BUSINESS ENTEPRISE SKILLS

TEACHING BOOKLET

TEACHING NOTES

FORM 1

TEACHER’S RESOURCE BANK

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WHAT DOES IT MEAN TO BE ENTERPRISING?

What does it mean to be "Enterprising"? There are a number of definitions, including "showing
initiative, seeing opportunities and taking advantage of them, and adaptability"', "Having drive,
determination, persistence and passion", and "Ready to embark on new ventures". Many people
assume that enterprising means starting a business or enterprise, but it actually is just one of a set
of features or characteristics of someone doing that.

"An enterprising person is one who comes across a pile of scrap metal and sees the making of a
wonderful sculpture. An enterprising person is one who drives through an old decrepit part of
town and sees a new housing development. An enterprising person is one who sees opportunity
in all areas of life.

To be enterprising is to keep your eyes open and your mind active. It's to be skilled enough,
confident enough, creative enough and disciplined enough to seize opportunities that present
themselves…regardless of the economy.

A person with an enterprising attitude says, "Find out what you can before action is taken." Do
your homework. Do the research. Be prepared. Be resourceful. Do all you can in preparation of
what's to come.

Enterprising people always see the future in the present. Enterprising people always find a way
to take advantage of a situation, not be burdened by it. And

enterprising people aren't lazy. They don't wait for opportunities to come to them, they go after
the opportunities. Enterprise means always finding a way to keep yourself actively working
towards your ambition.

Enterprise is two things. The first is creativity. You need creativity to see what's out there and to
shape it to your advantage. You need creativity to look at the world a little differently. You need
creativity to take a different approach, to be different.

What goes hand-in-hand with the creativity of enterprise is the second requirement: the courage
to be creative. You need courage to see things differently, courage to go against the crowd,
courage to take a different approach, courage to stand alone if you have to, courage to choose
activity over inactivity.

And lastly, being enterprising doesn't just relate to the ability to make money. Being enterprising
also means feeling good enough about yourself, having enough self worth to want to seek
advantages and opportunities that will make a difference in your future. And by doing so you

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will increase your confidence, your courage, your creativity and your self-worth—your
enterprising nature."

THE TOP SKILLS EVERY ENTREPRENEUR NEEDS

1. Resiliency. The ability to weather the ups and downs of any business since it never goes
exactly the way the business plan described it. This skill enables the entrepreneur to keep going
when the outlook is bleak.

2. Focus. After setting a long term vision, knowing how to “laser focus” on the very next step to
get closer to the ultimate goal. There are so many distracting forces when trying to build a
business that this skill is not easy to master.

3. Invest for the long-term. Most entrepreneurs are not patient and focus only on what comes
next, rather than where the company needs to go. Overnight success may take 7 to 10 years.
Entrepreneurs need to stop, pause and plan on a quarterly basis.

4. Find and manage people . Only by learning to leverage employees, vendors and other
resources will an entrepreneur build a scalable company. They need to learn to network to meet
the right people. Entrepreneurs strive to guarantee they will get honest and timely feedback from
all these sources.

5. Sell. Every entrepreneur is a sales person whether they want to be or not. They are either
selling their ideas, products or services to customers, investors or employees. They work to be
there when customers are ready to buy. Alternately, they know how to let go and move on when
they are not.

6. Learn . Successful entrepreneurs realize they don’t know everything and the market is
constantly changing. They stay up to date on new systems, technology, and industry trends.

7. Self-reflection . Allow downtime to reflect on the past and plan for the future. Always
working only leads to burnout physically and emotionally.

8. Self-reliance: While there is a lot of help for the entrepreneur, in the end, they need to be
resourceful enough to depend on themselves.

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What are some skills/ personal qualities that successful entrepreneurs possess?

1. Curiosity
Great entrepreneurs are tasked to discover new problems, reveal potential niche opportunities,
refactor their original business process and innovate. This is contingent on being passionate
about different fields of study and business cases outside of one’s comfort zone.

2. Time management
Careful priority planning, defining milestones, execution and iteration. None of that would lead
toward progress without the right project management and time allocation methodology that gets
the work done.

3. Strategical thinking
Decomposing a problem to its core and revealing opportunities for growth. Figuring out creative
solutions and identifying the low-hanging fruits. Defining the scope for an MVP and testing
concepts within limited time and on low budget.

4. Efficiency
High performance when it comes to solving a problem. Applying the 80/20 rule and other
techniques for yielding higher results in less time. Switching between different chores and
progressing effectively on a day-to-day.

5. Resilience

Handling rejections, stress, burnouts, lack of focus, slow progress. Determination and eagerness
to fight the same dragon every morning are instrumental when it comes to building a business
from scratch.

6. Communication
Crisp and concise communication is paramount for each and every interaction with clients,
partners, peers, clients, prospects.

7. Networking

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Growing a network facilitates business opportunities, partnership deals, finding subcontractors or
future employees. It expands the horizons of PR and conveying the right message on all fronts.

9. Branding

Building a consistent personal and business brand tailored to the right audience. Igniting brand
awareness in new verticals.

Advantages of Entrepreneurship

1. It gives a great amount of freedom.

If you are working for a boss and a company, you need to meet all their requirements and only
have very little freedom on the job. On the other hand, if you start your own business, you will
be able to make your own demands and set your own schedule. You dictate everything you do,
giving you a level of freedom that you will not see when you are employed.

2. It can be exciting.

Entrepreneurship can be very exciting, with many entrepreneurs considering their ventures
highly enjoyable. Every day will be filled with new opportunities to challenge your
determination, skills and abilities.

3. It allows you to set your own earnings.

Of course, you will be the one setting your own wage and making investments when you own the
business. The work that you do would be for something you own, which can be a huge advantage
compared to when you are working as an employee for a certain company.

4. It offers flexibility.

As an entrepreneur, you can schedule your work hours around other commitments, including
quality time you would spend with your family.

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Disadvantages of Entrepreneurship

1. It requires you to dedicate a huge amount of time.

One big challenge in starting your own business is the amount of time you have to dedicate to it.
Remember that entrepreneurship is not easy, and for it to be successful, you have to take a level
of time commitment that many people are just not willing to make. And even if you are able to
enjoy flexibility in your work schedule when your venture does become successful, you will still
have to dedicate a substantial amount of time to growing the business.

2. It can be difficult to compete with other businesses.

It is very important for an entrepreneur to stay competitive. This means that you have to
differentiate your business from others in your niche in order to build a solid customer base and,
finally, become profitable.

3. It does not guarantee 100% success.

Entrepreneurship would make your dreams come true, which does not often happen with
traditional employment, but you need to make some sacrifices to make it happen. You should
know that this type of venture does not guarantee 100% success.

4. It comes with unpredictable work schedules.

One major drawback of being an entrepreneur is that more work and longer hours will be
required from you than being an employee.

While you want to become your own boss, you must first know the amount of effort, time and
investment to make your venture successful. Even though there is a lot of rewards coming from
it, it also has certain downsides.
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DIFFERENCES BETWEEN A RESOURCE AND A CAPABILITY

A.a resource refers to a company's most strategically important asset, whereas a capability refers
to the basis of a company's competitive advantage over rivals.

B.a resource is a competitively relevant internal activity that a firm performs especially well
relative to other internal activities, whereas a capability is a competitively important activity
performed by key strategic allies.

C.a resource represents a competitive asset that is owned or controlled by the company, whereas
a capability is a competently performed internal activity that is developed through the
deployment of the company's resources.

D.a resource refers to a company's best-executed functional strategy, and a capability refers to a
company's best-executed business strategy.

E.a resource usually resides in a company's technology and physical assets (state-of-the-art
plants and equipment, attractive real estate locations, and so on), whereas a capability usually
resides in a company's human capital, information capital, or organizational capital.

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UNINCORPORATED BUSINESSES

A SOLE PROPRIETORSHIP

A sole proprietorship is unincorporated businesses owned by one person and fully conducts the
business itself. It is the easiest and used individual assets and properties to form the business.
The capital required by a sole proprietorship to form business is totally arranged by the sole
proprietor. Capital resources normally from saving money or by borrowing from friends,
relatives or loan from bank. The owner of the business alone takes all decision to run the
business. Therefore, sole traders need alone bears all the risk of the business. Profit and loss of
the business will all belongs to sole proprietorship due to nobody else shares with the sole
proprietor.

Furthermore, the liability of the sole proprietor is unlimited. To implies this, case of loss the
business assets along with the personal properties of the proprietor shall be used to pay the
business liabilities. The formation and operation of a sole proprietorship form of business
organization requires almost no legal formalities; no documents need to be field. (Courtland L.
Bovee, John V. Thill, Michael H. Mescon, 2009) However, for the purpose of the business and
depending on the nature of the business, the sole proprietorship has to have a seal. He may be
required to obtain a license from the local administration or from the health department of the
government, whenever necessary. Last, business of the sole proprietor comes to the end with the
will of the owner or upon his death. Many farms and small service businesses are sole
proprietorships, as are home-based business such as computer programmer, consultant.

SOLE PROPRIETORSHIP

ADVANTAGES OF SOLE PROPRIETORSHIP

i. Easy to Form and Wind up:

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With a very small amount of capital, a sole proprietorship business is very easy to form. There is
no required with any legal formalities except for those businesses which required license from
local authorities or health department of government. We can wind up the business at any time
because the formation is very easy. (Sole Proprietorships, nd)

ii. Direct Motivation:

A sole proprietor alone gains the profits without sharing and needs to bears the risk of losses too.
If he works hard, then there is a possibility of getting more profit and nobody will share this
reward with him. This provides strong motivation for the sole proprietor to work hard and smart.

iii. Fully Control, Quick Decision and Prompt Action:

In a sole proprietorship business, the sole traders need to fully conduct the business himself. He
is the planner, who co-ordinates every activity in an efficient manner. He needs take any decision
on his own because no one else is involved in. Thus, the decision making becomes quick and
prompt action.

iv. Close Personal Relation:

The sole proprietor responsible to maintain good personal contact with the customers and
employees. Sole proprietor get to know the individual likes, dislikes and tastes of the customers
through direct contact. It improves and maintaining relations with the employees who can helps
business runs smoothly.

v. Flexibility in Operation:

The sole proprietor is able change the nature and scope of business operations without any
partner’s discussion. A sole proprietor can expand or curtail his business according to the
requirement of the trends. Example, those who runs clothing stall can change the style of
decoration of stall in order to attract customers.

DISADVANTAGES OF SOLE PROPRIETORSHIP

i. Limited Capital:

In sole proprietorship business, normally are sole traders himself raise a huge amount of capital
to start business. Insufficient capital of the business hardly made the business grow smoothly and
expansion.

ii. Unlimited Liability:

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If sole proprietor fails to pay the business obligations and debts arising out of business activities,
personal properties have to be used to meet those liabilities. This restricts the sole proprietor
from taking risks and he thinks cautiously while deciding to start or expand the business
activities.

iii. Lack of Continuity:

The continuation of sole proprietorship business is linked to the life of the proprietor. Illness,
death or insolvency of the owner brings an end to the business. (Sole Proprietorships,nd)

iv. Limited Size:

In sole proprietorship form of business organization there is a limit beyond which it becomes
difficult to expand its activities. It is not always possible for a single person to supervise and
manage the affairs of the business if it grows beyond a certain limit.

v. Lack of Managerial Expertise:

A sole proprietor may not be an expert in every aspect of management. He/she may be an expert
in administration, planning, etc., but may be poor in marketing. But due to limited financial
resources, it’s unable to employ a professional manager. Thus, the business lacks of the
professional to giving advice and help to conduct the business. (Sole Proprietorships,nd)

PARTNERSHIP

When a person started a business himself seems little intimidating, he might start to share the
risks and benefits of going into partnership form. Partnership form is a legal association of two
or more people as co-owners of a business for profit. There are 3 types of partnership which are
general partnership, limited partnership and limited liability partnership. General partnership is
consist two or more persons and formed business without any formality, and no document been
field too. Therefore, if two or more people conduct a business and do not file with the State to
form another type of business organization, a general partnership will result by default. A
partnership may elect not to be a separated taxable entity, in which case only the partners are
taxed. Partners have unlimited liability for the partnership’s debts. (Richard A. Mann and Barry
S. Roberts, 2005) Each partner has an equal right to control of the partnership. Partners may
assign their financial interest in the partnership, but the assignee may become a member of the
partnership only if all the members consent. The death, bankruptcy, or withdrawal of a partner
dissolves a partnership.

Limited partnership starts with at least one general partner and at least limited partner to form a
business. It is formed by filling a certificate of limited partnership with the State. A limited

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partnership may elect not to be a separate taxable entity, in which case only the partners are
taxed. Publicly traded limited partnerships however are subject to corporate income taxation. In
general partnerships have unlimited liability for the partnership’s debts whereas limited partners
have limited liability. Each general partner has an equal right to control of the partnership;
limited partners have no right to participate in control. Partners may assign their financial interest
in the partnership, but the assignee may become a limited partner only if all of the members
consent. (Richard A. Mann and Barry S. Roberts, 2005) The death, bankruptcy or withdrawal of
a general partner dissolves a limited partnership; the limited partners have neither the right not
the power the power to dissolve the limited partnership.

A registered limited liability partnership (LLP) is a general partnership that, by making the
statutorily required filing, limits the liability of its partners for some or all of the partnerships
obligations. To become a Limited Liability Partnership, a general partnership must file the State
and application containing specified information. All of the States have enacted Limited Liability
Partnership statutes. Except for the filling requirements and the partners’ liability shield, the law
governing Limited Liability Partnership is same as the law governing general partnerships. The
tax authorities in the United Kingdom have established that the taxation base of a limited liability
partnership will follow the process operated in the past for partnerships. The Limited Liability
Partnership itself will not be liable for taxation on profits arising within the partnership, but the
profits will be assessed to tax separately on the individual partners. (Richard A. Mann and Barry
S. Roberts, 2005) A limited liability partnership must be a commercial venture operating for
profit. Changes in the tax rules are anticipated to confirm that operation through a limited
liability partnership by a charity or in relation to investment in shares or property will not be
allowed.

ADVANTAGES OF PARTNERSHIP

Startup Costs:

Capital of starting a partnership is relatively cheap and is not consisting file startup papers like
corporations. Partnerships main startup costs usually come from legal fees in drafting a
partnership agreement. A partnership agreement base on the contract between the partners on
how they will run the business. Partnership agreements are not compulsory, but highly
recommended. (Adrian, 2010)

Raising Capital:

Partnerships can sell equity, a share in ownership of the partnership. This allows the partnership
to raise money to operate the business, known as capital. Corporations have the easiest time
raising capital selling interest through stock ownership, however sole proprietorships have the
hardest time raising capital because they cannot sell an equity interest. (Adrian, 2010)
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Decision Making:

Partners share the decision making and can be picked for business ideas and for the solving of
problems that the business encounters.

DISADVANTAGES OF PARTNERSHIP

Disagreements:

Disagreement is the most common cases in the partnership case because people are likely to have
different ideas in conducting business. This can lead to disagreements and disputes which might
not only harm the business, but also will destroy a good relationship. This is the reason why
suggesting a draft agreement been made for everyone in terms to alert of what procedures will be
in place in case of disagreement and what will happen if the partnership is dissolved. (Adrian,
2010)

Unlimited Liability:

Commonly Partnerships are subject to unlimited liability such as financial risks of the business.
This can be countered by the formation of a limited liability partnership, which benefits from the
advantages of limited liability granted to limited companies, while still taking advantage of the
flexibility of the partnership model.

Profit Sharing:

Inconsistency happens where one or more partners aren’t putting a fair share of effort into the
running of the business because partners share the profits equally.

Uncertain life:

The partnership firm has no legal continuation separate from its partners. It comes to an end with
death, bankruptcy, incapability or the retirement of a partner. Further, any unsatisfied or
discontent partner can also give notice at any time for the dissolution of the partnership.

PRIVATE LIMITED COMPANY

Private Limited Company is differentiating to two types, which are by share and by guarantee.
Majority amount of the trading companies are private companies limited by shares. There are
huge percentages of companies registered at Companies House and each company must have the
word ‘Limited’ or ‘Ltd’ at the end of its name. Majority private companies are very tiny and no

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minimum capital requirement in respect of a private limited company and it is usually less than
£100. Roughly 90% of small or medium sized private companies simplify accounts at
Companies House, rather than full accounts. A private company may not offer shares or
debentures to the public Companies Act 1985, sec. 81. The regulation is every company must
deliver once a year returns to Companies House within 28 days of its made-up date. (Companies
Formation Worldwide, nd) Company’s directors and secretary are dependable for ensuring that
the annual return and gives a correctly picture of the organization structure and capital of the
company at the made-up date.

Private Limited Company by guarantee is similar as private company limited by shares, but it
does not have a share capital. It is generally used for charities, clubs, community enterprises and
some co-operatives companies which are non-profit distributing. Same as Private Limited by
share, Company Limited by guarantee is also registered at Companies House. It contains a set of
memorandum and articles, directors are subject to the requirements of the Companies Acts
(except those relating to shares). (Companies Formation Worldwide, nd) This type company not
consist shares and shareholders, but consists members, who meet and control the company
through general meetings. Directors are often called a management committee or council of
management, but in law are still company directors and subject to all the rules that affect other
directors. A company limited by guarantee confers limited liability as effectively as a company
limited by shares. The memorandum states that the members of the company guarantee to pay its
debts, but only up to a fixed amount each.

ADVANTAGES OF PRIVATE LIMITED COMPANY

Limitation of Liability:

The Private Limited Company is a separate corporate body and liability for payment of debts
stops with the owners, shareholders are not personally legally responsible. The directors are only
liable if they continue to trade and incur liabilities after it becomes apparent the Ltd Company is
bankrupt. (Walter J. Johnson, 2010)

Control:

Becoming a Private Limited Company has greater resources or access to capital investment than
sole traders. A private limited company has access to finances through selling shares. Usually,
shares are owned by sole traders, family, relatives, friends, and employees. This mean new issue
of shares cannot sell to open market. Furthermore, existing shareholders can sell their shares only
when agreement from others shareholders. Additionally, the former is able to remain their
controlling interest. .(Walter J. Johnson, 2010)

Decision Making:

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Directors can be picked for business ideas and for the solving of problems that the business
encounters in general meeting.

DISADVANTAGES OF PRIVATE LIMITED COMPANY

Profit Sharing:

Private Limited Companies are profitable but unluckily these profits can become diluted because
they had to evenly distribute among all shareholders which up to 50 shareholders.

Paying Taxes:

Registered directors of Private Limited Company must maintain accurately records of profits and
losses, including income and expenditures. About 7 years records must been keeping and used to
complete the corporation’s tax returns every year. Moreover, Private Limited Company must
also pay taxes and insurance for their employees. (Day, Nellie., 2010)

No Trading:

Shareholders in a Private Limited Company unable to sell or transfer their shares to the general
public. The 50 or so shareholders that comprise a PLC must keep their shares and cannot trade
them on any stock exchange.

High Expenditure:

It is high cost to create Private Limited Company because have to pay taxes and employee
insurance, also any legal fees or other incidentals involved in the business. Moreover, Private
Limited Company spending high expenditure in lawyer and accountancy fees since the day of the
business start. (Day, Nellie., 2010)”

WHAT IS A BUSINESS PLAN?

A business plan is a document that describes a new business, its products or services, how it will
earn money, leadership and staffing, financing, operations model, and other details that are
essential to both operation and success. Entrepreneurs create them as part of the start up process
while existing businesses often write them when changing direction or strategy. Most business
plans cover the company’s first three to five years.

While a business plan is required by anyone seeking funding, whether from financial institutions
or investors, it is recommended for all start-ups because it serves as the business roadmap. The
business-plan-writing-process can also help an entrepreneur uncover concept weaknesses, market
misperceptions, or other specifics that might cause a shift in how the business is positioned or
built.
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Business Plan Purpose

The goal of a business plan is to provide the company’s founder or leadership with as much
information as possible about what’s needed to reach its goals. It helps the owner determine,
among other things:

The amount of funding needed to start the business

The equipment or facilities needed for operation

Optimum location

Whether it needs employees and if so, what they will do

Existing competition

The company’s competitive advantage and how to leverage it

A well-researched and thorough business plan guides and informs nearly everything the new
organization does.

Business Plan Elements

The document’s formality depends on whether it will be shared with outsiders or used only
internally with founders and employees. When it will be seen by potential funders, investors,
collaborators, or partners, it needs to be professionally presented using the conventional format.
(Online searches will reveal sample templates to use.)

Regardless of the use, standard plan elements include:

Executive summary

Business description

Product or service description

Mission statement

Leadership

Market analysis

SWOT analysis (strengths, weaknesses, opportunities, strengths)

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Marketing plan

Financial projections

Cash flow analysis

Staffing

Operations

Business Plan Dos and Don’ts

Because so many new businesses fail, it makes sense to temper optimism and be conservative
with income and growth projections. Many owners test the product or concept before a full
launch. In addition, because organizations grow and markets change, business owners should re-
visit their business plan regularly and make any necessary adjustments, taking note of lessons
learned. While a business plan is a guide, it is a fluid one that can change as experiences give the
company’s leadership new knowledge and direction.

Aims and Objectives of a Business

When someone first sets up in business, he/she may have some unstated aims or objectives - for
example to survive for the first year. Other businesses may wish to state exactly what they are
aiming to do, such as Amazon, the Internet CD and bookseller, who wants to "make history and
have fun".

An aim is where the business wants to go in the future, its goals. It is a statement of purpose, e.g.
we want to grow the business into Europe.

Business objectives are the stated, measurable targets of how to achieve business aims. For
instance, we want to achieve sales of $10 million in European markets in 2004.

A mission statement sets out the business vision and values that enables employees, managers,
customers and even suppliers to understand the underlying basis for the actions of the business.

Business Objectives

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Objectives give the business a clearly defined target . Plans can then be made to achieve these
targets. This can motivate the employees. It also enables the business to measure the progress
towards to its stated aims.

The most effective business objectives meet the following criteria:

S – Specific – objectives are aimed at what the business does, e.g. a hotel might have an
objective of filling 60% of its beds a night during October, an objective specific to that business.

M - Measurable – the business can put a value to the objective, e.g. €10,000 in sales in the next
half year of trading.

A - Agreed by all those concerned in trying to achieve the objective.

R - Realistic – the objective should be challenging, but it should also be able to be achieved by
the resources available.

T- Time specific – they have a time limit of when the objective should be achieved, e.g. by the
end of the year.

The main objectives that a business might have are:

Survival – a short term objective, probably for small business just starting out, or when a new
firm enters the market or at a time of crisis.

Profit maximisation – try to make the most profit possible – most like to be the aim of the
owners and shareholders.

Profit satisficing – try to make enough profit to keep the owners comfortable – probably the aim
of smaller businesses whose owners do not want to work longer hours.

Sales growth – where the business tries to make as many sales as possible. This may be because
the managers believe that the survival of the business depends on being large. Large businesses
can also benefit from economies of scale.

A business may find that some of their objectives conflict with one and other:
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Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting
prices) will reduce short-term profit.

Short-term versus long-term: for example, a business may decide to accept lower cash flows in
the short-term whilst it invests heavily in new products or plant and equipment.

Large investors in the Stock Exchange are often accused of looking too much at short-term
objectives and company performance rather than investing in a business for the long-term.

Alternative Aims and Objectives

Not all businesses seek profit or growth. Some organisations have alternative objectives.

Examples of other objectives:

Ethical and socially responsible objectives – organisations like the Co-op or the Body Shop have
objectives which are based on their beliefs on how one should treat the environment and people
who are less fortunate.

Public sector corporations are run to not only generate a profit but provide a service to the public.
This service will need to meet the needs of the less well off in society or help improve the ability
of the economy to function: e.g. cheap and accessible transport service.

Public sector organisations that monitor or control private sector activities have objectives that
are to ensure that the business they are monitoring comply with the laws laid down.

Health care and education establishments – their objectives are to provide a service – most
private schools for instance have charitable status. Their aim is the enhancement of their pupils
through education.

Charities and voluntary organisations – their aims and objectives are led by the beliefs they stand
for.

Changing Objectives

A business may change its objectives over time due to the following reasons:

A business may achieve an objective and will need to move onto another one (e.g. survival in the
first year may lead to an objective of increasing profit in the second year).

The competitive environment might change, with the launch of new products from competitors.

Technology might change product designs, so sales and production targets might need to change.

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Business Objectives

A business has a variety of potential objectives from profit maximisation to cultivating good
relationships with various business stakeholders. Economic theory often assumes that firms are
rational profit maximisers. However, in the real world, there are many other objectives that a
firm can pursue.

Profit Maximisation .

The most basic model of a firm assumes firms wish to maximise their profit. They will do this
by increasing revenue (price * quantity sold) and reducing costs. Higher profits enable a firm to
pay higher wages, more dividends to shareholders and survive an economic downturn. Many
other objectives such as corporate image an increasing market share can be a way to maximise
long-term profit.

Growth Maximisation .

An alternative to profit maximisation is for a firm to try and increase market share and increase
the size of the firm. They can do this by cutting price and increasing sales. Growth maximisation
may come at the expense of lower profits. For example, starting a price war can lead to lower
profits but enable higher sales. However, increasing market share can be a way to increase
profits in the long-term. A firm like Walmart and Amazon have often pursued this goal of
maximising market share. It gives a strong position to dominate the market in the future.

Social / Ethical concerns .

A firm may not be motivated by money but may seek to offer a service to the local community.
They may voluntarily take decisions which help the environment / local community. Many big
firms now place a key role in promoting their ethical policies; arguably there may also be some
marketing benefits to promoting ethical and social concerns. It could have a tie-up with profit
maximisation.

Corporate Image.

Related to social/ethical concerns is the image/brand of a firm. It may wish to cultivate a certain
image and brand. Google – ‘do no evil. BP – “Beyond Petroleum”. Body Shop ‘leader in human
and animal rights.’ This corporate image may be part of a business strategy to maximise profits,
but it could also be a genuine desire to promote altruistic goals.

Stakeholders Well Being.

A firm may also be concerned about the welfare of its stakeholders – suppliers, workers and
customers. For example, giving training and long-term job security to its workers. Co-operative

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businesses are founded on the goal of sharing proceeds of business with whole community –
customers and workers.

Survival.

For many businesses, it seems a matter of surviving – breaking even. In desperate times, firms
may be forced to sell off assets to keep their creditors at bay. For many small local businesses
struggling in a highly competitive market, survival may be the best they can hope for. In a way
survival strategies is a form of profit maximization as survival will still involve trying to increase
revenue and reduce costs.

Why Businesses Need Finance

Finance is the money available to spend on business needs.

Right from the moment someone thinks of a business idea, there needs to be cash. As the
business grows there are inevitably greater calls for more money to finance expansion. The day
to day running of the business also needs money.

The main reasons a business needs finance are to:

Start a business

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Depending on the type of business, it will need to finance the purchase of assets, materials and
employing people. There will also need to be money to cover the running costs. It may be some
time before the business generates enough cash from sales to pay for these costs. Link to cash
flow forecasting.

Finance expansions to production capacity

As a business grows, it needs higher capacity and new technology to cut unit costs and keep up
with competitors. New technology can be relatively expensive to the business and is seen as a
long term investment, because the costs will outweigh the money saved or generated for a
considerable period of time. And remember new technology is not just dealing with computer
systems, but also new machinery and tools to perform processes quicker, more efficiently and
with greater quality.

To develop and market new products

In fast moving markets, where competitors are constantly updating their products, a business
needs to spend money on developing and marketing new products e.g. to do marketing research
and test new products in "pilot" markets. These costs are not normally covered by sales of the
products for some time (if at all), so money needs to be raised to pay for the research.

To enter new markets

When a business seeks to expand it may look to sell their products into new markets. These can
be new geographical areas to sell to (e.g. export markets) or new types of customers. This costs
money in terms of research and marketing e.g. advertising campaigns and setting up retail
outlets.

Take-over or acquisition

When a business buys another business, it will need to find money to pay for the acquisition
(acquisitions involve significant investment). This money will be used to pay owners of the
business which is being bought.

Moving to new premises

Finance is needed to pay for simple expenses such as the cost of renting of removal vans,
through to relocation packages for employees and the installation of machinery.

To pay for the day to day running of business

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A business has many calls on its cash on a day to day basis, from paying a supplier for raw
materials, paying the wages through to buying a new printer cartridge.

Choosing the Right Source of Finance

A business needs to assess the different types of finance based on the following criteria:

Amount of money required – a large amount of money is not available through some sources and
the other sources of finance may not offer enough flexibility for a smaller amount.

How quickly the money is needed – the longer a business can spend trying to raise the money,
normally the cheaper it is. However it may need the money very quickly (say if had to pay a big
wage bill which if not paid would mean the factory would close down). The business would then
have to accept a higher cost.

The cheapest option available – the cost of finance is normally measured in terms of the extra
money that needs to be paid to secure the initial amount – the typical cost is the interest that has
to be paid on the borrowed amount. The cheapest form of money to a business comes from its
trading profits.

The amount of risk involved in the reason for the cash – a project which has less chance of
leading to a profit is deemed more risky than one that does. Potential sources of finance
(especially external sources) take this into account and may not lend money to higher risk
business projects, unless there is some sort of guarantee that their money will be returned.

The length of time of the requirement for finance - a good entrepreneur will judge whether the
finance needed is for a long-term project or short term and therefore decide what type of finance
they wish to use.

Sources of Finance

Sources of finance for business are equity, debt, debentures, retained earnings, term loans,
working capital loans, letter of credit, euro issue, venture funding etc. These sources of funds are

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used in different situations. They are classified based on time period, ownership and control, and
their source of generation. It is ideal to evaluate each source of capital before opting for it.

Sources of capital are the most explorable area especially for the entrepreneurs who are about to
start a new business. It is perhaps the toughest part of all the efforts. There are various capital
sources, we can classify on the basis of different parameters.

Having known that there are many alternatives to finance or capital, a company can choose from.
Choosing the right source and the right mix of finance is a key challenge for every finance
manager. The process of selecting the right source of finance involves in-depth analysis of each
and every source of fund. For analyzing and comparing the sources, it needs the understanding of
all the characteristics of the financing sources. There are many characteristics on the basis of
which sources of finance are classified.

On the basis of a time period, sources are classified as long-term, medium term, and short term.
Ownership and control classify sources of finance into owned capital and borrowed capital.
Internal sources and external sources are the two sources of generation of capital. All the sources
of capital have different characteristics to suit different types of requirements. Let’s understand
them in a little depth.

Long-Term Sources of Finance

Long-term financing means capital requirements for a period of more than 5 years to 10, 15, 20
years or maybe more depending on other factors. Capital expenditures in fixed assets like plant
and machinery, land and building etc of a business are funded using long-term sources of
finance. Part of working capital which permanently stays with the business is also financed with
long-term sources of funds. Long-term financing sources can be in form of any of them:

Share Capital or Equity Shares

Preference Capital or Preference Shares

Retained Earnings or Internal Accruals

Debenture / Bonds

Term Loans from Financial Institutes, Government, and Commercial Banks

Venture Funding

Asset Securitization

Medium Term Sources of Finance

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Medium term financing means financing for a period of 3 to 5 years and is used generally for
two reasons. One, when long-term capital is not available for the time being and second when
deferred revenue expenditures like advertisements are made which are to be written off over a
period of 3 to 5 years. Medium term financing sources can in the form of one of them:

Preference Capital or Preference Shares

Debenture / Bonds

Medium Term Loans from

Financial Institutes

Government, and

Commercial Banks

Lease Finance

Hire Purchase Finance

Short Term Sources of Finance

Short term financing means financing for a period of less than 1 year. The need for short-term
finance arises to finance the current assets of a business like an inventory of raw material and
finished goods, debtors, minimum cash and bank balance etc. Short-term financing is also named
as working capital financing. Short term finances are available in the form of:

Trade Credit

Short Term Loans like Working Capital Loans from Commercial Banks

Fixed Deposits for a period of 1 year or less

Advances received from customers

Creditors

Payables

Factoring Services

Bill Discounting etc.

Internal vs External Financing Differences

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Here are the key differences between internal financing and external financing –

Internal sources of finance are sources inside the business. External sources of finance, on the
other hand, are sources outside the business.

Companies look for funding internally when the fund requirement is quite low. In the case,
external sources of financing the fund requirement are usually quite huge.

When a company sources the funding internally, the cost of capital is pretty low. In the case of
external sources of financing, the cost of capital is medium to high.

Internal sources of funding don’t require any collateral. But external sources of funding require
collateral (or transfer of ownership).

Popular examples of internal sources of financing are profits, retained earnings etc. Popular
examples of external financing are equity financing, debt financing, term loan financing etc.

Bank Loan

Advantages

Banks don't take an ownership position in the business.

There are no more obligations to the lender once a loan has been paid off

Option of fixed rate loans, where the interest rate doesn't change for the life of the loan.

Disadvantage

Difficult to obtain without a substantial track record

Possibility of seizure of personal assets in some cases

High-interest rates, sometimes can't get enough funding to meet business needs

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Cash at Bank

Advantages

highly liquid

cash can be accessed at any time

Disadvantages

Inflation can grow at a faster rate than these low yield investments

Business loses spending power

Debentures

Advantages

Different to shareholders are there are no voting rights

Disadvantages

High cost of raising capital, high stamp duty.

Must pay interest irrespective of the non-availability of profits

Change in earnings can prove fatal for the company

Debt Factoring

Advantages

Debt factoring companies are usually competitive on price.

Frees up time to manage business.

Assists in ensuring smoother cashflow and financial planning

Debt factoring companies will always pay you back.

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Disadvantages

Reduction in profit margins on each order or service fulfilment

Some customers may prefer to deal directly with the business.

The factor deals with the customers and not choosing a reputable can damage business
reputation.

Government Assistance

Advantages

Can provide huge amounts of investments

Gives an organisation exposure and credibility and public exposure.

Disadvantages

Very competitive and hard to get

Must be spent according to complex regulations and laws

Often based on a reimbursements system

Hire Purchase

Advantages

Item belongs to the business once all payments are made.

Higher acceptance rates than other forms of unsecured borrowing.

Disadvantages

item can be repossessed if payments are missed

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usually costs more than buying the item upfront

Issue Share Capital

Advantages

helpful in raising long term capital for the company

enable the business to expand, or invest in assets that will enable it to grow in the future.

The company does not need to repay this share capital, but instead agrees to distribute future
profits to stockholders in return for their investment.

Disadvantage

Owners no longer have full control of the business

Business becomes

accountable to stockholders

Stockholders can block plans if they believe they pose too great a risk to their investment.

Leasing

Advantages

lease startup costs are lower than buying equipment/premises upfront

you can claim lease payments as business expenses

relocating from a leased property can be easier than depending on the sale of an owned premise

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Factors to consider when choosing a source of capital

1 The amount required

Some sources of finance are ill suited for raising large amounts of money for example bank
overdrafts have a limit as to how much can be withdrawn

In this instance it would be best to use sources such as dentures, share capital or long term leases

Some sources of finance are also ill suited for raising small amounts of money for example it
would be imprudent to issue new shares to finance the day to day operations of the business such
as paying wages

It would be best in such instances to use sources such as a bank overdraft

2 Type of expenditure/Purpose for which the capital is required

Long term sources of finance are better suited to finance capital expenditure projects for example
building a new factory plant

Short term sources of finance are more suited to finance revenue expenditure projects such as
paying suppliers

3 The length of time for which the money is required

Where the money will be tied up in the project for a long period of time it would be prudent to
use long term sources of finance such as debentures, shares and long term loans for example
when raising money to build new factory plant

If the money is required only for a relatively short period of time it would be best to use short
term sources of finance such as overdrafts

4 The size, status and ability of the business to borrow

If the business is large and has collateral security which it can use to borrow then it can consider
borrowing from financial insitutions

If the business is smaller and lacks the collateral security to borrow, borrowing might not be an
option for them

5 The business’s current level of gearing

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Gearing refers to what proportion of a business’s assets are paid for by debt finance

A highly geared business should consider using equity finance instead so as to reduce their level
of risk

A lowly geared business would do well to consider debt finance

6 The cost of the source of finance

The available sources of finance must be ranked according to their capital cost

It is best to go with the choice of finance that the business can afford

Definition of 'Product'

Definition: A product is the item offered for sale. A product can be a service or an item. It can be
physical or in virtual or cyber form. Every product is made at a cost and each is sold at a price.
The price that can be charged depends on the market, the quality, the marketing and the segment
that is targeted. Each product has a useful life after which it needs replacement, and a life cycle
after which it has to be re-invented. In FMCG parlance, a brand can be revamped, re-launched or
extended to make it more relevant to the segment and times, often keeping the product almost the
same.

Description: A product needs to be relevant: the users must have an immediate use for it. A
product needs to be functionally able to do what it is supposed to, and do it with a good quality.

A product needs to be communicated: Users and potential users must know why they need to use
it, what benefits they can derive from it, and what it does difference it does to their lives.
Advertising and 'brand building' best do this.

A product needs a name: a name that people remember and relate to. A product with a name
becomes a brand. It helps it stand out from the clutter of products and names.

A product should be adaptable: with trends, time and change in segments, the product should
lend itself to adaptation to make it more relevant and maintain its revenue stream.

Definition of 'Markets'

Definition : A market is defined as the sum total of all the buyers and sellers in the area or region
under consideration. The area may be the earth, or countries, regions, states, or cities.

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The value, cost and price of items traded are as per forces of supply and demand in a market. The
market may be a physical entity, or may be virtual. It may be local or global, perfect and
imperfect.

Description: What are the different types of markets?

A market can be called the 'available market' - that of all the people in the area. Within the
available market, there is the 'market minimum'- or the market size, which will buy goods
without any marketing effort. This is the lowest sale that a company could get without any action
on its part. In today's world, this level is sinking ever lower.

What is Supply and Demand?

Definition: Supply and demand are economic are the economic forces of the free market that
control what suppliers are willing to produce and what consumers are willing and able to
purchase.

What Does Supply and Demand Mean?

What is the definition of supply and demand? The term supply refers to how much of a certain
product, item, commodity, or service suppliers are willing to make available at a particular price.
Demand refers to how much of that product, item, commodity, or service consumers are willing
and able to purchase at a particular price.

In other words, supply pertains to how much the producers of a product or service are willing to
produce and can provide to the market with limited amount of resources available. Whereas,
demand is how much of that product or service the buyers desire to have from the market.

Law of Supply and Demand

Demand and supply play a key role in setting price of a particular product in the market
economy. Since demands of buyers are endless, not all that is demanded can be supplied due to
scarcity of resources. This is where the relationship of demand and supply plays a significant
role, allowing efficient allocation of resources and determining a market price for the product or
service, known as equilibrium price . This price reflects the price at which suppliers are willing
to supply and the buyers are willing to buy from the market.

The mechanism of determining market price through demand and supply can be better
understood by observing the market economic theories.

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Supply and Demand Curve Example

According to the law of demand , as the price of a product or service rises, the demand of buyers
will decrease for it due to limited amount of cash they have to make purchases.

Example 1: A shopkeeper was offering a box of chocolate at price of $20, for which he was able
to sell on average 50 boxes every week. He decided to offer 50% discount, decreasing the price
to $10. This resulted in increase of his sales to 100 boxes each week.

According to the law of supply , as the price of a product increases, the suppliers will be more
willing to supply that product as they can enjoy higher profits by selling that product or service.

Example 2: A factory worker is paid $10 for providing his services to the factory for 50 hours
per day. However, due to extra workload, more services were required per day for which the
worker would only provide 100 hours if he were paid more i.e. $20.

From this we can conclude that demand has an inverse relationship with price; whereas, supply
has a direct relationship with price. Therefore, when both demand and supply are put together,
we can determine the equilibrium price, which is the market price of a product or service. This is
the point at which the quantity supplied and quantity demanded is exactly equal and the
resources are efficiently allocated.

Supply and Demand Graph

Example 3: Jack initiated a hot dog selling business and decided to sell 150 hot dogs per week,
pricing each at $30. Other hot dog sellers in the market had been selling hot dogs for $20, which
diverted the potential customers away. Jack was left with excess supply of hot dogs with no
buyers willing to purchase at price $30.

Example 4: Jennifer offered to pay $10 to the shopkeeper for a CD she wanted to buy. The
shopkeeper denied arguing that the costs he incurs to produce one CD are $12 and he will be left
with nothing but a loss of $2. So the shopkeeper was only ready to accept minimum of $20 for
each CD, which is the market rate.

Summary Definition

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Define Supply and Demand: Supply & Demand means the amount of goods or services
companies are willing to produce and the amount of goods or services that consumers are willing
to purchase.

So why is Marketing crucial for business success?

1. It informs the audience of the products and services that is being offered by a business. It
provides the value of the core product, the usage and additional details that customers usually
want to know. This helps with brand awareness as it relates to informative advertising.

2. It helps you understand your customer: During the first stages of the product life cycle,
everyone has to do market research where market segmentation is done based on
psychographics, behaviour, geographic or demographics. Once the segments have been
identified, the target market is then assessed and the product is positioned accordingly.

3. It boost Sales by utilising different ways to promote the product or service that is being
offered. This can be done through various mediums which include, word of mouth, social media,
direct marketing, press, radio, TV, point of sales, promotions, company website and other
channels that assist with attracting and persuading persons to purchase the product or service
offered. Through the use of a combination of these mediums, there can be increased sales which
positively impacts profitability.

4. It Engages: Engaging your customers with relevant information about the company and what’s
new is crucial. It makes them feel like they’re in-the-know . Marketing helps with this aspect,
especially on social media, through contests and sweepstakes or even in-store advertising or
experiential marketing.

5. It gives you healthy competition based on pricing of products and services amongst
competitors; providing they are not a monopoly in which case they can set any price. With
competition other companies are given an opportunity to exist on the market where they will try
to win consumers through competitive pricing.

6. It builds your brand: Brand reputation is what makes or breaks a brand. In order for your
product or services to exist you should aim to have a good reputation on the market through use
of effective marketing mediums. When your brand is affiliated with a certain standard you will
see increase sales and business expansion.

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