Principles of Business

Section3: Establishing A Business

Entrepreneur
An individual who combines all the other factors of production (land, labour and
capital) with the aim of establishing a profitable venture for the production of goods and
services.

ROLE OF THE ENTREPRENEUR

1. Conceptualising
Coming up with an idea which they enjoy and could be profitable. The aim is to
provide something which is limited or lacking.
2. Planning
This is the overall formulation of objectives and policies of the business.
3. Accessing funds
Involves acquiring information from banks, credit unions, venture capitalist etc. on
loan terms, years and repayment terms. There may also be funds from family,
friends, and ones own savings.
4. Organising
Bringing together all the aspects of the production process and ensuring that
everything is in place at the right time so that operations can run smoothly. Setting
out tasks to be completed by various persons/entrepreneur himself.
5. Operating
Actually running the business on a daily basis
6. Evaluating the performance of the business
The monitoring of the operations and comparing it to the projections/budgets
formulated. If the actual performance is below the budget, then corrective action
may be taken after problem has been investigated.
N.B The entrepreneur bears all the risk of being involved in the new enterprise but is
also entitled to the profits of the business.
 PERSONAL TRAITS& LEADERSHIP QUALITIES OF ENTREPERNEUR
1. Creative
2. Innovative
3. Flexible
4. Goal oriented
5. Persistent
6. Persevering
7. Be able to calculate risks
8. Self motivated

REASON TO START A BUSINESS

1. Financial independence
2. Wanting to be your own boss
3. Self-fulfillment
4. Self-actualization

STEPS FOR ESTABLISHING A BUSINESS

1. Conceptualisation
This is the formulation of the idea of what to produce.
2. Research
This is a probe of the market to determine if the business is needed and if there are
sufficient persons/organisations to make operations viable. Information can be
gathered by questionnaires, interviews etc. Data is then analysed and a decision is
made.
3. Identification of resources
 Financial resources ( includes savings, money from family, friends, banks, credit
unions etc.)
 Human resources (individuals to operate the business)
 Material ( what will be used to produce the goods or services)
4. Creation of Business plan
This plan shows how the business will be organized, giving information on
projected sales, production cost, projected profits
5. Acquisition of funds
Getting money from relevant sources to purchase equipment, materials, pay staff (if
any)
6. Operation of Business
Once all the necessary factors of production are in place, the business can
commence operation

RESEARCH
In order to remain competitive, the entrepreneur must be in touch with the consumers’
needs. One way of gathering such information is through research. There are two main
types/categories of research
1. Primary Research
This includes gathering information from direct sources such as the customers
themselves. Methods used to collect primary information includes:
a) sampling
b) questionnaires
c) interviews
d) observation
e) survey

2. Secondary Research
This is information gathering from what has already been compiled and documented
by others. It includes: a) books
b) website information
c) newspapers
 d) consumer review magazines
Why is research needed?
1. To be aware of consumer tastes and to identify if there is the need for a product
2. To find ways to improve on existing products
3. To create new products/services which are lacking
4. To find out how one’s product/service is being received or competing with others on the
market.
5. To identify the target market to see if the production of a product is viable.
 Principles of Business
Section3: Establishing A Business

THE ROLE OF DEPARTMENTS IN A BUSINESS

1. Production Department
This is where the products/services are created. This is a vital department and
without it there would be no business. The entrepreneur has to ensure that there are
high standards and control measures to ensure that products/services are always of a
consistently high standard. Problems in this department could cause the business to
fail.
2. Marketing
This department is responsible for making customers aware of the product and
getting feedback on customers’ reactions and needs. This department is also
involved with determining packaging, distribution and promotion of the products.
Without proper marketing, consumers may not be aware of a business’ products
even if they are of excellent quality.
3. Finance
All the aspects of accounts are dealt with e.g. accounts payable, receivable, payment
of wages & salaries, purchasing of raw materials etc. This department provides
information to show whether expenditure is exceeding income. Without proper
financial records, the entrepreneur will not be able to determine the profitability of
the business or if corrective measures are to be taken to reduce losses.
4. Legal Department
This department advises the entrepreneur as to the legal requirements of operations
e.g. contracts, paying of taxes (employee, corporate, VAT etc), acquiring licenses,
registration, trademark, copyrights etc. It is also the duty of those in the legal
department to advise and or represent the business in issues in court.
5. Research & development (R & D)
This is the “idea generation” department. Their job is to come up with new and
 innovative products and services before the competition to gain market share. They
may also improve on current products to mean changing consumers’ needs.

PLANNING
When setting up a business planning is of great importance for the following reasons
1. Plans act as a check point to compare actual to budgeted performance
2. Planning gives the entrepreneur something to strive towards.
3. Information found in plans maybe used by lending agencies to see the future
profitability and viability
of the organization.
4. Short term plans may be broken down into tasks to be completed
Types of Plans
1. Short term plans
These plans are done daily/weekly or monthly, depending on the nature of the
business. These plans maybe made by low level management or supervisors. They
usually relate to day to day operations.
2. Medium term plans
These are usually done every six months to a year by mid-level management
3. Long term plans
These give projections of what the organization wants to do over the future five to
ten years. Planning at this level is carried out by top level management. From these
overall plans, short term and mediums term goals and plans can be created.

N.B. Please note that depending on the size of the organization, all three levels of
planning can be carried out by one or two persons.

RULES FOR CONDUCTING BUSINESS

Within each business environment, whether local, regional or global, there are rules for
conducting business e.g.
Local
 Business which are incorporated must first register with the registrar of companies
which require
M.O.A
Articles of Association
Audited reports
Disclosure of shares
Name, location of business etc.
 Corporation tax must be paid
 Employees’ N.I.S and income tax must be paid
 Licenses and health certificates are needed for selling alcohol or food respectively
 Professionals(lawyers, doctors, architects, engineers etc.) must register with their
professional bodies and must be controlled/governed by their rules

Regional
 How would CARICOM and CSME affect the operation of one’s business
 Some countries may have bi-lateral agreements which may affect the business
environment

Global
How will globalization affect the business environment
 Now that the world is being viewed as one large market, the traditional ways/rules
applying to business are now changing e.g.
1. no more preferential treatment
2. increase in requirements in areas such as labeling of goods showing
3. ingredients, nutritional value and calories etc.
4. greater rules relating to environment protection
 OPPORTUNITIES & CHALLENGES OF TYPES OF ORGANISATION
The more popular business types which an entrepreneur may choose to operate under are
as follows:
 Sole Trader
 Partnership
 Company
Each of the above will be faced with various challenges and opportunities. For each
of the elements stated below explain how they can be seen as an opportunity or
challenge for each type of organisation:

1. Customer service/personal relationship with clients

2. Profits
3. Decision making
4. Creativity
5. Financing
6. Cost of raw materials
7. Overall cost of production
8. Competition
9. Death/ removal of entrepreneur
10. Specialisation of tasks/ access to skilled personnel

CAPITAL
SOURCES OF CAPITAL
Capital (financial capital) refers to the money that is required to start and operate the
business. It can be obtained from the following sources:
 Family & friends
 Personal savings
 Lending agencies e.g. banks (commercial or development), credit union, insurance
companies etc.)
 Venture capitalists
 Principles of Business
Section3: Establishing A Business

COLLATERAL
This refers to anything that may be used as a form of security, to safeguard against
possible default on payment of what is owed. It is often used as a means of raising funds
because it allows the lender the comfort of knowing that they will not loose if the debt is
not repaid. This makes them more receptive to lending. Types of collateral include:
 Stocks/shares
 Life insurance policies which have cash values
 Title deeds to land & building (residential/commercial)
In the event that a debt cannot be paid, the items are sold to first recoup the debt and
any additional funds would then be given to the individual

ETHICAL & LEGAL ISSUES FACING BUSINESS/ENTREPRENEUR

1. Advertising
Ensure that products do what they say on the commercial e.g. if a good is supposed
to take out stains, it should actually do the job.
2. Safety
Products should be free from defects and should not cause harm to users in the
natural course of their use.
3. Taxation
Taxes and other deductions legally required by government should be paid e.g.
personal income tax, corporation tax, VAT, N.I.S etc.
4. Environmental Issues
 Ensure that production does not pollute the environment e.g. if production produces
smoke, make sure that you locate away from residential areas or make sure that
there is a filter on the smoke stack.
  Dispose of waste correctly
 Reduce noises to acceptable levels
5. Production
Ensure that the raw materials used to produce items are of good quality and that
ingredients are clearly stated to reduce harm.

CONSEQUENCES OF UNETHICAL & ILLEGAL PRACTICES

1. Withholding taxes is cheating the government of vital revenue which can be used to
improve the economy. It usually attracts penalties/fines.
2. Improper waste disposal leads to pollutions
3. Misleading ads. which are unfair and fraudulent on the population may be brought
before a fair trading commission /consumer protection agency and in some cases the law
courts.
4. In order to “clean” money made through illegal activity, money laundering may occur.
The money passes through a legitimate business so that it cannot be traced.
5. Lawsuits may arise if products cause illness/death.
6. A decrease in sales/profits as word spreads about unethical/illegal practices.