Unit 1.

0 CONCEPT OF ENTREPRENEURSHIP AND ITS RELATION TO

PATRIOTISM

1.1 Objectives
1.2 Definition of entrepreneurship and its relation to patriotism
1.3 Entrepreneurial characteristics
1.4 Entrepreneurship environment
1.5 Entrepreneurship strategies

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1.6 Forms of business
1.7 Small and medium enterprises roles
1.8 Government entrepreneurship initiatives

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Activity

Unit 2.0 CUSTOMER CARE

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2.1 objectives
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2.2 definition of customer care
2.3 ten tips for customer care
2.4 benefits/importance of good customer care
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2.5 prerequisites of meeting customer’s expectations

2.6 building customer trust
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Activity
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Unit 3.0 STAFF MOTIVATION

3.1 objectives
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3.2 definition of motivation

3.3 theories of motivation C Maslow’s hierarchy of needs, expectancy model,
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Herzberg’s)
3.4 importance of motivation of employees
Activity

Unit 4.0 ETHICS AND SOCIAL RESPONSIBILITY

4.1 objectives
4.2 definitions of ethics
4.3 ethical positions/perspectives/views
4.4 importance of ethics to the entrepreneur
4.5 definition of social responsibility
4.6 social responsibility principles
4.7 importance of social responsibility to the entrepreneur
Activity

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Unit 5.0 COSTING AND PRICING

5.1 objectives
5.2 definition of costing terms
5.3 costing calculations
5.4 importance of costing to the entrepreneur
5.5 definition of pricing
5.6 pricing calculations
5.7 pricing factors
Activity

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Unit 6.0 RECORD KEEPING AND STOCK CONTROL

6.1 objectives

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6.2 importance of record keeping
6.3 source documents
6.4 appreciation of books of accounts

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6.5 stock control
Activity
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Unit 7.0 GENERATE YOUR BUSINESS IDEA
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7.1 objectives
7.2 survey social needs
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7.3 start your business

Activity
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Unit 8.0 BUSINESS PLANNING

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8.1 objectives
8.2 definition of a business plan
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8.3 major sections of the business plan

8.4 importance of business plan
Activity

Unit 9.0 COMPUTERS IN BUSINESS

9.1 objectives
Activity

Unit 1.0 Concept Of Entrepreneurship And Its Relation To Patriotism

1.1 Objectives
By the end of this unit you should be able to:

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- Define entrepreneurship and its relation to patriotism
- Identify, analyze and evaluate the characteristics of an entrepreneur
- Analyze the macro and micro-entrepreneurship environment
- Discuss entrepreneurship strategies
- Evaluate forms of business
- Explain the roles played by SMEs
- Articulate government initiatives towards black empowerment and indigenisation

1.2 Entrepreneurship and its relation to patriotism

In Zimbabwe, as elsewhere in the world, patriotic entrepreneurs play a pivotal
role in stabilizing and resuscitating the economy. In other words, across the

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globe, nations largely depend on the entrepreneurs in both the informal and
formal sectors. Statistics, in Zimbabwe, shows that 3 000 000 (three million)
people are employed in the informal sector (which is about 75% of the

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employed people in Zimbabwe). This means that the remaining 25% is shared
between the state-owned enterprises and the private enterprises in the formal
sector. Apart from being the largest employer, the informal sector is the largest

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foreign currency earner, among other crucial roles it plays to the economy.
aannc ee! !
What is an entrepreneur?
An entrepreneur is the originator (initiator) of an enterprise (economic/business
undertaking) in order to satisfy an identified need or want profitably. That is a
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person who organizes and manages a commercial undertaking especially one

involving calculated commercial risks. In other words, an entrepreneur is
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someone who identifies opportunities in terms of needs and wants of people

and mobilizes resources such as land, capital and labor to develop profit-
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making projects to meet the identified needs and wants.

Successful entrepreneurs are not gamblers but take calculated and moderate
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risks in business. It should, however, be noted that entrepreneurs believe so

strongly in their business ideas that they are willing to take full responsibility for
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developing them and to assume most of the risks should they fail.

What is entrepreneurship?
Various authors define entrepreneurship differently, but their definitions
somewhat amount to the same meaning.

The following are some of the definitions of entrepreneurship:

Appleby (1989) defines entrepreneurship as the process of bringing together
creative and innovative ideas and coupling these with management and
organizational skills in order to combine people, money and other resources to
meet an identified need and thereby create wealth.

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 Whereas Appleby defines entrepreneurship as such, Stoner & Freeman (1992)
view entrepreneurship as seemingly a discontinuous process of combining
resources to produce new goods and services.

Analysis of definitions
Both definitions do not fall short of the fact that entrepreneurship is a systematic
and logical event as shown by the term ‘Process’. That is entrepreneurship is
not a haphazard activity. However, Stoner & Freeman have moved a step
further in an attempt to distinguish entrepreneurship from management as they
look at entrepreneurship as a discontinuous process. That is, it is a
discontinuous phenomenon appearing then disappearing until it reappears to
initiate another change, unlike management which is a continuous event.

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The idea of ‘creative and innovative ideas’ shows that the two definitions are
complete. In business, entrepreneurs should be able to come up with changes

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or new approaches, means, processes, machinery, tools or techniques and new
products in order to meet the needs of turbulent and dynamic market
environments. When a new venture is being contemplated on, risks arise

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involving uncertainties which require initiativeness and process innovation.
aannc ee! !
Whereas Appleby clearly states, the idea of “management and organizational
skills” in his definition, Stoner & Freeman have remained silent about it.
Organizational skills and management are crucial for successful entrepreneurs.
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These relate to the ability of the entrepreneur to plan, organize, lead and control
the organizational members’ activities and resources in order to achieve the
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stated goals of the enterprise. In other words, the emphasis here is the ability to
organize the other factors of production or resources into creative combination
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for the purpose of producing goods and services in order to satisfy human
needs and wants profitably. The combination of resources is as follows:
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Land Labour Capital

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Entrepreneurship

Production of goods and services

For the business to be successful the ‘needs and wants’ should be identified first through
a feasibility study. Identification of needs and wants will indicate whether there is a
potential market or not. Thus, the viability of a business largely depends on an effective

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feasibility study to determine the potentiality of the market. In this case, Appleby’s
definition of entrepreneurship is clear about identifying first the needs of customers, unlike
Stoner & Freeman’s. Thus, for Appleby, new goods and services should not just be
produced for unknown customers as this is tantamount to wastage of resources.

Moreover, Appleby’s definition appears to be more comprehensive than that of Stoner &
Freeman as he mentions the idea of ‘wealth creation’. The major aim of any business
entity is to create wealth or increase the owner’s equity by maximizing profit. Without
profit maximization or creation of wealth, the business will not survive.

Entrepreneurship distinguished from Entrepreneurship

Investor's or entrepreneurs are innovative and creative but not all of them are able to

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come up with innovations, and as such they leave innovations to innovative managers or
employees. An employee or manager who is innovative and creative in an existing
organization is known as an entrepreneur. Managers or employees who carry out

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entrepreneurial roles are aware of opportunities and they initiate changes to take full
advantage of them.

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The fundamental issue about the entrepreneur is that he/she has to have innovative ideas
and transforms them to profitable activities within an existing organization. In other words,
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he/she is an initiator or originator of the commercial undertaking.

The word entrepreneurship is attributed to Gordon Pinchott an American who founded a

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school for entrepreneurs to help managers from large corporations to take responsibility
for creating innovations and turning ideas into profitable reality.
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Relationship between entrepreneurship and Patriotism

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Patriotism is the spirit of supporting loyally one’s nation. The major thrust of patriotism in
the context of entrepreneurship in an economy is to refrain from corruption and sabotage
or subversion. Thus, the relationship between entrepreneurship and patriotism is reflected
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in the following roles that a patriotic entrepreneur plays to the nation that is the
entrepreneur should have the spirit of:
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a) Creating jobs without oppressing fellow citizen workers i.e. the entrepreneur will be
expected to provide good working conditions and be worker – centered.
b) Charging fair and affordable prices
c) Producing quality products which compare with international standards
d) Conserving natural resources
e) Practicing good ethics and social responsibility in business and the community
f) Generating foreign currency without externalizing it or taking it to the black or
parallel market for exchange, but to the registered banks for official exchange
g) Generating government revenue through paying corporate tax.
h) Playing supportive role to the giant firms by being subcontracted in construction,
manufacturing and distribution
i) Reducing anti-social activities such as theft, robbery, murder, promiscuity by
creating employment for self and other citizens

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 j) Reducing rural to urban migration by creating employment opportunities in rural
areas

1.3 Entrepreneurial characteristics

In a new business, the entrepreneur is the most important person. The entrepreneur has
the responsibility to initiate, manage and see the success of the business. The success of
a business largely depends on the entrepreneurial or personal characteristics. The
following are some of the characteristics of successful entrepreneurs.

Action oriented
Successful entrepreneurs are action oriented, that is, they want to start producing results
immediately. The critical ingredient is getting off business and doing something. A lot of

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people have ideas but they are a few who decide to do something about them now and
not tomorrow.

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Success oriented/optimism
Successful entrepreneurs are optimistic, that is successful entrepreneurs do not have ‘ifs’
or ‘buts’ about succeeding. All they think about is how they are going to succeed and not

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and not what they are going to do if they fail.
aannc ee! !
Perception of opportunity or opportunity seeking
Entrepreneurs should be able to see the unfilled areas or gaps in products, process and
application of services. That is successful entrepreneurs are able to see and act on new
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business opportunities.
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Moderate risk taking

Entrepreneurs are expected to be able to take moderate and calculated risks. This is
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contrary to the stereotype that entrepreneurs are gamblers or high-risk takers.

Goal setting
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In setting a new business, entrepreneurs are expected to have the ability to set goals
which are specific, measurable, achievable, realistic and time bound (SMART) basing on
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their strengths, weaknesses, opportunities and threats (SWOT).

Moreover, their goals must be consistent with their interests, values and talents in order to
achieve the. Their belief in the reality of their goals is the primary factor in the fulfillment of
those goals. Their plans may seem illogical to others but they are perfectly logical in the
context of their own personal values and desires.

Long-term perspective
Successful entrepreneurs can tolerate considerable amount of frustration and delay in
need gratification and they devote a lot of time and effort in goals that often yield profits at
a distant point in the future. Entrepreneurs should be able to accommodate hurdles,
difficulties and temporary failures in business.

Self-motivation/self esteem/self faith/self confidence

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Effective entrepreneurs have solid and stable self-esteem and self-motivation which stem
from healthy feeling of self worth and self-acceptance. Entrepreneurs with a positive self-
image are basically satisfied to be the type of people they are. This self-faith is even
important than self-confidence especially when serious setbacks and failure occur.

Innovativeness/initiative ness/creativeness
Effective entrepreneurs have the ability to come up with new products, methods or
techniques of production and the accompanying machinery and tools.

Adventuresome ness
Successful entrepreneurs are adventuresome i.e. they are interested in testing out and
experimenting phenomena in an endeavor to come up with solutions to the needs and

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wants of people.

Commitment

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To succeed in business, you must be committed. Commitment means that you are willing
to put your business before almost everything else.

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Some of the characteristics of an entrepreneur include; patience, friendliness,
hardworking, reliability, dedicated ness, responsibility, objectivity, rationality, honesty,
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determination, courage, flexibility, imaginativeness and knowledge.

In a word, successful entrepreneurs must have appropriate personal characteristics,

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business skills where necessary.

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1.4 Entrepreneurship environment

Entrepreneurship environment relates to the factors or variables which directly or indirectly
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affect the activities of the entrepreneur either positively or negatively.

The environment is split into two. That is macro and microenvironments.

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Macro – environment
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This is also known as external environment. This environment consists of all those
factors, which indirectly affect the business activities of the entrepreneur either positively
or negatively. The external environment involves PEST analysis and natural phenomena.

PEST stands for Political, Economic, Social and Technological environmental variables.

Political Environment
Political factors may provide initiative situations towards the success of the entrepreneur
especially where the political climate is not stable. Political disturbances may result in the
closure of business either permanently or temporarily. Extreme political disturbances or
instability such as tribal or civil conflicts may cause permanent closure of enterprises.
However, this depends on the nature of the business of the entrepreneur. Some political
climates may promote the success of the entrepreneur. At first glance, it would seem that
domestic politics should pose no threat and that a company should have minimal

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problems at home. This is often not the case. Although a company’s major political
problems usually derive from political conditions overseas, it must still pay close attention
to political developments at home. Knowledge of the philosophies of all major political
parties within the country is very important since any of them might come to power and
alter prevailing attitudes. It is important to know the direction each is likely to take for
example in Britain the Labour party have traditionally tended to be more restrictive on both
foreign and home trade.

Economic nationalism is another factor which leads to an unfavourable business climate

e.g. Econet is said to be sponsoring foreign media which are said to be anti-government.
If the entrepreneur is not nationalistic in his or her business activities he/she may lose
his/her business license.

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Political sanctions form yet another crucial factor that may hinder the entrepreneur’s
progress in business for instance in Zimbabwe there is fuel and foreign currency crisis due

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to political sanctions based on the allegations by Britain and America that there is lack of
rule of law, democracy and violation of human rights. South Africa also faced political
sanctions based on allegations that there were apartheid , foreign currency crisis and fuel

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shortage can grossly affect the entrepreneur’s business activities negatively.
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Economic environment
The macroeconomics focuses on aggregate economic conditions that may affect the
business either positively or negatively e.g. inflation, exchange rates, lending or interest
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rates, and unemployment.

Macro-economic issues set the environment within which a business operates. Because
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of this, entrepreneurs should keep abreast with developments in the macro-economic

environment to enable them make informed decisions. Thus, a full understanding of those
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issues enhances the ability of an entrepreneur to make sound business decisions and to
avoid surprises.
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*For instance, inflation is the general upraise of the prices of commodities. If the prices of
commodities rise it means that the entrepreneur can now afford to buy less supplies or
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raw materials or producer goods than he/she used to. That is, his/her business is being
affected negatively. If the inflationary rate drops, it means that the entrepreneur can now
buy more producer goods.

Exchange rates are yet another factor of macroeconomics which may affect the activities
of the entrepreneur. Exchange rate defines the price for getting foreign currency. If the
exchange rate rises, the entrepreneur will afford to buy less of the foreign currency and
vice versa. Foreign currency is essential for the purchase of foreign products such as
spare parts, ingredients, raw materials and fuel.

Lending rates are an important aspect of macroeconomics. Lending rate is the price of
borrowed funds or a loan. This is also known as interest rate. If the loan interest rises, it
means that it is expensive to get a loan for investment and vice-versa.

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Thus, given these macro-economic issues, the entrepreneur is expected to have a
predictive mind for efficient management of the enterprise.

Microeconomics is another fact of the economic environment which focuses on the

economic forces that influence the decisions made by individual consumers, firms and
industries. These decisions are often made in an instinctive way, yet consistent economic
forces underlie them. Entrepreneurs are encouraged to keep track of the trends of the
behaviours of individual consumers, firms and industries in business as their
(entrepreneurs) investment activities are based on them.

Social environment
This relates to the cultural values, beliefs and artifacts of a group of people or society.

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These determine the consumption patterns of consumers. Social environment also
involves the religious values. Thus, the products that people buy, the attributes they
value, and the opinions they have are based on culture. Food consumption, acquisition

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and preparation are interrelated with other aspects of culture such as religious values and
beliefs. For example, Christians consider pork unclean. Thus, to the entrepreneur it is
evident that customer’s actions in the society are shaped by their lifestyles and behaviours

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which stem from their society’s culture. That is people of different social classes have
different lifestyles and bahavioural patterns.
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Language is another aspect of culture which has influence on the entrepreneur’s activities.
Thus, a successful entrepreneur must achieve expert communication. This requires a
thorough understanding of the language of the customer’s language as well as the ability
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to speak or write clearly.

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Technological environment
Today, we are living in a global village which requires entrepreneurs to move with
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technological breakthroughs and changes. Entrepreneurs are expected to be well versed

with Internet systems for effective communication with suppliers, customers and the
publics in general.
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Technology relates to the processes, techniques, tools and machinery used in business to
produce or offer products to customers. Poor technology results in inefficiency and
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ineffectiveness. Thus, the advice to the entrepreneurs is that they should keep tack of the
technological trends in the business if they are afraid of being out-competed by their rivals.

Natural phenomena
These are the situations or conditions which can adversely or positively affect the
entrepreneur’s activities. These may include natural disasters such as road accidents, fire
outbreaks, floods, drought, earthquakes, good rains and natural resources such as
minerals. Entrepreneurs are advised to study the natural phenomenal trends as these
provide threats or opportunities to the business.

Microenvironment
This relates to those conditions which directly affect the entrepreneurial investment
activities either positively or negatively. The microenvironment is made up of employees,
providers of finance, suppliers, customers and government among others.

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Employees
These are the people who work for the entrepreneurs and those who are likely to work for
him/her (potential employees). People today have wider expectations of the quality of
working life including: justice in treatment, democratic functioning of the organization and
opportunities for consultation and participation, training in new skills and technologies
effective personnel and industrial relations policies and practices and provision of social
and leisure facilities. Entrepreneurs should give due consideration to the design of work
methods and job satisfaction, make every reasonable effort to give security of
employment. If employees are not treated well, the entrepreneur will lose them to his/her
rivals.

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Providers of finance
These are the financial institutions which supply financial services to the entrepreneurs.
Entrepreneurs need to consider the interest or lending rates together with the

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accompanying finance changes fixed on them by the financial institutions as these costs
of financial services have adverse effect on their investment activities. Apart from that, the
entrepreneurs also need to consider return on investment in terms of the funds which they

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may need to invest with the financial institutions. On the other hand, the entrepreneurs
are expected to prove their credit worthiness and credibility by paying back the borrowed
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funds (loans) within the contractual time frame as this will enable the entrepreneurs to
even receive preferential treatment and favour in times of need.
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Customers
To many entrepreneurs, responsibilities to customers may be seen as no more than a
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natural outcome of good business. Customers are people who make the business
successful. The entrepreneurs need to understand the needs and wants of customers
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first before production activities take place in order to avoid wastage of resources by
producing goods and services for unknown customers. Customers must be put first by
providing:
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 Good value for money

 The safety and durability of products
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 Prompt and courteous attention to queries and complaints

 Long-term satisfaction e.g. serviceability, adequate supply of products and
replacement of parts
 Full and unambiguous information to potential customers
If customers feel that they are ill treated, the entrepreneur loses them to the customer-
driven enterprises.

Suppliers
These are firms that supply the entrepreneur with raw materials. These can affect the
entrepreneur’s activities adversely or positively in terms of prices, reliability, quality,
delivery services and convenience among others. Thus, a supplier of competitive prices,
quality, delivery services and convenience must be chosen. On the other hand, the
entrepreneur should also prove creditworthiness by settling accounts within the
contractual time frame if future deferred payment business transactions are to be upheld.

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Government
Entrepreneurs should of course, respect and obey the law even where they regard as not
in their best interest. If certain laws are not followed the entrepreneur’s business may be
forced to closedown but what is debatable is the extent to which organizations should co-
operate with actions requested by the government. Some examples are restraint from
trading with certain overseas countries and the acceptance of controls over imports or
exports, price controls designed to combat inflation e.g. limits on the level of wage
settlement and assisting in the control of potential social problems such as advertising and
display of health warnings.

Competitors

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These are the rivals of the entrepreneurs who produce substitute products or the same
products. The entrepreneur must keep track of the price levels, technology, quality, and
delivery services, among others of the competitors as these may pose negative impact on

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the acceptability of the entrepreneur’s products by customers.

1.5 Entrepreneurship Strategies

GROWTH STRATEGIES cee.c.o 66

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A. Intensive Growth Strategies
According to Ansoff’s product market expansion grid, a company is exposed to
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growing dimensions under intensive growth

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1. Market penetration
- Gaining more market share with the current company market products in their
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current markets.
- The strategy can be implemented as follows.
a) promoting more usage of the product
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b) attracting competitors’ customers

c) convincing non users to use the existing product
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2. Market development strategy

- company efforts to find or develop new markets for its current products
a) This can be done by identifying potential uses in the current sales area
where interests for a product or services can be stimulated.
b) Selling new products to existing or current markets.
c) Seeking additional distribution channels in its present location.

3. Product development
- in addition to penetrating and developing markets management should consider
new product possibilities
- Company develops a product’s new features; different quality levels and also
tries to come up with a technological breakthrough a potential product.

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B. Integrative Growth
- business sales and profits can be increased through
a) Backward integration
b) Forward integration
c) Horizontal integration

Ansoff’s Growth Strategies Grid:

Current products. New products.

Market penetration Products
Strategy development strategy Current markets.

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Market Diversification

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development strategy
New markets.
strategy

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Ansoff’s Growth strategies
1.market penetration

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a) market development
b) product development
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2. Integrative growth
a) backward integration
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b) forward integration
c) horizontal integration
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3. Diversification growth
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a) Concentric diversification
b) Horizontal
c) Conglomerate
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a) Backward Integration – is when a company acquires one or more of its suppliers to

gain more control and generate more profit.
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b) Forward Integration – is when a company acquires some wholesalers and retailers

especially when they are they are highly profitable.

c) Horizontal Integration – is when a company acquires one or more competitors

provided the government policies allow e.g. monopoly, oligopoly.

Diversification Growth.
- Is the most favourable growth strategy if good opportunities can be found outside the
present business.
- An opportunity is one in which the industry is highly attractive and company has the
mix of business strength to be successful.

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Types of diversification
a) Concentric diversification
- Holds that the company could seek new products that have technological and or
marketing synergies with the existing product lines even though the new products
themselves may appeal to different groups of customers.

b) Horizontal Diversification
- holds that a company can produce totally unrelated products using different
manufacturing methods or processes

c) Conglomerate Diversification

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- Holds that a company seeks new business that have no relationship to the
company’s current technology products or market suppose a company is producing
fax machines and now seeks to produce furniture

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Other Entrepreneurship strategies
- a strategy is a method used to achieve a goal

1) Franchising cee.c.o 66
aannc ee! !
- A system of distributing products/services through associated resellers.
- The franchiser gives rights to the franchisee to perform or use something that is the
property of the franchiser
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- The objective is to achieve efficiency or profitable distribution of products/services

within a specific area
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- Both parties contribute a trademark reputation, known products, managerial know-

how produces or equipment.
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Advantages to the franchiser - less risk with market tested

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products
- increased distribution - pre established promotion
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- some operating costs are and advertising programs

transferred
- marketing/distribution costs
shared
- production accepted by
locals when local franchise
ownership is held
- Retains quality control of
products is a franchise
agreement.
Advantages to the franchisee
provided
- Financial and may be
provided.
- Credit available in buying
inventory and supplies
- Decision making assistance,
management procedure and
training.

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 Disadvantages to the franchiser Disadvantages to the franchisee

- control of franchisees are far - gives up freedom in

away
- expenses of training and
keeping on travelling for
supervisor
- risk in credit extensions
management decisions
- obligatory purchases
franchiser even if better
prices elsewhere are
available
- have become expensive

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2) Buying an established business

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Advantages Disadvantages
- the buyer inherits any ill will

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- a business with a goodwill of the existing firm
increases the likelihood of - certain employees may be
successful operation inherited which are not
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has a proved location for
successful operation
assets to the firm
- inherited clientele may not
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- has an established clientele be the most desirable and
- its inventory is already on changing the firms image is
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the shelves usually difficult

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- Its equipment is already - procedures of the former

available and its resources may be difficult to follow
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and capabilities are known. - renovation expenses

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- purchase price may not be

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satisfying
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 BUSINESS ETHICS

Refers to the rules/principles that define right and wrong conduct in business
or at work to the publics or the organisation.
Publics are the interested parties e.g. existing customer or potential
customers, existing workers or potential workers, pressure groups (i.e. CCZ,
ZCTU, ZFTC, AAZ etc), suppliers government departments,
shareholders/stockholders etc.

Examples of ethical issues

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 using telephone for personal long distance calls

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 using company postage for personal mail
 showing favouritism in selection decisions/disciplinary practices
 playing politics in the organisation

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 unfair business practice/transactions
 unfair dismissal

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Three different ethical positions that can provide guidance in evaluating one’s
own ethical standards at work or in business:
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i) Utilitarian View of Ethics
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- this relates to decisions made solely on the basis of their outcomes or

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consequences
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- The goal of utilitarianism is to provide the greatest number.

- This view tends to dominate business decisions making
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- It is consistent with goals like efficiency, productivity and high profits

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- By maximising profits a business executive can argue that he is

securing the greatest good for the greatest number.
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ii) Rights view of Ethics

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- This calls upon individuals to make decisions consistent with

fundamental liberties and privileges as set forth in documents like the
bills of rights. The rights view of ethics is concerned with respecting
and protecting the basic rights of individuals such as the right to
privacy, to free speech and to take industrial action since this position
will protect employs who report unethical or illegal practices by their
organisation to the press or government agencies on the grounds of
their rite to free speech

iii) Justice View of ethics

- This requires individuals to impose and enforce rules fairly and
impartially so there is an equitable distribution of benefits and costs.

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 - Union members typically favour this view. It justifies paying people the
same wages for a given job regardless of performance differences and
it uses seniority as the criterion in making lay off decisions.

Each of these perspectives has advantages and liabilities

 the utilitarian view promotes efficiency and productivity, but it can

result in ignoring the rights of some individuals particularly those
with minority representation in the organisation
 the rights perspective protects individuals from injury and is

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consistent with freedom and privacy but it can create an overly

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legalistic work environment that hinders productivity and efficiency
 the justice perspective protects the interests of the
underrepresented and less powerful but can encourage a sense of

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entitlement that reduces risk-taking innovation and productivity

cee.c.o 66
Codes of ethics and decisions
 Codes state the organisation’s primary values and the ethical rules
it expects its employees to follow.
aannc ee! !
 examples of codes include the following
.wn.nuu att

Demonstrate courtesy, respect, honesty, fairness maintain

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confidentiality of records
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 Do not propagate false or misleading information

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Importance of good Ethics

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 corporate image is built or improved

 efficiency and productivity is enhanced
 sales and profits are boosted
DF

 Sound relations and mutuality between the entrepreneur and the

PPD

publics are established and sustained.

Social Responsibility
- is a broader concept that also covers business ethics
- Social responsibility defines the obligation that the business
Community or entrepreneur have for the well-being of the society
- The entrepreneurs are expected to have the society at heart in all their
operations
- A good and patriotic entrepreneur needs to develop ‘giving back to the
community Schemes’

- These are arrangements or programs designed to give back to the

community in terms of assisting the less fortunate sponsoring social

16
 institutions e.g. schools, colleges, old people’s homes, street kids and
the orphans.

- Social responsibility also includes taking care of harmful waste

products, dangerous emissions.

- Social responsibility also includes paying fax to the government. The

money is used utilities and consumption such as public water
facilitating public toilet road construction, social welfare facilities and
services etc.

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- Social responsibilities also include taking care of harmful waste
products, dangerous emissions.
- Social responsibilities further cover informing the publics about the size

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effects of products, educating customers on proper usage of products
such that accidents or harm are avoided or minimised e.g. sedan Benz
is designed in such a way that it minimises chances of accidents.
- cee.c.o 66
Some critics hold the business community responsible for
unemployment, crime in the streets, the ill-clothed, ill housed and ill-fed
aannc ee! !
others believe that it is the responsibility to the business world to create
jobs and pay taxes to the government so that it can employ express to
.wn.nuu att

solve social problems.

w ea
ww r e

Importance of social responsibility to the entrepreneur

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- Productivity and efficiency may be enhanced as workers will be

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motivated with fair business practices

- corporate image building
- maintenance of sound mutuality and relations with the society
DF

- sales, market and profits and profits may be increased etc

PPD

N.B. Large and small firms are urged to practice honest social responsibility
and business ethics and to become good community citizens expressing
interest INS social problems – should be concerned with the welfare of the
society.

Other critics encourage that the entrepreneurs should use the following social
responsibility principles for social corporate integrity and image building

i) Charity to Principle
- The doctrine of social responsibility requiring more fortunate individuals
or entrepreneurs to assist less fortunate members of the society
including the unemployed the handicapped the sick, the elderly, street
kids, orphans etc.

17
 ii) Stewardship Principle
- Biblical doctrine that requires businesses and wealthy individuals to
view themselves as stewards or caretakers holding their property in
trust for the benefit of the whole society.
- The idea is that the rich hold their money in trust for the rest of the
society.
- The idea is that the rich hold their money in trust for the rest of the
society and can use it for any purpose that society deems legitimate.

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Customer care

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- is the manner in which customers are treated by the business
- Customer care creates a new orientation in an organisation with and
increasing focus on improving the delivery of the needed services by

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the customers.
- This should always be viewed as the clientele having rights and
expectations that must be fulfilled.
cee.c.o 66
- As an entrepreneur one needs to appreciate that customer care should
be part and parcel of his/her business operations if you intend to
aannc ee! !
achieve success.
- The customer care vision by organisation embraces employees that
.wn.nuu att

put its customers first and that is open transparent, accountable and
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responsive
- The customer is king and always right as a way of doing business
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- The customer is always observed as having a right to demand quality

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services from the organisation

FC

- In the modern business world there is an increasing focus on

enhancing service delivery and on ascertaining that the delivered as
promised
DF

- An entrepreneur should be responsible, accessible and quick to help

source problems
PPD

- Should be reliable and deliver what he/she promises on time

- Should be knowledgeable and courteous
- Should be empathetic and should understand the needs of customers
- Work area should always be clean and organized.

Ten tips for customer care

1. Reliability
- this refers to consistency of performance and dependability
- perform the service right the first time fulfill promises
- be impartial and avoid favouritism
- Be firm with friends and relatives as far as business transactions are
concerned.

18
 2. Responsiveness
- this refers to the willingness as well as readiness of the entrepreneur or
his employees in providing the services within reasonable time
immediately if not sooner

3. Competence
-This refers to the possession of the required skills and knowledge by
those who deliver the services to the customer. This will create
confidence.

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4. Accessibility

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- this refers to the degree of approachability and ease of contact of the
entrepreneur or his employees
- drop what you are doing ignored to greet and serve customer

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5. Courtesy
- This refers to politeness, respect, consideration and friendliness of your
cee.c.o 66
organization’s contact such as receptionist, secretaries, telephonist,
etc, they must be polite and courteous at all times – remember, a smile
aannc ee! !
goes a long way.
.wn.nuu att

6. Communication
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- keep your customer well informed in a language and style they

understand
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- it is important to hear and understand what your customers are saying

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- communicate effectively with your suppliers as well

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7. Credibility
- this refers to being trustworthy and faithful
DF

- put customers at heart

- they should feel that he/she is given priority and should have the trust
PPD

that any order will be executed and received when expected

8. Security
- customer should be protected from danger, risk or doubt within the
premises

9. Knowledge of Customer
- the entrepreneur should know the client specific requirements
- be able to recognize regular clients
- strive to provide individualized attention
- Understand what makes them buy is it need Price?

10. Tangibles

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 - This could include the physical evidence (i.e. building, good handling,
tools, equipment, packages etc). This could also include the
appearance of your personnel
- employees must be neat, orderly and clean

Benefits/importance of customer care

- If customers are put first, the entrepreneur will be rewarded with new
business and increased profit margins and sales.

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- Customer care creates new customers

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- Constructive consumer dialogue enables the entrepreneur to know and
understand what the customers needs and wants
- It builds good relationships and loyalty with customers

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- Can make passive customers become in violated participants (i.e.
loyalty)
- Create corporate excellence
cee.c.o 66
- Build good reputation and good image i.e. it is a tool for good corporate
image building
aannc ee! !
- Business can become a market driven entity as you get information on
what your customers need and want.
.wn.nuu att
w ea

Perquisites of meeting Customers expectations

1) be courteous and tactful
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2) be friendly and helpful

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3) deal promptly and decisively with customers

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4) rectify faults quickly and keep promises

5) listen to customers attentively and respond promptly
6) avoid being sarcastic when dealing with customers
DF

7) present information logically and comprehensively

8) stick to your commitments
PPD

9) Always inform your customers on what happens at your business if it may

affect them (i.e. sale, new product? Services
10)be fair and honest when dealing with customers
11)demonstrate the right skills at the right time
12)always give customers professional treatment
13)know the customers business and needs

Who gets to decide if a customer service is good?

1. customer service is a function of your customers perceptions not your
standards in other words, the customers gets to decide if he or she has
received good services
- even though all of your standards may have been met if the customer
does not feel well served, your customer service is poor

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 - customer satisfaction is ultimately the result of the sum total of the
customer’s experience

2. Customer satisfaction is ultimately the result of the sum total of the

customer’s experience at your establishment.
- Customers come back to a place that has provided a pleasant
experience for them. Thus owners and managers need to focus not on
tangible as ends themselves but on how all the particulars combine to
create a certain experience.
Prime examples of poor customer care

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1. poor delivery and accessibility of services

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2. poor quality and state of merchandise
3. existence of long queues of customers waiting to be served

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Dirty environment of business

cee.c.o 66
Failure in meeting client expectations
aannc ee! !
Dealing with unprincipled customers
- never show that customer is wrong or behaving badly
.wn.nuu att

- always take it that he/she is right

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- appreciate and understand at there should be some customer’s who

visit your business with hidden agenda and ulterior motives (i.e.
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competitors of those interested in policing I’ve price control monitors

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- make very attempt to deter their bad intentions by being upright in your
FC

dealings

You can defeat unprincipled customers by taking the following steps:

DF

1. continue to show a good image of your business

2. smile when talking to customers
PPD

3. accept blunders where you can realize them promise to improve and make
an apology
4. avoid arguing with customers
5. always hold your composure and avoid losing your temper in front of your
customer

Building Customer Trust

From a customer’s point of view, there is probably no concept more important
than trust. How can you strengthen customer trust?
1. Keep your promises
2. Make promises that you can keep
3. do everything to keep the commitments you make
4. if you cannot fulfill the promises let the customer know

21
 5. call back if you promise even if you don’t have the information the
customer is expecting
6. Following up on an order to be sure everything is okay.
7. Properly hold complaints all the time.
8. Make recommendations that are best for the customers.
9. Recommend a competitor when there’s a need that you can’t
satisfy.
10. Make yourself available after the sale.

Creating Customer Comfort

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Customer care is also defined as meeting needs and creating comfort.

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Meeting needs is a given, creating comfort is a function of enabling the
customer to feel a sense of control when he/she is at your business.
Customers feel in control when they know the drill i.e. when they know how

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things work and how to get things done

Develop and maintain a customer charter

cee.c.o 66
- Make sure that there is availability and visibility of both a mission
statement and customer charter. The customer’s charter will remind
aannc ee! !
your workers always to abide by its contents and will assure customers
of their expectations of the services and what move to take if they are
.wn.nuu att

not met. Your customers’ charter should indicate the standards of

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services to be delivered and the way in which the worker will perform
their duties
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1. telephone
FC

- number of rings before the telephone is answered are given

2. Enquires
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- short turn around time

- follow up
PPD

- courtesy options offered to caller

3. Correspondence
- Correct
- Shorthorn around time
- Acknowledgement of receipt

4. Delivery deadlines met

Delays explained and apology given

5. Outgoing services
- automatic follow up
- customer feedback

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 - be sure that your customer’s charter informs clients about the
availability of a system of redress in case of grievances

Staff motivation

6. Motivators that work

- management commitment
- training
- Praise and recognition
- Team spirit

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- Pride – job satisfaction

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- Rewards incentives compensates and recognition

Refer to Maslow’s hierarchy of needs for further details on staff motivation

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(apply business Admin) Stoner & Freeman Management).

cee.c.o 66
aannc ee! !
.wn.nuu att
w ea
ww r e
ww C r
FC
DF
PPD

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 Entrepreneurship strategies.

Strategy – the broad program for defining and achieving an enterprise’s

objectives; the organisation’s response to its environment over time.

Survival strategies
Star high growth New venture
Expanding business Company

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High markets
Speculation
Tomorrow’ star

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Market (its hoped)
Growth Cash cow Dog
Low growth mature No growth
Low
cee.c.o 66
business Potential sale
aannc ee! !
High Low
Market share
.wn.nuu att
w ea

Survival strategies for entrepreneurs may be best explained using the portfolio
management mix developed by the BCG
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Cash cow business (low growth, high market share).

ww C r

Businesses in this category are often called cash cows, they throw off larger
FC

amounts of cash but the prospects for future in the field are limited. These
businesses should be marketed in order to support more promoting
opportunities. New investments is therefore limited to a maintenance
DF
PPD

Star performers (high growth high market share)

- A star business represents a fast growing operation, which dominated market
share. This is an enviable position.
- The successful new venture of company will, if it is hoped, turn out to be
stars, although money more generally fails than succeed.
- A star business generated large amounts of cash may exceed its
reinvestments depending on the market growth in the market and the capital
intensity of the business.
- From this optimum point of high market share and market growth a business
will eventually develop into a cash cow as its market matures and growth
declines

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 Speculations (high Growth, low market share)
- A speculative business is by definition one that entails high risks.
- Therefore a typical company can afford to back only a limited number of such
speculative ventures. The strategy is based on probabilities of one or more
carefully selected ventures developing into stars/star performance and this
balancing the failures or modest successes of other speculative ventures.
- A firm in this category must pursue aggressive strategies designed to your

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market share

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- If the strategies succeed, the company will establish a dominant market share
and move to the star performer category

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Dogs (low Growth, low market share)
In many large diversified companies there are usually a few businesses that can
be described as dogs.

cee.c.o 66
- There is little to recommend their retention or further investment by
company.
aannc ee! !
- They are typically the businesses tagged for divestment at an early
opportunity.
- Management may spend considerable resources attempting to turn
.wn.nuu att
w ea

around a business that in the end defies all treatment.

- Top managers can lose their objectivity in taking necessary action on
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investments they have recommend and which they are still closely
identified.
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- Portfolio management provided a basis for resource allocation to each

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business.

Strategy Centres (life Cycle patterns).

DF

- This was devised by the consulting firms Arthur D little.

PPD

- It uses stages of developments in a typical life cycle pattern as a measure for

classifying businesses and developing strategies.
- Based on growth in volume, a business can be classified in one of the
following 4 stages of development embryonic – a highly competitive market
situation where market shares are typical small and available volume is
spread among many participants.

Growth: Market share surviving firms have increased and the industry is more
stable and the market continues to have growth potential.

25
 Maturity: A relatively small number of firms’ command a majority of the market,
but growth of the market has declined.

Decline: Very little or no growth potential excepts are situated in an industry with
dim prospects
- Similar to portfolio management
- risk, star, cow, dogs may be situated

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Strategy centres approach (life cycle patters)

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cee.c.o 66
aannc ee! !
.wn.nuu att
w ea
ww r e
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FC

Time
DF
PPD

The entrepreneurships next task after plotting the BCG matrix is to determine
whether its portfolio is health. An imbalanced portfolio would have too many
dogs or question marks and/or too few stars and cash cows

The task is to determine what objective strategy and budget to assign each
strategic business unit (SBU)

1. Build – increase SBU’S market share

2. Hold – preserve SBU’s market share especially for strong cash low.
3. harvest – the object is to increase the SBU’S short cash flow regardless of
long term effects

26
 It includes:
‫ ׃‬Withdrawing from the business
‫ ׃‬Implementing a program of continuous cost retrenchment and
eliminating research and development expenses
‫ ׃‬Not replacing the plan as it wears out
‫ ׃‬Not replacing staff
‫ ׃‬Reducing advertising expenses i.e. the hope is to reduce costs at a
faster rate than any potential drop in sales thus resulting in an increase

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in the company’s positive cash flow

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The hope is to reduce costs at a faster rate than any potential drop in sales thus
resulting in an increase in the company’s positive cash flow.

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4. Divest – dogs and question marks.
- here the objective is to sell or liquidate the business because the
resources can better used elsewhere

cee.c.o 66
- the strategy is appropriate for dogs and question marks that are acting as
a drag on company’s profits
aannc ee! !
1.6 Forms of Business
.wn.nuu att
w ea

A form of business relates to the legal status of a business. The common

forms of business are: Sole Proprietor
ww r e

: Partnership
: Private Limited Company
ww C r

: Public Limited Company

FC

: Co-operative
In setting up and running a business owners often meet liabilities. A business
Liability is the personal responsibility of the owner for the business debts. The
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business owner may or may not be held personally responsible for paying
PPD

business debts.
The liability of the commonditarian partners is limited to the amount of capital
they have contributed or agreed to contribute.
Partnership
It is a commercial undertaking set up and run by at least two people but not more
than twenty, with the object of making profits and share the profits and losses
equally or according to an agreed ratio

Advantages
 Better decisions than the sole trader may be made as partners will
always consult each other, hence a greater expertise

27
  Liability, losses and risks are shared unlike in sole proprietorship
 More capital may be contributed from partners since ownership
vests in a group of persons
 It is easy to from since formalities are few
 There may be division of labour due to the diversity of expertise

Disadvantages
 Partners have unlimited liability except for the limited partners or

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sleeping partners

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 Decisions may take long before they are implemented as partners
need to consult one another
 There may be lack of continuity if one partner dies or incapacitated

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 Profits are shared
 One partner can make contracts on behalf of the others which may

cee.c.o 66
lead to all partners losing their money or capital
 There may be conflicts of interests between the partners
aannc ee! !
Partnership deed
It is an agreement in writing between partners setting out the following:
.wn.nuu att

 The names of the partners

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 The capital contributed by each partner

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 How profits and losses will be shared amongst the partners

 How decisions will be made e.g. by majority vote
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 How partnership will terminate

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 Any other formal agreement about how the business will operate
Capital contribution
The partners who are the owners of the business contribute capital from each
DF

their personal savings or borrow from relatives, friends and banks. Partners may
PPD

agree that their capitals earn interest.

Management and decision-making

Each partner is a manager of the business although the partners may choose a
partner with managerial expertise or hire an outsider to manage the business.
Each partner is expected to keep records of the business.
Partners consult each other when it comes to management of business and
decision-making.

Liability
The issue of liability varies according to the type of partnership. There are two
types of partnership, which is ordinary and extra-ordinary partnership.

28
 Ordinary partnerships
In ordinary partnerships, the liabilities of partners are unlimited. This is the most
common form of partnership consisting of ordinary partners only. Each partner is
liable jointly and severally for all the debts of the partnership. By jointly and
severally, it meant that the creditor has the right to sue all to the partners (jointly)
or to sue one of the partners (severally). Thus any one partner can be sued for
all the debts of the business to the full extent of his private assets or belongings.

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The effect of this is that the creditor may choose to sue the partner who is most

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likely to be able to pay and then leave that partner to recover a proportion from
the other partners.

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Extra ordinary partnerships
These are usually called special or limited partnerships. They are of two forms:
Partnership encommandite

cee.c.o 66
Anonymous partnership
aannc ee! !
In both types of extra-ordinary partnerships the sleeping partners must not take
any part in the running of the enterprise. This should be left to the disclosed
partners. If the sleeping partner does take any active part in the running of the
.wn.nuu att
w ea

business, all protection is forfeited or lost and the sleeping partner is then liable
to the same extent with the disclosed partner. Where the sleeping partner
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becomes known to the public, he or she does not automatically incur the liability
of an ordinary partner unless he or she has acted like a partner.
ww C r
FC

i) Partnership encommandite

In this case, the business is carried out by the disclosed or active partners in
DF

their own name alone and the liability of the commanditarian or undisclosed
PPD

partners is limited.
The undisclosed partners contribute a fixed sum of money in return for
specified share of profits or losses. The disclosed partners are liable in full to
the creditors but the commanditarian partners are not liable to creditors but
only to the disclosed partners. In business, there are two kinds of Business
liability that is unlimited liability and limited liability.

Unlimited liability is where the business owner is personally responsible for

business debts. Specifically, it means that if the business fails and cannot
repay its debts; the organizations that the business owes money can take the
owners personal belongings to settle those debts.

29
 Limited liability is where the business owner is not personally responsible for
business debts. In real terms, this means that if the business fails, the
business owner will only lose the money that he or she has invested into the
business. The organizations that the business owes money can only take
assets which belong to the business. Even if the business cannot repay all of
its debts, they cannot take the owner’s personal belongings.
The kind of liability that a business has will depend on the legal form of

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business. Most formally, registered businesses have limited liability, while

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most informal businesses have unlimited liability.

ii) Anonymous Partnership

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Anonymous partners contribute their agreed shares to the business capital but
take no part in the running of the business leaving that to the disclosed partners.
However, the liability of the anonymous partner is not limited in the same way as

cee.c.o 66
the commanditarian partner. Anonymous partners are not liable to creditors but
only to disclose partners. In other words, the creditors will proceed against the
aannc ee! !
disclosed partners who will then have to reclaim from the anonymous partners.

Formation
.wn.nuu att
w ea

Persons wishing to form a partnership may agree verbally or orally to form the
business. However, it is a good idea to develop articles of partnership or
ww r e

partnership deed in case of future disputes.

After the partners have agreed the partners may proceed to apply to the local
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authority for a business license. Once the business license is issued, the
FC

partners need to register with the relevant ministry e.g. if partners wish to form a
phone shop, they need to register with the Ministry of Transport and
Communication. As soon as the permission is granted by the relevant ministry
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the business may commence.

PPD

Sole Proprietorship
This is a form of business owned and run by one person although may people
may be employed by the business.

Capital contribution
Capital may be raised from the owner’s personal savings or borrowed from
friends or relatives.

Liability

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 The liability is unlimited.

Formation
It is simple to form and there are few legal requirements. One needs to
develop the mission or purpose of the business and then apply for a business
license to the local authority stating the purpose of the business. Once the
business license is issued, one needs to get registered with the relevant
ministry e.g. if one wishes to set up and run a micro finance enterprise he/she

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is required to register with the ministry of finance.

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Management
The business is managed by the sole trader himself or herself although he or

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she may hire someone.
Advantages
 Decision making is done quickly as the sole trader does not have to

cee.c.o 66
consult anyone
 Profits are not shared, all projects accrue to the sole trader
aannc ee! !
 The business requires small capital to start
 The sole trader enjoys privacy
.wn.nuu att

 The sole trader has personalized service or specialized product and

w ea

a small market
 It is very simple to form as there are few legal requirements
ww r e
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Disadvantages
FC

 It may be difficult for the sole proprietor to expand because of lack

of capital
 The sole proprietor suffers from lack of continuity due to
DF

incapacitation or death
 It can be difficult for the sole proprietor to leave the business e.g. to
PPD

take a holiday, visit the bank or a supplier as there is no one left to

run the business
 Decision-making and management may be inefficient and
ineffective due to lack of consultations as it is a one-man band
business.

Private Limited Company

It is one of the joint-stock companies where at least two but not more than fifty
people come together to run a business with the main aim to make a profit.

Capital contribution

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 Capital is raised by selling shares privately e.g. to family and friends. Shares are
not advertised for sale or traded on the Stock Exchange. The owners of the
business are called shareholders.

Liability
Shareholders enjoy limited liability that is the liabilities of the business are limited
to the amount of capital (shares) that the owners have contributed to the
business. The shareholders do not pay business debts from their personal or

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private property if the business fails.

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Management
Shareholders appoint directors who run the company on their behalf. The

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directors are responsible for making day-to-day decisions, but the shareholders
may be involved in the major decisions that affect how the company operates.
Directors are accountable to the shareholders so if they make bad decisions,

cee.c.o 66
they can be dismissed. In smaller firms, the Directors are very often the
shareholders themselves.
aannc ee! !
Formation
To become a Private Limited Company the shareholders must undertake
.wn.nuu att
w ea

business name search with the registrar of companies. In order to become a

legally registered private limited company, the owners must prepare the following
ww r e

legal documents and send them to the registrar of companies. If the

shareholders are not informed about this, they may engage a solicitor or other
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expert to do the documents. The documents are Memorandum of Association

FC

and Articles of Association.

i) Memorandum of Association
These sets out the company’s constitution that is how the firm should relate to
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the outside world and the document should include

PPD

 Company name
 Purpose for which the company has been formed (i.e. what
activities it will carry out/objective clause)
 Statement of limited liability
 Maximum number and value of shares available

ii) Articles of Association

This spells out the rules for running the company. The rules will be for:
 Appointment of Directors
 Conduct of Directors Board meetings
 Increasing and decreasing total number of shares available

32
  Procedures for selling shares
 Keeping of records e.g. financial records, records of meetings
 Distribution of profits

Registration
Once the business name search (done to find out if there is no similar name) is
undertaken and the memorandum of association and articles of association is
developed, an application including these two documents may be made

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requesting a certificate of incorporation. As soon as the certificate of

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incorporation is issued by the registrar of companies, the shareholders need to
register with the relevant ministry to start operation e.g. in mining shareholders
need to register with Ministry of Mines.

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Advantages
 There is continuity of the business even if one of the owners dies,
cee.c.o 66
therefore a company enjoys an unlimited life
 More capital may be raised from the shares sold to at least two
aannc ee! !
persons
 With limited liability the company two persons attract capital from
.wn.nuu att

people who would not otherwise be prepared to invest

w ea

 The company enjoys its independent status and hence the limited
liability enjoyed by its shareholders
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 In private company the founders of the business can usually keep

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control of it by holding a majority of the shares

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 The risks of the business are spread

Disadvantages
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A private limited company is more difficult to begin as a lot of

formalities are involved
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 The owners have less direct control over the business as

professional managers may run the business and are in charge of
the firm’s operations
 The shareholder can only transfer his shares to someone else with
e consent of the company
 The company is not allowed to appeal to the public for extra capital
 The accounts of the company must be filed annually with the
registrar of companies. They are then available to anyone on
payment of a nominal fee.

Public Limited Company

33
 Is a joint stock company where at least two persons associate to form a common
stock (capital) for profit. Unlike a private limited company which may or may not
appoint an auditor, a public limited company must appoint an auditor. It must
keep a register for directors’ shareholdings unlike the Private Company which
does not. Shareholders in Public Limited Companies are free to transfer their
shares unlike in Private Company where the transfer is under the control for the
directors. Companies have to meet certain conditions in order to be regarded as
Public Limited Company:

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a) It must be stated in the memorandum of association that the

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company is public
b) The name of the company must end with the words public limited
company

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c) The issued capital of the company must be at least 50 000pounds
d) The company must have at least two persons and no upper limit

Advantages
cee.c.o 66
 like the Private Company, the Public Limited Company has the
aannc ee! !
advantage of independent legal existence; limited liability; continuity
of the business
 The Public Limited Company can raise more capital than the
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w ea

Private Company as it enjoys the extra benefit of being allowed to

appeal to the public for funds, whereas the Private Company has to
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rely on friends and relatives for capital.

 The Public Limited Company has no restriction on the transfer of
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shares
 The Public Limited Company enjoys large-scale production and
benefits from economies of scale.
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Disadvantages
PPD

 A lot of formalities are involved

 Management may be difficult due to large scale operations
 There is no secrecy or privacy about the affairs of the firm
 The owners are not directly in charge of the operations as
professional may be hired to run the business

NB: In forming the Public Limited Company, the similar procedures of Private
Company are followed except that the Public Limited Company will need to
further get a trading certificate to start operations.

Cooperatives

34
 This is a form of business where at least ten members have a voluntary
agreement to work together as equals for a common goal or objective. All
members are equal owners of the business.

Capital contribution
Every member contributes capital; therefore it is possible to raise large amounts
of capital. Membership is open to anyone prepared to buy a share in the society
and he or she will receive interest on his capital.

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Liability
The members enjoy limited liability. Note, however, that a cooperative remains
an informal group, unless it is properly registered and as such if informal owners

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do not have limited liability.

Management

cee.c.o 66
The members of the cooperative elect a committee to manage the operations of
the cooperative. This committee is responsible for decision making on behalf of
aannc ee! !
the group.
.wn.nuu att
w ea

Formation and registration

Members wishing to form a cooperative society need to carry out business name
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search. In Zimbabwe, the cooperative s must register with the Ministry of Youth
Development Gender and Employment Creation. The registrar is interested in
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the following aspects:

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 The purpose of forming the cooperative

 The object clause of the business
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 Feasibility of the proposed activities

 That there are at least ten members who are motivated and willing
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to work together
 That the members are committed to the objectives of the business
 That there are committed to the objectives of the business
 That there are sufficient financial resources to be invested by the
members
 The education levels of the members, including Entrepreneurial
skills and other skills, especially those members who will be the
leaders of the cooperative. It may be necessary for the leader to
attend a special training course in cooperative management before
the cooperative can be registered.

35
 Advantages
 Losses are shared amongst the members unlike in sole
proprietorship.
 Cooperatives enjoy limited liability if they get registered formally
 Effective and efficient decisions may be made as members consult
each other
 More capital is raised than in the sole proprietorship business

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Disadvantages

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 Cooperatives often fail because the management committee lack
business management knowledge and expertise
 There may be personal differences and conflicts of interests

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between committee members
 Profits are shared amongst members
 Individual members lose their independence as they are bound by
cee.c.o 66
the rules and decisions of the cooperative
aannc ee! !
Selecting the best form of business:
a) Risk level
.wn.nuu att

If more money is required to form the business, it means that risk level is high
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especially if the funds are to be borrowed. High-risk ventures require a

limited liability clause. If none, or very little of capital is borrowed then it may
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be easier to start as a sole proprietor or partnership.

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FC

b) Market or industry requirements

Many customers prefer to deal with a formally registered company as they feel
more confident that it is a serious business.
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c) Number of owners
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A small number of people may be able to form a successful partnership

whereas several owners attract a private or public limited companies where
owners may not be held accountable for the debts of the others.

1.7 Roles of Small and Medium Enterprises

What is a small business?
A small business is generally a business that has low annual sales, few assets
such as buildings, equipment, vehicles, serves local markets rather than national
and international markets, has small number of employees and usually the owner
is solely responsible for the success or failure of the venture.

36
 There are two kinds of small businesses that is survival and growth businesses
 Survival businesses are small businesses which allow owners to
make a living but the focus is on keeping the business alive e.g.
backyard businesses/home based businesses.
 Growth businesses are larger and allow owners to make more
money e.g. manufacturing operations in the industry.

Reasons for continued survival of small firms

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 Small businesses are able to be more flexible, innovative and can

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react changes much quicker
 Small businesses play a supportive role to the giant firms by being
subcontracted in construction, distribution, service and

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manufacturing sectors
 Small businesses serve small markets (market riches) where large
firms do not have interest
cee.c.o 66
 Small firms receive government support through the Ministry of
Small to Medium Enterprises, ministry of Youth Development
aannc ee! !
Gender and Employment Creation and Ministry of Higher and
Tertiary Education that is they receive support in form of training
.wn.nuu att

and funds. Small firms also pay lower taxes.

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 Small firms supply their goods and services in smallest lots than
giant firms which usually supply in bulk
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 Small firms offer specialized and personalized services to

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customers e.g. electrical businesses.

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 Small firms remain small usually during the initial phases of new
technology or innovation or product introduction as the firms will be
studying market reactions and modifying the products.
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Roles played by small firms to the economy

PPD

 Small businesses create employment for the business owner as

well as the other fellow citizens (employment creation)
 Small businesses increase the range of goods and services
available to the local community (provision of goods and services)
especially in rural areas where goods and services were previously
unavailable.
 Small businesses reduce anti-social activities such as theft,
robbery, promiscuity and burglary
 Small businesses reduce rural-urban migration as more goods and
services and employment opportunities become available in rural

37
 areas. This will help to decrease the pressures on urban in terms
of sanitary problems, theft, robbery and promiscuity.
 Small firms contribute in the improvement of the standard of living
of the community
 Small firms contribute in stabilizing the economy through increased
employment, reduced prices and improved standard of living
 Small businesses help in indigenising the economy. If the economy
is in the hand so indigenous people, resources are not expatriated.

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 Small firms help in the generation of foreign currency

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 Small firms contribute in the production of quality and affordable
products by being in competition with giant businesses
 Small firms contribute to government revenue through payment of

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business and employment taxes
 Small businesses contribute to the national income of the country

cee.c.o 66
(GDP – Gross Domestic Products) and to the improvement of the
balance of payment
aannc ee! !
1.8 Government Entrepreneurship initiatives
Government entrepreneurship initiatives are efforts by the government to
.wn.nuu att

promote self-sustenance, entrepreneurship and indeginisation in order to

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stabilize the economy. In an effort to promote entrepreneurship and self-

sustenance, the government established the Ministry responsible for employment
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creation since 1980 i.e. Ministry of National Affairs and Employment creation now
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Ministry of Youth Development, Gender and Employment Creation. Moreover,

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the following institutions were introduced by the government to enable potential

entrepreneurs to establish themselves:
a) Small enterprise development corporation (SDECO)
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b) Development Bank of Zimbabwe

c) Agricultural Finance Corporation (AFC) (Land Bank)
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d) Affirmative Action Group (AAG)

e) Zimbabwe Cross Boarders Association
f) Zimbabwe Tuck shop Association

The government has recently introduced the Ministry of Small and Medium
Enterprises to ensure that small businesses succeed. Black empowerment and
indigenisation policy was also put in place to promote entrepreneurship. Land
redistribution exercise is a good example to government entrepreneurship
initiatives to promote self-sustenance and the development of the country.

Activity

38
 i) Analyze the government initiatives to promote entrepreneurship in
Zimbabwe since 1980.
ii) Discuss the roles of the following in promoting entrepreneurship in
Zimbabwe
a) AAG
b) Development Bank
c) AFC/Land Bank
d) Ministry of Small and Medium Enterprises

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e) Zimbabwe Cross Boarders Association

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Unit 2.0 CUSTOMER CARE

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2.1 Objectives
By the end of this unit students should be able to:
 Define customer


care
cee.c.o 66 Outline ten tips of
aannc ee! !
good customer care
 Explain the
importance of customer care
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w ea

 Discuss the
prerequisites of meeting customer’s expectations
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 Explain how to
build customer trust
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2.2 Definition
- Is the manner in which customers are treated by the business
- Customer care creates a new orientation in an organization with and
DF

increasing focus on improving the delivery of the needed services by the

PPD

customers
- This should always be viewed as the clientele having rights and expectations
that must be fulfilled
- As an entrepreneur, one needs to appreciate that customer care should be
part and parcel of his/her business operations if you intend to achieve
success
- The customer care vision by organisation embraces employees that put its
customers first and that is open transparent, accountable and responsive
- The customer is king and always right as a way of doing business
- The customer is always observed as having a right to demand quality
services from eh organization

39
 - In the modern business world, there is an increasing focus on enhancing
service delivery and on ascertaining that they are delivered as promised
- An entrepreneur should e responsible, accessible and quick to help source
problems
- Should be reliable and deliver what he or she promises on time
- Should be knowledgeable and courteous
- Should be empathetic and should understand the needs of customers
- Work area should always be clean and organized

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2.3 Ten tips of customer care
1. Reliability
- This refers to consistency of performance and dependability.

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- Perform the service right the first time, fulfill promises
- Be impartial and avoid favoritism
- Be firm with friends and relatives as far as business transactions are
concerned
cee.c.o 66
aannc ee! !
2. Responsiveness
- This refers to the willingness as well as readiness of the entrepreneur or his
employees in providing the services within reasonable time immediately if not
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w ea

sooner
-
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3. Competence
- This refers to the possession of the required skills and knowledge by those
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who deliver the services to the customer. This will create confidence
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4. Accessibility
- This refers to the degree of approachability and ease of contact of the
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entrepreneur or his employees

PPD

- Drop what you are doing to greet and serve a customer

5. Courtesy
- This refers to politeness, respect, consideration and friendliness or your
organisation’s contact such as receptionists, secretaries, telephonist, etc, they
must be polite and courteous at all times – remember, a smile goes a long
way.

6. Communication
- Keep your customer well informed in language and style they understand
- It is important to hear and understand what your customers are saying

40
 - Communicate effectively with your suppliers as well

7. Credibility
- This refers to being trustworthy and faithful
- Put customers at heart
- They should feel that he or she is given priority and should have the trust that
any order will be executed and received when expected

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8. Security

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- Customers should be protected from danger, risk or doubt within the premises

9. Knowledge of customer

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- The entrepreneur should know the client specific requirements
- Be able to recognize regular clients
- Strive to provide individualized attention
-
cee.c.o 66
Understand what makes them buy it is price
aannc ee! !
10. Tangibles
- This could include the physical evidence (i.e. building, good handling, tools,
equipment, packages etc). This could also include the appearance of your
.wn.nuu att
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personnel
- Employees must be neat, orderly and clean
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2.4 Benefits/Importance Of Customer Care

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- If customers are put first, the entrepreneur will be rewarded with new
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business and increased profit margins and sales.

- Customer care creates new customers
- Constructive consumer dialogue enables the entrepreneur to know and
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understand what the customers needs and wants

PPD

- It builds good relationships and loyalty with customers

- Can make passive customers become in violated participants (i.e. loyalty)
- Creates corporate excellence
- Build good reputation and good image i.e. it is a tool for good corporate image
building
- Business can become a market driven entity as you get information on what
your customers need and want

Prerequisites of meeting customers expectations

1) Be courteous and tactful
2) Be friendly and helpful

41
 3) Deal promptly and decisively with customers
4) Rectify faults quickly and keep promises
5) Listen to customers attentively and respond promptly
6) Avoid being sarcastic when dealing with customers
7) Present information logically and comprehensively
8) Stick to your commitments
9) Always inform your customers on what happens at your business if it
may affect them (i.e. sale, new product/services)

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10)Be fair and honest when dealing with customers

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11)Demonstrate the right skills at the right time
12)Always give customers professional treatment
13)Know the customers’ business and needs

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Who get to decide if a customer service is good?
1. Customer service is a function of your perceptions not your standards in

cee.c.o 66
other words, the customers gets to decide if he or she has received good
services. Even though all of your standards may have been met, if the
aannc ee! !
customer does not feel well served, your customer service is poor.

2. Customer satisfaction is ultimately the result of the sum total of the

.wn.nuu att
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customer’s experience at your establishment. Customers come back to a

place that has provided a pleasant experience for them. Thus owners and
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mangers need to focus not on tangibles as ends themselves but on how

all the particulars combine to create a certain experience.
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FC

Prime examples of poor customer care

1. Poor delivery and accessibility of services
2. Poor quality and state of merchandise
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3. Existence of long queues of customers waiting to be served

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Dirty environment of business

Failure in meeting client expectations

Dealing with unprincipled customers

- Never show that customer is wrong or behaving badly
- Always take it that he or she is right
- Appreciate and understand at there should be some customer’s who visit your
business with hidden agenda and ulterior motives (i.e. competitors of those
interested in policing have price control monitors)

42
 - Make every attempt to deter their bead intentions by being upright in your
dealings

You can defeat unprincipled customers by taking the following steps:

1. Continue to show a good image of your business
2. Smile when talking to customers
3. Accept blunders where you can realize them, promise to improve and
make an apology

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4. Avoid arguing with customers

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5. Always hold your composure and avoid losing your temper in front of your
customer

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Building Customer Trust
From a customer’s point of view, there is probably no concept more important
than trust. How can you strengthen customer trust?

cee.c.o 66
1. Keep your promises
2. Make promises that you can keep
aannc ee! !
3. Do everything to keep the commitments you make
4. If you cannot fulfill the promises let the customer know
5. Call back if you promise even if you don’t have the information the
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customer is expecting
6. Following up on an order to be sure everything is okay
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7. Properly hold complaints all the time

8. Make recommendations that are best for the customers
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9. Recommend a competitor when there’s a need that you can’t satisfy

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10. Make yourself available after the sale

Activity
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Discuss the benefits of good customer care for a business you are familiar with
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Creating customer comfort

Customer care is also defined as meeting needs and creating comfort. Meeting
needs is a given, creating comfort is a function of enabling the customer to feel a
sense of control when he or she is at your business. Customers feel in control
when they know the drill i.e. when they know how things work and how to get
things done.

Develop and maintain a customer charter

43
 - Make sure that there is availability and visibility of both a mission statement
and customer charter. The customer’s charter will remind your workers
always to abide by its contents and will assure customers of their
expectations of the services and what move to take if they are not met. Your
customers’ charter should indicate the standards of services to be delivered
and the way in which the worker will perform their duties.

1. Telephone

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- Number of rings before the telephone is answered are given

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2. Enquiries
- Short turn around time

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- Follow up
- Courtesy options offered to caller

3.
-
Correspondence
Correct
cee.c.o 66
aannc ee! !
- Shorthorn around time
- Acknowledgement of receipt
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4. Delivery deadlines met

- Delays explained and apology given
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5. Outgoing services
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- Automatic follow up
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- Customer feedback
- Be sure that your customer’s charter informs clients about the availability of a
system of redress in case of grievances
DF
PPD

UNIT 3.0 STAFF MOTIVATION

3.1 objectives

By the end of this unit, you should be able to:

3.1.1 Define motivation

3.1.2 Explain the theories of motivation and show their implications on the
performance of workers and the organisation as a whole

44
 3.1.3 Explain the importance of motivation to the entrepreneur

3.2 Motivation - Definition

- Managers and entrepreneurs are tasked with ensuring that things are done
through people. For the work to be done efficiently and effectively,
employees need to be motivated. Motivation is concerned with inducing
people to work to the best of their ability. Motivation refers to those schemes
designed to influence and encourage workers to perform outstandingly. It is

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therefore very important to take a closer look at theories of motivation and

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consider motivation of workers seriously.
- According to Appleby (1994), motivation refers to the way urges, aspirations,
drives and needs of human beings direct or control or explain their behavior.

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Maslow (cited in Stoner & Freeman 1989) defines motivation as those inner
and outer factors which cause, channel and sustain the behavior of a person
in order to achieve specific organizational or personal goals.

cee.c.o 66
3.3 Theories of Motivation and their implications to the enterprise
aannc ee! !
There are many theories of motivation and any theory or study which aids an
understanding of how best to motivate people at work must be useful. All
entrepreneurs have a duty to motivate their employees for the success of their
.wn.nuu att
w ea

enterprise. Motivated workers take more pride in their jobs and work better. But
many entrepreneurs do not know how to motivate their staff. Entrepreneurs must
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know how to apply the theories of motivation in particular work situations. There
are two contrasting approaches that is the content theories and process theories
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(cognitive theories)
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- Content theories attempt to explain those specific things which actually

motivate the individual at work. These theories are concerned with identifying
people’s needs and their relative strengths and the goals they pursue in order
DF

to satisfy these needs. Content theories place emphasis on the nature of

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needs and what motivates.

- Process theories attempt to identify the relationship among the dynamic
variables which make up motivation. These theories are concerned more
with how behaviour is initiated, directed and sustained. Process theories
place emphasis on the actual process of motivation.

Major content theories of motivation include

 Maslow’s hierarchy of needs model
 Alderfer’s modified need hierarchy model
 Herzberg’s two-factor theory
 McClelland’s achievement motivation theory

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 Maslow’s hierarchy of needs theory
Maslow’s theory claims that human motives develop in sequence according to
five levels of need arranged in a hierarchy of importance. Maslow’s basic
proposition is that people want beings, they always want more, and what they
want depends on what they have already. The hierarchy begins with the lowest
level i.e. physiological needs to the need for love (social), esteem needs to the
need for self-actualization at the highest level. Below is the pyramid to show the

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hierarchy

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Self-actualization
(i.e. realizing one’s potential
for continued self development)

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Esteem (i.e.
Status, respect, recognition by others)

cee.c.o 66
Social (love) (i.e. to self-
achievement, belong, associate with, be
confidence,
aannc ee! !
accepted by
Safety (i.e. protection against danger
.wn.nuu att

Physiological i.e. shelter, clothing, food

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)
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FC
DF
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Physiological needs include homeostasis such as satisfaction of hunger, thirst,

shelter deficiency, clothing deficiency and so on. In fact homeostasis relates to
the body’s automatic efforts to retain normal functioning.

Safety needs include safety and security, freedom from plain or threat of physical
attack, protection from danger or deprivation, the need for predictability and
orderliness.

Love needs that is social needs which include affection, sense of belonging,
friendships and both the giving and receiving of love.

46
 Esteem needs are also referred to as ego needs which relate to self-respect
which involves the desire for confidence, strength, independence and freedom,
and achievement. Esteem of others involves reputation or prestige, status,
recognition, attention and appreciation.

Self-actualization needs that is the desire to become more and more what one is
capable of becoming which simply means that one wants to realize his or her
potentialities and capabilities.

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IMPLICATIONS OF MASLOW’S HIERARCHY OF NEEDS TO THE
ENTREPRENEUR
Once a lower need has been satisfied, it no longer acts as a strong motivator and

cmom TT
only unsatisfied needs motivate a person.

This hierarchy of needs implies that entrepreneurs need to consider seriously the

cee.c.o 66
lower level needs if workers or staff are to cooperate at work. That is the
remuneration (salary, wage, fringe benefits) should meet decent or exclusive
aannc ee! !
physiological needs (shelter, food, clothing). Pleasant working conditions must
also be ensured.
.wn.nuu att
w ea

Successful entrepreneurs must consider the safety and security issues such as
safe working conditions like danger warning signs, clean work environment and
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good healthy facilities. It is also important to employees and social security after
employment i.e. pension and other related company benefits.
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FC

Social needs of workers have impact on the performance. Workers need to be

loved and as such entrepreneurs need to instill a sense of belonging in workers.
Entrepreneurs also need to employ friendly supervision, cohesive work group,
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and team spirit and general sound relations with employees. Workers also need
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professional associations to meet their professional associations to meet their

professional problems.

Another area of concern is self-esteem. In this case entrepreneurs should make

use of social recognition, job title, high status job and feedback from the job itself
if employees are to be motivated in their work.

Self actualization is one aspect that does motivate employees i.e. workers are
motivated by challenging job, opportunities for creativity, achievement in work
and advancement in the organisation and as such entrepreneurs should not that.

47
 Alderfer’s Modified need hierarchy model
This model condenses Maslow’s five levels of need into only three levels based
on the core needs of existence, relatedness and growth (ERG theory).

Existence needs are concerned with sustaining human existence and survival
and cover physiological and safety needs of a material nature. Relatedness

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needs are concerned with relationships to the social environment and cover love,

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meaningful interpersonal relationship of esteem nature. Growth needs are
concerned with development of potential and cover self-esteem and self-
actualization.

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NB: Alderfer’s Model has the same implications with Maslow’s hierarchy.

cee.c.o 66
Herzberg’s Motivation – hygiene theory
He presents his tow factor theory of motivation which elaborates the differences
aannc ee! !
between higher and lower needs. This theory states that factors which create
satisfaction at work are those stemming from the intrinsic content of job e.g.
recognition and responsibility, meaning and challenge. These satisfy higher
.wn.nuu att
w ea

needs. These are called satisfiers or motivators or growth factors. Another set
of factors which entrepreneurs must take cognizance of is dissatisfiers or hygiene
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factors. These factors stem from the extrinsic job context e.g. working
conditions, pay, and supervision. These satisfy lower needs. An important point
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to note in this theory is that as dissatisfaction stems from lower needs not being
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satisfied, when these are satisfied, this only removes dissatisfaction and does not
increase motivation.
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If hygiene factors did not reach a certain standard e.g. salary, working conditions,
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job security, poor supervision. They felt bad about their jobs and were unhappy.
Hygiene factors are also called preventive factors. Positive motivation and a
feeling of well-being could only be achieved, not by just improving these hygiene
factors but by improving genuine motivators such as recognition, achievement
responsibility, advancement and the work itself.

Below is a representation of Herzberg’s two-factor theory

Hygiene or Maintenance factors
Salary, job security, working conditions, Level of quality of supervision, company
Policy and administration, Interpersonal relations ,The Dissatisfiers

48
 Motivation & job satisfaction
The satisfiers:
Sense of achievement, Recognition, Responsibility, Nature of work, Growth and
advancement, Opportunity of creativity

Motivators/growth factors

NB: The Motivation – hygiene theory of Herzberg is an extension of Maslow’s

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Hierarchy. The emphasis in this theory is that entrepreneurs must consider both

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the hygiene factors and the growth factors/motivators.

McClelland’s achievement Motivation theory

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This theory focuses on the relationship between hunger needs and the extent to
which imagery of food dominated thought processes. From the research or study
that McClelland carried out in relation to the relationship between hunger needs

cee.c.o 66
and how food dominated thought processes, four main aroused based and
socially developed motives were identified. These are
aannc ee! !
 The achievement motive
 The power motive
 The affiliative motives
.wn.nuu att
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 The avoidance motives

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The first 3 motives relate to Maslow’s self-actualization, esteem and love needs.
ww C r

The implication of this theory to the entrepreneur is that the entrepreneurs must
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identify the motives of workers and try to satisfy them e.g. workers with high
achievement motives prefer moderate task difficulty and goals as an
achievement incentive i.e. if the task is too difficult or too risky, motivation is little
DF

and it is too easy there is little satisfaction and motivation.

PPD

Process Theories of Motivation

The major process theories include
 Expectancy model – Vroom, Potter and Lawler
 Equity theory - Adam
 Goal theory - Locke
 Attribution theory - Heider, and Kelley

Expectancy Theories of Motivation

These theories state people are influenced by the expected results of their
actions. That is motivation is a function of the relationship between
(i) Effort expended and perceived level of performances, and

49
 (ii) The expectation that rewards (desired outcomes) will be related to
performance
(iii) The expectation that rewards (desired outcomes) are available

Performance depends upon the perceived expectation regarding effort expended

and achieving the desired outcome e.g. the desire for promotion will result in high
performance only if the person believes there is a strong expectation that this will
lead to promotion. The choice of behaviour is based on the expectancy of the

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most favourable consequences. The proponents of the expectancy theory are

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Vroom and Porter and Lawler.

V room’s expectancy theory

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Vroom’s theory was based on three key variables that is valence, instrumentality
and expectancy (VIE) (VIE theory or expectancy/valence theory) The theory is
founded on the idea that people prefer certain outcomes from their behaviour to

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others. That is they anticipate feelings of satisfaction should the preferred
outcome be achieved.
aannc ee! !
Valence is the feeling about specific outcomes that is the anticipated satisfaction
from an outcome. Vroom distinguishes valence from value that is valence is as
.wn.nuu att
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to anticipated satisfaction and value is as to the actual satisfaction provided by

an outcome e.g. money as a reward.
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Instrumentality - this relates to the distinction between first level and second level
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outcomes. The first-level outcomes are performance related which refer to the
FC

quantity of output or to the comparative level of performance. That is other

people may seek to perform well for its own sake and without thought to
expected consequences of their behaviour. All the same, performance outcomes
DF

acquire Valence because of the expectation that they will lead to other outcomes
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as an anticipated source of satisfaction i.e. second level outcomes. The second

level outcomes are need related derived from achievement of first level outcomes
that is through achieving high performance. Many need related outcomes are
dependent upon actual performance rather than for effort alone or through trying
hard e.g. salesperson (commission)

Expectancy is the probability that choice of a particular action will actually lead to
the desired outcome i.e. the relationship between a chosen course of action and
its predicted outcome.

Student’s exercises

50
 i) Research on “The porter and Lawler expectancy model and explain its
implications to the entrepreneur.
ii) Discuss the implications of the Equity theory by Adams, Goal theory by
Lock and Attribution theory by Heider and Kelley in the entrepreneurial
world.

Reward options to entrepreneurs

Financial rewards Non financial rewards

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Salary + bonus/commission Handling grievances/concerns

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Salary + profit sharing Personal growth
High salary + benefits Professional growth
Commission Job security

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Prizes of employee of the month Status and public or private recognition
Good working environment
Participative management
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aannc ee! !
3.4 Importance of motivating employees
- Increased productivity
.wn.nuu att

- Increased efficiency and effectiveness

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- Good corporate image building

- Increased sales and profits
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- Good customer relations

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- Promotes team spirit (team work) or cooperation and support by employees

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- Promotes entrepreneurship by employees that is innovativeness, creativity

and initiative ness resulting in the growth or expansion of the enterprise
DF

Activity
Giving examples of the theories of motivation, discuss the advantages of
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motivation to the entrepreneur.

UNIT 4.0 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

4.1 OBJECTIVES
By the end of the unit you should be able to:
 Define ethics
 Analyze the
ethical positions
 Explain the
importance of ethics to entrepreneurs

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  Define social
responsibility
 Explain social
responsibility principles
 Explain the
importance of social responsibility to the entrepreneur

4.2 definitions of ethics

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Refers to the rules/principles that define right and wrong conduct in business or

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at work to the publics or the organisation.

Publics ate the interested parties e.g. existing customer or potential customers,

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existing workers or potential workers, pressure groups (i.e. CCZ. ZCTU. ZFTC,
AAZ etc), suppliers government departments, shareholders/stockholders etc.

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Examples of ethical issues
 Using telephone for personal long distance calls
aannc ee! !
 Using company postage for personal mail
 Showing favouritism in selection decisions/disciplinary practices
 Playing politics in the organisation
.wn.nuu att
w ea

 Unfair business practice/transactions

 Unfair dismissal
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4.3 ethical positions

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Three different ethical positions that can provide guidance in evaluating one’s
own ethical standards at work or in business:
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i) Utilitarian view of ethics

- This relates to decisions made solely on the basis of their outcomes or
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consequences
- The goal of utilitarianism is to provide the greatest number. This view tends
to dominate business decisions making. It is consistent with goals like
efficiency, productivity and high profits. By making profits, a business
executive can argue that he is securing the greatest good for the greatest
number.

ii) Rights view of ethics

- This calls upon individuals to make decisions consistent with fundamental
liberties and privileges as set forth I documents like the bills of rights. The
rights view of ethics is concerned with respecting and protecting the basic

52
 rights of individuals such as the right to privacy, to free speech and to take
industrial action since this position will protect employees who report
unethical or illegal practices by their organisation to the press or government
agencies on the grounds of their rite to free speech.

iii) Justice view of ethics

- This requires individuals to impose and enforce rules fairly and impartially so
there is an equitable distribution of benefits and costs. Union members

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typically favour this view. It justifies paying people the same wages for a

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given job regardless of performance differences and it uses seniority as the
criterion in making lay off decisions.

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Each of these perspectives has advantages and liabilities
 The utilitarian view promotes efficiency and productivity, but it can result in
ignoring the rights of some individuals particularly those with minority

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representation in the organisation
 The rights perspective protects individuals from injury and is consistent
aannc ee! !
with freedom and privacy but it can create an overly legalistic work
environment that hinders productivity and efficiency
 The justice perspective protects the interests of the underrepresented and
.wn.nuu att
w ea

less powerful but can encourage an overly legalistic work environment that
hinders productivity and efficiency
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 The justice perspective protects the interests of the underrepresented and

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less powerful but can encourage a sense of entitlement that reduces risk-
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taking innovation and productivity

Codes of ethics and decisions

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 Codes state the organisation’s primary values and the ethical rules it
expects its employees to follow
PPD

 Examples of codes include the following:

Demonstrate courtesy, respect, honesty, and fairness

Maintain confidentiality of records
 Do not propagate false or misleading information

4.4 importance of good ethics

 Corporate image is built or improved
 Efficiency and productivity is enhances
 Sales and profits are boosted

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  Sound relations and mutuality between the entrepreneur and the publics
are established and sustained

4.5 social responsibility

- Is a broader concept that also covers business ethics. Social responsibility
defines the obligation that the business community or entrepreneur has for
the well being of the society. The entrepreneurs are expected to have the
society at heart in all their operations. A good and patriotic entrepreneur

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needs to develop ‘giving back to the community schemes’

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- These are arrangements or programs designed to give back to the community
in terms of assisting the less fortunate sponsoring social institutions e.g.
schools, colleges, old people’s homes, street kids and the orphans. Social

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responsibility also includes taking care of harmful waste products, dangerous
emissions. Social responsibility also includes paying tax to the government.
The money is used utilities and consumption such as public water facilitating

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public toilet road construction, social welfare facilities and services etc.
- Social responsibilities also include taking care of harmful waste products,
aannc ee! !
dangerous emissions. Social responsibilities further cover informing the
publics about the side effects of products, educating customers on proper
usage of products such that accidents or harm are avoided or minimized e.g.
.wn.nuu att
w ea

Sedan Benz is designed in such a way that it minimizes chances of accidents.

Some critics hold the business community responsible for unemployment,
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crime in the streets, ill clothed, ill housed and ill fed. Others believe that it is
the responsibility to the business world to create jobs and pay taxes to the
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government so that it can employ express to solve social problems.

FC

4.6 Importance of social responsibility to the entrepreneur

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- Productivity and efficiency may be enhanced, as workers will be motivated

with fair business practices.
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- Corporate image building

- Maintenance of sound mutuality and relations with the society
- Sales, market and profits may be increased etc

NB: Large and small firms are urged to practice honest social responsibility and
business ethics and to become good community citizens expressing interest in
social problems – should be concerned with the welfare of the society.

4.7 social responsibility principles

Other critics encourage that the entrepreneurs should use the following social
responsibility principles for social corporate integrity and image building

54
 i) Charity Principle
The doctrine of social responsibility requiring more fortunate individuals or
entrepreneurs to assist less fortunate members of the society including the
unemployed, the handicapped, the sick, the elderly, street kids, orphans etc.

ii) Stewardship Principle

Biblical doctrine that requires businesses and wealthy individuals to view

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themselves as stewards or caretakers holding their property in trust for the

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benefit of the whole society. The idea is that the rich hold their money in trust for
the rest of the society and can use it for any purpose that society deems
legitimate.

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UNIT 5.0 COSTING AND PRICING

OBJECTIVES
cee.c.o 66
By the end of this unit you should be able to:
aannc ee! !
Define the following costing terms
Costing
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Costs
Direct costs
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Direct labour
Direct expenses
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Indirect costs
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Calculate total costs per item

Discuss the importance of costing to the entrepreneur
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Define pricing
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Calculate prices of products

Discuss the pricing factors

5.2 Definition of costing terms

5.2.1 Costing
This is the method or way of calculating the total costs of making or selling a
product or providing a service

5.2.2 Costs

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 These are all the money that the business spends to make and sell its products
or services

5.2.3 Direct Costs

These relates to all costs that are directly related to the products or services that
the business makes or sells. There are two types of direct costs namely direct
material costs and direct labour costs.

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5.2.4 Direct Material costs

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- These are all the money that the business/entrepreneur spends on the parts
and materials that become part of or are directly related or linked to the final
product or service that it/he/she makes or sells.

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- NB: for a retailer’s or wholesaler’s, the costs of buying goods to resell are the
direct material costs. To be considered or counted as direct material costs,
the amount of material must be easy to calculate and the cost of the material

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must be big enough to add a considerable amount to the total direct material
costs.
aannc ee! !
5.2.5 Direct labour costs
- These are all the money that the business or entrepreneurs spends on
.wn.nuu att
w ea

wages, salaries and benefits for the people who are directly involved in the
production of its or his/her products or services
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- The time spent on making the product must be easy to calculate and the cost
of the direct labour must be big enough to add a considerable amount to the
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total direct labour costs. Retailers and wholesalers do not have employees
FC

working directly in making products, so they do not have any direct labour
costs. For retailers and wholesalers, all salaries and wages are indirect
costs.
DF
PPD

5.2.6 Direct expenses

- These are any expenses directly related to the production of the final product
e.g. delivery costs which relate only to delivery or raw materials used in
production of one product, hiring of a machine which is only used on one
product.

5.2.7 Indirect costs

- These are all other costs that the entrepreneur/business incurs in running the
business e.g. rent, interest, electricity, salaries of supervisor, managers,
accounts clerks, secretary and other administration expenses. Indirect costs
are also known as overheads or expenses.

56
 5.3 Calculate total cost per item
- Costing for a manufacturing or service operator. When calculating the cost of
producing an item, the entrepreneur should ensure that all costs are included.
That is direct and indirect costs. The entrepreneur must therefore, calculate
the direct maternal cost, direct labour and direct expenses of producing the
item and then add a proportion of the indirect costs to find the TOTAL COST
of producing the item.

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- Formula: Total Cost = Direct Cost + Indirect Cost

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- Before we calculate the total cost per item, it is important to have the costing
processes:
- Costing Process Where More Than One Product Is Produced

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STEP I
Direct Material Direct labour cost: Direct Direct Cost
Cost: - Add the - (hrs per item x Expense Per Item
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cost of raw
materials used to
+ number of workers
x money
+ =
aannc ee! !
produce one
product item
.wn.nuu att
w ea
ww r e
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STEP II
FC

Indirect Cost per year

Add up all the Indirect costs for the year

DF
PPD

Indirect Cost per item:

Total Indirect costs per year
Total number of items per year

Total cost per item:

STEP III
Direct cost per item + indirect cost per item

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 NB: In both costing processes, costs per item may be calculated using a month
as the time factor instead of a year that is “ Instead of Indirect cost per year
divided by Total number of items per year” the Entrepreneur may use, “ Indirect
cost per month divided by number of items per month.

Costing calculations in detail (Manufacturer or service operator)

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Stage I: Calculate Direct Material Costs

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The entrepreneur should calculate the costs of all material
 That become part of or are directly related to the product or service
 That are easy to calculate and have a big enough cost to be

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counted

Stage II: Calculate Direct Labour Costs

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 That is work out the costs of wages, salaries and benefits for the
employees who work directly in the production of the product or service
aannc ee! !
Stage III: Calculate Indirect Costs
 These are all other costs that the business incurs per month such
.wn.nuu att
w ea

as rent, electricity, insurance, depreciation, water and so on.

ww r e

Costing calculations where not more than one product is produced.

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Exhibit
FC

The entrepreneur – carpenter specializes in the manufacture of tables and has

the following details for costing. Calculate the total cost of one table.
Materials used: Timber 2 000.00
DF

Nails 1 000.00
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Varnish 500.00
Glue 500.00

One (1) worker takes 5 hours to produce one item. The carpenter is paid $1 000
per hour.
Other costs per month: Rent $ 5 000.00
Electricity $ 500.00
Other wages $10 000.00
Telephone $ 2 000.00
Transport $ 2 000.00

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 100 items are produced each month

Answer:
Direct Materials: Timber $2 000.00
Nails $1 000.00
Varnish $ 500.00
Glue $ 500.00
$4 000.00 (Direct Material/Cost)

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Direct Labour: 1 x 5 hours/item x $1000/hr = $5000.00

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cee.c.o 66
Indirect Cost/item: Rent
Electricity
$ 5 000.00
$ 500.00
aannc ee! !
Other wages $10 000.00
Telephone $ 2 000.00
Transport t $ 2 000.00
.wn.nuu att
w ea

$19 500.00
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Indirect Cost/item: $19 500.00

100 items/month
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= $195.00/item
FC

Total cost of one item: Direct material cost + Direct Labour Cost + Direct
Expenses + Indirect Cost = $4 000.00 + $195.00
=$4 195.00
DF
PPD

NB: There are not direct expenses

Further Questions
i) The entrepreneur uses the following to make a garment:
Materials: Fabric $2 000.00
Thread $ 500.00
Elastic $ 500.00
A tailor takes 4 hours to produce the garment and charges $500.00 per hour.
Other costs per year are as follows:
Rent $100 000.00
Transport $ 20 000.00
Electricity $ 30 000.00

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 2000 items are produced each year. Calculate the total cost per item.

ii) The entrepreneur produces desks and uses the following:

Materials: Timber $10 000.00
Nails $ 1 000.00
Varnish $ 500.00

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Paint $ 2 000.00

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Direct expenses $5 000.00
2 Workers take 3 hours to make one desk. They are each paid $1 000.00 per

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hour. Other costs of running the business per year are:
Rent $10 000.00
Electricity $ 5 000.00
Water
Transport
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$ 7 000.00
$20 000.00
aannc ee! !
Other wages $20 000.00

1000 desks are produced each year. Calculate the total cost per item.
.wn.nuu att
w ea

iii) The entrepreneur has the following to make a product item:

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Materials $50 000/item

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Indirect costs $2 000 000/year

FC

40 000 items are produced per year

3 Workers take 2 hours to produce 1 (one) item. Calculate the total cost of
product item.
DF
PPD

Calculation of total cost of 1 (one) item where several different products are
produced

If the entrepreneur produces several different types of products, it is not

appropriate to allocate the same amount of costs as in the case of one product
type. This is because more time may be spent in the making of one product and
little in the other. As such, one product has a greater proportion of the indirect
costs than the other. This is achieved by calculating the Indirect cost per item
and multiplying by the number of hours to produce one item. This enables the
entrepreneur to be able to calculate a different cost for each different product
which reflects the amount of time taken to produce that product.

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 Exhibit:
The entrepreneur used the following in making the dress and a trouser:

Material Dress Trousers

Fabric $800.00 $1 000.00

Thread $300.00 $ 400.00

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Zip $100.00 $ 100.00

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Button $100.00 $ 100.00

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Two workers are each paid $2 000.00 per hour. Working together, they take 4

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hours to produce one dress and 6 hours to produce one pair of trousers. Other
costs each year:
aannc ee! !
Rent $600 000.00
Electricity $240 000.00
Transport $240 000.00
.wn.nuu att
w ea

The two workers each work for 40 hours a week and fifty weeks a year.
ww r e

Calculate total cost per each item.

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Answer:
FC

Direct costs:

1st calculate direct material cost:

DF

Materials Dress Trousers

PPD

Fabric $800.00 $1 000.00

Thread $300.00 $ 400.00
Zip $100.00 $ 100.00
Buttons $100.00__ $ 100.00_
$1 300.00 $1 600.00 per item

2nd calculate direct labour cost

Dress: 2 workers x 4hrs x $2 000.00
= $16 000.00 per dress

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 Trousers 2 workers x 4 hours x $2 000.00
= $24 000.00 per pair of trousers

3rd Total Direct Cost:

Dress: Direct material cost + Direct Labour
= $1 300.00 + $16 000.00
= $17 300.00 per dress

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Trousers: $1 600.00 + $24 000
= $25 600.00 per pair of trousers

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4th calculate indirect costs: Rent $6 000 000.00
Electricity $ 240 000.00
Transport $ 240 000.00_

cee.c.o 66 $1 080 000/year

aannc ee! !
5th calculate production hours per year
2 Workers x 40 hrs/week x 50 weeks/year = 4 000hrs/year
.wn.nuu att

6th indirect cost per hour:

w ea

Formula: indirect cost/year

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Production hrs/yr
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= 1 080 000/yr
FC

4 000 hrs/yr

= $270/hr
DF
PPD

7th calculate indirect cost per item:

Dress: 2 workers x 4hrs x $270/hr

= $ 1 660.00/dress

Trousers: 2 workers x 6 hrs x $270/hr

= $ 3 240.00/pair

8th Total cost: Dress: $1 300.00 + $16 000.00 + $1 660.00

= $18 960.00

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 Trousers: $1 600.00 + $24 000.00 + $3 240.00
= $28 840.00

Further Questions
The entrepreneur used the following to make a skirt and a Dress:
Materials Skirt Dress

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Fabric $2 000.00 $3 000.00

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Elastic $ 50.00 -
Zip - $ 80.00
Lace $ 90.00 $ 100.00

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3 three)Workers take 4 hours for the skirt and 5 hours for the dress and are
each paid $2 000.00 per hour.

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Indirect costs per year:
aannc ee! !
Rent $600 000.00
Electricity $360 000.00
Transport $240 000.00
.wn.nuu att
w ea

Each worker works for 50 hours/week and 50 weeks/year. Calculate the total
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cost per each item.

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FC

Costing for a retailer or wholesaler

Retailers and wholesalers have the same types of costs and can normally do
DF

costing in the same manner. Some costs for retailers and wholesalers are
PPD

different from the costs of manufacturers and service operators.

To calculate the total cost of an item for the wholesaler or retailer, 3 steps are
followed that is: Step 1 Calculate Direct Material Cost
Step 2 Calculate Indirect Costs
Step 3 Add up Total Costs

Total cost = Direct Material Cost + Indirect cost

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 NB retailers/wholesalers do not have direct labour as they buy and sell goods
made by other businesses. Their employees do not make products or
manufacture, and as such all wages and salaries are indirect costs.

The direct material costs of retailers and wholesalers take the form costs of
buying goods.

The Indirect costs of the retailers and wholesalers are rent, electricity, insurance,

ll
depreciation and so on.

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5.5 Pricing
Definition: is the process of calculating an amount of money to charge

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customers for goods and services produced or to be provided by the
entrepreneur.

cee.c.o 66
5.6 Calculations of prices of product
After costing the next process is to calculate the price for which the products
aannc ee! !
should be offered
The two major methods of pricing calculation are mark-up and margin.
Mark up is profit expressed as a fraction or percentage of cost
.wn.nuu att
w ea

It is calculated as: Profit (P) x 100%

Cost ©
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Margin is profit expressed as a fraction or percentage of selling price

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It is calculated as: Profit (P)______ x 100%

FC

Selling Price (SP

Note that Profit = Selling Price – Cost

DF
PPD

Example: If the selling price is $250.00 and the cost is $200, calculate profit,
mark up and margin.

Solution
Profit = Selling Price – Cost
= $250.00 - $200.00
= $50.00

Mark up = 50 (Profit)
200 (Cost)
= ¼ as a fraction or 25% as percentage

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 Margin = 50 (Profit)______
250 (Selling Price)
= 1/5 as a fraction /25% as percent

Further Questions
a) The entrepreneur makes Dresses and skirts and uses the following:

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Material Dress Skirt

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Fabric $2 000.00 $3 000.00
Thread $ 200.00 $ 700.00
Buttons $ 30.00 $ 30.00

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Two (2) workers take 3 hrs to make a dress and 4 hours to make a skirt and are
each paid $1 000.00 per hour. The indirect costs per year are:

Rent
cee.c.o 66
$600 000.00
aannc ee! !
Electricity $240 000.00
Other wages $ 30 000.00
.wn.nuu att
w ea

The two workers each work for 40 hours a week and so weeks a year.
i) Calculate the profit and selling price, if the Dress is marked up by 10%.
ww r e

ii) If the profit on skirt is $200, what is its selling price, mark up and margin.
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b) The entrepreneur produces two products ‘A’ and ‘B’. The following are
FC

incurred by the business:

Materials Products: A B
DF

Materials $2 000.00 $3 000.00

PPD

Two (2) workers take 6 hours to produce product ‘A’ and 10 hours to produce
product ‘B’. The workers are each paid $1 000 per hour. The indirect costs are
200 000 per year. Each worker works for 50 hours a week and 50 weeks a year.

Find the profit and selling price of each product, if the products are marked up
50%.

5.7 Pricing factors

When setting prices the entrepreneur must consider the following variables or
factors.

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 a) Customers

The business is expected to carry out a survey to determine how much

customers are prepared to pay for the product. The selling price should not be
higher than what customers are prepared to pay.

b) Competitors

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The entrepreneur should carry out competitor’s analysis to determine the prices

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of competitors. If the entrepreneur sets higher prices than its competitors, he/she
will lose customers to competitors.
Customers are economic beings who always choose the cheapest (or best value

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for money) products.
As such, the highest selling price should be equal to or less than the price
charged by competitors.

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c) Cost and Profit
aannc ee! !
The entrepreneur must consider the costs incurred in producing the product or
the costs that the business is going to incur in producing the product. For the
business to make a profit the entrepreneur must set his/her selling price higher
.wn.nuu att
w ea

than the costs incurred.

ww r e

NB: For a successful entrepreneur the lowest price = cost + profit need and the
highest price = how much competitors charge or customers will pay, which ever
ww C r

is lower.
FC

Pricing strategies
A pricing strategy is an approach or means designed to achieve the pricing
DF

objectives. The price the entrepreneur charges will be somewhere between one
PPD

that is too low to produce a profit and that is too high to produce any demand.
Product costs set a floor to the price; consumer perceptions of the product’s
value set the ceiling. The entrepreneur must consider competitors’ prices and
other external and internal factors to find the best price between these two
extremes. Entrepreneurs may opt to use the following approaches or strategies
in product pricing: cost based pricing, buyer-based approach and competition-
based approach.

Cost based pricing includes cost-plus pricing, breakeven pricing and value-based
pricing. Break even pricing and value-based pricing.

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 Cost-plus pricing is adding a standard mark to the cost of the product. Break
even pricing (target profit pricing) is setting price to break even on the costs of
making and marketing a product or setting price to make a target profit. Value
based pricing is setting price based on buyer’s perceptions of value rather than
on the seller’s cost.
Value pricing is offering the right combination of quantity and good service at a
fair price.

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Competition based pricing is setting prices based on the prices that competitors

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charge for similar products. Consumers naturally base their judgements of a
product’s value on the prices that competitors charge for similar products. One
form of competition based pricing is going rate pricing, in which a firm bases it’s

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price largely on competitors’ prices with less attention paid to it’s own costs or to
demand. The firm might charge the, more, or less than it’s major competitors.
Another competition based pricing form is sealed-bid pricing where the

cee.c.o 66
entrepreneur bases his/her price on how he/she thinks competitors will price
rather than it’s own costs or on the demand.
aannc ee! !
Skimming Pricing comes into being when the entrepreneur sets a high price for a
new product to skim maximum revenues layer by buyer from the segments
.wn.nuu att
w ea

willing to pay the high price. The firm makes fewer but more profitable sales.
ww r e

Market penetration pricing is when the entrepreneur sets a low price for a new
product in order to attract a large number of buyers and a large market share.
ww C r

Discount and allowance pricing includes cash discount, quantity discount,

FC

functional discount (trade discount) and seasonal discount.

UNIT 6.0 RECORD KEEPING AND STOCK CONTROL

DF
PPD

6.1 Objectives
By the end of this unit students should be able to:

- Discuss the importance of record keeping

- Identify source documents in business
- Identify and explain the purpose of books of accounts
- Carry out effective buying and stock control procedures

6.2 Importance of record keeping

- Basis of financial projections i.e. projected manufacturing, trading, profit and
loss account and the balance sheet

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 - Basis or future decisions and plans in terms of corporate growth and
investment
- Basis for the analysis of expenses and revenue and profit
- Basis for the control of cash flow
- Basis for showing who owes he business and how much, and to whom the
business owes money and how much
- Record keeping tells the entrepreneur how much money in the bank and how
much you have in cash

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6.3 Source document

- Source documents are the documents from which original information to the

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books of primary entry is obtained e.g. receipts, invoices, debit note, credit
note and statement of account
- Receipts are used by the entrepreneur or supplier when the transactions

cee.c.o 66
involve cash e.g. where a customer tenders cash, a receipt may be written
out. Below is a sample of a receipt
aannc ee! !
Books of primary entry is obtained
.wn.nuu att

Receipt 0023
w ea

Date: 25/02/04
Gobvu Manufacturing (Pvt) Ltd
ww r e

P O Box 22
CHEGUTU
ww C r

Telefax: 703301
FC

Purchases Amount__
5 x 2l Mazoe Orange crush $30 000.00
Sub total$30 000.00
DF

Less discount $ 3 000.00

Signature…………… Total $27 000.00
PPD

Thank You

Invoice is a note given by the supplier or seller to the customer when goods are
bought on credit to show that the customer has not paid for the goods. That is an
invoice is used for credit sales. The invoice should have the following details:

Date of purchase
Invoice number

68
 Seller’s name, address, telephone, fax, email (not all of this information may be
applicable)
Buyer’s name, address, telephone, fax, email (not all of this information may be
applicable)
Goods or services bought
Amount to be paid
Terms of sale
Amount of discount if any

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Appreciation message (e.g. Thank You for doing business with us)

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The following is a sample of an invoice

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Invoice 00214
Date: 26/02/04

P O Box 39
KWEKWE cee.c.o 66
Gobvu Manufacturing (Pvt) Ltd

Telefax: 055 50221

aannc ee! !
To: Makayepuva (Pvt) Ltd
Chuma street
.wn.nuu att

MASVINGO
w ea

Tel: 039 62043

ww r e

Item purchased QuantityUnit cost Total______

ww C r

500ml super stick glue 500 $100.00 $50 000.00

FC

less 5% discount if paid

within 30 days

Total $50 000.00

DF
PPD

Debit Note is used to correct an undercharge on a customer’s account e.g. when

the price shown on the invoice is too low or when some items have not been

69
 shown. Sometimes a second invoice is issued in this instance rather than a debit
note.

Below is an example of a debit note

Debit Note
Supplier’s name & address
Supplier Ref:
Date:

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Customer’s Name & Address

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Debit Note No

Item description Quantity Unit price Total___________

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Total to be debited:
Reasons for debit:

cee.c.o 66
aannc ee! !
Credit Note is used to correct an overcharge e.g. if 25 items are sent, but only 20
.wn.nuu att
w ea

were requested on the order, then a credit note will be prepared to reduce the bill
by the value of those 5 items. The extra 5 items would be returned to the
ww r e

supplier. A credit note can also be used where goods or services are
unsatisfactory e.g. goods are damaged or wrong price charged.
ww C r
FC

The following is a layout of a credit note

DF

Credit Note
Customer’s Name & Address
PPD

Customer Ref:
Date:
Supplier’s Name & Address
Credit Note No:

Item Description Quantity Unit price Total______

Total to be credited

Reason for credit:

70
 Statement is a summary of all of the invoices, payments, credit and debit notes
during a period of time. A running balance (total) is used to show the effect of

ll
each transaction i.e. invoices and debit notes increase the total amount which is

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owed, and credit notes and payments reduce the amount which is owed. This is
essential as it helps the supplier and the buyer to keep a record of invoices sent
and paid during a period of time.

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Below is the layout and a specimen of a statement
Statement
cee.c.o 66
From………/…………/………To……./………/………
Customer’s Name & Address
aannc ee! !
Customer Ref:
Date:
Supplier’s Name & Address
.wn.nuu att
w ea

Date Details Amount Balance_________

ww r e

Balance remaining
ww C r
FC
DF
PPD

Specimen
Date Details Amount Balance
5/02/04 Invoice No. 011 $1 000.00 $1 000.00
10/02/04 Credit Note 005 $ 300.00 $ 700.00
20/02/04 Invoice No. 13 $ 800.00 $1 500.00
25/02/04 Payment $ 600.00 $ 900.00
Received
28/02/04 Invoice No. 16 $1 200.00 $2 100.00

Balance remaining $2 100.00

71
 NB: The balance column shows a running total of how much is owed at each
date. Invoices and Debit Notes are added to the balance as they increase the
amount which is owed; credit notes and payments are subtracted from the
balance as they decrease the amount which is owed.
The other documents used by the business are enquiry, quotation, price list,
delivery note and consignment note.

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Enquiry letter is a letter from the customer asking about prices, range of goods,
specifications etc
Quotation is a reply to the enquiry giving details about the specific items or

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services that the customer has enquired about.

Price list is a list showing all of the items for sale together with their prices.

cee.c.o 66
Order Note is a letter requesting goods from the supplier.
aannc ee! !
Below is a layout of an order note
.wn.nuu att
w ea

Order
Supplier’s Name & Address Customer’s Name & Address
ww r e

Customer Ref:
ww C r

Date:
____________________________________________________________
FC

Item Description Quantity Unit price Total________

DF

TOTAL_________________
PPD

NB: customer ref maybe used as a special code number given to the customer to
help the supplier identify any previous dealings with that customer. If a letter is

72
 used instead of an order form, these columns should still be used as part of the
body of the letter so that the order is clear and easy to understand.

Delivery Note is a list of items sent and the quantities of each item. It is sent by
the supplier for the customer to check carefully that the correct items and
quantities have been delivered and then sign. The delivery note only shows
items and quantity. The delivery note should be given a special number so that
he or she can find his copy easily.

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Below is the layout of Delivery Note

Delivery note

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Customer’s Name & Address:
Customer Ref:
Date:

cee.c.o 66
Supplier’s name & Address
Delivery Note No:
aannc ee! !
Item description Quantity___________
.wn.nuu att
w ea

Consignment Note is used with or instead of a delivery note where the goods are
Customer’s signature………………_______________________________
ww r e

delivered by someone other than the supplier e.g. for goods delivered by sea or
rail.
ww C r
FC

Entrepreneurs should consider the following. When choosing a supplier: prices,

quality, delivery, customer service, location, terms of payment, discounts and
business hours.
DF
PPD

6.4 Appreciation of Books of Accounts

In business the entrepreneur should be able to appreciate books of accounts.
These include the books of original entry or prime entry and the ledger book.
The books of prime entry include the cashbook, purchases journal book,
purchases returns book and the sales returns book and the general journal book.
The ledger book is the main book of accounts.

Cashbook
This is the book of original entry used to record all cash transactions that is all
money that comes into and goes out of the business on a daily basis. A

73
 cashbook can be used to determine the amount of money left over at the end of
the month. Below is a layout of a cashbook

Debit side (Receipts side) Dr Credit side (Payments side) Cr

Date Details Cash Bank Date Details Cash Bank
(Receipts) (Payments)

ll
Example

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1/02 E Gobvu starts business with capital: Cash $ 5 000.00
Bank $50 000.00
8/02 Sales (cash) $15 000.00

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5/02 Buys stock with cheque $10 000.00
15/02 Telephone bill paid by cheque $ 5 000.00
18/02 Pay cash into the bank $10 000.00
cee.c.o 66
20/02 Sales (cheque)
22/02 Pay wages (cash)
$20 000.00
$10 000.00
aannc ee! !
23/02 Withdraw from the bank to keep in business $ 5 000.00
28/02 E Gobvu writes cheque for personal use $15 000.00
.wn.nuu att
w ea

E Gobvu cash book for the month of February 2004

ww r e

Date Receipts Cash Bank Date Payments Cash Bank

(Details) (Details)
ww C r
FC

1/02 Capital 5 000 50 5/02 Purchases 10 000

8/02 Sales 15 000 000 15/02 Telephone bill 5 000
18/02 Deposit 18/02 Deposit 10
DF

20/02 Sales 10 22/02 Wages 000

23/02 Withdrawal 5 000 000 23/02 Withdrawal 10
PPD

20 28/02 Drawings 000

25 000 29/02 Balance c/f 5 45 000
000_ 000 80 000
1/03 Balance b/f 15
5 000 80 000
000 5
000
45 25
000 000

74
 Notes
The cash book is divided into two halves that is Debit Side (Dr) or Receipts side
and the Credit Side Payment side (Cr). This means that when money comes into
the business, it is recorded on the left hand side (Receipts) and on the right hand
side (Payment) for money going out of the business.
- Capital refers to the money being invested by the entrepreneur into the
business.
- Purchases refer to goods bought by the business for resale.

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- Drawings relates to money taken out of business for personal use.

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- Transfer from Bank to Cash refers to money taken out of bank account to be
kept as cash in business. This transaction has to be recorded in the
cashbook to show that the money has been moved from one place to the

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other, otherwise the totals for the money left in the bank and in cash at the
end of the month will be incorrect.
- When money is withdrawn from the bank account, money has gone out of the

cee.c.o 66
bank as such there is need to record it I the Bank column on the Payments
side of the Cash Book. This money is added to our supply of cash in the
aannc ee! !
business and a record has to be made on the cash column on the Receipts
side of the cashbook. The reverse is true when the business transfers cash
from the business into the bank.
.wn.nuu att
w ea

- Balance carried forward (c/f) is determined at the end of the month by

subtracting the total payments (money out) from the total receipts are $25 000
ww r e

and total cash payments are $20 000, therefore $5 000 is left at the end of the
month $25 000 has come in and $20 000 has gone out. $5 000 is the
ww C r

balance carried forward because it is the amount that will be starting the next
FC

month and will be recorded as balance b/f (balance brought forward)

Purchases journal
DF

This is a book of primary entry where goods on credit for re-sale are recorded.
PPD

The transactions are recorded as follows:

Example: Mutsvedu (Pvt) Ltd

10 February bought $5 000 stock on credit from E Gobvu
18 February bought $5 000 stock on credit from T Timothy

Mutsvedu D Purchases journal for the month of February 2004

Date Details Folio Dr Cr
10/02 E Gobvu $10 000.00
18/02 T Timothy $ 5 000.00
Dr Purchases A/C $15 000.00

75
 Sales Journal
- This is a book of primary entry where goods returned by customers are
recorded

Example: Mutsvedu (Pvt) Ltd

Mutsvedu D Sales Returns Journal for the Feb 2004

ll
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20/02 B Sali returned goods $2 000.00
22/02 T Tom returned goods $5 000.00

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Date Details Folio Dr Cr
20/02 B Sali $2 000.00
22/02 T Tom $5 000.00

cee.c.o 66
Dr Sales Returns $7 000.00
aannc ee! !
General Journal
This is used to enter all transactions which cannot conveniently be entered into
.wn.nuu att
w ea

one of the other subsidiary books e.g. fixed assets bought on credit such as
furniture.
ww r e

Example; Mutsvedu (Pvt) Ltd

ww C r

01/02 Received an invoice of $100 000.00 for office furniture bought on credit
FC

form M Pienaar
02/02 Bought stationary on credit from M Pienaar $10 000.00
DF
PPD

Date Details Folio Dr Cr

01/02 Office furniture 100 000.00
M Pienaar 100 000.00
02/02 Stationery 10 000.00
M Piennar

The Ledger Book

This is the main book of account. All other books of account are subsidiary to the
ledger and are used to record transactions as they occur, prior to their entry or
posting to the ledger.

76
 The ledger is ruled as follows:
Dr Cr
Date Details Folio Amount Date Details Folio Amount

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Notes:
- The ledger is divided into two halves that is the left-hand side called debit side
and the right hand side called credit side. The abbreviations Dr and Cr are

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used respectively at the top of each account as shown above.
- The first column is for dates, the second for particulars of the transactions, the
third, a folio column (referred to hereafter) and the fourth, or money column
cee.c.o 66
for the amount of each transaction.
- The two sides of the account (sometimes contained on two pages facing each
aannc ee! !
other) are numbered alike and are together called a folio.
- The universal rule in entering or posting transactions to the ledger is that
credit the giver and debit the receiver.
.wn.nuu att
w ea

Example: Mabinge M (Pvt) Ltd

ww r e

Feb 1 Mabinge M starts his business with a capital of $500 000.00

2 Pays cash for shop equipment by cheque $300 000.00
ww C r

Pays cash for goods (purchases) by cheque $100 000.00

FC

3 Sells goods for cash and deposits the money $ 8 000.00

4 Pays cash for stationery by cheque $ 1 000.00
DF

5 Pays rent in cash by cheque $ 2 000.00

PPD

Bank A/C
Dr Cr
Date Details Folio Amount Date Details Folio Amount
Feb Capital 500 000.00 Feb 2 Shop 300
1 8 000.00 2 equipment 000.00
Sales 4 Purchases 100
3 5 Stationery 000.00
_________ Rent 1
508 000.00 Bal c/d 000.00
2

77
 Bal b/d 105 000.00 000.00
105
000.00
508
000.00

As is seen by the entries in the ledger A/C (Bank A/C), the Bank A/C received
$500 000.00 from Mabinge M (the owner) and that transaction has been debited

ll
i.e. written on the left hand side of the Bank A/C. Conversely, the capital A/C has

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given out to the Bank A/C. This ca be shown as follows:

Dr Capital A/C Cr

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Bank 500
000.00

cee.c.o 66
aannc ee! !
The rest of the transactions in the above to be posted to their respective account
to complete the double entry system i.e. credit the giver and debit the receiver.
.wn.nuu att
w ea

6.5 Stock Control

- Involves the management of stock levels and ensuring that the best stock
ww r e

level is sustained.
- Maintenance of the best stock level is important to avoid too much stock
ww C r

which may result in tying up capital. Tying up capital means that money that
FC

could be used in other parts of the business is held in unused stock resulting
in the business failing to pay its creditors.
DF

- Another disadvantage of keeping too much stock is that stock may lose its
value. Too much stock is associated with high costs of storage and security.
PPD

Too much stock is also susceptible to deterioration, perishing, theft and

damage. Moreover, too little stock may mean turning away customers. Too
little stock also means bad reputation and that the entrepreneur may suffer
losses resulting in being unable to pay creditors. As such, stock control is
essential in ensuring that the correct amount of stock

Minimum and maximum stock levels

- The greatest amount of stock that the entrepreneur must keep to satisfy its
customers is known as the maximum stock level and the lowest level that
stock can be allowed to fall to while the business is waiting for a new order or

78
 delivery is called minimum stock level and the business is not expected to go
out of stock completely.
- The point that the stock is allowed to full to before an order for more stock is
placed is re-order level.
- To determine the re-order level the entrepreneur needs to know the time it
takes to receive the stock after the order has been placed. Secondly, there is
need to calculate the items that may be sold in that time. Thirdly, the
entrepreneur needs to add an allowance in form of the minimum stock level to

ll
the amount and that gives the entrepreneur the re-order level. For instance: If

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the time between order and delivery is 30 days and the quantity to be sold is
30 items, and the minimum stock level is 5 items. The reorder level is 30 + 5
= 35 items.

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The Stock book
- For effective management of stock, entrepreneurs are encouraged to keep

cee.c.o 66
stock books or cards which are used to record the day to day movements of
stock that is in and out of the business. Below is the layout of a stock card.
aannc ee! !
Mutsvedu D Pvt Ltd
.wn.nuu att

Stock Card
w ea

Item Description:
ww r e

Cost Price:
ww C r

Selling Price:
FC

Reorder level:

Date Details Stock in Stock out Total/Balance________

DF
PPD

Example
Prepare a stock card from the following details:

Item: Eversharp blue pen; cost price $500, Selling Price $600, re-order level
140

79
 02/02/04 Bought 1 000 pens
03/02/04 Sold 500 pens
04/02/04 Sold 200 pens
05/02/04 Sold 100 pens
06/02/04 Sold 50 pens
07/02/04 Bought 1 000 pens

On 8 February 2004, you carry out a stock take and find 850 items (pens). Enter

ll
the details on the stock card and determine the re-order date.

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Mutsvedu D (Pvt) Ltd

cmom TT
Item Description: Eversharp blue pen
Cost Price: $500.00
Selling Price: $600.00

Date cee.c.o 66
Reorder level:
Details
140
Stock in Stock out Total/Balance
aannc ee! !
02/02 Purchases 1 000 1 000
03/02 Sales 500 500
04/02 Sales 200 300
.wn.nuu att

05/02 Sales 100 50 150

w ea

07/02 Purchases 1 000 100 1 050

ww r e
ww C r
FC
DF
PPD

The re-order level is 150 as shown on the stock card

Stock Taking
- Stocktaking is an essential tool in checking that the stock records are
accurate. There are several reasons why the actual amount of items fail to
tally or agree with the stock records.

80
 - Stock taking is simply defined as the physical counting or checking of the
stock items. The physically counted stock items may fail to agree with the
stock records because
(a) The items were stolen or damaged and a record was not made
(b) Goods were bought/sold but a record was to made
(c) Sales or purchases have been recorded incorrectly

How to carry out a stock take

ll
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STEPS:
1st Set a date for stock take and inform the publics if business hours are
interrupted

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2nd Organize the stock to facilitate easy counting
rd
3 Develop a stock list
th
4 Physically count every item as per stock list and enter the figure in the
‘stock take’ column
5th
cee.c.o 66
Enter the last balance figure from the stock cards in the stock card column
aannc ee! !
for each item
6th Deduct the stock card figure form the stock take figure and enter this
amount in the Difference column
.wn.nuu att

7th
w ea

Find out the reasons if there is a difference i.e. if there is more or less
stock than shown on the stock card
ww r e

Below is a specimen of a stocktaking list

ww C r
FC

Stock taking list

Item Stock take Stock card Difference
DF

Eversharp pen 1 000 1 150 -150

PPD

Pencil sharpener 200 200 0

Ruler 300 350 +50
Exercise book (A4) 1 000 1 000 0

81
 As shown on the stock list, during the stock take there were 150 less of ever-
sharp pens and 50 more than recorded on the stock cards. The anomalies or
differences should be corrected on the stock card.

ACTIVITY
i) Discuss the importance of stock control in small enterprises.
ii) Prepare a stock card from the following details

ll
Item Description: T – shirt

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Cost Price: $20 000.00
Selling Price: $30 000.00
Re-order level: 1 000 units

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02/02/04 bought 10 000
03/02/04 sold 500
04/02/04 sold
05/02/04 sold
cee.c.o 66
2 000
4 000
aannc ee! !
06/02/04 sold 3 000
06/02/04 bought 10 000
.wn.nuu att
w ea

iii) Prepare relevant subsidiary books for Dzomira. S using the following
details
ww r e

01/02/04 Dzomira S started business with $500 000 Bank

ww C r

02/02/04 Bought stock with cheque $300 000

FC

03/02/04 Bought stock from Makaye P on credit $200

000
04/02/04 Bought goods on credit from Mapuva J $ 50
DF

000
PPD

05/02/04 Sold goods on credit to Maturure H $400 000

06/02/04 Returned goods to Makaye P $ 50 000
07/02/04 Returned goods to Mapuva J $ 5 000
08/02/04 Received $200 000 worth of “Sales returns” from Maturure H
07/02/04 Sales (cash) $100 000
10/02/04 Telephone bill paid by cheque $ 20 000
11/02/04 Pay cash into the bank $ 10 000
12/02/04 Sold goods cash $200 000
Sold goods (cheque) $100 000
13/02/04 Paid wages cash $ 50 000
13/02/04 Cash deposit $250 000

82
 UNIT 7.0 GENERATE YOUR BUSINESS IDEA
7.1 Objectives
By the end of this unit students should be able to:
- Define business idea
- Carry out needs survey
- Explain how to start a business

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7.2 Definition of business idea
- Every business emerges from an idea
- Businesses get started when people (customers) manifest their needs and

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wants. Entrepreneurs develop business ideas out of the needs and wants of
people. Usually entrepreneurs exploit the weaknesses of the existing
providers of goods and services to start their own ventures.

cee.c.o 66
 A business idea is a short and precise description of the basic operations
of the business. Thus a business idea must show the following:
aannc ee! !
The product of service to be offered
Potential customers/ target market
Selling approach
.wn.nuu att
w ea

Need to be fulfilled for the customers

ww r e

7.3 Needs survey

- This is undertaken to determine the needs of the potential customers.
ww C r

Entrepreneurs need not just produce products and services for unknown
FC

customers. There is need to determine the socio-economic needs of

customers if the products to be offered are to be accepted.
DF

- The needs survey is crucial in ensuring that the business idea has the
customer and the customer is needs in mind.
PPD

- As such it important to find out what customers want and listen to prospective
customers in working out a business idea.
- A product or service must offer something special for the customers as it is
difficult to attract customers to a new business.
- Needs survey enable the entrepreneur to decide whether to specialize or offer
different products?
- Specialisation is, however, advantageous, as it is easier to be special and
attract customers.
- Entrepreneurs should ensure that there is demand for their product is not or
does not guarantee that there is demand for them.

83
 Important Questions to be answered when developing a business idea
i) What product or service will your business sell?
- That is, the business idea should be based on what one is good at, but should
be what customers require.
ii) Who will buy your product or service?
- This is all about defining the target market
iii) How are you going to sell your product/service
- That is selling approach should be defined e.g. selling either direct to

ll
customers, or non personal selling

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iv) Which need will your product or service fulfill for customers?
- Consider special attributes of product or service.

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Profitability and Feasibility of the Business Idea
- A business idea must be profitable and feasible.

cee.c.o 66
- To determine he profitability and feasibility of a business idea one needs to
carry out a feasibility study and SWOT analysis.
aannc ee! !
- Feasibility study relates to a detailed investigation of all aspects of a business
idea in order to determine if it is likely to be successful.
- Before starting a business, it is essential to research that business idea to find
.wn.nuu att
w ea

if it is feasible.
- A business idea should be practical and profitable.
ww r e

- In terms of feasibility the entrepreneur needs to consider availability of

market, competition, location, infrastructure and facilities, raw materials,
ww C r

machinery and equipment, labour and other costs such as electricity,

FC

insurance, water, security etc.

SWOT ANALYSIS
DF

- SWOT analysis is very crucial in the formulation of the Business idea

PPD

- SWOT stands for strengths, weaknesses, opportunities and threats.

- In formulating the Business idea one needs to identify his/her strengths,
weaknesses, opportunities and threats.
- For strengths and weaknesses consider the internal environment of the
organisation that can affect your organisation.
- Strengths are those things that the business will be good at e.g. location of
the business, better product than competitors, skilled workers.
- Weaknesses are those things that the business will not be so good at e.g.
expensive products, insufficient funds for advertising.
- For opportunities and threats, consider the external environment of the
organisation. Opportunities are things around the business in the community

84
 that will be good for the success of the business e.g. lack of competitors,
market niche.
- Threats are things around the business in the community that will be good for
the success of the business e.g. lack of competitors, market niche.
- Threats are things around the business in the community that will be back for
the business e.g. sales tax will be going up, new technology
- When one has done a SWOT analysis, the next step is to evaluate the
business idea and decide whether to continue with the idea, adjust the

ll
business idea or give up the idea completely.

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7.4 Starting the Business
- The procedures to start a business depend on the form of business that the

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prospective entrepreneur wants to start. For the procedures refer to Unit 1.0

Activity: Explain the procedures that you would go through to set up a Private

cee.c.o 66
Limited Company and partnership.
aannc ee! !
UNIT 8.0 BUSINESS PLANNING
Business Plan is a document that shows the arrangement in advance of business
.wn.nuu att
w ea

activities the commercial undertaking and how they will be

implemented.
ww r e

Importance of Business Plan

- Shows strengths, weaknesses and threats of the business(SWOT)
ww C r

- Provides insight into the strategies to be used to outcompete rivals

FC

- Acts as the pointer of solutions to business weaknesses

- Provides information on the viability and profitability of the business project
- Prevents the organization from wasting the resources as it shows the
DF

opportunities in advance
PPD

For major components of the Business Plan see the Model Business Plan below.

Kenshell furnitures

Business plan

85
 ©2011

Compiled by Willard Benhura

Executive summary

ll
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Business name: Kenshell furnitures
Business address: Kwekwe Poly, Box 399 Kwekwe
Business owners/ directors: NC MARKETING

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B
usiness idea: To provide furniture
Business form: PVT LTD Company
Business Type:
Own contribution:
cee.c.o 66 Manufacturing
$11500.00
aannc ee! !
Loan amount required: $22 500.00
Total project cost: $34 000.00
Details of own contribution: the owner will contribute
.wn.nuu att
w ea
ww r e

Mission statement: to provide quality furniture to the community at

affordable prices and generate income for the
ww C r

stakeholders through whose efforts profits are

FC

gathered.

Project aims: (i) to provide quality furniture to the community

DF

(ii) to maximize the owner’s equity and profit

PPD

(iii) to be the leading customer driven

enterprise

Vision: To become a high quality, innovative and

customer focused furniture enterprise.

Project background
Kenshell is a newly established project. The project’s core business will be office
desk Manufacture. The owner of the business is Masora S. Kenshell Furnitures

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 is based at Stand Number 6 Spathodia Avenue, Msasa Park Kwekwe. What has
prompted the
Inception of the project is the unexploited opportunities in terms of lack of
furniture manufacturers in Kwekwe especially manufacturers of office desks. The
mission statement of the project is, “To provide quality furniture to the community
at affordable prices and generate income for the stakeholders through whose
efforts profits are gathered”. The vision is, “To become a high quality, innovative
and customer focused furniture enterprise”.

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The aims of the project are derived from the mission and vision of the enterprise
which (aims) are furnished as follows:

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(i) To provide quality furniture to the community
(ii) To be the leading customer driven enterprise by being
responsive to customer’s needs.
(iii)
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To maximize the owner’s equity and profit
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Business location
The business will be located in Msasa Park about 3 km outside Kwekwe City
along Mvuma road at Number 6 Spathodia Ave. The area is envied by many,
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owing to its strategic nature in terms of convenience to both customers and

suppliers of raw materials. That is raw materials (timber) can easily be ferried
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from Fair-fields through Mvuma road and customers can easily access the firm
through road or rail. Customers can as well use rail to ferry their goods as the
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project is about a kilometer to the railway station.

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Benefits of the Project to the owners

- The owners will enjoy psycho-socio-economic emancipation.
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- The owners will enjoy vertical social mobility that is the owner’s status will rise
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from lower to middle or upper class.

- The owner and his/ her family members can afford better health and
educational services.

Benefits to the economy

- Improved standard of living of the community
- Creation of employment to the unemployed citizens
- Generation of foreign currency for the country
- Increased government revenue (payment of tax)
- Project acts as source of new technology

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 Project industry
The project falls under the furniture manufacturing industry. Although the firm
aims to be the leading office desk specialist manufacturer, other furniture pieces
will be produced as secondary business.

Organisation and Management

Owing to the fact that the business will be an infant firm, the owner shall assume
the responsibilities of the manager and the supervisor as shown on the following

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organisation chart:

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Owner Director

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Supervisor
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Receptionist counter
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sales person
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Carpenters
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The organizational chart above shows that the project will not employ many
employees at its onset as a way of cutting down cash flow. However, with
growth, the project will create employment for many. Accordingly, the project will
employ 2 carpenters and a receptionist counter sales person. An outside
accountant will be used to prepare books of the project. The project will strive to
meet the following objectives:
i) To produce quality furniture

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 ii) To extend the product line
iii) To maximize the profit and the owner’s equity
iv) To have high staff retention
v) To have high customer retention by practicing good customer care.

The following table shows position, responsibilities, qualifications and salaries of

organizational members.

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 Position Responsibilities Qualifications Salary/mont
h

Owner - Policy formulation - Entrepreneurial $200 000.00

- Mobilisation of resources skills, HND or B Tech
- New project initiation (Wood)
- Human resources planning and
recruitment

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- Opportunity identification

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Manager - Policy implementation - Management $150 000.00
- Allocating resources to Certificate

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business units - Class I
- Marketing (carpentry)
- Cash flow management

Supervisor -
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Staff motivation and task - Class I $100 000.00
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allocation (carpentry) &
- Resource allocation to workers NC Carpentry
- Solving novel technical - At least 2 years
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problems at operational level experience

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Receptionist - Receiving and making calls - Salesmanship $80 000.00

/ Counter - Advertising & selling products Certificate
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salesperson - Recording business

transactions
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Carpenter - Making furniture - Class I $90 000.00

- Maintaining tools, equipment (carpentry)
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and machines - At least 2 years

- Responding to customers’ experience
needs by producing prescribed
products by customers

Feasibility Study

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 The owner carried a feasibility study to determine the suppliers, customers,
competitors and distributors. The feasibility study was carried out through the
use of Internet, personal interviews, telephone interviews and questionnaires.
The owners also used the press and electronic media to gather information on
competition, supply, customers and distribution channels.
Marketing

Target market

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The target customers for the project are made up of the upcoming small

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businesses, medium businesses and large firms. The project also targets
schools and households for general furniture. Kwekwe city has a household
population of. Whereas the number of schools in Kwekwe is, the number of

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businesses is. This population related information and statistics show that the
target market size is large and that there is likelihood of enjoying high demand for
the products.

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Products to be offered
The project will offer office desks, dining tables, kitchen tables, room dividers,
and kitchen units among others. The products will be of different styles, designs
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and features according to customer specifications.

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Competition
In Kwekwe there are no manufacturers of office desks and other furniture pieces
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but sales outlets such as Pelhams, Zimbabwe Furnitures, TV sales and other
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Indian shops. Kenshell Furnitures feels that it will out compete these rivals given
that the project is going to be set up in the market. This explains that the project
is not going to incur distribution costs as the target market will always
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conveniently get their furniture at manufacturer’s price. Pelhams and others do

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not have competitive advantage in terms of price as they offer their products at
retail price. In addition, Kenshell has an added advantage in terms of being able
to customize and practise local marketing as well as nichemanship. As such, in
terms of quality, the competitors will not match Kenshell’s given that the latter will
be situated in the market making it possible to practise the said strategies
(customizing, local marketing and nichemnaship0

Pricing
In terms of pricing, Kenshell will charge the manufacturer’s price whereas the
rivals charge retail price. Retail price is more expensive and manufacturer’s
price is cheap. Due to the high inflation and extreme cost of living, individuals

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 and organizations are very price sensitive. Accordingly the customers are likely
to buy more from the project at lower prices (manufacturer’s price).

Distribution
Kenshell will prefer to sell its furniture direct to the final users that is
organizations and individuals or households in need of the latter. Retailers will
be considered secondarily. Thus, two distribution channels will be adopted that
is:

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Kenshell Furnitures (Manufacturer)

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Retailers
Preferred channel

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Customers (Kwekwe households, schools, small to
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large
Business)
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Kenshell will prefer selling its products straight to

customers for the reason that furniture is part of
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slow moving goods.

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Moreover, with regard to physical distribution,

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Kenshell intends to offer free delivery to customers

within Kwekwe city and those within a radius of 40
km. This strategy (after sales service) is designed
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to out compete rivals or to make it difficult for the

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new rivals to enter the market.

Promotional strategies
The project is going to advertise in the local press, that is Observer and the
Gweru Times as it will practice local marketing that is considering the needs of
the local people. More so, the project will make use of flyers and posters to
advertise its furniture as a way of enhancing its advertising coverage through the
local press. The local press and flyers as well as posters are less expensive
compared to TV and National press. As such, for an infant firm like Kenshell, the
Chosen media will be ideal and more suitable. Apart from advertising strategy,
the project will also employ personal selling in an attempt to search for the

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 specific needs of customers and also to demonstrate how the furniture should be
placed or used in offices, schools and houses. The owner of the business will be
involved in personal selling. The owner has undertaken entrepreneurship
Studies and doses hold HND in Wood Technology.

Moreover, sales promotion is also going to be used in conjunction with

advertising and personal selling. In this case, price discounts or reductions will
be given to cash purchasers and also bulk-purchasers.

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Public relations and customer care will also be considered seriously in redressing
unexpected customer queries, complaints, suggestions and grievances. Publicity
statements are also going to be given in local press to create awareness of the

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existence of the enterprise and its products on the market.

Production procedures

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The following procedures will be followed in the manufacture of office desks:
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Desk designing 1 hr
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Timber sliced into desk surfaces, door, legs 11/2 hrs

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Frame development 1 hr
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Fitting surfaces and pieces 1 hr

Desk

Varnishing 15mm

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 Painting 15mm

The above diagram shows that the project will take 5 hrs to make one office
desk. Working the normal 8 hrs a day, the project can produce 8 desks per week
for 40 hrs. This is a considerable production capacity given that the firm will be
an infant.

Costing

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The office desk will be cost as follows:

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1st calculate Direct cost
a) Direct Material Cost:

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Timber $2 000.00
Hinges $1 000.00
Screws
Varnish
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$ 500.00
$1 000.00
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Paint + $2 000.00
DMC $6 500.00
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b) Calculate Direct Labour Cost:

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Formula: No of workers x No of hrs/item x wage/hr/worker

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DLC = 1 x 5 hrs x $200.00

= $1 000.00
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c) Calculate Total Direct Cost

Formula: Direct Cost = Direct Material Cost + Direct Labour Cost + Direct
Expenses

DC = $6 500.00 + $1 000.00 + $5 000.00

= $12 500

NB: It is assumed that the firm will hire a machine (Direct Expenses = $5000.00)

2nd Calculate Indirect Cost/item

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 a) Indirect cost/yr

Rent 5 000
Electricity 10 000
Salaries 15 000
Transport 5 000
35 000

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b) Calculate Indirect Cost/item

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Formula: Indirect Cost/item = Indirect cost/yr
No of items/yr

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I/C item = $35 000
400 desks
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= $87.50
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NB: It is assumed that the firm will operate for 50 weeks/yr. Therefore, the hours
per year are 2 000. See Production Procedures for hours spent to produce each
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desk.
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3rd Calculate Total Cost

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Formula: TC = DC + IC
= $12 500.00 + $87.50
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= $12 587.50
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In our Project the mark up shall be 35%

Therefore the selling price = Cost + mark up

= $12 587.50 + (12 587.50 x 35%)
= $12 587.50 + 4 405.60
SP/desk = $16 993.13

The profit = SP – CP
= $16 993.13 - $12 587.50

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 = $4 405.60

Project requirements
Item Cost/Unit Total
Circular saw x 1 $2000 $2000 (own contribution)
Thickresser x 1 $1500 $1500
Jack plane x 4 $ 500 $2000

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Router x 1 $2000 $2000

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Compressor x 1 $4000 $4000
Rip saw x 4 $ 500 $2000
Cross cut saw x 4 $ 500 $2000

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Tenon saw x 4 $ 500 $2000
Try square x 4 $ 500 $2000

Claw hammer x 4
Sash cramps x 10
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Screw drives set x 1 $1000
$ 500
$ 500
$1000
$2000
$5000
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Smoothing plane x 2 $ 750 $1500
Raw materials & - $6500
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materials
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Total Project $35500

Requirement $11500
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Less own contribution $24000

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Loan Amount required

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Financial projection
Sales & cost plan to show projected profit at the project’s selling price
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Jan Feb Mar

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Sales $1 409 792.00 $4 000 000.00 $6 000 000.00

Direct Material $ 208 000.00 $ 300 000.00 $ 600 000.00
Cost
Direct Labour $ 32 000.00 $ 200 000.00 $ 200 000.00
Cost
Gross profit $1 169 792.00 $3 500 000.00 $5 200 000.00
Indirect cost $ 2 800.00 $ 500 000.00 $1 000 000.00
Net Profit $1 166 992.00 $3 000 000.00 $4 200 000.00

NB: The figures for the month of January have been drawn from pages 12 & 13 –
Costing. Figures for the months of February to April are based on estimates.

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 The sales and cost plan should be prepared for the whole year (January to
December)**

Cash flow forecast (To be prepared for 12 months – 1 year)

Jan Feb Mar Apr
Receipts/Cash Inflow:
Capital (own contribution) $11 500 - - -
Bal b/f - $1 376 417 $3 821 542 $9 549 667

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Sales $1 409 792 $4 000 000 $6 000 000 -

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Cash from debtors - $ 500 000 $1 000 000
Other income
Bank loan $24 000 - -

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TOTAL RECEIPTS (A) 1 443 792 $5 876 417 $10 821 542
PAYMENTS/CASH OUTFLOW:

Rent
Electricity
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Purchases (raw materials) $208 000
$ 5 000
$ 10 000
$ 300 000
$ 5 000
$ 10 000
$ 600 000
$ 50 000
$ 20 000
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Salaries $ 15 000 $ 15 000 $ 200 000
Transport $ 5 000 $ 10 000 $ 100 000
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Equipment & Machines $ 24 000 $ - $ 300 000

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Loan repayment $ 1 875 $ 1 875 $ 1 875

TOTAL PAYMENTS B $4268 875 $ 347 875 $1 271 875
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Bal c/d (Net Income) $1 174 917 $5 534 542 $9 549 667
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NB: January figures have been

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drawn from ‘Project

Requirements’ on page 14 and
‘Costing’ on page 12 & 13. For
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Feb & March figures are based

on estimates
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PROJECT PROFIT & BALANCE SHEET

Projected Manufacturing, Trading, profit and loss A/C

January February March

Manufacturing A/C
Production Cost:
Direct Materials $208 000 $300 000 $600 000
Direct Labour $ 32 000 $200 00 $200 000
Direct Expenses - - -

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 Product cost of goods finished 240 000 500 000 800 000
Sales 1 409 792 4 000 000 6 000 000
Less: Production cost on goods sold:
Opening stock of finished goods -
Add: production cost of finished 240 000 500 000 600 000
goods 1 169 792 3 500 000 5 400 000
169 792 500 000 400 000
Less closing stock of finished goods 1 000 000 3 000 000 5 000 000

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Gross Profit

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Less Indirect cost 1
(Admin/selling/distr.):
Rent 5 000 5 000 5 000

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Electricity 10 000 10 000 20 000
Salaries 15 000 15 000 200 000
Transport cost 5 000 10 000 100 000
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NB: Research on SWOT analysis for the above business and include it.
UNIT 9.0 COMPUTERS IN BUSINESS
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9.1 Objectives
By the end of this unit you should be able to
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- Define a computer
- Discuss the use of computers in business areas such as record keeping,
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stock control, accounts, production control

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9.2 Definition of a computer

- Is a machine that is used to collect, store, process, retrieve and communicate
data in business
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9.3 Use of computer in:

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Record keeping
- Computers are used to keep records such as daily sales, employee
records, memos and minutes of meetings. Computers can also be used
to store customer records in the banking sector and other organizations
that deal with customers. Special programs are developed for the
purpose of capturing and storing the information into databases that can
later be retrieved and used as and when required. Also used in libraries to
store book records and facilitating payments for overdue books.
- Computers are also used in schools to keep student records such as name,
address and age (for those in education business e.g. private colleges)

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 Stock control
- Computers are used to monitor the inventory levels i.e. level of stock for each
item an organisation has in their warehouse. The computer will be fed with
information each time stock is purchased or sold, in return it will give up to
date stock levels, items that are at re-order level, most selling stock and items
enquiring special attention.
- This stock control function can be applied in any kind of business, be it
manufacturing, industry, retailers etc

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Accounts
Computers can also be used to perform the accounting function. This is applied
through the development of accounting systems i.e. computer systems that

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automate accounting activities. The following are some of the accounting
systems

ii)
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Accounts receivable systems – which monitor the organisation’s
debtors
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iii) Accounts payable systems – that monitor suppliers
iv) Pastel accounting – an integrated package that provide a variety of
accounting functions
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Production control
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- Computer systems can also be used to monitor production in industry. In

such cases, computers are fed with the production output, they compare the
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actual output with the planned/desired output, if there is a variance, and they
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thus give suggestions of what can be some to rectify the problem. In some
cases computers are used to monitor and control the industrial machinery just
as what the human being does. They will be connected to an alarm that rings
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if unexpected situations arise, which will thus alert the human being in office.
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Activity
Explain the importance of computers in the entrepreneurial world
Reference for further reading

Kotler Philip & Armstrong G (2001) Principles of Marketing

Appleby R (1994) Modern Business Administration

Mullins L (1999) Management and Organisational Behaviour 5th edition

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 Justin Smith (2000) Business Management Trainer’s Guide

GYB, SYB and IYB (ILO) Modules

Zimmerer T.W, Scarborough M Norman – Essentials of Entrepreneurship and

Small Business Management – End Edition
iness

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McGuckin Frances (1988) Business for Beginners (A simple step by step Guide

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to Start Your New Business)

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