SESSION FOUR

ROLES OF ENTREPRENEURS IN BUSINESS

OBJECTIVE: The trainee should be able to explain the role of entrepreneurs within the
different forms of business ownership.

RATIONALE: - A critical factor for the business successes is when entrepreneurs are
able to interpret their roles clearly, depending on the form of their businesses. By
understanding the various forms of business, trainees will be able to decide what types
of business they would like to start.

KEY POINTS

1. Forms of Business Ownership: - sole proprietorship, partnership and Registered

Company. The Advantages and Disadvantages of the above forms of business are
identified in Handout 1.4.3.

2. Initiating Ideas: Entrepreneurs come up with new ideas. This is an important area for
an entrepreneur as it determines his rate of expansion in business, e.g., new designs and
uses of products.

3. Taking Risks: Entrepreneurs take risks in businesses, e.g., starting businesses which
have the chance of success or failure. Resignining from secure jobs to start businesses is
also risk-taking.

4. Planning: Importance of planning and limitations of planning in the context of the

above forms.

5. Controlling: Entrepreneurs are leaders rather than followers; they make final
decisions and control all aspects of business operations.

6. Coordinating: The entrepreneur must coordinate all factors of productions needed in

the business, e.g. finance, lab our, and land.
SUMMARY

The entrepreneur, by planning more effectively, arranging finance when needed,

controlling and coordinating the business operations, and initiation new ideas, is able to
contribute greatly to the success of the business. The type of business ownership will
also determine the entrepreneur’s role.

HANDOUT 1.4.1

ADVANTAGES AND DISADVANTAGES OF THE VARIOUS FORMS OF

BUSINESS OWNERSHIP

SOLE PROPRIETORSHIP PARTNERSHIP REGISTERED

COMPPANY

ADVANTAGES ADVANTAGES ADVANTAGES

1. Low start-up costs 1.Low start-up costs 1.Limited liability

2. Owner in direct control 2. Broader skills experiences 2.Possible specialized

management

3. All Profits go to the owner. 3. Esaier to obtain additional 3. Continuous

Capital than sole proprietorship existence

4. Possible tax advantage 4. Possible tax advantage. 4. Easier to raise

additional capital.
DISADVANTAGES DISADVANTAGES DISADVANTAGES

1. Unlimited liability 1. Unlimited liability 1. Closely regulated

2. Lack of continuity 2. Lack of continuity 2. Extensive record

keeping

3. Difficultly to raise capital 3. Profits divided 3. Usually more

expensive to Start.

4. Limited management 4. Hard to find suitable partners 4.Double taxation

5. Owners suffer all losses 5.Divided authority and control.

 HANDOUT 1.4.2

REASONS FOR BUSINESS FAILURE

Many businesses failures are due to the following reasons-

1. Neglect: - Neglect may result from bad habits, poor health, marital difficulties,
complacency or laziness.

2. Fraud:-This may be a problem in which workers are involved or owners at least

fail to guard against.

3. Disaster: - This may involve destruction of the businesses because of a

catastrophe such as a fire or a burglary. Entrepreneurs sometimes fail to insure
against disaster by not having insurance or protection of some kind.

4. Lack of experience: - The more one knows about the particular businesses, the
better are the chances for success. Although some small businesses owners fail
because of their lack of technical knowledge in their particular businesses that
are usually only part of the problem.

5. Incompetence: - Some people do not have the personnel skills or technical

knowledge necessary to run a business. These people could employ other people
as managers.

6. Lack of customers. Part of an entrepreneur’s job is to find and keep customers.

Customers avoid certain businesses for a variety of reasons: Poor service,
indifferent attitude of employees, failure of business to settle arguments, lower
prices offered elsewhere.
7. Selling on Credit: - Many small businesses run into problems because they lack a
clear-cut credit policy and method of collection. It is better to use a reasonable
system of prompt collections than to extend unwarranted credit.

8. Unreasonable Expenses: - Excessive expenses can be hazardous to a small

business. Expenses must be kept to an absolute minimum. To insure success.

9. Excessive Fixed Assists: - Having too much money tied up in building, land, and
equipment can keep a small business from succeeding.

10. Stock trouble:-Overstocking or buying slow-moving goods can be very costly for
a small business owner.

11. Location: - The location of the business should be where a substantial portion of
its customers can easily reach it.

12. Personal Characteristics: - Personal characteristics can be a major factor for

success or failure.

Self-employed persons must have a mature, balanced personality and an

aggressive diplomatic character. These traits are necessary because self-
employed persons must relate to many different people:-customers, employees,
financial backers, and creditors. Resource agencies or suppliers, and regulatory
personnel

13. Providing standard Products/Services: - Small businesses usually have

marketing problems if their products/services are not standardized.

14. Specialization: - Most small business entrepreneurs get into problems because of
attempting to do so many unrelated business activities at the same time.
ASSIGNMENT TWO

A CONTRACTING PARTNERSHIP

Stephen Muasya has just completed a two-year course in construction technology. His
education has prepared him to work as a contractor or possibly as a building materials
retail salesperson. The only construction-related business already established in his
area, however, is a family-owned timber yard offering no opportunities for full-time
employment in the near future. While in training, Stephen met another trainee, Alex
Wanyama who had some previous experience as a contractor. After several discussions
about a small business, Alex and Stephen discovered they had many of the same ideas
and shared a desire to be self-employed.

Alex’s experience was primarily in new construction, whereas Stephen had done most
of his work in repairs. Alex, who comes from a wealthy family, had a substantial
amount of capital to invest in the business; Stephen had acquired some necessary
construction tools. Both had some common personal goals such as: (I) to be
independent, (2) to have control over their life and future, (3) willingness to work hard,
and (4) a stronger desire for the challenge of self-employment than for the security of
paid employment.

In planning the business, Alex and Stephen determined they would need help and
planned to hire two or three full-time workers as well as some part-time clerical help.
They decided to have a workshop near Alex’s home where there was adjoining land
available to construct a shed for equipment and room for expansion. Alex was willing
to supply 75% of the capital necessary for starting the business; Stephen supplied much
of the tools and equipment and 25% of the capital.

Community reaction was positive. News of the partnership spread quickly through the
rural town. The owner of the Timber Yard welcomed a new customer, the local
newspaper contacted the men about advertising, the furniture store offered a discount
for office furniture, and one of the lawyers in town contacted the men about taking care
of their legal matters.

Alex and Stephen were surprised at the interest shown in their business venture and
hoped it was an indication that people wanted a construction business in their town
and were ready to take advantage of their building services rather than traveling to
another town to hire contractors for their building and repair needs.

1. List THREE contributions this small business can make to the economic welfare of the
Community? (3MKS)

2What THREE characteristics of this business will identify it as small? (3MKS)

3. Identify four reasons why people have for choosing self-employment as a career
option? (4 mks)

4. What did Alex and Stephen consider to be three factors that could create problems for
the business? (3 mks)