MTTM -08/2021

5. Define family business. Discuss the management control mechanisms in family business. 20

A company manages the five unique resources every family business possesses:

1. Human capital. The first resource is the family's human capital, or "inner circle." When the skill sets of
different family members are coordinated as a complementary cache of knowledge, with a clear division of
labor, the likelihood of success improves significantly.

2. Social capital. The family members bring valuable social capital to the business in the form of
networking and other external relationships that complement the insiders' skill sets.

3. Patient financial capital. The family firm typically has patient financial capital in the form of both equity
and debt financing from family members. The family relationship between the investors and the managers
reduces the threat of liquidation.

4. Survivability capital. The family company must manage its survivability capital-family members'
willingness to provide free labor or emergency loans so the venture doesn't fail.

5. Lower costs of governance. The family business must manage its ability to hold down the costs of
governance. In nonfamily firms, these include costs for things such as special accounting systems, security
systems, policy manuals, legal documents and other mechanisms to reduce theft and monitor employees'
work habits. The family firm can minimize or eliminate these costs because employees and managers are
related and trust each other.

Clearly delineating these unique family resources and leveraging them into a well-
coordinated management strategy greatly improves your business's chances of success compared to
nonfamily-owned companies.

7. What is SWOT analysis? Explain its importance in entrepreneurship. 20

 A SWOT analysis is a compilation of your company's strengths, weaknesses, opportunities and

threats.
 The primary objective of a SWOT analysis is to help organizations develop a full awareness of all the
factors involved in making a business decision.
 Perform a SWOT analysis before you commit to any sort of company action, whether you are
exploring new initiatives, revamping internal policies, considering opportunities to pivot or altering
a plan midway through its execution.
 Use your SWOT analysis to discover recommendations and strategies, with a focus on leveraging
strengths and opportunities to overcome weaknesses and threats.

To run a successful business, you should regularly analyze your processes to ensure you are operating as
efficiently as possible. While there are numerous ways to assess your company, one of the most effective
methods is to conduct a SWOT analysis.
A SWOT (strengths, weaknesses, opportunities and threats) analysis is a planning process that helps your
company overcome challenges and determine what new leads to pursue.

The primary objective of a SWOT analysis is to help organizations develop a full awareness of all the factors
involved in making a business decision. This method was created in the 1960s by Albert Humphrey of the
Stanford Research Institute, during a study conducted to identify why corporate planning consistently
failed. Since its creation, SWOT has become one of the most useful tools for business owners to start and
grow their companies.

"It is impossible to accurately map out a small business's future without first evaluating it from all angles,
which includes an exhaustive look at all internal and external resources and threats," Bonnie Taylor, chief
marketing strategist at CCS Innovations, told Business News Daily. "A SWOT accomplishes this in four
straightforward steps that even rookie business owners can understand and embrace."

perform a SWOT analysis

You can employ a SWOT analysis before you commit to any sort of company action, whether you are
exploring new initiatives, revamping internal policies, considering opportunities to pivot or altering a plan
midway through its execution. Sometimes it's wise to perform a general SWOT analysis just to check on
the current landscape of your business so you can improve business operations as needed. The analysis
can show you the key areas where your organization is performing optimally, as well as which operations
need adjustment.

Don't make the mistake of thinking about your business operations informally, in hopes that they will all
come together cohesively. By taking the time to put together a formal SWOT analysis, you can see the
whole picture of your business. From there, you can discover ways to improve or eliminate your company's
weaknesses and capitalize on its strengths.

While the business owner should certainly be involved in creating a SWOT analysis, it is often helpful to
include other team members in the process. Ask for input from a variety of team members and openly
discuss any contributions made. The collective knowledge of the team will allow you to adequately analyze
your business from all sides.

Characteristics of a SWOT analysis

A SWOT analysis focuses on the four elements of the acronym, allowing companies to identify the forces
influencing a strategy, action or initiative. Knowing these positive and negative elements can help
companies more effectively communicate what parts of a plan need to be recognized.

When drafting a SWOT analysis, individuals typically create a table split into four columns to list each
impacting element side by side for comparison. Strengths and weaknesses won't typically match listed
opportunities and threats verbatim, although they should correlate, since they are ultimately tied
together.

Billy Bauer, managing director of Royce Leather, noted that pairing external threats with internal
weaknesses can highlight the most serious issues a company faces.
"Once you've identified your risks, you can then decide whether it is most appropriate to eliminate the
internal weakness by assigning company resources to fix the problems, or to reduce the external threat by
abandoning the threatened area of business and meeting it after strengthening your business," said Bauer.

Internal factors

Strengths (S) and weaknesses (W) refer to internal factors, which are the resources and experience readily
available to you.

These are some commonly considered internal factors:

 Financial resources (funding, sources of income and investment opportunities)

 Physical resources (location, facilities and equipment)
 Human resources (employees, volunteers and target audiences)
 Access to natural resources, trademarks, patents and copyrights
 Current processes (employee programs, department hierarchies and software systems)

External factors

External forces influence and affect every company, organization and individual. Whether these factors are
connected directly or indirectly to an opportunity (O) or threat (T), it is important to note and document
each one.

External factors are typically things you or your company do not control, such as the following:

 Market trends (new products, technology advancements and shifts in audience needs)
 Economic trends (local, national and international financial trends)
 Funding (donations, legislature and other sources)
 Demographics
 Relationships with suppliers and partners
 Political, environmental and economic regulations

After you create your SWOT framework and fill out your SWOT analysis, you will need to come up with
some recommendations and strategies based on the results. Linda Pophal, owner and CEO of consulting
firm Strategic Communications, said these strategies should focus on leveraging strengths and
opportunities to overcome weaknesses and threats.

"This is actually the area of strategy development where organizations have an opportunity to be most
creative and where innovative ideas can emerge, but only if the analysis has been appropriately prepared
in the first place," said Pophal.

SWOT analysis example

Bryan Weaver, a partner at Scholefield Construction Law, was heavily involved in creating a SWOT analysis
for his firm. He provided Business News Daily with a sample SWOT analysis template and example that was
used in the firm's decision to expand its practice to include dispute mediation services. His SWOT matrix
included the following:
STRENGTHS WEAKNESSES

No one has been a

Construction law firm with
mediator before or been
staff members who are trained
through any formal
in both law and professional
mediation training
engineering/general
programs.
contracting. Their experience
gives a unique advantage.
One staff member has
been a part
Small (three employees) – can
of mediations but not as
change and adapt quickly.
a neutral party.

OPPORTUNITIES THREATS

Most commercial construction Anyone can become a

contracts require mediation. mediator, so other
Despite hundreds of mediators construction law firms
in the marketplace, only a few could open up their own
have actual construction mediation service as well.
experience.
Most potential clients
For smaller disputes, have a negative
mediators don't work as a impression of mediation,
team, only as individuals; because they feel
Scholefield staff can offer mediators don't
anyone the advantage of a understand or care to
group of neutrals to evaluate a understand the problem,
dispute and rush to resolve it.

Resulting strategy: Take mediation courses to eliminate weaknesses and launch Scholefield Mediation,
which uses name recognition with the law firm, and highlights that the firm's construction and
construction law experience makes it different.
"Our SWOT analysis forced us to methodically and objectively look at what we had to work with and what
the marketplace was offering," Weaver said. "We then crafted our business plan to emphasize the
advantages of our strongest features while exploiting opportunities based on marketplace weaknesses."

Additional business analysis strategies

The SWOT analysis is a simple but comprehensive strategy for identifying not only the weaknesses and
threats of an action plan but also the strengths and opportunities it makes possible. However, a SWOT
analysis is just one tool in your business strategy. Additional analytic tools to consider include the PEST
analysis (political, economic, social and technological), MOST analysis (mission, objective, strategies and
tactics) and SCRS analysis (strategy, current state, requirements and solution).

Consistent business analysis and strategic planning is the best way to keep track of growth, strengths and
weaknesses. Use a series of analysis strategies, like SWOT, in your decision-making process to examine and
execute strategies in a more balanced, in-depth way.

8. Explain Human Resource Planning. Discuss in detail the need for training and development. 20
Human resource planning (HRP) is the continuous process of systematic planning ahead to achieve
optimum use of an organization's most valuable asset—quality employees. Human resources planning
ensures the best fit between employees and jobs while avoiding manpower shortages or surpluses.

There are four key steps to the HRP process. They include analyzing present labor supply, forecasting labor
demand, balancing projected labor demand with supply, and supporting organizational goals. HRP is an
important investment for any business as it allows companies to remain both productive and profitable.

Steps to Human Resource Planning

There are four general, broad steps involved in the human resource planning process. Each step needs to
be taken in sequence in order to arrive at the end goal, which is to develop a strategy that enables the
company to successfully find and retain enough qualified employees to meet the company's needs.

Analyzing Labor Supply

The first step of human resource planning is to identify the company's current human resources supply. In
this step, the HR department studies the strength of the organization based on the number of employees,
their skills, qualifications, positions, benefits, and performance levels.

Forecasting Labor Demand

The second step requires the company to outline the future of its workforce. Here, the HR department can
consider certain issues like promotions, retirements, layoffs, and transfers—anything that factors into the
future needs of a company. The HR department can also look at external conditions impacting labor
demand, such as new technology that might increase or decrease the need for workers.

Balancing Labor Demand With Supply

The third step in the HRP process is forecasting the employment demand. HR creates a gap analysis that
lays out specific needs to narrow the supply of the company's labor versus future demand. This analysis
will often generate a series of questions, such as:
  Should employees learn new skills?
 Does the company need more managers?
 Do all employees play to their strengths in their current roles?

Developing and Implementing a Plan

The answers to questions from the gap analysis help HR determine how to proceed, which is the final
phase of the HRP process. HR must now take practical steps to integrate its plan with the rest of the
company. The department needs a budget, the ability to implement the plan, and a collaborative effort
with all departments to execute that plan.

Training presents a prime opportunity to expand the knowledge base of all employees, but many
employers in the current climate find development opportunities expensive. Employees attending training
sessions also miss out on work time which may delay the completion of projects. However despite these
potential drawbacks, training and development provides both the individual and organisations as a whole
with benefits that make the cost and time a worthwhile investment. The return on investment from
training and development of employees is really a no brainer.

benefits

Improved employee performance – the employee who receives the necessary training is more able to
perform in their job. The training will give the employee a greater understanding of their responsibilities
within their role, and in turn build their confidence. This confidence will enhance their overall performance
and this can only benefit the company. Employees who are competent and on top of changing industry
standards help your company hold a position as a leader and strong competitor within the industry.

Improved employee satisfaction and morale – the investment in training that a company makes shows
employees that they are valued. The training creates a supportive workplace. Employees may gain access
to training they wouldn’t have otherwise known about or sought out themselves. Employees who feel
appreciated and challenged through training opportunities may feel more satisfaction toward their jobs.

Addressing weaknesses – Most employees will have some weaknesses in their workplace skills. A training
program allows you to strengthen those skills that each employee needs to improve. A development
program brings all employees to a higher level so they all have similar skills and knowledge. This helps
reduce any weak links within the company who rely heavily on others to complete basic work tasks.
Providing the necessary training creates an overall knowledgeable staff with employees who can take over
for one another as needed, work on teams or work independently without constant help and supervision
from others.

Consistency – A robust training and development program ensures that employees have a consistent
experience and background knowledge. The consistency is particularly relevant for the company’s basic
policies and procedures. All employees need to be aware of the expectations and procedures within the
company. Increased efficiencies in processes results in financial gain for the company.

Increased productivity and adherence to quality standards – Productivity usually increases when a
company implements training courses. Increased efficiency in processes will ensure project success which
in turn will improve the company turnover and potential market share.
 Increased innovation in new strategies and products – Ongoing training and upskilling of the workforce
can encourage creativity. New ideas can be formed as a direct result of training and development.

Reduced employee turnover – staff are more likely to feel valued if they are invested in and therefore, less
likely to change employers. Training and development is seen as an additional company benefit.
Recruitment costs therefore go down due to staff retention.

Enhances company reputation and profile – Having a strong and successful training strategy helps to
develop your employer brand and make your company a prime consideration for graduates and mid-
career changes. Training also makes a company more attractive to potential new recruits who seek to
improve their skills and the opportunities associated with those new skills.
Training can be of any kind relevant to the work or responsibilities of the individual, and can be delivered
by any appropriate method.

For example, it could include:

 On-the-job learning
 Mentoring schemes
 In-house training
 Individual study

9. Discuss in detail the forms of a business organization. Discuss the characteristics of a Company. 20
Business organization is the single-most important choice you’ll make regarding your company. What form
your business adopts will affect a multitude of factors, many of which will decide your company’s future.
Aligning your goals to your business organization type is an important step, so understanding the pros and
cons of each type is crucial.

Your company’s form will affect:

 How you are taxed

 Your legal liability
 Costs of formation
 Operational costs

There are 4 main types of business organization: sole proprietorship, partnership, corporation, and Limited
Liability Company, or LLC. Below, we give an explanation of each of these and how they are used in the
scope of business law.

Sole Proprietorship
 The simplest and most common form of business ownership, sole proprietorship is a business owned and
run by someone for their own benefit. The business’ existence is entirely dependent on the owner’s
decisions, so when the owner dies, so does the business.

Advantages of sole proprietorship:

 All profits are subject to the owner

 There is very little regulation for proprietorships
 Owners have total flexibility when running the business
 Very few requirements for starting—often only a business license

Disadvantages:

 Owner is 100% liable for business debts

 Equity is limited to the owner’s personal resources
 Ownership of proprietorship is difficult to transfer
 No distinction between personal and business income

Partnership

These come in two types: general and limited. In general partnerships, both owners invest their money,
property, labor, etc. to the business and are both 100% liable for business debts. In other words, even if
you invest a little into a general partnership, you are still potentially responsible for all its debt. General
partnerships do not require a formal agreement—partnerships can be verbal or even implied between the
two business owners.

Limited partnerships require a formal agreement between the partners. They must also file a certificate of
partnership with the state. Limited partnerships allow partners to limit their own liability for business
debts according to their portion of ownership or investment.

Advantages of partnerships:

 Shared resources provides more capital for the business

 Each partner shares the total profits of the company
 Similar flexibility and simple design of a proprietorship
 Inexpensive to establish a business partnership, formal or informal

Disadvantages:
 Each partner is 100% responsible for debts and losses
 Selling the business is difficult—requires finding new partner
 Partnership ends when any partner decides to end it

Corporation

Corporations are, for tax purposes, separate entities and are considered a legal person. This means, among
other things, that the profits generated by a corporation are taxed as the “personal income” of the
company. Then, any income distributed to the shareholders as dividends or profits are taxed again as the
personal income of the owners.

Advantages of a corporation:

 Limits liability of the owner to debts or losses

 Profits and losses belong to the corporation
 Can be transferred to new owners fairly easily
 Personal assets cannot be seized to pay for business debts

Disadvantages:

 Corporate operations are costly

 Establishing a corporation is costly
 Start a corporate business requires complex paperwork
 With some exceptions, corporate income is taxed twice

Limited Liability Company (LLC)

Similar to a limited partnership, an LLC provides owners with limited liability while providing some of the
income advantages of a partnership. Essentially, the advantages of partnerships and corporations are
combined in an LLC, mitigating some of the disadvantages of each.

Advantages of an LLC:

 Limits liability to the company owners for debts or losses

 The profits of the LLC are shared by the owners without double-taxation

Disadvantages:
 Ownership is limited by certain state laws
 Agreements must be comprehensive and complex
 Beginning an LLC has high costs due to legal and filing fees

Some of the most important characteristics of a company are as follows:

1. Voluntary Association:

A company is a voluntary association of two or more persons. A single person cannot constitute a

company. At least two persons must join hands to form a private company. While a minimum of seven

persons are required to form a public company. The maximum membership of a private company is

restricted to fifty, whereas, no upper limit has been laid down for public companies.

2. Incorporation:

A company comes into existence the day it is incorporated/registered. In other words, a company cannot

come into being unless it is incorporated and recognised by law. This feature distinguishes a company from

partnership which is also a voluntary association of persons but in whose case registration is optional.

3. Artificial Person:

In the eyes of law there are two types of persons viz:

(a) Natural persons i.e. human beings and

(b) Artificial persons such as companies, firms, institutions etc.

Legally, a company has got a personality of its own. Like human beings it can buy, own or sell its property.

It can sue others for the enforcement of its rights and likewise be sued by others.

4. Separate Entity:

The law recognizes the independent status of the company. A company has got an identity of its own

which is quite different from its members. This implies that a company cannot be held liable for the

actions of its members and vice versa. The distinct entity of a company from its members was upheld in

the famous Salomon Vs. Salomon & Co case.

5. Perpetual Existence:

A company enjoys a continuous existence. Retirement, death, insolvency and insanity of its members do

not affect the continuity of the company. The shares of the company may change millions of hands, but

the life of the company remains unaffected. In an accident all the members of a company died but the

company continued its operations.

6. Common Seal:

A company being an artificial person cannot sign for itself. A seal with the name of the company embossed

on it acts as a substitute for the company’s signatures. The company gives its assent to any contract or

document by the common seal. A document which does not bear the common seal of the company is not

binding on it.

7. Transferability of Shares:

The capital of the company is contributed by its members. It is divided into shares of predetermined value.

The members of a public company are free to transfer their shares to anyone else without any restriction.

The private companies, however, do impose some restrictions on the transfer of shares by their members.

8. Limited Liability:

The liability of the members of a company is invariably limited to the extent of the face value of shares

held by them. This means that if the assets of a company fall short of its liabilities, the members cannot be

asked to contribute anything more than the unpaid amount on the shares held by them. Unlike the

partnership firms, the private property of the members cannot be utilized to satisfy the claims of

company’s creditors.

9. Diffused Ownership:

The ownership of a company is scattered over a large number of persons. According to the provisions of

the Companies Act, a private company can have a maximum of fifty members. While, no upper limit is put

on the maximum number of members in public companies.

10. Separation of Ownership from Management:

Though shareholders of a company are its owners, yet every shareholder, unlike a partner, does not have a

right to take an active part in the day to day management of the company. A company is managed by the

elected representatives of its members. The elected representatives are individually known as directors

and collectively as ‘Board of Directors’.

10. Discuss the stages of growth for a small enterprise. Explain various Growth Strategies. 20
A classic Harvard Business Review study tackled the complex problem of analyzing the issues and
growth patterns of small businesses in such a way that it identified the common problems that arise
at key stages of small business development. The report integrated relevant small business
experience, a thorough literature search and empirical research to develop a framework for the five
key stages of small business growth: Existence, survival, success, take-off and resource maturity. The
following summaries the key concerns for each stage.
1. Stage I: Existence.At the beginning, small business owners are most concerned about finding and
signing up customers and being able to deliver their products and services. They are grappling with
the question of whether they will get enough customers and deliver enough product s/services to
become a viable business; whether they can move from a test/beta/pilot phase to being able to scale;
and whether they have the financial resources, cash, to meet all start-up requirements. The
companies that move past these issues and remain in business become Stage II companies.

2. Stage II: Survival.At this point, businesses have proven their basic business plan premise and have
an true operating concern. The focal point at this stage then is the relationship between revenues
and expenses. Owners are evaluating whether one, they can generate enough cash to break even and
cover the repair/replacement of basic assets; two, whether they can get to cash flow break -even; and
three, whether they are be able to finance growth in order to earn an economic return on assets and
labor.

3. Stage III: Success.This is a pivotal point for owners in that the business has reached economic
health, and the owners are debating whether to leverage the company as a growth platform or
consider the company as a means of support for them as they embark on disengaging from the
company. Thus, there are two substage tracks to the Success stage.
In the Success-Growth substage, the owner pulls together all resources and risks them to some
degree with the intent of financing growth. If this is the direction, they are focused on the basic
business staying profitable while the company enters into a parallel strategic planning and execution
phase.
In the Success-Disengagement phase, the company should be able to maintain itself indefinitely
barring external environmental changes. Managers take over the owner’s operational duties, and the
strategy is to essentially maintain a status quo. The owners either benefit from the cash flow from
operations “indefinitely” or prepare for sale or a merger.

4. Stage IV: Take-off.Knowing that they are poised for growth, what owners face at this juncture is
how to grow quickly and how to finance their growth. Both operational and strategic planning is
being actively done, with managers having very real responsibilities. Owners then grapple with
structural organizational issues of how construct the enterprise and how to delegate to these
managers, and in what way. In terms of cash, the owner is often faced with having to tolerate a high
debt-equity ratio as well as aggressively manage a cash flow and expense controls. Failure at this
stage often occurs because of the attempt to grow too fast – run out of cash, or not being able to
effectively delegate authority to a managerial team.

5. Stage V: Resource Maturity.At this point, the company has the staff and financial resources to
engage in detailed operational and strategic planning. It has a decentralized management structure
with experienced, senior staff and all necessary systems are in place. The owner and the business
have separated to a large degree, both financially and operationally. If the company can continue as
it has, and maintain its entrepreneurial spirit, it has a strong probability of continued growth and
success – as long as it avoids what the study calls “ossification.” Ossification occurs when innovation
stalls and the corporate culture begins avoids taking risks – both common traits in corporations as
they grow. The key is to maintain a nimble culture that pays attention to environmental, market
changes and has the organizational structure and incentives that reward adaptation.