Entrepreneurship

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

Unit 2.0 CUSTOMER CARE

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

Unit 3.0 STAFF MOTIVATION

3.1 objectives
3.2 definition of motivation
3.3 theories of motivation C Maslow’s hierarchy of needs, expectancy model,
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

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

Unit 6.0 RECORD KEEPING AND STOCK CONTROL

6.1 objectives
6.2 importance of record keeping
 6.3 source documents
6.4 appreciation of books of accounts
6.5 stock control
Activity

Unit 7.0 GENERATE YOUR BUSINESS IDEA

7.1 objectives
7.2 survey social needs
7.3 start your business
Activity

Unit 8.0 BUSINESS PLANNING

8.1 objectives
8.2 definition of a business plan
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:

- 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 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
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 foreign currency earner, among other crucial roles it
plays to the economy.
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 person who organizes and manages
a commercial undertaking especially one involving calculated commercial risks. In other words, an
entrepreneur is someone who identifies opportunities in terms of needs and wants of people and
mobilizes resources such as land, capital and labor to develop profit-making projects to meet the
identified needs and wants.

Successful entrepreneurs are not gamblers but take calculated and moderate risks in business. It
should, however, be noted that entrepreneurs behave so strongly in their business ideas that they are
willing to take full responsibility for 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.

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.

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 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
involving uncertainties which require initiativeness and process innovation.

Whereas Appleby clearly states, the idea of “management and organizational skills” in his
definition, Stoner & Freeman have remaind silent about it. Organizational skills and management
are crucial for successful entrepreneurs. 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 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 for the purpose of producing
goods and services in order to satisfy human needs and wants profitably. The combination of
resources is as follows:

Land Labour Capital

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 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 Intrapreneurship

Investor's or entrepreneurs are innovative and creative but not all of them are able to 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 intraprenuer. Managers or employees who carry
out entrepreneurial roles are aware of opportunities and they initiate changes to take full advantage of them .

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

The word intraprenuership is attributed to Gordon Pinchott an American who founded a school for intraprenuers to
help managers from large corporations to take responsibility for creating innovations and turning ideas into
profitable reality.

Relationship between entrepreneurship and Patriotism

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 in the following roles that a patriotic entrepreneur plays to the
nation that is the entrepreneur should have the spirit of:
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
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 people have ideas but they are a few who decide
to do something about them now and not tomorrow.

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 and not what they are going to do if
they fail.

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

Goal setting
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 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

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 wants of people.

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

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

In a word, successful entrepreneurs must have appropriate personal characteristics, business skills where
necessary.

1.4 Entrepreneurship environment

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

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

Macro – environment
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 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.

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 to political sanctions based on the allegations by
Britain and America that there is lack of rule of law, democracy and violations of human rights. South Africa also
faced political sanctions based on allegations that there was apartheid foreign currency crisis and fuel shortage can
grossly affect the entrepreneur’s business activities negatively.

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 rates, and unemployment.
Macro-economic issues set the environment within which a business operates. Because 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 issues enhances the ability of an entrepreneur to make sound
business decisions and to avoid surprises.

*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 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.

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. 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 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 which stem from their society’s culture. That is people of
different social classes have different lifestyles and bahavioural patterns.
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 to speak or write clearly.

Technological environment
Today, we are living in a global village which requires entrepreneurs to move with 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.
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 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.

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.

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 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 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 funds (loans) within the contractual time frame as this will
enable the entrepreneurs to even receive preferential treatment and favour in times of need.

Customers
To many entrepreneurs, responsibilities to customers may be seen as no more than a natural outcome of good
business. Customers are people who make the business successful. The entrepreneurs need to understand the
needs and wants of customers 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:
 Good value for money
 The safety and durability of products
 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.

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
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 the acceptability of the entrepreneur’s products by customers.

1.5 Entrepreneurship Strategies

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

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

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.

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 development strategy
Strategy Current markets.

Market development Diversification strategy

New strategy markets.

Ansoff’s Growth strategies

1.market penetration
a) market development
b) product development

2. Integrative growth
a) backward integration
b) forward integration
c) horizontal integration

3. Diversification growth
a) Concentric diversification
b) Horizontal
c) Conglomerate
a) Backward Integration – is when a company acquires one or more of its suppliers to gain more control
and generate more profit.

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.

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
- 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

Other Entrepreneurship strategies

- a strategy is a method used to achieve a goal

1) Franchising
- 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
- The objective is to achieve efficiency or profitable distribution of products/services within a specific area
- Both parties contribute a trademark reputation, known products, managerial know-how produces or
equipment.

Advantages to the franchiser Advantages to the franchisee

- increased distribution - less risk with market tested products

- some operating costs are transferred
- marketing/distribution costs shared
- production accepted by locals when local
franchise ownership is held
- Retains quality control of products is a
franchise agreement.
- pre established promotion and advertising
programs provided
- Financial and may be provided.
- Credit available in buying inventory and
supplies
- Decision making assistance, management
procedure and training.

Disadvantages to the franchiser Disadvantages to the franchisee

- control of franchisees are far away - gives up freedom in management

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

2) Buying an established business

Advantages

- a business with a goodwill increases the Disadvantages

likelihood of successful operation
- has a proved location for successful
operation
- has an established clientele
- its inventory is already on the shelves
- Its equipment is already available and its
resources and capabilities are known.
- the buyer inherits any ill will of the
existing firm
- certain employees may be inherited which
are not assets to the firm
- inherited clientele may not be the most
desirable and changing the firms image is
usually difficult
- procedures of the former may be difficult - renovation expenses
to follow - purchase price may not be satisfying
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

 using telephone for personal long distance calls
 using company postage for personal mail
 showing favouritism in selection decisions/disciplinary practices
 playing politics in the organisation
 unfair business practice/transactions
 unfair dismissal

Three different ethical positions that can provide guidance in evaluating one’s own ethical standards at work or in
business:

i) Utilitarian View of Ethics

- this relates to decisions made solely on the basis of their outcomes or 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 maximising 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 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.
- 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 consistent 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 less powerful but can
encourage a sense of entitlement that reduces risk-taking innovation and productivity

Codes of ethics and decisions

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

 examples of codes include the following

Demonstrate courtesy, respect, honesty, fairness maintain confidentiality of records
 Do not propagate false or misleading information

Importance of good Ethics

 corporate image is built or improved
 efficiency and productivity is enhanced
 sales and profits are boosted
 Sound relations and mutuality between the entrepreneur and the 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 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.

- Social responsibilities also include taking care of harmful waste products, dangerous emissions.
- Social responsibilities further cover informing the publics about the size 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.
- Some critics hold the business community responsible for unemployment, crime in the streets, the 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 government so that it can employ express to solve social problems.

Importance of social responsibility to the entrepreneur

- Productivity and efficiency may be enhanced as workers will be motivated with fair business practises
- corporate image building
- maintenance of sound mutuality and relations with the society
- sales, market and profits and profits may be increased etc

N.B. Large and small firms are urged to practise 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.

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.

Customer care
- 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 the 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 the organisation
 - In the modern business world there is an increasing focus on enhancing service delivery and on
ascertaining that the delivered as promised
- An entrepreneur should be responsible, accessible and quick to help source problems
- 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 organised.

Ten tips for customer care

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

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.

4. Accessibility
- 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

5. Courtesy
- This refers to politeness, respect, consideration and friendliness of your organization’s contact such as
receptionist, 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 a language and style they understand
- it is important to hear and understand what your customers are saying
- 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/she is given priority and should have the trust 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 recognise regular clients
- strive to provide individualised attention
- Understand what makes them buy is it need Price?

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 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.
- Customer care creates new customers
- Constructive consumer dialogue enables the entrepreneur to know and understand what the customers
needs and wants
- It builds good relationships and loyalty with customers
- Can make passive customers become in violated participants (i.e. loyalty)
- Create 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.

Perquisites of meeting Customers expectations

1) be courteous and tactful
2) be friendly and helpful
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
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
- 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
1. poor delivery and accessibility of services
2. poor quality and state of merchandise
3. existence of long queues of customers waiting to be served

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/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 I’ve price control monitors
- make very attempt to deter their bad 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 realise 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 fulfil the promises let the customer know
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

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/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

- 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
- number of rings before the telephone is answered are given

2. Enquires
- short turn around time
- follow up
- 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
- 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
- Pride – job satisfaction
- Rewards incentives compensates and recognition

Refer to Maslow’s hierarchy of needs for further details on staff motivation (apply business Admin) Stoner &
Freeman Management).
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

High
Star high growth New venture Company
Expanding business markets
Speculation
Market Tomorrow’ star (its
Growth hoped)

Low Cash cow Dog

Low growth mature business No growth High
Low Potential sale
Market share

Survival strategies for entrepreneurs may be best explained using the portfolio management mix developed by the BCG

Cash cow business (low growth, high market share).

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

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

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

Dogs (low Growth, low market share)

In many large diversified companies there are usually a few businesses that can be described as dogs.
- There is little to recommend their retention or further investment by company.
- They are typically the businesses tagged for divestment at an early opportunity.
- Management may spend considerable resources attempting to turn around a business that in the end defies all
treatment.
- Top managers can lose their objectivity in taking necessary action on investments they have recommend and
which they are still closely identified.
- Portfolio management provided a basis for resource allocation to each business.

Strategy Centres (life Cycle patterns).

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

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

Strategy centres approach (life cycle patters)

Time

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

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 in the company’s positive cash flow
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.

4. Divest – dogs and question marks.

- here the objective is to sell or liquidate the business because the resources can better used elsewhere
- the strategy is appropriate for dogs and question marks that are acting as a drag on company’s profits

1.6 Forms of Business

A form of business relates to the legal status of a business. The common forms of business are: Sole
Proprietor
: Partnership
: Private Limited Company
: Public Limited Company
: 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 business owner may or may not be held personally responsible for paying
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
 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 sleeping partners
 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
 Profits are shared
 One partner can make contracts on behalf of the others which may lead to all partners losing their
money or capital
 There may be conflicts of interests between the partners

Partnership deed
It is an agreement in writing between partners setting out the following:
 The names of the partners
 The capital contributed by each partner
 How profits and losses will be shared amongst the partners
 How decisions will be made e.g. by majority vote
 How partnership will terminate
 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 their personal savings or borrow from
relatives, friends and banks. Partners may 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.

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. The effect of this is that the creditor may choose to sue the partner who is most likely to be able
to pay and then leave that partner to recover a proportion from the other partners.

Extra ordinary partnerships

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

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
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 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.

i) Partnership encommandite

In this case, the business is carried out by the disclosed or active partners in their own name alone and the liability
of the commanditarian or undisclosed 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.

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 business. Most formally, registered
businesses have limited liability, while most informal businesses have unlimited liability.

ii) Anonymous Partnership

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

Formation
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 partnership deed in case of future disputes.
After the partners have agreed the partners may proceed to apply to the local authority for a business license. Once the
business license is issued, the 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 the business may commence.
 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
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 is required to register with the ministry of finance.

Management
The business is managed by the sole trader himself or herself although he or she may hire someone.
Advantages
 Decision making is done quickly as the sole trader does not have to consult anyone
 Profits are not shared, all projects accrue to the sole trader
 The business requires small capital to start
 The sole trader enjoys privacy
 The sole trader has personalized service or specialized product and a small market
 It is very simple to form as there are few legal requirements

Disadvantages
 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 incapacitation or death
 It can be difficult for the sole proprietor to leave the business e.g. to 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
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 private
property if the business fails.

Management
Shareholders appoint directors who run the company on their behalf. The 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, they can be dismissed. In smaller firms,
the Directors are very often the shareholders themselves.

Formation
To become a Private Limited Company the shareholders must undertake business name search with the registrar of
companies. In order to become a legally registered private limited company, the owners must prepare the following
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 expert to do the documents. The documents are Memorandum of Association and Articles
of Association.
i) Memorandum of Association
 These sets out the company’s constitution that is how the firm should relate to the outside world and the document
should include
 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
 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
requesting a certificate of incorporation. As soon as the certificate of 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.

Advantages
 There is continuity of the business even if one of the owners dies, therefore a company enjoys an
unlimited life
 More capital may be raised from the shares sold to at least two persons
 With limited liability the company two persons attract capital from people who would not
otherwise be prepared to invest
 The company enjoys its independent status and hence the limited liability enjoyed by its
shareholders
 In private company the founders of the business can usually keep control of it by holding a majority
of the shares
 The risks of the business are spread

Disadvantages
A private limited company is more difficult to begin as a lot of formalities are involved
 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

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:
a) It must be stated in the memorandum of association that the company is public
b) The name of the company must end with the words public limited company
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
 like the Private Company, the Public Limited Company has the advantage of independent legal
existence; limited liability; continuity of the business
  The Public Limited Company can raise more capital than the Private Company as it enjoys the
extra benefit of being allowed to appeal to the public for funds, whereas the Private Company has
to rely on friends and relatives for capital.
 The Public Limited Company has no restriction on the transfer of shares
 The Public Limited Company enjoys large-scale production and benefits from economies of scale.

Disadvantages
 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
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.

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 do not have limited liability.

Management
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 the group .

Formation and registration

Members wishing to form a cooperative society need to carry out business name search. In Zimbabwe, the cooperative
s must register with the Ministry of Youth Development Gender and Employment Creation. The registrar is interested
in the following aspects:
 The purpose of forming the cooperative
 The object clause of the business
 Feasibility of the proposed activities
 That there are at least ten members who are motivated and willing 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.

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

Disadvantages
 Cooperatives often fail because the management committee lack business management knowledge
and expertise
 There may be personal differences and conflicts of interests between committee members
  Profits are shared amongst members
 Individual members lose their independence as they are bound by the rules and decisions of the
cooperative

Selecting the best form of business:

a) Risk level
If more money is required to form the business, it means that risk level is high 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 be easier to start as a sole proprietor or partnership.

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.

c) Number of owners
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.
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

 Small businesses are able to be more flexible, innovative and can react changes much quicker
 Small businesses play a supportive role to the giant firms by being subcontracted in construction,
distribution, service and manufacturing sectors
 Small businesses serve small markets (market riches) where large firms do not have interest
 Small firms receive government support through the Ministry of Small to Medium Enterprises,
ministry of Youth Development Gender and Employment Creation and Ministry of Higher and
Tertiary Education that is they receive support in form of training and funds. Small firms also pay
lower taxes.
 Small firms supply their goods and services in smallest lots than giant firms which usually supply
in bulk
 Small firms offer specialized and personalized services to customers e.g. electrical businesses.
 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.

Roles played by small firms to the economy

 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 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.
  Small firms help in the generation of foreign currency
 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 business and employment taxes
 Small businesses contribute to the national income of the country (GDP – Gross Domestic
Products) and to the improvement of the balance of payment

1.8 Government Entrepreneurship initiatives

Government entrepreneurship initiatives are efforts by the government to promote self-sustenance, entrepreneurship
and indeginisation in order to stabilize the economy. In an effort to promote entrepreneurship and self-sustenance, the
government established the Ministry responsible for employment creation since 1980 i.e. Ministry of National Affairs
and Employment creation now Ministry of Youth Development, Gender and Employment Creation. Moreover, the
following institutions were introduced by the government to enable potential entrepreneurs to establish themselves:
a) Small enterprise development corporation (SDECO)
b) Development Bank of Zimbabwe
c) Agricultural Finance Corporation (AFC) (Land Bank)
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
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
e) Zimbabwe Cross Boarders Association

Unit 2.0 CUSTOMER CARE

2.1 Objectives
By the end of this unit students should be able to:
 Define customer care
 Outline ten tips of good customer care
 Explain the importance of customer care
 Discuss the prerequisites of meeting customer’s expectations
 Explain how to build customer trust

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

2.3 Ten tips of 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 favoritism
- Be firm with friends and relatives as far as business transactions are concerned

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

4. Accessibility
- This refers to the degree of approachability and ease of contact of the entrepreneur or his employees
- 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
- 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

8. Security
- Customers 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 it is price

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 personnel
- Employees must be neat, orderly and clean
2.4 Benefits/Importance Of Customer Care
- If customers are put first, the entrepreneur will be rewarded with new business and increased profit margins and
sales.
- Customer care creates new customers
- Constructive consumer dialogue enables the entrepreneur to know and understand what the customers needs and
wants
- 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
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)
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 get to decide if a customer service is good?

1. Customer service is a function of your 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.

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 mangers need to focus not on tangibles as ends themselves but on how all the particulars combine
to create a certain experience.

Prime examples of poor customer care

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

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)
- 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
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
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

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

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

- 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
- Number of rings before the telephone is answered are given

2. Enquiries
- Short turn around time
- Follow up
- 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
- Be sure that your customer’s charter informs clients about the availability of a system of redress in case of
grievances

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

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 therefore very important to take a closer look at theories of motivation and
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. Maslow (cited in Stoner & Freeman 1989) defines motivation as those
inner and outer factors which cause, channel and sustain the behaviour of a person in order to achieve specific
organizational or personal goals.

3.3 Theories of Motivation and their implications to the enterprise

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
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 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 (cognitive theories)
- 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 to satisfy these needs. Content theories place emphasis on the nature of 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

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 hierarchy

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

Esteem (i.e.
achievement, self- confidence,
Status, respect, recognition by others)

Social (love) (i.e. to belong, associate with, be

accepted by
)
Safety (i.e. protection against danger
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.
Physiological i.e. shelter, clothing, food
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.

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.

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 only unsatisfied needs motivate a
person.

This hierarchy of needs implies that entrepreneurs need to consider seriously the 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
physiological needs (shelter, food, clothing). Pleasant working conditions must also be ensured.

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

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,
and team spirit and general sound relations with employees. Workers also need 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.

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 needs are concerned with relationships to the social environment and cover love,
meaningful interpersonal relationship of esteem nature. Growth needs are concerned with development of potential and
cover self-esteem and self-actualization.

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

Herzberg’s Motivation – hygiene theory

He presents his tow factor theory of motivation which elaborates the differences 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 needs. These are called satisfiers or
motivators or growth factors. Another set of factors which entrepreneurs must take cognizance of is dissatisfiers or
hygiene factors. These factors stem from the extrinsic job context e.g. working conditions, pay, and supervision.
These satisfy lower needs. An important point to note in this theory is that as dissatisfaction stems from lower needs
not being satisfied, when these are satisfied, this only removes dissatisfaction and does not increase motivation.

If hygiene factors did not reach a certain standard e.g. salary, working conditions, 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

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 Hierarchy. The emphasis in this theory
is that entrepreneurs must consider both the hygiene factors and the growth factors/motivators.

McClelland’s achievement Motivation theory

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 and how food dominated thought processes, four main aroused based and socially developed motives
were identified. These are
 The achievement motive
 The power motive
 The affiliative motives
 The avoidance motives

The first 3 motives relate to Maslow’s self-actualization, esteem and love needs.
The implication of this theory to the entrepreneur is that the entrepreneurs must 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 and it is too easy there is little satisfaction and
motivation.

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 expanded and perceived level of performances, and
(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 most favourable consequences.
The proponents of the expectancy theory are Vroom and Porter and Lawler.

V room’s expectancy theory

Vroom’s theory was based on three by 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 others. That is they anticipate feelings of satisfaction should the preferred outcome be achieved.

Valence is the feeling about specific outcomes that is the anticipated satisfaction form an outcome. Vroom
distinguishes valence from value that is valence is as to anticipated satisfaction and value is as to the actual satisfaction
provided by an outcome e.g. money as a reward.

Instrumentality - this relates to the distinction between first level and second level outcomes. The first-level outcomes
are performance related which refer to the 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 acquire Valence because of the expectation that they will lead to other outcomes
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
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
Salary + bonus/commission Handling grievances/concerns
Salary + profit sharing Personal growth
High salary + benefits Professional growth
Commission Job security
Prizes of employee of the month Status and public or private recognition
Good working environment
Participative management

3.4 Importance of motivating employees

- Increased productivity
- Increased efficiency and effectiveness
- Good corporate image building
- Increased sales and profits
- Good customer relations
- Promotes team spirit (team work) or cooperation and support by employees
- Promotes intrapreneurship by employees that is innovativeness, creativity and initiative ness resulting in the
growth or expansion of the enterprise

Activity
Giving examples of the theories of motivation, discuss the advantages of 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
 Define social responsibility
 Explain social responsibility principles
 Explain the importance of social responsibility to the entrepreneur

4.2 definitions of ethics

Refers to the rules/principles that define right and wrong conduct in business or at work to the publics or the
organisation.

Publics ate 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

 Using telephone for personal long distance calls
 Using company postage for personal mail
 Showing favouritism in selection decisions/disciplinary practices
 Playing politics in the organisation
  Unfair business practice/transactions
 Unfair dismissal

4.3 ethical positions

Three different ethical positions that can provide guidance in evaluating one’s own ethical standards at work or in
business:

i) Utilitarian view of ethics

- This relates to decisions made solely on the basis of their outcomes or 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
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 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 consistent 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 less powerful but can encourage an
overly 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 entitlement that reduces risk-taking innovation and productivity

Codes of ethics and decisions

 Codes state the organisation’s primary values and the ethical rules it expects its employees to follow
 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
 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 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 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 tax 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.
- Social responsibilities also include taking care of harmful waste products, 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. Sedan Benz is designed in
such a way that it minimizes chances of accidents. Some critics hold the business community responsible for
unemployment, 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 government so that it can employ express to solve social
problems.

4.6 Importance of social responsibility to the entrepreneur

- Productivity and efficiency may be enhanced, as workers will be motivated with fair business practices.
- 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

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 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 and can use it for any purpose that society deems legitimate .

UNIT 5.0 COSTING AND PRICING

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

5.2 Define the following costing terms

5.2.1 Costing
5.2.2 Costs
5.2.3 Direct costs
5.2.4 Direct labour
5.2.5 Direct expenses
 5.2.6 Indirect costs

5.3 Calculate total costs per item

5.4 Discuss the importance of costing to the entrepreneur
5.5 Define pricing
5.6 Calculate prices of products
5.7 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
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.

5.2.4 Direct Material costs

- 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.
- 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 must be big enough to add a considerable amount to the total direct material costs.

5.2.5 Direct labour costs

- These are all the money that the business or entrepreneurs spends on wages, salaries and benefits for the people
who are directly involved in the production of its or his/her products or services
- 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 total direct labour costs. Retailers and wholesalers do not have
employees 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.

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.

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.
- Formula: Total Cost = Direct Cost + Indirect Cost
- 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

STEP I
Direct Material Direct labour cost: Direct Direct Cost
Cost: - Add the - (hrs per item x Expense Per Item
+ + =
cost of raw number of workers
materials used to x money
produce one
product item
STEP II
Indirect Cost per year

Add up all the Indirect costs for the year

Indirect Cost per item:
Total Indirect costs per year
Total number of items per year

STEP III Total cost per item:

Direct cost per item + indirect cost per item

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)

Stage I: Calculate Direct Material Costs

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 counted

Stage II: Calculate Direct Labour Costs

 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

Stage III: Calculate Indirect Costs

 These are all other costs that the business incurs per month such as rent, electricity, insurance, depreciation,
water and so on.

Costing calculations where not more than one product is produced.

Exhibit
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
Nails 1 000.00
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

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)

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

Indirect Cost/item: Rent $ 5 000.00

Electricity $ 500.00
Other wages $10 000.00
Telephone $ 2 000.00
Transport $ 2 000.00
$19 500.00

Indirect Cost/item: $19 500.00

100 items/month
= $195.00/item
Total cost of one item: Direct material cost + Direct Labour Cost + Direct Expenses + Indirect Cost = $4 000.00 +
$195.00
=$4 195.00

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

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
Paint $ 2 000.00

Direct expenses $5 000.00

2 Workers take 3 hours to make one desk. They are each paid $1 000.00 per hour. Other costs of running the
business per year are:
Rent $10 000.00
Electricity $ 5 000.00
Water $ 7 000.00
Transport $20 000.00
Other wages $20 000.00

1000 desks are produced each year. Calculate the total cost per item.

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

Materials $50 000/item

Indirect costs $2 000 000/year
40 000 items are produced per year
3 Workers take 2 hours to produce 1 (one) item. Calculate the total cost of product item.
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.

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
Zip $100.00 $ 100.00
Button $100.00 $ 100.00

Two workers are each paid $2 000.00 per hour. Working together, they take 4 hours to produce one dress and 6 hours
to produce one pair of trousers. Other costs each year:
Rent $600 000.00
Electricity $240 000.00
Transport $240 000.00

The two workers each work for 40 hours a week and fifty weeks a year. Calculate total cost per each item.

Answer:
Direct costs:

1st calculate direct material cost:

Materials Dress Trousers

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

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

Trousers: $1 600.00 + $24 000

= $25 600.00 per pair of trousers

4th calculate indirect costs: Rent $6 000 000.00

Electricity $ 240 000.00
Transport $ 240 000.00_
$1 080 000/year

5th calculate production hours per year

2 Workers x 40 hrs/week x 50 weeks/year = 4 000hrs/year

6th indirect cost per hour:

Formula: indirect cost/year
Production hrs/yr

= 1 080 000/yr
4 000 hrs/yr

= $270/hr

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

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

Fabric $2 000.00 $3 000.00

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

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

Indirect costs per year:

Rent $600 000.00
Electricity $360 000.00
Transport $240 000.00

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

Costing for a retailer or wholesaler

Retailers and wholesalers have the same types of costs and can normally do costing in the same manner. Some costs
for retailers and wholesalers are 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

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, depreciation and so on.

5.5 Pricing
Definition: is the process of calculating an amount of money to charge customers for goods and services
produced or to be provided by the entrepreneur.

5.6 Calculations of prices of product

After costing the next process is to calculate the price for which the products 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
It is calculated as: Profit (P) x 100%
Cost ©

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

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

Note that Profit = Selling Price – Cost

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

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:

Material Dress Skirt

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

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 $600 000.00

Electricity $240 000.00
Other wages $ 30 000.00

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%.
ii) If the profit on skirt is $200, what is its selling price, mark up and margin.

b) The entrepreneur produces two products ‘A’ and ‘B’. The following are incurred by the business:

Materials Products: A B
Materials $2 000.00 $3 000.00

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.

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
The entrepreneur should carry out competitor’s analysis to determine the prices 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 for money) products.
As such, the highest selling price should be equal to or less than the price charged by competitors.

c) Cost and Profit

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
than the costs incurred.

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 is lower.

Pricing strategies
A pricing strategy is an approach or means designed to achieve the pricing objectives. The price the entrepreneur
charges will be somewhere between one 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.

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.

Competition based pricing is setting prices based on the prices that competitors 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 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 entrepreneur bases his/her price on how he/she
thinks competitors will price rather than it’s own costs or on the demand.

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

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. Discount and allowance pricing includes cash discount, quantity discount,
functional discount (trade discount) and seasonal discount.
UNIT 6.0 RECORD KEEPING AND STOCK CONTROL
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
- 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

6.3 Source document

- Source documents are the documents from which original information to the 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 involve cash e.g. where a customer tenders
cash, a receipt may be written out. Below is a sample of a receipt

Books of primary entry is obtained

Receipt 0023

Date: 25/02/04

Gobvu Manufacturing (Pvt) Ltd

P O Box 22
CHEGUTU

Telefax: 703301

Purchases Amount__

5 x 2l Mazoe Orange crush $30 000.00

Sub total $30 000.00

Less discount $ 3 000.00
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 usedTotal
Signature…………… $27
for credit sales. The 000.00
invoice should have the following
details:
Thank You
Date of purchase
Invoice number
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
Appreciation message (e.g. Thank You for doing business with us)

The following is a sample of an invoice

Invoice 00214

Date: 26/02/04

Gobvu Manufacturing (Pvt) Ltd

P O Box 39
KWEKWE

Telefax: 055 50221

To: Makayepuva (Pvt) Ltd

Chuma street
MASVINGO

Tel: 039 62043

Item purchased Quantity Unit cost Total______

500ml super stick glue 500 $100.00 $50

000.00
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 shown. Sometimes a second invoice is issued in this instance rather than a debit
note.
less 5% discount if paid Total $50 000.00
within 30 days
Below is an example of a debit note

Debit Note

Supplier’s name & address

Supplier Ref:
Date:

Customer’s Name & Address

Debit Note No

Item description Quantity Unit price Total___________

Total to be debited:

Reasons for debit:

Credit Note is used to correct an overcharge e.g. if 25 items are sent, but only 20 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
supplier. A credit note can also be used where goods or services are unsatisfactory e.g. goods are damaged or wrong
price charged.

The following is a layout of a credit note

Credit Note

Customer’s Name & Address

Customer Ref:
Date:

Supplier’s Name & Address

Credit Note No:

Item Description Quantity Unit price Total______

Total to be credited
Statement is a summary of all of the invoices, payments, credit and debit notes during a period of time. A running
Reason
balance for
(total) is credit:
used to show the effect of each transaction i.e. invoices and debit notes increase the total amount
which is 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.

Below is the layout and a specimen of a statement

Statement

From………/…………/………To……./………/………

Customer’s Name & Address

Customer Ref:
Date:

Supplier’s Name & Address

Date Details Amount Balance_________

Specimen
Date Details
Balance remaining
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 Received $ 600.00 $ 900.00
28/02/04 Invoice No. 16 $1 200.00 $2 100.00
 Balance remaining $2 100.00

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.

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 services that the customer has enquired
about.

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

Order Note is a letter requesting goods from the supplier.

Below is a layout of an order note

Order

Supplier’s Name & Address Customer’s Name & Address

Customer Ref:
Date:
____________________________________________________________
Item Description Quantity Unit price Total________

TOTAL_________________

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 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.

Delivery
Below note of Delivery Note
is the layout

Customer’s Name & Address:

Customer Ref:
Date:

Supplier’s name & Address

Delivery Note No:

Item description Quantity___________

Customer’s signature………………_______________________________
Consignment Note is used with or instead of a delivery note where the goods are delivered by someone other than the
supplier e.g. for goods delivered by sea or rail.

Entrepreneurs should consider the following. When choosing a supplier: prices, quality, delivery, customer service,
location, terms of payment, discounts and business hours.

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

Example
1/02 E Gobvu starts business with capital: Cash $ 5 000.00
Bank $50 000.00
8/02 Sales (cash) $15 000.00
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
20/02 Sales (cheque) $20 000.00
22/02 Pay wages (cash) $10 000.00
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

E Gobvu cash book for the month of February 2004

Date Receipts (Details) Cash Bank Date Payments (Details) Cash Bank
1/02 Capital 5 000 50 000 5/02 Purchases 10 000
8/02 Sales 15 000 15/02 Telephone bill 5 000
18/02 Deposit 10 000 18/02 Deposit 10 000
20/02 Sales 20 000 22/02 Wages 10 000
23/02 Withdrawal 5 000 23/02 Withdrawal 5 000
28/02 Drawings 15 000
25 000_ 80 000 29/02 Balance c/f 5 000 45 000
25 000 80 000
1/03 Balance b/f 5 000 45 000

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.
- Drawings relates to money taken out of business for personal use.
- 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
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 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
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.
- 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 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 balance carried forward because it is the
amount that will be starting the next month and will be recorded as balance b/f (balance brought forward)

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

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

20/02 B Sali returned goods $2 000.00

22/02 T Tom returned goods $5 000.00

Date Details Folio Dr Cr

20/02 B Sali $2 000.00
22/02 T Tom $5 000.00
Dr Sales Returns $7 000.00

General Journal
This is used to enter all transactions which cannot conveniently be entered into one of the other subsidiary books e.g.
fixed assets bought on credit such as furniture.

Example; Mutsvedu (Pvt) Ltd

01/02 Received an invoice of $100 000.00 for office furniture bought on credit form M Pienaar
02/02 Bought stationary on credit from M Pienaar $10 000.00

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

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 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 for the amount of each transaction.
- The two sides of the account (sometimes contained on two pages facing each 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.

Example: Mabinge M (Pvt) Ltd

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
Pays cash for goods (purchases) by cheque $100 000.00
3 Sells goods for cash and deposits the money $ 8 000.00
4 Pays cash for stationery by cheque $ 1 000.00
5 Pays rent in cash by cheque $ 2 000.00

Bank A/C
Dr Cr
Date Details Folio Amount Date Details Folio Amount
Feb 1 Capital 500 000.00 Feb 2 Shop equipment 300 000.00
8 000.00 2 Purchases 100 000.00
3 Sales 4 Stationery 1 000.00
5 Rent 2 000.00
_________ Bal c/d 105 000.00
508 000.00 508 000.00

Bal b/d 105 000.00

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 i.e. written on the left hand side of the Bank A/C. Conversely, the capital
A/C has given out to the Bank A/C. This ca be shown as follows:

Dr Capital A/C Cr
Bank 500 000.00

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.

6.5 Stock Control

- Involves the management of stock levels and ensuring that the best stock level is sustained.
- Maintenance of the best stock level is important to avoid too much stock which may result in tying up capital.
Tying up capital means that money that could be used in other parts of the business is held in unused stock
resulting in the business failing to pay its creditors.
- 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. 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
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 the amount and that gives the
entrepreneur the re-order level. For instance: If 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.

The Stock book

- For effective management of stock, entrepreneurs are encouraged to keep 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.

Mutsvedu D Pvt Ltd

Stock Card

Item Description:
Cost Price:
Selling Price:
Reorder level:

Date Details Stock in Stock out Total/Balance________

Example
Prepare a stock card from the following details:

Item: Eversharp blue pen; cost price $500, Selling Price $600, re-order level 140
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 the details on the stock card and
determine the re-order date.

Mutsvedu D (Pvt) Ltd

Item Description: Eversharp blue pen

Cost Price: $500.00
Selling Price: $600.00
Reorder level: 140

Date Details Stock in Stock out Total/Balance

02/02 Purchases 1 000 1 000

03/02 Sales 500 500
04/02 Sales 200 300
05/02 Sales 100 50 150
07/02 Purchases 1 000 100 1 050
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.
- 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

STEPS:
1st Set a date for stock take and inform the publics if business hours are interrupted
2nd Organize the stock to facilitate easy counting
3rd Develop a stock list
4th Physically count every item as per stock list and enter the figure in the ‘stock take’ column
5th Enter the last balance figure from the stock cards in the stock card column for each item
6th Deduct the stock card figure form the stock take figure and enter this amount in the Difference column
7th Find out the reasons if there is a difference i.e. if there is more or less stock than shown on the stock card

Below is a specimen of a stocktaking list

Stock taking list

Item Stock take Stock card Difference

Eversharp pen 1 000 1 150 -150

Pencil sharpener 200 200 0
Ruler 300 350 +50
Exercise book (A4) 1 000 1 000 0
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

Item Description: T – shirt

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

02/02/04 bought 10 000

03/02/04 sold 500
04/02/04 sold 2 000
05/02/04 sold 4 000
06/02/04 sold 3 000
06/02/04 bought 10 000

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

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

02/02/04 Bought stock with cheque $300 000
03/02/04 Bought stock from Makaye P on credit $200 000
04/02/04 Bought goods on credit from Mapuva J $ 50 000
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

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

7.2 Definition of business idea

- Every business emerges from an idea
- Businesses get started when people (customers) manifest their needs and 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.
 A business idea is a short and precise description of the basic operations of the business. Thus a business
idea must show the following:
The product of service to be offered
Potential customers/ target market
Selling approach
Need to be fulfilled for the customers

7.3 Needs survey

- This is undertaken to determine the needs of the potential customers. Entrepreneurs need not just produce
products and services for unknown customers. There is need to determine the socio-economic needs of customers
if the products to be offered are to be accepted.
- The needs survey is crucial in ensuring that the business idea has the customer and the customer is needs in mind.
- 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.

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

Profitability and Feasibility of the Business Idea

- A business idea must be profitable and feasible.
- To determine he profitability and feasibility of a business idea one needs to carry out a feasibility study and
SWOT analysis.
- 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 if it is feasible.
- A business idea should be practical and profitable.
- In terms of feasibility the entrepreneur needs to consider availability of market, competition, location,
infrastructure and facilities, raw materials, machinery and equipment, labour and other costs such as electricity,
insurance, water, security etc.

SWOT ANALYSIS
- SWOT analysis is very crucial in the formulation of the Business idea
- 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 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 business idea or give up the idea completely.

7.4 Starting the Business

- The procedures to start a business depend on the form of business that the 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 Limited Company and partnership.

UNIT 8.0 BUSINESS PLANNING

Business Plan is a document that shows the arrangement in advance of business activities the commercial undertaking
and how they will be implemented.
Importance of Business Plan
- Shows strengths, weaknesses and threats of the business(SWOT)
- Provides insight into the strategies to be used to outcompete rivals
- 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 opportunities in advance

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

Kenshell furnitures

Business plan

©2004

Compiled by: Dzomira S.

Executive summary

Business name: Kenshell furnitures

Business address: Kwekwe Poly, Box 399 Kwekwe
Business owners/ directors: NC MARKETING
B
usiness idea: To provide furniture
Business form: PVT LTD Company
Business Type: Manufacturing
Own contribution: $11500.00

Loan amount required : $22 500.00

Total project cost : $34 000.00

Details of own contribution : the owner will contribute

Mission statement: to provide quality furniture to the community at

affordable prices and generate income for the stakeholders
through whose efforts profits are gathered.

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

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

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

(i) To provide quality furniture to the community

(ii) To be the leading customer driven enterprise by being responsive to customer’s needs.
(iii) To maximize the owner’s equity and profit

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, 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 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 project is about a kilometer to the railway station.

Benefits of the Project to the owners

- The owners will enjoy psycho-socio-economic emancipation.
- The owners will enjoy vertical social mobility that is the owner’s status will rise 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

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 organisation chart:

Owner Director

Manager

Supervisor

Receptionist counter
The organizational chart above shows that the project will not employ many employees at its onset
salesasperson
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
ii) To extend the product line
iii) To maximize the profit andCarpenters
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.

Position Responsibilities Qualifications Salary/month

Owner - Policy formulation - Entrepreneurial skills, HND $200 000.00

- Mobilisation of resources or B Tech (Wood)
- New project initiation
 - Human resources planning and recruitment
- Opportunity identification

Manager - Policy implementation - Management Certificate $150 000.00

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

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

Receptionist/ - Receiving and making calls - Salesmanship Certificate $80 000.00

Counter - Advertising & selling products
salesperson - Recording business transactions

Carpenter - Making furniture - Class I (carpentry) $90 000.00

- Maintaining tools, equipment and machines - At least 2 years experience
- Responding to customers’ needs by producing
prescribed products by customers

Feasibility Study

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

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 and features according to customer specifications.

Competition
In Kwekwe there are no manufacturers of office desks and other furniture pieces but sales outlets such as
Pelhams, Zimbabwe Furnitures, TV sales and other 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 conveniently get their furniture at
manufacturer’s price. Pelhams and others do 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 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:

Kenshell Furnitures (Manufacturer)

Retailers
Preferred channel
9
Customers (Kwekwe households, schools, small to large
Business)

Kenshell will prefer selling its products straight to customers for the reason that furniture is part of slow
moving goods.

Moreover, with regard to physical distribution, 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 to
out compete rivals or to make it difficult for the 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 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.

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 existence of the enterprise and its products on the market.
Production procedures

The following procedures will be followed in the manufacture of office desks:

Desk designing 1 hr

Timber sliced into desk surfaces, door, legs 11/2 hrs

Frame development 1 hr

Fitting surfaces and pieces 1 hr

Desk

Varnishing 15mm

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
The office desk will be cost as follows:

1st calculate Direct cost

a) Direct Material Cost:

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

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

DLC = 1 x 5 hrs x $200.00

= $1 000.00

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

a) Indirect cost/yr

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

b) Calculate Indirect Cost/item

Formula: Indirect Cost/item = Indirect cost/yr

No of items/yr

I/C item = $35 000

400 desks

= $87.50

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 desk.

3rd Calculate Total Cost

Formula: TC = DC + IC
= $12 500.00 + $87.50
= $12 587.50

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
= $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
Router x 1 $2000 $2000
Compressor x 1 $4000 $4000
Rip saw x 4 $ 500 $2000
Cross cut saw x 4 $ 500 $2000
Tenon saw x 4 $ 500 $2000
Try square x 4 $ 500 $2000
Screw drives set x 1 $1000 $1000
Claw hammer x 4 $ 500 $2000
Sash cramps x 10 $ 500 $5000
Smoothing plane x 2 $ 750 $1500
Raw materials & materials - $6500
Total Project Requirement $35500
Less own contribution $11500
Loan Amount required $24000

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

Jan Feb Mar

Sales $1 409 792.00 $4 000 000.00 $6 000 000.00
Direct Material Cost $ 208 000.00 $ 300 000.00 $ 600 000.00
Direct Labour Cost $ 32 000.00 $ 200 000.00 $ 200 000.00
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. 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
Sales $1 409 792 $4 000 000 $6 000 000 -
Cash from debtors - $ 500 000 $1 000 000
Other income
Bank loan $24 000 - -
TOTAL RECEIPTS (A) 1 443 792 $5 876 417 $10 821 542
PAYMENTS/CASH OUTFLOW:
Purchases (raw materials) $208 000 $ 300 000 $ 600 000
Rent $ 5 000 $ 5 000 $ 50 000
Electricity $ 10 000 $ 10 000 $ 20 000
Salaries $ 15 000 $ 15 000 $ 200 000
Transport $ 5 000 $ 10 000 $ 100 000
Equipment & Machines $ 24 000 $ - $ 300 000
Loan repayment $ 1 875 $ 1 875 $ 1 875
TOTAL PAYMENTS B $4268 875 $ 347 875 $1 271 875
Bal c/d (Net Income) $1 174 917 $5 534 542 $9 549 667
NB: January figures have been drawn from
‘Project Requirements’ on page 14 and
‘Costing’ on page 12 & 13. For Feb & March
figures are based on estimates

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 - - -
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 goods 240 000 500 000 600 000
1 169 792 3 500 000 5 400 000
Less closing stock of finished goods 169 792 500 000 400 000
Gross Profit 1 000 000 3 000 000 5 000 000
Less Indirect cost (Admin/selling/distr.): 1
Rent 5 000 5 000 5 000
Electricity 10 000 10 000 20 000
Salaries 15 000 15 000 200 000
Transport cost 5 000 10 000 100 000
NB: Research on SWOT analysis for the above business and include it.
UNIT 9.0 COMPUTERS IN BUSINESS
9.1 Objectives
By the end of this unit you should be able to

- Define a computer
- Discuss the use of computers in business areas such as record keeping, stock control, accounts, production control

9.2 Definition of a computer

- Is a machine that is used to collect, store, process, retrieve and communicate data in business

9.3 Use of computer in:

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)

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

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

ii) Accounts receivable systems – which monitor the organisation’s debtors

iii) Accounts payable systems – that monitor suppliers
iv) Pastel accounting – an integrated package that provide a variety of accounting functions

Production control
- Computer systems can also be used to monitor production in industry. In such cases, computers are
fed with the production output, they compare the actual output with the planned/desired output, if there
is a variance, and they 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 if unexpected situations arise, which will thus alert
the human being in office.

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

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

McGuckin Frances (1988) Business for Beginners (A simple step by step Guide to Start Your New
Business)