Level I
Unit Title Develop Understanding of Entrepreneurship
Unit Code EIS BCW1 14 0812
Unit Descriptor This unit covers skills, knowledge and attitude required to understand
the principles, functions, strategies and methods of entrepreneurship.
It also covers identifying and developing the major entrepreneurial
competences.
Elements Performance Criteria
1. Describe and 1.1 The principles, concept and terminology of entrepreneurship are
explain the analyzed and discussed
principles, concept
and scope of 1.2 The different / various forms of enterprises in the community are
entrepreneurship identified and their roles understood
1.3 The identified enterprises are categorized and classified
1.4 The terms and elements involved in the concept of enterprising,
both on a personal level and in the context of being enterprising
in business are identified and interpreted
1.5 Functions of entrepreneurship in business and how the
entrepreneurs improved business and economic environment
are explained
2. Discuss how to 2.1 Self-employment as an alternative option for an individual
become economic independence and personal growth is discussed and
entrepreneur analyzed
2.2 Advantages and disadvantages of self-employment are
discussed and explained
2.3 Entrepreneurial characteristics and traits are identified and
discussed
2.4 Self-potential is assessed to determine if qualified to become
future entrepreneur
2.5 Major competences of successful entrepreneurship are identified
and explained
3. Discuss how to 3.1 The importance and role of business entrepreneurship in the
organize an society are discussed and correlated to the operations of the
enterprise economy
3.2 Facts about small and medium enterprises are discussed,
clarified and understood
3.3 Key success factor in setting up small and medium business are
identified and explained
3.4 Business opportunities are identified and assessed
3.5 Business ideas are generated using appropriate tools,
ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 2

techniques and steps

3.6 Procedures for identifying suitable market for business are
discussed and understood
3.7 Major factors to consider in selecting a location for a business
are identified and discussed
3.8 Basic types of business ownership are identified and explained
3.9 Amount of money needed to start an enterprise estimated and
distinction between pre operations and initial operation payments
clarified
3.10 Advantages and disadvantages of using various sources of
capital to start an enterprise are identified
4. Discuss how to 4.1 Disadvantages and advantages of three alternatives means of
operate an becoming an entrepreneur are identified and understood
enterprise 4.2 Process of hiring and managing people is discussed and
explained
4.3 The importance and techniques of managing time are discussed
and understood
4.4 The techniques and procedures of managing sales are discussed
and explained
4.5 Factors to consider in selecting suppliers and the steps to follow
when doing business with them are identified and discussed
4.6 Awareness of how new technologies can affect small and
medium business are developed
4.7 Characteristics of appropriate technology for use in small and
medium business are identified and explained
4.8 Different types of cost that occur in a business and how to
manage them are discussed and understood
4.9 Factors and procedures in knowing the cost of the enterprise are
discussed and understood
4.10 Importance of financial record keeping and preparing simple
financial statement are explained and understood
4.11 The application of self-management skills and negotiation
skills are discussed in operating a business
4.12 Risk assessment and management of business enterprise are
performed
5. Develop one’s own 5.1 Process of preparing/ writing a business plan is discussed and
business plan applied
5.2 Standard structure and format are applied in preparing business
plan
5.3 Findings of the business plan are interpreted, assessed and
analyzed
5.4 Feasibility of the business idea is made clear and
understandable
5.5 Problems that may arise or encounter when starting a business
are identified and understand
5.6 Techniques and procedures in obtaining and sourcing
information are discussed and understood

Variables Range
Evidence Guide
Classification May include but not limited to:
Critical Aspects of Demonstrates skills and knowledge in:
 Private vs. public
Competence
 explained
Profit vs. non-profit
principles and concept of entrepreneurship
 discussed
Formal vs.howNon-formal
to become entrepreneur

 discussed howCommunity
Individual vs. to organize an enterprise
 Local vs. Foreign
 discussed how to operate an enterprise
 develop
Businessbusiness
vs. Socialplan
 Small vs. Large
Underpinning Demonstrate
 Manufacturingknowledge of:
vs. Service
Knowledge and  Consumer vs. Industrial
Attitudes  Entrepreneurship principles, concepts and terminologies
Major factors May include but not limited to:
 Entrepreneurial competence
 Entrepreneurial
Economics (local motivation
economy)
 Risk assessment and evaluation
Population
 Principles
Competition and process of negotiations
May
Self-management and self-employment
include but not limited to:
Three alternatives
 Managing sales, people and time
 Factors
Buying anin setting
existingup small and medium business
business
 Small and
Starting Medium
a new Enterprise
business
 Business plan development
Operating a franchising business
 Discussion techniques and procedures
Underpinning Skills Demonstrate skills in:
 Planning and Leading

 Presentation skills
 Using technology
 Managing money
 Preparing simple financial statement
 Selecting suppliers
Resource Implications Access is required to real or appropriately simulated situations,
including work areas, materials and equipment, and to information on
workplace practices and OHS practices.
Methods of Competence may be assessed through:

Assessment
 Interview / Written Test
 Observation / Demonstration with Oral Questioning
Context of Assessment Competence may be assessed in the work place or in a simulated
work place setting.
Information Sheet 1 OVERVIEW OF ENTREPRENEURSHIP
1.1. Definition and concept of Entrepreneurship.

Entrepreneurship is an organizational and management approach that enables persons to respond to change and
solve problems in whatever situation (either business or non-business) they may find themselves.
There are five elements of entrepreneurship: observing the environment, identifying opportunities, gathering the
necessary resources, implementing the activity and receiving rewards for engaging in the activity.
Entrepreneurship involves the use of economic resources (money and equipment) as well as individual human
resources (energy, skills, knowledge, time).
Defining an Entrepreneur
An entrepreneur:
1. Observes the environment
3. Gathers the necessary resources
4. Implements the activity and
5. Receives financial or social rewards.
1.2. Reasons for Entrepreneurship in Business.

Principles of Entrepreneurship
It has been said “if a man/woman builds a better mousetrap, the world will beat a path to his/her door”. In a
market economy there is an opportunity for profit, recognition and service for those with the imagination, energy
and drive to do a job better, or provide a better service than others. The essence of the free enterprise system is
competition. It is competition that makes those doing a good job try harder.
Competition provides a better standard of living for consumers by offering choices.
Consumers “shop” to get the best value and quality goods and services. When a purchase is made, the money paid
is “votes” in favor of the product or the service chosen. Those products or stores or services which do not receive
sufficient support (sales) in the way of “dollar-votes” from customers will fail.
Entrepreneurs who want to be successful provide a little extra service or a little better product than their
competition. Many businesses fail each year, but many succeed.
Those that succeed perform services or offer merchandise in such a way to satisfy their customers.
As the population expands, there develops a need for more businesses. Every year several million babies are born
and these “babies are big business”. When these babies grow they become the children, the learners, the workers,
the managers and the customers of tomorrow.
An entrepreneur does not have to be the best manager, or have the biggest store, to compete successfully. If
entrepreneurs see a need for a new store in a growing community and begin operating before others, they can get a
head start on their competition.
Anyone with imagination and a little courage to take a chance on his/her own ability and ambition can generally be
successful in business provided the individual has progressed to the point of being a good business risk. One must
have the basic education, skills, knowledge and maturity to reduce the chances of failure. Any business is a risk.
The chances of failure can be greatly reduced by education, experience and the exercise of good judgment. There is
an element of chance in all businesses. Some entrepreneurs are lucky, but you must not depend on luck alone!

Features of Entrepreneurship
ECONOMIC PRINCIPLES
 OPEN MARKET ECONOMY

 PRIVATE ENTERPRISE
 ADDING VALUE (CREATING WEALTH)
 NEEDED PRODUCTS/SERVICE
 NEW MARKETS
ENTREPRENEURIAL COMPETENCIES
 TAKING INITIATIVES
 BEING HIGHLY COMPETITIVE
 EXPLOITING CHANGE
 DEALING WITH UNCERTAINTIES
 SEEKING OPPORTUNITIES
Entrepreneurial Rewards and Efforts
REWARDS FOR BEING AN ENTREPRENEUR:
 Self-actualization/personal fulfillment
 Feeling of freedom and independence
 Providing jobs and benefits (investors, suppliers, bankers, subcontractors, work force, customers)
 Economic goods (product/service, incomes for workers, profits for shareholders/partners)
PERSONAL EFFORTS TO BE AN ENTREPRENEUR
 Working long hours

 High Energy
 Sacrificing other important aspects of life
 Limited social life
 Less time with family and friends
 Large financial investment
1.3. Function of Entrepreneurship in business.
Entrepreneurial Function in Business
a) Entrepreneurs are the prime movers in the business or social sectors. Without entrepreneurs, there would
be no business or social development. They are the ones who identify gaps in the market and then turn
these gaps into business opportunities.
b) It is the entrepreneur who obtains finances for the business. After identifying a business opportunity, the
entrepreneur mobilizes the necessary resources to implement the opportunity and becomes the financier of
the enterprise. The entrepreneur does not of course have to finance the business from personal savings
alone. The necessary finances and other resources could be borrowed. It is, therefore, a function of the
entrepreneur to provide financing for the business.
c) Another function of the entrepreneur is to manage the business. This is also a function that he/she can
delegate to other people. Even where other people are employed to manage the business, the ultimate
responsibility for management remains with the entrepreneur. Management functions involve a wide range
of activities such as organizing, coordinating, leading, recruiting, rewarding and evaluating employees. The
entrepreneur manages production, marketing, personnel and all other aspects of the business.

d) The entrepreneur also has the function of bearing the uncertainties and risks of the business.
Entrepreneurs try to avoid risk situations whenever possible. Entrepreneurs take only calculated risks;
before taking a risk, they know the costs and the benefits of the risk situation.
e) Through the entrepreneurial function, many jobs are created in the economy. In addition, wealth is made
available to the individual, the community and society through the actions of entrepreneurs. Entrepreneurs
encourage competition, which is critical in sustaining a free market system and promotes economic
growth, social progress and the spread of prosperity among a country’s population. Entrepreneurship is an
effective mechanism for ensuring innovation and creativity as well as achieving economic development at
the grassroots level.
1.4. Forms of Enterprises.
Meaning and Scope of Enterprising
On a personal level, enterprising can be any identified idea that a person can translate into a planned and
satisfactorily implemented activity. In the business sense, enterprising refers to the implementation of a business
venture or undertaking.
Practically all undertakings can be referred to as enterprising, i.e. idea identification, planning,
implementation, successful completion of an activity and receiving the rewards.
You are enterprising if you follow the above process whenever you are involved with issues in your life. By
understanding the enterprising concept, you can appreciate that all people have the potential to be
enterprising. Some people are enterprising when they own a business. Enterprising men and women are able
to deal positively with the challenges and problems they face in their daily lives.
Being enterprising can bring benefits to you and also help you to become a valued member of your family,
community, place of work and society. By adopting an enterprising approach to your activities, you will know
what to do in whatever circumstances you find yourself in. This kind of approach will enable you to appreciate
the challenges of life because you will be able to translate challenges into positive results.
Enterprising women and men exhibit the following characteristics:
E-Energy
Working hard, but in a smart way, is key to being enterprising. Lots of mental and physical energy is needed to
provide solutions to issues and for the successful completion of projects. To sustain this energy, you need to
stimulate your brains and all your senses – sight, hearing, touch, smell and taste – so that they all stay alert in
identifying what needs to be done in variety of situations. You also need to be healthy and physically fit, and
this can be achieved through diet and exercise.
N- Need to achieve
You need to have the motivation to achieve success and accomplish all the activities you engage in. Your
positive attitude and perceptiveness will enable you to achieve acceptable results whenever you do something.
This approach enables you to work harder than ordinary people.
T- Task oriented

To gain satisfying rewards, tasks have to be well executed and completed on time. Efficiency, effectiveness and
time management are important aspects that enable you to complete tasks. Focusing on results helps you to
concentrate on whatever you set out to do.
E- Empathy.
You are able to mentally put yourself in the position of the people you intend to influence. You try to feel what
they are feeling. You are able to put yourself in their shoes. In the case of owning a business enterprise you are
able to imagine how a potential customer would feel.
R- Resourcefulness.
You are able to provide the leadership and guidance needed to manage the enterprise.
Identification, mobilization and effective utilization of both the physical and the nonphysical resources needed
in undertaking a venture are very important in managing the enterprise.
P- Planning.
To see the total picture of the enterprise, it is necessary to establish a written plan.
This will help clarify the situation and permit decisions regarding whether an enterprise should be initiated or
not. Through planning, judgments regarding profits or losses will be made.
R- Risk-taking.
The decision to go ahead and start the enterprise or undertake the activity must be made. All enterprising men
and women take risks only after they have conducted research, so that they can achieve the desired results and
receive the rewards. You will always have to take this first step, as it marks the difference between
enterprising and non-enterprising men and women. Success begins with the decision to move in the desired
direction.
I- Innovation.
The ability to apply new ideas that will enable you to undertake unique activities is another hallmark of
enterprising people. Through individual initiative, imagination, intuition and insight you will be able to devise
new ways of doing things to accommodate whatever new situation you may find yourself in. Gathering
information is an important input for being innovative. Enterprising men and women therefore place great
value on information and are always alert and constantly engaging in research.
S- Skills.
Enterprising men and women have the ability or know-how that enables them to undertake and complete
activities. Most men and women have a certain amount of knowledge, attitudes and practical skills that can be
useful when realizing an enterprise. You should therefore evaluate the talents and level of skills you have and
how they can be harnessed to realize an enterprise. Talents and acquired skills have to be constantly utilized
and applied, otherwise they can also be forgotten and wasted.

I- Independence.
Independence means freedom from dependence on others. Enterprising people are able to make their own
decisions and are self reliant. They exercise their own will without the control of others.
N- Networking.
Networking is important because through this activity, enterprising people obtain information and learn from
feedback they receive from others. Enterprising people seek the advice of others and through the exchange of
information formulate their own ideas and beliefs.
G- Goal oriented.
Enterprising people are results-oriented experts at setting their own goals. They have personal control over
their own activities. Their goals are usually challenging, but attainable. These goals are a mix of long-term goals
and short-term goals. These goals are specific in the sense that they can be measurable.
Different Forms of Enterprise

People in a community have many interests and different needs and wants. Enterprising men and women are able
to identify these needs and wants and establish specific enterprises to satisfy them. Enterprises can provide
satisfying rewards for those who successfully establish them.
Terms used to classify enterprises include private, public, formal, informal, individual, community, local, foreign,
small, large, business, social, manufacturing, and service, consumer goods or industrial goods. Enterprises that
succeed, irrespective of their nature, come up with valued approaches to providing solutions to problems, and
satisfying the desired needs and wants. The key difference between all types of enterprise lies in the rewards they
provide. Business ventures provide profits as rewards, while non-business ventures provide other types of
rewards that could be either physical or psychological. Entrepreneurs engage in enterprises depending on what
kind of rewards they expect from them.
Enterprises in a community have the potential to benefit from each other. Output from one enterprise normally
becomes input for other enterprises, and this helps in money circulation among the enterprises within the
community. The more money circulates in the community, the more prosperous the community becomes. The
synergistic nature of all enterprises in a community creates an environment where there are lots of opportunities
to be exploited by enterprising men and women. It is up to these men and women to identify the opportunities
available and exploit them. Almost all communities have lots of unexploited opportunities that can create more
advantages for everyone.
Men and women acquire different skills that lead to different careers. They are applied in trade, services,
manufacturing, food processing, recreation, information and communication, and other forms of enterprises. The
existence of many types of enterprise in your community offers you opportunities to apply the skills you have
acquired. All types of skill learnt have a chance to be applied if opportunities are sought in all types of enterprise. It
is normal for men and women to consider the compatibility of personal values, interests and expectations with the
type of enterprise they desire.

The first step is to evaluate the various enterprises in your community and note their potential. The next step is to
identify how your skills match the various possible enterprises. You can, therefore, do what you can, with what you
have, where you are, and still succeed.
Classification of Enterprises
 Private Vs Public
 Profit vs Non-profit
 Formal vs Informal
 Individual vs Community
 Local vs Foreign
 Business vs Social (non- business)
 Small vs Large
 Manufacturing vs Service
 Consumer vs Industrial
1.7. Small and medium enterprises.
Meaning of Small Business
A. Elements constituting the meaning of small business:

• Independent management
• Owner supplied capital
• Mainly local area of operation
• Relatively small size within an industry
B. Definitions of small businesses
• “A business is small if the owner has direct lines of communication with the operating managers and has
personal contact with a large proportion of the work force, including key personnel.”
• “Individually owned and operated business”
• “A business employing not more than fifty people” (this number may differ from one country to another)
Weaknesses and Strengths of Small Enterprises
SMALL ENTERPRISE WEAKNESSES:
Financial limitations:
Balancing “cash in” and “cash out” is a struggle, especially when trying to expand. Instead of receiving the red
carpet treatment by financiers when asking for a loan, the small businessperson is often made to feel like a
second-class citizen. Small enterprises can’t use credit as a selling tool as readily as companies with large
financial reserves. Additionally, many small enterprises have trouble staying afloat while waiting for their
products to win acceptance in the marketplace.
Staffing problems:

Small companies cannot pay top salaries and provide the opportunities and status normally associated with a
big company job. Small enterprise owners must also concentrate on the day-to-day problems of running the
business and generally have little time left to think about objectives.
Higher direct costs:
A small enterprise cannot buy raw materials, machinery or supplies as cheaply as a large company, or obtain a
large producer’s economies of scale. So per unit production costs are usually higher for a small enterprise, but
overhead costs are generally somewhat lower.
Too many eggs in one basket:
A large diversified company can take a licking in one sector of its business and still remain strong. This is not
so for the small business with only a few product lines. A small company is vulnerable if a new product doesn’t
catch on, if one of its markets is hit by a sharp recession, or if an old product suddenly becomes obsolete.
Lack of credibility:
The public accepts a large company’s products because its name is well known and usually respected. A small
enterprise must struggle to prove itself each time it offers a new product or enters a new market. Its
reputation and past successes in the marketplace seldom carry weight.
SMALL ENTERPRISE STRENGTHS:
Personal touch:
Customers will often pay a premium for personalized attention. In fact, in many industries where product and price
differences are minimal, the human factor emerges as a prime competitive advantage.
Greater motivation:
Key management of a small enterprise normally consists of the owner(s). Consequently, they work harder, longer and
with more personal involvement. Profits and losses have more meaning to them than salaries and bonuses have to the
employees of a larger company.
Greater flexibility:
A small enterprise has the prime competitive advantage of flexibility. A big business cannot close a plant without
opposition from organized labour, or even raise prices without possible intervention from the government, but a small
enterprise can react quickly to competitive changes. A small enterprise also has shorter lines of communication. Its
product lines are narrow, its markets limited and its factories and warehouses close by. It can quickly spot trouble or
opportunity and take appropriate action.
Less bureaucracy:
Grasping the big picture is difficult for executives of large companies. This “management myopia” leads to redundant
actions and bureaucratic inefficiencies. In a small business the whole problem can be understood readily, decisions can
be made quickly and the results can be checked easily.
Unremarkable (less conspicuous):
Because it is not quite as noticeable, the small company can try new sales tactics or introduce new products without
attracting undue attention or opposition. Large companies are constantly faced with proxy battles, antitrust actions and
government regulations. They are also inflexible and hard to change or restructure.

Information Sheet 2 Becoming an entrepreneur

2.1 Self-employment and self-management.
Self-employment
Your personal values and interests are things you think are most important. Your choice of job may depend
on what you value and what interest you most.
1. The job you choose may affect where you live. If you choose to be a forest ranger, you will probably have
to live near a national forest. If you choose to work in the movie business, you will probably have to live
near a big city.
2. The amount of money you earn may affect how you live. For example, if your job earns you 10,000 a year,
you will live differently than someone earning 100,000 a year. You need to decide how important money
is to you.
3. The job you choose may affect how you live.
• Alemayehu, a nurse’s assistant, often has to work late hours or overnight and cannot always count on a
full night’s sleep. But he likes to help people feel better.
• Fatie works in a plastics factory. She works the night shift and sleeps during the day. But she likes the
night shift because she earns more money, and she likes working with machines and tools.
• Amha, a salesman, often works 70 hours a week, including travel. But he likes to see new places.
4. The job you choose may affect who your friends are. Many of your coworkers will become you friends.
You may lose touch with friends you have now.
5. The job you choose may affect your family life. For example, Susan, a hotel manager, works 80 hours a
week. She has decided she does not have time for relatives or children.
6. The job you choose may affect your personality. Some jobs put more pressure on you than others. This
pressure may make you nervous or grouchy.
Only you can decide how you want to live. Choose a career that fits what you value most.
After graduation, you may have an opportunity to get employment in a job carrying any of the titles listed below.
Identify two jobs from the following list. For each job title identify a corresponding self-employment opportunity
and its title.

Policeperson Helper in bowling alley Sheet metal worker Custodian's helper
Carrier (mail) Army soldier Cement mason Waiter or waitress
Assembly line worker Beautician Painter's helper Cook
Railway car loader Shoe repair person Painter Hospital dietician helper
Auto repair person Receptionist Taxicab driver Practical nurse
Car washer Sales clerk Household worker Baker's helper
Carpenter's helper Nursery school helper Auto or truck mechanic Dishwasher
Carpenter Baby sitter Butcher Food store checker
Small motor Nurse's aide Library clerk Gas meter person

repairperson's helper
Guard & watchperson Cattle raiser Forest ranger
Appliance service person
Street worker Dairy person Window display person
Typist
Forklift operator Golf course handyman/ Motel maid
Telephone operator
Driver's helper Handy woman Cook's helper
Farm laborer
Petrol station attendant Laundry route person Diesel mechanic
Playground assistant
Plumber & pipe fitter Custodian/janitor Barber
Entrepreneurial Self-Management
1. Complete High Priority Tasks First.
Most people do the easy tasks first. What often happens, however, is that difficult tasks don’t get done because too
much time is spent doing the easy tasks. You may run out of time to do the difficult tasks. Most entrepreneurs do
the important task first when their energy level is high. If time is available at the end of the day, the low priority
tasks are completed.
2. Use of Time.
Ask yourself, “What is the most important use of my time right now?” Asking this question will help focus on
“important tasks.”
3. Delegate Tasks to Subordinates.
This is an essential task for entrepreneurs. Entrepreneurs must be able to delegate work to staff. Delegating tasks
is a good way to build staff morale and allows the entrepreneur to focus on other essential tasks. As a general rule,
if a worker can do the task almost as well as the entrepreneur, then the task should be delegated to an employee.

4. Group Tasks.
This step will minimize interruptions and economize on the utilization of resources and efforts. For example,
instead of making calls sporadically throughout the day, make out-going calls at specific times each day. Frequent
callers can also be informed of the best time to call you.
5. Maintain a Clean Office.
Try to clear your desk of everything except the work you intend to do immediately. Effective entrepreneurs are
organized and work from clear desks.
6. Be Ready to Say “no!”
If staff can have you do their work, they will do it. Most stress comes from the entrepreneur’s lack of the skill to
“just say no” for fear of upsetting people. People are always asking for of an entrepreneur’s time. Instead of being
honest and saying “no” to the request, the tendency is to end up accepting a responsibility you neither want nor
have time to perform. Saying “no” takes courage and tact.
7. Have Daily Objectives.
Those entrepreneurs who accomplish the most during the day know exactly what they want to accomplish.
However, many people think that goals and objectives should only be prepared on a monthly or yearly basis.
Define objectives as clearly as possible. One factor that marks successful entrepreneurs is their ability to work out
what they want to achieve and have written objectives that they can review constantly. Long- term objectives
should impact on daily activities and be included on a daily “to do” list. Without objectives, entrepreneurs become
ineffective.
8. Don’t Try to do too much.
Many entrepreneurs feel that they have not accomplished enough and don’t give themselves enough time to do
important tasks properly.
9. Control Paper Flow.
Deal with each piece of paper just once. Being a paper shuffler wastes time. Keep important papers and throw
away the rest.
10. Plan Effectively.
Some people say they don’t have time to plan. These individuals may be very busy, but they probably are not very
effective. By taking time to plan, you will actually save time. Develop a daily “TO DO” list for doing the essential
tasks that must be completed in the available time.
11. Be Proactive.
Don’t avoid making decisions. Reducing the amount of time you use to make a decision can substantially increase
the amount of time available to you.

1.1. Advantages and disadvantages of Self employment.

1. Advantages of self employment
Those who choose self-employment as a career usually do so for five basic reasons: personal satisfaction,
independence, profits, job security and status.
a. Personal satisfaction:
To some people, the chief reward of working for yourself is personal satisfaction. Personal satisfaction means
doing what you want with your life. Being self-employed will enable you to spend each work day in a job you
enjoy. For example, if you like photography, you may start your own studio. Each time a customer is pleased with
a portrait, you will receive personal satisfaction. You may receive satisfaction from aiding the community in which
you live. Self-employed persons supply goods and services and create jobs for others. They also buy goods and
services from other local enterprises, borrow money from local banks, and pay taxes.
b. Independence:
Another advantage of being a self-employed person is independence. Independence is freedom from control of
others. You are able to use your knowledge, skills and abilities as you see fit. When you are self employed you are
driven by spirit of self-reliance and individual survival.
Compared to those who work for others, self-employed persons have more freedom of action. They are in charge
and can make decisions without first having to get the approval of someone else.
c. Profit and income:

One of the major rewards expected when starting a new business is profit. Profit is the amount of income left after
all expenses have been paid. Profits go to the owner of a business. Being self-employed, you would be able to
control your income. Very often, increased time and effort put into the enterprise results in increased income. This
is not often the case when you work for someone else. How much do you want to earn each year after your
business is running smoothly? Do you want to make 2,000, 5,000, 10,000 or more a year? It’s important to decide
on income because different types of businesses have different income potentials. A fast-food restaurant has one
income potential while a small manufacturing business may have quite another. It’s probably tempting to set your
goal at a very high level – say 15,000 a year. Many businesses have the long-run potential of being successful;
however, many businesses don’t become profitable operations very quickly. One way to establish a personal
income goal is to answer the question “How much do I want to be making (per year) six years from now?”
d. Job security:
Many enterprises are created by persons who are seeking the kind of job security that is not available elsewhere.
Job security is the assurance of continued employment and income. Self-employed persons cannot be laid off, fired,
or forced to retire at a certain age.
e. Status:
Status is a term used to describe a person’s social rank or position. Self-employed persons receive attention and
recognition through customer contact and public exposure. As a result, they may enjoy status above that of many
other types of workers. Closely related to social status is pride in ownership; most people enjoy seeing their names
on buildings, vehicles, stationery and advertisements. To some degree, all people seek status.

Businesses have their status too. There are high-status businesses and low status businesses. For example, garbage
collection is a low-status business. Some people are very interested in the status of their business and others are
not interested at all. It may be an important consideration in selecting the type of business for you. The key is to
choose a business that has a status that you’ll feel comfortable with.
f. Flexibility:
Individuals who become self-employed have options to start enterprises in all categories and sizes depending on
their capabilities. Self employment also gives the individual the job of being an employer and a leader rather than
an employee and a follower.
2. Disadvantages of self employment

In addition to knowing the advantages of self-employment, you should also be familiar with the disadvantages:
possible loss of invested capital, uncertain or low income, long hours and routine chores.
a. Possible loss of invested capital:

One risk of being self-employed is the possibility of losing your invested capital. The term invested capital refers to
the money the entrepreneur put into starting the enterprise. As a general rule the riskier the business, the greater
the profit potential. If the enterprise succeeds, profits may be high. If the business fails, invested capital may be
lost; the entrepreneur stands to lose a lifetime of personal and family savings.
It may take years to repay banks, suppliers and individuals who loaned the money to get the business started.
b. Uncertain or low income:

Another disadvantage of owning your business is the possibility of uncertain or low income. Unlike the salaries of
employed workers, profits usually vary from one month to another. This is true even in well-established
businesses. When income is available, there still may not be enough to meet personal and family needs. This is
often the case during the first six to twelve months of operation.
c. Long business hours:

Entrepreneurs do not work just forty hours a week; they do not punch time clocks. Many self-employed persons
work fourteen or more hours a day, six or seven days a week. The owner is often the first to arrive at the business
in the morning and the last to leave at night. Business hours are set at the convenience of customers, not the desire
of the owner.
For example, many market shops are open from 8:00 a.m. to 9:00 p.m. Some entrepreneurs feel they cannot leave
their businesses for more than one or two days at a time.
d. Routine chores:
Running your own business may involve routine chores you do not like to do. You also need to be a jack of all
trades. This can sometimes be a challenge if you do not join with others in a partnership or you cannot raise
sufficient funds to allow you to employ other people.
e. Risks:
You stand the best chance of success if you are prepared to take calculated risks. Calculated risks allow you to
estimate the chances of failure or success without taking a gamble. Very low risk ventures have less reward in
terms of profits and may lead to limiting your ideas and their follow-up.

1.2. Entrepreneurial characteristics and traits.

Important Entrepreneurial Traits
1. Hard Working: running a business requires a lot of energy and drive. This involves the ability to work for long
hours when necessary, to work intensely in spurts and to cope with less than a normal amount of sleep.
2. Self-Confident: to succeed, entrepreneurs have to believe in themselves and in their ability to achieve the
goals they have set for themselves. This is often shown by a belief that “if you want something badly enough
and are prepared to work at it, you’ll usually get it”.
3. Builds for the Future: the goal for most successful business people is to build a secure job and income for
themselves and improved livelihood and wealth for their families, which is based on their own abilities. This
means entrepreneurs understand that it may take several years to build up business income to a reasonable
standard.
4. Profit-Oriented: interest in generating money is a clear indicator of an entrepreneur’s suitability for being a
business owner. This means recognizing that the business comes first and competing family care roles might
need to be reorganized. Once profits are generated, the entrepreneur can make decisions about how the profits
can be used – to expand the enterprise or for personal or family use.
5. Goal-Oriented: success in business depends upon being able to set realistic goals or targets and to work with
determination to achieve them. This ability to set goals (for things the person thinks are worthwhile) and to
work to achieve them is fundamental to being an entrepreneur.
6. Persistent: all businesses have their problems and disappointments. Being persistent in solving a problem is
one of the keys to being a successful entrepreneur.
7. Copes with Failure: all business ventures inevitably contain disappointments and failures as well as successes.
Coping with failures involves recognizing these failures, learning from them and seeking new opportunities.
Without this characteristic, early failures may end a person’s attempt at self-employment.
8. Responds to Feedback: entrepreneurs are concerned to know how well they are doing and to keep track of
their performance. Obtaining useful feedback and advice from others is another important characteristic of
entrepreneurs.
9. Demonstrates Initiative: research shows that successful entrepreneurs take the initiative and put themselves
in positions where they are personally responsible for success or failure.
10. Willing to listen: the successful entrepreneur is not an inward looking person that never uses outside
resources. Self-reliance does not exclude the ability to ask for help when needed from such people as bank
officials, accountants and business advisers. Being able to listen to the advice of others is a key characteristic of
an entrepreneur.
11. Sets Own Standards: setting standards of performance and then working to achieve them is another indicator
of a successful entrepreneur. These standards can be income, quality, sales or product turnover. Most
entrepreneurs want to do better each year, to set and achieve higher standards from year to year.
12. Copes with Uncertainty: being an entrepreneur is much more uncertain than employment. This uncertainty is
about sales and turnover, but it often also exists in other areas such as material delivery and prices, and bank
support. An ability to cope with this uncertainty without becoming too stressed is a necessary trait of being an
entrepreneur.
13. Committed: starting and running an enterprise demands total commitment by the entrepreneur in terms of
time, money and lifestyle. It has to be a major priority in the entrepreneur’s life. Committed individuals find it
easier to gain the support of others to their business project.
14. Builds on Strengths: successful business people base their work upon the strength(s) they have, such as
manual skills, interpersonal skills, selling skills, organizational skills, writing skills, knowledge of a particular
product or service, knowledge of people in a trade and ability to make and use a network of contacts.
15. Reliable and Has Integrity: the qualities of honesty, fair dealing and reliability in terms of doing what one has
promised to do are essential traits of an entrepreneur.

16. Risk-Taker: being an entrepreneur involves some risks. Entrepreneurs have the ability to take measured or
calculated risks. Such risks involve working out the likely costs and gains both on the business and on private
life, the chance of success and the belief in oneself to make the risk pay off. Entrepreneurs may be considered
risk avoiders when they reduce their risks by having others assume part of the risk. Those who assume the
entrepreneur’s risk may be bankers, suppliers and customers.
1.3. Assessing Entrepreneurial potential
1.4.Competencies of successful entrepreneurs.
Major Competencies Required for Successful Entrepreneurship
Competencies may be defined as:
• a body of knowledge
• a set of skills
• a cluster of traits
DEFINITIONS
Knowledge consists of a set or body of information stored, which may be recalled at an appropriate time.
Skill is the ability to apply knowledge.
Trait is the total of peculiar qualities or characteristics that constitutes personal individuality.
Fig.1. Competencies Needed to Be an Entrepreneur
There are three major competencies for successful entrepreneurship. These may be defined as:
• a body of knowledge
• a set of skills
• a cluster of traits.
A. Knowledge has been defined as a set or body of information stored, which may be recalled at an appropriate
time. Knowledge in the context of business may be manifested by information on, or familiarity with aspects such
as:
• A business opportunity • the market

• Customers • competitors
• Production processes • technical matters
• Business management • sources of assistance
Knowledge of business or entrepreneurship, however, is not enough for success in setting up and operating a
business – in the same way as, for example, reading or learning about flying, driving or swimming will not on its
own enable you to fly a plane, drive a car or swim in a pool.
B. Skill has been defined as the ability to apply knowledge and can be acquired or developed through practice, e.g.
flying, driving or swimming. In the context of business, it is possible to distinguish between skills of a technical and
managerial nature. Some examples are listed below:
Technical Managerial
• Engineering • Marketing (including selling)
• Computing • Time management
• Sewing • Financial management
• Carpentry • Organization
• Mechanics • Planning
• Catering • Leadership
In many societies women and men are directed toward acquiring only some technical and managerial skills, which
are considered appropriate for individuals of their sex. This is often why women and men tend to concentrate on
specific business sectors, even when these are not the most profitable ones. In many societies women have less
access to training and education. Yet, both women and men can acquire knowledge and skills relatively easy if
given adequate support.
However, traits take time to develop and are not easily changed or acquired.
C. Traits have been defined as the aggregate of peculiar qualities or characteristics which constitutes personal
individuality. In a cross-cultural study of India, Malawi and Ecuador, 14 personal entrepreneurial characteristics
(PECs) that appear to depict the behaviour of successful entrepreneurs were identified. The research was funded
by USAID and undertaken by McBer & Company and Management Systems International. The 14 PECs can be
summarized as follows:

A successful entrepreneur:
• Takes initiative • Sees and acts on opportunities
• Is persistent • Personally seeks information
• Is concerned for high quality • Is committed to fulfilling contracts
• Is oriented to efficiency • Plans systematically
• Solves problems in original ways • Demonstrates self-confidence
• Takes calculated risks • Is assertive
• Is persuasive • Uses influential strategies
It is more likely than not that a person who does not have all 3 competencies in his/her business will encounter
difficulties in operating the venture successfully.
What would happen if a person had:
• Knowledge and skills only?
An individual with only knowledge and skills is unlikely to survive for long, even if he/she manages to start at all.
For example, without the traits, he/she might exhibit little persistence when faced with major obstacles; or the
person may neither see nor act on opportunities; or he/she might simply be unwilling to take the calculated risk of
venturing into business in the first place.
• Knowledge and traits only?
A person with only knowledge and personal traits might find nothing of value to which these might be applied,
without technical skills. Or they may find that they are too dependent on outsiders and, therefore, possibly too
vulnerable. The solution might be to find a partner or employ people with the requisite skills.
• Skills and traits only?
A potential entrepreneur with skills and entrepreneurial traits, but lacking in knowledge, might be able to start a
business. In a competitive environment, however, the lack of knowledge or familiarity with, for example,
customers, or the market (including trends) could lead to failure. Information is essential for any business to
succeed.
Information Sheet 3 Organizing an enterprise P

3.1. Importance of Business Entrepreneurship in Society
The Operations of an Economy
Much of the economic activity of a country is based on decisions made in the private sector of the economy. There
is a circular flow of money spent by CONSUMERS and BUSINESS FIRMS in one direction (output market), and a
corresponding flow of goods and services from RESOURCES OWNERS, and BUSINESS FIRMS (input market) in the
opposite direction. This flows show how the INPUT MARKET and the OUTPUT MARKET are joined together to
coordinate and determine how resources are used in a basically private enterprise economy. It also show the
position of government, which is normally the custodian of the regulations and also referee. Wealth is made
available to all when resources are processed into goods and services and successfully sold in the markets.
The Role of Business Entrepreneurship in Society
It is now generally accepted that the private sector is more cost-effective and efficient in performing certain basic
economic functions than the public sector. Entrepreneurs play a key role in business and the private sector. Most of
the wealth in a society or nation is created by business activity.
1. Products and Services

The fundamental economic function of business is to make and distribute the products and services that people
want. Business entrepreneurs fulfil the role both to discover consumer demands and to do whatever is required to
satisfy them
2. Employment
Business ventures are the major providers of “real” jobs – i.e. employment for people who need and want to work.
The level of gainful employment is crucial to a nation’s well-being.
3. Income
Through its employment creation, business provides an income base to its stakeholders in terms of salaries, wages,
profits and taxes.
3.1 Wages, Salaries and Profits

The task of business to enable the earning of wages, salaries and profits is of crucial importance in order to pay
taxes and to provide disposable income to finance consumer spending and savings (investment capital).
4. Taxes
Without taxes on the incomes of individuals and businesses, social institutions and services cannot be afforded.
5. Disposable Income
Disposable income refers to income after taxes available for spending on consumer goods, or for savings.
5.1 Consumer Spending

Consumer spending is not only required for basic needs satisfaction, but also to create a demand for the production
of goods and services.
5.2 Personal Savings

Personal savings represent income not allocated to immediate consumption expenditure.

6. Investment in Productive Assets
Business investment funding is generated either through provisions, retained profits borrowings or through sale of
equity. For non-profitable business such sources of funding will become limited. A business needs capital
investments to create productive capacity: innovative technology, modernization, and the expansion of its
productive assets.
7. National Well-being
Most of the capital goods, commercial and social services as well as technological know-how required to satisfy our
needs come from business activity, i.e. through economic development of privately owned resources.
Entrepreneurs Answer to Demand from the Society
• WHAT IS TO BE PRODUCED?
Since two-thirds of the total production of goods and services focus on the consumer sector, consumers comprise
the group who determines what is to be produced.
• FOR WHOM IS IT TO BE PRODUCED?
In the economy, the “For Whom” question is generally defined as whoever has the most money to buy the items
which are made from the factors of production. Generally speaking, the people with the most money are those who
own a successful business (consumers want their goods and services) and/or those who are in occupations in high
demand (businesses want their skills).
• HOW WILL IT BE PRODUCED?
This is determined with the consumer in mind, primarily through the interaction of businesses and consumers. For
example, the Rolls Royce is a luxurious car made with high expenses and lasts a long time. Many consumers
however cannot afford a Rolls Royce. Entrepreneurs note this point and produce less exclusive cars at a lower
price in order to satisfy the needs and wants of those who cannot afford a Rolls Royce.
In addressing these questions, it is important to point out how the market operates in each one. For example, if
consumers do not buy certain items which are produced, this is a signal to business to stop producing them (what
is to be produced). If consumers will not pay the price for an item, even though it is of high quality, producers
might have to find ways to use other technologies for the item in order to make it less expensive (how to produce).
Those people who choose to enter occupations or establish businesses, which produce goods and services that are
in big demand, will get more of the output (for whom).
Characteristics of an Enterprising Society
- Useful goods and services constantly produced/provided

- Wide distribution of needed goods and services throughout the population
- New ideas continuously infused for revitalization and growth of economy
- Continuous discovery of unidentified needs of Society
- Constant solving of problems experienced in society
- Avoids stagnation through giving individuals a chance to be innovative and creative
Entrepreneurship Provides Society with Small Enterprises Which:
- Grow into medium and large enterprises

- Promote potential innovators for new services, new processes, new products – for the good of the society
- Serve as suppliers, customers and subcontractors of larger organizations – a big market in the society
- Provide competition throughout the economy among small, medium and large firms alike, leading to
improved products, services and efficiency in society – for the good of the society
Economic Goals of a Society
- Full employment
- Stable growth
- Freedom of choice
- Equality of opportunities for women and men
- Economic security
- Economic justice
- International economic balance
Contribution of entrepreneurs to Economic Goals
- Increase of the quantity of productive resources
- Improvement in the quality of resources
- Advances in technology
- Greater efficiency
Goals of individuals and society
Setting goals, and then working to achieve them, is a sign of maturity and responsibility in a society, just as it is a
sign of maturity in an individual. What goals have people set for themselves in their economic life? And how well
are these goals being achieved? These are the questions discussed in this handout. One important goal that the
people have set for their economy is
FULL PRODUCTION
In order to achieve full employment. We want to make full use of the productive resources that are available –
labour, capital and natural resources – and use these resources efficiently.
How well are we achieving the goal of full employment and full production? The nation can’t realistically expect to
provide jobs continuously for 100% of the men and women who are able and willing to work. There will always be
some unemployment – roughly 2 to 5% of the labour force. But when millions of people are unnecessarily
unemployed, it means they are not making a productive contribution to the country and they are not earning an
income. For this reason, the goal of full production – which requires both full employment and efficiency – is one of
the most important in our economy.
A second major goal is STABLE GROWTH. We want the economy to become bigger and better through the years.
We measure the amount of our national output of goods and services by looking at statistics of Gross National
Product. Economic growth is a steady increase in GNP per person (total GNP divided by the nation’s population).
We want GNP to increase more or less at a steady rate – about 4 or 5% each year (informal sector estimate) –
without having business recessions or rapidly rising prices (inflation), or increases in unemployment. Production,
employment and growth of GNP are all pretty easy to measure. When we come to certain other economic goals,
however, we have to talk about them in more general terms.
FREEDOM OF CHOICE is a goal that practically everyone would include high on the list. But what does it mean in
concrete terms? Economists have pointed out that freedom of choice is important for consumers, for workers, and

for business. Freedom of consumer choice means that consumers will be able to select the goods they want to buy
from a fairly wide range of alternatives, according to individual needs and preferences. We are not satisfied with a
system where the consumer is told: “You can have any size and colour that you want – as long as it’s medium and
black!”
Freedom of occupational choice is an important area of economic freedom. Men and women want to be able to
choose the kind of work they will enjoy doing and that will provide adequate wages and personal satisfaction.
Finally, there is much talk about the importance of “free enterprise”. This is an important aspect of freedom of
choice. It gives people the freedom to start their own business and use the factors of production in such a way as to
make a profit. Much of the current economic system is built on the foundation of this particular freedom.
EQUALITY OF OPPORTUNITY for men and women in the society is another goal. It refers to women and men
having equal human and workers rights and equal chances as consumers, workers and entrepreneurs. Gender
equality is about a just society, in which responsibilities, opportunities, workload, decision making and income are
distributed fairly. Women’s economic empowerment leads to economic growth and poverty reduction. Promoting
gender equality, therefore, is not only the right thing but also the smart thing to do.
The goal of ECONOMIC SECURITY means that we want the members of our economic society to have enough
money to be able to buy adequate food, clothing, shelter and other necessities. Widespread poverty not only means
failure to achieve the goal of economic security for these people, but it also raises serious questions about whether
we are achieving the goal of
ECONOMIC JUSTICE in society. Not everyone agrees on the meaning of fairness and justice in economic life, but it is
a goal that nearly everyone feels is important to define and work toward.
Finally, there is one economic goal that is not limited to the boundaries of the country, but spreads overseas to
other countries. This is the goal of INTERNATIONAL BALANCE. We want to maintain a strong and balanced
relationship in foreign trade and international payments. Failure to achieve this goal not only causes serious
economic problems at home and abroad, but also increases international tensions that threaten world peace.
3.2. Key Success Factors in Setting up a Small Business

Key success factors in setting up a small business
1. Motivation and determination

2. Idea and market
3. Resources
4. Ability
5. Plan
6. Organization and Management
Key Success Factors in Setting up a Small Business
How do I become an entrepreneur? How can I set up a successful business? These are questions that people often
ask. Unfortunately, however, no foolproof answer or formula has been identified as yet. Notwithstanding this,
success – according to the literature, observations and experience – depends on that peculiar ability to spot

opportunities in the market and act on them by organizing the necessary resources to offer something attractive to
customers and take on the attendant risks. This is the essence of entrepreneurship in a business context. The
crucial ingredient in the whole process is the entrepreneur. He/she takes the initiative and also bears the risk in
creating and/or organizing an attractive offer of value to potential customers. The entrepreneur’s ability to do this
successfully depends on 4 factors, namely: Motivation, Ability, Idea and Resources. The acronym – MAIR – may
help you remember these factors more easily. These are explained in turn
Idea and Market
The important issue to be determined here is the viability of the idea, project, product or service to be offered. In
other words, does the idea, product or service meet a need or want for which there are customers who can afford it
and are willing to use/purchase it in sufficient quantities to make the whole project worthwhile (i.e. return a profit,
in a business context)? How the proposition to be offered is more desirable or better than what is currently
available and how will competitors react?
Motivation and Determination
It is widely acknowledged that, to be successful, the individual or group needs to be highly motivated and
determined to set up the business to make it succeed. This will be reflected, for example, in how persistent they are
in overcoming obstacles that might get in the way, how they go about seeking information and how they act on
opportunities. Additional indicators might be their commitment and attitude to work (quality, efficiency, long
hours), previous attempts to set up a business and the support of family or partners.
Ability
Another important question is whether the individual or others involved have particular abilities these may be
knowledge, technical or managerial skills.
Resources
Finally, the extent to which the person(s) involved can acquire or organize resources in adequate measure will not
only influence performance but also, in some cases, whether they start at all. Examples here include capital, cash,
premises, materials, equipment and labour. The availability of infrastructure (e.g. utilities like electricity,
telephone, roads) and support services might also be important.
Business plan
In order to turn the above 4 components into reality, a plan would be required. In business, this is normally
referred to as a Business Plan. On the whole a business plan should show four main things, namely:
• Where you currently are with your idea, project or business;

• What you wish to do;
• How you propose to go about it;
• And that the project is worthwhile.
Organization and Management
The business then needs to actually start operating and, once this is done, it would need to be managed. In setting
up the business, or before starting to operate, there may be legal or other statutory requirements to be met. There
may be a need to consult professionals such as lawyers, accountants and/or staff from small business support
agencies for advice. The whole business and the process need to be managed, and how well this is done – in
particular, finding and dealing with customers, management of cash and finances, marketing, handling employees,
dealing with suppliers, control systems – will all affect performance.
Key Success Factors in Setting up a Small Business – Example of an Internet Café
Resources
• Desktop PCs, all networked
• Dial-up, broadband or wireless connection
• Account with an Internet Service Provider (ISP) or satellite provider
• Software to manage transactions and accounts
• Desks and chairs
• Air conditioners or fans
• Staff to run/supervise
Ability
• IT or computing knowledge and skills

• Able to install software and do routine maintenance and repair
• Book-keeping and basic organization
• Able to teach/train clients in basic computing and internet browsing
• Familiar with internet search engines/e-mail
Motivation and Determination
• Able to work or operate long hours for 6 or 7 days a week

• Innovative
• Able to use influential strategies
• Problem-solver
• Takes initiative
• Concern for efficiency
Idea and Market
• Viability: number and nature of internet or cyber cafés in the neighbourhood or within, say, a 3 kms radius – the
fewer the better
• Speed and prices vis-à-vis other cafés in area – should be competitive
• Number of people living and/or working in the area – the more, the better

• Profile of people living or working in the area: low to middle income best – not so rich as to be able to afford their
own PCs and internet connection, but not so poor as not to be able to afford the service
• Nice ambiance – with soft drinks and snacks for sale; and background music in a well-ventilated room
• Provision of ancillary services for sale, such as fax, printing, photocopying, sale of diskettes, CD-ROMs, etc.
3.3. Generating business Ideas
What is a Business Idea?
1. A business idea is the response of a person or persons, or an organization to solving an identified

problem or to meeting perceived needs in the environment (markets, community, etc.).
2. Finding a good idea is the first step in transforming the entrepreneur’s desire and creativity into a
business opportunity.
Why Generate Business Ideas?
1. You need a great idea to start a new business

2. Business ideas need to respond to market needs
3. Business ideas need to respond to changing consumer wants and needs
4. Business ideas help entrepreneurs to stay ahead of the competition
5. Business ideas use technology to do things better
6. Business ideas are needed because the life cycles of products are limited
7. Business ideas help to ensure that businesses operate effectively and efficiently
Why Should you Generate Business Ideas?
There are many reasons why entrepreneurs or would-be entrepreneurs need to generate business ideas. Here are
just a few:
• You need an idea – and a good one at that – for business. As indicated earlier, in looking at the rationale
for this topic, a good idea is essential for a successful business venture – both when starting a business and
to stay competitive afterwards.
• To respond to market needs. Markets are made up essentially of customers who have needs and wants
waiting to be satisfied. A business can become successful if it provides new products or services, or
manages to reach a new group of clients, or finds a new channel to reach customers better. Many
businesses starters who copy the business idea of others, are not successful because they do not respond
to a market need.
• Changing fashions and requirements provide opportunities for entrepreneurs to respond to demand
with new ideas, products and services.
• To stay ahead of the competition. Remember, if you do not come up with new ideas, products and
services, a competitor will. The challenge is to be different or better than others.
• To exploit technology – do things better. Technology has become a major competitive tool in today’s
markets, with the rate of change forcing many firms to innovate. There are several companies in the
world, operating in the electronics and home appliances industries, which come up with dozens of new
products every month. For these and many others in today’s global markets, generation of business ideas
is crucial.
• Because of product life cycle. All products have a finite life. As the product life cycle chart shows, even
new products eventually become obsolete or outmoded. Thus, there is a need to plan for new products
and the growth of these. The firm’s prosperity and growth depends on its ability to introduce new
products and to manage their growth.
• To spread risk and allow for failure. Linked to the product life cycle concept is the fact that over 80 per
cent of new products fail. It is therefore necessary for firms to try to spread their risk and allow for
failures that may occur from time to time by constantly generating new ideas.
Sources of Business Ideas
 Hobbies/Personal Interests
 Personal Skills and Experience
 Franchises
 Mass Media (newspapers, magazines, TV, Internet)
 Business Exhibitions
 Surveys
 Customer Complaints
 Changes in Society
 Brainstorming
 Being Creative
How Do I Find a Good Business Idea?
A good business idea is essential, or even a prerequisite, for a successful business venture. However, good business
ideas do not usually just occur to an entrepreneur. Rather, they are the result of hard work and effort on the part of
the entrepreneur in generating, identifying and evaluating business ideas that can be developed into a business
opportunity.
What is a Business Idea?
A business idea is the response of a person or an organization to solving an identified problem or to meeting
perceived needs in the local environment (markets, community, etc.). Finding a good idea is the first step in
transforming the entrepreneur’s desire and creativity into a business opportunity.
Two things should however be noted:
(a) although it is a prerequisite, a business idea is only a tool;
(b) an idea by itself, however good, is not sufficient for success.
In other words, notwithstanding its importance, an idea is only a tool that needs to be developed and transformed
into a viable business opportunity. Out of 30 business ideas, there may be only one good business opportunity.
What is Creativity?
Creativity is the ability to design, form, make or do something in a new or different way. The ability to come up
with creative solutions to needs/problems and to market them often marks the difference between success and
failure in business. It also distinguishes high-growth or dynamic businesses from ordinary, average firms. Real,
successful entrepreneurs are creative in identifying a new product, service or business idea and turning it into a
business opportunity. To be creative, you need to keep your mind and eyes open as you work through the sources
of business ideas explained below, and apply the techniques.
Sources of Business Ideas
There are millions of entrepreneurs throughout the world and their testimonies suggest that there are many
potential sources of business ideas. Some of the more useful ones are outlined below.

Hobbies/Interests
A hobby is a favourite leisure-time activity or occupation. Many people, in pursuit of their hobbies or interests,
have founded businesses. If, for example, you enjoy playing with computers, cooking, music, traveling, sport or
performing (to name but a few), you may be able to develop this hobby/interest into a business. To illustrate this, if
you enjoy traveling, performing and/or hospitality, you may consider going into tourism, which is one of the
biggest industries in the world.
Personal Skills and Experience
Over half of the ideas for successful businesses come from experiences in the work place. For example, a mechanic
with experience in working for a large garage who eventually sets up his/her own car repair or used car business.
Thus, the background of potential entrepreneurs can play a crucial role in the decision to go into business as well
as the type of venture to be created. Your skills and experience are probably your most important resource, not
only in generating ideas but also in capitalizing on them to develop a good business opportunity.
Franchises
A franchise is an arrangement whereby the manufacturer or sole distributor of a trademark, product or service
gives exclusive rights for local distribution to independent retailers in return for their payment of royalties and
their willingness to conform to standardized operating procedures. Franchising may take several forms, but the
ones of interest to potential entrepreneurs are the types that offer a name, image and method of doing business
and operating procedures.
In the 1990s franchising experienced tremendous growth, becoming a much-used method of going into business
for the millions of enterprises that were starting up in the USA and Europe. In the 1990s, there were over 2,000
types of franchise businesses, accounting for over US$300 billion in annual sales revenue and about a third of all
retail sales in the United States. There are many directories and handbooks as well as associations, including the
International Franchise Association, which can provide further information.
Mass Media
The mass media is a great source of information, ideas and often opportunity. Newspapers, magazines, television,
and the Internet are all examples of mass media. Take a careful look, for example, at the commercial
advertisements in a newspaper or magazine and you may well find businesses for sale. One way to become an
entrepreneur is to buy an existing business.
Articles in the printed press or on the Internet or documentaries on television may report on changes in fashions
or specific consumer needs. For example, you may read or hear that people are now increasingly interested in
healthy eating or maintaining their physical fitness. You may also find advertisements calling for the provision of
certain services based on skills, for example accounting, catering or security. Or you may discover a new business
concept, but investors would be needed.
Exhibitions
Another way to find ideas for a business is to attend exhibitions and trade fairs. These are usually advertised on the
radio or in newspapers. By visiting such events regularly, you will not only discover new products and services, but
you will also meet sales representatives, manufacturers, wholesalers, distributors and franchisers. These are often

excellent sources of business ideas, information and help you in getting your business started. Some of them may
also be looking for someone just like you to be a business partner.
Surveys
The focal point for a new business idea should be the customer. The needs and wants of the customer, which
provide the rationale for a new product or service, can be ascertained through a survey. Such a survey might be
conducted informally or formally by talking to people. Surveys may be conducted using a questionnaire, through
interviews or through observation.
You may start by talking to your family and friends to find out what product or service they think is needed or
wanted but is not available in the market. Or, for example, whether they are dissatisfied with an existing product or
service and what improvements or changes they would like to see. You can then talk to people who are part of the
distribution chain that is manufacturers, wholesalers, distributors, agents and retailers. It would be useful to
prepare a set of questions which might be put on a questionnaire or used in an interview. Given their close contact
with customers, these people have a good sense of what is required and what will sell and what will not sell.
Finally, you should talk to as many customers as possible (both existing and potential customers). The more
information you can get from them, the better.
Besides talking to people, you could also get information through observation. For example, in deciding whether to
open a shop on a particular street, you can observe and count the number of people going past on given days and
compare these numbers to other sites. Or, if you are interested in an area frequented by tourists, you might sell
products from a craft business. Or you may have noticed that there is no decent restaurant or hotel on a tourist
route or in a given town.
One way of ensuring that you are not negligent in identifying new business ideas is to be alert at all times to
customer needs. One entrepreneur apparently went round at every cocktail party asking if anyone was using a
product that did not adequately fulfil its intended purpose. Another monitored the toys of a relative’s children
looking for ideas for a market niche.
Complaints
Complaints and frustrations on the part of customers have led to many a new product or service. Whenever
consumers or customers complain bitterly about a product or service, or when you hear someone say “I wish there
was .....” or “If only there were a product/service that could ....” you have the potential for a business idea. The idea
could be to set up a rival firm offering a better product or service, or it might be a new product or service which
could be sold to the firm in question and/or to others.
Change
The world is constantly changing. Change can be a threat; however, most entrepreneurs consider change as a
challenge and opportunity to trigger new needs for products and services. An innovative entrepreneur always
responds to changes in a positive manner.
Brainstorming

Brainstorming is a technique for creative problem-solving as well as for generating ideas. The objective is to come
up with as many ideas as possible.
3.4. Identifying and Assessing Business Opportunities
What is a Business Opportunity?
A business opportunity may be defined simply as an attractive investment idea or proposition that provides the
possibility of a monetary return for the person taking the risk. Such opportunities are represented by customer
requirements and lead to the provision of a product or service which creates or adds value for the buyers or end-
users.
Distinction between ideas and opportunities
 A good idea is not necessarily a good business opportunity. Consider, for example, that over 80% of all new
products fail.
 So, what turns an idea into a business opportunity?
 To put it simply in economic terms, Income must exceed Costs to earn a Profit.
 The characteristics of a good business opportunity need to be carefully examined.
Identifying Business Opportunities

Seeing, seeking and acting on opportunities is one of the characteristics of successful entrepreneurs. It is also the
basis for starting and maintaining successful ventures. It involves not only generating ideas and recognizing
opportunities, but also screening and evaluating them to determine the most viable, attractive propositions to be
pursued.
What is a business opportunity?
A business opportunity may be defined simply as an attractive idea or proposition that provides the possibility of a
return for the investor or the person taking the risk. Such opportunities are determined by customer requirements
and lead to the provision of a product or service which creates or adds value for its buyers or end-users.
However, a good idea is not necessarily a good business opportunity. For example, you may have invented a
brilliant product from a technical point of view and yet the market may not be ready for it. Or the idea may be
sound, but the level of competition, and the resources required may be such that it is not worth pursuing.
Sometimes there may even be a ready market for the idea, but the return on investment may not be acceptable. To
underscore the point further, consider the fact that over 80% of all new products fail. Surely, to the inventors (and
their backers) the idea seemed a good one, yet clearly it could not withstand the test of the market.
What turns an idea into a business opportunity? A simplified answer is when income exceeds costs and generates a
profit. In practice, to be comprehensive, you need to examine the factors listed below.
Characteristics of a good business opportunity
To be a good business opportunity, it must fulfil, or be capable of meeting, the following criteria:
• Real demand: responds to unsatisfied needs or requirements of customers who have the ability to
purchase and who are willing to buy
• Return on investment, provides acceptable returns or rewards for the risk and effort required
• Be competitive: be equal to or better (from the viewpoint of the customer) than other available products
or services
• Meet objectives: meet the goals and aspirations of the person or organization taking the risk
• Availability of resources and skills: the entrepreneur is able to obtain the necessary resources.
Assessing Business Opportunities
Ideas and opportunities need to be screened and assessed for viability once they have been identified. This is not
an easy task, and yet at the same time, the assessment of business opportunities is extremely important. This
assessment can make the difference between success and failure, between making a fortune and losing everything.
While the assessment exercise does not guarantee success, it certainly helps in minimizing the risks and reduces
the odds for failure.
Identifying and assessing business opportunities involves, in essence, determining risks and rewards/returns
reflecting the following factors discussed below.
Industry and market
The key question to be answered is whether there is a market for the idea. A market in this context consists of
customers – potential or actual – who have needs and wants, and who have the ability to purchase your intended
product or service. There is also a need to consider whether what the customer wants can be provided at the right
price, in the right place, and in a timely manner.
Another important consideration is the size of the market and the growth rate of the market. The ideal situation is
a market that is large and growing, where getting even a small market share can represent a significant and
increasing volume of sales.
For this assessment exercise, the would-be entrepreneur needs to gather information. If some potential
entrepreneurs are tempted to think that it involves too much hard work, they might take some comfort from the
saying that the data available about markets (size, characteristics, competitors etc.) is often inversely related to the
real potential of an opportunity. In other words, if market data is readily available and if the data clearly shows
significant potential, then it is likely that a large number of competitors will enter the market and the opportunity
will not be as good. There are several sources of published information (also called secondary information),
including libraries, chambers of commerce, investment promotion centres, government ministries, universities,
foreign embassies, the Internet, newspapers, and so on.
In addition to the above, there is often the need to collect information at the source (also called primary research)
by interviewing key people, such as customers and suppliers. In that case, you will need to conduct survey
research.
Length of the ‘window of opportunity'
Opportunities are said to have a ‘window of opportunity.’ That is, they do exist, but they do not remain open
forever. Markets grow at different rates over time, and as a market gets bigger and more well-established,
conditions for success are not as favourable. Timing is therefore important. The issue then is to determine the

length of time the window will be open, and whether the opportunity can be created or seized before the window
closes.
Personal goals and competencies of the entrepreneur
An important question for anyone venturing into business is whether they want to undertake that particular
venture. Personal motivation is an essential attribute of a successful entrepreneur. Unless a person really wants to
do that kind of business, he or she should not venture into it.
A related question is whether the potential entrepreneur has the necessary competencies (including the
knowledge, skills and abilities) for the requirements of the business and, if not, whether other people could be
brought in. Many small business owners/managers have entered into business based on the strengths of their own
skills and ability.
When the above aspects are combined, the issue then becomes one of whether there is a good fit between the
requirements of the business and what the entrepreneur wants or desires. This is important, not only for success,
but also for the entrepreneur’s happiness. As the saying goes, “Success is getting what you want; happiness is
wanting what you get.”
Management team
In many ventures, particularly those involving a large amount of capital, high risk, sophisticated markets and high
competition, the management team is usually the most important dimension in determining the success of a
business. The experience and skills that the team possess in relation to the same or a similar industry often
determine success or failure of a new business. This explains why venture capitalists, or those people who provide
finance for businesses, put so much emphasis on the management factor. Investors often say that they would
rather have good management with an average idea/product/service than a brilliant idea/product/service with
bad management.
Competition
To be attractive, an opportunity must have a unique competitive advantage. For example, a business may have a
competitive advantage by lowering costs in terms of production and marketing. Or better, a business may offer
better quality. In addition, the availability of entry barriers – which could take the form of high amounts of capital
required, protection such as patents or regulatory requirements, contractual advantage such as exclusive rights to
a market or with a supplier – can make the crucial difference between a ‘go’ and a ‘no go’ investment decision. If a
business cannot keep most would-be competitors out of its market, or if it faces existing entry barriers, then the
opportunity may not be very attractive.
Capital, technology and other resource requirements
The availability and access to capital, technology and other resources such as skills determine the extent to which
certain opportunities can be pursued. As a general rule, the more difficult the resource requirements are to obtain,
the more attractive the proposition, provided of course that there is a market for the idea/product/ service. To
give an example, while marketing a breakthrough product based on a patented technology is no guarantee of
success, it certainly creates a formidable competitive advantage.
Business environment

The environment within which the business will operate has a great influence on the attractiveness of any
opportunity. By business environment, we are referring not only to the physical environment, which is important
and increasingly so, but also the political, economic, geographical, legal and regulatory contexts. Political
instability, for example, renders business opportunities unattractive in many countries, especially for those
ventures requiring high investment with a long payback period. Similarly, inflation and exchange rate fluctuations,
or a weak judiciary system, are not a good environment to start a business, even if the potential returns are high.
The lack of infrastructure and services (such as roads, electricity, water supply, telecommunications,
transportation, and even schools and hospitals) also affect the attractiveness of an opportunity in a given
environment.
Business Plan
The process of examining the factors discussed above is often the initial step in developing a business plan.
Investors and lenders may require these issues to be considered and set out in the form of a business plan.
Identifying and Assessing Business Opportunities
 Not an easy task. Out of approximately 30 business ideas, there may only be one good business opportunity
 A good business opportunity should take into account:
 Industry and market, real demand for a product or service
 Length of the ‘window of opportunity’
 Personal goals and competencies of the entrepreneur
 Management team (human resources)
 Competition
 Capital, technology and other resource requirements
 Business environment (political, economic, legal, government regulations etc.)
3.5 Source of finance to start an Enterprise
Setting up a business requires a certain amount of money that has to be spent before the business activities can
start to generate income though sales. Often potential entrepreneurs underestimate the amount needed because
they only take into account the expenditures for investment items such as machines and equipments, cars, and so
on. They are not aware that during the first weeks or months of operations (trading, manufacturing or providing
services) the sales revenues do not cover the expenditures for running the business. This can lead to a problem of
liquidity whereby the entrepreneur cannot pay salaries or suppliers.
• The amount needed as start-up capital is generally much higher than the money the future businesswoman or
businessman has at her/his disposal. As the difference has to be found from other resources, it is important to
know exactly how much money is needed.
Estimating the Start-Up Capital
If someone wants to start a business he/she must be aware that a certain amount of money is needed during the
start-up process of a business for payments before the business begins to earn its own income. This money is
called start-up capital. It serves two purposes.

• Pre-operation payments or investment capital: This means money that a person starting a business will have
to pay before his business starts operating. The money needed for these payments is invested in the business as
long as the business is operating.
Buying land, constructing a workshop, purchasing machinery, tools, equipment office furniture, etc. are all pre-
operation payments, as are legal fees, connections for water, electricity and telephone, publicity and advertisement
before opening, and so on.
Business starters, are generally aware that they need money for machines, tools or equipment for a shop. However,
in particular young people, very often do not realize that a number of other payments have to be made before they
can really start their business. For example, the cost for installation of machines and the training of workers to use
them can constitute quite a high percentage of the total cost of the machines. Fees for licenses and insurance are
also part of investment capital.
• Initial operation payments or working capital: Initial operation payments will occur when a new business
starts to operate, to cover immediate expenses until revenues from sales flow back into the business. This time
span depends on the nature of the business. In general, in trading activities this period can be less than one month
while in manufacturing activities the time span between the starting date of the production (processing time of the
product, the time it remains in the distribution system, e.g. store of finished goods in the factory, delivery to
wholesalers or retailers or to the customer) and receipt of money in the bank account or cash box can be several
months.
This money is also invested permanently in the business and is working capital. When the business expands the
working capital needs to be increase. The need for working capital is also often underestimated. Business starters
think they will be paid immediately. This is often the case in trading activities; however, the shop owner has to
have a stock of goods because she/he cannot replace every article sold immediately. Sometimes customers who
place bigger orders ask for credit and payments are not always made on time. In manufacturing activities, working
capital has to cover a longer period that can last several months. If the working capital is underestimated, an
entrepreneur may have a flourishing business, but may run out of money to pay salaries, buy additional
merchandise for sale, or is not able to make bank repayments. It is recommended that a certain percentage is
included in the investment capital for unforeseen items. Working capital should also include additional funds for
unforeseen expenses.
The distinction between these two categories of payments depends on the moment when the payments are made:
either before the business starts to operate (investment capital) or after it has started (working capital). The start-
up capital for a new business is the sum of the expenditures for the investment items and the working capital. The
future entrepreneur needs to have this amount of money by: using his/her own savings, finding partners and
negotiating loans with banks. As a general rule, 30% of the start-up capital should be from the entrepreneur’s own
resources.
Pre-operation Payments for Investment Items
Investment item Specification Amount
 Land
 Building
 Registered capital

 Consultancy fees
 Power connection kVA
 Water connection Pipe diameter
 Phone connection lines
 Machinery/Equipment
 (technical specifications)
 Installation of machines
 (technical specifications)
 Vehicles
 Office furniture
 _ Office equipment
 Licences/permits
 Staff training
 Owner’s salary
 Advertisement
 Other
 Total Investment
Sources of Business Financing
Many prospective entrepreneurs have promising business ideas and plans. However, the capital necessary to
initiate their plans may not be readily available. As a result, many prospective small enterprises never become
operational. The small business owner will have to invest a certain amount of personal money to start a business.
However, with sound preparation and planning, financing can be obtained from other sources. The two primary
sources of financing to establish a business may be (a) the owner’s equity or (b) borrowing from lending
institutions.
1. Equity financing
The main source of equity financing for most entrepreneurs is their personal savings. Financial experts say that
one-half of the money needed to start a small business should come from the owner. This means future owners
must work and save to have enough money to start a business. Another popular source of equity financing is
money from other sources such as family, friends, venture capitalists, or another business that is generating
surpluses.
However, there are a few points to consider. For example, will such investors want to get involved with operating
the business? What will happen if the business doesn’t succeed? Will it ruin your relationship, especially with
family and friends?
Equity financing can also be obtained by selling part of the business to one or more partners. With partners putting
in money, it is usually easier to raise the total amount needed. However, partners must be able to get along and
sometimes this is not easy.
Since many people starting their own business want to make their own decisions, the partnership alternative may
not be a good idea.
2. Borrow from lending institutions

When equity sources are not enough, the entrepreneur has the option of borrowing from other sources. Lenders
will usually lend money for starting a business to people they know and trust. Lenders are careful not to lend
money if the risk is too great. Lenders do not want to lose money if the business fails. Most lenders will, therefore,
review the business plan very carefully. This plan should describe how the business will be operated, how much
money will be needed and how it will be used, and at what point the business will be profitable.
Most people think of banks when borrowing money. However, it is not always easy for small enterprises to borrow
from banks. Banks only lend money when the risk of losing it is very low. Frequently, they will only lend to
customers whom they have known for a long time. If someone is thinking of borrowing money at some time in the
future, it might be a good idea to develop a good personal relationship with a local banker as soon as possible.
3. Considerations in applying for a business loan

Different lending institutions have different procedures which have to be followed by the loan applicant. While
lending institutions want to help potential borrowers, these institutions have to be assured that repayment of the
loan will take place as agreed by the borrower. It is necessary to understand the following factors that are taken
into consideration when a banker is appraising a loan application.
• Type of loan: short-term (up to one year) or long-term (longer than one year).
• Purpose of the loan: it is essential to determine that the applicant will not invest the money in a business venture
which is illegal, not favoured by government policy, or is viewed unfavourably by the local community.
• Credit worthiness and integrity of the borrower. Can the borrower be trusted?
• Capability: the business profile of the applicant becomes an indicator of the entrepreneur’s capability to operate
the project with professional expertise and effectiveness. Capability helps the lender to understand whether the
borrower will be able to utilize the loan for the intended purpose.
• Repayment period: this is a very important requirement for both the borrower and the lender. The lender needs
to know whether the offer of the borrower to repay is realistic. The lender can ascertain this through statistical and
financial projections and advise the applicant regarding a realistic repayment period as well as other details such
as the amount of monthly instalments.
• Security: security or collateral for the loan must be acceptable to the lender. Even if all other conditions are
fulfilled, the lender may not grant the loan if security conditions and terms required by the bank are not satisfied.
This is especially true when applying for a business loan for the first time.
• Guarantors: some lenders call for security both in the form of property and tangible assets and guarantees from
friends.
• Business plan: this is the major instrument used by any lending institution to decide whether a loan applicant
deserves a loan. A business plan discloses whether the intended business is viable or not. A loan applicant may
have his own expert prepare a business plan to prove that the loan he is applying for deserves due consideration
by the lending organization. The lender always appraises the business plan presented by the applicant and comes
to his own conclusions, or prepares his own feasibility study to assess and appraise the viability of the proposed
business. A very significant aspect of the business plan is the cost involved and the cash flow. Cash flow, as well as

financial and statistical projections, indicates whether the project can generate more money than the costs
incurred. These results will indicate to the lender whether the loan is safe and the borrower can repay according to
the agreed terms.
• Current customers of a lending institution have an easier position when applying for a business loan if the loan is
to be used as working capital. The bank will study the customer’s past financial records and these financial records
will help the banker to decide what action to take. If the customer intends to start a new business, then the
procedures will almost be similar to that of a new applicant. By keeping written financial records, the
entrepreneurs will have written proof of the past history of the business.
There are several sources of money available to entrepreneurs. Frequently, the key decision is to determine which
source of money is most appropriate for their current needs. Selection of the right source of financing for their
needs can have a pronounced effect on the future of their business. Receiving a short-term bank loan when a
longer-term loan is required can soon create a crisis. Selling a part of the business to raise capital that could have
been borrowed may be extremely costly. Over-extended credit to customers can be costly and restrict operations.
There are many opportunities for mistakes in the choice of capital source. However, the right choice of financing
the business can provide the capital needed while freeing entrepreneurs from unnecessary costs, risks, or the
possibility of losing control of their own business.
Sources of Business Financing Equity Financing
• Personal savings
• Having one or more partners
Borrowing from Lending Institutions
Considerations in applying for a business loan
• Type of loan
• Purpose of loan
• Credit worthiness and integrity
• Capability
• Repayment period
• Security
• Guarantors
• Flexibility of project
• Customer status with banks
3.6: Selecting a Suitable Market

• A business is more likely to succeed if it is based on a product or service that enough

customers will buy to generate a profit. For a business to be successful and profitable there
must be an adequate market for its products or services.
• Many small business failures can be traced to this problem of determining a suitable product
and market. The enthusiasm of the prospective entrepreneur can often cause him or
her to overlook this most basic business concept: “The basic purpose of a business is to satisfy
customer needs and wants”. Before starting a business, it is essential to determine whether a
market exists for a specific product or service.
• The purpose of this topic is to discuss the elements of a market and identify characteristics
that should be known about the customers and the competitors within the market.
Market research will give the answer to what market share potential entrepreneurs can expect
for the products or services they want to sell. This is particularly important when they plan to
start a business because all decisions concerning the amount of space needed for the business,
equipment, materials or finished goods to buy, the staff to hire all depend on a realistic
estimate of the potential market the business intends to serve.
Market Information
1) What is a suitable market?
The market for a business is all the people within a specific geographical area who need a
specific product or service and are willing and able to buy it. Every business sells some type of
product or service to people. Potential customers can be described as:
1. People who need or want the product or service.
2. People who are able to buy the product or service.
3. People who are willing to buy the product or service.
Competition must be considered. If competitors are serving the same market, it must be
decided if the market is large enough to support another business. It should also be
determined how the product or service is unique and different from that of the competitors.
2) What should entrepreneurs know about potential customers?
a. Know the customers:

The market can be segmented either by dividing it into meaningful buyer groups or dividing it
according to characteristics such as age, sex, marital and family status, employment, income
and trends regarding any of these characteristics.
b. Know what different customer groups wants:
By segmenting the marketing into groups, it is easier for entrepreneurs to determine what
products or services each group wants or needs.
c. Know where the customer buys:

Entrepreneurs need to find out where the customers in their market are presently buying, and

determine what factors will cause them to switch and buy from their new businesses.
d. Know when the customer buys:

By knowing when customers buy (daily, weekly, monthly, yearly, seasonally), entrepreneurs
will be able to determine such things as possible hours of operation, when to advertise and
quantity of merchandise to have on hand at specific times of the year. Know how the customer
buys: Knowing how the customer pays for products and services can help the entrepreneur
to determine a credit policy as well as a pricing policy for the business.
3.7. Selecting a Business Location

Locating the Business
Selecting the business location is one of several factors which is vitally important to the success or failure of a small
business. In many instances, the small business owner looks no further than the nearest vacancy sign for locating
the business. To increase the chances of success, it is important that considerable thought and research be given to
selecting a location. It should be emphasized that although a good location may allow a mediocre business to
survive, a bad location may spell failure for even the best planned business.
Analysis of the location should be a continuous process throughout the life of the business. Such factors as
changing population, changes in customer buying habits, new methods of transportation and the direction of
community growth can adversely affect the suitability of the business location. Two basic aspects of selecting a
location for a business are:
(1) Deciding on a particular community, and
(2) Selecting a particular site within that community.

Importance of Business Location
Location is more important for some types of businesses than for others. The right location is very important for
retail stores and service businesses. Clothing stores, dry cleaning establishments and service stations all depend on
a great deal of customer traffic to survive. These types of businesses must locate near their customers to succeed.
For other types of retail and service businesses and most wholesale businesses, location is not as important in
attracting customers. Retail stores that sell high-cost items such as furniture and appliances draw customers to
them. Services such as accounting and tax firms and wholesale businesses can be located “off the compressed path”
and still have high sales. Customers will spend time searching for the product or service offered by these
businesses.
Manufacturing, construction and some of the other services are not interested in attracting customers on the basis
of the firm’s location. These types of firms find customers through either personal selling or advertising. The
location of these businesses may be selected on the basis of costs, environmental impact, or supply of raw
materials.
Economics, population and competition are important factors to consider when selecting a business location.
These factors will also help in selecting a promising city or town in which to locate the business.
General Factors in Selecting a Business Location
1. ECONOMICS
A major concern in choosing a community in which to initiate a small business is the economic base of the
community. Why do people live in the area? What is their standard of living? Why are other businesses located in
the area? A study should be made of the industries in the area. Do 80 per cent of the people work in one industry or
very few businesses, or does the community contain a variety of businesses? Is the industry healthy in the area? Is
the business activity in the community seasonal? Are businesses moving in or moving out of the community? You
will need to study the effect the responses to these questions will have on your business.
How much people in an area earn determines the demand for goods and services.
Entrepreneurs should therefore gather information about income in the area they have selected. Specific questions
include: What is the average family income? What are the income levels (low, medium, high) in the area? What are
the employment/unemployment trends? Other important economic factors might include good highways and
access to railroads.
2. POPULATION
`Entrepreneurs should identify the groups of people who will be their customers. For example, if you are interested
in opening a music store, it would be important to know where the greatest population of teenagers/youths and
young adults is located because they buy the most music CDs. Other population factors include: How stable is the
area? Do people move in and out regularly? Is the population growing or declining? If the area is rapidly growing,
there will probably be a large number of young families. All these factors need to be considered when locating a
business.
3. COMPETITION

You must study your competitors by gathering information on their strengths and weaknesses. You should know
how many competitors you have and where they are located. You should also find out how many businesses
similar to yours have opened or closed in the past two years. Indirect competition that provides similar kinds of
goods and services should also be studied.
There are three favorable conditions for opening a new firm.
 First, no competitors are located in the area.

 Second, competitors’ businesses are poorly managed.
 Third, customer demand for your product is growing.
Basic site factors to be reviewed for every type of business include: lease-purchase terms, competition, parking and
costs of operating at the location. In addition to these basic concerns, some specific questions also need to be
answered that depend on whether you plan to open a retail establishment, a manufacturing firm, a wholesale
business or a service business.
Location by Types of Businesses

RETAIL FIRMS
Parking facilities and access to major roads have become a prime problem for many retailers. Retailers located in
shopping malls have less parking problems. Retailers need to consider the types of businesses that surround a site.
For example, studies have shown that clothing stores should not be located next to service stations.
The number of persons walking by a business location is also important to a retailer. For example, the retailer
should ask “are the pedestrians who pass this site on their way to public transportation or to the local theatre?”
Those going to the theatre are not likely to stop and make purchases.
WHOLESALE FIRMS
Wholesale firms buy products from manufacturers in large quantities and then sell their products to retailers in
smaller quantities. Two major factors should be considered in selecting a wholesale site. One major factor is a good
transportation service, including rail and road. Another major factor is proper facilities which include buildings,
fixtures and public utilities. Without these facilities, a wholesaler may not be able to maintain inventories large
enough to handle customer needs. Most cities have zoning laws that restrict the location of wholesale firms. These
laws need to be known. Wholesale firms should also be located as close as possible to their customers.
SERVICE FIRMS
Being close to a large shopping centre is usually considered ideal for service businesses. However, it is not
necessary for a TV repair shop, a dry cleaner’s, a dentist’s, a shoe repair shop or a child-care facility to be located in
high-rent locations. Customers are willing to seek out and go further away to obtain a good service. These
establishments can be located somewhat “out of the way”. But even among service firms there are important
differences as to which site is better. For example, a dry cleaner’s located near a grocery store and drugstore is
usually a good choice. The same location may not be suitable for a dentist, who does not require the traffic
movement and convenient drop-off point that makes a dry cleaner’s successful.

MANUFACTURING FIRMS
Sites that are suitable for manufacturing firms differ from sites that are good for retailers, wholesalers and services
firms. When considering opening a manufacturing firm, check transportation facilities and distance from raw
materials. Nearness to customers, proper facilities and zoning laws are other important factors. As you study the
general and specific factors of a business location, keep in mind future as well as present location needs.
Importance of Business Location
1. Why is location important to business success?
2. Two basic aspects of selecting a location:
a. deciding on a particular community b. deciding on a particular site within that community
3. Why is location more important for some businesses than for other businesses?
4. Factors to consider when selecting a location:
a. economics (local economy) b. population c. competition
5. Location factors based on type of business
a. retail firms
b. wholesale firms
c. service firms
d. manufacturing firms
Procedures for Selecting a Specific Location
The following procedures are recommended when selecting a business location:
1. Make a list of factors you feel are “necessary” for considering a business location.
Also include a list of factors that would be “desirable” but are not necessary.
2. Find all the possible locations in a community that meet your list of factors.
3. Visit the locations to get an idea of their general appearance and eliminate those locations that are not suitable
for your needs. Reduce the number to 2 or 3 locations that appear suitable.
4. Visit the locations again and use a checklist to compare locations against the factors you have identified.
Consider the factors that are critical to the success of your business.
5. Return to the locations at various times of the day and evening to get a better understanding of the suitability of
each location.

6. Conduct a traffic count at each location. Count the number of cars and pedestrians that pass each location at
various times to calculate the number of potential customers.
7. Ask the opinion of experienced consultants and business people in the area to help you decide on one location.
8. Analyse all the facts and opinions you have gathered before making a final decision regarding the location of
your business.
Specific Location Factors
Traffic (potential customers) and accessibility are more important to some businesses than others. Think about
how you will sell your products and services to your customers; what kind of business do they expect you to run?
What is really important to them? You will need to balance the advantages and disadvantages of the specific sites
for your business.
Suppose you have identified the best neighbourhoods or shopping areas for your business. Now, you are ready to
begin looking at specific locations within these areas. Your first concern will be for traffic patterns and accessibility
of customers to your business. You must have a good customer base in the areas you’ve targeted; the task will then
be to find the best location within each area.
In central and suburban business districts, small retail stores depend upon traffic generated by large stores. Large
stores and small stores alike must attract business from the existing flow of traffic. The same is true for restaurants
and other businesses that depend on buyers who decide impulsively on the basis of convenience. If you operate
one of these kinds of businesses, the more money you spend on getting a good location, the less money you will
have to spend on advertising. Study the flow Know About Business. of traffic, especially around shopping centres
and large stores. Note one-way streets, street widths and parking lots. Look for the best traffic situation for your
needs.
When you have narrowed down your site alternatives to a few, determine how important traffic will be to your
business success. Depending upon how important you rank traffic, consider the following factors. Public
transportation may be important for both customers and employees. Pay attention to locations in or near public
transportation terminals.
Parking availability will be important to drive-by traffic. Cost and access to a parking lot are the most important
considerations. Remember, it should be easy for the customer to stop and buy. Locating your business on a busy
street will not help if your customers can’t park their car. Distance from residential areas or other business areas
will be important for some types of businesses. Traffic congestion can cause some people to actually avoid an
intersection or shopping centre. If there is too much traffic around the business, it will hurt sales.
The side of the street the business is located on may be important. Research done for petrol service station
locations applies to many other businesses that would sell to the customer driving by. People want to buy certain
things on their way to or from their homes. For example, newspapers and petrol are bought on the way to work,
while food is purchased and dry cleaning collected on the way home. If you sell better during the afternoon, cater
to the afternoon rush-hour on the side of the street that carries the outbound traffic going home.
The width of the street may be important. Street width indicates how well-travelled the road is or will be.
Generally, the wider the road, the better the location. A main thoroughfare is a better location than a “feeder” street
because more potential customers per day travel on it. A wider road is easier for customers, too. Remember to
think like a prospective customer in a hurry: Will there be traffic jams because of double-parked cars?
The part of the block in which you locate your business may be important. A corner is more visible than a mid-
block location because it can more easily be noticed from the crossroads. However, rental rates are usually higher
for corner locations.
Neighbours can be your greatest help if you choose your location well. Neighbouring stores may do a lot of
advertising to increase sales. Some business owners may pool a portion of their promotion money to fund
merchant’s associations that promote a distinct shopping district.
Selecting a Specific Location
- List “necessary” and “desirable” location factors

- Identify potential sites that match location factors
- Visit sites and select 2 or 3 best sites
- Compare locations to “necessary” and “desirable” location factors
- Visit sites at various times of day and evening and conduct traffic count
- Ask experienced business people and consultants to help
- Analyse all facts and opinions
- Make final decision on business location
3.8. Legal Forms of Business Ownership
RATIONALE
Questions Concerning Business Ownership
1. How many owners are there in a sole proprietorship, a partnership, a limited company and a cooperative?
A. The sole proprietorship has only one owner.
B. A partnership has two or more co-owners.
C. A limited company is an association of stockholders or owners chartered by the government. It has the
authority to transact business in same manner as one person.
D. A cooperative is a group of people operating a business through a jointly owned and democratically run
organization.
2. What are the legal costs and procedures for starting all four types of business ownership?

A. Sole proprietorship. The requirements are to determine (a) if a licence is required for the particular business,
(b) if a tax or licence fee must be paid. The sole proprietorship is the easiest business to start and the initial costs
are usually lower than those for other legal forms.
B. Partnership. In addition to any necessary licences, it is recommended that a partnership agreement, called the
Articles of Partnership, be prepared in writing by a competent attorney. The Articles of Partnership should contain
at least the following provisions:
• division of profit or loss
• compensation to each partner
• distribution of assets in the event of dissolution
• duration of the partnership
• duties of each partner
C. Limited company. It is more difficult to form a limited company than the other two types of business given
above, and it is usually more costly. This kind of business is usually in the best position to obtain additional capital.
In addition to pledging corporate assets as collateral, a limited company may sell additional stock in the company
to raise funds.
D. Cooperative. The cost of registering a cooperative is usually lower than the cost or registering a limited
company. A written cooperative agreement is required and must be filed with the appropriate government
authorities.
In some countries the cost of registering a business is high and the procedure is long. The costs and procedures
differ from country to country
3. Why consult a lawyer when starting a new business?
All forms of legal ownership should be discussed with a competent attorney before any decision regarding the
form to select is made. The attorney will need to know as much about the business and its owner(s) as possible,
including the personal financial position(s) of the owner(s), so that sound recommendation can be made.
4. What liability is involved in the four types of business ownership?
A. Sole proprietorship. A sole proprietor is personally liable for all the debts of the business. If necessary, this
liability includes all of the proprietor’s personal property and assets.
B. Partnership. Each member of a general partnership is fully liable for all the debts owed by the business
regardless of their personal investment in the business, and this liability includes all personal property and assets.
Each partner is also responsible and liable for the acts of the other partners with regard to business obligations.

C. Limited company. The stockholders, or owners, of a corporation are liable only for the amount corresponding to
their investment. While stockholders may lose the money they have invested in the business, they cannot be forced
to pay off company debts with additional money from their personal funds.
D. Cooperative. Each member of the cooperative is fully liable for the debts of the cooperative.
5. How does the legal ownership affect the continuity of the business?
A. Sole proprietorship. The business is terminated upon the death or incapacity of the owner.
B. Partnership. The partnership is terminated upon the death, incapacity or withdrawal of any one of the partners,
unless the remaining business partners buy the deceased, incapacitated or withdrawn partner’s interest.
C. Limited company. This kind of company has a separate and continuous life of its own, and does not dissolve if a
stockholder dies or the stock is sold to another person.
D. Cooperative. The cooperative has a life of its own. 1 International Finance Corporation, Doing Business in
2004
7. How does the legal structure affect management of the business?
A. Sole proprietorship. The sole proprietor may operate the business in any way he or she likes, as long as the law
is not broken. When all management decisions are made by one person, it can be a disadvantage.
B. Partnership. In a general partnership, each partner typically has an equal role in management with the various
duties divided among them. Their combined abilities and knowledge may give the partnership an advantage over
the sole proprietorship regarding management. The division of management duties may, however, lead to
disagreements.
C. Limited company. Legal procedures must be followed strictly according to company law. The officials of the
limited company must file a special document, called the Articles of Incorporation, with the government, pay initial
taxes and filing fees, and hold official meetings to deal with specific details of operation and organization.
D. Cooperative. The management of a cooperative is elected by the members of the cooperative.
7. How will the legal structure affect taxes?
A. Sole proprietorship. Personal income tax must be paid on all business profits.
B. Partnership. Personal income tax must be paid by all partners on their individual share of the business profits.
C. Limited company. It is taxed twice. First there is tax on the amount of the business profits. Then the owners are
also taxed on any dividends they may receive.
D. Cooperative. Depending on government regulations, taxes may be paid by the cooperative.
Questions Concerning Business Ownership
1. How many owners are there in a sole proprietorship, a partnership, a limited company and a cooperative?
2. What are the legal costs and procedures for starting all four types of business ownership?

3. Why should a lawyer be consulted when starting a new business?
4. What liability is involved in the four types of business ownership?
5. How does the legal ownership affect the continuity of the business?
6. How does the legal structure affect management of the business?
7. How will the legal structure affect taxes?
8. How will the legal structure affect conditions of employment?
Advantages and Disadvantages of Different Forms of Ownerships
Forms of Ownerships Advantages Disadvantages
Sole Proprietorship 1. Low costs to start 1. Unlimited liability
2. Minimum regulations 2. Lack of continuity
3. Direct control of business 3. Difficulty in raising capital
4. Low working capital requirements 4. Responsible for all Decisions
5. Tax advantages
6. Owner receives all Profits
Partnership Advantages 1. Unlimited liability
1. Easy to form 2. Lack of continuity
2. Low costs to start 3. Shared authority
3. Added capital sources 4. Difficulty in raising additional capital
4. Shared management 5. Difficulty in finding suitable partners
5. Possible tax advantages

Limited Company 1. Limited liability 1. Closely regulated
2. Management can specialize 2. Most expensive form to organize
3. Transferable ownership 3. Charter restrictions
4. Continuous existence 4. Extensive record keeping required
5. Legal entity 5. Double taxation (company and

stockholders)
6. Potential tax advantages
7. Easier to raise capita
Cooperatives 1. Means to empower poor 1. Hard to keep qualified members
2. Joint self-help 2. Members contributing to cooperative

unequal
3. Organizational structure helps all
members 3. Shared authority
4. Shared risk-taking 4. Gender issue
5. Easier to raise capital
6. Combines individual Skills

Information Sheet 1 Operating an Enterprise

4.1. Ways of getting in to business
4.1.1. Starting a new business
Most people who want to be entrepreneurs think that the best approach is to start their own new
business and not to buy one that already exists. This approach gives the potential owner a great deal of
satisfaction. It also means taking a relatively high risk compared to buying an established business.
Starting a new business means allocating a great deal of time to planning and investigating the potential
market for the products or services to be sold by the new business.
4.1.2. Buying an existing business
If someone has never owned a business, buying and operating an existing business offers many
advantages such as established customers and business procedures, trained employees, inventory and
premises which are in place and a business which already has a name in the market.
There are many questions which the potential entrepreneur needs to ask about any business which is for
sale:
• Why do I want to buy this business?
• Why does the owner want to sell?
• Does the business have a future where it is and the way it is operating?
• Will I be happy operating this business?
• Do I have the skills?
The question of price is a difficult one. Consider what you are getting for the price you are paying.
• Are you getting land and buildings?
• Are you buying the stock, furniture and appliances?
• Are you buying the name of the business and the rights to use that name forever?
• Are you paying for the present owner of the business not to set up another business nearby?
There are several ways of putting a price on a business. By comparing several similar businesses you will
get a “feel” for a reasonable price. However, no matter how much you pay, that amount is your investment
in the new business.
4.1.3. Franchising

Franchising is a system where a franchiser has developed and implemented a business that he offers for
replication to a franchisee. The franchisee opens a business by using the business idea of the franchiser
against a fee. In return, the franchisee gets training, the marketing concept, the brand name and the product
or service. He also has the guarantee that no other franchisee from the same franchiser will have the right to
do business in the same area.
All these elements are fixed in a franchising contact that is binding for both parties. Franchising lowers the
risk as the product is usually well known in the market. On the other hand it limits entrepreneurial decision-
making and shrinks the profit margin as a fee or a percentage of the turnover has to be paid to the franchiser.
4.2. Managing PEOPLE, SALES and TIME.

1. Managing people
Hiring and Orienting New Employees
A. The Hiring Process
Hiring a new employee is as important to the entrepreneur as it is to the person hired. It can either be the
beginning of a mutually rewarding relationship, or the beginning of a long series of mistakes.
Two of the major influences on high employee turnover are the recruiting and selection procedures used. The
way entrepreneurs advertise a position, handle applications, conduct interviews, and select and introduce a
new worker to a job are all elements in the effort to cut down on employee turnover.
1. Sources of Potential Employees
• Within the business
• Want advertisements
• Employment agencies
• Educational institutions
• Former employees
• Current employees
2. Selection Procedures
• Application form
• Interview
• Checking of references
• Testing applicant’s skills
Successful entrepreneurs hire staff on the basis of their skills, motivation and experience, not on the basis of
their sex, ethnic origin or disability.

B. Orientation Process
As a general rule, on their first day new employees should be shown around the business. The new employee
should be introduced to the rest of the employees, given an overall view of the entire operation, and shown
exactly how their jobs fit into the total operation of the business. Such small gestures take little effort and will
probably save both time and money in the long run.
Remember, it is important to start the new employee off on the right foot. Proper orientation will help a great
deal in getting a more productive, long-term employee.
1. Four Basic Rules of Orientation
• Prepare the employee
• Present the work
• Try the employee out under supervision
• Follow-up
2. Six factors in preparing for the orientation of a new employee
• Know the job
• Have a current employee serve as a mentor
• Prepare a simple job breakdown
• Set a training timetable
• Arrange the work area
• Evaluate new employee’s work on a daily basis
C. Employee Considerations
Pay Plans. To employees, wages are an important part of their jobs. They expect their pay to reflect the skills and
energy they put into a business. If entrepreneurs want to attract and keep good workers, they must take into
consideration the rate paid by other firms for a similar job.
Fringe Benefits. Of all fringe (peripheral) benefits, those for sick leave and holidays are the most widely
appreciated by employees. Entrepreneurs should have a set policy regarding all fringe benefits.
Employee Relations. Good pay and fringe benefits aren’t all it takes to make employees happy; job satisfaction
means much more to them. Entrepreneurs have a responsibility to provide the best kind of physical surroundings
and to make sure that there is always two-way communication with the staff.

Working Conditions. The health, comfort and safety of employees, as well as decent working conditions, should
be of genuine concern to entrepreneurs. A good environment can do much to encourage efficiency and good
attitudes in addition to preventing accidents. The premises should have good ventilation, sufficient heating and
cooling, good lighting and proper sanitation, and safety facilities. Having a first-aid kit and a doctor’s telephone
number are necessities in a health and safety programme in any business.
2. Managing sales
The success of a business depends on the art of selling. If entrepreneurs take advantage of the opportunity to serve
people, to satisfy their needs and to solve their problems, there will be satisfied customers. Satisfied customers
continue doing business with an entrepreneur and recommend the products and services to others.
No matter what type of business, the entrepreneur must focus not only on producing the product or service, but on
selling the product or service as well. Entrepreneurs are salespersons in the sense that they are always selling their
products/services to the public. They must maintain their sales image wherever they go and whatever they do in
the community.
Selling Requires Communication
When selling, you communicate to prospective clients something about yourself and the product or service you are
selling. This process can be viewed as a series of steps, and each step involves a higher level of communication.
Step 1: approach the prospective customer and introduce yourself and your company
Step 2: specify your reason for approaching the prospective customer
Step 3: show or describe the product/service you are selling
Step 4: demonstrate how the product/service will benefit the prospective customer
Step 5: negotiate terms and conditions of the sale
Step 6: ask the prospective customer to make a decision regarding the purchase of the product/service.
Step 7: once customers do start to buy your product or service, develop strategies to help you to keep your
customers. One research study has indicated that it costs 10 times as much to attract a new
customer than it does to keep an old customer.
Like effective communication, selling is a two-way process. Selling is more of an art than a skill. You have to be
good at asking questions and being an active listener to understand customer needs and interests. You have to
adapt your message and communication style to the personality and buying motives of the prospective customer.
Through effective communication, you build a relationship with the customer based on trust and confidence; this
forms the foundation for the present sale transaction and for future sales as well.

Characteristics of Successful Salespersons
1. Results Oriented 8. Good Listener
2. Highly Motivated 9. Enthusiastic
3. Self-Confident 10. Pleasing Personality
4. Professional Appearance 11. Communicator
5. Honest 12. Sociable
6. Dependable 13. Courteous
7. Knowledge of Products
3. Managing time
Managing Time
To be successful, all entrepreneurs must be good managers. However, most managers are not entrepreneurial.
People are the most important resource in a business. It is important for entrepreneurs to hire the best qualified
people. All employees are really members of a team, and for the business to succeed the team members must
cooperate with each other in their work.
In addition to managing people, managing money is also a critical function in operating a business. Entrepreneurs
need to balance the financial needs of operating a business with the financial resources within the business. Money
coming into the business through sales, and money going out of the business, requires the entrepreneur to keep
accurate written financial records. Because entrepreneurs are generally very optimistic and aggressive people,
accurate financial records will provide a more realistic financial picture of the business.
Many entrepreneurs use cell phones to help them not only to manage their business activities, but also to manage
their home responsibilities as well.
Managing sales is essential. Unless sales are at a level that covers all business expenses and provides a profit, the
business cannot succeed. Business success is ultimately determined by the level of sales.
Entrepreneurs must be able to manage their time if they are to be successful. In many instances, they are multi-
tasking by being involved in several tasks at one time. “If you want to have something done, have a busy person do
the task.” In most instances, this quote is true. It is also true that entrepreneurs are busy people, but they have the
skill of managing their time and resources to accomplish their business goals.
Time Management Techniques

 Identify specific goals with deadlines
 Be motivated
 Use telephone/cell phone
 Take notes

 Do only essential activities
 Work in blocks of time and question your use of time.
 Ask questions
 Be action-oriented
 Be reflective
 Plan for each day’s work
 Learn from experience
 Question your use of time
4.3. Selecting Suppliers.
Doing Business with Suppliers
Entrepreneurs should follow specific procedures when purchasing goods, materials and equipment from
suppliers.
Step 1: Determine your business needs. By conducting market surveys you will know who your customers
are and what products they want. These customer needs will determine:
• Materials and equipment your business will need to produce goods for sale to customers.
• finished goods to buy from suppliers for resale to customers.
• Amount of each product to buy as inventory.
• Price to pay for quantities of goods purchased from suppliers.
• Specific times goods and materials need to be received from suppliers.
Step 2: Identifying potential suppliers. Determine which suppliers sell the goods, materials or equipment
you need by:
• Asking people who work with you, your business friends and others. Try to find out where your
competitors buy.
• Contacting organizations that support small businesses, for example, the local chamber of
commerce may be able to identify honest and reliable suppliers.
• Reviewing newspapers, magazines, trade journals and businesses in the telephone directory for
names and addresses of potential suppliers.
• Determining what goods, materials or equipment each supplier has to sell and the prices,
discounts, credit and delivery service they provide.
• Determining with the help of other entrepreneurs the reliability of each supplier.
For example: Does the supplier usually deliver on time? Does the supplier accept returned goods or
materials? How responsible is the supplier for the quality of goods or materials? Is the supplier
honest in conducting business?

Step 3: Contact a supplier either by visiting the supplier’s office personally, telephoning the supplier, or
writing a letter to the supplier. Each potential supplier should provide written information to you regarding
the kinds of goods, materials or equipment each supplier can provide. Specific questions include:
Does the supplier have what you need in the qualities and quantities you need?
• What is the smallest quantity you can purchase?
• Do you need to pay cash or can you get credit?
• How much credit can you get and how soon do you need to pay it back?
• Can you get discounts if you buy large quantities or pay quickly?
• How much discount can you get?
• Will the supplier deliver to your business?
• How soon after the order is placed will they deliver?
• Do you have to pay for transport or is delivery free?
Note: Make sure that the supplier provides a response to your questions in writing. Ask for a written quotation. If
there are any disagreements between you and your suppliers at a later date, a written quotation makes them
easier to resolve.
Step 4: Select the best suppliers. Compare the quotations received from various suppliers to determine
what each of the different suppliers can offer. A quotation is a written response to your enquiry to the
supplier. In a quotation, the supplier provides you with detailed information about the goods, materials or
equipment, prices, payment, delivery and any other conditions related to your order.
The entrepreneur must decide what conditions and priorities are most important in selecting suppliers. Is it
credit, reliability, prices, discounts or other considerations.
When a decision has been made regarding the suppliers who best match the needs of the business:
• try to negotiate with the suppliers to receive even better conditions.
• choose the best suppliers for your business.
Step 5: Order goods, but make sure your order is in writing. Think carefully about the quantities you need:
• What is the smallest quantity you can order?
• How much is there in each bulk package?
• Can you order less than one bulk package?

Step 6: Check the goods as soon as they are received. The supplier usually sends a delivery note with the
goods or materials. The delivery note lists details of the goods. The supplier will want you to sign the delivery
note as proof that you have received the goods listed.
Some suppliers send an invoice instead of a delivery note. Check the goods against the invoice. If you yourself
collect the goods or materials from the supplier, the type and quality should be checked before taking them
away.
Check the delivery note or invoice against your order. Check that everything ordered has been received on
time. If there is something wrong, notify the supplier immediately. Do not sign the delivery note or pay for
the goods until the problem has been resolved.
Step 7: Check the invoice because the invoice lists what you have bought and when and how the supplier is
to be paid. Make sure that the invoice is correct. If you are buying on credit, compare the invoice with the
delivery note. The list of goods or materials must be the same on both. Make sure that you have received
everything you are asked to pay for and that the prices and totals are correct. If the invoice is not correct,
notify the supplier immediately and determine the best way to solve the problem.
Step 8: Make the payment to the supplier by cash or check. Make sure to get a receipt so there is proof of
payment.
4.4. Using technology in Small Business

Introducing new technology, such as a computer or cell phone, into a business helps to improve productivity and
product innovation. In small businesses, simple technological innovations help to improve product quality and
product design, as well as reducing production costs.
Entrepreneurs should be made aware of new technologies by attending trade exhibitions, contacting small
business development agencies, and visiting other areas of their own country as well as neighboring countries to
gain ideas regarding technologies which would be appropriate to their local conditions. In some countries,
government agencies, business associations or NGOs offer specialized services to women entrepreneurs to
overcome difficulties in accessing new technology, since this has been identified as one of the major barriers to
women entrepreneurship.
Sponsorships and subsidies to encourage women entrepreneurs’ participation to trade fairs are sometimes
available through chambers of commerce and business development programs.
Technology for Small Enterprises
Technology is constantly changing the demands of consumers. Businesses use new technologies to produce new
products and services. Entrepreneurs should realize that new technological developments such as the internet and
cell phones increase the exchange of information and may have an effect on the operations of their business.
Entrepreneurs may not be aware of the nature and effects of all new technologies, yet, they must try to determine
technical developments which are likely to have the greatest impact on their business operations.

Small businesses are flexible and can innovate and introduce new products. Conversely, small businesses may not
have the expertise, time or capital to develop and market a new product. A small business must be realistic in
judging: the demand for a new product, the financial aspects of developing a new market and the time required to
introduce the new technology.
Through planning and forecasting, it may be possible to predict some technological changes that might affect sales
of current products and the potential for developing new products. Purchasing new technologies, such as a
computer, implies a long-term commitment of resources, which most small businesses do not have. Because of day-
to-day operational problems, entrepreneurs have little time to do long-range planning, even though new
technologies may have a great impact on their businesses in the future.
Smaller companies must develop products and markets where they have a chance to succeed and be competitive.
Because of shortage of capital resources, entrepreneurs must be able to react quickly to changes in the market and
be concerned with the future needs of their customers.
Characteristics of Appropriate Technologies
The appropriateness of technology for use in a small business is determined by a number of characteristics. For the
following seven characteristics, explain how the purchase of a cell phone will increase the efficiency and
effectiveness of an accounting firm that serves 60 local businesses.
1. SIMPLE: For technology to be considered appropriate, it must be simple to operate. The user of such technology
must be able to apply it without encountering problems.
2. EFFECTIVENESS: Effectiveness of technology is judged by how well it fits in with the objectives of the user.
3. AVAILABILITY: Some technology may be appropriate for certain purposes but not available locally. Information
technology, for example, may be the most appropriate for certain tasks, but it may not be readily available locally.
4. FLEXIBILITY: As time changes so do the requirements of technology.
Appropriate technology must be flexible enough to adapt to changing times in the future.
5. DURABLE: Technology that is durable requires less maintenance and repairs.
6. EFFICIENT: Technology should be efficient in its utilization of local resources.
7. COST EFFECTIVE: The cost of technology should be justified by the benefits achieved. The overall benefits
should be greater than the cost of the technology.
4.5. Knowing the Costs of an Enterprise

Direct and Indirect Costs
Every business generates costs even if there is no ongoing production, service or trading activities. To
understand this, it is essential to know that there are direct costs and indirect costs.
Direct costs are those that only occur when an enterprise is manufacturing goods or producing a service or
buying goods to resell. These costs depend directly on the number of products, services or goods produced.
Direct costs are composed of two cost sub-groups:
Direct material costs:

Expenditures for all items that become part of a product or are used to produce a service or are bought for
resale enter into the category of direct material costs.
Costs linked to the acquisition of raw materials such as transport from the supplier to the enterprise are
included in the direct costs.
Direct labour costs:
All wages for workers and helpers that are directly involved in the production or the delivery of services.
This also includes costs for social security.
Staff wages for the retailer and wholesaler are not considered as direct costs because one person generally
sells many different items.
Indirect costs are all other costs generated from business activities that are not direct costs.
These are costs that cannot directly be attributed to a specific product or service, for example rent for the
office premises, salary for the bookkeeper, interest on the bank loan, telephone costs, fire and car insurance,
etc.
In wholesale or retail business all staff costs are indirect costs. To be able to calculate the manufacturing costs of
one single product or one single service, the indirect costs have to be attributed proportionally. If the business
produces a single product or service, or if the products are quite similar, for example chairs, beds, trousers or
shirts, the indirect costs are divided by the number of products and this proportion is added to the direct costs to
calculate the total cost per unit of an item. In a service business the indirect costs are generally calculated on the
basis of working hours and added to the time spent in delivering the service.
Indirect costs are also called overhead costs.
To make the distinction between direct costs and indirect costs is not always easy, for example the glue used in
furniture making. The quantity used for one chair is so small that it represents only a very small portion of the
price of the glue. The expenditure for a pot of glue is therefore considered as an indirect cost. Also, if a helper
serves several workers, his/her salary cannot be attributed to one single product. The salary will therefore be
counted as an indirect cost.
Total cost of a product or service:
Sum of Direct Material Costs
+ Sum of Direct Labour Costs
+ Proportion of indirect costs
= Total cost per product or service
4.6. Managing Money.

Business money and private money should always be kept separate. Where the business money and the
household money is kept together, money will leak and be spent for private expenses. At the end of the month,
the entrepreneurs will not be able to calculate whether the business made a profit or not.
Various people will want to know about the financial conditions of a business. Bankers may be interested
because you have applied for a financial loan. Tax collectors are interested in your business condition, as are
partners, relatives and others who may have lent you money. Suppliers will also want to know things about
the finances of your firm, because when they ship you merchandise for which you have not yet paid, it is as
though they are extending a form of credit.
An efficient record keeping system is required for any business. All business transactions should be fully
recorded on paper. Many small businesses fail because of inadequate record keeping. The business may have
an excellent product, a high sales volume and a good profit margin. However, without proper records the
business is inviting disaster. Too often, small business owners have the attitude that keeping records is not
necessary in a small business. The person who owns a small business is confronted with problems and
decisions every day. Sound decisions require a anger who is informed about all aspects of the business.
Proper record keeping system can provide the financial information necessary to solve management
problems more easily and to make sound business decisions what kinds of records should a small business
keep?
A. Payroll. The owner must know the amount paid to himself or herself and to employees. This information
alone requires a mini-accounting system to keep
things accurate and in order.
B. Cash Balance. The owner must know how much cash is available at any given time to determine if bills
can be paid. Money comes into and goes out of the firm every day, but without records entrepreneurs would
not know what they can afford.
C. Accounts Receivable. Under certain conditions, the owner extends credit to some customers. The money
owed is called accounts receivable. They are important records. Without them, how would the owner know
when to bill and for how much? When to discontinue credit? When to make aggressive efforts to collect
overdue bills? When to charge interest, if any?
D. Accounts Payable. The amount of money owed by a business to others (such as suppliers) is called
accounts payable. These bills need to be paid on time for two reasons:
(1) sometimes by paying a bill on time you will receive a cash discount, and
(2) you must maintain a good reputation in relation to those with whom you do business. Without accurate
records you may make mistakes.
E. Inventory Records. Even in a small retail business, an owner must have control of inventory. What
products are selling? What products aren’t moving?
Is there a good supply on hand? Entrepreneurs can keep some of this information in their head, but not
enough to do the kind of job necessary to make a profit.

F. Government Requirements. The owner must file financial statements for tax purposes. Taxes are
calculated on the profit a business earns. Even a small retail business must file certain reports.
G. Financial Statement. At least once a year the owner should have a comprehensive financial statement on
the business prepared – this is similar to an individual having an annual medical check-up. How well did the
business do in terms of total sales? What were its expenses? What are its profits before and after taxes? What
can the owner do to improve things next year? When borrowing money, entrepreneurs must present such a
statement to a banker; if they want to sell their business, they must show financial statements to prospective
buyers.
4.7. Preparing Simple Financial Statement.

Financial statements help to determine the financial performance of a particular business. By using financial
statements, the business can compare current performance with performance in previous years. These
comparisons are essential for planning the future and also highlighting the strengths and weaknesses of the
business operation.
Understanding financial statements is important because they are the primary means of determining the financial
health of the business.
Entrepreneurs need to be able to:
• prepare simple financial statements
• interpret and analyze the information contained in the statements
• identify strengths and weaknesses in the financial condition of the business based on the statements
• make changes in business operations to improve the financial conditions of the business
Profit and Loss Statement
A profit and loss statement helps to determine whether a business is operating at a profit or a loss for a given time
period of one month to one year.
The more frequently you calculate your profits and losses, the sooner you will know the financial position of the
business.
There are five specific steps to calculating the profit and loss statements:
1. Sales: including sales for cash and credit,
2. Cost of Goods Sold: this is the price paid by the business for merchandise sold; it can be computed by adding
the value of the goods purchased during the period to the initial stock (the initial stock figure can be obtained from
the previous income statement), and then subtracting the value of the stock on hand at the end of the period.
3. Gross Profit: calculated by subtracting the cost of goods sold from sales
4. Expenses: this includes labour costs and other costs of operating the business
5. Net Profit: this is the amount remaining when the expenses are deducted from the gross profit.
The Balance Sheet
The balance sheet is a financial statement which indicates what you own and what you owe on any given day in the
life of a business. The financial figures on the balance sheet change from day to day because money is always
coming in and going out of the business. A primary reason for preparing a balance sheet is to determine if the
business is making a profit or a loss.
The formula used to prepare a balance sheet is:
Assets = Liabilities + Net Worth
Assets: These include everything a business owns, such as cash, equipment, buildings and inventory.
• Current assets include cash and anything that can be converted into cash within twelve months. Current assets
include cash, bank accounts, accounts receivable (what people owe you), and inventory.
• Fixed assets are things that cannot be changed into cash easily (within twelve months). They are items that the
business acquired for long-term use. Fixed assets include land, buildings, machinery, equipment, and vehicles.
Liabilities:
These include anything that the business owes. Liabilities might include loans, credit notes, taxes and mortgages.
• Current liabilities: a current liability is anything you owe that has to be paid by using a current asset. Current
liabilities are usually items to be paid within twelve months, including taxes, loans and bills due to creditors.
• Long-term liabilities: any debt that cannot be paid within twelve months, such as a mortgage.
Net Worth:
This is what is actually owned by the business after subtracting liabilities. It represents the initial investment of the
owners and retained earnings.

Develop Understanding Enterprenership

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Develop Understanding Enterprenership

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Admas University

Misrak TVET College

Basic Clerical Works Level I

Unit Title Develop Understanding of Entrepreneurship

Unit Code EIS BCW1 14 0812

Elements Performance Criteria

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 2

techniques and steps

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 3

 Planning and Leading

Methods of Competence may be assessed through:

Information Sheet 1 OVERVIEW OF ENTREPRENEURSHIP

1.1. Definition and concept of Entrepreneurship.

1.2. Reasons for Entrepreneurship in Business.

Competition provides a better standard of living for consumers by offering choices.

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 5

 OPEN MARKET ECONOMY

 Working long hours

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 6

Enterprising women and men exhibit the following characteristics:

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 7

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 8

Different Forms of Enterprise

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 9

A. Elements constituting the meaning of small business:

• “Individually owned and operated business”

Weaknesses and Strengths of Small Enterprises

SMALL ENTERPRISE WEAKNESSES:

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 10

Unremarkable (less conspicuous):

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 11

Information Sheet 2 Becoming an entrepreneur

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 12

Carrier (mail) Army soldier Cement mason Waiter or waitress

Assembly line worker Beautician Painter's helper Cook

Auto repair person Receptionist Taxicab driver Practical nurse

Car washer Sales clerk Household worker Baker's helper

Carpenter's helper Nursery school helper Auto or truck mechanic Dishwasher

Carpenter Baby sitter Butcher Food store checker

Small motor Nurse's aide Library clerk Gas meter person

3. Delegate Tasks to Subordinates.

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 13

5. Maintain a Clean Office.

6. Be Ready to Say “no!”

7. Have Daily Objectives.

8. Don’t Try to do too much.

9. Control Paper Flow.

10. Plan Effectively.

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 14

1.1. Advantages and disadvantages of Self employment.

c. Profit and income:

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 15

2. Disadvantages of self employment

a. Possible loss of invested capital:

b. Uncertain or low income:

c. Long business hours:

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 16

1.2. Entrepreneurial characteristics and traits.

ADMAS UNIVERSITY Develop Understanding of Entrepreneurship Page 17

Competencies may be defined as:

Skill is the ability to apply knowledge.

Fig.1. Competencies Needed to Be an Entrepreneur